42537 Finland Doing Business 2008 Finland A Project Benchmarking the Regulatory Cost of Doing Business in 178 Economies Doing Business Project World Bank Group © 2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved. 1 2 3 4 5 09 08 07 06 A copublication of the World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. 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Contents Introduction......................1 Economy rankings.............2 Reforms...........................3 Summary of indicators........6 Starting a business.............8 Dealing with licenses.........13 Employing workers............18 Registering property...........22 Getting credit....................27 Protecting investors............31 Paying taxes.....................35 Trading across borders.......39 Enforcing contracts............43 Closing a business.............47 Topic details......................51 Introduction Doing Business 2008 is the fifth in a series of annual reports investigating the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 178 economies-from Afghanistan to Zimbabwe-and over time. Regulations affecting 10 stages of a business's life are measured: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Data in Doing Business 2008 are current as of June 1, 2007. The indicators are used to analyze economic outcomes and identify what reforms have worked, where, and why. The Doing Business methodology has limitations. Other areas important to business -- such as a country's proximity to large markets, the quality of its infrastructure services (other than those related to trading across borders), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions, and the underlying strength of institutions -- are not studied directly by Doing Business. To make the data comparable across countries, the indicators refer to a specific type of business -- generally a limited liability company operating in the largest business city. Because standard assumptions are used in the data collection, comparisons and benchmarks are valid across economies. The data not only highlight the extent of obstacles to doing business; they also help identify the source of those obstacles, supporting policymakers in designing reform. The data set covers 178 economies: 46 in Sub-Saharan Africa, 31 in Latin America and the Caribbean, 28 in Eastern Europe and Central Asia, 24 in East Asia and Pacific, 17 in the Middle East and North Africa and 8 in South Asia-as well as 24 OECD high-income economies as benchmarks. Some of the regions have been divided into subregions to generate a total of 13 regional profiles. The following pages present the summary Doing Business indicators for Finland along with the comparator economies selected. The data used for this country profile come from the Doing Business database and are summarized in graphs and tables. This report allows a comparison of the economies not only with one another but also with the "best practice" economy for each indicator. The best-practice economies are identified by their position in each indicator as well as their overall ranking and by their capacity to provide good examples of business regulation to other economies. These best-practice economies do not necessarily rank number 1 in the topic or indicator, but they are in the top 5. More information is available in the full report. Doing Business 2008 presents the indicators, analyzes their relationship with economic outcomes and recommends reforms. The data, along with information on ordering the report, are available on the Doing Business website . http://www.doingbusiness.org 1 Economy Rankings - Ease of Doing Business Finland is ranked 13 out of 178 economies. Singapore is the top ranked economy in the Ease of Doing Business. Finland - Compared to Global Best / Selected Economies: Finland's ranking in Doing Business 2008 Rank Doing Business 2008 Ease of Doing Business 13 Starting a Business 16 Dealing with Licenses 39 Employing Workers 127 Registering Property 17 Getting Credit 26 Protecting Investors 51 Paying Taxes 83 Trading Across Borders 5 Enforcing Contracts 7 Closing a Business 5 2 Reforms - Who is reforming? This year Egypt tops the list of reformers that are making it easier to do business. Egypt's reforms went deep with reforms in 5 of the 10 areas studied by Doing Business, and it greatly improved its position in the global rankings as a result. Besides Egypt, the other top 10 reformers are, in order, Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria. 1. Egypt, the top reformer in the region and worldwide, greatly improved its position in the global rankings on the ease of doing business. Its reforms went deep. Egypt cut the minimum capital required to start a business, from 50,000 Egyptian pounds to just 1,000 and halved the time and cost of start-up. It reduced fees for registering property from 3 percent of the property value to a low, fixed amount. It eased the bureaucracy that builders face in getting construction permits. It launched new one-stop shops for traders at Egyptian ports, cutting the time to import by seven days and the time to export by five. And it established a new private credit bureau that will soon be making it easier for borrowers to get credit. 2. Croatia reformed in four of the 10 areas studied by Doing Business. Two years ago, registering property in Croatia took 956 days. Now it takes 174. Company start-up also became faster, with procedures consolidated at a "one-stop shop" and pension and health services registration now online. Credit became easier to access: a new credit bureau was launched, and a unified registry now records charges against movable property in one place. In its first two months, 1.4 billion in credit was registered. In addition, amendments to the country's insolvency law introduced professional requirements for bankruptcy trustees and shorter timelines. 3. Ghana, a top 10 reformer for the second year running, continues to increase the efficiency of its public services. It cut bottlenecks in property registration, reducing delays from six months to one. Greater efficiency at the company registry and the environment agency cut the time for business start-up to 42 days. Changes in the port authority's operations sped up imports. New civil procedure rules and mandatory arbitration and mediation reduced the time it takes to enforce contracts. 4. FYR Macedonia eliminated the minimum capital requirement for business start-up, sped up the process for getting construction permits, lowered the corporate income tax rate to 12 percent (with another cut to 10 percent planned for 2008), and simplified tax payment procedures. Its ranking on the ease of doing business rose from 96 to 75. 5. Georgia reformed in six areas. It strengthened investor protections, including through amendments to its securities law that eliminate loopholes that had allowed corporate insiders to expropriate minority investors. It adopted a new insolvency law that shortens timelines for reorganization of a distressed company or disposition of a debtor's assets. Georgia sped up approvals for construction permits and simplified procedures for registering property. It made starting a business easier by eliminating the paid-in capital requirement. In addition, the country's private credit bureau added payment information from retailers, utilities, and trade creditors to the data it collects and distributes. 6. Colombia, the region's top reformer, has made great strides in easing trade. By extending port operating hours and adopting more selective customs inspections, it reduced the time for port and terminal handling activities by three days. The country strengthened investor protections by increasing disclosure requirements for related-party transactions. It introduced an electronic tax filing system, cutting the average time businesses must spend on tax compliance each year by 188 hours, or 41 percent. And it is progressively reducing the corporate income tax rate, from 35 to 34 percent in 2007 and 33 percent in 2008. 7. Saudi Arabia, the runner-up reformer in the region, eliminated the minimum capital requirement of 1,057 percent of income per capita and reduced the days needed for company start-up from 39 to 15. It launched a commercial credit bureau whose reports include the credit exposure of companies. It also sped up trade, reducing the number of documents required for importing and cutting the time needed for handling at ports and terminals by two days for both imports and exports. 8. Kenya, the region's other top 10 reformer, launched an ambitious licensing reform program. So far the program has eliminated 110 business licenses and simplified eight others. The changes have streamlined business start-up and cut both the time and cost of getting building permits. The program will eventually eliminate or simplify at least 900 more of the country's 1,300 licenses. Property registration is also faster now, thanks to the introduction of competition among land valuers. And the country's private credit bureau now collects a wider range of data. 3 9. In China, a new property law put private property rights on equal footing with state property rights. The law also expanded the range of assets that can be used as collateral to include inventory and accounts receivable. The new bankruptcy law gives secured creditors priority to the proceeds from their collateral. Construction also became easier, with electronic processing of building permits reducing delays by two weeks. 10. Bulgaria eased the tax burden on businesses and made it easier to pay taxes online. Bulgaria also introduced private bailiffs to improve efficiency in enforcing judgments. And it made building inspections less burdensome. Number of reforms in Doing Business 2008 Positive Reform Borders Licenses Workers Property Investors Total Negative Reform Business Contracts Business a with Credit Taxes Across a number of reforms Economy Starting Dealing Employing Registering Getting Protecting Paying Rank Trading Enforcing Closing 1 Egypt 5 2 Croatia 4 3 Ghana 5 4 Macedonia, FYR 3 5 Colombia 3 6 Georgia 6 7 Saudi Arabia 3 8 Kenya 4 9 China 3 10 Bulgaria 3 Finland 1 Denmark 1 France 2 Germany 0 Iceland 1 Norway 1 Note: Economies are ranked on the number and impact of reforms, Doing Business selects the economies that reformed in 3 or more of the Doing Business topics. Second, it ranks these economies on the increase in rank in Ease of Doing Business from the previous year. The larger the imporvement, the higher the ranking as a reformer. 