83405 Regional Profile: Europe and Central Asia (ECA) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 2 © 2013 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 All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Doing Business 2014: Understanding Smarter Regulations for Small and Medium-Size Enterprises. Washington, DC: World Bank Group. DOI: 10.1596/978-0-8213-9615-5. License: Creative Commons Attribution CC BY 3.0 Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. All queries on rights and licenses should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Additional copies of all 11 editions of Doing Business may be purchased at www.doingbusiness.org. Cover design: The Word Express Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 12 Dealing with construction permits........................................................................................... 25 Getting electricity ....................................................................................................................... 36 Registering property .................................................................................................................. 43 Getting credit .............................................................................................................................. 53 Protecting investors ................................................................................................................... 62 Paying taxes ................................................................................................................................ 72 Trading across borders .............................................................................................................. 85 Enforcing contracts .................................................................................................................... 97 Resolving insolvency ................................................................................................................ 104 Data notes ................................................................................................................................. 114 Resources on the Doing Business website ............................................................................ 119 Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is Income. The data in this report are current as of June 1, for a local entrepreneur to open and run a small to 2013 (except for the paying taxes indicators, which medium-size business when complying with relevant cover the period January–December 2012). regulations. It measures and tracks changes in The Doing Business methodology has limitations. Other regulations affecting 11 areas in the life cycle of a areas important to business—such as an economy’s business: starting a business, dealing with construction proximity to large markets, the quality of its permits, getting electricity, registering property, infrastructure services (other than those related to getting credit, protecting investors, paying taxes, trading across borders and getting electricity), the trading across borders, enforcing contracts, resolving security of property from theft and looting, the insolvency and employing workers. transparency of government procurement, In a series of annual reports Doing Business presents macroeconomic conditions or the underlying strength quantitative indicators on business regulations and the of institutions—are not directly studied by Doing protection of property rights that can be compared Business. The indicators refer to a specific type of across 189 economies, from Afghanistan to Zimbabwe, business, generally a local limited liability company over time. The data set covers 47 economies in Sub- operating in the largest business city. Because Saharan Africa, 33 in Latin America and the Caribbean, standard assumptions are used in the data collection, 25 in East Asia and the Pacific, 25 in Eastern Europe comparisons and benchmarks are valid across and Central Asia, 20 in the Middle East and North economies. The data not only highlight the extent of Africa and 8 in South Asia, as well as 31 OECD high- obstacles to doing business; they also help identify the income economies. The indicators are used to analyze source of those obstacles, supporting policy makers in economic outcomes and identify what reforms have designing regulatory reform. worked, where and why. More information is available in the full report. Doing This regional profile presents the Doing Business Business 2014 presents the indicators, analyzes their indicators for economies in Europe and Central Asia relationship with economic outcomes and (ECA). It also shows the regional average, the best recommends regulatory reforms. The data, along with performance globally for each indicator and data for information on ordering the Doing Business 2014 the following comparator regions: European Union report, are available on the Doing Business website at (EU), Latin America, East Asia and the Pacific (EAP), http://www.doingbusiness.org. Middle East and North Africa (MENA) and OECD High Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s The ranking on each topic is the simple average of regulatory environment for business, a good place to the percentile rankings on its component start is to find out how it compares with the indicators (see the data notes for more details). regulatory environment in other economies. Doing The aggregate ranking on the ease of doing Business provides an aggregate ranking on the ease business benchmarks each economy’s of doing business based on indicator sets that performance on the indicators against that of all measure and benchmark regulations applying to other economies in the Doing Business sample domestic small to medium-size businesses through (figure 1.1). While this ranking tells much about their life cycle. Economies are ranked from 1 to 189 the business environment in an economy, it does by the ease of doing business index. For each not tell the whole story. The ranking on the ease of economy the index is calculated as the ranking on the doing business, and the underlying indicators, do simple average of its percentile rankings on each of not measure all aspects of the business the 10 topics included in the index in Doing Business environment that matter to firms and investors or 2014: starting a business, dealing with construction that affect the competitiveness of the economy. permits, getting electricity, registering property, Still, a high ranking does mean that the getting credit, protecting investors, paying taxes, government has created a regulatory environment trading across borders, enforcing contracts and conducive to operating a business. resolving insolvency. Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 6 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy stands regional average (figure 1.2). Another perspective is in the aggregate ranking on the ease of doing business is provided by the regional average rankings on the topics useful. Also useful is to know how it ranks compared with included in the ease of doing business index (figure 1.3). other economies in the region and compared with the Figure 1.2 How economies in Europe and Central Asia (ECA) rank on the ease of doing business *The economy with the best performance globally is included as a benchmark. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 7 THE BUSINESS ENVIRONMENT Figure 1.3 How Europe and Central Asia (ECA) ranks on Doing Business topics Regional average ranking Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 8 Figure 1.4 How far has Europe and Central Asia (ECA) come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average a region is from the best performance achieved by any region on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing more significant impact as measured by Doing business tells only part of the story, so do changes in Business. that ranking. Yearly movements in rankings can The absolute values of the indicators tell another part provide some indication of changes in an economy’s of the story (table 1.1). Policy makers can learn much regulatory environment for firms, but they are always by comparing the indicators for their economy with relative. An economy’s ranking might change because those for the lowest- and highest-scoring economies of developments in other economies. An economy that in the region as well as those for the best performers implemented business regulation reforms may fail to globally. These comparisons may reveal unexpected rise in the rankings (or may even drop) if it is passed strengths in an area of business regulation—such as a by others whose business regulation reforms had a regulatory process that can be completed with a small number of procedures in a few days and at a low cost. Table 1.1 Summary of Doing Business indicators for Europe and Central Asia (ECA) Lowest regional Best regional Best global Indicator Regional average performance performance performance Starting a Business 174 (Bosnia and 6 (Armenia) 58 1 (New Zealand) (rank) Herzegovina) 11 (Bosnia and Procedures (number) 2 (4 Economies*) 5 1 (New Zealand)* Herzegovina) Time (days) 40.0 (San Marino) 2.0 (Georgia)* 13.0 1.0 (New Zealand) Cost (% of income per 25.6 (Tajikistan) 0.6 (Kazakhstan) 6.7 0.0 (Slovenia) capita) Paid-in Min. Capital (% 29.1 (Bosnia and 0.0 (19 Economies*) 3.5 0.0 (112 Economies*) of income per capita) Herzegovina) Dealing with 1 (Hong Kong SAR, Construction Permits 189 (Albania) 2 (Georgia) 116 China) (rank) 6 (Hong Kong SAR, Procedures (number) 36 (Russian Federation) 9 (3 Economies*) 18 China) Time (days) 677.0 (Cyprus) 73.0 (Ukraine) 192.3 26.0 (Singapore) Cost (% of income per 1,433.5 (Serbia) 9.2 (Hungary) 327.1 1.1 (Qatar) capita) Getting Electricity 186 (Tajikistan) 10 (San Marino) 118 1 (Iceland) (rank) Procedures (number) 10 (Ukraine) 3 (San Marino)* 6 3 (10 Economies*) Time (days) 277 (Ukraine) 45 (San Marino) 146 17 (Germany) Cost (% of income per 2,256.4 (Kyrgyz 48.1 (Lithuania) 486.6 0.0 (Japan) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 10 Lowest regional Best regional Best global Indicator Regional average performance performance performance capita) Republic) Registering Property 158 (San Marino) 1 (Georgia) 59 1 (Georgia) (rank) Procedures (number) 14 (Uzbekistan) 1 (Georgia) 6 1 (4 Economies*) Time (days) 102.5 (Croatia) 2.0 (Georgia) 26.5 1.0 (New Zealand)* Cost (% of property 11.1 (Albania) 0.0 (Georgia)* 2.8 0.0 (5 Economies*) value) Getting Credit (rank) 186 (San Marino) (4 Economies*) 53 1 (Malaysia)* Strength of legal 2 (3 Economies*) 10 (3 Economies*) 7 10 (10 Economies*) rights index (0-10) Depth of credit 2 (Cyprus) 6 (4 Economies*) 5 6 (31 Economies*) information index (0-6) Public registry 11.8 (Romania) 73.6 (Latvia) 33.9 100.0 (Portugal)* coverage (% of adults) Private bureau 2.1 (Tajikistan) 100.0 (Croatia)* 48.2 100.0 (22 Economies*) coverage (% of adults) Protecting Investors 157 (Croatia) 14 (Albania) 65 1 (New Zealand) (rank) Extent of disclosure 1 (Croatia) 10 (Bulgaria) 6 10 (10 Economies*) index (0-10) Extent of director 0 (Belarus)* 9 (Albania) 5 10 (Cambodia) liability index (0-10) Ease of shareholder 3 (Kosovo)* 7 (6 Economies*) 6 10 (3 Economies*) suits index (0-10) Strength of investor 3.3 (Croatia)* 7.3 (Albania) 5.7 9.7 (New Zealand) protection index (0-10) Paying Taxes (rank) 178 (Tajikistan) 18 (Kazakhstan) 91 1 (United Arab Emirates) Payments (number per 3 (Hong Kong SAR, 69 (Tajikistan) 5 (Georgia) 26 year) China)* 12 (United Arab Time (hours per year) 454 (Bulgaria) 52 (San Marino) 246 Emirates) Trading Across 189 (Uzbekistan) 15 (Lithuania) 107 1 (Singapore) Borders (rank) Documents to export 12 (Uzbekistan)* 4 (4 Economies*) 7 2 (Ireland)* (number) Time to export (days) 81 (Kazakhstan) 7 (Cyprus) 25 6 (5 Economies*) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 11 Lowest regional Best regional Best global Indicator Regional average performance performance performance Cost to export (US$ per 8,650 (Tajikistan) 600 (Latvia) 2,109 450 (Malaysia) container) Documents to import 14 (Uzbekistan) 4 (Georgia)* 8 2 (Ireland)* (number) Time to import (days) 95 (Uzbekistan) 5 (Cyprus) 26 4 (Singapore) Cost to import (US$ 10,250 (Tajikistan) 730 (Albania) 2,339 440 (Singapore) per container) Enforcing Contracts 138 (Kosovo) 10 (Russian Federation) 61 1 (Luxembourg) (rank) Time (days) 735 (Cyprus) 195 (Uzbekistan) 441 150 (Singapore) 13.4 (Russian Cost (% of claim) 43.8 (Ukraine) 25.3 0.1 (Bhutan) Federation) Procedures (number) 53 (Kosovo) 27 (Latvia) 37 21 (Singapore)* Resolving Insolvency 162 (Ukraine) 24 (Cyprus) 78 1 (Japan) (rank) Time (years) 4.0 (Kyrgyz Republic) 1.4 (Montenegro)* 2.3 0.4 (Ireland) Cost (% of estate) 42 (Ukraine) 5 (San Marino) 13 1 (Norway) Recovery rate (cents on 8.2 (Ukraine) 70.5 (Cyprus) 37.1 92.8 (Japan) the dollar) * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 12 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for INDICATORS MEASURE business owners and employees. Legal entities outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An Registration in the economy’s largest additional benefit comes with limited liability business city companies. These limit the financial liability of company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. registration, company seal) Where governments make this process easy, more Time required to complete each procedure entrepreneurs start businesses in the formal sector, (calendar days) creating more good jobs and generating more Does not include time spent gathering revenue for the government. information What do the indicators cover? Each procedure starts on a separate day (2 procedures cannot start on the same day). Doing Business measures the ease of starting a Procedures that can be fully completed business in an economy by recording all online are an exception to this rule. procedures officially required or commonly done in practice by an entrepreneur to start up and Procedure considered completed once final document is received formally operate an industrial or commercial business—as well as the time and cost required to No prior contact with officials complete these procedures. It also records the paid-in minimum capital that companies must Cost required to complete each procedure deposit before registration. The ranking on the (% of income per capita) ease of starting a business is the simple average of Official costs only, no bribes the percentile rankings on the 4 component No professional fees unless services required indicators: procedures, time, cost and paid-in by law minimum capital requirement. Paid-in minimum capital (% of income To make the data comparable across economies, per capita) Doing Business uses several assumptions about the business and the procedures. It assumes that all Funds deposited in a bank or with a notary before registration (or within 3 months) information is readily available to the entrepreneur and that there has been no prior contact with • Conducts general commercial or industrial officials. It also assumes that the entrepreneur will activities. pay no bribes. And it assumes that the business: • Has a start-up capital of 10 times income per • Is a 100% domestically owned limited liability capita and has a turnover of at least 100 times company, located in the largest business city. income per capita. • Has between 10 and 50 employees. • Does not qualify for any special benefits. • Does not own real estate. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 13 STARTING A BUSINESS Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in starting a business suggest an answer (figure 2.1). The Europe and Central Asia (ECA) to start a business? The average ranking of the region and comparator regions global rankings of these economies on the ease of provide a useful benchmark. Figure 2.1 How economies in Europe and Central Asia (ECA) rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 14 STARTING A BUSINESS The indicators underlying the rankings may be more cost and the paid-in minimum capital requirement revealing. Data collected by Doing Business show (figure 2.2). Comparing these indicators across the what it takes to start a business in each economy in region and with averages both for the region and for the region: the number of procedures, the time, the comparator regions can provide useful insights. Figure 2.2 What it takes to start a business in economies in Europe and Central Asia (ECA) Procedures (number) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 15 STARTING A BUSINESS Time (days) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 16 STARTING A BUSINESS Cost (% of income per capita) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 17 STARTING A BUSINESS Paid-in minimum capital (% of income per capita) Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 18 STARTING A BUSINESS What are the changes over time? Economies around the world have taken steps making stages—and often as part of a larger regulatory reform it easier to start a business—streamlining procedures program. Among the benefits have been greater firm by setting up a one-stop shop, making procedures satisfaction and savings and more registered simpler or faster by introducing technology, and businesses, financial resources and job opportunities. reducing or eliminating minimum capital requirements. What business registration reforms has Doing Business Many have undertaken business registration reforms in recorded in Europe and Central Asia (ECA) (table 2.1)? Table 2.1 How have economies in Europe and Central Asia (ECA) made starting a business easier—or not? By Doing Business report year DB year Economy Reform The requirement to obtain approval of the company seal DB2008 Azerbaijan design by the Ministry of Justice was abolished. Belarus implemented a one-stop shop combining company registration, the approval of the seal draft, registrations with DB2008 Belarus tax, statistical and social security authorities, and the state insurance company at the State Register. Croatia made starting a business easier by enhancing the DB2008 Croatia services through better implementation of the one-stop shop. Pursuant to amendments to the Georgian law on entrepreneurs, tax authorities are now responsible for state DB2008 Georgia and tax registration. In addition, the paid-in capital requirement was abolished. A new Company Act and a new Corporate Procedure Act DB2008 Hungary introduced standardized forms, a "silent-is-consent" rule, and electronic registration. The country eliminated the paid-in minimum capital DB2008 Macedonia, FYR requirement and is working on online registration system for business start-up. Moldova made starting a business simpler by eliminating the requirement to obtain permission from the State Inspectorate of Labor before starting a business. The State Registration DB2008 Moldova Chamber has started to receive on-line applications on (www.mdi.gov.md) for reservation of enterprises names and issue of Extracts from the State Register. Romania made starting a business more cumbersome by DB2008 Romania implementing several laws resulting in more steps and more time for business start-up. The license regime was simplified, reducing the number of DB2008 Tajikistan business activities subject to government approval. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 19 DB year Economy Reform Substantive review at the registry was eliminated, internal proceedings were simplified and clear rules for refusal of DB2008 Uzbekistan registration were established. Social insurance registration can now be done in a one-stop shop within 1 working day. Consolidation of tax, health insurance and labor registration DB2009 Albania into a single application, making publication online and reducing registration cost. One stop shop for completing registration requirement was DB2009 Azerbaijan created reducing the number of procedures, days and cost. A unified registry database was created, time limit on registration time was introduced, and minimum capital was DB2009 Belarus reduced resulting in substantial time reduction and minimum capital requirement’s reduction by half. Commercial registration centralized electronic database was created consolidating and substantially reducing the number DB2009 Bulgaria of registration procedures, and other registration formalities were cut. Amendments to the Law on Entrepreneurs eliminated the requirement for minimum capital, abolished the company DB2009 Georgia seal and the company charter and made the use of notaries optional The new laws reduced the minimum capital requirements by DB2009 Hungary about 80% and introduced online filing and publication and made the use of notaries optional. One stop shop was created that streamlined and simplified business registration processes and other formalities were DB2009 Kyrgyz Republic eliminated such as proof of residence reducing the number of procedures tremendously. The one-stop shop system was updated to carry out full DB2009 Macedonia, FYR range of business start-up processes reducing the number of procedures and days. New laws on LLC and registration simplified the business DB2009 Moldova registration requirement resulting in time reduction by half. Albania eased the process of business start-up by making the registration electronic and enhancing the capacity at the DB2010 Albania registry, reducing the minimum capital requirement from ALL 100 000 to ALL 100, and eliminating the requirement to register at the Chamber of Commerce. Armenia has eased business start up by removing minimum capital requirement and the need for obtaining an approval DB2010 Armenia from the National Police Department to prepare the company seal, and making the registration forms available on-line Belarus eased the business start- up process by simplifying DB2010 Belarus the registration formalities, abolishing the minimum capital Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 20 DB year Economy Reform requirement, limiting the notary role, and removing the need for a company seal approval. Bulgaria eased the process of business start-up by reducing DB2010 Bulgaria the paid-in minimum capital requirement to 23.9% of GNI pc and enhancing the efficiency at the company registry. Hungary further simplified the start up process by DB2010 Hungary implementing on-line registration with confirmation of registration requiring one hour from application. Kazakhstan simplified the business start up process by DB2010 Kazakhstan simplifying documentation requirements and abolishing the requirement to register at the local tax office. The Kyrgyz Republic eased the business start-up process by eliminating the minimum capital requirement, reducing the DB2010 Kyrgyz Republic registration time and abolishing various post-registration fees, as well as the need to open a bank account before registration. Macedonia simplified business start up by integrating DB2010 Macedonia, FYR procedures at a one stop shop Moldova eased the business start up process by implementing an expedited company registration service and DB2010 Moldova made the process of authentication of specimens of signatures when opening a corporate bank account optional. Tajikistan eased the business start up process by reducing the DB2010 Tajikistan minimum capital requirement and speeding up the time to obtain a tax identification number Serbia eased the business start up process by putting in place DB2010 Serbia a one stop- shop for company registration. Montenegro eased business start up by simplifying the post- registration process including the registration for taxes, DB2010 Montenegro social security and employment, as well as the process to obtain the municipal license. Bulgaria eased business start-up by reducing the minimum DB2011 Bulgaria capital requirement from 5,000 leva ($3,250) to 2 leva ($1.30). Croatia eased business start-up by allowing limited liability DB2011 Croatia companies to file their registration application with the court registries electronically through the notary public. Kazakhstan eased business start-up by reducing the minimum capital requirement to 100 tenge ($0.70) and eliminating the DB2011 Kazakhstan need to have the memorandum of association and company charter notarized. The Kyrgyz Republic eased business start-up by eliminating DB2011 Kyrgyz Republic the requirement to have the signatures of company founders notarized. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 21 DB year Economy Reform Lithuania tightened the time limit for completing the DB2011 Lithuania registration of a company. FYR Macedonia made it easier to start a business by further DB2011 Macedonia, FYR improving its one-stop shop. Tajikistan made starting a business easier by creating a one- DB2011 Tajikistan stop shop that consolidates registration with the state and the tax authority. Ukraine eased business start-up by substantially reducing the DB2011 Ukraine minimum capital requirement. Montenegro eliminated several procedures for business start- DB2011 Montenegro up by introducing a single registration form for submission to the tax administration. Kosovo made business start-up more difficult by replacing the tax number previously required with a “fiscal number,” DB2011 Kosovo which takes longer to issue and requires the tax administration to first inspect the business premises. Armenia made starting a business easier by establishing a one-stop shop that merged the procedures for name DB2012 Armenia reservation, business registration and obtaining a tax identification number and by allowing for online company registration. Bosnia and Herzegovina made starting a business easier by replacing the required utilization permit with a simple DB2012 Bosnia and Herzegovina notification of commencement of activities and by streamlining the process for obtaining a tax identification number. Georgia simplified business start-up by eliminating the DB2012 Georgia requirement to visit a bank to pay the registration fees. Latvia made starting a business easier by reducing the DB2012 Latvia minimum capital requirement and introducing a common application for value added tax and company registration. Moldova made starting a business easier by implementing a DB2012 Moldova one-stop shop. Romania made starting a business more difficult by requiring DB2012 Romania a tax clearance certificate for a new company’s headquarters before company registration. Tajikistan made starting a business easier by allowing entrepreneurs to pay in their capital up to 1 year after the DB2012 Tajikistan start of operations, thereby eliminating the requirements related to opening a bank account. Turkey made starting a business less costly by eliminating DB2012 Turkey notarization fees for the articles of association and other documents. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 22 DB year Economy Reform Ukraine made starting a business easier by eliminating the DB2012 Ukraine requirement to obtain approval for a new corporate seal. Uzbekistan made starting a business easier by reducing the DB2012 Uzbekistan minimum capital requirement, eliminating 1 procedure and reducing the cost of registration. Montenegro made starting a business easier by DB2012 Montenegro implementing a one-stop shop. Albania made starting a business easier by making the DB2013 Albania notarization of incorporation documents optional. Belarus made starting a business more difficult by increasing DB2013 Belarus the cost of business registration and the cost to obtain a company seal. Bulgaria made starting a business easier by reducing the cost DB2013 Bulgaria of registration. Hungary made starting a business more complex by increasing the registration fees for limited liability companies DB2013 Hungary and adding a new tax registration at the time of incorporation. Kazakhstan made starting a business easier by eliminating the DB2013 Kazakhstan requirement to pay in minimum capital within 3 months after incorporation. Lithuania made starting a business easier by introducing online registration for limited liability companies and DB2013 Lithuania eliminating the notarization requirement for incorporation documents. FYR Macedonia made starting a business easier by simplifying DB2013 Macedonia, FYR the process for obtaining a company seal. Romania made starting a business easier by reducing the DB2013 Romania time required to obtain a clearance certificate from the fiscal administration agency. Ukraine made starting a business easier by eliminating the minimum capital requirement for company incorporation as DB2013 Ukraine well as the requirement to have incorporation documents notarized. Uzbekistan made starting a business easier by introducing an DB2013 Uzbekistan online facility for name reservation and eliminating the fee to open a bank account for small businesses. Serbia made starting a business easier by eliminating the DB2013 Serbia paid-in minimum capital requirement. Kosovo made starting a business easier by eliminating the DB2013 Kosovo minimum capital requirement and business registration fee and streamlining the business registration process. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 23 DB year Economy Reform Armenia made starting a business easier by eliminating the DB2014 Armenia company registration fees. Azerbaijan made starting a business easier by introducing DB2014 Azerbaijan free online registration services and eliminating preregistration formalities. Belarus made starting a business easier by reducing the DB2014 Belarus registration fees and eliminating the requirement for an initial capital deposit at a bank before registration. Croatia made starting a business easier by introducing a new DB2014 Croatia form of limited liability company with a lower minimum capital requirement and simplified incorporation procedures. Kazakhstan made starting a business easier by reducing the DB2014 Kazakhstan time required to register a company at the Public Registration Center. Latvia made starting a business easier by making it possible to file the applications for company registration and value DB2014 Latvia added tax registration simultaneously at the commercial registry. Lithuania made starting a business easier by creating a new DB2014 Lithuania form of limited liability company with no minimum capital requirement. Romania made starting a business easier by transferring responsibility for issuing the headquarters clearance DB2014 Romania certificate from the Fiscal Administration Office to the Trade Registry. Russia made starting a business easier by abolishing the DB2014 Russian Federation requirement to have the bank signature card notarized before opening a company bank account. Tajikistan made starting a business more difficult by requiring DB2014 Tajikistan preliminary approval from the tax authority and the submission of additional documents at registration. Turkey made starting a business more difficult by increasing DB2014 Turkey the minimum capital requirement. Ukraine made starting a business easier by eliminating the DB2014 Ukraine requirement for registration with the statistics authority and by eliminating the cost for value added tax registration. Uzbekistan made starting a business easier by abolishing the paid-in minimum capital requirement and by eliminating the DB2014 Uzbekistan requirement to have signature samples notarized before opening a bank account. Kosovo made starting a business easier by creating a one- DB2014 Kosovo stop shop for incorporation. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 24 Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 25 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse (number) time and money, many builders opt out. They may pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Submitting all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, sewerage and a land telephone line Doing Business records the procedures, time and cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a simple completion (if required for use as collateral or commercial warehouse in the economy’s main city, for transfer of warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day. percentile rankings on its component indicators: Procedures that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure completed once final document is Doing Business uses several assumptions about the received business and the warehouse, including the utility No prior contact with officials connections. The business: Cost required to complete each procedure (% of income per capita) • Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city. • Will be connected to water, sewerage (sewage system, septic tank or their • Is domestically owned and operated. equivalent) and a fixed telephone line. • Has 60 builders and other employees. • The connection to each utility network will be The warehouse: 10 meters (32 feet, 10 inches) long. • Is a new construction (there was no • Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions). • Has complete architectural and technical plans prepared by a licensed architect or • Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 26 DEALING WITH CONSTRUCTION PERMITS Where do the region’s economies stand today? How easy it is for entrepreneurs in economies in suggest an answer (figure 3.1). The average ranking of Europe and Central Asia (ECA) to legally build a the region and comparator regions provide a useful warehouse? The global rankings of these economies benchmark. on the ease of dealing with construction permits Figure 3.1 How economies in Europe and Central Asia (ECA) rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 27 DEALING WITH CONSTRUCTION PERMITS The indicators underlying the rankings may be more of procedures, the time and the cost (figure 3.