82825 Economy Profile: Ecuador Doing Business 2014 Ecuador 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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Cover design: The Word Express Doing Business 2014 Ecuador 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 25 Getting electricity ....................................................................................................................... 40 Registering property .................................................................................................................. 49 Getting credit .............................................................................................................................. 60 Protecting investors ................................................................................................................... 67 Paying taxes ................................................................................................................................ 76 Trading across borders .............................................................................................................. 83 Enforcing contracts .................................................................................................................... 91 Resolving insolvency ................................................................................................................ 101 Employing workers .................................................................................................................. 106 Data notes ................................................................................................................................. 113 Resources on the Doing Business website ............................................................................ 119 Doing Business 2014 Ecuador 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2012). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 189 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 47 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 25 in East Asia and the Pacific, 25 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 20 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2014 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Ecuador. To allow useful comparison, it business regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2014, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2013 (except for http://www.doingbusiness.org. Doing Business 2014 Ecuador 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: Latin America & Caribbean business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Upper middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of Population: 15,492,264 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 5,190 percentile rankings on each of the 10 topics included in the index in Doing Business 2014: starting a business, DB2014 rank: 135 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2013 rank: 134* investors, paying taxes, trading across borders, Change in rank: -1 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the DB 2014 DTF: 57.07 percentile rankings on its component indicators (see the data notes for more details). The employing workers DB 2013 DTF: 56.6 indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented Change in DTF: 0.47 in this year’s economy profile. The aggregate ranking on the ease of doing business * DB2013 ranking shown is not last year’s published benchmarks each economy’s performance on the ranking but a comparable ranking for DB2013 that indicators against that of all other economies in the captures the effects of such factors as data Doing Business sample (figure 1.1). While this ranking corrections and the addition of 4 economies (Libya, tells much about the business environment in an Myanmar, San Marino and South Sudan) to the economy, it does not tell the whole story. The ranking on sample this year. See the data notes for sources and the ease of doing business, and the underlying definitions. indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2014 Ecuador 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2014 Ecuador 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Ecuador and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2014 Ecuador 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Ecuador ranks on Doing Business topics Source: Doing Business database. Doing Business 2014 Ecuador 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far on average an Yearly movements in rankings can provide some indication economy is from the best performance achieved by any of changes in an economy’s regulatory environment for economy on each Doing Business indicator since 2005, firms, but they are always relative. except for the getting electricity indicators, which were introduced in 2009. Moreover, year-to-year changes in the overall rankings do not reflect how the business regulatory environment in an Comparing the measure for an economy at 2 points in economy has changed over time—or how it has changed time allows users to assess how much the economy’s in different areas. To aid in assessing such changes, regulatory environment as measured by Doing Business has changed over time—how far it has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.4). Figure 1.4 How far has Ecuador come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy 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 Ecuador 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist — numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Ecuador Best performer globally Argentina DB2014 Colombia DB2014 Ecuador DB2014 Ecuador DB2013 Mexico DB2014 Indicator Bolivia DB2014 Brazil DB2014 Chile DB2014 DB2014 Starting a Business 176 174 164 180 123 22 79 48 New Zealand (1) (rank) Procedures (number) 13 13 14 15 13 7 9 6 New Zealand (1)* Time (days) 55.5 55.5 25.0 49.0 107.5 5.5 15.0 6.0 New Zealand (0.5) Cost (% of income per 25.3 29.9 19.9 71.6 4.6 0.7 7.5 19.7 Slovenia (0.0) capita) Paid-in Min. Capital (% 3.7 4.5 5.7 1.8 0.0 0.0 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 64 67 181 136 130 101 24 40 China (1) (rank) Hong Kong SAR, Procedures (number) 16 16 24 16 15 15 8 11 China (6) Time (days) 115.0 115.0 365.0 275.5 400.0 155.0 54.0 82.0 Singapore (26.0) Doing Business 2014 Ecuador 11 Best performer globally Argentina DB2014 Colombia DB2014 Ecuador DB2014 Ecuador DB2013 Mexico DB2014 Indicator Bolivia DB2014 Brazil DB2014 Chile DB2014 DB2014 Cost (% of income per 55.6 69.7 234.1 61.4 34.8 69.9 295.4 353.1 Qatar (1.1) capita) Getting Electricity 138 148 80 128 14 43 101 133 Iceland (1) (rank) Procedures (number) 7 7 6 8 4 6 5 7 10 Economies (3)* Time (days) 74 89 91 42 58 30 105 85 Germany (17) Cost (% of income per 677.7 860.9 40.3 952.3 34.4 63.9 541.6 369.1 Japan (0.0) capita) Registering Property 91 88 138 144 107 55 53 150 Georgia (1) (rank) Procedures (number) 8 8 7 7 14 6 7 7 4 Economies (1)* Time (days) 39.0 39.0 53.5 91.0 30.0 28.5 13.0 74.0 New Zealand (1.0)* Cost (% of property 2.0 2.1 6.6 4.7 2.6 1.2 2.0 5.3 5 Economies (0.0)* value) Getting Credit (rank) 86 82 73 130 109 55 73 42 Malaysia (1)* Strength of legal rights 3 3 4 1 3 6 5 6 10 Economies (10)* index (0-10) Depth of credit 6 6 6 6 5 5 5 6 31 Economies (6)* information index (0-6) Public registry coverage 0.0 0.0 41.9 14.1 50.4 40.5 0.0 0.0 Portugal (100.0)* (% of adults) Private bureau 70.9 53.5 100.0 36.5 63.4 5.9 83.8 100.0 22 Economies (100.0)* coverage (% of adults) Protecting Investors 138 137 98 138 80 34 6 68 New Zealand (1) (rank) Extent of disclosure 1 1 7 1 5 8 9 8 10 Economies (10)* Doing Business 2014 Ecuador 12 Best performer globally Argentina DB2014 Colombia DB2014 Ecuador DB2014 Ecuador DB2013 Mexico DB2014 Indicator Bolivia DB2014 Brazil DB2014 Chile DB2014 DB2014 index (0-10) Extent of director 5 5 2 5 8 6 8 5 Cambodia (10) liability index (0-10) Ease of shareholder 6 6 6 6 3 5 8 4 3 Economies (10)* suits index (0-10) Strength of investor 4.0 4.0 5.0 4.0 5.3 6.3 8.3 5.7 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 91 88 153 185 159 38 104 118 (1) Payments (number per Hong Kong SAR, 8 8 9 42 9 7 10 6 year) China (3)* United Arab Emirates Time (hours per year) 654 654 405 1,025 2,600 291 203 334 (12) Trading Across Borders 122 123 129 126 124 40 94 59 Singapore (1) (rank) Documents to export 7 7 6 7 6 5 4 4 Ireland (2)* (number) Time to export (days) 20 20 12 21 13 15 14 11 5 Economies (6)* Cost to export (US$ per 1,535 1,535 1,650 1,440 2,215 980 2,355 1,450 Malaysia (450) container) Documents to import 6 6 8 6 8 5 6 4 Ireland (2)* (number) Time to import (days) 25 25 30 24 17 12 13 11 Singapore (4) Cost to import (US$ per 1,520 1,530 2,260 1,745 2,275 930 2,470 1,740 Singapore (440) container) Enforcing Contracts 99 98 57 131 121 64 155 71 Luxembourg (1) (rank) Doing Business 2014 Ecuador 13 Best performer globally Argentina DB2014 Colombia DB2014 Ecuador DB2014 Ecuador DB2013 Mexico DB2014 Indicator Bolivia DB2014 Brazil DB2014 Chile DB2014 DB2014 Time (days) 588 588 590 591 731 480 1,288 400 Singapore (150) Cost (% of claim) 27.2 27.2 20.5 33.2 16.5 28.6 47.9 31.0 Bhutan (0.1) Procedures (number) 39 39 36 40 44 36 34 38 Singapore (21)* Resolving Insolvency 143 139 97 67 135 102 25 26 Japan (1) (rank) Time (years) 5.3 5.3 2.8 1.8 4.0 3.2 1.7 1.8 Ireland (0.4) Cost (% of estate) 18 18 12 15 12 15 6 18 Norway (1) Outcome (0 as piecemeal sale and 1 as 0 0 0 0 1 0 1 1 going concern) Recovery rate (cents on 17.9 17.8 30.8 38.9 19.5 29.1 70.3 67.6 Japan (92.8) the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. * 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 Ecuador 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE 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 additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day (2 business in an economy by recording all procedures cannot start on the same day). procedures officially required or commonly done in Procedures that can be fully completed practice by an entrepreneur to start up and online are an exception to this rule. formally operate an industrial or commercial Procedure completed once final document is business—as well as the time and cost required to received complete these procedures. It also records the paid-in minimum capital that companies must No prior contact with officials deposit before registration (or within 3 months). Cost required to complete each procedure The ranking on the ease of starting a business is (% of income per capita) the simple average of the percentile rankings on the 4 component indicators: procedures, time, cost Official costs only, no bribes and paid-in minimum capital requirement. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Has a start-up capital of 10 times income per  Is a limited liability company, located in the capita. largest business city and is 100% domestically  Has a turnover of at least 100 times income per owned. capita.  Has between 10 and 50 employees.  Does not qualify for any special benefits.  Conducts general commercial or industrial  Does not own real estate. activities. Doing Business 2014 Ecuador 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Ecuador? days, costs 25.3% of income per capita and requires According to data collected by Doing Business, starting paid-in minimum capital of 3.7% of income per capita a business there requires 13 procedures, takes 55.5 (figure 2.1). Figure 2.1 What it takes to start a business in Ecuador Paid-in minimum capital (% of income per capita): 3.7 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Ecuador 16 STARTING A BUSINESS Globally, Ecuador stands at 176 in the ranking of 189 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Ecuador to start a business. Figure 2.2 How Ecuador and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 Ecuador 17 STARTING A BUSINESS What are the changes over time? The benchmarks provided by the economies that over 2.3) can help show what is possible in making it easier time have had the best performance regionally or to start a business. And changes in regional averages globally on the procedures, time, cost or paid-in can show where Ecuador is keeping up—and where it minimum capital required to start a business (figure is falling behind. Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2014 Ecuador 18 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety economies globally have no paid-in minimum capital requirement. DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Ecuador 19 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Ecuador (table 2.1)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.1 How has Ecuador made starting a business easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. Ecuador made starting a business easier by introducing an DB2011 online registration system for social security. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 Ecuador 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Ecuador is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Quito firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Compañía Limitada professionals and the study of laws, regulations and Paid in Minimum Capital Requirement: USD 200 publicly available information on business entry in that economy. Following is a detailed summary of Start-up Capital: 10 times GNI per capita those procedures, along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Ecuador—and the time and cost Time to No. Procedure Cost to complete complete Reservation of the company name at the Superintendent of Companies The certificate of reservation is valid for 30 days according the Less than one day 1 no charge Resolution No. 06-Q-IJ-002 dated on 24-07-2006 issued by the (online procedure) Superintendence of Companies. Procedure can be done online Hire a lawyer to prepare the minutes of incorporation The minutes include the constituting contract, the articles of incorporation, the company’s bylaws, and the formation of capital. A lawyer must prepare and sign the minutes for the company’s 1 day USD 800-1000 2 incorporation. Moreover, a notary public must notarize these documents; the lawyer cannot do so. The cost includes all the operating expenses and legal fees. Deposit 50% of paid-in minimum capital in a special account of “completion of capital” (Integración de Capital) in the name of the company being formed 3 The entrepreneurs need to deposit 50% of the minimum capital 1 day no charge requirement into a bank account in the company’s name. Proof of the approved name is required. Doing Business 2014 Ecuador 21 Time to No. Procedure Cost to complete complete Notarize the charter of incorporation and bylaws The entrepreneurs need to notarize the charter of incorporation and the bylaws with a notary public. USD 245 for the first USD 25,000 of According to the Regulation Number 073-2012 issued by the National the start up capital 4 Judicial Council (Consejo Nacional de la Judicatura) published in the 2 days + 0.2% of capital Official Gazette on July 2, 2012, the notarization cost of the charter of for notary fees for incorporation and bylaws is given according the paid-in minimum the rest of the start capital of the company. up capital The lawyer presents the documents (attached with three certified copies of the charter and the bylaws) to the Superintendent of Companies for the approval of the company’s incorporation The registration fee is paid annually to the Superintendent of Companies. The cost of contribution is 1% of total assets. 5 5 days no charge The Superintendent of Companies cut the time for processing company applications, by eliminating internal processes, increasing staff, and upgrading the computer system. The company founders can now verify the status of the registration procedure online. Publish an abstract of the charter in a daily newspaper that circulates in the area in which the company operates The company needs to publish its incorporation in a daily newspaper 2 days USD 75 6 located where the company will operate. Inscribe the company’s charter and resolutions, as well as the name of the company’s legal representatives in the Mercantile Registry Office After inscribing the charter and resolution, as well as the name of the 5 days USD 80 7 legal representatives, the Mercantile Registry office (“Registro Mercantil”) will provide a registration number “Numero de codigo”, with the date that the company started its legal existence. Apply for the Registro Unico de Contribuyentes (RUC) The Registro Unico de Contribuyentes (RUC) must be obtained: (a) once the constitution procedure is completed; and (b) after the 8 company has appointed its legal representatives and registered those 4 days USD 5 per form appointments in the Register of Commerce. The application procedure is done at the Servicio de Rentas Internas (SRI) and takes 48 hours after the submission of all required documents (the registered deed, the registered appointments, and the certification of publication). Doing Business 2014 Ecuador 22 Time to No. Procedure Cost to complete complete Because the VAT (Impuesto al Valor Agregado) goes by the same identification number, it does not require a separate registration. The RUC is obtained immediately, but a paper receipt is sent by mail in the following 3 days. Print invoices and VAT forms at an authorized printing shop With the RUC, companies must buy invoices from SRI-authorized companies and state monthly VAT declarations on special forms. The 1 day USD 40 9 cost to print a 100-page book of invoices (one original and two copies) is about USD 40. Sign up online for Social Security- Instituto Ecuatoriano de Seguridad Social (IESS) and obtain password to operate the online system The company must present a petition for an employer identification number (cédula patronal). This identification number is obligatory for employers for purposes of social security, payments covering health, pension, accident and work-related illness. An employer can register with the Social Security online through the webpage of Ecuador’s Social Security Institute. After completing the 2 days no charge 10 registration online, the employer needs to obtain a password which will allow the employer to operate the system online. The day after registering online, the employer can present the documents/information to the Social Security and obtain the password to operate the online system. The online system will allow the employer to register all employees’ movements (entries of new employees and termination of the employment contract, contributions, etc.). Inscribe all employee contracts with the Ministry of Labor (Inspectoria de Trabajo) The department responsible for registering labor contracts is the National Technical Secretariat of Human Resources Development and 2 days no charge 11 Public Sector Remuneration SENRES (Secretaría Nacional Técnica de Desarrollo de Recursos Humanos y de Remuneraciones del Sector Público). SENRES is part of the Ministry of Labor. Doing Business 2014 Ecuador 23 Time to No. Procedure Cost to complete complete Receive inspection and operations permit from the municipality Since 2010, it is necessary for companies to apply for the operations permit in the municipality of Quito. In approximately 15 days after filing the application, the company will receive the inspection of Fire Department and the Secretary of Environment (Secretaría del 12 Ambiente). Then, in approximately 5 days, these two institutions will 29 days no charge give the final report to the Municipality of Quito. If these reports are favorable, the Municipality will give the operations permit in approximately 10 days. Obtain “tasa de habilitación” and pay commercial patent at the competent municipality The Law of Municipal Regime, which regulates the operation of Municipalities in each city, contemplates the possibility of the Municipalities collecting certain fees or “tasas”, as a compensation for a service provided by the municipality. One of the provisions of the Law of Municipal Regime is to collect a fee or “tasa” for the “habilitación y control de establecimientos comerciales e industriales” or the “approval of the ability to operate and control commercial and industrial establishments”. Although the tasa de habilitación was phased out on December 31, 2004 for all companies, the payment of the "tasa" is still required in practice for some companies. The fee varies depending on the type of company and the location, and size of the facilities in which the company will operate Before any commercial or industrial business starts operating, the Municipality will inspect the building/offices/shop where the business is 1 day USD 50 13 going to operate to make sure that such place complies with the City’s operation requirements for such business. Once the inspection has been made, and the operation of the business has been approved, the Municipality declares such business as able to operate, and grants the “tasa de habilitacion” as evidence of such ability to operate. The average time to obtain the permit is a month. The entrepreneur is also required to pay the Commercial Patent - a tax that every person or company engaged in commercial or industrial activities has to pay to the Municipality of the City where such activities are being executed. The Commercial Patent has to be paid each year. Companies should pay the Commercial Patent Tax within 30 days following the last day of the month when the company started operating. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2014 Ecuador 24 Source: Doing Business database. Doing Business 2014 Ecuador 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 time and money, many builders opt out. They may (number) 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, Doing Business records the procedures, time and sewerage and a land telephone line cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a completion (if required for use as collateral or warehouse in the economy’s largest business city, for transfer of the 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 considered completed once final Doing Business uses several assumptions about the document is received business and the warehouse, including the utility connections. No prior contact with officials 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. The  Has 60 builders and other employees. connection to each utility network will be 10 The warehouse: 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 Ecuador 26 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 16 procedures, takes 115.0 days build a warehouse in Ecuador? According to data and costs 55.6% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Ecuador Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Ecuador 27 DEALING WITH CONSTRUCTION PERMITS Globally, Ecuador stands at 64 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Ecuador to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Ecuador and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 Ecuador 28 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to deal with time have had the best performance regionally or construction permits. And changes in regional globally on the procedures, time or cost required to averages can show where Ecuador is keeping up—and deal with construction permits (figure 3.3) help show where it is falling behind. Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2014 Ecuador 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Ecuador 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Ecuador (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How has Ecuador made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Ecuador 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Ecuador are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Quito information collected from experts in construction licensing, including architects, civil engineers, Estimated construction lawyers, construction firms, utility USD 443,669 Warehouse Value : service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and that apply to a company and structure matching cost, are summarized below. the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Ecuador —and the time and cost Time to No. Procedure Cost to complete complete Obtain Urban Regulation Report (Informe de Regulación Urbana - IRM) The Urban Regulation Report (Informe de Regulacion Urbana, IRM) is required for most procedures before the District Municipality, such as purchasing, selling, dividing, and building a property, as well as determining if the site is affected by road construction design. Valid for 2 years, this report provides the parameters to subdivide or urbanize the following: • Area available to construct the ground floor • Maximum building area • Maximum building height permitted • Maximum number of dwelling units • Building separation distances • Permitted and unauthorized land use 15 days USD 2 1 • Basic service availability • Manufacturing line (línea de fábrica) reference To obtain the report, BuildCo must do the following: • Purchase the IRM form • Register the property's data and enclose a copy of the property tax payment receipt • Submit copies of the citizenship identification and of the updated voting voucher or owner's exemption certificate • Enclose a cartographic sheet of the Geographical Military Institute (scale, 1:5,000 or 1:25,000), showing the exact property location and the respective public deeds registered at the Property Registry • Enclose a copy of the public writ of the estate (a request signed by the owner to guarantee the payment of water, electricity, or telephone service) Doing Business 2014 Ecuador 32 Time to No. Procedure Cost to complete complete Obtain proof of compliance with a professional architect The proof of payment for the construction contribution is one of the documents required for the approval of the layout plans and the 2 building permit application. The cost is 0.1% of the warehouse value. A 1 day USD 429 court resolution eliminated the requirement to use the Colegio de Arquitectos del Ecuador Request and obtain permit from the Fire Department Apart from the aforementioned uses, the fire department report is also 3 required for buildings hosting more than 25 persons or with more than 15 days USD 200 four stories. Request approval for the plans To request approval for the plans, the following documents must be submitted to the Subdivision Administration (Administración Zonal): • Plan approval form for buildings, with data record and stamps • Metropolitan Regulation Report (Informe de Regulación Metropolitana, IRM), updated • Two sets of architectural drawings (scale, 1:100 to 1:50), with an area map, plotted on the first sheet of the project. The drawings must contain the plot area, (COS) percentage; (CUS) percentage; construction area at ground level; total building floor area; and total gross construction area, including housing area, business store and office area, parking area, community area, number of dwelling units, and number of parking lots • If the construction is financed with a mortgage loan, three additional sets must be attached • Proof of payment of 1 x 1,000 to professional associations 4 • Proof of payment of property tax (impuesto predial) corresponding to 20 days USD 644 the current year (simple copy of receipt) • Real estate deed or purchase option agreement duly notarized and registered at the Property Registry • Copies of the municipal registration and professional registration identification cards • Copy of the citizenship card and updated voting voucher or owner’s exemption certificate (Los Chillos deemed unnecessary) • Certificates granted by the Metropolitan Water and Sewage Utility Company (EMAAP), stating utility service provision (potable water and sewage) (Los Chillos Administration) The company may request the approval of the draft project (for consultation before final plan approval). The plans also must be approved by the fire department and the professional associations for architects and engineers. The approval of the draft project is valid for 2 years and is informative in nature. Doing Business 2014 Ecuador 33 Time to No. Procedure Cost to complete complete Cost is calculated as 0.15% of the construction cost. Verify structure plan with Professional Association of Engineers 5 10 days USD 429 Obtain construction guarantee and deposit it afterwards with the Municipality Proof of the guarantee deposit is a required document for the building permit application. Once the land plans have been registered for zoning and before their approval, the municipality notifies the applicant the amount to be guaranteed (fondo de garantia). The applicant can deposit the guarantee in cash or certified check or in the form of an insurance policy. The insurance policy is purchased in 2 days from a local insurance company. The fee to purchase the guarantee depends on the value to be guaranteed. After construction is finalized, the municipality will return the guarantee 2 days USD 9 6 upon inspecting the construction. The guarantee will be returned in full only if the actual construction conforms to the plans approved by the municipality. The transaction fee for the guarantee amounts to 0.05% of the guarantee itself. The guarantee amount is determined by the municipality and depends on the type of construction, the size, the sector, and the relevant zone. For construction under 600 sq. m., the guarantee will range between 1.5% and 3% of the warehouse value. For construction over 600 sq. m., the guarantee with be about 4% of the warehouse value. As a reference, the municipality would assume a warehouse value of USD 200.00 per sq. m. Obtain the final building permit The documents required to obtain the construction work execution clearance are the following: • Building permit application form, with stamps and data record • Architectural drawing approval report (original or certified copy) • Set of approved architectural drawings (original or certified copy) • Sets (two) of structural maps, with the professional signature registration 7 • Sets (two) of electrical and hydro sanitary installation plans, with the 16 days USD 595 professional signature registration • Proof of payment for building work to professional associations • Proof of the guarantee fund deposit • Proof of payment for plan and drawing approval • Proof of payment to the Metropolitan Water and Sewage Utility Company (EMAAP) for service installation • Construction statistical sheet • Copy of municipal and professional registration cards for the builder and designer (Los Chillos) Doing Business 2014 Ecuador 34 Time to No. Procedure Cost to complete complete • Copy of the citizenship card and updated voting voucher or owner’s exemption certificate • For four stories or more, survey report for soil and subsoil of more than 2.5 mh and structural calculation report • Proof of payment received of the corresponding property tax for the current year (La Delicia) This procedure does not entail any charges. However, the scanner services fee is 20% of the current minimum wage for each sheet, and a form must be purchased with the required stamps. The form fee is USD 0.40, which is the same as the cost of the stamps. These fees are on a per-filing basis, and more than one filing is normally necessary. Receive foundation inspection 8 1 day no charge Receive structure inspection 9 1 day no charge Request potable water and drainage hook-up The proof of payment for service installation is one of the documents 10 required for the approval of the layout plans and the building permit 1 day no charge application. Receive water and sewage inspection Depending on whether a meter is already available, an inspection may be conducted before BuildCo obtains its water connection. Given that the project considered here is a new construction, it is assumed that 1 day no charge 11 BuildCo must obtain the meter with the new electricity connection. Hence, an inspection also takes place to evaluate the cost of new service. Obtain potable water and drainage hook-up 12 10 days no charge * Request and obtain final inspection 13 10 days no charge Doing Business 2014 Ecuador 35 Time to No. Procedure Cost to complete complete Obtain occupancy permit and guarantee retrieval The occupancy permit authorizes BuildCo to bring the building into service and enables retrieval of the guarantee fund. To this end, BuildCo must present the following documents at the respective Subdivision Administration (Administración Zonal): • Inhabitability permit application form, with stamps and data record • Approved architectural drawings (one copy) • Plan and drawing approval report 14 • Building permit 20 days no charge • Original proof of guarantee fund receipt • Citizenship card and updated voting voucher or owner exemption certificate (copy) • For guarantee fund retrieval in cash, an application form must be filed with the General Financial Department (Dirección General Financiera), with the respective stamps * Request and obtain telephone connection Not all areas are covered by a phone network. The telephone connection is not a prerequisite for the occupancy permit. Hence, the 20 days USD 77 15 occupancy permit can be requested in parallel with the telephone connection. * Register the building at the Property Registry The following fees apply for the payment of the property registration fee for the qualification and registration of acts implying the incorporation, amendment, title transfer, awards, and extinction of real or personal title over movable or immovable property, as well as for tax assessments or title restrictions, and any similar act.   | 16 Initial Value | 14 days USD 500 Final Value |  Total Registration Fee | 1| 0.1 | 1.60 | 1.40 | Doing Business 2014 Ecuador 36 Time to No. Procedure Cost to complete complete 2| 1.61 | 3.00 | 1.80 | 3| 3.01 | 4.00 | 2.25 | 4| 4.01 | 6.00 | 2.80 | 5| 6.01 | 10.00 | 3.75 | 6| 10.01 | 14.00 | 4.50 | 7| 14.01 | 20.00 | 5.25 | 8| 20.01 | 30.00 | 6.50 | Doing Business 2014 Ecuador 37 Time to No. Procedure Cost to complete complete 9| 30.01 | 40.00 | 8.20 | 10 | 40.01 | 80.00 | 11.25 | 11 | 80.01 | 120.00 | 12.50 | 12 | 120.01 | 200.00 | 17.25 | 13 | 200.01 | 280.00 | 22.30 | 14 | 280.01 | 400.00 | 26.00 | 15 | 400.01 | 600.00 | 33.70 | Doing Business 2014 Ecuador 38 Time to No. Procedure Cost to complete complete 16 | 600.01 | 800.00 | 37.00 | 17 | 800.01 | 1,200.00 | 44.25 | 18 | 1,200.01 | 1,600.00 | 58.90 | 19 | 1,600.01 | 2,000.00 | 74.55 | 20 | 2,000.01 | 2,400.00 | 80.00 | 21 | 2,400.01 | 2,800.00 | 85.00 | 22 | 2,800.01 | 3,200.00 | 90.00 | Doing Business 2014 Ecuador 39 Time to No. Procedure Cost to complete complete 23 | 3,200.01 | 3,600.00 | 95.00 | 24 | 3,600.01 | 10,000.00 | 100.00 |   If the value of the property exceeds the amount specified in row 24, the builder will pay a flat fee of USD 100 (plus VAT) for property registration. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Ecuador 40 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 warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is to either the low-voltage or the medium-  Is a new construction being connected to voltage distribution network and either overhead electricity for the first time. or underground, whichever is more common in the economy and area where the warehouse is  Has 2 stories, both above ground, with a located. The length of any connection in the total surface of about 1,300.6 square customer’s private domain is negligible. meters (14,000 square feet), and is built on a plot of 929 square meters (10,000 square  Requires crossing of a 10-meter road but all the feet). works are carried out in a public land, so there is no crossing into other people's private property. The electricity connection:  Involves installing one electricity meter. The  Is 150 meters long and is a 3-phase, 4-wire Y, monthly electricity consumption will be 0.07 140-kilovolt-ampere (kVA) (subscribed gigawatt-hour (GWh). The internal electrical capacity) connection. wiring has been completed. Doing Business 2014 Ecuador 41 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 74 days and costs 677.7% of income connection in Ecuador? According to data collected by per capita (figure 4.1). Doing Business, getting electricity there requires 7 Figure 4.1 What it takes to obtain an electricity connection in Ecuador Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Ecuador 42 GETTING ELECTRICITY Globally, Ecuador stands at 138 in the ranking of 189 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Ecuador to connect a warehouse to electricity. Figure 4.2 How Ecuador and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 Ecuador 43 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Ecuador Best performer in Best performer Indicator Ecuador DB2014 Ecuador DB2013 Latin America & globally DB2014 Caribbean DB2014 Rank Trinidad and Tobago 138 148 Iceland (1) (10) Procedures (number) St. Vincent and the 7 7 10 Economies* (3) Grenadines (3) Time (days) 74 89 St. Kitts and Nevis (18) Germany (17) Cost (% of income per Trinidad and Tobago capita) 677.7 860.9 Japan (0.0) (7.0) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Ecuador 44 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and Ecuador (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Ecuador made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Ecuador made getting electricity easier by dividing the city of Quito into zones for the purpose of handling applications for DB2014 new connections—a change that improved the utility’s customer 162 Doing Business 2014 service—and by reducing the fees to obtain a connection. Source: Doing Business database. Doing Business 2014 Ecuador 45 GETTING ELECTRICITY What are the details? The indicators reported here for Ecuador are based on OBTAINING AN ELECTRICITY CONNECTION a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Quito utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Empresa Electrica Quito verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Ecuador—and the time and cost Time to No. Procedure Cost to complete complete The client hires an electrical engineer listed within the list of Companies or qualified by the Empresa Eléctrica Quito S.A. The customer must hire an electrical engineer listed with Empresa Eléctrica Quito S.A. (EEQ). The electrical engineer sends the feasibility 1 calendar day USD 5,000.0 1 request to EEQ on behalf of the client. The electrical engineer also prepares the design to perform the external connection works and is in charge of carrying out the works. The electrical engineer presents the connection request to Empresa Eléctrica Quito S.A. and awaits the feasibility report The service request must be made by a private electrical engineer who is listed in the listing of Companies or Electrical Engineers qualified by Empresa Eléctrica Quito SA (EEQ). The applicant must provide the Service Feasibility Form, attaching the required documents. The service feasibility is required for projects with a demand greater than 125 kVA. EEQ 2 determines the possibility of meeting the requested demand in the area 9 calendar days no charge in question and establishes the conditions needed to optimize the use of the network. The applicant should approach with the following documents: • Letter of authorization from the owner. • Copy of identity card of the owner. • Sketch of location in AutoCAD; standards established by the EEQ SA (to provide in hand writing) Doing Business 2014 Ecuador 46 Time to No. Procedure Cost to complete complete • Estimate of the installed load, peak demand and capacity required with the signature of liability by the qualified Private Engineer EEQ SA • Service Feasibility Form. Empresa Eléctrica Quito S.A. conducts an inspection on site to prepare the feasibility study Taking as reference the sketch of the location, an electrical engineer of the Empresa Eléctrica Quito SA (EEQ) performs the inspection of the site, verifies the technical data of the project and prepares the technical feasibility report. 3 1 calendar day no charge The utility has created three ‘Dirrecion de Zona’ in charge of approval of the design, supervision of works and final connection for each part of the city. The Head of the Direccion de Distribucion de la Zona reviews the technical report for subsequent approval by the Head of the Engineering Division of Distribution. Finally the customer picks up the approved report at the Secretariat of the relevant Zone. The contracted engineer prepares the design, submits it for approval by Empresa Eléctrica Quito S.A. Before starting with the external connection works, the private electrical engineer must submit the final designs to Empresa Eléctrica Quito S.A. (EEQ). For the approval of the project it is necessary to revise the design, verifying that it is within the norms of the company. The Secretaría de la Zona receives the application for approval with the conditions required. The assigned engineer reviews the technical documentation of the project on site, for verification of the information presented. Any discrepancies between the design and the standards is 4 discussed with the private engineer responsible for the project. Once all 20 calendar days USD 2,750.0 comments have been addressed, the Engineer Reviewer assigned proceeds to prepare the Technical Report. The Jefatura del Departamento de la Zona reviews the technical report for their approval. The Secretaría de la Zona reports and delivers the Project Approval Letter to the Private Engineer responsible of the project. After receiving the Project Approval Letter, the private electrical engineer can start the connection works. Doing Business 2014 Ecuador 47 Time to No. Procedure Cost to complete complete The contracted engineer carries out the external connection according to the standards set by Empresa Eléctrica Quito S.A. During the external connection, EEQ performs a review of the work done by the electrical engineer. The purpose of the inspections is to ensure that facilities are constructed as established in the approved project, that correct materials are used and that the installation is a reliable and safe. In order to solicit the final inspection of the construction the engineer has to submit the following documents: 5 • Project Approval Letter issued by the Company. 33 calendar days USD 26,000.0 • Design Documentation Project Approved. • Order Form for inspection of the work. The Private Engineer presents the request for Project Approval attaching the requirements needed for this procedure at the Direccion de Distribucion Zonal which assigns an inspector to review the work on the site and to coordinate the scheduled job with the area of Operación y Mantenimiento. Finally the auditing Engineer prepares the Notice of Charge for services provided on site. The client obtains an excavation permit for the laying of the underground cable from the relevant department at the Municipality (La Empresa Metropolitana de Movilidad y Obras Públicas de Quito (EMMOP-Q)) 6 21 calendar days USD 500.0 The client has to submit the electrical project approved by EEQ with the application in order to obtain an excavation permit. The client pays the guarantee deposit and Empresa Eléctrica Quito S.A. provides the power for the project The engineer in charge of the project requests the energization of the connection at the Secretaría del Departamento de Fiscalización de Redes. The applicant submits with the following documents: • Receipt of payment of work undertaken by the company on site. • Reentry form of materials to the warehouse. 7 • Payment Receipt to the College of Engineering (CIEEPI). This receipt is 11 calendar days USD 951.5 no longer required • Receipt of equipment and materials. • updated map with the requested changes. • Powering request. The Auditing Engineer is assigned to coordinate the powering of the work with the Departamento de Operación y Mantenimiento Urbano/Rural. The powering works are done by the Department of Operación y Mantenimiento Urbano/Rural , the department will report Doing Business 2014 Ecuador 48 Time to No. Procedure Cost to complete complete any updates or the successful implementation. The guarantee deposit is a deposit equivalent to one month's consumption, calculated at current rates, by type of consumer. In the case of new customers, the value of the guarantee is calculated based on estimated monthly consumption according to the installed load. The security deposit is returned without interest when the consumer stops using the service, and is current with payments. It is not possible to pay with a bank guarantee. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2014 Ecuador 49 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 again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) 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 rankings on its component indicators: procedures, Each procedure starts on a separate day. time and cost. Procedures that can be fully completed online 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 used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure (% of property value)  Are limited liability companies, 100% domestically and privately owned. Official costs only, no bribes  Are located in the economy’s largest No value added or capital gains taxes included business city. and no rezoning is required.  Have 50 employees each, all of whom are  Has no mortgages attached and has been nationals. 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 feet) of land and a 10-year-old, 2-story  Has a value of 50 times income per capita. warehouse of 929 square meters (10,000 The sale price equals the value. square feet). The warehouse is in good  Is registered in the land registry or cada- condition and complies with all safety stre, or both, and is free of title disputes. standards, building codes and legal requirements. There is no heating system. The  Is located in a periurban commercial zone, property will be transferred in its entirety. Doing Business 2014 Ecuador 50 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 39.0 days and costs 2.0% of the Ecuador? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 8 Figure 5.1 What it takes to register property in Ecuador Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Ecuador 51 REGISTERING PROPERTY Globally, Ecuador stands at 91 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Ecuador to transfer property. Figure 5.2 How Ecuador and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2014 Ecuador 52 REGISTERING PROPERTY What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to register time have had the best performance regionally or property. And changes in regional averages can show globally on the procedures, time or cost required to where Ecuador is keeping up—and where it is falling complete a property transfer (figure 5.3) help show behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2014 Ecuador 53 REGISTERING PROPERTY Cost (% of property value) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Ecuador 54 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Ecuador (table 5.1)? Table 5.1 How has Ecuador made registering property easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. In Ecuador property transfers became more time consuming as DB2013 a result of implementation problems in transferring authority over property records to the municipality of Quito. DB2014 No reform as measured by Doing Business. 