92114 Doing Business 2015 Russian Federation Economy Profile 2015 Russian Federation Doing Business 2015 Russian Federation 2 © 2014 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 17 16 15 14 This work is a product of the staff of The World Bank with external contributions. 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. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2015 Russian Federation 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 26 Getting electricity ....................................................................................................................... 41 Registering property .................................................................................................................. 51 Getting credit .............................................................................................................................. 58 Protecting minority investors ................................................................................................... 64 Paying taxes ................................................................................................................................ 73 Trading across borders .............................................................................................................. 79 Enforcing contracts .................................................................................................................... 85 Resolving insolvency .................................................................................................................. 94 Labor market regulation ........................................................................................................... 99 Distance to frontier and ease of doing business ranking .................................................... 105 Resources on the Doing Business website ............................................................................ 108 Doing Business 2015 Russian Federation 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). 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, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for Russian Federation. To allow useful information on ordering Doing Business 2015, are comparison, it also provides data for other selected available on the Doing Business website at economies (comparator economies) for each indicator. http://www.doingbusiness.org. The data in this report are current as of June Doing Business 2015 Russian Federation 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 Russian Federation 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW 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 business Region: Europe & Central Asia based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: High income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. This Population: 143,499,861 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 13,860 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 62 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 64* distance to the best performance in each Doing Business Change in rank: 2 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 66.7 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 65 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 1.7 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying 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 2015 Russian Federation 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 2015 Russian Federation THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Russian Federation and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Russian Federation 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Russian Federation (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Russian Federation (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Russian Federation 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Russian Federation come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 Russian Federation 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Russian Federation Saint Petersburg DB2015 Best performer globally Russian Federation Russian Federation Moscow DB2015 Indicator Japan DB2015 China DB2015 Brazil DB2015 India DB2015 DB2015 DB2014 DB2015 Starting a Business 34 58 -- -- 167 128 158 83 New Zealand (1) (rank) Starting a Business (DTF 92.17 89.16 90.83 95.29 63.37 77.43 68.42 86.21 New Zealand (99.96) Score) Procedures (number) 4.4 6.1 5.0 3.0 11.6 11.0 11.9 8.0 New Zealand (1.0)* Time (days) 11.2 12.9 13.0 7.0 83.6 31.4 28.4 10.7 New Zealand (0.5) Cost (% of income per 1.2 1.2 1.2 1.1 4.3 0.9 12.2 7.5 Slovenia (0.0) capita) Paid-in min. capital (% 0.0 1.2 0.0 0.0 0.0 0.0 111.2 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 156 172 -- -- 174 179 184 83 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 56.70 47.60 54.82 61.07 48.31 43.75 30.89 73.30 China (95.53) (DTF Score) Doing Business 2015 Russian Federation 12 Saint Petersburg DB2015 Best performer globally Russian Federation Russian Federation Moscow DB2015 Indicator Japan DB2015 China DB2015 Brazil DB2015 India DB2015 DB2015 DB2014 DB2015 Hong Kong SAR, Procedures (number) 19.8 24.7 21.0 17.0 18.2 22.0 25.4 12.0 China (5.0) Time (days) 238.4 261.5 239.0 237.0 426.1 244.3 185.9 197.0 Singapore (26.0) Cost (% of warehouse 1.9 2.1 2.0 1.6 0.4 7.6 28.2 0.6 Qatar (0.0)* value) Getting Electricity 143 141 -- -- 19 124 137 28 Korea, Rep. (1) (rank) Getting Electricity (DTF 60.89 60.78 66.91 46.84 89.20 66.35 63.06 86.51 Korea, Rep. (99.83) Score) Procedures (number) 5.6 5.6 5.0 7.0 4.0 5.5 7.0 3.4 12 Economies (3.0)* Time (days) 179.1 179.1 162.0 219.0 53.3 143.2 105.7 97.7 Korea, Rep. (18.0)* Cost (% of income per 321.0 345.7 270.0 439.8 31.6 459.4 487.7 0.0 Japan (0.0) capita) Registering Property 12 17 -- -- 138 37 121 73 Georgia (1) (rank) Registering Property 91.27 87.99 91.27 91.27 56.18 80.67 60.40 71.33 Georgia (99.88) (DTF Score) Procedures (number) 3.0 4.0 3.0 3.0 13.6 4.0 7.0 6.0 4 Economies (1.0)* Time (days) 19.0 22.0 19.0 19.0 31.7 19.4 47.0 13.0 3 Economies (1.0)* Cost (% of property 0.1 0.1 0.1 0.1 2.5 3.6 7.0 5.8 4 Economies (0.0)* value) Getting Credit (rank) 61 55 -- -- 89 71 36 71 New Zealand (1) Getting Credit (DTF 55.00 55.00 55.00 55.00 45.00 50.00 65.00 50.00 New Zealand (100) Score) Strength of legal rights 4 4 4 4 2 4 6 4 3 Economies (12)* index (0-12) Doing Business 2015 Russian Federation 13 Saint Petersburg DB2015 Best performer globally Russian Federation Russian Federation Moscow DB2015 Indicator Japan DB2015 China DB2015 Brazil DB2015 India DB2015 DB2015 DB2014 DB2015 Depth of credit 7 7 7 7 7 6 7 6 23 Economies (8)* information index (0-8) Credit registry coverage 0.0 0.0 0.0 0.0 52.5 33.2 0.0 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 64.6 59.2 64.6 64.6 63.6 0.0 22.4 100.0 23 Economies (100.0)* (% of adults) Protecting Minority 100 97 -- -- 35 132 7 35 New Zealand (1) Investors (rank) Protecting Minority 50.83 50.83 50.83 50.83 62.50 45.00 72.50 62.50 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 5.0 5.0 5.0 5.0 5.7 5.0 6.7 7.0 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 5.2 5.2 5.2 5.2 6.8 4.0 7.8 5.5 France (7.8)* 10) Strength of minority investor protection 5.1 5.1 5.1 5.1 6.3 4.5 7.3 6.3 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 49 48 -- -- 177 120 156 122 (1)* Paying Taxes (DTF United Arab Emirates 80.63 80.28 80.58 80.73 41.31 67.44 55.53 67.19 Score) (99.44)* Payments (number per Hong Kong SAR, 7.0 7.0 7.0 7.0 9.0 7.0 33.0 14.0 year) China (3.0)* Time (hours per year) 168.0 177.0 168.0 168.0 2,600.0 261.0 243.0 330.0 Luxembourg (55.0) Trading