5 Summary of Indicators - Finland Starting a Business Procedures (number) 3 Duration (days) 14 Cost (% GNI per capita) 1.0 Paid in Min. Capital (% of GNI per capita) 7.7 Dealing with Licenses Procedures (number) 18 Duration (days) 38 Cost (% of income per capita) 122.3 Employing Workers Difficulty of Hiring Index 44 Rigidity of Hours Index 60 Difficulty of Firing Index 40 Rigidity of Employment Index 48 Nonwage labor cost (% of salary) 26 Firing costs (weeks of wages) 26 Registering Property Procedures (number) 3 Duration (days) 14 Cost (% of property value) 4.0 Getting Credit Legal Rights Index 6 Credit Information Index 5 Public registry coverage (% adults) 0.0 Private bureau coverage (% adults) 14.9 Protecting Investors Disclosure Index 6 Director Liability Index 4 Shareholder Suits Index 7 Investor Protection Index 5.7 Paying Taxes Payments (number) 20 Time (hours) 269 Profit tax (%) 17.0 Labor tax and contributions (%) 29.7 Other taxes (%) 1.0 Total tax rate (% profit) 47.8 6 Trading Across Borders Documents for export (number) 4 Time for export (days) 8 Cost to export (US$ per container) 420 Documents for import (number) 5 Time for import (days) 8 Cost to import (US$ per container) 420 Enforcing Contracts Procedures (number) 33 Duration (days) 235 Cost (% of claim) 10.4 Closing a Business Time (years) 0.9 Cost (% of estate) 4 Recovery rate (cents on the dollar) 88.2 Starting a Business in Finland: Entry Regulation When entrepreneurs draw up a business plan and try to get under way, the first hurdles they face are the procedures required to incorporate and register the new firm before they can legally operate. Economies differ greatly in how they regulate the entry of new businesses. In some the process is straightforward and affordable. In others the procedures are so burdensome that entrepreneurs may have to bribe officials to speed the process--or may decide to run their business informally. The data on starting a business are based on a survey and research investigating the procedures that a standard small to medium-size company needs to complete to start operations legally. These include obtaining all necessary permits and licenses and completing all required inscriptions, verifications and notifications with authorities to enable the company to formally operate. The time and cost required to complete each procedure under normal circumstances are calculated, as well as the minimum capital that must be paid in. It is assumed that all information is readily available to the entrepreneur, that there has been no prior contact with officials and that all government and nongovernment entities involved in the process function without corruption. To make the data comparable across economies, detailed assumptions about the type of business are used. Among these assumptions are the following: the business is a limited liability company conducting general commercial activities in the largest business city; it is 100% domestically owned, with start-up capital of 10 times income per capita, turnover of at least 100 times income per capita and between 10 and 50 employees; and it does not qualify for any special benefits, nor does it own real estate. Procedures are recorded only where interaction is required with an external party. It is assumed that the founders complete all procedures themselves unless professional services (such as by a notary or lawyer) are required by law. Voluntary procedures are not counted, nor are industry-specific requirements and utility hook-ups. Lawful shortcuts are counted. Cumbersome entry procedures are associated with more corruption, particularly in developing countries. Each procedure is a point of contact--an opportunity to extract a bribe. Analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices; and fuel corruption. 8 1. Historical data: Starting a Business in Finland Starting a Business data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 22 16 Procedures (number) 3 3 3 Duration (days) 14 14 14 Cost (% GNI per capita) 1.2 1.1 1.0 Paid in Min. Capital (% of GNI per capita) 28.0 27.1 7.7 2. The following graph illustrates the Starting a Business indicators in Finland over the past 3 years: 28 1. 27 14 14 14 7.7 3 3 3 2.1 1.1 1 mber) ) ta) GNI (days capi of s (nu tion per (% dure ) Dura GNI pital (% .Ca capita Proce Cost Min in per 2005 2006 2007 Paid 9 3. Steps to Starting a Business in Finland It requires 3 procedures, takes 14 days, and costs 1.02% GNI per capita to start a business in Finland. List of Procedures: 1. Deposit paid-in capital 2. File with the trade register 3. File for insurances More details are available in the appendix. 10 4. Benchmarking Starting a Business Regulations: Finland is ranked 16 overall for Starting a Business. Australia is the top ranked economy followed by Canada, New Zealand and United States. Ranking of Finland in Starting a Business - Compared to best practice and selected economies: 11 The following table shows Starting a Business data for Finland compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% GNI Paid in Min. (number) (days) per capita) Capital (% of GNI per Australia* 2 2 0.0 Denmark 0.0 Selected Economy Finland 3 14 1.0 7.7 Comparator Economies Denmark 4 6 0.0 40.7 France 5 7 1.1 0.0 Germany 9 18 5.7 42.8 Iceland 5 5 2.7 14.1 Norway 6 10 2.3 23.4 * The following economies are also best practice economies for : Procedures (number): Canada, New Zealand Paid in Min. Capital (% of GNI per capita): Canada, Ireland, Israel, Mauritius, New Zealand, Puerto Rico, Thailand, Trinidad and Tobago, United Kingdom, United States 12 Dealing with Licenses in Finland: Building a Warehouse Once entrepreneurs have registered a business, what regulations do they face in operating it? To measure such regulation, Doing Business focuses on the construction sector. Construction companies are under constant pressure--from government to comply with inspections and with licensing and safety regulations and from customers to be quick and cost-effective. These conflicting pressures point to the tradeoff in building regulation--the tradeoff between protecting people (construction workers, tenants, passersby) and keeping the cost of building affordable. In many countries, especially poor ones, complying with building regulations is so costly in time and money that many builders opt out. Builders may pay bribes to pass inspections or simply build illegally--leading to hazardous construction. In other countries compliance is simple, straightforward and inexpensive--yielding better results. The indicators on dealing with licenses record all procedures officially required for an entrepreneur in the construction industry to build a warehouse. These include submitting project documents (building plans, site maps) to the authorities, obtaining all necessary licenses and permits, completing all required notifications and receiving all necessary inspections. They also include procedures for obtaining utility connections, such as electricity, telephone, water and sewerage. The time and cost to complete each procedure under normal circumstances are calculated. All official fees associated with legally completing the procedures are included. Time is recorded in calendar days. The survey assumes that the entrepreneur is aware of all existing regulations and does not use an intermediary to complete the procedures unless required to do so by law. To make the data comparable across economies, several assumptions about the business and its operations are used. The business is a small to medium-size limited liability company, located in the most populous city, domestically owned and operated, in the construction business, with 20 qualified employees. The warehouse to be built: · Is a new construction (there was no previous construction on the land). · Has complete architectural and technical plans prepared by a licensed architect. · Will be connected to electricity, water, sewerage (sewage system, septic tank or their equivalent) and one land phone line. The connection to each utility network will be 32 feet, 10 inches (10 meters) long. · Will be used for general storage, such as of books or stationery. The warehouse will not be used for any goods requiring special conditions, such as food, chemicals or pharmaceuticals. · Will take 30 weeks to construct (excluding all delays due to administrative and regulatory requirements). Where the regulatory burden is large, entrepreneurs move their activity into the informal economy. There they operate with less concern for safety, leaving everyone worse off. 13 1. Historical data: Dealing with Licenses in Finland Dealing with Licenses data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 38 39 Procedures (number) 18 18 18 Duration (days) 38 38 38 Cost (% of income per capita) 138.9 134.0 122.3 2. The following graph illustrates the Dealing with Licenses indicators in Finland over the past 3 years: 9. 138 134 3. 122 38 38 38 18 18 18 mber) ) per (days s (nu tion income ) dure of Dura (% capita Proce Cost 2005 2006 2007 14 3. Steps to Building a Warehouse in Finland It requires 18 procedures, takes 38 days, and costs 122.33% GNI per capita to build a warehouse in Finland. List of Procedures: 1. Obtain extract from the trade register 2. Obtain building permit maps and extract from the real estate registry 3. Obtain report on the height of the intended construction 4. Obtain official opinion on the connection of the wastewater drain and water pipeline 5. Schedule start-up meeting 6. Obtain building permit 7. Receive foundation work inspection 8. Receive location inspection from the real estate office 9. Submit electric wiring designs to Helsinki Energy and receive inspection 10. Receive structure inspection 11. Receive ventilation inspection 12. Receive sewer and water pipeline inspection 15 13. Request and obtain electricity connection 14. Request and obtain water connection 15. Request and obtain phone connection 16. Receive fire inspection from the Public Rescue Service 17. Receive final inspection 18. Obtain occupancy permit More details are available in the appendix. 