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 Ecuador 55 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property City: Quito lawyers, notaries and property registries. These procedures are those that apply to a transaction Property Value: USD 268,373 matching the standard assumptions used by Doing Business in collecting the data (see the section in The procedures, along with the associated time and this chapter on what the indicators cover). cost, are summarized below. Summary of procedures for registering property in Ecuador—and the time and cost Time to No. Procedure Cost to complete complete Lawyer prepares the contract A rough copy of the contract -“Minuta” is prepared by a lawyer. It is mandatory to hire a lawyer to register property in Ecuador, 2 days USD 1,000 1 according to the “Ley de federación de Abogados" of March 7th 1974. Lawyer’s fees are calculated on the market price of the property. Obtain a non-encumbrance certificate (“Certificado de gravamenes”) from the Property Registry A certificate of real estate encumbrances ("Certificado de Gravámenes") must be obtained at the Municipality (Real Estate Public Registry). 2 The certificate remains valid for 45 days (with the certificate dated with 7-15 days USD 7.00 the request date, and not the date the document is issued). If the registration has not been requested by then, a new certificate would have to be requested. * Pay various taxes at the Municipality These taxes are paid based on the official or on the market value of the property. The Municipality calculates the taxes according to the highest value of the two. 3 days 1% of property The Property Appreciation tax (a capital gains tax) is also paid at this (simultaneous price (Transfer tax, 3 stage and is calculated on the difference between the sale-price and with procedure 4) or "Alcabala") acquisition-price of the property. In addition, the amount of the tax is reduced taking into account the economic benefits added to the property by the seller and the antiquity of the property. The tax is 10% of the difference. The tax was cut to 0.5% only for the first transfer of any real estate delivered after January 1st, 2006, with a discount of 5% of that Doing Business 2014 Ecuador 56 Time to No. Procedure Cost to complete complete for every year old that the property/building is. The registration tax (1% of the official value) was eliminated. After payment of the taxes, the Municipality will issue a municipal permit-letter and register the property in the cadastre. The documentation shall include: (a) Notarized public deed (b) Previous property titles (c) Contracting parties identification documents (d) Encumbrance certificate (obtained in Procedure 2) (e) Copy of the municipal permit for commercial activities for companies for the year in which the transfer is performed (patente municipal); (f) Copy of the Unique Contributors Number (RUC); (g) Copy of the 1.5 x 1000 municipal tax of the companies; (h) Property Appreciation Tax form duly signed by the Seller; (i) Letter of appointment of the legal representatives of both companies; (j) Minutes of the meeting of the Board of Shareholder of both companies in which the board authorizes the legal representative to buy and/or sell the property of the company; Copy of the voting certificate of the legal representatives which appear in the contract; (k) Certificate of payment of the municipal annual tax of the property (impuesto predial) * Pay taxes at the Province Council (Consejo Provincial) Some additional taxes must be paid at the Consejo Provincial de 0.11% of property Pichincha (Provincial Council). These taxes were lowered in 2006 in Quito 1 day value (Provincial to 0.1% ("Adicional de registro") + 0.01% ("Adicional de alcabala"), and (simultaneous transfer tax) + 4 $1.80 administrative fee for each tax (total charge $3.60). The value used with procedures 3 USD 1.80 to calculate the fees is the highest value between the cadastral value and ) administrative fee the contract value. The cadastre was updated in 2005 and the values are is for each tax reasonably close to reality. Notary notarizes the public deed The public deed is notarized by a public notary. Notary's fees were changed according to regulations passed on May 22nd, 2012. The fees for property transfer are as follows: USD 477 of notary's fees + Notary Fees 0.1% (notary's 5 1 day (Based on the Established Minimum Salary "SBU") general expenses) of the property 0 t0 5,000 - 12% of SBU value 5,000 to 10,000 - 15% of SBU 10,000 to 30,000 - 35% of SBU 30,000 to 60,000 - 50% of SBU 60,000 to 90,000 - 70% of SBU 90,000 to 150,000 - 90% of SBU Doing Business 2014 Ecuador 57 Time to No. Procedure Cost to complete complete 150,000 to 300,000 - 150% of SBU 300,000 to 600,000 - 200% of SBU 600,000 and up - 250% of SBU From $US 2 millon and up, an additional fee will be charged, in an amount equal to one Established Minimum Salary for each million dollars or fraction thereof, not to exceed an amount over 20 Established Minimum Salaries. >Public deeds that fall into the first five categories, or up to USD $90,000, shall be delivered with two certified copies. In regards to bartering of real estate, the fee will be calculated based on the property with the highest value. The receipts of previous payments are attached to the public deed by the notary.Notaries can also add other general expenses to the fees that cannot exceed USD 4,000. Note: The Established Minimum Salary for 2013 is US$ 318, according to Agreement No 215, dated December 26, 2012, issued by the Ministry of Labor Relations. Conduct a general check at the Property Registry The Municipal permit-letter obtained in Procedure 3 must be taken to the Real Estate Public Registry together with the notarized public deed. The Registry does a general check of the documents and the history of 6 the property. 5-10 days No additional cost The documentation shall include: (i) Public deed (notarized in Procedure 6) (ii) Receipts of tax payments obtained in Procedures 3-4 The current municipal fee is as follows: Pay registration fee at the Property Registry Value From - After the revision, the amount of the registration fee to be paid is Through | obtained from the Registry. The fee is paid according to the ordinance Inscription Fee or 7 No.0185 issued by the Consejo Metropolitano de Quito issue in February 1 day 23, 2012. The fee is paid in the same building and office where the Tariff USD | documentation is submitted at the property registry. 0.01 - 3,000.00 | 22 | 3,000.01 - 6,600.00 | 30 | Doing Business 2014 Ecuador 58 Time to No. Procedure Cost to complete complete 6,600.01 - 10,000.00 | 35 | 10,000.01 - 15,000.00 | 40 | 15,000.01 - 25,000.00 | 50 | 25,000.01 - 30,000.00 | 100 | 30,000.01 - 35,000.00 | 160 | 35,000.01 - 40,000.00 | 200 | 40,000.01 and up | and up: for the first US$ 10,000 the amount charged will be US$ 100, plus 0.5% of the amount exceeding US$ 10,000. In no case will the tariff for each service will exceed US$ 500 | Obtain notice of registration from the Property Registry After payment of the registration fee, the Real Estate Public Registry 10-15 days no cost 8 issues a notice of registration. Doing Business 2014 Ecuador 59 * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Ecuador 60 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 borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s Strength of legal rights index (0–10) financial history (positive or negative)—valuable Rights of borrowers and lenders through information to consider when assessing risk. And collateral laws they permit borrowers to establish a good credit Protection of secured creditors’ rights through history that will allow easier access to credit. Sound bankruptcy laws collateral laws enable businesses to use their assets, especially movable property, as security to generate Depth of credit information index (0–6) capital—while strong creditors’ rights have been Scope and accessibility of credit information associated with higher ratios of private sector credit distributed by public credit registries and 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 Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of 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 Ecuador 61 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Ecuador stands at 86 in the ranking of 189 collateral and bankruptcy laws in Ecuador facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 6 on the The rankings for comparator economies and the depth of credit information index and a score of 3 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Ecuador support lending and borrowing. scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Ecuador and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 Ecuador 62 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened — well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Ecuador support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Ecuador over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. .. 82 86 Strength of legal rights 3 3 3 3 3 3 3 3 3 3 index (0-10) Depth of credit 4 4 5 5 5 6 6 6 6 6 information index (0-6) Public registry coverage 12.4 13.6 15.2 37.9 37.7 37.2 36.5 0.0 0.0 0.0 (% of adults) Private bureau 0.0 0.0 43.7 44.1 46.8 46.0 45.0 57.9 53.5 70.9 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Ecuador 63 GETTING CREDIT One way to put an economy’s score on the getting shows the number of economies with this score in credit indicators into context is to see where the 2013 as well as the regional average score. Figure 6.3 economy stands in the distribution of scores across shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for Ecuador in 2013 and Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2013 information index (0–6), 2013 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. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Source: Doing Business database. Doing Business 2014 Ecuador 64 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Ecuador (table 6.2)? Table 6.2 How has Ecuador made getting credit easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 Ecuador starts to distributed historical data DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 Ecuador 65 GETTING CREDIT What are the details? The getting credit indicators reported here for Ecuador The data on the legal rights of borrowers and lenders are based on detailed information collected in that are gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as collected through a survey of a credit registry and/or well as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, credit information index, a score of 1 is assigned for a score of 1 is assigned for each of 8 aspects related to each of 6 features of the credit registry or credit legal rights in collateral law and 2 aspects in bureau (see summary of scoring below). bankruptcy law. Summary of scoring for the getting credit indicators in Ecuador Latin America & OECD high income Indicator Ecuador Caribbean average average Strength of legal rights index (0-10) 3 6 7 Depth of credit information index (0-6) 6 5 5 Public registry coverage (% of adults) 0.0 31.5 42.9 Private bureau coverage (% of adults) 70.9 63.1 73.9 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Regional averages for the credit registry coverage exclude economies with no credit registry. Regional averages for the credit bureau coverage exclude economies with no credit bureau. Strength of legal rights index (0–10) Index score: 3 Can any business use movable assets as collateral while keeping possession of the assets; and Yes any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of No movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of No its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically Yes to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an No electronic database indexed by debtor's names? Doing Business 2014 Ecuador 66 Strength of legal rights index (0–10) Index score: 3 Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor No defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is No liquidated? Are secured creditors either not subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure, or does the law provide secured No creditors with grounds for relief from an automatic stay or/and sets a time limit to it? Does the law allow parties to agree in a collateral agreement that the lender may enforce its No security right out of court, at the time a security interest is created? Depth of credit information index (0–6) Credit bureau Credit registry Index score: 6 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as Yes No 1 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 83,120 0 Number of individuals 6,868,420 0 Source: Doing Business database. Doing Business 2014 Ecuador 67 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 reluctant to provide funding to companies through Extent of disclosure index (0–10) 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 protections: transparency of related-party Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission transactions (extent of disclosure index), liability for 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 trial (ease of shareholder suits index). The Access to internal corporate documents ranking on the strength of investor protection index is (directly or through a government inspector) the 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 company purchase used trucks from another company he owns.  