Across Borders 155 154 -- -- 123 98 126 20 Singapore (1) (rank) Trading Across Borders 53.58 53.03 51.04 59.52 66.11 71.68 65.47 87.23 Singapore (96.47) Doing Business 2015 Russian Federation 14 Saint Petersburg DB2015 Best performer globally Russian Federation Russian Federation Moscow DB2015 Indicator Japan DB2015 China DB2015 Brazil DB2015 India DB2015 DB2015 DB2014 DB2015 (DTF Score) Documents to export 9 9 9 9 6 8 7 3 Ireland (2)* (number) Time to export (days) 21.1 21.1 22.0 19.0 13.4 21.0 17.1 11.0 5 Economies (6.0)* Cost to export (US$ per 2,400.5 2,337.5 2,705.0 1,690.0 2,322.8 823.0 1,332.0 829.3 Timor-Leste (410.0) container) Cost to export (deflated 2,400.5 2,461.1 2,705.0 1,690.0 2,322.8 823.0 1,332.0 829.3 US$ per container) Documents to import 10 10 10 10 8 5 10 5 Ireland (2)* (number) Time to import (days) 19.4 20.4 20.0 18.0 17.0 24.0 21.1 11.0 Singapore (4.0) Cost to import (US$ per 2,594.5 2,484.5 2,920.0 1,835.0 2,322.8 800.0 1,462.0 1,021.3 Singapore (440.0) container) Cost to import (deflated 2,594.5 2,615.8 2,920.0 1,835.0 2,322.8 800.0 1,462.0 1,021.3 US$ per container) Enforcing Contracts 14 14 -- -- 118 35 186 26 Singapore (1) (rank) Enforcing Contracts 75.85 75.85 76.33 74.73 53.60 68.21 25.81 69.95 Singapore (89.54) (DTF Score) Time (days) 267.0 267.0 270.0 260.0 731.0 452.8 1,420.0 360.0 Singapore (150.0) Cost (% of claim) 14.9 14.9 13.4 18.4 16.5 16.2 39.6 32.2 Iceland (9.0) Procedures (number) 35.0 35.0 35.0 35.0 43.6 37.0 46.0 32.0 Singapore (21.0)* Resolving Insolvency 65 62 -- -- 55 53 137 2 Finland (1) (rank) Resolving Insolvency 49.69 49.84 49.47 50.20 54.52 55.31 32.60 93.74 Finland (93.85) (DTF Score) Doing Business 2015 Russian Federation 15 Saint Petersburg DB2015 Best performer globally Russian Federation Russian Federation Moscow DB2015 Indicator Japan DB2015 China DB2015 Brazil DB2015 India DB2015 DB2015 DB2014 DB2015 Time (years) 2.0 2.0 2.0 1.8 4.0 1.7 4.3 0.6 Ireland (0.4) Cost (% of estate) 9.0 9.0 9.0 9.0 12.0 22.0 9.0 3.5 Norway (1.0) Outcome (0 as piecemeal sale and 1 as 0 0 0 0 1 0 0 1 going concern) Recovery rate (cents on 43.0 43.2 42.6 43.9 25.8 36.0 25.7 92.9 Japan (92.9) the dollar) Strength of insolvency 8.5 8.5 8.5 8.5 13.0 11.5 6.0 14.0 5 Economies (15.0)* framework index (0-16) Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of such factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practic e or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * 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 2015 Russian Federation 16 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 well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. 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:  Is a limited liability company, located in the  Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. owned . 1  Has a turnover of at least 100 times income per  Has between 10 and 50 employees. capita.  Conducts general commercial or industrial  Does not qualify for any special benefits. activities.  Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Russian Federation 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Russian to a case scenario in the largest business city of an Federation? According to data collected by Doing economy, except for 11 economies for which the data Business, starting a business there requires 4.4 are a population-weighted average of the 2 largest procedures, takes 11.2 days, costs 1.2% of income per business cities. See the chapter on distance to frontier capita and requires paid-in minimum capital of 0.0% of and ease of doing business ranking at the end of this income per capita (figure 2.1). Most indicator sets refer profile for more details. Figure 2.1 What it takes to start a business in Russian Federation - Moscow Paid-in minimum capital (% of income per capita): 0.0 Doing Business 2015 Russian Federation 18 What it takes to start a business in Russian Federation - Saint Petersburg 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 2015 Russian Federation 19 STARTING A BUSINESS Globally, Russian Federation stands at 34 in the ranking the regional average ranking provide other useful of 189 economies on the ease of starting a business information for assessing how easy it is for an (figure 2.2). The rankings for comparator economies and entrepreneur in Russian Federation to start a business. Figure 2.2 How Russian Federation and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2015 Russian Federation 20 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Russian Federation (table 2.1)? Table 2.1 How has Russian Federation made starting a business easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Russia made starting a business easier by abolishing the DB2014 requirement to have the bank signature card notarized before opening a company bank account. The Russian Federation made starting a business easier by eliminating the requirement to deposit the charter capital DB2015 before company registration as well as the requirement to notify tax authorities of the opening of a bank account. This reform applies to both Moscow and St. Petersburg. 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 2015 Russian Federation 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Russian Federation is a set of specific procedures— the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Private Limited Liability Company firm. These are identified by Doing Business through (OOO) collaboration with relevant local professionals and the study of laws, regulations and publicly available Paid in minimum capital requirement: RUB 0 information on business entry in that economy. City: Moscow, Saint Petersburg Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita 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). Table 2.2 Summary of time, cost and procedures for starting a business in Russian Federation - Moscow Time to No. Procedure Cost to complete complete Notarize the signature made in the registration application Filled out and signed registration application must be notarized. A standard registration application form exists and it must be notarized. There is a stamp duty of RUB200 per copy. This cost does not include fees for technical work charged by notaries or lawyers if this application form is completed by them – the cost of RUB 200 assumes that the application form is filled out by the entrepreneur themselves. Fees of technical work by lawyer/notaries are only applicable in cases where there is a need to draft a charter, and thus are not applicable to our case study. 1 1 day RUB 200 per copy Starting from May 5, 2014 this procedure ceased to be compulsory. If the founder is able to attend in person the Tax Service and file all the documents on his/her own, the application does not have to be notarized and the tax officer can certify the founder’s signature. However, this is possible only in case when all the founders are able to visit the Tax Service in Russia in person, otherwise the application must be notarized. Agency: Notary Public Pay registration fee Payments must be made at Sberbank offices throughout Moscow, or at 1 day no charge 2 payment terminals at the Moscow Tax Service Office #46, where business registration is done. Doing Business 2015 Russian Federation 22 Time to No. Procedure Cost to complete complete Business registration fee of RUR 4,000 must be paid and a payment receipt will be issued through this machine, and must be presented for Procedure 4. It is a process that takes only a few minutes, but it must be done physically, and is not available online. Agency: Bank Make a seal in a private company in order to open a bank account The company needs to make a company seal before opening a bank account. The cost of acquiring a company seal at the average market price is RUB 350 1 day RUB 350 3 Agency: Seal-making service Register with the unified register at the Federal Tax Service on the local level, to obtain the single number of state registration and the number of tax registration (identification number of taxpayer, INN) Documents required for registration: • Decision of the founders meeting; • Charter (2 originals required, one is stamped by the Federal Tax Services and returned to applicants); • Registration Application, notarized; • Payment receipt. • Document Certifying the Physical Address of the New Company It could be a lease agreement or a letter by the property owner of the leased property, certified with signature and building company’s stamp. If the leasing office space is from an individual owner, this document would need notarization. 