4. Benchmarking Dealing with Licenses Regulations: Finland is ranked 39 overall for Dealing with Licenses. St. Vincent and the Grenadines is the top ranked economy followed by New Zealand, Belize and Marshall Islands. Ranking of Finland in Dealing with Licenses - Compared to best practice and selected economies: * The following economies are also best practice economies for Building a Warehouse: St. Vincent and the Grenadines 16 The following table shows Dealing with Licenses data for Finland compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) income per capita) Denmark 6 Korea 34 United Arab Emirates 1.5 Selected Economy Finland 18 38 122.3 Comparator Economies Denmark 6 69 61.8 France 13 137 24.9 Germany 12 100 63.1 Iceland 18 76 13.9 Norway 14 252 46.2 17 Employing Workers in Finland: Labor Regulations Every economy has established a complex system of laws and institutions intended to protect workers and guarantee a minimum standard of living for its population. This system encompasses four bodies of law: employment, industrial relations, social security and occupational health and safety laws. Doing Business examines government regulation in the area of employment and social security laws. Three measures are presented: a rigidity of employment index, a nonwage labor cost measure and a firing cost measure. The rigidity of employment index is the average of three subindices: difficulty of hiring, rigidity of hours and difficulty of firing. Each index takes values between 0 and 100, with higher values indicating more rigid regulation. The difficulty of hiring index measures the flexibility of contracts and the ratio of the minimum wage to the value added per worker. The rigidity of hours index covers restrictions on weekend and night work, requirements relating to working time and the workweek, and mandated days of annual leave with pay. The difficulty of firing index covers workers' legal protections against dismissal, including the grounds permitted for dismissal and procedures for dismissal (individual and collective). The nonwage labor cost covers all social security payments and payroll taxes associated with hiring an employee, expressed as a percentage of the worker's salary. The firing cost indicator measures the cost of advance notice requirements, severance payments and penalties due when terminating a redundant worker, expressed in weeks of salary. The indicators on employment regulations are based on a detailed study of employment laws. Data are also gathered on the specific constitutional provisions governing the two areas studied. To ensure accuracy, both the actual laws and the applicable collective bargaining agreements are used. Finally, all data are verified and completed by local law firms through a detailed survey of employment regulations. To make the data comparable across economies, a range of assumptions about the worker and the company are used. Assumptions about the worker include that he is a nonexecutive, full-time male employee who has worked in the same company for 20 years and is not a member of the labor union (unless membership is mandatory). The company is assumed to be a limited liability manufacturing corporation that operates in the country's most populous city, is 100% domestically owned and has 201 employees. The company is also assumed to be subject to collective bargaining agreements in countries where such agreements cover more than half the manufacturing sector and apply even to firms not party to them. Most employment regulations are enacted in response to market failures. But that does not mean that today's regulations are optimal. Analysis across countries shows that while employment regulation generally increases the tenure and wages of incumbent workers, rigid regulations have many undesirable side effects. These include less job creation, smaller company size, less investment in research and development, and longer spells of unemployment and thus the obsolescence of skills--all of which may reduce productivity growth. Many countries err on the side of excessive rigidity, to the detriment of businesses and workers alike. 18 1. Historical data: Employing Workers in Finland Employing Workers data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 128 127 Rigidity of Employment Index 48 48 48 Nonwage labor cost (% of salary) 25 25 26 Firing costs (weeks of wages) 26 26 26 2. The following graph illustrates the Employing Workers indicators in Finland over the past 3 years: 48 48 48 25 25 26 26 26 26 of s of yment (% cost of Emplo costs(week) wages dity Index age labor salary) Firing Rigi 2005 Nonw 2006 2007 19 3. Benchmarking Employing Workers Regulations: Finland is ranked 127 overall for Employing Workers. Marshall Islands is the top ranked economy followed by Brunei, Georgia and Tonga. Ranking of Finland in Employing Workers - Compared to best practice and selected economies: * The following economies are also best practice economies for Employing Workers: Marshall Islands, Singapore 20 The following table shows Employing Workers data for Finland compared to best practice and comparator economies: Best Practice Economies Rigidity of Nonwage Firing costs Employment labor cost (% (weeks of Index of salary) wages) Bangladesh* 0 Denmark* 0 Hong Kong, China* 0 Selected Economy Finland 48 26 26 Comparator Economies Denmark 10 1 0 France 56 47 32 Germany 44 19 69 Iceland 28 12 13 Norway 47 14 13 * The following economies are also best practice economies for : Rigidity of Employment Index: Singapore, United States Nonwage labor cost (% of salary): Botswana, Ethiopia, Maldives Firing costs (weeks of wages): New Zealand, United States 21 Registering Property in Finland: Regulation of Property Transfer Property registries were first developed to help raise tax revenue. Defining and publicizing property rights through registries has also proved to be good for entrepreneurs. Land and buildings account for between half and three-quarters of the wealth in most economies. Securing rights to this property strengthens incentives to invest and facilitates commerce. And with formal property titles, entrepreneurs can obtain mortgages on their home or land and start businesses. Doing Business measures the ease of registering property based on a standard case of an entrepreneur who wants to purchase land and a building in the largest business city. It is assumed that the property is already registered and free of title dispute. The data cover the full sequence of procedures necessary to transfer the property title from the seller to the buyer. Every required procedure is included, whether it is the responsibility of the seller or the buyer or must be completed by a third party on their behalf. Local property lawyers and officials in property registries provide information on required procedures as well as the time and cost to complete each one. For most countries the data are based on responses from both. Based on the responses, three indicators are constructed: · Number of procedures to register property. · Time to register property (in calendar days). · Official costs to register property (as a percentage of the property value). A large share of the property in developing countries is not formally registered, limiting financing opportunities for businesses. Recognizing this constraint, some developing country governments have embarked on extensive property titling programs. Yet bringing assets into the formal sector is of little value unless they stay there. Many titling programs in Africa were futile because people bought and sold property informally--neglecting to update the title records in the property registry. Why? Doing Business shows that completing a simple formal property transfer in the largest business city of an African country costs 12% of the value of the property and takes more than 100 days on average. Worse, the property registries are so poorly organized that they provide little security of ownership. For both reasons, formalized titles quickly go informal again. Efficient property registration reduces transaction costs and helps keep formal titles from slipping into informal status. Simple procedures to register property are also associated with greater perceived security of property rights and less corruption. That benefits all entrepreneurs, especially women, the young and the poor. The rich have few problems protecting their property rights. They can afford to invest in security systems and other measures to defend their property. But small entrepreneurs cannot. Reform can change this. 22 1. Historical data: Registering Property in Finland Registering Property data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 16 17 Procedures (number) 3 3 3 Duration (days) 14 14 14 Cost (% of property value) 4.0 4.0 4.0 2. The following graph illustrates the Registering Property indicators in Finland over the past 3 years: 14 14 14 4 4 4 3 3 3 mber) ) (days s (nu property tion of ) dure (% Dura value Cost Proce 2005 2006 2007 23 3. Steps to Registering Property in Finland It requires 3 procedures, takes 14 days, and costs 4.01% GNI per capita to register the property in Finland. List of Procedures: 1. The seller and buyer notarize the deed of sale in the presence of a public notary 2. The buyer pays the transfer tax 3. The buyer applies for a land title at the District Court More details are available in the appendix. 24 4. Benchmarking Registering Property Regulations: Finland is ranked 17 overall for Registering Property. New Zealand is the top ranked economy followed by Armenia, Saudi Arabia and Lithuania. Ranking of Finland in Registering Property - Compared to best practice and selected economies: 25 The following table shows Registering Property data for Finland compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) property value) New Zealand* 2 Norway* 1 Saudi Arabia* 0.0 Selected Economy Finland 3 14 4.0 Comparator Economies Denmark 6 42 0.6 France 9 123 6.1 Germany 4 40 5.2 Iceland 3 4 2.4 Norway 1 3 2.5 * The following economies are also best practice economies for : Procedures (number): Sweden Duration (days): Sweden, Thailand Cost (% of property value): Bhutan 26 Getting Credit in Finland: Legal Rights and Credit Information Firms consistently rate access to credit as among the greatest barriers to their operation and growth. Doing Business constructs two sets of indicators of how well credit markets function--one on credit registries and the other on legal rights of borrowers and lenders. Credit registries--institutions that collect and distribute credit information on borrowers--can greatly expand access to credit. By sharing credit information, they help lenders assess risk and allocate credit more efficiently. And they free entrepreneurs from having to rely on personal connections alone when trying to obtain credit. Three indicators are constructed to measure the sharing of credit information: · Public registry coverage, which reports the number of individuals and firms covered by a public credit registry as a percentage of the adult population. · Private bureau coverage, which reports the number of individuals and firms covered by a private credit bureau as a percentage of the adult population. · Depth of credit information index, which measures the extent to which the rules of a credit information system facilitate lending based on the scope of information distributed, the ease of access to information and the quality of information. The data are from surveys of public registries and the largest private credit bureau in the country. Effective regulation of secured lending--through collateral and bankruptcy laws--can also ease credit constraints. By giving a lender the right to seize and sell a borrower's secured assets upon default, collateral limits the lender's potential losses and acts as a screening device for borrowers. The strength of legal rights index measures 10 aspects of the rights of borrowers and creditors in collateral and bankruptcy laws, including whether: · General rather than specific description of assets and debt is permitted in collateral agreements (expanding the scope of assets and debt covered). · Any legal or natural person may grant or take security in assets. · A unified registry operates that includes charges over movable property. · Secured creditors have priority both within bankruptcy and outside it. · Parties may agree on out-of-court enforcement of collateral by contract. · Creditors may both seize and sell collateral out of court, no automatic stay or "asset freeze" applies upon bankruptcy, and the bankrupt debtor does not retain control of the firm. The index ranges from 0 (weak legal rights) to 10 (strong legal rights). The data were obtained by examining collateral and bankruptcy laws and legal summaries and verified through a survey of financial lawyers. Where good-quality credit information is available and legal rights are stronger, more credit is extended. Benefits flow beyond those gaining access to credit. With better-functioning credit markets, unemployment is lower, and women and low-income people benefit the most. 27 1. Historical data: Getting Credit in Finland Getting Credit data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 21 26 Legal Rights Index 6 6 6 Public registry coverage (% adults) 0.0 0.0 0.0 Private bureau coverage (% adults) 14.7 14.9 14.9 2. The following graph illustrates the Getting Credit indicators in Finland over the past 3 years: 7. 