46033 Country Profile for Venezuela © 2008 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 08 07 06 05 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. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank Group encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank 1818 H Street NW Washington, DC 20433, USA fax: 202-522-2422 e-mail: pubrights@worldbank.org Additional copies of Doing Business 2009, Doing Business 2008, Doing Business 2007 : How to Reform, Doing Business in 2006 : Creating Jobs, Doing Business in 2005 : Removing Obstacles to Growth and Doing Business in 2004 : Understanding Regulations may be purchased at www.doingbusiness.org ISBN: 978-0-8213-7609-6 E-ISBN: 978-0-8213-7610-2 DOI: 10.1596/978-0-8213-7609-6 Current features News on the Doing Business project www.doingbusiness.org Rankings How economies rank-from 1 to 181 www.doingbusiness.org/economyrankings Reformers Contents Short summaries of DB2009 reforms, lists of reformers since DB2004 and a ranking simulation tool www.doingbusiness.org/reformers Introduction 1 and Aggregate Rankings Data time series Customized data sets since DB2004 Starting a Business 5 www.doingbusiness.org/customquery Dealing with 10 Methodology and research Construction Permits The methodologies and research papers underlying Doing Business www.doingbusiness.org/MethodologySurveys Employing Workers 15 Blog Registering Property 19 Online journal focusing on business regulation reform http://blog.doingbusiness.org Getting Credit 24 Downloads Doing Business reports as well as subnational, country and regional Protecting Investors 28 reports and case studies www.doingbusiness.org/downloads Paying Taxes 32 Subnational projects Trading across Borders 36 Differences in business regulations at the subnational level www.doingbusiness.org/subnational Enforcing Contracts 40 Law library Closing a Business 44 Online collection of business laws and regulations www.doingbusiness.org/lawlibrary DB2009 Reforms 48 Local partners More than 6,700 specialists in 181 economies who participate www.doingbusiness.org/LocalPartners Reformers' Club Celebrating the top 10 Doing Business reformers www.reformersclub.org Business Planet Interactive map on the ease of doing business http://www.doingbusiness.org/map Doing Business 2009 is the sixth in a series of annual reports investigating 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 181 economies, from Afghanistan to Zimbabwe, over time. A set of regulations affecting 10 stages of a business's life are measured : starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Data in Doing Business 2009 are current as of June 1, 2008*. 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 an economy'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 or the underlying strength of institutions, are not studied directly by Doing Business. To make the data comparable across economies, the indicators refer to a specific type of business, generally a local 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 181 economies: 46 in Sub-Saharan Africa, 32 in Latin America and The Caribbean, 25 in Eastern Europe and Central Asia, 24 in East Asia and Pacific, 19 in the Middle East and North Africa and 8 in South Asia, as well as 27 OECD high-income economies as benchmarks. The following pages present the summary Doing Business indicators for Venezuela. The data used for this country profile come from the Doing Business database and are summarized in graphs. These graphs allow a comparison of the economies in each region not only with one another but also with the "good practice" economy for each indicator. The good-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 countries. These good-practice economies do not necessarily rank number 1 in the topic or indicator, but they are in the top 10. More information is available in the full report. Doing Business 2009 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 (www.doingbusiness.org). * Except for the Paying Taxes indicator that refers to the period January to December of 2007. 1 Economy Rankings - Ease of Doing Business Venezuela is ranked 174 out of 181 economies. Singapore is the top ranked economy in the Ease of Doing Business. Venezuela - Compared to global good practice economy as well as selected economies: Venezuela's ranking in Doing Business 2009 Rank Doing Business 2009 Ease of Doing Business 174 Starting a Business 142 Dealing with Construction Permits 96 Employing Workers 180 Registering Property 92 Getting Credit 163 Protecting Investors 170 Paying Taxes 177 Trading Across Borders 164 Enforcing Contracts 71 2 Closing a Business 149 Summary of Indicators - Venezuela Starting a Business Procedures (number) 16 Duration (days) 141 Cost (% GNI per capita) 26.8 Paid in Min. Capital (% of GNI per capita) 0.0 Dealing with Construction Permits Procedures (number) 11 Duration (days) 395 Cost (% of income per capita) 344.7 Employing Workers Difficulty of Hiring Index 78 Rigidity of Hours Index 60 Difficulty of Firing Index 100 Rigidity of Employment Index 79 Firing costs (weeks of salary) not possible Registering Property Procedures (number) 8 Duration (days) 47 Cost (% of property value) 2.2 Getting Credit Legal Rights Index 3 Credit Information Index 0 Public registry coverage (% adults) 0.0 Private bureau coverage (% adults) 0.0 Protecting Investors Disclosure Index 3 3 Protecting Investors Director Liability Index 3 Shareholder Suits Index 2 Investor Protection Index 2.7 Paying Taxes Payments (number) 70 Time (hours) 864 Profit tax (%) 10.3 Labor tax and contributions (%) 26.9 Other taxes (%) 19.4 Total tax rate (% profit) 56.6 Trading Across Borders Documents for export (number) 8 Time for export (days) 49 Cost to export (US$ per container) 2590 Documents for import (number) 9 Time for import (days) 71 Cost to import (US$ per container) 2868 Enforcing Contracts Procedures (number) 29 Duration (days) 510 Cost (% of claim) 43.7 Closing a Business Time (years) 4.0 Cost (% of estate) 38 Recovery rate (cents on the dollar) 6.0 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 is 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 a start-up capital of 10 times income per capita, a 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 economies. Each procedure is a point of contact, a potential 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. 5 1. Historical data: Starting a Business in Venezuela Starting a Business data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 138 142 Procedures (number) 16 16 16 Duration (days) 141 141 141 Cost (% GNI per capita) 25.4 28.2 26.8 Paid in Min. Capital (% of GNI per capita) 0.0 0.0 0.0 2. The following graphs illustrates the Starting a Business indicators in Venezuela over the past 3 years: 6 3. Steps to Starting a Business in Venezuela It requires 16 procedures, takes 141 days, and costs 26.84 % GNI per capita to start a business in Venezuela. List of Procedures: 1. Reserve company name 10. Register with the Ministry of Labor 2. Obtain an approval of the company name. 11. Go through a labor inspection (by the Labor Inspectorate). 3. Lawyer must prepare and legalize the company's constitutive documents and social statutes. 12. Register for social security at a local regional fund. 4. Open bank account 13. Register at the National Educational Co-operation Institute 5. Register at the local mercantile registry (Registro Mercantil) 14. Obtain fire approval and undergo an inspection. 6. Publish articles in a local newspaper (Gaceta Forense 15. Obtain conformity of use certificate (zoning permit) del Registro Mercantil) 16. Obtain industrial or commercial license from 7. Register company books competent municipality 8. Register at the local Servicio Nacional Integrado de Administración Aduanera y Tributaria (SENIAT) with Registro Unico de Información Fiscal (RIF) to obtain fiscal number 9. Obtain tax clearance certificate at municipal level (Instituto Municipal de Aseo Urbano). 7 More detail is included in the appendix. 4. Benchmarking Starting a Business Regulations: Venezuela is ranked 142 overall for Starting a Business. Ranking of Venezuela in Starting a Business - Compared to good practice and selected economies: 8 The following table shows Starting a Business data for Venezuela compared to good practice and comparator economies: Good Practice Procedures Duration Cost (% GNI Paid in Min. Economies (number) (days) per capita) Capital (% of GNI per capita) Denmark 0.0 New Zealand* 1 1 0.0 Selected Economy Venezuela 16 141 26.8 0.0 Comparator Economies Argentina 15 32 9.0 3.7 Bolivia 15 50 112.4 2.8 Brazil 18 152 8.2 0.0 Ecuador 14 65 38.5 12.7 Mexico 9 28 12.5 11.0 * The following economies are also good practice economies for : Procedures (number): Canada 9 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. Striking the right balance is a challenge when it comes to construction regulations. Good regulations ensure safety standards that protect the public while making the permitting process efficient, transparent and affordable for both building authorities and the private professionals who use it. If procedures are overly complicated or costly, builders build without a permit, leading to hazardous construction. The indicators on dealing with construction permits 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 (bribes not 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 60 qualified employees. The warehouse to be built: · Is a new construction (there was no previous construction on the land). · Has 2 stories, both above ground, with a total surface of approximately 1,300.6 square meters (14,000 square feet). Each floor is 3 meters (9 feet, 10 inches) high · 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. 