4 The tax authorities sometimes implement a number of requirements, 7 days RUB 4,000 and failure to comply may lead to the rejection of the application. - After registration application fee is paid (procedure 3), (1) the payment receipt (from procedure 3), along with the (2) Decision of the founders meeting, (3) 2 originals of the company charter, (4) the notarized registration application (from procedure 1) and (5) certificate that proofs the address of the new company are submitted for business registration. - At the time of application, the applicant receives a confirmation slip, which specifies the date that the registration will be complete, and the necessary documents can be picked up. This is always 5 working days (not counting the day of the application) after application. - On the day of pick up, the applicant will receive a package of documents, including Abstract of the registration, one of the original company charters (that the applicant submitted) stamped by the government; Tax Identification Number (TIN), etc. - If the applicant does not pick the registration documents from the Doing Business 2015 Russian Federation 23 Time to No. Procedure Cost to complete complete office, it is sent by mail. - The registration fee is RUR 4,000, and it always takes 5 business days – thus 7 calendar days. Agency: Federal Tax Service Open the company bank account; certify and register the owner's signature Banks require business registration and may require documents related to the founder's history and its financial status. Requirements in terms of client acceptance procedure vary depending on the bank. The bank finally provides the entrepreneur with a confirmation letter that contains details about the bank account. The entrepreneur needs this information to inform the Federal Tax Service about the opening of a bank account through the required notification. To open bank account following documents are required according to unified list of necessary documents: a) certificate of state registration of the legal entity; b) founding documents of the legal entity. c) the license (permit) issued for a legal entity if such licenses (permits) are directly related to the capacity of the legal entity; d) bank signature card; free if done at the e) documents, confirming authorities of the persons defined in bank signature card; bank; RUB 200 f) documents, confirming authorities of the sole executive body of the (signatures and legal entity. bank card) + RUR 5 3 days 1000 (notary fees) Bank also may request additional documents that are not defined in the approximately if list above. done with the notary 1) List of necessary documents for opening a bank account defined in Instructions of the Bank of Russia N 28-I dated 14.09.2006. Because of a big number of different banks in Russian Federation, there is no common procedure for opening bank accounts and necessary documents. 2) Actual term of opening a bank account depends on quantity of founders, country of their incorporation, quantity of documents that were submitted in bank in order to open bank account. In accordance with Article 22.1.10 of the Basic Principles of Russian Legislation on Notaries Public, the notary's fee for certification of signatures and bank cards is equal to RUB 200. The notary's total fee for such certification, including technical work, is approximately RUB 800 - 1200. • The signature of the entrepreneur must be certified and registered by a bank. There is a special form (provided by the government) that must Doing Business 2015 Russian Federation 24 Time to No. Procedure Cost to complete complete be completed for this procedure. In this form, there is a section where the company seal must be stamped. • Entrepreneurs have two options. They can either (a) have its signature form notarized and then it can be brought to the bank when opening the bank account, or (b) they can certify the signature of the entrepreneur at the bank, when opening a bank account. Cost: stamp-duty of RUR200 + if the document is filled out by lawyers or notaries, there will also be fees for technical fees. At the bank, Bank of Moscow and Sperbank both charge RUR500 to certify (for transaction fees) per signature (if there are more than 1 owner, one signature per company owner). Agency: Bank * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Summary of time, cost and procedures for starting a business in Russian Federation - Saint Petersburg Time to No. Procedure Cost to complete complete Pay the Registration Fee and Registration with the Unified State Register Documents needed to start a Business in Saint Petersburg: 1. Application for state registration of a legal entity upon its foundation; 2. Decision to found a company formalized by sole founder decision or 5 days RUB 4,000 1 protocol of the general meeting of founders; 3. Articles of incorporation of a legal entity (charter) (in two original copies – if filed in hard copy) Agency: the Unified State Register Make a seal in a private company The company needs to make a company seal before opening a bank account. The cost of acquiring a company seal at the average market 2 price is RUB 350 1 day RUB 350 Agency: Seal maker Open a company bank account Fees may vary depending on the bank 3 1 day RUB 500 Agency: Commercial Bank * Takes place simultaneously with another procedure. Doing Business 2015 Russian Federation 25 Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Russian Federation 26 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 excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes  Is a limited liability company operating in the construction business and located in  Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have  Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility  Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse:  Will be used for general storage, such as of books or stationery (not for goods requiring  Is valued at 50 times income per capita. special conditions).  