9. 9. 14 14 14 6 6 6 0 0 0 Index ge(% ge (% Rights covera covera ts) au ts) Legal registryadul bure adul te lic Pub Priva 2005 2006 2007 28 3. Benchmarking Getting Credit Regulations: Finland is ranked 26 overall for Getting Credit. United Kingdom is the top ranked economy followed by Hong Kong, China, Germany and Australia. Ranking of Finland in Getting Credit - Compared to best practice and selected economies: 29 The following table shows Getting Credit data for Finland compared to best practice and comparator economies: Best Practice Economies Legal Rights Public Private Index registry bureau coverage (% coverage (% Argentina* 100.0 Hong Kong, China* 10 Portugal 67.1 Selected Economy Finland 6 0.0 14.9 Comparator Economies Denmark 8 0.0 11.5 France 6 24.8 0.0 Germany 8 0.7 98.1 Iceland 7 0.0 100.0 Norway 6 0.0 100.0 * The following economies are also best practice economies for : Legal Rights Index: United Kingdom Private bureau coverage (% adults): Australia, Canada, Iceland, Ireland, New Zealand, Nicaragua, Norway, Sweden, United States 30 Protecting Investors in Finland Officials at Elf Aquitaine, France's largest oil company, awarded business deals in return for large side payments. Along with the extra cash, they got seven years in jail and a 2 million fine for abuse of power. Russian oil firm Gazprom purchased materials for new pipelines through intermediaries owned by company officers. The high cost raised eyebrows, but not court battles. Big cases make headlines. But looting by corporate insiders occurs every day on a smaller scale, and often goes unnoticed. To document the protections investors have, Doing Business measures how countries regulate a standard case of self-dealing--use of corporate assets for personal gain. The case facts are simple. Mr. James, a director and the majority shareholder of a public company, proposes that the company purchase used trucks from another company he owns. The price is higher than the going price for used trucks. The transaction goes forward. All required approvals are obtained, and all required disclosures made, though the transaction is unfair to the purchasing company. Shareholders sue the interested parties and the members of the board of directors. Several questions arise. Who approves the transaction? What information must be disclosed? What company documents can investors access? What do minority shareholders have to prove to get the transaction stopped or to receive compensation from Mr. James? Three indices of investor protection are constructed based on the answers to these and other questions. All indices range from 0 to 10, with higher values indicating more protections or greater disclosure. The extent of disclosure index covers approval procedures, requirements for immediate disclosure to the public and shareholders of proposed transactions, requirements for disclosure in periodic filings and reports and the availability of external review of transactions before they take place. The extent of director liability index covers the ability of investors to hold Mr. James and the board of directors liable for damages, the ability to rescind the transaction, the availability of fines and jail time associated with self-dealing, the availability of direct or derivative suits and the ability to require Mr. James to pay back his personal profits from the transaction. The ease of shareholder suits index covers the availability of documents that can be used during trial, the ability of the investor to examine the defendant and other witnesses, shareholders' access to internal documents of the company, the appointment of an inspector to investigate the transaction and the standard of proof applicable to a civil suit against the directors. These three indices are averaged to create the strength of investor protection index. This index ranges from 0 to 10, with higher values indicating better investor protection. If the rights of investors are not protected, majority ownership in a business is the only way to eliminate expropriation. But then investors must devote more oversight attention to fewer investments. The result: entrepreneurship is suppressed, and fewer profitable investment projects are undertaken. Where self-dealing is curbed, equity investment is higher, ownership concentration lower and trust in the business sector deeper. Investors gain portfolio diversification, and entrepreneurs gain access to cash. 31 1. Historical data: Protecting Investors in Finland Protecting Investors data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 49 51 Investor Protection Index 5.7 5.7 5.7 2. The following graph illustrates the Protecting Investors index in Finland compared to best practice and selected Economies: 7.9 7.5 3.6 7.6 0.5 3.5 3.5 any Iceland France Finland nmark Germ De Norway Zealand w Ne Note: The higher the score, the greater the investor protection. 32 3. Benchmarking Protecting Investors Regulations: Finland is ranked 51 overall for Protecting Investors. New Zealand is the top ranked economy followed by Singapore, Hong Kong, China and Malaysia. Ranking of Finland in Protecting Investors - Compared to best practice and selected economies: 33 The following table shows Protecting Investors data for Finland compared to best practice and comparator economies: Best Practice Economies Investor Protection Index New Zealand 9.7 Selected Economy Finland 5.7 Comparator Economies Denmark 6.3 France 5.3 Germany 5.0 Iceland 5.3 Norway 6.7 34 Paying Taxes: Tax Payable and Compliance in Finland Taxes are essential. Without them there would be no money to fund schools, hospitals, courts, roads, water, waste collection and other public services that help businesses to be more productive. Still, there are good ways and bad ways to collect taxes. The Doing Business tax survey records the effective tax that a company must pay and the administrative costs of doing so. Imagine a medium-size business, TaxpayerCo, that started operations last year. Doing Business asked accountants in 178 economies to review TaxpayerCo's financial statements and a standard list of transactions the company completed during the year. Respondents were asked how much tax the business must pay and what the process is for doing so. The business starts from the same financial position in each country. All the taxes and contributions paid during the second year of operation are recorded. Taxes and contributions are measured at all levels of government and include corporate income tax, turnover tax, all labor contributions paid by the company (including mandatory contributions paid to private pension or insurance funds), property tax, property transfer tax, dividend tax, capital gains tax, financial transactions tax, vehicle tax and other small taxes (such as fuel tax, stamp duty and local taxes). A range of standard deductions and exemptions are also recorded. Three indicators are constructed: · Number of tax payments, which takes into account the method of payment or withholding, the frequency of payment or withholding and the number of agencies involved for the standard case. · Time, which measures the hours per year necessary to prepare, file and pay the corporate income tax, value added or sales tax and labor taxes. · Total tax rate, which measures the amount of taxes payable by the company during the second year of operation. This amount, expressed as a percentage of commercial profit, is the sum of all the different taxes payable after accounting for various deductions and exemptions. Businesses care about what they get for their taxes and contributions, such as the quality of infrastructure and social services. Poor countries tend to use businesses as a collection point for taxes. Rich countries tend to have lower tax rates and less complex tax systems. And rich countries get more from their taxes. Simple, moderate taxes and fast, cheap administration mean less hassle for businesses--and also more revenue collected and better public services. More burdensome tax regimes create an incentive to evade taxes. 35 1. Historical data: Paying Taxes in Finland Paying Taxes data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 78 83 Time (hours) 269 269 269 Total tax rate (% profit) 47.7 47.7 47.8 Payments (number) 20 20 20 2. The following graph illustrates the Paying Taxes indicators in Finland over the past 3 years: 269 269 269 7. 7. 8. 47 47 47 20 20 20 mber) ) t) urs (nu Time (ho profi (% rate ments tax Pay tal 2005 2006 2007 To 36 3. Benchmarking Paying Taxes Regulations: Finland is ranked 83 overall for Paying Taxes. Maldives is the top ranked economy followed by Singapore, Hong Kong, China and United Arab Emirates. Ranking of Finland in Paying Taxes - Compared to best practice and selected economies: * The following economies are also best practice economies for Paying Taxes: Maldives 37 The following table shows Paying Taxes data for Finland compared to best practice and comparator economies: Best Practice Economies Payments Time (hours) Total tax (number) rate (% profit) Sweden* 2 United Arab Emirates* 12 Vanuatu 8.4 Selected Economy Finland 20 269 47.8 Comparator Economies Denmark 9 135 33.3 France 23 132 66.3 Germany 16 196 50.8 Iceland 31 140 27.2 Norway 4 87 42.0 * The following economies are also best practice economies for : Payments (number): Maldives Time (hours): Maldives 38 Trading Across Borders: Importing and Exporting from Finland The benefits of trade are well documented--as are the obstacles to trade. Tariffs, quotas and distance from large markets greatly increase the cost of goods or prevent trading altogether. But with faster ships and bigger planes, the world is shrinking. Global and regional agreements have brought down trade barriers. Yet Africa's share of global trade is smaller today than it was 25 years ago. So is the Middle East's, excluding oil exports. The reason is simple: many entrepreneurs face numerous hurdles to exporting or importing goods. They often give up. Others never try. Doing Business compiles procedural requirements for trading a standard shipment of goods by ocean transport. Every official procedure--and the associated documents, time and cost--for importing and exporting the goods is recorded, starting with the contractual agreement between the two parties and ending with delivery of the goods. For importing the goods, the procedures measured range from the vessel's arrival at the port of entry to the shipment's delivery at the factory warehouse. For exporting the goods, the