10 1. Historical data: Dealing with Construction Permits in Venezuela Dealing with Construction Permits data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 94 96 Procedures (number) 11 11 11 Duration (days) 395 395 395 Cost (% of income per capita) 388.4 326.0 344.7 2. The following graphs illustrates the Dealing with Construction Permits indicators in Venezuela over the past 3 years: 11 3. Steps to Building a Warehouse in Venezuela It requires 11 procedures, takes 395 days, and costs 344.73 % GNI per capita to build a warehouse in Venezuela. List of Procedures: 1. Request and obtain the assignment of the basic urban 10. Request and connect to a regular telephone line variables for land development 11. Register the building at the Subordinate Registry 2. Pay the corresponding fees at the bank (Registro Subalterno) 3. Request and obtain a certificate of compliance with basic urban variables for buildings 4. Request and obtain a certificate from the Zoning and Road Construction Division 5. Request and obtain a certificate of compliance with urban variables and a certificate of construction startup 6. Request and receive a fire inspection 7. Receive final inspection and obtain construction completion certificate 8. Request and connect to water supply and sewage service 9. Request and connect to electric power service 12 More detail is included in the appendix. 4. Benchmarking Dealing with Construction Permits Regulations: Venezuela is ranked 96 overall for Dealing with Construction Permits. Ranking of Venezuela in Dealing with Construction Permits - Compared to good practice and selected economies: * The following economies are also good practice economies for Building a Warehouse: Belize, New Zealand, St. Vincent and the Grenadines 13 The following table shows Dealing with Construction Permits data for Venezuela compared to good practice and comparator economies: Good Practice Procedures Duration Cost (% of Economies (number) (days) income per capita) Denmark 6 Korea 34 Malaysia* 7.9 Selected Economy Venezuela 11 395 344.7 Comparator Economies Argentina 28 338 183.3 Bolivia 17 249 121.6 Brazil 18 411 46.7 Ecuador 19 155 272.7 Mexico 12 138 131.0 * The following economies are also good practice economies for : Cost (% of income per capita): Brunei, Palau, Qatar, St. Kitts and Nevis, Trinidad and Tobago, United Arab Emirates 14 Economies worldwide have established a system of laws and institutions intended to protect workers and guarantee a minimum standard of living for its population. This system generally 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. Two measures are presented: a rigidity of employment index 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): notification and approval requirements, retraining or reassignment obligations and priority rules for dismissals and reemployment. 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. To make the data comparable across economies, a range of assumptions about the worker and the company are used. The company is assumed to be a limited liability manufacturing corporation that operates in the economy'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 economies where such agreements cover more than half the manufacturing sector and apply even to firms not party to them. Employment regulations are needed to allow efficient contracting between employers and workers and to protect workers from discriminatory or unfair treatment by employers. In its indicators on employing workers, Doing Business measures flexibility in the regulation of hiring, working hours and dismissal in a manner consistent with the conventions of the International Labour Organization (ILO). An economy can have the most flexible labor regulations as measured by Doing Business while ratifying and complying with all conventions directly relevant to the factors measured by Doing Business and with the ILO core labor standards. No economy can achieve a better score by failing to comply with these conventions. Governments all over the world face the challenge of finding the right balance between worker protection and labor market flexibility. But in developing countries especially, regulators often err to one extreme, pushing employers and workers into the informal sector. Analysis across economies shows that while employment regulation generally increases the tenure and wages of incumbent workers, overly rigid regulations may have 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. When economies err on the side of excessive rigidity, it is to the detriment of businesses and workers alike. 15 1. Historical data: Employing Workers in Venezuela Employing Workers data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 180 180 Rigidity of Employment Index 76 79 79 Firing costs (weeks of salary) not possible not possible not possible 2. The following graphs illustrates the Employing Workers indicators in Venezuela over the past 3 years: 16 3. Benchmarking Employing Workers Regulations: Venezuela is ranked 180 overall for Employing Workers. Ranking of Venezuela in Employing Workers - Compared to good practice and selected economies: * The following economies are also good practice economies for Employing Workers: Marshall Islands, Singapore 17 The following table shows Employing Workers data for Venezuela compared to good practice and comparator economies: Good Practice Rigidity of Firing costs Economies Employment (weeks of Index salary) Hong Kong, China* 0 New Zealand* 0 Selected Economy Venezuela 79 not possible Comparator Economies Argentina 35 95 Bolivia 79 not possible Brazil 46 37 Ecuador 51 135 Mexico 48 52 * The following economies are also good practice economies for : Rigidity of Employment Index: Maldives, Marshall Islands, Singapore, United States Firing costs (weeks of salary): Afghanistan, Denmark, Iraq, Marshall Islands, Micronesia, Palau, Puerto Rico, Tonga, United States 18 Formal property titles help promote the transfer of land, encourage investment and give entrepreneurs access to formal credit markets. But a large share of property in developing economies is not formally registered. Informal titles cannot be used as security in obtaining loans, which limits financing opportunities for businesses. Many governments have recognized this and started extensive property titling programs. But bringing assets into the formal sector is only part of the story. The more difficult and costly it is to formally transfer property, the greater the chances that formalized titles will quickly become informal again. Eliminating unnecessary obstacles to registering and transferring property is therefore important for economic development. Doing Business records the full sequence of procedures necessary for a business (buyer) to purchase a property from another business (seller) and to transfer the property title to the buyer's name. The property of land and building will be transferred in its entirety. The transaction is considered complete when the buyer can use the property as collateral for a bank loan. 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 economies 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). 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 economy cost 10% of the value of the property and takes on average 90 days. Worse, the property registries are so poorly organized that they provide little security of ownership. Efficient property registration reduces transaction costs and helps to formalize property titles. 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. Twenty-four economies made it easier to register property in 2007/08. The most popular reform: lowering the cost of registration by reducing the property transfer tax, registration fees or stamp duty. 19 1. Historical data: Registering Property in Venezuela Registering Property data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 84 92 Procedures (number) 8 8 8 Duration (days) 47 47 47 Cost (% of property value) 2.1 2.2 2.2 2. The following graphs illustrates the Registering Property indicators in Venezuela over the past 3 years: 20 3. Steps to Registering Property in Venezuela It requires 8 procedures, takes 47 days, and costs 2.18 % of property value to register the property in Venezuela. List of Procedures: 1. Obtain the Municipal Solvency Certificate at the Municipality 2. Obtain a certificate of solvency from the water company 3. Obtain a non-encumbrance certificate for the last 10 years from Registry 4. Sales agreement is drafted by lawyer 5. The sale agreement is presented to the Registry Office for its revision and taxes and fees are liquidated 6. Payment of taxes at a private commercial bank 7. Present all the documents to the Registry 8. The sale document is signed by the registrar More detail is included in the appendix. 21 4. Benchmarking Registering Property Regulations: Venezuela is ranked 92 overall for Registering Property. Ranking of Venezuela in Registering Property - Compared to good practice and selected economies: * The following economies are also good practice economies for Registering Property: Georgia, Saudi Arabia 22 The following table shows Registering Property data for Venezuela compared to good practice and comparator economies: Good Practice Procedures Duration Cost (% of Economies (number) (days) property value) New Zealand* 2 Norway* 1 Saudi Arabia 0.0 Selected Economy Venezuela 8 47 2.2 Comparator Economies Argentina 5 51 7.5 Bolivia 7 92 4.9 Brazil 14 42 2.7 Ecuador 9 16 2.2 Mexico 5 74 4.8 * The following economies are also good practice economies for : Procedures (number): Sweden Duration (days): Saudi Arabia, Sweden, Thailand 23 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: · 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. · 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. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. This year, three main changes were made; first, a standardized case scenario with specific assumptions was introduced to bring this indicator into line with other Doing Business indicators. Second, the indicator now focuses not on tangible movable collateral, such as equipment, but on revolving movable collateral, such as accounts receivable and inventory. Third, the indicator no longer considers whether management remains in place during a reorganization procedure, better accommodating economies that adopt reorganization procedures. The strength of legal rights index includes 8 aspects related to legal rights in collateral law and 2 aspects in bankruptcy law: · Any business may use movable assets as collateral while keeping possession of the assets, and any financial institution may accept such assets as collateral. · The law allows a business to grant a non possessory security right in a single category of revolving movable assets, without requiring a specific description of the secured assets. · The law allows a business to grant a non possessory security right in substantially all of its assets, without requiring a specific description of the secured assets. · A security right may extend to future or after-acquired assets and may extend automatically to the products, proceeds or replacements of the original assets. · General description of debts and obligations is permitted in collateral agreements and in registration documents, so that all types of obligations and debts can be secured by stating a maximum rather than a specific amount between the parties. · A collateral registry is in operation that is unified geographically and by asset type and that is indexed by the name of the grantor of a security right. · Secured creditors are paid first when a debtor defaults outside an insolvency procedure or when a business is liquidated. · Secured creditors are not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure. · The law allows parties to agree in a collateral agreement that the lender may enforce its security right out of court. 24 1. Historical data: Getting Credit in Venezuela Getting Credit data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 161 163 Legal Rights Index 3 3 3 Credit Information Index 0 0 0 Public registry coverage (% adults) 0.0 0.0 0.0 Private bureau coverage (% adults) 0.0 0.0 0.0 2. The following graphs illustrates the Getting Credit indicators in Venezuela over the past 3 years: 25 3. Benchmarking Getting Credit Regulations: Venezuela is ranked 163 overall for Getting Credit. Ranking of Venezuela in Getting Credit - Compared to good practice and selected economies: 26 The following table shows Getting Credit data for Venezuela compared to good practice and comparator economies: Good Practice Legal Rights Credit Public Private Economies Index Information registry bureau Index coverage (% coverage (% adults) adults) Malaysia* 10 New Zealand* 100.0 Portugal 76.4 United Kingdom 6 Selected Economy Venezuela 3 0 0.0 0.0 Comparator Economies Argentina 4 6 31.2 100.0 Bolivia 1 6 11.9 29.7 Brazil 3 5 20.2 62.2 Ecuador 3 5 37.7 46.8 Mexico 4 6 0.0 70.8 * The following economies are also good practice economies for : Legal Rights Index: Hong Kong, China, Kenya, Singapore Private bureau coverage (% adults): Argentina, Australia, Canada, Iceland, Ireland, Nicaragua, Norway, Sweden, United Kingdom, United States 24 countries have the highest credit information index. 27 Companies grow by raising capital, either through a bank loan or by attracting equity investors. Selling shares allows companies to expand without the need to provide collateral and repay bank loans. But investors worry about their money, and look for laws that protect them. A study finds that the presence of legal and regulatory protections for investors explains up to 73% of the decision to invest. In contrast, company characteristics explain only between 4% and 22%*. Good protections for minority shareholders are associated with larger and more active stock markets. Thus both governments and businesses have an interest in reforms strengthening investor protections. To document some of the protections investors have, Doing Business measures how economies regulate a standard case of self-dealing, use of corporate assets for personal gain. The case facts are straightforward. 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 prejudicial 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. *Doidge, Kardyi and Stulz (2007) 28 1. Historical data: Protecting Investors in Venezuela Protecting Investors data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 168 170 Investor Protection Index 2.7 2.7 2.7 2. The following graph illustrates the Protecting Investors index in Venezuela compared to best practice and selected Economies: 7.9 0.6 3.5 7.4 0.4 0.4 7.2 d co or w Zealan Brazil ivia Mexi gentina Ar Bol Ecuad nezuela Ve Ne Note: The higher the score, the greater the investor protection. 29 3. Benchmarking Protecting Investors Regulations: Venezuela is ranked 170 overall for Protecting Investors. Ranking of Venezuela in Protecting Investors - Compared to good practice and selected economies: 30 The following table shows Protecting Investors data for Venezuela compared to good practice and comparator economies: Good Practice Investor Economies Protection Index New Zealand 9.7 Selected Economy Venezuela 2.7 Comparator Economies Argentina 4.7 Bolivia 4.0 Brazil 5.3 Ecuador 4.0 Mexico 6.0 31 Taxes are essential. Without them there would be no money to provide public amenities, infrastructure and services which are crucial for a properly functioning economy. But particularly for small and medium size companies, they may opt out and choose to operate in the informal sector. One way to enhance tax compliance is to ease and simplify the process of paying taxes for such businesses. The Doing Business tax survey records the effective tax that a small and medium company must pay and the administrative costs of doing so. Imagine a medium-size business, TaxpayerCo, that started operations last year. Doing Business asks tax practitioners in 181 economies to review TaxpayerCo's financial statements and a standard list of transactions that the company completed during the year. Respondents are asked how much in taxes and mandatory contributions the business must pay and what the process is for doing so. The business starts from the same financial position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. Taxes and mandatory contributions are measured at all levels of government and include corporate income tax, turnover tax, all labor taxes and 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, sales 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, the frequency of payments and the number of agencies involved in our standardized case study. · Time, which measures the number of hours per year necessary to prepare and file tax returns and to pay the corporate income tax, value added tax, sales tax or goods and service tax and labor taxes and mandatory contributions. · Total tax rate, which measures the amount of taxes and mandatory contributions 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. Efficient tax systems tend to have less complex tax arrangements, comprising of straightforward compliance procedures and clear laws. Taxpayers in such economies often 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. 32 1. Historical data: Paying Taxes in Venezuela Paying Taxes data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 177 177 Time (hours) 864 864 864 Total tax rate (% profit) 50.8 54.6 56.6 Payments (number) 69 70 70 2. The following graphs illustrates the Paying Taxes indicators in Venezuela over the past 3 years: 33 3. Benchmarking Paying Taxes Regulations: Venezuela is ranked 177 overall for Paying Taxes. Ranking of Venezuela in Paying Taxes - Compared to good practice and selected economies: * The following economies are also good practice economies for Paying Taxes: Maldives, Qatar 34 The following table shows Paying Taxes data for Venezuela compared to good practice and comparator economies: Good Practice Payments Time (hours) Total tax rate Economies (number) (% profit) Luxembourg* 59 Sweden* 2 Vanuatu 8.4 Selected Economy Venezuela 70 864 56.6 Comparator Economies Argentina 9 453 108.1 Bolivia 41 1080 78.1 Brazil 11 2600 69.4 Ecuador 8 600 34.9 Mexico 27 549 51.5 * The following economies are also good practice economies for : Payments (number): Maldives, Qatar Time (hours): Bahamas, Bahrain, Maldives, Qatar, United Arab Emirates 35 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 bigger ships and faster planes, the world is shrinking. Global and regional trade agreements have reduced 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. Many entrepreneurs face numerous hurdles to exporting or importing goods, including delays at the border. They often give up. Others never try. In fact, the potential gains from trade facilitation may be greater than those arising from only tariff reductions. Doing Business compiles procedural requirements for trading a standard shipment of goods by ocean transport. Every 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 importer's 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. Payment is by letter of credit and the time and cost for issuing or securing a letter of credit is taken into account. To make the data comparable across countries, several assumptions about the business and the traded goods are used. The business is of medium size, employs 60 people, and is located in the periurban area of the economy's most populous city. It is a private, limited liability company, domestically owned, formally registered and operating under commercial laws and regulations of the economy. The traded goods are ordinary, legally manufactured products transported in a dry-cargo, 20-foot FCL (full container load) container. Documents recorded include port filing documents, customs declaration and clearance documents, as well as official documents exchanged between the parties to the transaction. Time is recorded in calendar days, from the beginning to the end of each procedure. Cost includes 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 duties. Economies 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 can lead 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 may avoid customs altogether. Instead, they smuggle goods across the border. This defeats the very purpose in having border control of trade to levy taxes and ensure high quality of goods. 