Is a new construction (there was no  Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 Russian Federation 27 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build business city of an economy, except for 11 economies for a warehouse in Russian Federation? According to data which the data are a population-weighted average of the collected by Doing Business, dealing with construction 2 largest business cities. See the chapter on distance to permits there requires 19.8 procedures, takes 238.4 days frontier and ease of doing business ranking at the end of and costs 1.9% of the warehouse value (figure 3.1). this profile for more details. Most indicator sets refer to a case scenario in the largest Figure 3.1 What it takes to comply with formalities to build a warehouse in Russian Federation - Moscow Doing Business 2015 Russian Federation 28 What it takes to comply with formalities to build a warehouse in Russian Federation - Saint Petersburg 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 2015 Russian Federation 29 DEALING WITH CONSTRUCTION PERMITS Globally, Russian Federation stands at 156 in the ranking provide other useful information for assessing how easy of 189 economies on the ease of dealing with it is for an entrepreneur in Russian Federation to legally construction permits (figure 3.2). The rankings for build a warehouse. comparator economies and the regional average ranking Figure 3.2 How Russian Federation and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 Russian Federation 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while compliance costs reasonable, governments around the making compliance easy and accessible to all. Coherent world have worked on consolidating permitting and transparent rules, efficient processes and adequate requirements. What construction permitting reforms has allocation of resources are especially important in sectors Doing Business recorded in Russian Federation (table where safety is at stake. Construction is one of them. In 3.1)? an effort to ensure building safety while keeping Table 3.1 How has Russian Federation made dealing with construction permits easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Russia eased construction permitting by implementing a single DB2011 window for all procedures related to land use. Russia made obtaining a construction permit simpler by DB2013 eliminating requirements for several preconstruction approvals. Russia made dealing with construction permits easier by eliminating several requirements for project approvals from DB2014 government agencies and by reducing the time required to register a new building. 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 2015 Russian Federation 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Russian Federation BUILDING A WAREHOUSE are based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated cost of information collected from experts in construction RUB 22,383,180 construction : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Moscow, Saint Petersburg service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and cost, that apply to a company and structure matching the are summarized below. standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Russian Federation - Moscow Time to No. Procedure Cost to complete complete Request a topographic survey of the land plot BuildCo must obtain a land survey at a scale of 1:500/1 by a specialized organization. A report is prepared as a result of the topographic survey 1 with a layout of the building and structure. 30 days RUB 100,000 Agency: Private Organization * Obtain cadastral passport of the land BuildCo must obtain the cadastral passport of the land plot before applying for the development plan of the land plot. Cadastral engineers carry out a detailed survey of the land, based on which the Rosreestr 2 issues the cadastral passport. 18 days RUB 50,000 Agency: Federal Service for State Registration, Cadastre and Cartography (Rosreestr) Request and obtain the development plan of land plot (GPZU) at the Moscow Architecture and City Planning Committee A one-stop shop has been implemented at the Moscow Architecture and City Planning Committee (MoskomArchitektura) in order to deal with all procedures related to land. BuildCo does not have to visit each agency in order to obtain the documents. Rather, BuildCo applies for 53 days no charge 3 the copy of the development plan of the land plot at MoskomArchitektura and they take care of all the steps. The procedure takes from 45-60 days. Agency: The Moscow Architecture and City Planning Committee Doing Business 2015 Russian Federation 32 Time to No. Procedure Cost to complete complete * Request and obtain an engineering and geological survey and obtain Act of Moscow Geological - Geodesic Department Information about conditions of the land plot (geological, geodesic and ecological) is needed for project design. There are 5 types of mandatory engineering surveys. All or a few of them are requested, depending on the land plot and surrounding territorial conditions. 4 In the Doing Business case, there could be 2 -- 3 types of surveys. 45 days RUB 100,000 Mosgorgeotrest conduct these surveys, but private licensed companies can also conduct these surveys but in that case, the companies are requested to get the results ‘stamped’ by Mosgorgeotrest. Agency: Mosgorgeotrest / Private Licensed Companies * Request and obtain technical conditions for water and sewage The technical conditions are defined by the Moscow Water and Sewage Company. Under Government Regulation No. 83 dated February 13, 2006: • A list of technical conditions must be prepared by the local government when preparing the city development plan of the land plot. • If the city development plan of the land plot does not contain this information, the technical conditions, as well as the information on 5 payment for connection to such services, must be provided by the 30 days no charge respective agency within 14 business days after receiving the request. However, in practice it takes longer. According to the fee schedule of Moscow State Unitary Enterprise “Vodokanal” for 2009, the fee for obtaining the technical conditions has increased from RUB 17,673.00 to RUB 21,300.00 Agency: Moscow Water and Sewage Company - Mosvodokanal Obtain compliance certificate from Moscow Water and Sewage Company BuildCo must obtain approval of the final construction design from the Moscow Water and Sewage Company, which will verify if the final 30 days no charge 6 design is in compliance with the technical conditions. Agency: Moscow Water and Sewage Company - Mosvodokanal Doing Business 2015 Russian Federation 33 Time to No. Procedure Cost to complete complete * Request and obtain approval of the architectural and urban planning design Approval of the architectural and urban planning decision is required in order to have the approval of the facades and the location of the building by the chief architect of the city and subordinate agencies within the relevant municipality. Regulated by the Decree of the Government of Moscow № 284-PP dated 30 April 2014 (as amended). The required documents include: 1) Scheme of the situational plan (based on 1:2000); 30 days no charge 7 2) Urban planning scheme in combination with the scheme of the organization of the transport in the indicated territory (based on 1:500); 3) Drawings of the façade (based on 1:200); 4) The plan of the first floor, nonrecurring floors and underground levels (based on 1:200); 5) Schemes of the slits showing the elevations (based 1:200). Agency: Moscomarchitectura Request and obtain permission for construction To obtain the building permit (permission for construction), BuildCo must submit the following documents to the Moscow State Committee of Construction Supervision: • Application form • Documents confirming title to the land • Town (planning) plan of land • Relevant project documentation 10 days no charge 8 After reforms implemented in 2006, the statutory time line of issuing the permit was reduced from 30 days to 10. The permit is free of charge. Agency: Moscow State Committee of Construction Supervision Request and obtain an opening order of production of works from the Union of Administrative Technical Inspections (UATI) UATI must provide an order for the commencement of excavation. 