procedures measured range from the packing of the goods at the factory to their departure from the port of exit. To make the data comparable across countries, several assumptions about the business and the traded goods are used. The business is of medium size, with 100 or more employees, and is located in the periurban area of the country's most populous city. It is a private, limited liability company, domestically owned, formally registered and operating under commercial laws and regulations of the country. The traded goods are ordinary, legally manufactured products, and they travel in a dry-cargo, 20-foot FCL (full container load) container. Documents recorded include port filing documents, customs declaration and clearance documents, and official documents exchanged between the concerned parties. Time is recorded in calendar days, from start to finish of each procedure. Cost measures the fees levied on a 20-foot container in U.S. dollars. All the fees associated with completing the procedures to export or import the goods are included, such as costs for documents, administrative fees for customs clearance and technical control, terminal handling charges and inland transport. The cost measure does not include tariffs or trade taxes. Countries that have efficient customs, good transport networks and fewer document requirements--making compliance with export and import procedures faster and cheaper--are more competitive globally. That leads to more exports--and exports are associated with faster growth and more jobs. Conversely, a need to file many documents is associated with more corruption in customs. Faced with long delays and frequent demands for bribes, many traders avoid customs altogether. Instead, they smuggle goods across the border. That defeats the very purpose in having border control of trade--to levy taxes and ensure high quality of goods. 39 1. Historical data: Trading Across Borders in Finland Trading Across Borders data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 5 5 Documents for export (number) 4 4 4 Time for export (days) 8 8 8 Cost to export (US$ per container) 420 420 420 Documents for import (number) 5 5 5 Time for import (days) 8 8 8 Cost to import (US$ per container) 420 420 420 2. The following graph illustrates the Trading Across Borders indicators in Finland over the past 3 years: 420 420 420 420 420 420 4 4 4 8 8 8 5 5 5 8 8 8 ) rt export per ) per (US$ impo (days for rt (days for (US$ nts mber) rt expo nts mber) er) (nu (nu import to Docume Time for expo er) to contain Cost Docume Time for import contain Cost 2005 2006 2007 40 3. Benchmarking Trading Across Borders Regulations: Finland is ranked 5 overall for Trading Across Borders. Singapore is the top ranked economy followed by Denmark, Hong Kong, China and Norway. Ranking of Finland in Trading Across Borders - Compared to best practice and selected economies: 41 The following table shows Trading Across Borders data for Finland compared to best practice and comparator economies: Best Practice Economies Documents Time for Cost to Documents Time for Cost to for export export (days) export (US$ for import import (days) import (US$ (number) per (number) per Canada* 3 China 390 Denmark* 5 3 Singapore 3 367 Selected Economy Finland 4 8 420 5 8 420 Comparator Economies Denmark 4 5 540 3 5 540 France 4 11 1028 5 12 1148 Germany 4 7 740 5 7 765 Iceland 5 15 469 5 14 443 Norway 4 7 518 4 7 468 * The following economies are also best practice economies for : Documents for export (number): Estonia, Micronesia, Panama Time for export (days): Estonia, Singapore Documents for import (number): Sweden 42 Enforcing Contracts: Court Efficiency in Finland Where contract enforcement is efficient, businesses are more likely to engage with new borrowers or customers. Doing Business tracks the efficiency of the judicial system in resolving a commercial dispute, following the step-by-step evolution of a commercial sale dispute before local courts. The data are collected through study of the codes of civil procedure and other court regulations as well as surveys completed by local litigation lawyers (and, in a quarter of the countries, by judges as well). The dispute, between two businesses (the Seller and the Buyer) located in the country's most populous city, concerns a contract for the sale of goods. The Seller agrees to deliver the goods, worth 200% of the country's income per capita, to the Buyer. After receiving and inspecting the goods, the Buyer concludes that their quality is inadequate. The Buyer sends the goods back without paying for them. The Seller disagrees and argues that their quality is adequate. The Seller seeks full payment from the Buyer, arguing that the goods cannot be sold to a third party because they were custom-made for the Buyer. The Seller sues the Buyer before the court in the most populous city to recover the amount due under the sales agreement (200% of the country's income per capita). Three indicators of the efficiency of commercial contract enforcement are developed: · Number of procedures, which includes all those that demand interaction between the parties or between them and the judge or court officer. · Time, which counts the number of days from the moment the plaintiff files the lawsuit in court until the moment of payment. This measure includes both the days on which actions take place and the waiting periods between actions. · Cost, which measures the official cost of going through court procedures, expressed as a percentage of the claim (assumed to be equivalent to 200% of income per capita). The cost includes court costs, enforcement costs and attorney fees where the use of attorneys is mandatory or common. Businesses that have little or no access to efficient courts must rely on other mechanisms, both formal and informal--such as trade associations, social networks, credit bureaus or private information channels--to decide whom to do business with and under what conditions. Or they might adopt a conservative approach to business, dealing only with a small group of people linked through kinship, ethnic origin or previous dealings and structuring transactions to forestall disputes. In either case economic and social value may be lost. The main reason to regulate procedures in commercial dispute resolution is that informal justice is vulnerable to subversion by the rich and powerful. But heavy regulation of dispute resolution backfires. Across countries, the more procedures it takes to enforce a contract, the longer the delays and the higher the cost. The result: less wealth is created. 43 1. Historical data: Enforcing Contracts in Finland Enforcing Contracts data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 7 7 Procedures (number) 33 33 33 Duration (days) 235 235 235 Cost (% of claim) 10.4 10.4 10.4 2. The following graph illustrates the Enforcing Contracts indicators in Finland over the past 3 years: 235 235 235 33 33 33 4. 4. 4. 10 10 10 mber) ) (days claim) s (nu of tion (% dure Dura Cost Proce 2005 2006 2007 44 3. Benchmarking Enforcing Contracts Regulations: Finland is ranked 7 overall for Enforcing Contracts. Hong Kong, China is the top ranked economy followed by Luxembourg, Latvia and Singapore. Ranking of Finland in Enforcing Contracts - Compared to best practice and selected economies: 45 The following table shows Enforcing Contracts data for Finland compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) claim) Bhutan 0.1 Ireland 20 Singapore 120 Selected Economy Finland 33 235 10.4 Comparator Economies Denmark 34 380 23.3 France 30 331 17.4 Germany 33 394 11.8 Iceland 26 393 6.1 Norway 33 310 9.9 46 Closing Business in Finland: Bankruptcy The economic crises of the 1990s in emerging markets--from East Asia to Latin America, from Russia to Mexico--raised concerns about the design of bankruptcy systems and the ability of such systems to help reorganize viable companies and close down unviable ones. In countries where bankruptcy is inefficient, unviable businesses linger for years, keeping assets and human capital from being reallocated to more productive uses. The Doing Business indicators identify weaknesses in the bankruptcy law as well as the main procedural and administrative bottlenecks in the bankruptcy process. In many developing countries bankruptcy is so inefficient that creditors hardly ever use it. In countries such as these, reform would best focus on improving contract enforcement outside bankruptcy. The data on closing a business are developed using a standard set of case assumptions to track a company going through the step-by-step procedures of the bankruptcy process. It is assumed that the company is a domestically owned, limited liability corporation operating a hotel in the country's most populous city. The company has 201 employees, 1 main secured creditor and 50 unsecured creditors. Assumptions are also made about the debt structure and future cash flows. The case is designed so that the company has a higher value as a going concern--that is, the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. The data are derived from questionnaires answered by attorneys at private law firms. Three measures are constructed from the survey responses: the time to go through the insolvency process, the cost to go through the process and the recovery rate--how much of the insolvency estate is recovered by stakeholders, taking into account the time, cost, depreciation of assets and the outcome of the insolvency proceeding. Bottlenecks in bankruptcy cut into the amount claimants can recover. In countries where bankruptcy is used, this is a strong deterrent to investment. Access to credit shrinks, and nonperforming loans and financial risk grow because creditors cannot recover overdue loans. Conversely, efficient bankruptcy laws can encourage entrepreneurs. The freedom to fail, and to do so through an efficient process, puts people and capital to their most effective use. The result is more productive businesses and more jobs. 47 1. Historical data: Closing Business in Finland Closing a Business data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 5 5 Time (years) 0.9 0.9 0.9 Cost (% of estate) 4 4 4 Recovery rate (cents on the dollar) 89 89 88.2 2. The following graph illustrates the Closing Business indicators in Finland over the past 3 years: 2. 