36 1. Historical data: Trading Across Borders in Venezuela Trading Across Borders data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 163 164 Documents for export (number) 7 8 8 Time for export (days) 32 45 49 Cost to export (US$ per container) 525 2400 2590 Documents for import (number) 12 9 9 Time for import (days) 67 65 71 Cost to import (US$ per container) 900 2400 2868 2. The following graphs illustrates the Trading Across Borders indicators in Venezuela over the past 3 years: 37 3. Benchmarking Trading Across Borders Regulations: Venezuela is ranked 164 overall for Trading Across Borders. Ranking of Venezuela in Trading Across Borders - Compared to good practice and selected economies: 38 The following table shows Trading Across Borders data for Venezuela compared to good practice and comparator economies: Good Practice Documents Time for Cost to Documents Time for Cost to Economies for export export (days) export (US$ for import import (days) import (US$ (number) per (number) per container) container) Denmark* 5 France 2 2 Malaysia 450 Singapore 3 439 Selected Economy Venezuela 8 49 2590 9 71 2868 Comparator Economies Argentina 9 13 1480 7 18 1810 Bolivia 8 19 1425 7 23 1747 Brazil 8 14 1240 7 19 1275 Ecuador 9 20 1345 7 29 1332 Mexico 5 17 1472 5 23 2700 * The following economies are also good practice economies for : Time for export (days): Estonia, Singapore 39 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 is collected through study of the codes of civil procedure and other court regulations as well as through surveys completed by local litigation lawyers (and, in a quarter of the countries, by judges as well). The dispute concerns a contract for the sale of goods between two businesses (the Seller and the Buyer) both located in the economy's largest business city. The Seller sells and delivers goods, worth 200% of the economy's income per capita, to the Buyer. The Buyer refuses to pay on the grounds that they were not of adequate quality. The Seller sues the Buyer to recover the amount under the sales agreement (200% of the economy's income per capita). The claim is filed before a court in the economy's largest business city with jurisdiction over commercial cases worth 200% of the income per capita and is disputed on the merits. Judgment is 100% in favor of the Seller and is not appealed. Seller enforces the judgment and the money is successfully collected through a public sale of Buyer's assets. Rankings on enforcing contracts are based on 3 sub-indicators: · Number of procedures, which are defined as any interaction between the parties or between them and the judge or court officer. This includes steps to file the case, steps for trial and judgment and steps necessary to enforce the judgment. · Time, which counts the number of calendar days from the moment the Seller files the lawsuit in court until payment is received. This includes both the days on which actions take place and the waiting periods in between. · Cost, which is recorded as a percentage of the claim (assumed to be equivalent to 200% of income per capita). Three types of costs are recorded: court costs (including expert fees), enforcement costs (including costs for a public sale of Buyer's assets) and attorney fees. Justice delayed is often justice denied. And in many economies only the rich can afford to go to court. For the rest, justice is out of reach. In the absence of efficient courts, firms undertake fewer investments or business transactions. And they prefer to involve only a small group of people who know each other from previous dealings. 40 1. Historical data: Enforcing Contracts in Venezuela Enforcing Contracts data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 70 71 Procedures (number) 29 29 29 Duration (days) 510 510 510 Cost (% of claim) 43.7 43.7 43.7 2. The following graphs illustrates the Enforcing Contracts indicators in Venezuela over the past 3 years: 41 3. Benchmarking Enforcing Contracts Regulations: Venezuela is ranked 71 overall for Enforcing Contracts. Ranking of Venezuela in Enforcing Contracts - Compared to good practice and selected economies: 42 The following table shows Enforcing Contracts data for Venezuela compared to good practice and comparator economies: Good Practice Procedures Duration Cost (% of Economies (number) (days) claim) Iceland* 6.2 Ireland 20 Singapore 150 Selected Economy Venezuela 29 510 43.7 Comparator Economies Argentina 36 590 16.5 Bolivia 40 591 33.2 Brazil 45 616 16.5 Ecuador 39 588 27.2 Mexico 38 415 32.0 * The following economies are also good practice economies for : Cost (% of claim): Bhutan 43 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 the parties 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 laws are inefficient, 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. 44 1. Historical data: Closing Business in Venezuela Closing a Business data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 149 149 Time (years) 4.0 4.0 4.0 Cost (% of estate) 38 38 38 Recovery rate (cents on the dollar) 6.7 6.6 6.0 2. The following graphs illustrates the Closing Business indicators in Venezuela over the past 3 years: 45 3. Benchmarking Closing Business Regulations: Venezuela is ranked 149 overall for Closing a Business. Ranking of Venezuela in Closing Business - Compared to good practice and selected economies: 46 The following table shows Closing Business data for Venezuela compared to good practice and comparator economies: Good Practice Recovery rate Time (years) Cost (% of Economies (cents on the estate) dollar) Ireland 0.4 Japan 92.5 Singapore* 1 Selected Economy Venezuela 6.0 4.0 38 Comparator Economies Argentina 29.8 2.8 12 Bolivia 37.3 1.8 15 Brazil 17.1 4.0 12 Ecuador 16.1 5.3 18 Mexico 64.2 1.8 18 * The following economies are also good practice economies for : Cost (% of estate): Colombia, Kuwait, Norway 47 Number of reforms in Doing Business 2009 Positive Reform Borders Negative Reform Construction Total Businessa Workers Property Investors number with Credit Across Contracts Taxes Businessa of reforms Rank Economy Starting Dealing Permits Employing Registering Getting Protecting Paying Trading Enforcing Closing 1 Azerbaijan 7 2 Albania 4 3 Kyrgyz Republic 3 4 Belarus 6 5 Senegal 3 6 Burkina Faso 4 7 Botswana 3 8 Colombia 5 9 Dominican Republic 4 10 Egypt 6 Venezuela 0 Bolivia 0 Argentina 1 Brazil 1 Ecuador 1 Mexico 2 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 improvement, the higher the ranking as a reformer. 48 Albania Albania, a top reformer globally and regionally, established a public credit registry allowing financial institutions to share credit information and covering 8.3 percent of the adult population. This reform allows banks to better evaluate the creditworthiness of potential borrowers, facilitating access to credit for firms and individuals. Albania also strengthened investor protections. A new company law requires that disinterested shareholders approve transactions between interested parties and obligates those parties to disclose all information on the transaction to the public. The law also reinforces directors' duties and requires directors, when found liable, to pay damages and return profits to the company. Starting a business became easier with online publication, reduction of the registration cost, and the consolidation of tax, health insurance, and labor registration into a single application. The corporate income tax rate was reduced from 20 percent to 10 percent effective January 1, 2008. Argentina Argentina reduced the severance payment for a worker with 20 years of seniority from 30 months to 20. After its unemployment rate fell below 10%, a 2007 decree abolished the 50% increase in severance payments that had been part of "emergency laws" adopted in 2002. Azerbaijan Azerbaijan, the top reformer globally and regionally, eliminated the minimum threshold for reporting loans to the public credit registry in September 2007. The public registry now records information on all loans made by the financial system, more than doubling the coverage of borrowers with a credit history. Substantial amendments to the labor code in May 2007 made hiring workers easier by allowing employers to use fixed-term contracts for permanent tasks, easing restrictions on night work, and reducing requirements for redundancy dismissals. Azerbaijan created a second commercial court in Baku, increasing the number of judges dealing with commercial cases from five to nine. The average time to enforce a contract through the courts fell from 267 days to 237. A new law strengthens investor protections by requiring that transactions between interested parties be approved by shareholders. Interested parties are allowed to vote on the matter. Other provisions protect investors because directors who are held liable must pay damages and disgorge profits. Azerbaijan introduced a new unified property registry, reducing the number of procedures required to register property from seven to four. In addition, the State Register Service introduced the option of expediting two of the four procedures, making it possible to register property in 11 