7 days no charge 9 Agency: Union of Administrative Technical Inspections (UATI) Notify the Moscow District Municipality about the commencement of work 10 1 day no charge Agency: Moscow District Municipality Doing Business 2015 Russian Federation 34 Time to No. Procedure Cost to complete complete * Notify the Fire Department about the commencement of work 11 1 day no charge Agency: Fire Department * Order and receive results of laboratory tests of foundation pits from Mosgorgeotrest for the Acceptance Commission During the construction phase of an approved project, BuildCo must obtain results of laboratory tests which are required by the Acceptance 1 day RUB 10,000 12 Commission. Agency: Mosgorgeotrest * Receive the set out inspection from the Mosgorgeotrest This inspection is done to make sure that the set out is properly done and that the building will be built where it is planned. 1 day RUB 30,000 13 Agency: Mosgorgeotrest Receive random inspection during construction Construction activities are not interrupted during inspections. 14 1 day no charge Agency: Union of Administrative Technical Inspections (UATI) Connect to water and sewage services An agreement must be concluded between BuildCo and the Moscow Water and Sewage Company. The connection to water service is then 15 installed. 30 days RUB 109,259 Agency: Moscow Water and Sewage Company - Mosvodokanal Notify the Moscow District Municipality about the completion of construction 16 1 day no charge Agency: Moscow District Municipality Receive final inspection by Moscow State Committee of Construction Supervision 17 1 day no charge Agency: Moscow State Committee of Construction Supervision Doing Business 2015 Russian Federation 35 Time to No. Procedure Cost to complete complete * Request and convene Acceptance Commission BuildCo files application forms with the Moscow State Committee of Construction Supervision in order to convene the Acceptance Commission. The Commission includes representatives from different agencies, such as ecology, the prefecture, the local government, the sanitary services, the company, and the designer. After the Commission has convened, BuildCo collects the signatures of all its members. The timeline established by Government of Moscow Resolution No. 530 (dated November 7, 2001) for the relevant authorities to appoint 30 days no charge 18 representatives to the Acceptance Commission is 10 days. The time required for approval of the building depends on the state of the building (whether it is ready to be occupied or not) and on the inspection results. In practice, this takes on average 60 days. The most difficult part is to convene the members of the Commission and gather their signatures for approval. Agency: Moscow State Committee of Construction Supervision Request and receive the disposition on operation of building (occupancy permit) 19 10 days no charge Agency: Moscow State Committee of Construction Supervision Request and receive the technical plans / cadastre passports of the building 20 14 days RUB 40,000 Agency: Bureau of Technical Inventory (BTI) Register the building after completion in Rosreestr According to the Russian Federation Civil Code, the right to own and "create" immovable things, including buildings, is subject to state registration at the Unified State Register of rights to immovable assets and associated transactions. 18 days RUB 15,000 21 To complete the registration, BuildCo must submit an application, the real property plan, and approval of the building, confirming that real property has been built. Based on the order of the Federal Service for State Registration, Cadastre and Cartography (Rosreestr) on Moscow dated 08.15.2012, the time limit for completing the registration is 20 Doing Business 2015 Russian Federation 36 Time to No. Procedure Cost to complete complete calendar days from the application date. Payment of a duty is required for registration. The state duty for building registration is RUB 15,000.00 (for legal entities). Agency: Federal Service for State Registration, Cadastre and Cartography (Rosreestr) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Summary of time, cost and procedures for dealing with construction permits in Russian Federation - Saint Petersburg Time to No. Procedure Cost to complete complete Request a topographic survey of the land plot BuildCo must obtain a land survey at a scale of 1:500/1 by a specialized organization. A report is prepared as a result of the topographic survey 1 with a layout of the building and structure. 30 days RUB 100,000 Agency: Specialized Organization Obtain cadastral passport of the land plot The cadastre passport is required in order to obtain the development plan of land plot. The statutory time frame for issuing a cadastre passport is 18 calendar days. The process involves surveying the land plot by specialized cadastr engineers and preparing a cadastral 2 passport. The average cost of the entire procedure (including cadastre 18 days RUB 50,000 survey and obtaining the cadastre passport) is RUB 50,000 – 100,000. Agency: Federal Service for State Registration, Cadastre and Cartography (Rosreestr) Request and obtain the development plan of land plot Development plan of the land plot is a mandatory document, which is required in order to receive state expertise of project documentation and to obtain a building permit. It is also required at the end of the construction in order to obtain the occupancy certificate. 3 The applicant shall provide the land plot documents, preliminary 30 days no charge drawings of the proposed construction and constituent documents (registration documents and other supporting documentation verifying the legal status of BuildCo). Agency: Saint-Petersburg Architecture and City Planning Committee Doing Business 2015 Russian Federation 37 Time to No. Procedure Cost to complete complete * Request and obtain the decision of the State Administrative Technical Inspectorate on fencing the construction site The State Administrative Technical Inspectorate grants permission on fencing the construction site in order to maintain safety during 16 days no charge 4 construction. Agency: State Administrative Technical Inspectorate * Request and obtain an engineering and geological survey of the land plot Information about conditions of the land plot (geological, geodesic and ecological) is needed for project design. There are 5 types of mandatory engineering surveys. All or a few of them are requested, depending on the land plot and surrounding territorial conditions. In 5 the Doing Business case, there could be 2 -- 3 types of surveys. 45 days RUB 100,000 Engineering surveys are performed by private companies which belong to self-regulated organizations (SRO). Agency: Licensed Private Company * Request and obtain technical conditions for water and sewage According to the applicable regulations, the technical conditions should be provided within 16 business days. However, in practice it takes about 45 days to obtain the technical conditions for the water and 45 days no charge 6 sewage connection. Agency: Saint-Petersburg Water and Sewage Company (Vodokanal) Request and obtain approval of the architectural and urban planning design by Saint-Petersburg Architecture and City Planning Committee (KGA) The Saint-Petersburg Architecture and City Planning Committee (KGA) and Chief Architect must approve the layout of the land plot and the 15 days no charge 7 architectural design. Agency: Saint-Petersburg Architecture and City Planning Committee (KGA) Request and obtain permission for construction To obtain the building permit (permission for construction), BuildCo must submit the following documents to the State Agency of 8 Construction Supervision and Expertise of Saint-Petersburg: 10 days no charge • Application form • Documents confirming title to the land • Town (planning) plan of land • Relevant project documentation Doing Business 2015 Russian Federation 38 Time to No. Procedure Cost to complete complete The permit is free of charge. Agency: State Agency of Construction Supervision and Expertise of Saint- Petersburg Request and obtain an opening order of production of works from the State Administrative Technical Inspectorate 9 14 days no charge Agency: State Administrative Technical Inspectorate Notify the State Agency of Construction Supervision and Expertise of Saint-Petersburg about commencement of construction works 10 1 day no charge Agency: State Agency of Construction Supervision and Expertise of Saint- Petersburg Receive inspection from the State Agency of Construction Supervision and Expertise The State Agency of Construction Supervision and Expertise of Saint- Petersburg will generally perform one inspection during construction. 