89 89 88 9.0 9.0 9.0 4 4 4 ) the ) on estate (cents) Time (years of (% y ratedo llar Cost cover Re 2005 2006 2007 48 3. Benchmarking Closing Business Regulations: Finland is ranked 5 overall for Closing a Business. Japan is the top ranked economy followed by Singapore, Norway and Canada. Ranking of Finland in Closing Business - Compared to best practice and selected economies: 49 The following table shows Closing Business data for Finland compared to best practice and comparator economies: Best Practice Economies Recovery Time (years) Cost (% of rate (cents estate) on the Colombia 1 Ireland* 0.4 Japan 92.6 Selected Economy Finland 88.2 0.9 4 Comparator Economies Denmark 87.0 1.1 4 France 47.4 1.9 9 Germany 53.4 1.2 8 Iceland 80.3 1.0 4 Norway 90.7 0.9 1 * The following economies are also best practice economies for : Time (years): Cape Verde 50 APPENDICES Starting a Business in Finland This table summarizes the procedures and costs associated with setting up a business in Finland. STANDARDIZED COMPANY Legal Form: Private Limited Company (Oy) Minimum Capital Requirement: EUR 2,500 City: Helsinki Registration Requirements: No: Procedure Time to complete Cost to complete 1 Deposit the paid-in share capital in a bank; pay the registration 1 day no charge fee and get a receipt 2 Submit a basic declaration to the NBPR's Trade Register 5 working days ­ 3 330, includes the Department in the forms prescribed by the NBPR weeks notification fee related to establishment of a limited liability company 3 * File at a private insurer for pension insurance, accident 1 day, simultaneously no charge insurance, and medical insurance of employees with procedure 2 * Takes place simultaneously with another procedure. 51 Procedure 1 Deposit the paid-in share capital in a bank; pay the registration fee and get a receipt Time to complete: 1 day Cost to complete: no charge Comment: The paid-in share capital must be paid in full into the company's bank account. According to the new Companies Act, the subscription price may be paid to a bank account abroad. However, the bank account should correspond to a bank account of a Finnish depository bank or a branch of a foreign credit company in Finland. There is no legal maximum for the company's share capital. However, the company's articles of association may limit the maximum capital. To open a bank account, the company must produce at least the following documentation: - The memorandum of association (a copy). - The minutes of the meeting of the board of directors containing a resolution to open a bank account and the persons authorized to make withdrawals from the account. - A description of the nature of future banking transactions. - A detailed description of the company's field of business. No withdrawals may be made from the account until the company has been registered and has provided the bank with proof of registration. The company's auditors shall issue a written statement confirming the payment of the share capital. Procedure 2 Submit a basic declaration to the NBPR's Trade Register Department in the forms prescribed by the NBPR Time to complete: 5 working days ­ 3 weeks Cost to complete: 330, includes the notification fee related to establishment of a limited liability company Comment: A basic declaration to the Trade Register must be filed (in either Finnish or Swedish) as specified on forms issued by the National Board of Patents and Registration. For each type of business, a separate basic declaration form must be used. The forms are available from the National Board of Patents and Registration, regional tax offices, local tax offices, Employment and Economic Development Centers (TE Centers), local register offices, and Chamber of Commerce and Enterprise Agencies. All registrations to the Trade Register and to the Tax Administration are performed with the same basic declaration. Copies of any licenses for licensed trades are required, where applicable. If the company has employees, the company must be entered into the Employer Register, according to Section 31 of the Preliminary Taxation Act. When the basic declaration is submitted, a certificate of the company's business identification number may be obtained at a fee of EUR 5. This certificate allows companies to use their bank accounts before registration has been completed. Procedure 3 File at a private insurer for pension insurance, accident insurance, and medical insurance of employees Time to complete: 1 day, simultaneously with procedure 2 Cost to complete: no charge Comment: Under the statutory pension insurance scheme, an employer must subscribe its employees for pension insurance with a pension provider handling earnings-related pensions. Supplemental pension insurance is optional. 52 The employer also pays the pension institution statutory employee earnings-related contributions: accident insurance, unemployment insurance, and group life assurance premium. A social security contribution is also payable to the Regional Tax Office. The employer must insure its employees against accidents and occupational diseases, according to Section 8 of the Employment Accidents Act. In addition, certain collective labor agreements require that employers provide their employees with group life insurance. No proof of insurance is needed to start operations. 53 Dealing with Licenses in Finland The table below summarizes the procedures, time, and costs to build a warehouse in Finland. BUILDING A WAREHOUSE Date as of: January 2,007 Estimated Warehouse Value: City: Helsinki Registration Requirements: No: Procedure Time to complete Cost to complete 1 Obtain extract from the trade register 1 day EUR 10 2 * Obtain building permit maps and extract from the real estate registry 12 days EUR 153 3 * Obtain report on the height of the intended construction 7 days no charge 4 * Obtain official opinion on the connection of the wastewater drain and 7 days no charge water pipeline 5 * Schedule start-up meeting 7 days no charge 6 Obtain building permit 10 days EUR 5,886 7 Receive foundation work inspection 1 day no charge 8 Receive location inspection from the real estate office 1 day EUR 1,278 9 Submit electric wiring designs to Helsinki Energy and receive 1 day no charge inspection 10 Receive structure inspection 1 day no charge 11 Receive ventilation inspection 1 day no charge 12 Receive sewer and water pipeline inspection 1 day no charge 13 * Request and obtain electricity connection 3 days EUR 20,000 14 * Request and obtain water connection 3 days EUR 11,921 15 * Request and obtain phone connection 3 days EUR 389 16 Receive fire inspection from the Public Rescue Service 1 day no charge 54 17 Receive final inspection 1 day no charge 18 Obtain occupancy permit 4 days no charge * Takes place simultaneously with another procedure. 55 Procedure 1 Obtain extract from the trade register Time to complete: 1 day Cost to complete: EUR 10 Comment: This procedure is usually required when the building permit applicant is a company. It takes about 7 days if ordered by mail. Procedure 2 Obtain building permit maps and extract from the real estate registry Time to complete: 12 days Cost to complete: EUR 153 Comment: The Real Estate Office issues the building permits maps, which must be attached as originals to the application. The applicant cannot use a map that is older than 3 months. The fee includes also the extract from the real estate register and the report of the build-site height. Procedure 3 Obtain report on the height of the intended construction Time to complete: 7 days Cost to complete: no charge Comment: Obtained from the Real Estate Office, the report is required to ensure that the height of the new building is in proportion with other buildings in the same neighborhood. Procedure 4 Obtain official opinion on the connection of the wastewater drain and water pipeline Time to complete: 7 days Cost to complete: no charge Comment: The official opinion on the connection of the wastewater drain and the water pipeline must be attached to the building permit application if the building will be connected to the public water distribution system and to the public sewerage system. The opinion is issued by the municipal organization in charge of the water supply (in the greater Helsinki area, Helsinki Water). The cost is included in the connection charge. Procedure 5 Schedule start-up meeting Time to complete: 7 days Cost to complete: no charge Comment: BuildCo must set a date for a startup meeting with the building supervision authority and convene all necessary persons to the meeting. The meeting must be held before the beginning of construction (some excavation work can be done, but the foundation may not be laid before the meeting). At a minimum, the following persons should attend the meeting: the person starting the building project, the head designer, and the site manager. The meeting attendees must be agreed with the building supervision authority. Procedure 6 Obtain building permit 56 Time to complete: 10 days Cost to complete: EUR 5,886 Comment: The building permit is issued by the Municipal Building Inspection. The applicant is required to provide the needed information to the local building supervision authority to decide on the building permit application. The quality and the extent of the required information depend on the project features. The following documentation is usually required for warehouse projects: - The completed application form issued by the building supervision authority. The owner or the holder of the building site in question must sign the form. If there are several owners or holders, all must sign the application form. - A power of attorney is required only if a representative files the building permit application. (This is not applicable to the warehouse project considered here.) - The establishment of the ownership title is required because the building permit can be granted only based on the application made by the owner or the holder of the building site. Usually one of the following documents is presented to the building supervision authority: -- The deed of sale of the real estate. -- The lease contract. -- The deed of title. - The extract from the trade register. - The building permit map and the extract from the real estate registry. - The decision to deviate from the provisions, regulations, prohibitions, and other restrictions on building and other action must be attached to the application, in original, if the project requires such a decision. - The certificate of the decision's legal validity must be presented before the actual launching of the building project. (This is not applicable to the warehouse project.) - The environmental permit is required if the use of the building poses a threat of environmental pollution. The decision on the building permit can be postponed until the environmental permit is attached to the application. (This is not applicable to the warehouse project.) - Three master drawings must be attached to the application. One document will be archived with the building supervision authority, and the other will be returned to the applicant with the final decision. The master drawings to be followed in construction master drawings are approved in connection with the grant of the building permit. - Report of the height of the building site. - The ground investigation report of the building site. If needed, also enclosed with the building permit application will be an account of the site's health effects and ground levels, and the type of foundation and any other measures required as a result. This report may be produced by BuildCo. - The official opinion on the connection of the wastewater drain and the water pipeline. - Notification to the neighbors. When the building permit application is filed with the building supervision authority, the neighbors must also be notified. The applicant may do this personally by using the official form, obtained from the building supervision authority. Otherwise, subject to a fee, the applicant may request the building supervision authority to conduct the notification. - Forms for official statistics. The building supervision authority must deliver information on building projects to the Population Register Center. Thus, the forms in question must be attached to the application. These forms are available at the building supervision authority or at the public printing center. - The official form on the building designer. Every building project must have a qualified head designer in charge of the construction design and the quality of the design as a whole. - Other documents are required, as follows: -- Working designs. -- Calculation of permitted building volume. -- Report on fire load, parking spaces, handling construction waste; on environmental issues, with photographs (can be produced by BuildCo). 