days. Similarly, the country created a one-stop shop for company registration, cutting the number of procedures from 13 to six and reducing the time required by half. Azerbaijan reduced the tax burden by introducing an online filing and payment system with advanced accounting software for calculating taxes due. This saves more than 500 hours a year on average in dealing with paperwork. Belarus In Belarus, a top reformer globally and regionally, the public credit registry expanded credit information by eliminating the minimum threshold for loans recorded in its database. It also guaranteed the right of borrowers to review their data, improving accuracy. Starting a business became easier: a unified registry database was created, a time limit was introduced for registration, and the minimum capital requirement was cut by half. Belarus created a one-stop shop for property registration and introduced a broad administrative simplification program that set strict time limits at the registry and computerized its records. As a result, the time required to register property in Minsk fell from 231 days to 21. The time required for dealing with construction permits fell by 140 days, thanks to new statutory time limits for preapproval clearances and building permits. Belarus eased the tax burden by abolishing the "Chernobyl tax" (3 percent) and unemployment tax (1 percent) and amending the simplified tax system for small businesses. A new customs code and new banking regulations reduced the time to export Bolivia Bolivia suspended applications for voluntary restructuring of financially distressed companies. The only option now is a lengthy bankruptcy procedure that typically takes years. Botswana Botswana improved its business environment by speeding the start-up process through computerization. A similar effort, which included training customs officers in using an electronic data interchange system, sped the processing of trade documents and reduced the time to export by two days and the time to import by a day. A new Company Act has come into force, requiring that shareholders approve related-party transactions and that directors repay damages and surrender profits if held liable. Finally, since January 2008, companies have been required to pay 0.2 percent of turnover for the training of workers. Brazil Brazil reduced the time to export by four days. Authorities merged the current manifest reporting system, "Merchante" (for imports) and "Siscomex" (for exports) into a new and unique system, "Siscomex Carga." Due to an increase in the shares of traders allotted "green line" status, the number of inspections was reduced, speeding up the customs process. 49 Burkina Faso Burkina Faso eliminated random inspections during construction. It also introduced a new one-stop shop for construction permits, which reduced approval fees and combined five separate payments into a single one. A new labor code, approved in May 2008, makes hiring workers easier by allowing employers to use fixed-term contracts for permanent tasks, removing the 48-month limit on the duration of such contracts, and easing restrictions on determining the weekly rest day. Requirements for redundancy dismissals were also eased: third-party notification and consent are no longer required for dismissal of a single worker, and priority rules for dismissals were abolished. Burkina Faso made it easier to transfer property by eliminating the requirement for authorization from the municipality, merging two taxes at the Land Registry (Conservation Foncière), and reducing the transfer tax. The changes reduced the time required by 46 days and the cost by 2 percent of the property value. Finally, Burkina Faso reduced the corporate income tax rate from 35 percent to 30 percent (effective January 1, 2008), and the tax on dividends from 15 percent to 12.5 percent. Colombia Colombia, a top global and regional reformer, improved in five of the 10 Doing Business indicators. It reduced the time and cost to start a business by simplifying registration formalities, including speeding up processes at the registry and eliminating the need to obtain a certificate of compliance with zoning regulations. A silence-is-consent principle for building permits is now applied, reducing the total time for dealing with construction permits by 32 days. A new unified application form was introduced. Colombia made electronic social security contributions mandatory for companies with more than 30 employees and created unified electronic forms for filing taxes. Trading across borders was expedited: better banking services and the implementation of e-payments, electronic data interchange, and coordinated inspections in customs reduced the time to export by 10 days and the time to import by five. Authorities also introduced two new insolvency proceedings: a reorganization procedure to restructure insolvent companies and a mandatory liquidation procedure. Its new insolvency law tightens time limits for negotiating reorganization agreements. Before, the term allowed was six months, with a possible extension of eight months. The new law limits the term to four months, and the extension to two. Dominican Republic The Dominican Republic, a top global and regional reformer, sped up formalities in several areas by making them electronic. An online system for filing and paying taxes, piloted in 2006, is now fully operational. And entrepreneurs can complete several start-up formalities online, including name verification, and commercial and tax registration. The Dominican Republic also reduced the corporate income tax rate from 29% to 25%, and abolished several taxes, including the stamp duty. The cost of property registration fell, thanks to a reduction in the transfer tax from 4.3% to 3%. Transferring property now costs 3.8% of the property value, down from 5.1%. In addition, authorities reduced the time to export by three days by improving the online portal for customs documentation and payment. Ecuador Ecuador streamlined the trade process through improvements in port infrastructure and banking services and a reduction in the number of documents required. The changes reduced the time to export by two days and the time to import by 15. Egypt Egypt was once again among the top 10 global reformers--the third time in 4 years--and top regional reformer this year. Egypt made starting a business easier by reducing the paid-in minimum capital requirement by more than 80%, abolishing bar association fees, and automating tax registration. A new building code introduced in 2008 is aimed at reducing the procedures and time required to deal with construction permits by establishing a single window for processing construction-related approvals. Simplified administrative procedures for registering property and new time limits have reduced the time to transfer property in Cairo from 193 days to 72. The port of Alexandria continued to upgrade its facilities and sped customs clearance, reducing the time to export by 1 day and the time to import by 3. New listing rules for the Cairo Stock Exchange strengthened protections for minority shareholders: now an independent body must assess transactions between interested parties before they are approved. And thanks to new regulations issued by the Central Bank of Egypt, borrowers have the right to inspect their data in the private credit bureau. Kyrgyz Republic The Kyrgyz Republic, a top reformer globally and regionally, strengthened investor protections through legal amendments allowing minority investors to take legal actions as shareholders. The amendments also require an independent assessment of a related-party transaction before it is approved. Moreover, directors can be held liable for negligence if they harm minority shareholders and will be forced to pay damages and disgorge profits. A new one-stop shop made it easier to start a business by streamlining and simplifying business registration processes and eliminating certain requirements such as proof of residence. Obtaining a company seal became optional. Dealing with construction permits also became easier, thanks to a one-stop shop making it possible to obtain a designing permit, construction license, and occupancy permit at a single place. This reform eliminated nine steps, reduced the time required by almost 6 months, and lowered the cost from 759 percent of income per capita to 406 percent. 50 Mexico Mexico introduced a new tax law that abolishes the asset tax (IMPAC) and the possible eventual amalgamation of income tax applicable to corporations and individuals with business activities. A new withholding tax on cash deposit interest is being implemented, and new reporting rules were introduced for value-added tax. Mexico also amended its bankruptcy law to make reorganization more accessible. Now debtors and creditors may enter into a reorganization agreement at any stage of the insolvency procedure, which is expected to speed the process. Senegal Senegal's one-stop shop for business start-up became fully operational, merging more than half the procedures and speeding the process as a result. Similarly, the introduction of time limits at the Land Registry and the Directorate of Taxes and Property sped property registration. The top reformer globally in easing trade, Senegal introduced a single window for customs clearance, cutting document requirements in half. It also set up an electronic data interchange system, implemented risk-based inspections, extended the operating hours of customs, and improved port and road infrastructure. Venezuela Venezuela reintroduced a tax on financial transactions, which is levied at a rate of 1.5% on all payments made to third parties. The tax, which had been abolished in February 2006, was levied at a rate of 0.5% before. 