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to comply with formalities to build a averages both for the region and for comparator warehouse in each economy in the region: the number regions can provide useful insights. Figure 3.2 What it takes to comply with formalities to build a warehouse in economies in Europe and Central Asia (ECA) Procedures (number) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 28 DEALING WITH CONSTRUCTION PERMITS Time (days) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) * Indicates a “no practice” mark. See the data notes for details. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 30 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? Smart regulation ensures that standards are met while worked on consolidating permitting requirements. making compliance easy and accessible to all. What construction permitting reforms has Doing Coherent and transparent rules, efficient processes and Business recorded in Europe and Central Asia (ECA) adequate allocation of resources are especially (table 3.1)? important in sectors where safety is at stake. Construction is one of them. In an effort to ensure building safety while keeping compliance costs reasonable, governments around the world have Table 3.1 How have economies in Europe and Central Asia (ECA) made dealing with construction permits easier—or not? By Doing Business report year DB year Economy Reform Bulgaria made obtaining a construction permit clearer by DB2008 Bulgaria adopting new legislations. Georgia made obtaining construction permits easier by implementing a one-stop shop for utility connections, DB2008 Georgia simplifying the procedures of obtaining an occupancy permit, and eliminated several documents required during the permitting process. FYR Macedonia made obtaining contruction permits faster DB2008 Macedonia, FYR by reducing the time to issue land ownership certificate. The Russian Federation made dealing with construction permits more expensive by increasing the cost, and at the DB2008 Russian Federation same time implemented several laws that reduces steps and time to obtain a construction permit. In May 2008, Mayor of Yerevan abolished ‘charitable contributions’ paid to obtain the right to design (APZ). This is DB2009 Armenia a significant reduction AMD 3,000,000, especially given that it was not stipulated in any laws or normative acts, and served as severe impediment to obtaining a building permit Belarus made obtaining construction permits easier by revising the statutory time-limits for obtaining pre-approval clearances and building permit. As the result the overall time DB2009 Belarus was reduced by 140 days. At the meantime, the building permit fees were eliminated thus cut total cost by BYR 575,000. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 31 DB year Economy Reform An administrative reform in obtaining cadastre and land book registry led to overall time reduction by 171 days. DB2009 Bosnia and Herzegovina Costs for new telephone connection was reduced by Telecom provider by BAM 15. Bulgaria made obtaining a construction permit more DB2009 Bulgaria complicated by increasing the fees, time and procedures for obtaining approvals of construction related procedures. A new Building Code, enforced in October 2007 eliminated 5 procedures that are no longer required under the simplified process of building permit approval. However, new changes DB2009 Croatia caused an administrative backlog for obtaining building and occupancy permits and increased the overall time by 20 days. Kyrgyzstan introduced a one-stop shop for the pre-design and building permit approval stages that relieved companies and individuals of the burden of dealing with multiple agencies at the stages of obtaining designing permit (APZ), DB2009 Kyrgyz Republic construction license, and occupancy permit. Also, the new laws provide for stricter definition of time-limits backed by silence-is-consent rule. The clarification of responsibilities of construction authorities and local municipalities significantly reduces the need for overlapping procedures. Administrative backlogs in Tajikistan increased time for DB2009 Tajikistan obtaining the location permit by 60 days and increased fees by TJS 593. All new construction projects are now obliged to pay an infrastructure tax which increases the overall cost by UAH DB2009 Ukraine 212,865.7. Administrative backlog caused by delayed signing of First Deputy Head of Kiev City increase time by 33 days. An administrative backlog at the Construction Department of DB2009 Serbia Belgrade Municipality increased the time for obtaining building permits by 75 days. To follow the best practices set by EU, Ministry of Economy and Ministry of Tourism and Environmental Protection introduced stricter compliance requirements. However, it led DB2009 Montenegro to administrative backlog and increase of time by 43 days. Cost was increased by EUR 6,466 due to new methodology of calculation Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 32 DB year Economy Reform Belarus eased the process of dealing with construction DB2010 Belarus permits by simplifying the project ecological expertise approval process and project design approval. Bosnia and Herzegovina improved its building permitting DB2010 Bosnia and Herzegovina system by reducing the time to register a new building at the courts and land cadastre. Croatia eased the process of dealing with construction DB2010 Croatia permits with the operation of a one stop shop and enforcement of the building code. Georgia eased the process of dealing with construction permits with the introduction of a simplified process of DB2010 Georgia obtaining confirmation from utilities, risk-based process of approval for building permits, and new time-limits for the occupancy certificate stage. Kazakhstan eased the process of dealing with construction permits by eliminating the requirement to pay for new DB2010 Kazakhstan electrical connection, reduced the time-limits for building permits, and reduced cost to obtain topographic surveys. The Kyrgyz Republic has eased the process of dealing with construction permits by streamlining the fee structure, introducing a risk-based system of approval and building DB2010 Kyrgyz Republic control, allowing for low risk projects to undertake their internal building control process, and simplifying the process of obtaining utilities connections. FYR Macedonia has been reforming the dealing with DB2010 Macedonia, FYR construction permit process resulting in time reduction. Cost of construction in Romania was increased because of a DB2010 Romania new fee equal to 0.05% of project value. Tajikistan introduced changes that resulted in a less difficult DB2010 Tajikistan construction permitting process with reduced procedures and time. Uzbekistan made obtaining construction permit less DB2010 Uzbekistan expensive by reducing the building permit fees. Montenegro improved the process of dealing with DB2010 Montenegro construction permits with a new construction law implemented, reducing procedures, providing for new mechanisms of construction permit approval and building Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 33 DB year Economy Reform control process in general, and introducing a risk-based system of approval, where small scale projects are controlled by local municipalities. Croatia replaced the location permit and project design DB2011 Croatia confirmation with a single certificate, simplifying and speeding up the construction permitting process. Hungary implemented a time limit for the issuance of DB2011 Hungary building permits. Kazakhstan made dealing with construction permits easier by DB2011 Kazakhstan implementing a one-stop shop related to technical conditions for utilities. Romania amended regulations related to construction DB2011 Romania permitting to reduce fees and expedite the process. Russia eased construction permitting by implementing a DB2011 Russian Federation single window for all procedures related to land use. Ukraine made dealing with construction permits easier by DB2011 Ukraine implementing national and local regulations that streamlined procedures. Uzbekistan increased all fees for procedures relating to DB2011 Uzbekistan construction permits. In Albania dealing with construction permits became more DB2012 Albania difficult because the main authority in charge of issuing building permits has not met since April 2009. Armenia made dealing with construction permits easier by DB2012 Armenia eliminating the requirement to obtain an environmental impact assessment for small projects. Bosnia and Herzegovina made dealing with construction DB2012 Bosnia and Herzegovina permits easier by fully digitizing and revamping its land registry and cadastre. FYR Macedonia made dealing with construction permits DB2012 Macedonia, FYR easier by transferring oversight processes to the private sector and streamlining procedures. Russia made obtaining a construction permit simpler by DB2013 Russian Federation eliminating requirements for several preconstruction approvals. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 34 DB year Economy Reform Turkey made dealing with construction permits easier by eliminating the requirement to build a shelter in DB2013 Turkey nonresidential buildings with a total area of less than 1,500 square meters. Montenegro made construction permitting less costly by DB2013 Montenegro reducing the cost of pre-construction and post-construction procedures Azerbaijan adopted a new construction code that streamlined procedures relating to the issuance of building DB2014 Azerbaijan permits and established official time limits for some procedures. Latvia made dealing with construction permits easier by introducing new time limits for issuing a building permit and DB2014 Latvia by eliminating the Public Health Agency’s role in approving building permits and conducting inspections. FYR Macedonia made dealing with construction permits easier by reducing the time required to register a new DB2014 Macedonia, FYR building and by authorizing the municipality to register the building on behalf of the owner. Russia made dealing with construction permits easier by eliminating several requirements for project approvals from DB2014 Russian Federation government agencies and by reducing the time required to register a new building. Turkey reduced the time required for dealing with construction permits by setting strict time limits for granting DB2014 Turkey a lot plan and by reducing the documentation requirements for an occupancy permit. Ukraine made dealing with construction permits easier by introducing a risk-based approval system, eliminating DB2014 Ukraine requirements for certain approvals and technical conditions and simplifying the process for registering real estate ownership rights. Montenegro made dealing with construction permits easier DB2014 Montenegro by introducing a one-stop shop and imposing strict time limits for the issuance of approvals. Kosovo made dealing with construction permits easier by DB2014 Kosovo eliminating the requirement for validation of the main construction project, eliminating fees for technical approvals Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 35 DB year Economy Reform from the municipality and reducing the building permit fee. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 36 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized Obtaining external installation works and warehouse, as well as the time and cost to possibly purchasing material for these works complete them. These procedures include Concluding any necessary supply contract and applications and contracts with electricity utilities, obtaining final supply clearances from other agencies and the external and final connection works. The ranking on the Time required to complete each procedure ease of getting electricity is the simple average of (calendar days) the percentile rankings on its component Is at least 1 calendar day indicators: procedures, time and cost. To make the Each procedure starts on a separate day data comparable across economies, several assumptions are used. Does not include time spent gathering information The warehouse: Reflects the time spent in practice, with little • Is located in the economy’s largest follow-up and no prior contact with officials business city, in an area where other Cost required to complete each procedure (% warehouses are located. of income per capita) • Is not in a special economic zone where Official costs only, no bribes the connection would be eligible for subsidization or faster service. Excludes value added tax • Has road access. The connection works involve the crossing of a road or roads but are carried out on public land. • Is 150 meters long. • Is a new construction being connected to • Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either • Has 2 stories, both above ground, with a overhead or underground, whichever is more total surface of about 1,300.6 square common in the economy and in the area meters (14,000 square feet), and is built on where the warehouse is located. The length a plot of 929 square meters (10,000 square of any connection in the customer’s private feet). domain is negligible. The electricity connection: • Requires crossing of a 10-meter road but all the works are carried out in a public land, so • Is a 3-phase, 4-wire Y, 140-kilovolt-ampere there is no crossing into other people's (kVA) (subscribed capacity) connection. private property. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 37 • Involves installing one electricity meter. The monthly electricity consumption will be 0.07 gigawatt-hour (GWh). The internal electrical wiring has been completed. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 38 GETTING ELECTRICITY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in (figure 4.1). The average ranking of the region and Europe and Central Asia (ECA) to connect a warehouse comparator regions provide a useful benchmark. to electricity? The global rankings of these economies on the ease of getting electricity suggest an answer Figure 4.1 How economies in Europe and Central Asia (ECA) rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 39 GETTING ELECTRICITY The indicators underlying the rankings may be more time and the cost (figure 4.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to get a new electricity connection in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Figure 4.2 What it takes to get an electricity connection in economies in Europe and Central Asia (ECA) Procedures (number) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 40 GETTING ELECTRICITY Time (days) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 41 GETTING ELECTRICITY Cost (% of income per capita) Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 42 GETTING ELECTRICITY What are the changes over time? Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic connection costs reasonable, governments around the operations. In many economies the connection world have worked to consolidate requirements for process is complicated by the multiple laws and obtaining an electricity connection. What reforms in regulations involved—covering service quality, general getting electricity has Doing Business recorded in safety, technical standards, procurement practices and Europe and Central Asia (ECA) (table 4.1)? internal wiring installations. In an effort to ensure Table 4.1 How have economies in Europe and Central Asia (ECA) made getting electricity easier—or not? By Doing Business report year DB year Economy Reform Latvia made getting electricity faster by introducing a DB2012 Latvia simplified process for approval of external connection designs. Lithuania made getting electricity more difficult by abolishing DB2012 Lithuania the one-stop shop for obtaining technical conditions for utility services. Russian Federation made getting electricity less costly by DB2012 Russian Federation revising the tariffs for connection. Armenia made getting electricity easier by streamlining DB2013 Armenia procedures and reducing connection fees. Georgia made getting electricity easier by simplifying the DB2013 Georgia process of connecting new customers to the distribution network and reducing connection fees. Belarus made getting electricity easier by speeding up the process of issuing technical specifications and excavation DB2014 Belarus permits and by reducing the time needed to connect to the electricity network. FYR Macedonia made getting electricity easier by reducing the time required to obtain a new connection and by setting DB2014 Macedonia, FYR fixed connection fees per kilowatt (kW) for connections requiring a capacity below 400 kW. Russia made getting electricity simpler and less costly by DB2014 Russian Federation setting standard connection tariffs and eliminating many procedures previously required. Turkey made getting electricity easier by eliminating external DB2014 Turkey inspections and reducing some administrative costs. Ukraine made getting electricity easier by streamlining the DB2014 Ukraine process for obtaining a new connection. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 43 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal Procedures to legally transfer title on again. And where property is informal or poorly immovable property (number) administered, it has little chance of being accepted as collateral for loans—limiting access to Preregistration procedures (for example, finance. checking for liens, notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration procedures in the economy’s Doing Business records the full sequence of largest business city procedures necessary for a business to purchase Postregistration procedures (for example, filing property from another business and transfer the title with the municipality) property title to the buyer’s name. The transaction Time required to complete each procedure is considered complete when it is opposable to (calendar days) third parties and when the buyer can use the property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile Each procedure starts on a separate day. rankings on its component indicators: procedures, Procedures that can be fully completed online time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are No prior contact with officials used. Cost required to complete each procedure (% The parties (buyer and seller): of property value) • Are limited liability companies, 100% Official costs only, no bribes domestically and privately owned. No value added or capital gains taxes included • Are located in the periurban area of the economy’s largest business city. • Have 50 employees each, all of whom are nationals. • Has no mortgages attached and has been under the same ownership for the past 10 • Perform general commercial activities. years. The property (fully owned by the seller): • Consists of 557.4 square meters (6,000 square • Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000 square feet). The warehouse is in good • Is registered in the land registry or condition and complies with all safety cadastre, or both, and is free of title standards, building codes and legal disputes. requirements. There is no heating system. The • Is located in a periurban commercial zone, property will be transferred in its entirety. and no rezoning is required. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 44 REGISTERING PROPERTY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in registering property suggest an answer (figure 5.1). Europe and Central Asia (ECA) to transfer property? The average ranking of the region and comparator The global rankings of these economies on the ease of regions provide a useful benchmark. Figure 5.1 How economies in Europe and Central Asia (ECA) rank on the ease of registering property Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 45 REGISTERING PROPERTY The indicators underlying the rankings may be more the time and the cost (figure 5.2). Comparing these revealing. Data collected by Doing Business show indicators across the region and with averages both what it takes to complete a property transfer in each for the region and for comparator regions can economy in the region: the number of procedures, provide useful insights. Figure 5.2 What it takes to register property in economies in Europe and Central Asia (ECA) Procedures (number) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 46 REGISTERING PROPERTY Time (days) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 47 REGISTERING PROPERTY Cost (% of property value) * Indicates a “no practice” mark. See the data notes for details. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 48 REGISTERING PROPERTY What are the changes over time? Economies worldwide have been making it easier for buyers to use or mortgage their property earlier. What entrepreneurs to register and transfer property—such property registration reforms has Doing Business as by computerizing land registries, introducing time recorded in Europe and Central Asia (ECA) (table 5.1)? limits for procedures and setting low fixed fees. Many have cut the time required substantially—enabling Table 5.1 How have economies in Europe and Central Asia (ECA) made registering property easier—or not? By Doing Business report year DB year Economy Reform Property registration time has been reduced gradually due to DB2008 Croatia ongoing reforms at the Land Registry. Georgia made registering property simpler by eliminating the need to have the sale agreement notarized and reducing time DB2008 Georgia to obtain an entrepreneurial registry excerpt of seller's/purchaser's registration from the district court. The process for registering property was sped up by opening a second registry office in Budapest. The time needed to DB2008 Hungary submit an application to the Land Registry Office and register the title decreased. The Kyrgyz Republic made registering property more costly DB2008 Kyrgyz Republic by increasing the registration fees. Uzbekistan made registering property simpler and cheaper by introducing a formula to calculate the fee to notarize a DB2008 Uzbekistan property sale agreement taking into account the minimum wage. Azerbaijan introduced a new unified registry reducing the number of procedures from 7 to 4. The State Register Service DB2009 Azerbaijan also introduced the option of expediting 2 out of 4 procedures , it is now possible to register property in 11 days. Belarus created a unified registry and introduced a broad DB2009 Belarus administrative simplification program that introduced strict time limits at the registry and computerized its property records. As a result, registration time in Minsk decreased from Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 49 DB year Economy Reform 231 to 21 days. The computerization of files at the Land Registry in Sarajevo has sped the process of registration. As a result, the time to DB2009 Bosnia and Herzegovina register a title now ranges between 1 month and 6 months, down from 308. The Georgian National Agency of Public Registry (NAPR) has developed an online business registry which eliminates the requirement for legal entities to obtain several pre- registration documents. This reform has reduced the number DB2009 Georgia of procedures required to register a property from 5 to 2, and time from 5 to 2 days. Moreover, the agency further simplified and reduced the registration fees to a single rate of GEL 50. A new registry office operating in Budapest has reduced the total time to register a title in Budapest. Increased internal DB2009 Hungary cooperation among these agencies reduced the total time to register property from 63 to 17 days. The new Law on State Registration created a new unified registry for all lands and buildings and introduced Public Service Centres as competent authorities for property DB2009 Kazakhstan transactions in the country. The law has eliminated a number of previous requirements and the number of procedures went down from 8 to 5, while time went down from 52 to 40 days. The State Land Service introduced an online database allowing the employees of the registry to check the cadastral DB2009 Latvia value of the real estate. This resulted in the removal of 1 procedure, bringing the total number to 7, and the total time from 54 to 50 Lithuania merged the procedure of obtaining the certificate for transaction with the notarization procedure. As a result of DB2009 Lithuania this reform, the number of procedures went down from 3 to 2. DB2009 Macedonia, FYR The new Law on Cadastre reduced the time needed to register property by increasing the staff in the Cadastre office. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 50 DB year Economy Reform As a result of this increased processing capacity, the time to obtain a copy from the cadastre sheet and the time to obtain the new title deed went down, bringing the total time to register a propeerty from 98 to 66. Serbia amended the Tax Property Law to reduce the property transfer tax from 5% to 2.5% of property value. As a result, DB2009 Serbia the cost to transfer a property in Serbia decreased from 5.37% to 2.85% of property value. Belarus continues to improve the process of property registration with increased efficiency at the Land Registry in DB2010 Belarus Minsk resulting in faster processing time required to verify ownership, and the notarization of incorporation documents is no longer required. An integrated web-based property register providing online DB2010 Bulgaria access to the ownership and cadastre status of the properties decreased the total time to register property in Bulgaria. The Kyrgyz Republic further eased the process of property DB2010 Kyrgyz Republic registration by simplifying documentation requirements , making surveying requirements and notarization optional. FYR Macedonia eased the process of property registration with new time limits at the Real Estate Cadastre decreasing DB2010 Macedonia, FYR the average time to register a title deed by 8 days, while non- encumbrance certificate can now be obtained from the Real Estate Registry instead of through court. Moldova made it easier to register property by removing the DB2010 Moldova requirement of cadastral sketch leading to a reduction in procedures from 6 to 5 and days from 48 to 5. Romania sped the process of registering property by DB2010 Romania introductng expedited procedures at the Land Registry and the Cadastre. The Russian Federation sped up the process of registering DB2010 Russian Federation property by introducing new documentation requirements such as cadastral passports in lieu of inventory documents Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 51 DB year Economy Reform and cadastral maps. The state duty for the property transfer has increased DB2010 Tajikistan fourfold, increasing the cost to register property in Tajikistan by 4.5% of the property value Bosnia and Herzegovina reduced delays in property DB2011 Bosnia and Herzegovina registration at the land registry in Sarajevo. Hungary reduced the property registration fee by 6% of the DB2011 Hungary property value. Albania made property registration easier by setting time DB2012 Albania limits for the land registry to register a title. Belarus simplified property transfer by doing away with the DB2012 Belarus requirement to obtain the municipality’s approval for transfers of most commercial buildings in Minsk. Latvia made transferring property easier by allowing electronic access to municipal tax databases that show the tax DB2012 Latvia status of property, eliminating the requirement to obtain this information in paper format. FYR Macedonia made registering property easier by reducing DB2012 Macedonia, FYR notary fees and enforcing time limits. Russia made registering property transfers easier by DB2012 Russian Federation eliminating the requirement to obtain cadastral passports on land plots. Serbia made transferring property quicker by offering an DB2012 Serbia expedited option. Bosnia and Herzegovina made it easier to transfer property DB2013 Bosnia and Herzegovina between companies by computerizing the commercial registry. Cyprus made property transfers faster by computerizing its DB2013 Cyprus land registry. DB2013 Ukraine Ukraine made property transfers faster by introducing an Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 52 DB year Economy Reform effective time limit for processing transfer applications at the land cadastre in Kiev. Belarus made transferring property easier by introducing a DB2014 Belarus fast-track procedure for property registration. Kazakhstan made transferring property DB2014 Kazakhstan easier by introducing a fast-track procedure for property registration. FYR Macedonia made property registration faster and less DB2014 Macedonia, FYR costly by digitizing the real estate cadastre and eliminating the requirement for an encumbrance certificate. Russia made transferring property easier by streamlining DB2014 Russian Federation procedures and implementing effective time limits for processing transfer applications. Turkey made transferring property more costly by increasing DB2014 Turkey the registration and several other fees. Ukraine made transferring property easier by streamlining DB2014 Ukraine procedures and revamping the property registration system. Uzbekistan made transferring property easier by reducing the DB2014 Uzbekistan notary fees. Montenegro made registering property easier by introducing DB2014 Montenegro a notary system. Kosovo made transferring property easier by introducing a DB2014 Kosovo new notary system and by combining procedures for drafting and legalizing sale and purchase agreements. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 53 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the borrowers and lenders’ rights in collateral and bankruptcy laws. Credit information Strength of legal rights index (0–10) systems enable lenders to view a potential borrower’s financial history (positive or negative)— Protection of rights of borrowers and lenders valuable information to consider when assessing through collateral laws risk. And they permit borrowers to establish a good Protection of secured creditors’ rights through credit history that will allow easier access to credit. bankruptcy laws Sound collateral laws enable businesses to use their assets, especially movable property, as security to Depth of credit information index (0–6) generate capital—while strong creditors’ rights Scope and accessibility of credit information have been associated with higher ratios of private distributed by public credit registries and sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit information index measures rules and practices Private credit bureau coverage (% of adults) affecting the coverage, scope and accessibility of Number of individuals and firms listed in credit information available through a public credit largest private credit bureau as percentage of registry or a private credit bureau. The strength of adult population legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the • Has up to 100 employees. secured transactions system, involving a secured • Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and • Is a private, incorporated, limited liability the strength of legal rights index. company. • Has its headquarters and only base of operations in the largest business city. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 54 GETTING CREDIT Where do the region’s economies stand today? How well do the credit information systems and getting credit suggest an answer (figure 6.1). The collateral and bankruptcy laws in economies in Europe average ranking of the region and comparator regions and Central Asia (ECA) facilitate access to credit? The provide a useful benchmark. global rankings of these economies on the ease of Figure 6.1 How economies in Europe and Central Asia (ECA) rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 55 GETTING CREDIT Another way to assess how well regulations and particular score on the strength of legal rights index. institutions support lending and borrowing in the Figure 6.3 shows the same thing for the depth of credit region is to look at the distribution of its economies by information index. Higher scores indicate stronger their scores on the getting credit indicators. Figure 6.2 legal rights for borrowers and lenders and more credit shows how many economies in the region received a information. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How extensive—and how accessible—is and lenders in economies in Europe and Central Asia credit information in economies in Europe and Central (ECA)? Asia (ECA)? Number of economies in region with each score on strength Number of economies in region with each score on depth of of legal rights index (0–10) credit information index (0–6) Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 56 GETTING CREDIT What are the changes over time? When economies strengthen the legal rights of lenders access to credit. What credit reforms has Doing and borrowers under collateral and bankruptcy laws, Business recorded in Europe and Central Asia (ECA) and increase the scope, coverage and accessibility of (table 6.1)? credit information, they can increase entrepreneurs’ Table 6.1 How have economies in Europe and Central Asia (ECA) made getting credit easier—or not? By Doing Business report year DB year Economy Reform A private credit bureau started operating on February 1, 2007. It distributes credit information about firms and individuals, DB2008 Armenia has no minimum loan requirement and guarantees all borrowers access to their credit reports. Access to credit for businesses was significantly improved by implementing a unified system of securities registry and setting up a new private credit bureau, HROK. In addition, a DB2008 Croatia unified collateral registry which is centralized geographically became operational in Croatia strengthening access to credit and the secured transaction regime. Adding retailers, utilities and trade creditors as suppliers of information, the private credit bureau now collects credit data from 17 out of Georgia 's 18 banks, microfinance institutions, DB2008 Georgia cell phone and electricity companies, in addition to the courts. The Doing Business credit information index rose from 3 to 4. Parties may agree to out-of court-enforcement of the security DB2008 Romania right when the security agreement is signed. A private bureau, National Bureau of Credit Histories (NBKI), started operations in March 2006. A draft of the law dates DB2008 Russian Federation back to 1992, but only increased consumer lending and the requirement for banks to submit credit data, made the reform possible. Albania made getting access to credit information easier by DB2009 Albania establishing its first credit bureau and facilitating access to credit for firms and individuals. DB2009 Azerbaijan The National Bank of Azerbaijan eliminated the minimum loan threshold to report loans to the public credit registry in Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 57 DB year Economy Reform September 2007. The public registry now records information on all loans extended by the financial system, thus more than doubling the coverage of borrowers with a credit history. The public credit registry in Belarus eliminated the minimum loan requirement to report credits to the registry’s database in May 2008. The registry now captures information on all credits extended by the financial system, more than doubling the quantity of borrowers with a credit history. DB2009 Belarus New regulations in Belarus also guarantee the right of borrowers to inspect the data stored in the credit registry. Borrowers can now verify the accurateness of their credit information, improving the quality of the information distributed by the credit registry. The private credit bureau in Georgia now distributes full information, including on-time repayment patterns and outstanding loans amounts, contributing to a 20 times increase in coverage and allowing banks a better understanding of the payment patterns of potential borrowers. New regulations also guarantee the right of borrowers to inspect the data registered in the private credit DB2009 Georgia bureau, helping improve the quality and accuracy of credit information in Georgia. In addition, Georgia amended its Civil Code on 5 points relating to secured transactions; its new provisions were in effect as of December 2007. The most notable change for the Legal Rights index is that parties may now agree to out-of-court enforcement of the creditor’s security right when the security agreement is signed. Kazakhstan’s private credit bureau is adding 2 new suppliers of information a month, including retailers such as furniture companies and utilities like the gas company. Coupled to a DB2009 Kazakhstan credit boom, coverage shot up by 80%. Now even consumers who do not have a bank account or a credit card can build a credit history, improving their chances to obtain credit in the future. In Macedonia, FYR, the new law on Personal Data protection guarantees that borrowers can review the data stored in the DB2009 Macedonia, FYR public credit registry. Borrowers can now check their credit information, improving the quality and accurateness of the information in the registry. IMoldova approved a new credit bureau law to facilitate the DB2009 Moldova creation of a private credit bureau. The bureau will distribute credit information that banks can use to evaluate the Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 58 DB year Economy Reform creditworthiness of potential borrowers. Ukraine created a new private credit bureau. Banks can now DB2009 Ukraine obtain credit information from potential borrowers to evaluate their creditworthiness. With the ambition to facilitate the access of more borrowers to credits, Inter Bank Kredit Bureau has started collecting since November 2005 information on the repayment pattern DB2009 Uzbekistan of individual borrowers as well as firms. This will allow for better information on borrowers repayment patterns and help develop a culture of sharing credit information. Montenegro created a new public credit registry, increasing coverage of borrowers from 0 to 30%. The new public credit DB2009 Montenegro registry will facilitate access to credit by providing credit information on borrowers to lenders. Armenia strengthened access to credit information with a new law establishing a legal framework for the activities of DB2010 Armenia credit bureaus, as well as the regulation of credit information collection and the preparation of credit reports. The Public Credit Registry in Azerbaijan enhanced access to credit information by allowing online access of the database DB2010 Azerbaijan to banks, more data available on borrowers, and introduced penalties for banks that send information that is late or incorrect. Kyrgyz Republic enhanced access to credit with an amendment to its Civil Code and Pledge Law to make secured lending more flexible, and allow general description DB2010 Kyrgyz Republic of encumbered assets, as well as general description of debts and obligations. Furthermore, amendments to the Civil Code provide for an automatic extension of the security right to proceeds of the original asset. Latvia’s new public credit registry started sharing data on DB2010 Latvia loans thus improving access to credit information. The Public Credit Bureau in FYR Macedonia increased its DB2010 Macedonia, FYR coverage due to an improved database, inclusion of more information, and a lower minimum loan threshold. DB2010 Tajikistan Tajikistan's new "Law on Credit Histories" improves its access to credit information because it allows for the creation of a Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 59 DB year Economy Reform private credit bureau Turkey’s private credit bureau now includes firms in its DB2010 Turkey database. Serbia’s new Law on Personal Data Protection guarantees by DB2010 Serbia law that borrowers can inspect their own data, thus improving access to credit information. Azerbaijan improved access to credit by establishing an DB2011 Azerbaijan online platform allowing financial institutions to provide information to, and retrieve it from, the public credit registry. Belarus enhanced access to credit by facilitating the use of DB2011 Belarus the pledge as a security arrangement and providing for out- of-court enforcement of the pledge on default. Cyprus improved access to credit information by establishing DB2011 Cyprus its first private credit bureau. Georgia improved access to credit by implementing a central DB2011 Georgia collateral registry with an electronic database accessible online. Lithuania’s private credit bureau now collects and distributes DB2011 Lithuania positive information on borrowers. Armenia improved its credit information system by DB2012 Armenia introducing a requirement to collect and distribute information from utility companies. Bulgaria made access to credit information more difficult by DB2012 Bulgaria stopping the distribution of credit reports to financial institutions by the private credit bureau (Experian). In Croatia the private credit bureau started to collect and DB2012 Croatia distribute information on firms, improving the credit information system. Georgia expanded access to credit by amending its civil code DB2012 Georgia to broaden the range of assets that can be used as collateral. Hungary reduced the amount of credit information available from private credit bureaus by shortening the period for DB2012 Hungary retaining data on defaults and late payments (if repaid) from 5 years to 1 year. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 60 DB year Economy Reform FYR Macedonia improved its credit information system by DB2012 Macedonia, FYR establishing a private credit bureau. Moldova improved its credit information system by DB2012 Moldova establishing its first private credit bureau. Access to credit using movable property in Tajikistan became DB2012 Tajikistan more complicated because the movable collateral registry stopped its operations in January, 2011. Bosnia and Herzegovina made access to credit information DB2013 Bosnia and Herzegovina more difficult by stopping the private credit bureau’s collection of credit information on individuals. Georgia strengthened its secured transactions system through an amendment to the civil code allowing a security DB2013 Georgia interest to extend to the products, proceeds and replacement of collateral. Hungary improved access to credit information by passing its DB2013 Hungary first credit bureau law mandating the creation of a database with positive credit information on individuals. Kazakhstan strengthened secured creditor rights by DB2013 Kazakhstan introducing new grounds for relief from an automatic stay during rehabilitation proceedings. Romania strengthened its legal framework for secured transactions by allowing the automatic extension of security DB2013 Romania interests to the products, proceeds and replacement of collateral. Uzbekistan improved access to credit information by DB2013 Uzbekistan guaranteeing borrowers’ right to inspect their personal data. Montenegro improved access to credit information by DB2013 Montenegro guaranteeing borrowers’ right to inspect their personal data. Georgia improved its credit information system by DB2014 Georgia implementing a new law on personal data protection. Latvia improved its credit information system by adopting a DB2014 Latvia new law regulating the public credit registry. Lithuania strengthened its secured transactions system by DB2014 Lithuania broadening the range of movable assets that can be used as collateral, allowing a general description in the security Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 61 DB year Economy Reform agreement of the assets pledged as collateral and permitting out-of-court enfor FYR Macedonia strengthened its secured transactions system by providing more flexibility on the description of assets in a DB2014 Macedonia, FYR collateral agreement and on the types of debts and obligations that can be secured. Moldova strengthened its secured transactions system by DB2014 Moldova introducing new grounds for relief from an automatic stay during insolvency and restructuring proceedings. Tajikistan improved access to credit information by DB2014 Tajikistan establishing a private credit bureau. Ukraine improved access to credit information by beginning DB2014 Ukraine to collect data on firms from financial institutions. Uzbekistan improved access to credit information by expanding the scope of credit information and requiring that DB2014 Uzbekistan more than 2 years of historical data be collected and distributed. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 62 PROTECTING INVESTORS Protecting investors matters for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not protect minority shareholders, investors may be Extent of disclosure index (0–10) reluctant to provide funding to companies through the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor Available legal remedies (damages, protections: transparency of related-party disgorgement of profits, fines, imprisonment transactions (extent of disclosure index), liability for and rescission of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to evidence before and Ease of shareholder suits index (0–10) during (ease of shareholder suits index). The ranking Access to internal corporate documents on the strength of investor protection index is the (directly or through a government inspector) simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of • Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). • The price is higher than the going price for used trucks, but the transaction goes forward. • Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of • All required approvals are obtained, and all Buyer where permitted, even if this is not required disclosures made, though the specifically required by law. transaction is prejudicial to Buyer. The transaction involves the following details: • Shareholders sue the interested parties and the members of the board of directors. • Mr. James, a director and the majority shareholder of the company, proposes that the company purchase used trucks from another company he owns. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 63 Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 64 PROTECTING INVESTORS Where do the region’s economies stand today? How strong are investor protections against self- measure all aspects related to the protection of dealing in economies in Europe and Central Asia minority investors, a higher ranking does indicate that (ECA)? The global rankings of these economies on the an economy’s regulations offer stronger investor strength of investor protection index suggest an protections against self-dealing in the areas measured. answer (figure 7.1). While the indicator does not Figure 7.1 How economies in Europe and Central Asia (ECA) rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 65 PROTECTING INVESTORS But the overall ranking on the strength of investor and ease of shareholder suits indices may also be protection index tells only part of the story. Economies revealing (figure 7.2). Higher scores indicate stronger may offer strong protections in some areas but not investor protections. Comparing the scores across the others. So the number of economies in Europe and region on the strength of investor protection index Central Asia (ECA) that have a certain score recorded and with averages both for the region and for on the extent of disclosure, extent of director liability comparator regions can provide useful insights. Figure 7.2 How strong are investor protections in economies in Europe and Central Asia (ECA)? Strength of investor protection index (0–10) Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 66 PROTECTING INVESTORS Extent of disclosure index (0–10) Extent of director liability index (0–10) Number of economies in region with each score on extent of Number of economies in region with each score on extent of disclosure index (0–10) director liability index (0–10) Note: Higher scores indicate greater disclosure. Note: Higher scores indicate greater liability of directors. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 67 PROTECTING INVESTORS Ease of shareholder suits index (0–10) Number of economies in region with each score on ease of shareholder suits index (0–10) Note: Higher scores indicate greater powers of shareholders to challenge the transaction. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 68 PROTECTING INVESTORS What are the changes over time? Economies with the strongest protections of minority reasonable time. So reforms to strengthen investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have as through new or amended company laws, securities well-functioning courts and up-to-date procedural regulations or revisions to court procedures. What rules that give minority shareholders the means to investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in Europe and Central Asia (ECA) (table 7.1)? Table 7.1 How have economies in Europe and Central Asia (ECA) strengthened investor protections—or not? By Doing Business report year DB year Economy Reform Belarus strengthened investor protections by regulating the DB2008 Belarus approval and increasing disclosure requirements for related- party transactions. Georgia strengthened investor protections by amending its DB2008 Georgia securities law to better regulate the approval and disclosure requirements of related-party transactions. Albania strengthened investor protections by regulating the approval and disclosure requirements of related-party DB2009 Albania transactions and by reinforcing director duties and available remedies. Azerbaijan strengthened investor protections by regulating DB2009 Azerbaijan the approval of related-party transactions and expanding remedies available against liable directors. The Kyrgyz Republic strengthened investor protections by granting minority investors standing to undertake legal actions to protect their rights as shareholders, by requiring an DB2009 Kyrgyz Republic independent assessment of the transaction before its approval and by increasing remedies in case of director negligence. Tajikistan strengthened investor protections by regulating the approval and increasing disclosure requirements of related- DB2009 Tajikistan party transactions, and by allowing minority investors to initiate suits against directors on behalf of the company in order to defend their rights as shareholders. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 69 DB year Economy Reform Turkey strengthened investor protections by requiring that an DB2009 Turkey independent body (auditor) assess transactions between interested parties as a prior step to approval. FYR Macedonia increased investors’ protection by regulating the approval of transactions between interested parties, DB2010 Macedonia, FYR increasing disclosure requirements in the annual report and making it easier to sue directors in cases of prejudicial transactions between interested parties. Tajikistan strengthened investor protections with amendments brought to the Joint Stock Companies law that increased the transparency obligations related to the DB2010 Tajikistan conclusion of transactions where there is a conflict of interest, and allow for greater director liability, and gives shareholders the possibility to request that harmful related party transactions be rescinded. Ukraine enhanced the protection of investors by adopting a new law on Joint Stock Companies that regulates approval of transactions between interested parties, increases disclosure DB2010 Ukraine requirements in the annual report, and makes it easier to sue directors in cases of prejudicial transactions between interested parties. Georgia strengthened investor protections by allowing DB2011 Georgia greater access to corporate information during the trial. Kazakhstan strengthened investor protections by requiring DB2011 Kazakhstan greater corporate disclosure in company annual reports. Tajikistan strengthened investor protections by requiring DB2011 Tajikistan greater corporate disclosure in the annual report and greater access to corporate information for minority investors. Belarus strengthened investor protections by introducing DB2012 Belarus requirements for greater corporate disclosure to the board of directors and to the public. Cyprus strengthened investor protections by requiring DB2012 Cyprus greater corporate disclosure to the board of directors, to the public and in the annual report. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 70 DB year Economy Reform Georgia strengthened investor protections by introducing DB2012 Georgia requirements relating to the approval of transactions between interested parties. Kazakhstan strengthened investor protections by regulating the approval of transactions between interested parties and DB2012 Kazakhstan making it easier to sue directors in cases of prejudicial transactions between interested parties. Lithuania strengthened investor protections by introducing DB2012 Lithuania greater requirements for corporate disclosure to the public and in the annual report. Armenia strengthened investor protections by introducing a requirement for shareholder approval of related-party DB2013 Armenia transactions, requiring greater disclosure of such transactions in the annual report and making it easier to sue directors when such transactions are prejudicial. Moldova strengthened investor protections by allowing the DB2013 Moldova rescission of prejudicial related-party transactions. Tajikistan strengthened investor protections by making it DB2013 Tajikistan easier to sue directors in cases of prejudicial related-party transactions. Kosovo strengthened investor protections by introducing a requirement for shareholder approval of related-party DB2013 Kosovo transactions, requiring greater disclosure of such transactions in the annual report and making it easier to sue directors when such transactions are prejudicial. FYR Macedonia strengthened investor protections by allowing shareholders to request the rescission of unfair DB2014 Macedonia, FYR related-party transactions and the appointment of an auditor to investigate alleged irregularities in the company’s activities. Turkey strengthened investor protections through a new commercial code that requires directors found liable in DB2014 Turkey abusive related-party transactions to disgorge their profits and that allows shareholders to request the appointment of an auditor to investigat Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 71 Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 72 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic or joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector— Total number of taxes and contributions paid, including consumption taxes (value added tax, where businesses pay no taxes at all. sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit) payments, time and total tax rate, with a threshold 1 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes • TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2011. transactions taxes • The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during • Taxes and mandatory contributions include the second year of operation are recorded. corporate income tax, turnover tax and all labor taxes and contributions paid by the • Taxes and mandatory contributions are company. measured at all levels of government. • A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.5%. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 73 PAYING TAXES Where do the region’s economies stand today? What is the administrative burden of complying with taxes offer useful information for assessing the tax taxes in economies in Europe and Central Asia (ECA)— compliance burden for businesses (figure 8.1). The and how much do firms pay in taxes? The global average ranking of the region and comparator regions rankings of these economies on the ease of paying provide a useful benchmark. Figure 8.1 How economies in Europe and Central Asia (ECA) rank on the ease of paying taxes Note: For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 74 PAYING TAXES The indicators underlying the rankings may be more as well as the total tax rate (figure 8.2). Comparing revealing. Data collected by Doing Business show what these indicators across the region and with averages it takes to comply with tax regulations in each both for the region and for comparator regions can economy in the region—the number of payments per provide useful insights. year and the time required to prepare and file taxes— Figure 8.2 How easy is it to pay taxes in economies in Europe and Central Asia (ECA)—and what are the total tax rates? Payments (number per year) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 75 PAYING TAXES Time (hours per year) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 76 PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 77 PAYING TAXES What are the changes over time? Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Europe and Central Asia (ECA) (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How have economies in Europe and Central Asia (ECA) made paying taxes easier—or not? By Doing Business report year DB year Economy Reform Albania reduced the tax burden for companies by reducing DB2008 Albania the corporate income tax rate Azerbaijan reduced the tax burden for companies by reducing DB2008 Azerbaijan the corporate income tax rate and eased the system of tax payment through the introduction of e-filing and e-payment Bulgaria reduced the tax burden for companies by reducing the corporate income tax rate and the social security DB2008 Bulgaria contribution and eased the system of tax payment through the diffusion of e-filing and e-payment Hungary made it more costly for company to pay taxes by DB2008 Hungary increasing the health insurance contribution rate. Kazakhstan made paying taxes easier by lowering sanctions DB2008 Kazakhstan for late payments of taxes Kyrgyz Republic reduced the tax burden for companies by DB2008 Kyrgyz Republic reducing the corporate income tax rate and abolishing social security contributions Macedonia reduced the tax burden for companies by DB2008 Macedonia, FYR reducing CIT and made it easier to pay taxes for companies by introducing electronic facilities for tax filing and payment Moldova reduced the tax burden for companies by reducing DB2008 Moldova the corporate income tax rate DB2008 Romania Romania reduced the tax burden for companies by reducing Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 78 DB year Economy Reform social security contributions rate Turkey reduced the tax burden for companies by reducing the DB2008 Turkey CIT and the tax on interest rate. Uzbekistan reduced the tax burden for companies by reducing the CIT and the unified social payment. It eased the DB2008 Uzbekistan oayment of taxes by abolishing the ecology tax and reducing the number of payment required for CIT Corporate income tax rate reduced from 20% to 10% effective DB2009 Albania 1/1/2008 Online filing and payment system introduced with advanced DB2009 Azerbaijan accounting software systems for calculation. Computer stations provided for users without computer facilities. (Chernobyl) tax (3%) and unemployment (1%) which are paid DB2009 Belarus by the employer have been abolished. The simplified tax system for small businesses has been amended. Corporate income tax rate has been reduced from 30% to 10%, effective 1 January 2008. Profit distribution (including DB2009 Bosnia and Herzegovina dividends) is now tax-exempt. Tax losses can now be carried forward for 5 years. New Corporate Income Tax and Value Added Tax Acts DB2009 Bulgaria introduced. Additional annual VAT return abolished. Employer share of of social security reduced by 5%. Effective January 1, 2008, the corporate income tax rate was DB2009 Georgia reduced to 15% from 20% and the social tax has been abolished. Effective 1 January 2008, the corporate income tax has been DB2009 Macedonia, FYR reduced from 155 to 10%. Several social security tax rates were adjusted s follows: pension fund (from 33.2% to 31.8%), social security fund DB2009 Ukraine (from 1.5% to 2.9%) and social insurance for accidents at work (2.18% to 2.29%). Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 79 DB year Economy Reform Belarus has eased the payment of taxes with enhanced usage of electronic systems, impacting tax compliance time, while DB2010 Belarus adjustment of the ecological tax rates, reduction of turnover tax rates, and reduction of the number of payments for property tax have also reduced the tax burden for business. Kazakhstan reduced the tax burden on companies by DB2010 Kazakhstan reducing the social tax for 2008 and by reducing the corporate income tax rate from 30% to 10% for 2009. The Kyrgyz Republic has eased the tax burden on business by DB2010 Kyrgyz Republic reducing several taxes including the corporate income tax. Lithuania has increased the tax burden on business by raising DB2010 Lithuania corporate income tax from 15% to 20%. FYR Macedonia has clarified social security payments DB2010 Macedonia, FYR according to five types, and has reduced social security rates. Moldova has eased the burden of taxes on business reducing DB2010 Moldova the social security taxes as paid by the employer Romania has added to the tax burden on businesses by DB2010 Romania increasing labor taxes. Russia eased the tax burden on companies by reducing the DB2010 Russian Federation corporate income tax rate from 24% to 20%. Uzbekistan introduced a new tax code combining corporate DB2010 Uzbekistan income tax (CIT) provisions. Montenegro has reduced the tax burden on business and employment by cutting corporate income tax by almost half DB2010 Montenegro to 9%, and social security rates to 12% for 2009 and 9% for 2010. Kosovo eased the tax burden on businesses by reducing the DB2010 Kosovo corporate income tax rate from 20% to 10% in 2009. Albania made it easier and less costly for companies to pay DB2011 Albania taxes by amending several laws, reducing social security contributions and introducing electronic filing and payment. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 80 DB year Economy Reform A revision of Azerbaijan’s tax code lowered several tax rates, DB2011 Azerbaijan including the profit tax rate, and simplified the process of paying corporate income tax and value added tax. Reductions in the turnover tax, social security contributions and the base for property taxes along with continued efforts DB2011 Belarus to encourage electronic filing made it easier and less costly for companies in Belarus to pay taxes. Bosnia and Herzegovina simplified its labor tax processes, DB2011 Bosnia and Herzegovina reduced employer contribution rates for social security and abolished its payroll tax. Bulgaria reduced employer contribution rates for social DB2011 Bulgaria security. Croatia made paying taxes more difficult and costly for DB2011 Croatia companies by introducting a tourist fee. DB2011 Hungary Hungary simplified taxes and tax bases. DB2011 Lithuania Lithuania reduced corporate tax rates. FYR Macedonia lowered tax costs for businesses by requiring DB2011 Macedonia, FYR that corporate income tax be paid only on distributed profits. Moldova reduced employer contribution rates for social DB2011 Moldova security. Romania introduced tax changes, including a new minimum DB2011 Romania tax on profit, that made paying taxes more costly for companies. DB2011 Tajikistan Tajikistan lowered its corporate income tax rate. Ukraine eased tax compliance by introducing and continually DB2011 Ukraine enhancing an electronic filing system for value added tax. An amendment to Montenegro’s corporate income tax law DB2011 Montenegro removed the obligation for advance payments and abolished the construction land charge. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 81 DB year Economy Reform Armenia made tax compliance easier for firms by reducing the number of payments for social security contributions and DB2012 Armenia corporate income, property and land taxes and by introducing mandatory electronic filing and payment for major taxes. Belarus abolished several taxes, including turnover and sales taxes, and simplified compliance with corporate income, value DB2012 Belarus added and other taxes by reducing the frequency of filings and payments and facilitating electronic filing and payment. Georgia made paying taxes easier for firms by simplifying the DB2012 Georgia reporting for value added tax and introducing electronic filing and payment of taxes. Hungary made paying taxes costlier for firms by introducing a DB2012 Hungary sector-specific surtax The Kyrgyz Republic made paying taxes costlier for firms by DB2012 Kyrgyz Republic introducing a real estate tax, though it also reduced the sales tax rate. Romania made paying taxes easier for companies by introducing an electronic payment system and a unified DB2012 Romania return for social security contributions. It also abolished the annual minimum tax. Russia increased the social security contribution rate for DB2012 Russian Federation employers. Turkey lowered the social security contribution rate for DB2012 Turkey companies by offering them a 5% rebate Ukraine made paying taxes easier and less costly for firms by DB2012 Ukraine revising and unifying tax legislation, reducing corporate income tax rates and unifying social security contributions. Montenegro made paying taxes easier and less costly for firms by abolishing a tax, reducing the social security DB2012 Montenegro contribution rate and merging several returns into a single unified one. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 82 DB year Economy Reform Albania made paying taxes easier for companies by DB2013 Albania abolishing the vehicle tax and encouraging electronic filing for taxes. Belarus made paying taxes easier and less costly for DB2013 Belarus companies by reducing the profit tax rate and encouraging the use of electronic filing and payment systems. Bosnia and Herzegovina eased the administrative burden of DB2013 Bosnia and Herzegovina filing and paying social security contributions by implementing electronic filing and payment systems. Croatia made paying taxes less costly for companies by DB2013 Croatia reducing the health insurance contribution rate. Cyprus made paying taxes more costly for companies by increasing the special defense contribution rate on interest income and introducing a private sector special contribution DB2013 Cyprus and a fixed annual fee for companies registered in Cyprus. At the same time, it simplified tax compliance by introducing electronic filing for corporate income tax. Georgia made paying taxes easier for companies by DB2013 Georgia enhancing the use of electronic systems and providing more services to taxpayers. Hungary made paying taxes easier for companies by abolishing the community tax. At the same time, Hungary DB2013 Hungary increased health insurance contributions paid by the employer. Moldova made paying taxes more costly for companies by reintroducing the corporate income tax—but also made tax DB2013 Moldova compliance easier by encouraging electronic filing and payment. Russia eased the administrative burden of taxes for firms by simplifying compliance procedures for value added tax and DB2013 Russian Federation by promoting the use of tax accounting software and electronic services. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 83 DB year Economy Reform Ukraine made paying taxes easier by implementing electronic DB2013 Ukraine filing and payment for medium-size and large enterprises. Albania made paying taxes easier by allowing corporate DB2014 Albania income tax to be paid quarterly. Armenia made paying taxes easier by merging the employee DB2014 Armenia and employer social contributions and individual income tax into one unified income tax. Bosnia and Herzegovina introduced a penalty for failure to employ the required minimum number of people in special DB2014 Bosnia and Herzegovina categories—though it also temporarily abolished the forestry tax. Croatia made paying taxes easier for companies by introducing an electronic system for social security DB2014 Croatia contributions and by reducing the rates for the forest and Chamber of Commerce contributions. FYR Macedonia made paying taxes easier for companies by DB2014 Macedonia, FYR encouraging the use of electronic filing and payment systems for corporate income and value added taxes. Moldova made paying taxes easier for companies by introducing an electronic filing and payment system for the DB2014 Moldova value added tax, corporate income tax, land improvement tax and tax on immovable property. Romania made paying taxes easier and less costly for companies by reducing the payment frequency for the firm DB2014 Romania tax from quarterly to twice a year and by reducing the vehicle tax rate. Tajikistan made paying taxes easier and less costly for companies by reducing the corporate income tax rate, DB2014 Tajikistan merging the minimal income tax with the corporate income tax and abolishing the retail sales tax. At the same time, Tajikistan increased the land DB2014 Ukraine Ukraine made paying taxes easier for companies by simplifying tax returns and further improving its electronic Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 84 DB year Economy Reform filing system. Uzbekistan made paying taxes easier for companies by DB2014 Uzbekistan eliminating some small taxes. Serbia made paying taxes more costly for companies by DB2014 Serbia increasing the corporate income tax. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 85 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to extra costs and delays for exporters and importers, Documents required to export and import stifling trade potential. Research shows that (number) exporters in developing countries gain more from Bank documents a 10% drop in their trading costs than from a Customs clearance documents similar reduction in the tariffs applied to their products in global markets. Port and terminal handling documents What do the indicators cover? Transport documents Doing Business measures the time and cost Time required to export and import (days) (excluding tariffs and the time and cost for sea Obtaining, filling out and submitting all the transport) associated with exporting and documents importing a standard shipment of goods by sea transport, and the number of documents necessary Inland transport and handling to complete the transaction. The indicators cover Customs clearance and inspections procedural requirements such as documentation Port and terminal handling requirements and procedures at customs and other regulatory agencies as well as at the port. They also Does not include sea transport time cover trade logistics, including the time and cost of inland transport to the largest business city. The Cost required to export and import (US$ per container) ranking on the ease of trading across borders is the simple average of the percentile rankings on its All documentation component indicators: documents, time and cost Inland transport and handling to export and import. Customs clearance and inspections To make the data comparable across economies, Port and terminal handling Doing Business uses several assumptions about the business and the traded goods. Official costs only, no bribes The business: • Do not require refrigeration or any other special environment. • Is of medium size and employs 60 people. • Do not require any special phytosanitary or • Is located in the periurban area of the environmental safety standards other than economy’s largest business city. accepted international standards. • Is a private, limited liability company, • Are one of the economy’s leading export or domestically owned, formally registered import products. and operating under commercial laws and regulations of the economy. • Are transported in a dry-cargo, 20-foot full container load. The traded goods: • Are not hazardous nor do they include military items. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 86 TRADING ACROSS BORDERS Where do the region’s economies stand today? How easy it is for businesses in economies in Europe trading across borders suggest an answer (figure 9.1). and Central Asia (ECA) to export and import goods? The average ranking of the region and comparator The global rankings of these economies on the ease of regions provide a useful benchmark. Figure 9.1 How economies in Europe and Central Asia (ECA) rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 87 TRADING ACROSS BORDERS The indicators underlying the rankings may be more documents, the time and the cost (figure 9.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to export or import a standard container of averages both for the region and for comparator goods in each economy in the region: the number of regions can provide useful insights. Figure 9.2 What it takes to trade across borders in economies in Europe and Central Asia (ECA) Documents to export (number) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 88 TRADING ACROSS BORDERS Time to export (days) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 89 TRADING ACROSS BORDERS Cost to export (US$ per container) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 90 TRADING ACROSS BORDERS Documents to import (number) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 91 TRADING ACROSS BORDERS Time to import (days) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 92 TRADING ACROSS BORDERS Cost to import (US$ per container) Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 93 TRADING ACROSS BORDERS What are the changes over time? In economies around the world, trading across borders systems. These changes help improve their trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Europe and Central Asia (ECA) risk-based inspections and electronic data interchange (table 9.1)? Table 9.1 How have economies in Europe and Central Asia (ECA) made trading across borders easier—or not? By Doing Business report year DB year Economy Reform Armenia eased trade due to implementing an EDI system ( “Direct Trader Input") that enables customs brokers to submit DB2008 Armenia customs declarations via electronic submission directly to the Customs offices. BH eased trade due to implementation of a comprehensive customs reforms project involving the enacting of a new DB2008 Bosnia and Herzegovina customs law and establishing a new customs administration. In addition, an EDI system has been implemented. Turkey eased trade by introducing an Electronic Data Interchange, improving IT infrastructure and training of some DB2008 Turkey 2500 Customs officers and 14,000 traders. These developments took place due to Customs Modernization Project. A new regulations for customs and banking export and DB2009 Belarus import time dropped. Ongoing port infrastructure improvements decreased export DB2009 Croatia and import time. Rationalization of the customs fee schedule, permit structure, improved risk based inspections, simplification of a customs DB2009 Macedonia, FYR procedure, and abolishment of a document led to a decrease in export and import time, as well as 1 document. Due to port infrastructure and services improvements, the DB2009 Ukraine import time decreased. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 94 DB year Economy Reform With the implementation of ASYCUDA World and the DB2010 Albania purchase of scanners, the total import customs clearance time has been reduced in Albania. Armenia has sped the process of trading across borders by encouraging greater competition in the banking, transportation sectors, customs brokerage service industry, as DB2010 Armenia well as reducing the number of goods requiring inspection and streamlining the number of documents necessary to clear goods. Azerbaijan decreased the time required to clear goods and DB2010 Azerbaijan cross its borders by streamlining and regrouping various agencies behind a single customs service window. Implementation of a risk-based management system and DB2010 Belarus improvement of border crossing operations reduced transit time for trade in Belarus. Georgia has significantly decreased the cost of trade as well DB2010 Georgia as simplified the documentation requirements to import and export. The Kyrgyz Republic simplified and sped up trading across borders with the elimination of 6 previously required DB2010 Kyrgyz Republic documents, and with the simplification of inspection procedures. Armenia made trading easier by introducing self-declaration desks at customs houses and warehouses, investing in new DB2011 Armenia equipment to improve border operations and introducing a risk management system. Belarus reduced the time to trade by introducing electronic DB2011 Belarus declaration of exports and imports. Kazakhstan speeded up trade through efforts to modernize DB2011 Kazakhstan customs, including implementation of a risk management system and improvements in customs automation. DB2011 Latvia Latvia reduced the time to export and import by introducing Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 95 DB year Economy Reform electronic submission of customs declarations. Lithuania reduced the time to import by introducing, in DB2011 Lithuania compliance with EU law, an electronic system for submitting customs declarations. Montenegro’s customs administration simplified trade by DB2011 Montenegro eliminating the requirement to present a terminal handling receipt for exporting and importing. Bulgaria made trading across borders faster by introducing DB2012 Bulgaria online submission of customs declaration forms. Russia made trading across borders easier by reducing the DB2012 Russian Federation number of documents needed for each export or import transaction and lowering the associated cost. Ukraine made trading across borders more difficult by DB2012 Ukraine introducing additional inspections for customs clearance of imports. Georgia reduced the time to export and import by creating DB2013 Georgia customs clearance zones. Hungary reduced the time to export and import by allowing DB2013 Hungary electronic submission of customs declarations and other documents. Uzbekistan reduced the time to export by introducing a single DB2013 Uzbekistan window for customs clearance and reduced the number of documents needed for each import transaction. Azerbaijan made trading across borders easier by DB2014 Azerbaijan streamlining internal customs procedures. Croatia made trading across borders easier by improving the physical and information system infrastructure at the port of DB2014 Croatia Rijeka and by streamlining export customs procedures in preparation for accession to the Common Transit Convention of the European Un DB2014 Latvia Latvia made trading across borders easier by reducing the Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 96 DB year Economy Reform number of documents required for importing. Russia made trading across borders easier by implementing an electronic system for submitting export and import DB2014 Russian Federation documents and by reducing the number of physical inspections. Ukraine made trading across borders easier by releasing DB2014 Ukraine customs declarations more quickly and reducing the number of physical inspections. Uzbekistan made trading across borders easier by eliminating the need to register import contracts with customs, DB2014 Uzbekistan tightening the time limits for banks to register export or import contracts and reducing the number of export documents required. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 97 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the Steps to enforce the judgment outcome of a long court dispute. What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case: • The seller and buyer are located in the economy’s largest business city. • The dispute on the quality of the goods requires an expert opinion. • The buyer orders custom-made goods, then fails to pay. • The judge decides in favor of the seller; there is no appeal. • The seller sues the buyer before a competent court. • The seller enforces the judgment through a public sale of the buyer’s movable assets. • The value of the claim is 200% of income per capita. • The seller requests a pretrial attachment to secure the claim. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 98 ENFORCING CONTRACTS Where do the region’s economies stand today? How efficient is the process of resolving a commercial an answer (figure 10.1). The average ranking of the dispute through the courts in economies in Europe region and comparator regions provide a useful and Central Asia (ECA)? The global rankings of these benchmark. economies on the ease of enforcing contracts suggest Figure 10.1 How economies in Europe and Central Asia (ECA) rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 99 ENFORCING CONTRACTS The indicators underlying the rankings may also be procedures, the time and the cost (figure 10.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to enforce a contract through the courts in averages both for the region and for comparator each economy in the region: the number of regions can provide useful insights. Figure 10.2 What it takes to enforce a contract through the courts in economies in Europe and Central Asia (ECA) Procedures (number) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 100 ENFORCING CONTRACTS Time (days) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 101 ENFORCING CONTRACTS Cost (% of claim) Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 102 ENFORCING CONTRACTS What are the changes over time? Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in Europe and Central introducing new technology. Lower-income economies Asia (ECA) (table 10.1)? often work on reducing backlogs by introducing Table 10.1 How have economies in Europe and Central Asia (ECA) made enforcing contracts easier—or not? By Doing Business report year DB year Economy Reform Bulgaria introduced changes to the judicial system, increasing DB2008 Bulgaria transparency and appointing private bailiffs. Moldova updated its civil procedure law to make it compliant DB2008 Moldova with international standards and took measures to reduce corruption. Armenia reorganized its court system, introducing a dynamic threshold pegged to the minimum wage between lower and DB2009 Armenia higher jurisdictions. Overhauling the procedural code and introducing rules to frontload evidence decreases procedural complexity and moved Armenia’s ranking 2 places up. Azerbaijan created a second commercial court in Baku, increasing the number of specialized judges from 5 to 9. The DB2009 Azerbaijan time to enforce a contract through the courts decreased from 267 to 237 days. Bulgaria amended many provisions of its civil code, reforming rules for evidence and default judgment. The minimum DB2009 Bulgaria threshold for the lower jurisdiction was revised upward and powers given to the last instance civil court to select which cases to hear, limiting abuse of the appeals process. Macedonia continued to equip courts systematically with electronic case management systems. The commercial court DB2009 Macedonia, FYR in Skopje began operating, improving Macedonia’s ranking by 12 places. Romania simplified the enforcement of judgments by abolishing the need of an enforcement order. It also made DB2009 Romania the attachment of credit balances and accounts receivable available, diminishing enforcement time by one month. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 103 DB year Economy Reform Georgia made the enforcement of contracts easier by streamlining the procedures for public auctions, introducing DB2011 Georgia private enforcement officers and modernizing its dispute resolution system. Belarus modified its code of economic procedure, altering DB2012 Belarus the time frames for commercial dispute resolution. Moldova made enforcement of judgments more efficient by DB2012 Moldova introducing private bailiffs. Russia made filing a commercial case easier by introducing an DB2012 Russian Federation electronic case filing system. Ukraine amended legislation to streamline commercial DB2012 Ukraine dispute resolution and increase the efficiency of enforcement procedures. Georgia made enforcing contracts easier by simplifying and DB2013 Georgia speeding up the proceedings for commercial disputes. Moldova made the process of enforcing a contract more DB2013 Moldova difficult by abolishing the specialized economic court. Turkey made enforcing contracts easier by introducing a new DB2013 Turkey civil procedure law. Serbia made enforcing contracts easier by introducing a DB2013 Serbia private bailiff system. Croatia made enforcing contracts easier by streamlining DB2014 Croatia litigation proceedings and transferring certain enforcement procedures from the courts to state agencies. Romania made enforcing contracts easier by adopting a new DB2014 Romania civil procedure code that streamlines and speeds up all court proceedings. Uzbekistan made enforcing contracts easier by introducing an DB2014 Uzbekistan electronic filing system for court users. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 104 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through reorganization, liquidation or debt enforcement Recovery rate for creditors (cents on the (foreclosure) proceedings. The recovery rate is a dollar) function of time, cost and other factors, such as Measures the cents on the dollar recovered lending rate and the likelihood of the company by creditors continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account • Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered • Operates in the economy’s largest business city. • Has 201 employees, 1 main secured • Has a higher value as a going concern—and creditor and 50 unsecured creditors. that the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 105 RESOLVING INSOLVENCY Where do the region’s economies stand today? How efficient are insolvency proceedings in economies benchmark for assessing the efficiency of insolvency in Europe and Central Asia (ECA)? The global rankings proceedings. Speed, low costs and continuation of of these economies on the ease of resolving insolvency viable businesses characterize the top-performing suggest an answer (figure 11.1). The average ranking economies. of the region and comparator regions provide a useful Figure 11.1 How economies in Europe and Central Asia (ECA) rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 106 RESOLVING INSOLVENCY The indicators underlying the rankings may be more Comparing these indicators across the region and with revealing. Data collected by Doing Business show the averages both for the region and for comparator average time and cost required to resolve insolvency regions can provide useful insights. as well as the average recovery rate (figure 11.2). Figure 11.2 How efficient is the insolvency process in economies in Europe and Central Asia (ECA) Time (years) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 107 RESOLVING INSOLVENCY Cost (% of estate) Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 108 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) * Indicates a “no practice” mark. See the data notes for details. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 109 RESOLVING INSOLVENCY What are the changes over time? A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Europe and Central Asia (ECA) (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How have economies in Europe and Central Asia (ECA) made resolving insolvency easier—or not? By Doing Business report year DB year Economy Reform Armenia adopted a new bankruptcy Law with the aim of DB2008 Armenia improving its reorganization proceedings. It also set a time limit for judges to approve a reorganization plan. Croatia amended its Insolvency Act to regulate the profession DB2008 Croatia of bankruptcy administrators. Georgia adopted an insolvency law that introduces both reorganization and liquidation proceedings and introduceds shorter time limits for the completion of each stage of the DB2008 Georgia bankruptcy process. The law also institutes provisions for regulating the appointment of bankruptcy trustees and it empowers creditors. Hungary amended its bankruptcy legislation to grant secured DB2008 Hungary creditors priority over their pledged security. Uzbekistan adopted legislation on the voluntary liquidation of DB2008 Uzbekistan private companies. Bosnia and Herzegovina strengthened professional DB2009 Bosnia and Herzegovina requirements for trustees. Bulgaria passed 2 laws: the Civil Procedure Code and the Law for the Commercial Registry. The Civil Procedure Code specifies that the Supreme Cassation Court has the discretion to decide whether or not to hear a case. The Law for DB2009 Bulgaria Commercial Registry specifies that major decisions and rulings of the bankruptcy court are posted on the commercial registry’s website. These changes are expected to reduce delays and allows for faster resolution of bankruptcy. Latvia passed a new insolvency law which allows for the first time financially distressed companies to continue operating DB2009 Latvia by pursuing reorganization. The reform also strengthened the qualification standards for bankruptcy administrators. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 110 DB year Economy Reform Albania’s new insolvency law introduced statutory time limits during the insolvency procedure, specified professional qualifications for insolvency administrators, and established DB2010 Albania an Agency of Insolvency Supervision to regulate the profession of insolvency administrators. A simplified procedure of insolvency for small businesses was introduced, as well. Lithuania eased the process of closing a business with the DB2010 Lithuania introduction of amendments to the Enterprise Bankruptcy Law. Romania amended its insolvency law with the immediate impact of increasing costs of insolvency procedures by 1.5%, DB2010 Romania which are to be transferred to a fund that reimburses the expenses of insolvency administrators in cases where the debtor has no assets. The Russian Federation introduced several changes to its DB2010 Russian Federation insolvency law to speed up the liquidation procedure and strengthen the legal status of secured creditors. Tajikistan passed an amendment to its insolvency law aiming DB2010 Tajikistan to reduce statutory times and cost of the proceedings. Belarus amended regulations governing the activities of DB2011 Belarus insolvency administrators and strengthened the protection of creditor rights in bankruptcy. Georgia improved insolvency proceedings by streamlining the DB2011 Georgia regulation of auction sales. Amendments to Hungary’s bankruptcy law encourage DB2011 Hungary insolvent companies to consider reaching agreements with creditors out of court so as to avoid bankruptcy. The Kyrgyz Republic streamlined insolvency proceedings and updated requirements for administrators, but new formalities DB2011 Kyrgyz Republic added to prevent abuse of proceedings made closing a business more difficult. Latvia introduced a mechanism forout-of-court settlement of DB2011 Latvia insolvencies to alleviate pressure on courts and tightened some procedural deadlines. Lithuania introduced regulations relating to insolvency DB2011 Lithuania administrators that set out clear rules of liability for violations of law. Substantial amendments to Romania’s bankruptcy laws— DB2011 Romania introducing, among other things, a procedure for out-of- Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 111 DB year Economy Reform court workouts—made dealing with insolvency easier. Russia introduced a series of legislative measures in 2009 to DB2011 Russian Federation improve creditor rights and the insolvency system. Serbia passed a new bankruptcy law that introduced out-of- DB2011 Serbia court workouts and a unified reorganization procedure. Armenia amended its bankruptcy law to clarify procedures for appointing insolvency administrators, reduce the processing DB2012 Armenia time for bankruptcy proceedings and regulate asset sales by auction. Bulgaria amended its commerce act to extend further rights DB2012 Bulgaria to secured creditors and increase the transparency of insolvency proceedings. Latvia adopted a new insolvency law that streamlines and DB2012 Latvia expedites the insolvency process and introduces a reorganization option for companies. Lithuania amended its reorganization law to simplify and shorten reorganization proceedings, grant priority to secured DB2012 Lithuania creditors and introduce professional requirements for insolvency administrators. FYR Macedonia increased the transparency of bankruptcy DB2012 Macedonia, FYR proceedings through amendments to its company and bankruptcy laws. Moldova amended its insolvency law to grant priority to DB2012 Moldova secured creditors. Romania amended its insolvency law to shorten the duration DB2012 Romania of insolvency proceedings. Ukraine amended its legislation on enforcement, introducing DB2012 Ukraine more guarantees for secured creditors. Serbia adopted legislation introducing professional DB2012 Serbia requirements for insolvency administrators and regulating their compensation. Montenegro passed a new bankruptcy law that introduces reorganization and liquidation proceedings, introduces time DB2012 Montenegro limits for these proceedings and provides for the possibility of recovery of secured creditors’ claims and settlement before completion of the entire bankruptcy procedure. Belarus enhanced its insolvency process by exempting the DB2013 Belarus previously state-owned property of a privatized company from the bankruptcy proceeding, requiring that immovable Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 112 DB year Economy Reform property not sold in the auction be offered to creditors for purchase and allowing immovable property to be sold without proof of state registration in a bankruptcy auction if there are no funds to pay for the registration. Georgia expedited the process of resolving insolvency by DB2013 Georgia establishing or tightening time limits for all insolvency-related procedures, including auctions. Kazakhstan strengthened its insolvency process by introducing an accelerated rehabilitation proceeding, extending the period for rehabilitation, expanding the powers of and improving qualification requirements for insolvency DB2013 Kazakhstan administrators, changing requirements for bankruptcy filings, extending the rights of creditors, changing regulations related to the continuation of operations, introducing a time limit for adopting a rehabilitation plan and adding court supervision requirements. Lithuania made resolving insolvency easier by establishing which cases against the company’s property shall be taken to the bankruptcy court, tightening the time frame for decisions DB2013 Lithuania on appeals, abolishing the court’s obligation to individually notify creditors and other stakeholders about restructuring proceedings and setting new time limits for creditors to file claims. Moldova strengthened its insolvency process by extending DB2013 Moldova the duration of the reorganization proceeding and refining the qualification requirements for insolvency administrators. Uzbekistan strengthened its insolvency process by introducing new time limits for insolvency proceedings and DB2013 Uzbekistan new time limits and procedures for the second auction and by making it possible for businesses to continue operating throughout the liquidation proceeding. Serbia strengthened its insolvency process by introducing private bailiffs, reducing the starting prices for the sale of assets, prohibiting appeals, expediting service of process and DB2013 Serbia adopting an electronic registry for injunctions to make public all prohibitions on the disposal or pledge of movable or immovable property. Belarus improved its insolvency process through a new insolvency law that, among other things, changes the DB2014 Belarus appointment process for insolvency administrators and encourages the sale of assets in insolvency. The law also regulates the liability of sharehold Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 113 DB year Economy Reform Croatia made resolving insolvency easier by introducing an DB2014 Croatia expedited outof- court restructuring procedure. Moldova made resolving insolvency easier by introducing new restructuring mechanisms, reducing opportunities for DB2014 Moldova appeals, adding moratorium provisions and establishing strict statutory periods for several stages of the insolvency proceeding. Ukraine made resolving insolvency easier by strengthening the rights of secured creditors, introducing new rehabilitation DB2014 Ukraine procedures and mechanisms, making it easier to invalidate suspect transactions and shortening the statutory periods for several steps Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 114 DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information 2 The data for paying taxes refer to January – December 2012. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 115 about what laws and regulations say and allowing reasons the time delays reported in Doing Business multiple interactions with local respondents to clarify 2014 would differ from the recollection of potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation—as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited Changes in what is measured liability company (or its legal equivalent) of a specified size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 116 completed online in just a few hours. This change business and the distance to frontier measure. The affects the time indicator for starting a business, ease of doing business ranking compares economies dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business. 3 For getting electricity the rule that each procedure must take a minimum of 1 day still applies because in practice there are no More complex aggregation methods—such as cases in which procedures can be fully completed online in less than principal components and unobserved components— a day. For example, even though in some cases it is possible to yield a ranking nearly identical to the simple average apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 117 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly identical to that from the simple average method because both since 2003 or the first year the indicator was collected. 5 these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 EUROPE AND CENTRAL ASIA (ECA) 118 the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. RESOURCES ON THE DOING BUSINESS WEBSITE Current features Business reforms News on the Doing Business project Short summaries of DB2014 business reforms, lists http://www.doingbusiness.org of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics /entrepreneurship/ Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/