57 -- Constructional drawings and strength calculations and drawings on ventilation and heating devices, on water and sewage devices, and on bomb shelters and the notification of the bomb shelter. As of February 1, 2006, the price of the building permit changed. The price is determined by the building size: EUR 4.15 per sq. m. plus EUR 341.45 for each building. It is assumed that notification is conducted by the authority. Thus, no extra procedure is necessary. Procedure 7 Receive foundation work inspection Time to complete: 1 day Cost to complete: no charge Comment: The ground inspection and the setting out of the building's location and level are conducted after the foundation work is completed. Procedure 8 Receive location inspection from the real estate office Time to complete: 1 day Cost to complete: EUR 1,278 Comment: The location inspection must be requested from the Real Estate Office after the foundation work is completed. This inspection is held to determine that the building height and location are in accordance with the master drawings. Procedure 9 Submit electric wiring designs to Helsinki Energy and receive inspection Time to complete: 1 day Cost to complete: no charge Comment: The electricity designer must deliver, for inspection and approval, the electrical wiring design for the connection and metering to Helsinki Energy's connection service. BuildCo must enter into a connection agreement about a month before the actual construction of the connection cable. The electricity contractor conducts the commissioning inspection of the metering center and delivers the request for metering to Helsinki Energy at least 4 working days before the requested date. The electricity contract must be signed before the metering. The electricity contractor conducts the commissioning inspection of the electrical installation before handing over the entity. BuildCo must deliver the final drawings to Helsinki Energy for completing the drawings archives to ensure that the drawings are available if needed. The filing does not have a cost Procedure 10 Receive structure inspection Time to complete: 1 day Cost to complete: no charge Comment: The inspection of the building structure is conducted after the load-bearing structure and connected insulation works are completed. Procedure 11 Receive ventilation inspection 58 Time to complete: 1 day Cost to complete: no charge Comment: The ventilation inspection is conducted after the completion of the exit flue and the ventilation installation. Procedure 12 Receive sewer and water pipeline inspection Time to complete: 1 day Cost to complete: no charge Comment: The inspection of the sewer and water pipeline fittings is conducted after the completion of these fittings. Procedure 13 Request and obtain electricity connection Time to complete: 3 days Cost to complete: EUR 20,000 Comment: The electricity connection charges are determined by the fuse size of building. Up-to-date fees can be found at the Helsingin Energia Web site (www.helsinginenergia.fi/sahko/hinnastot/liittymismaksut.html). Procedure 14 Request and obtain water connection Time to complete: 3 days Cost to complete: EUR 11,921 Comment: Helsinki Water, a municipal institution, is responsible for all matters of connections to the water distribution and sewerage systems. The procedure for ordering a connection is as follows: - Helsinki Water customer service staff provide the new customer with a statement on the connection. The street address of the plot or property is required, as is the owner's name, address, and phone number. - Helsinki Water provides the customer with a preliminary estimate of the recently introduced connection charge. - The customer should acquire a building permit for the plot. - After the customer has obtained the building permit, Helsinki Water will send the customer the connection charge notice. The property owner can file a complaint within 14 days of receiving the notice. Unless a complaint is made, the proposed charge will be considered as having been accepted by the customer. - Water service connection and meter installation will be conducted after the connection charge is paid. The customer is responsible for the construction and maintenance of the connection pipes and conduits and their financing. Before the start of on-site construction work, a supervisor responsible for the construction of the water facility and sewerage system--approved by the municipal building control officials--should be assigned. Helsinki Water always takes care of installation of water meters with seals, water main connection with water-sealed joints, and connections to the sewerage system on the customer's properties. Service charges will be invoiced at rates valid at the time of the order. - A connection agreement is concluded. - The invoicing procedure is settled. The fee is EUR 9.966.31, based on the building plot size (929 sq. m.) and the building area (1,300.6 sq. m.) assumed in this case, using the following formula: building plot size plus building area multiplied by the connection fee per unit (EUR 59 4.47 for water, sewage, and storm water). The EUR 9.966.31 quoted does not include required connection charges. The fee for this is EUR 1,954.44, which includes one water pipe and two sewer connections. Procedure 15 Request and obtain phone connection Time to complete: 3 days Cost to complete: EUR 389 Comment: The telephone subscription can be ordered, for example, from Elisa Oyj, which is a publicly listed company. The charge for setting up the subscription is EUR 99 (basic connection). Usually, the installation requires that a mechanic come to the building to finish the installation. The hourly charge of the mechanic is EUR 69, including VAT of 22%. The hours required depend on the features of the building. It is assumed here that the mechanic must work for 4.2 hours to finalize the connection. Procedure 16 Receive fire inspection from the Public Rescue Service Time to complete: 1 day Cost to complete: no charge Comment: Procedure 17 Receive final inspection Time to complete: 1 day Cost to complete: no charge Comment: A building, or a part thereof, shall not be commissioned before it has been finally inspected and approved for use. The minutes of the commissioning inspection of the electrical installation (drafted by the electricity contractor) are necessary for obtaining a use or occupancy permit. This inspection can be performed by BuildCo, provided that the company has qualified employees. Procedure 18 Obtain occupancy permit Time to complete: 4 days Cost to complete: no charge Comment: 60 Employing Workers in Finland Employing workers indices are based on responses to survey questions. The table below shows these responses in Finland. Employing Workers Indicators (2007) Answer Score Rigidity of Employment Index 48.1 Difficulty of Hiring Index 44.4 Are fixed-term contracts prohibited for permanent tasks? Yes 1 What is the maximum duration of fixed-term contracts (including renewals)? (in months) 60 0.0 What is the ratio of mandated minimum wage to the average value added per worker? 0.33 0.33 Rigidity of Hours Index 60.0 Can the workweek extend to 50 hours (including overtime) for 2 months per year to respond to a Yes 0 seasonal increase in production? What is the maximum number of working days per week? 6 0 Are there restrictions on night work? Yes 1 Are there restrictions on "weekly holiday" work? Yes 1 What is the paid annual vacation (in working days) for an employee with 20 years of service? 30 1 Difficulty of Firing Index 40.0 Is the termination of workers due to redundancy legally authorized? Yes 0 Must the employer notify a third party before terminating one redundant worker? Yes 1 Does the employer need the approval of a third party to terminate one redundant worker? No 0 Must the employer notify a third party before terminating a group of 25 redundant workers? Yes 1 Does the employer need the approval of a third party to terminate a group of 25 redundant No 0 workers? Can an employer make redundant a worker only if the worker could not have been reassigned or Yes 1 retrained? Are there priority rules applying to redundancies? No 0 Are there priority rules applying to re-employment? Yes 1 Firing costs (weeks of wages) 26.0 What is the notice period for redundancy dismissal after 20 years of continuous employment? 26.0 (weeks of salary) 61 What is the severance pay for redundancy dismissal after 20 years of employment? (weeks of 0.0 salary) What is the legally mandated penalty for redundancy dismissal? (weeks of salary) 0.0 Nonwage labor cost (% of salary) 25.8 Note: The first three indices measure how difficult it is to hire a new worker, how rigid the regulations are on working hours, and how difficult it is to dismiss a redundant worker. Each index assigns values between 0 and 100, with higher values representing more rigid regulations. The overall Rigidity of Employment Index is an average of the three indices. 