51 APPENDICES Starting a Business in Venezuela This table summarizes the procedures and costs associated with setting up a business in Venezuela. STANDARDIZED COMPANY Legal Form: Sociedad Anónima (SA) Minimum Capital Requirement: City: Caracas Registration Requirements: No: Procedure Time to complete Cost to complete 1 Reserve company name 1 day VEF 115 2 Obtain an approval of the company name. 3 days no charge 3 Lawyer must prepare and legalize the company's constitutive 5 days VEF 1,250 documents and social statutes. 4 Open bank account 1 day no charge 5 Register at the local mercantile registry (Registro Mercantil) 30 days 1% of capital + VEB 92 (fixed fee) + VEB 230 fiscal rights (fixed fee) + 4.6 VEF per page + 9.2 VEF per page stamp tax (for original document, registry copy, and company copy) 6 * Publish articles in a local newspaper (Gaceta Forense del Registro 3 days (included in VEF 63 Mercantil) previous procedure) (approximately VEF 7 per page) 7 * Register company books 1 day Per book: VEF 0.03 x U.T. + VEF 0.001 x U.T. (per page) Each book has 100 pages 8 Register at the local Servicio Nacional Integrado de Administración 1 day no charge Aduanera y Tributaria (SENIAT) with Registro Unico de Información Fiscal (RIF) to obtain fiscal number 9 Obtain tax clearance certificate at municipal level (Instituto Municipal 1 day VEF 9 de Aseo Urbano). 10 Register with the Ministry of Labor 1 day no charge 52 11 Go through a labor inspection (by the Labor Inspectorate). 8 days VEF 0.1 (stamp cost) 12 Register for social security at a local regional fund. 90 days (simultaneous no charge with procedure 12) 13 * Register at the National Educational Co-operation Institute 1 day no charge 14 * Obtain fire approval and undergo an inspection. 28 days (simultaneous no charge with procedure 11) 15 * Obtain conformity of use certificate (zoning permit) 15 days (simultaneous VEF 230 (5 UT) + with procedure 11) 0.92 (0.02 UT) stamp 16 * Obtain industrial or commercial license from competent municipality 50 days (simultaneous VEF 461 (VEF 460 with procedure 11) (10 UT) administration fee + VEF 0.92 (0.02 UT) stamp tax) * Takes place simultaneously with another procedure. 53 Procedure 1 Reserve company name Time to complete: 1 day Cost to complete: VEF 115 Comment: To reserve a company name, founders must buy the name search form (busqueda de la denominación) at the Registro Mercantil. Fee schedule to reserve company name: Search for company name: VEB 18,816. Reservation of company name: VEB 75,264. Procedure 2 Obtain an approval of the company name. Time to complete: 3 days Cost to complete: no charge Comment: After reserving the company name, the applicant must pay the cited fee at a bank and return to the Registry 3 days later to show the bank deposit slip and obtain the company name approval. Procedure 3 Lawyer must prepare and legalize the company's constitutive documents and social statutes. Time to complete: 5 days Cost to complete: VEF 1,250 Comment: Legal assessment is required in the procurement of the company incorporation documents; the assessment must follow all formalities cited in Articles 211 to 215 of the Code of Commerce. Procedure 4 Open bank account Time to complete: 1 day Cost to complete: no charge Comment: The Mercantile Registry requires evidence of a bank account. Although founders commonly deposit 20% of declared capital, there is no minimum amount; by law, the Registrar determines the required amount. Procedure 5 Register at the local mercantile registry (Registro Mercantil) Time to complete: 30 days Cost to complete: 1% of capital + VEB 92 (fixed fee) + VEB 230 fiscal rights (fixed fee) + 4.6 VEF per page + 9.2 VEF per page stamp tax (for original document, registry copy, and company copy) Comment: Founders must register with the local mercantile registry. This procedure must be done within 30 days of name reservation. The employer must fill out and submit a registration (derechos registrales) form. The company registration and incorporation fees are linked to a measure called the tax unit (UT), which the government updates at least once a year. The UT was increased from VEB 37,632 in 2007 to VEF 46 on January 22, 2008 (equivalent to 46,000 VEB). 54 Fee schedule for company registration and incorporation: - 1% of the total subscribed capital. - 2 UT fixed rate plus 0.1 UT per page. - 5 UT fixed rate for fiscal rights plus 0.1 UT per page. - 0.02 UT fiscal stamps per page of the original document. - 0.02 UT fiscal stamps per page/per copy for the Registry. - 0.02 UT fiscal stamps per page/per certified copy for the company. Procedure 6 Publish articles in a local newspaper (Gaceta Forense del Registro Mercantil) Time to complete: 3 days (included in previous procedure) Cost to complete: VEF 63 (approximately VEF 7 per page) Comment: Procedure 7 Register company books Time to complete: 1 day Cost to complete: Per book: VEF 0.03 x U.T. + VEF 0.001 x U.T. (per page) Each book has 100 pages Comment: Companies must register company books, including the greater, daily, inventory, acts, and shareholders' books. Procedure 8 Register at the local Servicio Nacional Integrado de Administración Aduanera y Tributaria (SENIAT) with Registro Unico de Información Fiscal (RIF) to obtain fiscal number Time to complete: 1 day Cost to complete: no charge Comment: Procedure 9 Obtain tax clearance certificate at municipal level (Instituto Municipal de Aseo Urbano). Time to complete: 1 day Cost to complete: VEF 9 Comment: Procedure 10 Register with the Ministry of Labor Time to complete: 1 day Cost to complete: no charge Comment: The company and the company's employees are registered separately with the Ministry of Labor. The registration also includes the Statistical Register, the Surveyor's Register, and the Department of Hygiene and Security. Procedure 11 Go through a labor inspection (by the Labor Inspectorate). Time to complete: 8 days 55 Cost to complete: VEF 0.1 (stamp cost) Comment: Procedure 12 Register for social security at a local regional fund. Time to complete: 90 days (simultaneous with procedure 12) Cost to complete: no charge Comment: Registering for social security can take up to 6 months. Incorporators often must contact the Regional Fund two or three times a week to ensure that a social security number is being issued. Procedure 13 Register at the National Educational Co-operation Institute Time to complete: 1 day Cost to complete: no charge Comment: Employers with a minimum of five employees must register at the National Educational Co-operation Institute; the employees' social security numbers are required. Procedure 14 Obtain fire approval and undergo an inspection. Time to complete: 28 days (simultaneous with procedure 11) Cost to complete: no charge Comment: It takes 8 days for assignment of an operating inspector and 15­20 days for a response. Procedure 15 Obtain conformity of use certificate (zoning permit) Time to complete: 15 days (simultaneous with procedure 11) Cost to complete: VEF 230 (5 UT) + 0.92 (0.02 UT) stamp Comment: Documents required are the mercantile registration, external building maps, and a photo of the premises. Procedure 16 Obtain industrial or commercial license from competent municipality Time to complete: 50 days (simultaneous with procedure 11) Cost to complete: VEF 461 (VEF 460 (10 UT) administration fee + VEF 0.92 (0.02 UT) stamp tax) Comment: To obtain an industrial or commercial license from a competent municipality, the founders must file copies of registration, a sanitation certificate, the lease of the premises, the latest balance sheet, and a declaration of the number of employees. 56 Dealing with Construction Permits in Venezuela The table below summarizes the procedures, time, and costs to build a warehouse in Venezuela. BUILDING A WAREHOUSE Date as of: January 2,008 Estimated Warehouse Value: City: Caracas Registration Requirements: No: Procedure Time to complete Cost to complete 1 Request and obtain the assignment of the basic urban variables for land 150 days VEF 1 development 2 * Pay the corresponding fees at the bank 1 day VEF 23,801 3 * Request and obtain a certificate of compliance with basic urban variables 42 days no charge for buildings 4 * Request and obtain a certificate from the Zoning and Road Construction 126 days VEF 22,604 Division 5 Request and obtain a certificate of compliance with urban variables and a 42 days no charge certificate of construction startup 6 Request and receive a fire inspection 1 day VEF 322 7 Receive final inspection and obtain construction completion certificate 14 days no charge 8 * Request and connect to water supply and sewage service 187 days no charge 9 * Request and connect to electric power service 187 days VEF 22 10 * Request and connect to a regular telephone line 30 days VEF 250 11 * Register the building at the Subordinate Registry (Registro Subalterno) 14 days VEF 7,000 * Takes place simultaneously with another procedure. 