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of  The price is higher than the going price for used Buyer where permitted, even if this is not trucks, but the transaction goes forward. specifically required by law.  All required approvals are obtained, and all The transaction involves the following details: required disclosures made, though the transaction is prejudicial to Buyer.  Mr. James, a director and the majority shareholder of the company, proposes that  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2014 Ecuador 68 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections against self- index (figure 7.1). While the indicator does not dealing in Ecuador? The economy has a score of 4.0 on measure all aspects related to the protection of the strength of investor protection index, with a higher minority investors, a higher ranking does indicate that score indicating stronger protections (see the an economy’s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, Ecuador stands at 138 in the ranking of 189 economies on the strength of investor protection Figure 7.1 How Ecuador and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 Ecuador 69 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how ranking on the strength of investor protection index well regulations in Ecuador protect minority investors over time shows whether the economy is slipping today, data over time show whether the protections behind other economies in investor protections—or have been strengthened (table 7.1). And the global surpassing them. Table 7.1 The strength of investor protections in Ecuador over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. 137 138 Extent of disclosure 1 1 1 1 1 1 1 1 1 index (0-10) Extent of director 5 5 5 5 5 5 5 5 5 liability index (0-10) Ease of shareholder 6 6 6 6 6 6 6 6 6 suits index (0-10) Strength of investor protection index (0- 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Ecuador 70 PROTECTING INVESTORS One way to put an economy’s scores on the protecting shows the number of economies with this score in investors indicators into context is to see where the 2013 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across applies to the extent of director liability index, and economies. Figure 7.2 highlights the score on the figure 7.4 to the ease of shareholder suits index. extent of disclosure index for Ecuador in 2013 and Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on the extent of Number of economies with each score on the extent of director liability index (0–10), 2013 disclosure index (0–10), 2013 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 Ecuador 71 PROTECTING INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Number of economies with each score on the ease of shareholder suits index (0–10), 2013 Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2014 Ecuador 72 PROTECTING INVESTORS The scores recorded over time for Ecuador on the changes over time in the regional average score on strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the protections. Source: Doing Business database. Doing Business 2014 Ecuador 73 PROTECTING INVESTORS Economies with the strongest protections of minority reasonable time. As a result, reforms to strengthen investors from self-dealing require detailed disclosure investor protections may move ahead on different and define clear duties for directors. They also have fronts—such as through new or amended company well-functioning courts and up-to-date procedural laws, securities regulations or civil procedure rules. rules that give minority shareholders the means to What investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in Ecuador (table 7.2)? Table 7.2 How has Ecuador strengthened investor protections—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Ecuador 74 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for ease of shareholder suits indices, scores are assigned Ecuador are based on detailed information collected to each based on a range of conditions relating to through a survey of corporate and securities lawyers disclosure, director liability and shareholder suits in a about securities regulations, company laws and court standard case study transaction (see the data notes at rules of evidence and procedure. To construct the the end of this chapter). The summary below shows extent of disclosure, extent of director liability and the details underlying the scores for Ecuador. Summary of scoring for the protecting investors indicators in Ecuador Latin America & OECD high income Indicator Ecuador Caribbean average average Extent of disclosure index (0-10) 1 4 7 Extent of director liability index (0-10) 5 5 5 Ease of shareholder suits index (0-10) 6 6 7 Strength of investor protection index (0-10) 4.0 4.9 6.2 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 1 What corporate body provides legally sufficient 0 CEO approval for the transaction? Whether disclosure of the conflict of interest by Mr. 0 No disclosure obligation James to the board of directors is required? Whether immediate disclosure of the transaction to 0 No disclosure obligation the public and/or shareholders is required? Whether disclosure of the transaction in published 1 Disclosure on the transaction only periodic filings (annual reports) is required? Whether an external body must review the terms of 0 No the transaction before it takes place? Extent of director liability index (0-10) 5 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Whether shareholders can hold Mr. James liable for Liable for negligence or influencing the damage that the Buyer-Seller transaction causes 1 the approval of the transaction to the company? Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 1 Liable for negligence Seller transaction causes to the company? Doing Business 2014 Ecuador 75 Score Score description Whether a court can void the transaction upon a Not possible or only in case of Seller's 0 successful claim by a shareholder plaintiff? fraud or bad faith Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 1 Yes the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 No shareholder plaintiff? Whether fines and imprisonment can be applied 1 Yes against Mr. James? Ease of shareholder suits index (0-10) 6 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 0 No filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 1 Yes transaction? Whether the plaintiff can obtain any documents from Any information that may lead to the 4 the defendant and witnesses during trial? discovery of relevant information Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 1 Yes defendant and witnesses during trial? Whether the level of proof required for civil suits is 0 No lower than that of criminal cases? Strength of investor protection index (0-10) 4.0 Source: Doing Business database. Doing Business 2014 Ecuador 76 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 and 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, where businesses pay no taxes at all. including consumption taxes (value added tax, 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 Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as 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 before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the 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  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. 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 Ecuador 77 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Ecuador stands at 91 in the ranking of 189 taxes in Ecuador—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 8 tax payments a year, rankings for comparator economies and the regional spend 654 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 33.9% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Ecuador. details). Figure 8.1 How Ecuador and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2014 Ecuador 78 PAYING TAXES What are the changes over time? The benchmarks provided by the economies that over show what is possible in easing the administrative time have had the best performance regionally or burden of tax compliance. And changes in regional globally on the number of payments or the time averages can show where Ecuador is keeping up—and required to prepare and file taxes (figure 8.2) help where it is falling behind. Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2014 Ecuador 79 PAYING TAXES Total tax rate (% of profit) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. DB2013 rankings reflect changes to the methodology. 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 Ecuador 80 PAYING TAXES 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. Ecuador (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Ecuador made paying taxes easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Ecuador 81 PAYING TAXES What are the details? The indicators reported here for Ecuador are based LOCATION OF STANDARDIZED COMPANY on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the data (see the City: Quito section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company completed The taxes and contributions paid are listed in the during the year. Respondents are asked how much summary below, along with the associated number of in taxes and mandatory contributions the business payments, time and tax rate. must pay and what the process is for doing so. Summary of tax rates and administrative burden in Ecuador Latin America & OECD high income Indicator Ecuador Caribbean average average Payments (number per year) 8 30 12 Time (hours per year) 654 369 175 Profit tax (%) 16.9 20.5 16.1 Labor tax and contributions (%) 13.7 14.7 23.1 Other taxes (%) 3.2 12.1 2.0 Total tax rate (% profit) 33.9 47.3 41.3 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online filing 108 23% 16.4 profit Employer paid - Social gross 1 online filing 306 12.15% 13.7 security contributions salaries Patent tax 1 online filing 0 fixed fee 2.1 Capital gains tax (property capital 1 0 10% 0.5 transfer tax) gains Doing Business 2014 Ecuador 82 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Contribution to total 1 0 0%-0.85% 0.5 superintendence assets total Municipal assets tax 1 0 0.15% 0.4 assets vehicle Vehicle tax 1 0 2.5% 0.2 value value not Value added tax (VAT) 1 online filing 240 12% 0 added included Totals 8 654 33.9 Source: Doing Business database. Doing Business 2014 Ecuador 83 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 Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: military items.  