62 Registering Property in Finland This topic examines the steps, time, and cost involved in registering property in Finland. STANDARDIZED PROPERTY Property Value: 2,032,500.00 City: Helsinki Registration Requirements: No: Procedure Time to complete Cost to complete 1 The seller and buyer notarize the deed of sale in the 1 day EUR 77 presence of a Public Notary 2 The buyer must pay the transfer tax before the 1 day 4% of the property value registration of the property 3 The buyer applies for a land title at the District Court 7-20 days EUR 65 (registration fee) 63 Procedure 1 The seller and buyer notarize the deed of sale in the presence of a Public Notary Time to complete: 1 day Cost to complete: EUR 77 Comment: The agreement can be prepared by the seller or the buyer, no involvement of a lawyer or real estate agent is required. In general the seller shall present an extract from the land register and an abstract of title confirming the title of the property, but this is not formally required. The agreement should be in writing and contain at a minimum the following (according to the Code of Real Estate): name of the seller and buyer, the object of purchase, the purchase price or equivalent compensation and possible subsequent conditions. The sale agreement shall be signed both by the seller and buyer, in the presence of the attesting notary. The attesting notary checks the ID of the seller and buyer and verifies the formal validity of the sales agreement. Failure to follow these requirements will result in the transaction being automatically null and void. Note that an attesting notary is required only when ownership (full freehold title) of the property is assigned. When the right of tenancy or other right to possess the property is assigned, the presence of the attesting notary is not required. Procedure 2 The buyer must pay the transfer tax before the registration of the property Time to complete: 1 day Cost to complete: 4% of the property value Comment: The transfer tax can be paid at a local bank, directly at the Tax Authorities or online. The attesting notary gives the buyer instructions on the transfer tax payment. The payment is done using a printed tax form for the Transfer Tax. The receipt of the payment of the taxes must be included in the application for the registration of title to the property (see procedure 3). Procedure 3 The buyer applies for a land title at the District Court Time to complete: 7-20 days Cost to complete: EUR 65 (registration fee) Comment: The buyer is under obligation to register the property title at the Land Registry within 6 months from the purchase. The application shall be submitted to the district court of the region where the property is situated. The Land Register enjoys public credibility and thus the validity of the registration of title and the information of the register can be trusted. The District court examines the preconditions of title and when those are met, grants the title that is registration of the ownership in the Land Registry (Register of Titles and Mortgages). The documentation shall include: Original sales agreement The receipt of the paid transfer tax (Paid in Procedure 2). Extract from the Register of Companies, articles of Association, minutes from the General Meeting of the companies (seller and buyer) where the sale and purchase was resolved. Verified copy of the sales agreement. Registration fee is paid at bank, local court (registry authority) or online. 64 Getting Credit in Finland The following table summarize legal rights of borrowers and lenders, and the availability and legal framework of credit registries in Finland. Getting Credit Indicators (2007) Indicator Private credit Public credit Private bureau coverage (% adults) 5 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or No No 0 utility companies as well as financial institutions? Are more than 2 years of historical credit information distributed? Yes No 1 Is data on all loans below 1% of income per capita distributed? Yes No 1 Is it guaranteed by law that borrowers can inspect their data in the largest Yes No 1 credit registry? Coverage 14.9 0.0 Number of individuals 340,000 0 Number of firms 310,000 0 Legal Rights Index 6 Does the law allow all natural and legal persons to be party to collateral agreements? No Does the law allow for general descriptions of assets, so that all types of assets can be used as collateral? No Does the law allow for general descriptions of debt, so that all types of obligations can be secured? Yes Does a unified registry exist for all security rights in movable property? Yes Do secured creditors have absolute priority to their collateral outside bankruptcy procedures? Yes Do secured creditors have absolute priority to their collateral in bankruptcy procedures? Yes During reorganization, are secured creditors' claims exempt from an automatic stay on enforcement? Yes During reorganization, is management's control of the company's assets suspended? No Does the law authorize parties to agree on out of court enforcement? Yes May parties have recourse to out of court enforcement without restrictions? No 65 Protecting Investors in Finland The table below provides a full breakdown of how the disclosure, director liability, and shareholder suits indexes are calculated in Finland. Protecting Investors Data (2007) Indicator Disclosure Index 6 What corporate body provides legally sufficient approval for the transaction? (0-3; see notes) 2 Immediate disclosure to the public and/or shareholders (0-2; see notes) 1 Disclosures in published periodic filings (0-2; see notes) 2 Disclosures by Mr. James to board of directors (0-2; see notes) 1 Requirement that an external body review the transaction before it takes place (0=no, 1=yes) 0 Director Liability Index 4 Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to 1 the company. (0-2; see notes) Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for 1 damage to the company. (0-2; see notes) Whether a court can void the transaction upon a successful claim by a shareholder plaintiff (0-2; see 0 notes) Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the 1 shareholder plaintiff (0=no, 1=yes) Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff (0=no, 1=yes) Whether fines and imprisonment can be applied against Mr. James (0=no, 1=yes) 0 Shareholder plaintiff's ability to sue directly or derivatively for damage the transaction causes to the 1 company (0-1; see notes) Shareholder Suits Index 7 Documents available to the plaintiff from the defendant and witnesses during trial (0-4; see notes) 3 Ability of plaintiffs to directly question the defendant and witnesses during trial (0-2; see notes) 2 Plaintiff can request categories of documents from the defendant without identifying specific ones (0=no, 0 1=yes) Shareholders owning 10% or less of Buyer's shares can request an inspector investigate the transaction 1 (0=no, 1=yes) Level of proof required for civil suits is lower than that for criminal cases (0=no, 1=yes) 1 Shareholders owning 10% or less of Buyer's shares can inspect transaction documents before filing suit 0 (0=no, 1=yes) 66 Investor Protection Index 5.7 Notes: Extent of Disclosure Index What corporate body provides legally sufficient approval for the transaction? 0=CEO or managing director alone; 1=shareholders or board of directors vote and Mr. James can vote; 2=board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote Immediate disclosure to the public and/or shareholders 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures in published periodic filings 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures by Mr. James to board of directors 0=none; 1=existence of a conflict without any specifics; 2= full disclosure of all material facts Director Liability Index Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company 0= Mr. James is not liable or liable only if he acted fraudulently or in bad faith; 1= Mr. James is liable if he influenced the approval or was negligent; 2= Mr. James is liable if the transaction was unfair, oppressive or prejudicial to minority shareholders Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for damage to the company 0=members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1=liable for negligence in the approval of the transaction; 2=liable if the transaction is unfair, oppressive, or prejudicial to minority shareholders Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0=rescission is unavailable or available only in case of Seller's fraud or bad faith; 1=available when the transaction is oppressive or prejudicial to minority shareholders; 2=available when the transaction is unfair or entails a conflict of interest Shareholder plaintiffs' ability to sue directly or derivatively for damage the transaction causes to the company 0=not available; 1=direct or derivative suit available for shareholders holding 10% of share capital or less Shareholder Suits Index Documents available to the plaintiff from the defendant and witnesses during trail Score 1 each for (1) information that the defendant has indicated he intends to rely on for his defense; (2) information that directly proves specific facts in the plaintiff's claim; (3) any information that is relevant to the subject matter of the claim; and (4) any information that may lead to the discovery of relevant information. Ability of plaintiffs to directly question the defendant and witnesses during trial 0=no; 1=yes, with prior approval by the court of the questions posed; 2=yes, without prior approval 67 Paying Taxes in Finland The table below addresses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year in Finland, as well as measures of administrative burden in paying taxes. Tax or mandatory Payments Notes on Time Statutory tax Tax Totaltax rate Notes on contribution (number) Payments (hours) rate base (% profit) TTR Value added tax (VAT) 1 online filing 48 22.0% value added not included Vehicle tax 1 fixed fee small amount Group-life insurance 0 paid jointly 0.1% gross 0.09 contributions salaries Real estate tax 2 0.5% to 1% property 1.04 value Accident insurance 0 paid jointly 1.1% gross 1.26 salaries Unemployment 1 0.75% to gross 2.32 insurance 2.95% salaries Social security 1 online filing 6.051% to gross 6.94 contributions 6.058% salaries Corporate income tax 13 21 26.0% taxable 17.03 profits Pension contribution 1 online filing 200 16.7% gross 19.12 salaries Totals 20 269 47.8 Notes: a) data not collected b) VAT is not included in the total tax rate because it is a tax levied on consumers c) very small amount d) included in other taxes e) Withheld tax f) electronic filling available g) paid jointly with another tax Name of taxes have been standardized. For instance income tax, profit tax, tax on company's income are all named corporate income tax in this table. When there is more than one statutory tax rate, the one applicable to TaxpayerCo is reported. The hours for VAT include all the VAT and sales taxes applicable. The hours for Social Security include all the hours for labor taxes and mandatory contributions in general. 68 Trading Across Borders in Finland These tables list the procedures necessary to import and exports a standardized cargo of goods in Finland. The documents required to export and import the goods are also shown. Nature of Export Procedures (2007) Duration (days) US$ Cost Documents preparation 3 50 Customs clearance and technical control 1 60 Ports and terminal handling 2 130 Inland transportation and handling 2 180 Totals 8 420 Nature of Import Procedures (2007) Duration (days) US$ Cost Documents preparation 3 50 Customs clearance and technical control 2 60 Ports and terminal handling 2 130 Inland transportation and handling 1 180 Totals 8 420 Export Bill of lading Commercial invoice Customs export declaration Packing list Import Bill of lading Cargo release order Commercial invoice Customs import declaration Packing list 69 Enforcing Contracts in Finland This topic looks at the efficiency of contract enforcement in Finland. Nature of Procedure (2007) Indicator Procedures (number) 33.00 Duration (days) 235.00 Filing and service 35.0 Trial and judgment 140.0 Enforcement of judgment 60.0 Cost (% of claim)* 10.40 Attorney cost (% of claim) 10.0 Court cost (% of claim) 0.2 Enforcement Cost (% of claim) 0.2 Court information: Helsinki District Court ("Helsingin kaeraerjaeoikeus") www.oikeus.fi/6061.htm * Claim assumed to be equivalent to 200% of income per capita. 70