57 Procedure 1 Request and obtain the assignment of the basic urban variables for land development Time to complete: 150 days Cost to complete: VEF 1 Comment: BuildCo must request assignment of the Basic Urban Variables stipulated by the Organic Law for Urban Development. Alternatively, a preliminary consultation or an architectural draft is prepared in order to assess compliance with the Basic Urban Variables for Buildings. The taxable unit was increased from VEB 33,600 to VEB 37,632. This increase has become effective since publication in the Official Gazette of January of 2007. Procedure 2 Pay the corresponding fees at the bank Time to complete: 1 day Cost to complete: VEF 23,801 Comment: Municipal taxes and fees are paid at any commercial bank at which the municipality has an account. Procedure 3 Request and obtain a certificate of compliance with basic urban variables for buildings Time to complete: 42 days Cost to complete: no charge Comment: The certificate of compliance with Basic Urban Variables is required to begin the construction. Procedure 4 Request and obtain a certificate from the Zoning and Road Construction Division Time to complete: 126 days Cost to complete: VEF 22,604 Comment: BuildCo must obtain from the Zoning and Road Construction Division (Dirección de Desarrollo Urbano y Catastro del Municipio) a certificate stating that the new project is compatible with the existing or planned roads. Procedure 5 Request and obtain a certificate of compliance with urban variables and a certificate of construction startup Time to complete: 42 days Cost to complete: no charge Comment: The general building project must be submitted to the Zoning and Road Construction Division (Dirección de Desarrollo Urbano y Catastro del Municipio) to obtain the certificate of compliance with urban variables and the certificate of construction startup. Procedure 6 Request and receive a fire inspection Time to complete: 1 day 58 Cost to complete: VEF 322 Comment: This inspection is requested at the municipal fire station. The fire inspection approval certificate is delivered by the Fire Department the day after the inspection is performed, provided that the building complies with the Fire Department regulations and the Commission for Industrial Standards (COVENIN) standards. If the building does not comply with these regulations, the Fire Department draws up a report stating that the inspection has not been approved and detailing those aspects that must be corrected in the building in order to pass the fire inspection. The approximate waiting time is 2 weeks. Procedure 7 Receive final inspection and obtain construction completion certificate Time to complete: 14 days Cost to complete: no charge Comment: Once the construction has been completed, a construction completion certificate must be obtained. To obtain the permit, the Fire Department certificate is mandatory, as is compliance with all applicable regulations. Procedure 8 Request and connect to water supply and sewage service Time to complete: 187 days Cost to complete: no charge Comment: For a consumption of 3,600 liters per month, the cost is VEB 2,366,813.60. For a consumption of 2,000 liters per month, the cost is VEB 1,322,038.68. Water supply is obtained through connection to the sector's main pipeline, following a request to the corresponding company, which, in this case, is Hidrocapital. In some cases, buildings have their own groundwater well, making it unnecessary to request water supply services from Hidrocapital. Connection to the sewage system depends on whether this service exists in the sector where the building is located. If there is no sewage system, the Zoning and Road Construction Division (Dirección de Desarrollo Urbano y Catastro) requires the installation of septic tanks or waste treatment plants for wastes to be treated before being discharged into the environment. Depending on the size of the building and its intended use, the appropriate permits must be requested at the Ministry of People's Power for Environment (changed in 2007 from the Ministry of the Environment and Natural Resources), because such wastes might have a negative impact on the environment. Due to a backlog and a massive number of applications, this takes on average 6 months. Procedure 9 Request and connect to electric power service Time to complete: 187 days Cost to complete: VEF 22 Comment: The connection cost is calculated as follows: - One phase (110 volts): VEB 5,000. - Two or three phases (220­330 volts): VEB 22,000. - Three phases: VEB 22,000. Due to a backlog and a massive number of applications, this procedure takes on average 6 months. 59 Procedure 10 Request and connect to a regular telephone line Time to complete: 30 days Cost to complete: VEF 250 Comment: The application for a regular telephone line is made by calling the client call centers of the telephone companies, and the process depends on telephone line availability in the sector where the building is located. The company in charge of regular telephone lines in commercial residences and establishments is called the Compañía Anónima Nacional de Teléfonos (CANTV). At present, competition from cellular phone companies is reducing the demand for regular telephone lines. Procedure 11 Register the building at the Subordinate Registry (Registro Subalterno) Time to complete: 14 days Cost to complete: VEF 7,000 Comment: The building may be registered at the Subordinate Registry (Registro Subalterno) during or after construction. The title to the land on which the building is constructed and building plans must be submitted so Registry officials can calculate the building registration fee. 60 Employing Workers in Venezuela Employing workers indices are based on responses to survey questions. The table below shows these responses in Venezuela. Employing Workers Indicators (2008) Answer Score Rigidity of Employment Index 79.3 Difficulty of Hiring Index 77.8 Are fixed-term contracts prohibited for permanent tasks? Yes 1 What is the maximum duration of fixed-term contracts (including renewals)? (in months) 24 1.0 What is the ratio of mandated minimum wage to the average value added per worker? 0.29 0.33 Rigidity of Hours Index 60.0 Can the workweek extend to 50 hours (including overtime) for 2 months per year to Yes 0 respond to a 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 30 1 service? Difficulty of Firing Index 100.0 Is the termination of workers due to redundancy legally authorized? No 10 Must the employer notify a third party before terminating one redundant worker? N/A 0 Does the employer need the approval of a third party to terminate one redundant worker? N/A 0 Must the employer notify a third party before terminating a group of 25 redundant N/A 0 workers? Does the employer need the approval of a third party to terminate a group of 25 redundant N/A 0 workers? Is there a retraining or reassignment obligation before an employer can make a worker N/A 0 redundant? Are there priority rules applying to redundancies? N/A 0 Are there priority rules applying to re-employment? N/A 0 61 Firing costs (weeks of salary) What is the notice period for redundancy dismissal after 20 years of continuous not possible employment? (weeks of salary) What is the severance pay for redundancy dismissal after 20 years of employment? (weeks of not possible salary) What is the legally mandated penalty for redundancy dismissal? (weeks of salary) not possible 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 Venezuela This topic examines the steps, time, and cost involved in registering property in Venezuela. STANDARDIZED PROPERTY Property Value: 783,240.00 City: Caracas Registration Requirements: No: Procedure Time to complete Cost to complete 1 * Obtain the Municipal Solvency Certificate at the 14 days (simultaneous VEF 50.6 (VEF 46 or 1 Tax Municipality with procedures 2 and Unit for administrative fees 3) + VEF 4.6 or 0,1 Tax Unit) 2 * Obtain a certificate of solvency from the water company 10 days (simultaneous VEF 5 with procedures 1 and 3) 3 * Obtain a non-encumbrance certificate for the last 10 years 2 days (simultaneous VEF 257.60 for from Registry with procedures 1 and administrative fee 2) 4 Sales agreement is drafted by lawyer 2 days Lawyer's fees according to a cumulative schedule and for this case it would be 11811.10 5 The sale agreement is presented to the Registry Office for 1 day no cost its revision and taxes and fees are liquidated 6 Payment of taxes at a private commercial bank 1 day 0.1% of purchase price (Servicios Autónomos) + 0.5% of purchase price (Income Tax) + VEF 230 (5 Tax Unit) 7 Present all the documents to the Registry 14 ­ 28 days VEF 48.9 8 The sale document is signed by the registrar 1 day no cost * Takes place simultaneously with another procedure. 63 Procedure 1 Obtain the Municipal Solvency Certificate at the Municipality Time to complete: 14 days (simultaneous with procedures 2 and 3) Cost to complete: VEF 50.6 (VEF 46 or 1 Tax Unit for administrative fees + VEF 4.6 or 0,1 Tax Unit) Comment: The Municipal Solvency Certificate ("Certificado de Solvencia Municipal"), showing the tax solvency on urban immovables, must be obtained at the pertinent cadastre of the municipality where the immovable is located. For this, the seller must request the statement of account of the immovable that he wishes to dispose of, and proceed to the pertinent payment. The costs have changed for the increase of the tax unit on January 22, 2008, from VEB 37.632, to VEF 46 equivalent to VEB 46,000.00 according to official gazette number 38.855. Procedure 2 Obtain a certificate of solvency from the water company Time to complete: 10 days (simultaneous with procedures 1 and 3) Cost to complete: VEF 5 Comment: The seller presents his latest water bill that he has paid in order to obtain a certificate of solvency (solvencia de servicio) from the water company, Hidrocapital. Procedure 3 Obtain a non-encumbrance certificate for the last 10 years from Registry Time to complete: 2 days (simultaneous with procedures 1 and 2) Cost to complete: VEF 257.60 for administrative fee Comment: The certificate of encumbrances is not legally required, but it is usually obtained in practice (and requested by the purchaser). The costs have changed for the increase of the tax unit on January 22, 2008, from VEB 37.632, to VEF 46 equivalent to VEB 46,000.00 according to official gazette number 38.855. This example is a case of a title ten years old. Procedure 4 Sales agreement is drafted by lawyer Time to complete: 2 days Cost to complete: Lawyer's fees according to a cumulative schedule and for this case it would be 11811.10 Comment: According to the "Ley de Abogados", all documents that are presented to the Registry have to be approved by a