1 day no charge 11 Agency: State Agency of Construction Supervision and Expertise of Saint- Petersburg Request terms of connection to utility networks and request a contract for water and sewage connection BuildCo submits the following documents to Vodokanal of Saint- Petersburg in order to request a water and sewage connection: - Copies of constituent documents (registration documents and other supporting documentation verifying the legal status of BuildCo) - Cadastral plan of the land 1 day no charge 12 - Technical conditions for water and sewage - Estimated balance of water consumption and wastewater usage - Topographic map of the land on a scale of 1:500 - Urban development plan for the land Agency: Saint-Petersburg Vodokanal Obtain connection to water and sewage services BuildCo signs the contract prepared by the water and sewage company 30 days RUB 37,161 13 and requests the date of connection to water and sewage services. The water and sewage company will provide the connection according to the date specified in the contract. Doing Business 2015 Russian Federation 39 Time to No. Procedure Cost to complete complete Agency: Saint-Petersburg Vodocanal Receive final inspection from the State Agency of Construction Supervision and Expertise After the completion of construction works, the State Agency of Construction Supervision and Expertise of Saint-Petersburg conducts a final inspection to verify if the building was built according to the 1 day no charge 14 approved design conditions. Agency: State Agency of Construction Supervision and Expertise of Saint- Petersburg Request and receive the disposition on operation of the building (occupancy permit) In order to obtain permission to use the building, it is necessary to apply to the State Agency of Construction Supervision and Expertise of Saint-Petersburg with the following documents: 1) land ownership documents 2) development plan of the land plot 3) building permit 4) a document confirming that the constructed building meets the 15 requirements of technical regulations signed by the person responsible 30 days no charge for conducting the construction works 5) a detailed map showing the location of the construction, location of the utility networks within the boundaries of the land plot and the schematic plan of the land plot. The document should be signed by the person responsible for conducting the construction works. Agency: State Agency of Construction Supervision and Expertise of Saint- Petersburg Request and obtain a technical plan of the building BuildCo has to provide technical and cadastral plans of the building in order to be able to register the building at the Federal Service for State Registration, Cadastre and Cartography. 16 Preparation of the technical plan of the building can be done by either 20 days RUB 55,000 a licensed cadatstral engineer or the Bureau of Technical Inventory. The preparation of the technical plan can take from 10 to 30 days. Agency: Cadastral Engineers / Bureau of Technical Inventory Doing Business 2015 Russian Federation 40 Time to No. Procedure Cost to complete complete Register the building at Rosreestr According to the Russian Federation Civil Code, the right to own and "create" immovable things, including buildings, is subject to state registration at the Unified State Register of rights to immovable assets 17 and associated transactions. 18 days RUB 15,000 Agency: Federal Service for State Registration, Cadastre and Cartography (Rosreestr) * 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 2015 Russian Federation 41 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity a customer is always to gain access by obtaining a connection (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and 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 complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information  Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax  Is not in a special economic zone where the connection would be eligible for subsidization or faster service.  Is to either the low-voltage or the medium- voltage distribution network and either  Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is  Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain.  Is 2 stories, both above ground, with a total  Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods  Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal  Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 Russian Federation 42 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Russian Federation? According to data collected by business city of an economy, except for 11 economies for Doing Business, getting electricity there requires 5.6 which the data are a population-weighted average of the procedures, takes 179.1 days and costs 321.0% of 2 largest business cities. See the chapter on distance to income per capita (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Russian Federation - Moscow What it takes to obtain an electricity connection in Russian Federation - Saint Petersburg Doing Business 2015 Russian Federation 43 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 2015 Russian Federation 44 GETTING ELECTRICITY Globally, Russian Federation stands at 143 in the ranking perspective in assessing how easy it is for an of 189 economies on the ease of getting electricity entrepreneur in Russian Federation to connect a (figure 4.2). The rankings for comparator economies and warehouse to electricity. the regional average ranking provide another Figure 4.2 How Russian Federation and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2015 Russian Federation 45 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in Russian practices and internal wiring installations. In an effort to Federation (table 4.1)? Table 4.1 How has Russian Federation made getting electricity easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Russian Federation made getting electricity less costly by DB2012 revising the tariffs for connection. Russia made getting electricity simpler and less costly by DB2014 setting standard connection tariffs and eliminating many procedures previously required. Source: Doing Business database. Doing Business 2015 Russian Federation 46 GETTING ELECTRICITY What are the details? The indicators reported here for Russian Federation are OBTAINING AN ELECTRICITY CONNECTION based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility - identified by Doing Business. Data are collected from the Moscow: MOESK distribution utility, then completed and verified by electricity regulatory agencies and independent Name of utility - professionals such as electrical engineers, electrical Saint Petersburg: Lenenergo (Ленэнерго) contractors and construction companies. The electricity distribution utility surveyed is the one serving the area City: Moscow, Saint Petersburg (or areas) in which warehouses are located. If there is a choice of distribution utilities, the one serving the largest The procedures are those that apply to a warehouse and number of customers is selected. electricity connection matching the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Russian Federation - Moscow Time to No. Procedure Cost to complete complete Submit an application for an electricity connection to the local office of MOESK, await technical conditions, and sign contract 1. If the required load is less than 750 KW an application for an electricity connection is submitted to a local office of MOESK. Above 750 KW an application is submitted to the central office of MOESK. The following documents are attached to the application: 1) Plan of the location of electrical equipment; 2) Plan of electrical cables with the justification of the required load; 3) a copy of the license of the firm which prepared the plan. Furthermore, the applicant should present documents certifying the legal 15 calendar days RUB 1,198,911.44 1 status of the customer or his representative: a certificate from the Business Registry, a certificate from tax authorities, and document certifying the head of the organization. Once technical conditions are ready MOESK notifies the customer and a connection contract is signed. There is not external inspection for the preparation of the technical conditions. Application can be submitted in person or online on MOESK’s electronic portal, http://utp.moesk.ru/my/ in a “personal cabinet”. Alternatively, application can be mailed via regular post. On every stage of the application processing, the applicant receives a text-message notification Doing Business 2015 Russian Federation 47 Time to No. Procedure Cost to complete complete to the cellular phone indicated on the application form. It is also possible to track the status of the application by visiting the online “personal cabinet”. Agency: MOESK Customer obtains external connection works and meter installation by MOESK Upon receipt of the application and the duly signed agreement, the network organization will prepare project design for building a network for connection and obtain all approvals for construction work (such as, a permit required for the laying of underground or overhead lines), and carry out all the external works according to the contract and the technical specifications. Network organization performs all work up to the land boundaries of the applicant and assumes the responsibility of the performed work, and the applicant is responsible for the performance of work within the boundaries of their plot. 2 The applicant, if desired, designs and builds network only within the 100 calendar days RUB 0 boundaries of their land on their own or entrusts this work to network organization under a separate contract. JSC "Moscow United Electric Grid" performs the following steps: • the inclusion of the amount of work in the investment program of JSC "Moscow United Electric Grid"; • carrying out procurement procedures; • carrying out the physical works involving the installation of the substation. Agency: MOESK Customer obtains inspection of the meter by Mosenergosbyt After the external connection works and installation of the meter by the electrical contractor the meter is checked by Energosbyt. 12 calendar days RUB 10,000 3 Agency: Mosenergosbyt Doing Business 2015 Russian Federation 48 Time to No. Procedure Cost to complete complete MOESK conducts final inspection and seals the meter The utility completes the physical/actual connection without turning on the power yet. The customer visits the regional office of MOESK, concludes a contract dividing responsibilities for maintenance and ownership of electrical equipment, signs a document on the completion of the technical connection and a document that the service was 4 accepted. 14 calendar days RUB 0 MOESK dispatches a technical team to inspect the connection and to seal the meter. Agency: MOESK Customer signs a supply contract with Mosenergosbyt (supply company) Customer visits Mosenergosbyt to conclude a supply contract. 5 From February, 2014 it became possible to select a preferred supplier in 21 calendar days RUB 0 the application form for a technological connection. Agency: Mosenergosbyt * Takes place simultaneously with another procedure. Source: Doing Business database. Summary of time, cost and procedures for getting electricity in Russian Federation - Saint Petersburg Time to No. Procedure Cost to complete complete Submit an application for an electricity connection to the utility and await technical conditions and a contract for a connection The following documents are required to be submitted with general application for a connection: 1. Copy of the document confirming the ownership of the construction site and land plot; 2. Map specifying location of electrical installations; 15 calendar days RUB 1,316,000 1 3. A copy of the certificate on state registration and certificate of tax registration. 4. A copy of company’s charter as amended; 5. Table with load calculations; 5. Copy of the application template for an electricity connection; 6. A copy of the document confirming the authority of the person signing the application. Once technical conditions are ready, the utility notifies the customer and Doing Business 2015 Russian Federation 49 Time to No. Procedure Cost to complete complete a connection contract is signed. It became possible to submit application online since 2014. However, less than 10% of all customers used this option. Agency: Lenenergo Prepare design of the connection and obtain approvals Once the technical conditions are ready a customer hires a design company which prepares design of the connection. After preparation of the project design, it is presented to Lenenergo experts and based on 2 their examination, the customer receives a statement of approval or 60 calendar days RUB 250,000 rejection on the proposed project design documentation. Agency: Private project design firm Customer obtains an excavation permit The subcontractor applies for the excavation permit at the state administrative and technical inspection. 33 calendar days RUB 0 3 Agency: State Administrative Technical Inspectorate Complete connection works according to technical conditions The subcontractor executes all the external works and upon completion prepares the necessary documentation. 30 calendar days RUB 400,000 4 Agency: Contractor Receive an inspection of the completed works from the utility and obtain compliance documents The distribution utility inspects the completed works and issues a document certifying that the works were completed according to 5 technical conditions. During this visit the Technical Act and Act on 30 calendar days RUB 0 division of responsibilities will be signed. Agency: Lenenergo Doing Business 2015 Russian Federation 50 Time to No. Procedure Cost to complete complete Receive an inspection from Saint Petersburg Supply Company of equipment compliance Saint Petersburg Supply Company inspects the meter and prepares a 6 document certifying equipment compliance. 21 calendar days RUB 3,000 Agency: Saint Petersburg Supply Company Conclude a supply contract, seal the meter and await supply of electricity After all inspections are completed the customer submits documents required for conclusion of an electricity supply contract. After the 7 contract is signed the supply utility sends an order to the distribution 30 calendar days RUB 0 utility to turn on the electricity. Agency: Saint Petersburg Supply Company * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Russian Federation 51 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 accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure  Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included  Are located in the economy’s largest business city . 