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include Doing Business 2014 Ecuador 84 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Ecuador? Globally, Ecuador stands at 122 in the ranking of 189 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 7 (figure 9.1). The rankings for comparator economies documents, takes 20 days and costs $1535. Importing and the regional average ranking provide other useful the same container of goods requires 6 documents, information for assessing how easy it is for a business takes 25 days and costs $1520 (see the summary of in Ecuador to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Ecuador and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 Ecuador 85 TRADING ACROSS BORDERS What are the changes over time? The benchmarks provided by the economies that over possible in making it easier to trade across borders. time have had the best performance regionally or And changes in regional averages can show where globally on the documents, time or cost required to Ecuador is keeping up—and where it is falling behind. export or import (figure 9.2) help show what is Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2014 Ecuador 86 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2014 Ecuador 87 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Ecuador 88 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the 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 Ecuador (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How has Ecuador made trading across borders easier—or not? By Doing Business report year DB year Reform Due to improvements at the port infrastructure, and the DB2009 banking sector, as well as the abolishment of documentation, export and import time decreased. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Ecuador 89 TRADING ACROSS BORDERS What are the details? The indicators reported here for Ecuador are based LOCATION OF STANDARDIZED COMPANY on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this chapter on what City: Quito the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each procedure is The procedural requirements, and the associated time collected from local freight forwarders, shipping and cost, for exporting and importing a standard lines, customs brokers, port officials and banks. shipment of goods are listed in the summary below, along with the required documents. Summary of procedures and documents for trading across borders in Ecuador Latin America & OECD high income Indicator Ecuador Caribbean average average Documents to export (number) 7 6 4 Time to export (days) 20 17 11 Cost to export (US$ per container) 1,535 1,283 1,070 Documents to import (number) 6 7 4 Time to import (days) 25 19 10 Cost to import (US$ per container) 1,520 1,676 1,090 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 10 375 Customs clearance and technical control 4 200 Ports and terminal handling 2 360 Inland transportation and handling 4 600 Totals 20 1,535 Procedures to import Time (days) Cost (US$) Documents preparation 15 350 Doing Business 2014 Ecuador 90 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 4 250 Ports and terminal handling 4 320 Inland transportation and handling 2 600 Totals 25 1,520 Documents to export Documents to import Bill of lading Bill of lading Commercial invoice Cargo release order Customs export declaration Commercial invoice Equipment interchange receipt Customs import declaration Insurance certificate Packing list Packing list Terminal handling receipts Technical standard/health certificate Source: Doing Business database. Doing Business 2014 Ecuador 91 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 outcome of a long court dispute. Steps to enforce the judgment Time required to complete procedures What do the indicators cover? (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 Ecuador 92 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Ecuador stands at 99 in the ranking of 189 dispute through the courts in Ecuador? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, contract enforcement 10.1). The rankings for comparator economies and the takes 588 days, costs 27.2% of the value of the claim regional average ranking provide other useful and requires 39 procedures (see the summary at the benchmarks for assessing the efficiency of contract end of this chapter for details). enforcement in Ecuador. Figure 10.1 How Ecuador and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 Ecuador 93 ENFORCING CONTRACTS What are the changes over time? The benchmarks provided by the economies that over help show what is possible in improving the efficiency time have had the best performance regionally or of contract enforcement. And changes in regional globally on the number of steps, time or cost required averages can show where Ecuador is keeping up—and to enforce a contract through the courts (figure 10.2) where it is falling behind. Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2014 Ecuador 94 ENFORCING CONTRACTS Procedures (number) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Ecuador 95 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Ecuador (table 10.1)? Table 10.1 How has Ecuador made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 Ecuador 96 ENFORCING CONTRACTS What are the details? The indicators reported here for Ecuador are based COURT NAME on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter City: Quito on what the indicators cover). These procedures, and the time and cost of completing them, are Claim Value LCU: 8957 identified through study of the codes of civil procedure and other court regulations, as well as Court Name: Quito Civil Court through surveys completed by local litigation lawyers (and, in a quarter of the economies The procedures for resolving a commercial lawsuit, and covered by Doing Business, by judges as well). the associated time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in Ecuador—and the time and cost Latin America & OECD high income Indicator Ecuador Caribbean average average Time (days) 588 734 529 Filing and service 38 Trial and judgment 455 Enforcement of judgment 95 Cost (% of claim) 27.2 31.0 21.0 Attorney cost (% of claim) 15.0 Court cost (% of claim) 5.0 Enforcement Cost (% of claim) 7.2 Procedures (number) 39 40 31 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Doing Business 2014 Ecuador 97 ENFORCING CONTRACTS No. Procedure Filing and service: 1 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally * or in writing. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other type of court fee. Registration of court case: The court administration registers the lawsuit or court case. This includes 2 assigning a reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random * procedure, automated system, ruling of an administrative judge, court officer, etc. Court scrutiny of summons and complaint: A judge examines Plaintiff's summons and complaint for 3 formal requirements. Judge admits summons and complaint: After verifying the formal requirements, the judge decides to * admit Plaintiff’s summons and complaint. Plaintiff’s request for service: Plaintiff makes a written request to the court that process be served on 4 Defendant. 5 Court order for service: Upon Plaintiff’s request, judge orders process be served on Defendant. Delivery of summons and complaint to person authorized to perform service of process on Defendant: 6 The judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. First attempt at physical delivery: A first attempt to physically deliver summons and complaint to 7 Defendant is successful in the majority of cases. Second attempt at physical delivery: If a first attempt was not successful, a second attempt to physically 8 deliver the summons and complaint to Defendant is required by law or standard practice. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. This step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Guarantees securing attached property: Plaintiff typically submits guarantees or bonds to secure 9 Defendant against possible damages to attached property. (see assumption 5) Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either 10 physical or achieved by registering, marking, debiting or separating assets. (see assumption 5) Doing Business 2014 Ecuador 98 No. Procedure Custody of assets attached prior to judgment: Defendant's attached assets are put under enforcement 11 officer's or (private) bailiff's care. (see assumption 5) Report on pre-judgment attachment: Court enforcement officer or (private) bailiff issues and delivers a 12 report on the attachment of Defendant’s property to the judge. (see assumption 5) Hearing on pre-judgment attachment: A hearing takes place to resolve the question of whether 13 Defendant’s assets can be attached prior to judgment. This process may include the submission of separate summons and petitions. (see assumption 5) Trial and judgment: Defendant’s deposit of a bond or payment guarantee with the court: Defendant deposits a bond or 14 guarantee with the court. Defendant’s filing of preliminary exemptions: Defendant presents preliminary exempt ions to the court. * Preliminary exemptions differ from answers on the merits of the claim. Examples of preliminary exemptions are statute of limitations, jurisdictions, etc. Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his defense or answer on the merits of the case. Defendant's written answer may or may not 15 include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 6-b of this case) Notification of court-appointment of independent expert: The court notifies both parties that the court is 16 appointing an independent expert. (see assumption 6-b of this case) Delivery of expert report by court-appointed expert: The independent expert appointed by the court * delivers his or her expert report to the court. (see assumption 6-b of this case) Setting of date for mediation hearing: The judge sets a date for a mediation hearing, sometimes also * called a 'pre-trial conference,' and notifies the parties of the hearing date. Mediation hearing: The judge during this informal meeting with the parties encourages them to settle the 17 case. The judge acts as mediator. If the case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judg * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court. (see assumption 6-a) Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 18 hearing or trial. (see assumption 6-a) 19 Closing of the evidence period: The court makes the formal decision to close the evidence period. Order for submission of final arguments: The judge sets the deadline for the submission of final factual 20 and legal arguments. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. Doing Business 2014 Ecuador 99 No. Procedure 21 Writing of judgment: The judge produces a written copy of the judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 22 judgment is available at the courthouse. 23 Plaintiff's receipt of a copy of written judgment: Plaintiff receives a copy of the written judgment. Notification of Defendant of judgment: Plaintiff or court formally notifies the Defendant of the judgment. 24 The appeal period starts to run the day the Defendant is formally notified of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in 25 the law. Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse 26 Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented * by a lawyer during the enforcement of judgment phase. Plaintiff's approaching of court enforcement officer or (private) bailiff to enforce the judgment: To enforce 27 the judgment, Plaintiff approaches a court enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff’s request for enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 28 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a (private) bailiff. Plaintiff’s request for physical enforcement: As Plaintiff fears that Defendant might physically resist the * attachment of its movable goods, Plaintiff addresses a request to the judge or to the police authorities to obtain police assistance during the attachment of Defendant's movable goods. Judge's order for physical enforcement: The judge orders the police to assist with the physical 29 enforcement of the attachment of Defendant's movable goods. Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court 30 enforcement officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Plaintiff’s identification of Defendant's assets for attachment: Plaintiff identifies Defendant's assets for 31 attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marki ng or separating 32 assets). Valuation or appraisal of attached movable goods: The court or court appointed valuation expert 33 evaluates the attached goods. Doing Business 2014 Ecuador 100 No. Procedure Enforcement disputes before court: The enforcement of the judgment is delayed because Defendant 34 opposes aspects of the enforcement process before the judge. Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 35 newspapers. 36 Sale through public auction: The Defendant’s movable property is sold at public auction. 37 Judge's decision on bids: The judge determines the adequacy of the bids presented at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to various creditors (including 38 Plaintiff), according to the rules of priority. 39 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2014 Ecuador 101 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE 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 Recovery rate for creditors (cents on the reorganization, liquidation or debt enforcement dollar) (foreclosure) proceedings. The recovery rate is a Measures the cents on the dollar recovered function of time, cost and other factors, such as by creditors lending rate and the likelihood of the company 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. the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 Ecuador 102 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses piecemeal sale. The average recovery rate is 17.9 cents characterize the top-performing economies. How on the dollar. efficient are insolvency proceedings in Ecuador? Globally, Ecuador stands at 143 in the ranking of 189 According to data collected by Doing Business, economies on the ease of resolving insolvency (figure resolving insolvency takes 5.3 years on average and 11.1). The rankings for comparator economies and the costs 18% of the debtor’s estate, with the most likely regional average ranking provide other useful outcome being that the company will be sold as benchmarks for assessing the efficiency of insolvency proceedings in Ecuador. Figure 11.1 How Ecuador and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 Ecuador 103 RESOLVING INSOLVENCY What are the changes over time? The benchmarks provided by the economies that over possible in improving the efficiency of insolvency time have had the best performance regionally or proceedings. And changes in regional averages can globally on the time or cost of insolvency proceedings show where Ecuador is keeping up—and where it is or on the recovery rate (figure 11.2) help show what is falling behind. Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2014 Ecuador 104 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. “No practice” indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for “no practice” economies is 0. Regional averages on time and cost exclude economies with a “no practice” mark. Source: Doing Business database. Doing Business 2014 Ecuador 105 RESOLVING INSOLVENCY 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 Ecuador (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Ecuador made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 Ecuador 106 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of employing workers methodology proposed by the employment, specifically as it affects the hiring and consultative group are available on the Doing Business redundancy of workers and the rigidity of working website (http://www.doingbusiness.org). The data on hours. Over the period from 2007 to 2011 employing workers are based on a detailed survey of improvements were made to align the methodology employment regulations that is completed by local for the employing workers indicators with the letter lawyers and public officials. Employment laws and and spirit of the International Labour Organization regulations as well as secondary sources are reviewed (ILO) conventions. Only 4 of the 188 ILO conventions to ensure accuracy. cover areas measured by Doing Business: employee To make the data comparable across economies, termination, weekend work, holiday with pay and night several assumptions about the worker and the work. The Doing Business methodology is fully business are used. consistent with these 4 conventions. The ILO conventions covering areas related to the Employing The worker: Workers indicators do not include the ILO core labor  Earns a salary plus benefits equal to the standards—8 conventions covering the right to economy’s average wage during the entire collective bargaining, the elimination of forced labor, period of his employment. the abolition of child labor and equitable treatment in  Has a pay period that is the most common for workers in the economy. employment practices.  Is a lawful citizen who belongs to the same race and religion as the majority of the Between 2009 and 2011 the World Bank Group worked economy’s population. with a consultative group—including labor lawyers,  Resides in the economy’s largest business city. employer and employee representatives, and experts  Is not a member of a labor union, unless from the ILO, OECD, civil society and the private membership is mandatory. sector—to review the employing workers methodology and explore future areas of research. A i The business:  Is a limited liability company. full report with the conclusions of the consultative  Operates in the economy’s largest business group is available at city. http://www.doingbusiness.org/methodology/employin  Is 100% domestically owned. g-workers.  Operates in the manufacturing sector.  Has 60 employees. This year Doing Business continued research collecting  Is subject to collective bargaining agreements additional data on regulations covering the in economies where such agreements cover probationary period for new employees. more than half the manufacturing sector and apply even to firms not party to them. Doing Business 2014 presents the data on the  Abides by every law and regulation but does not grant workers more benefits than employing workers indicators in an annex. The report mandated by law, regulation or (if applicable) does not present rankings of economies on the collective bargaining agreement. employing workers indicators nor include the topic in the aggregate ranking on the ease of doing business. Detailed data collected on labor regulations and the Doing Business 2014 Ecuador 107 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Ecuador other things, the minimum wage for a 19-year-old (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2014 Ecuador 108 EMPLOYING WORKERS Employment laws are needed to protect workers from past 5 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Ecuador adopt that contracting between employers and workers. Many affected the Doing Business indicators on employing economies that changed their labor regulations in the workers (table 12.1)? Table 12.1 What changes did Ecuador make in employing workers in 2013? DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Ecuador 109 EMPLOYING WORKERS What are the details? The data on employing workers reported here for public officials. Employment laws and regulations as Ecuador are based on a detailed survey of employment well as secondary sources are reviewed to ensure regulations that is completed by local lawyers and accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) 24 Maximum length of fixed-term contracts, including renewals (months) 24 Minimum wage for a 19-year old worker or an apprentice (US$/month) 287.0 Ratio of minimum wage to value added per worker 0.42 Source: Doing Business database. Doing Business 2014 Ecuador 110 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data Standard workday in manufacturing (hours) 8 hours 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 5.0 Premium for night work (% of hourly pay) in case of continuous 25% operations Premium for work on weekly rest day (% of hourly pay) in case of 100% continuous operations Major restrictions on night work in case of continuous operations? No Major restrictions on weekly holiday in case of continuous operations? No Paid annual leave for a worker with 1 year of tenure (in working days) 11.0 Paid annual leave for a worker with 5 years of tenure (in working days) 11.0 Paid annual leave for a worker with 10 years of tenure (in working days) 14.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 12.0 working days) Source: Doing Business database. Doing Business 2014 Ecuador 111 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? Yes Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? Yes Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2014 Ecuador 112 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 0.0 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 0.0 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 0.0 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 0.0 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 14.1 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 27.1 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 54.2 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 31.8 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2014 Ecuador 113 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 about what laws and regulations say and allowing 2 The data for paying taxes refer to January – December 2012. multiple interactions with local respondents to clarify Doing Business 2014 Ecuador 114 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 liability company (or its legal equivalent) of a specified Changes in what is measured 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 reasons the time delays reported in Doing Business completed online in just a few hours. This change 2014 would differ from the recollection of affects the time indicator for starting a business, Doing Business 2014 Ecuador 115 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 and the distance to frontier measure. The business. ease of doing business ranking compares economies More complex aggregation methods—such as 3 For getting electricity the rule that each procedure must take a principal components and unobserved components— minimum of 1 day still applies because in practice there are no yield a ranking nearly identical to the simple average cases in which procedures can be fully completed online in less than a day. For example, even though in some cases it is possible to apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 Ecuador 116 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 since 2003 or the first year the indicator was collected. 5 identical to that from the simple average method because both 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 Ecuador 117 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. Doing Business 2014 Ecuador 119 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2014 business regulation http://www.doingbusiness.org reforms, lists 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/e ntrepreneurship 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/ iphone Doing Business 2014 Ecuador 120