lawyer. In practice, the lawyer also drafts the sales agreement. The lawyer's fees were estimated based on the "Reglamento de Honorario Mínimo", but are not binding on lawyers in Caracas. Procedure 5 The sale agreement is presented to the Registry Office for its revision and taxes and fees are liquidated Time to complete: 1 day Cost to complete: no cost 64 Comment: The sale agreement is presented to the local Registry Office for its revision and the calculation of taxes and fees. After a careful revision, the registrar calculates the taxes due to the Servicio Nacional Integrado de Administración Tributaria (SENIAT), or National Tax Authority that will equal 1% of the purchase price. The payments due for Servicios Autonomos amount to 10% of the payments made to SENIAT (0.1% of purchased price). It must be noted that the tax to SENIAT is not actually paid. The law on public registries (Ley de Registro Público) has been derogated by 1999, but the payment of this tax went on until the Supreme Court declared it unconstitutional in 2001. The new law, trying to change the system of registration in Venezuela, did not address these taxes, so that there is a legal vacuum on these matters. The same happens with the payments to Servicios Autonomos. However, Servicios Autonomos is still being paid, despite its lack of legality, because the public registries are financed with these funds. Otherwise, public registries should be closed. The SENIAT payment is calculated just to compute the payment to Servicios Autónomos. Procedure 6 Payment of taxes at a private commercial bank Time to complete: 1 day Cost to complete: 0.1% of purchase price (Servicios Autónomos) + 0.5% of purchase price (Income Tax) + VEF 230 (5 Tax Unit) Comment: After the presentation of the sale agreement to the Registry Office, the taxes due to Servicios Autónomos are paid in a private bank. The Income Tax must also be paid at the same private bank (0.5% of purchase price), and as a tax of VEF 230 (dquivalent to VEB 230,000.00 or 5 Tax Unit) is due to the Hacienda Publica Municipal and paid to its account at the bank. Procedure 7 Present all the documents to the Registry Time to complete: 14 ­ 28 days Cost to complete: VEF 48.9 Comment: The user must go to the "Departamento de Presentaciones" in the Registry's office and present the sale document, the payments receipts and the Municipal Solvency Certificate obtained at the Municipality. The document is reviewed carefully by the Revision Department, verifying the identity of the owners, boundaries, the fulfillment of judicial decisions related to the property, and other information. The date for the signature by the registrar is set and parties must come back on that day for the final step. Since 2005, staff at the Registry is inclined to use discretion (jurisprudencia) in dealing with cases and may ask the clients two times for extra documents, thus delaying this procedure. The documentation shall include: Certificado de Solvencia Municipal (obtained in Procedure 1) Tax payment receipts (obtained in Procedure 5) Copy of RIF (Registro de Información Fiscal or Fiscal Information Register) of both buyer and seller If there is any authorization by the meetings of the pertinent companies, copies of those authorizing the sale of the immovable. If acting through an attorney-in-fact, a copy of his/her identity card and a copy of the power-of-attorney. Procedure 8 The sale document is signed by the registrar 65 Time to complete: 1 day Cost to complete: no cost Comment: The sale document is signed by the Registrar under the presence of the parties and two witnesses. 66 Getting Credit in Venezuela The following table summarize legal rights of borrowers and lenders, and the availability and legal framework of credit registries in Venezuela. Getting Credit Indicators (2008) Indicator score Private credit Public credit Private bureau coverage (% adults) 0 bureau registry Are data on both firms and individuals distributed? No No 0 Are both positive and negative data distributed? No No 0 Does the registry distribute credit information from retailers, trade No No 0 creditors or utility companies as well as financial institutions? Are more than 2 years of historical credit information distributed? No No 0 Is data on all loans below 1% of income per capita distributed? No No 0 Is it guaranteed by law that borrowers can inspect their data in the No No 0 largest credit registry? Coverage 0.0 0.0 Number of individuals 0 .. Number of firms 0 .. Legal Rights Index 3 Can any business use movable assets as collateral while keeping possession of the assets; and any financial No institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of revolving movable No assets, without requiring a specific description of the secured assets ? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without No requiring a specific description of the secured assets ? May a security right extend to future or after-acquired assets, and may it extend automatically to the products, Yes proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements, so that all types of obligations No and debts can be secured by stating a maximum amount rather than a specific amount between the parties ? Is a collateral registry in operation, that is unified georgraphically and by asset type, as well as indexed by the No grantor's name of a security right ? 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 67 During reorganization, are secured creditors' claims exempt from an automatic stay on enforcement? No Does the law authorize parties to agree on out of court enforcement? No 68 Protecting Investors in Venezuela The table below provides a full breakdown of how the disclosure, director liability, and shareholder suits indexes are calculated in Venezuela. Protecting Investors Data (2008) Indicator Disclosure Index 3 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) 0 Disclosures in published periodic filings (0-2; see notes) 0 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 3 Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller 0 transaction causes to the company. (0-2; see notes) Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) 1 liable for for damage to the company. (0-2; see notes) Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 (0-2; see notes) Whether Mr. James pays damages for the harm caused to the company upon a successful 0 claim by the 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) 1 Shareholder plaintiff's ability to sue directly or derivatively for damage the transaction 1 causes to the company (0-1; see notes) Shareholder Suits Index 2 Documents available to the plaintiff from the defendant and witnesses during trial (0-4; see 0 notes) Ability of plaintiffs to directly question the defendant and witnesses during trial (0-2; see 2 notes) Plaintiff can request categories of documents from the defendant without identifying specific 0 ones (0=no, 1=yes) Shareholders owning 10% or less of Buyer's shares can request an inspector investigate the 0 transaction (0=no, 1=yes) 69 Level of proof required for civil suits is lower than that for criminal cases (0=no, 1=yes) 0 Shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 0 filing suit (0=no, 1=yes) Investor Protection Index 2.7 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 70 Paying Taxes in Venezuela The table below addresses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year in Venezuela, 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 Stamp duty 1 Value added tax (VAT) 12 384 9.0% value added Property tax 12 0.1% building 0.05 value Fuel tax 1 fuel 1.35 consumption Training tax 4 2.0% gross salaries 2.26 Unemployment 0 paid jointly 2.0% gross salaries 2.26 contribution Housing subsystem tax 12 2.0% gross salaries 2.26 Tax on financial 1 1.5% financial 3.68 transactions transaction Science Technology and 1 0.5% territorial 8.84 Innovation tax annual gross income Corporate income tax 13 120 taxable profit 10.31 Social security 12 360 10.0% gross salaries 11.28 contributions Municipal tax 1 0.8% turnover 14.32 Totals 70 864 56.6 71 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. 72 Trading Across Borders in Venezuela These tables list the procedures necessary to import and exports a standardized cargo of goods in Venezuela. The documents required to export and import the goods are also shown. Nature of Export Procedures (2008) Duration (days) US$ Cost Documents preparation 34 640 Customs clearance and technical control 5 300 Ports and terminal handling 7 450 Inland transportation and handling 3 1200 Totals 49 2590 Nature of Import Procedures (2008) Duration (days) US$ Cost Documents preparation 54 645 Customs clearance and technical control 7 523 Ports and terminal handling 7 500 Inland transportation and handling 3 1200 Totals 71 2868 Export Bill of lading Certificate of origin Commercial invoice Customs export declaration Equipment interchange receipt Export license (from CADIVI) Foreign exchange registration Packing list Import Bill of lading Cargo release order Certificate of fumigation 73 Certificate of origin Commercial invoice Customs import declaration Import license (from CADIVI) Technical standard/health certificate Terminal handling receipts Enforcing Contracts in Venezuela This topic looks at the efficiency of contract enforcement in Venezuela. Nature of Procedure (2008) Indicator Procedures (number) 29 Duration (days) 510 Filing and service 95.0 Trial and judgment 320.0 Enforcement of judgment 95.0 Cost (% of claim)* 43.70 Attorney cost (% of claim) 21.5 Court cost (% of claim) 7.2 Enforcement Cost (% of claim) 15.0 Court information: Caracas Municipal Court ("Tribunal de Municipio de la Circunscripcion Judicial del Area Metropolitana de Caracas") * Claim assumed to be equivalent to 200% of income per capita. 74 75 76