2  Is located in a periurban commercial zone, and no rezoning is required.  Have 50 employees each, all of whom are nationals.  Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square  Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000  Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal  Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Russian Federation 52 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Russian Federation? According to data collected by business city of an economy, except for 11 economies for Doing Business, registering property there requires 3.0 which the data are a population-weighted average of the procedures, takes 19.0 days and costs 0.1% of the 2 largest business cities. See the chapter on distance to property value (figure 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Russian Federation - Moscow What it takes to register property in Russian Federation - Saint Petersburg Doing Business 2015 Russian Federation 53 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 2015 Russian Federation 54 REGISTERING PROPERTY Globally, Russian Federation stands at 12 in the ranking the regional average ranking provide other useful of 189 economies on the ease of registering property information for assessing how easy it is for an (figure 5.2). The rankings for comparator economies and entrepreneur in Russian Federation to transfer property. Figure 5.2 How Russian Federation and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2015 Russian Federation 55 REGISTERING PROPERTY Economies worldwide have been making it easier for the time required substantially—enabling buyers to use entrepreneurs to register and transfer property—such as or mortgage their property earlier. What property by computerizing land registries, introducing time limits registration reforms has Doing Business recorded in for procedures and setting low fixed fees. Many have cut Russian Federation (table 5.1)? Table 5.1 How has Russian Federation made registering property easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Russia reduced the time required to register property by DB2010 introducing cadastral passports in place of the previously required inventory documents and cadastral maps. Russia made registering property transfers easier by DB2012 eliminating the requirement to obtain cadastral passports on land plots. Russia made transferring property easier by streamlining DB2014 procedures and implementing effective time limits for processing transfer applications. The Russian Federation made transferring property easier by eliminating the requirement for notarization and introducing DB2015 tighter time limits for completing the property registration. This reform applies to both Moscow and St. Petersburg. 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 2015 Russian Federation 56 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 lawyers, Property value: RUB 22,383,180 notaries and property registries. These procedures are those that apply to a transaction matching the Moscow, Saint City: standard assumptions used by Doing Business in Petersburg collecting the data (see the section in this chapter on The procedures, along with the associated time and what the indicators cover). cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Russian??Federation Time to No. Procedure Cost to complete complete Buyer checks for encumbrances on property as the Federal Service for State Registration, Cadastre an RUB 600 (for a Even though not mandatory by law, in practice most buyers do check for hard copy) and non-encumbrances on the property to prove the validity of the seller's RUB 300 (as an title. The complete information on the property (ownership rights, - Less than a day electronic encumbrances) can be obtained by the Buyer in two ways with equal for obtaining an legal power of each. In a form of the official document provided by the document); RUB electronic authorized agency (Rosreestr) and in electronic format. According to 900 (for an document - 5 the Federal Law №122 the registration authority upon the offi cial request extraterritorial working days for 1 for information on a property shall provide an official hard copy request of a hard a hard copy document with all information available in the Unified State Register of copy document (in document Real Estate Property within five (5 working) days. Alternatively, checking another region)); (simultaneous and verification ownership rights of the seller can be performed on-line RUB 400 (for an on the main web page of the Federal Service for State Registration, with procedure 1 extraterritorial Cadastre and Cartography (www.rosreestr.ru). & 3) request of an electronic Agency: Federal Service of State Registration, Cadastre and Cartography document ). (Rosreestr) * Check for legal status and current conditions of the buyer at the - Less than a day Electronic Unified State Register of Legal Entities (online document - no procedure) - charge. Official Legal entities will obtain extracts from the Unified State Register of Legal Regular documents in hard Entities, officially managed and maintained by the Federal Tax Service procedure - 5-7 copy - RUB 200 (FNS) (http://egrul.nalog.ru/#). Although Russian legislation does not 2 days and - establish the term of validity for the extracts, in practice most state (regular procedure authorities accept the extracts issued not earlier than 30 days before Expedited - 5-7 days) or RUB their submission to the respective state authority. procedure - 1 400 (expedited working procedure - 1 Agency: Unified State Register of Legal Entities day(simultaneous working day) with procedures Doing Business 2015 Russian Federation 57 Time to No. Procedure Cost to complete complete 1) Apply for state registration of title transfer in the Unified State Register of Rights to Real Estat The Russian Federation adopted amendments to the Federal Law #122-FZ. New provisions of the Law came into effect on December 21, 2013 and shortened effective time limits for the title registration from a RUB 30,000: RUB maximum of 20 calendar days to 18 calendar days. As a result of the 15,000 (building) + 3 implementation of this time limit in practice, entrepreneur can now 18 days RUB 15,000 (land transfer property at the State Cadastre of Immovable Property within 18 plot transfer) calendar days. Agency: Federal Service of State Registration, Cadastre and Cartography (Rosreestr) * 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 2015 Russian Federation 58 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 Strength of legal rights index (0–12) 3 lenders’ rights to view a potential borrower’s financial history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially Depth of credit information index (0–8) 4 movable property, as security to generate capital— while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2015 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 Russian Federation 59 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Russian Federation stands at 61 in the ranking and bankruptcy laws in Russian Federation facilitate of 189 economies on the ease of getting credit (figure access to credit? The economy has a score of 7 on the 6.1). The rankings for comparator economies and the depth of credit information index and a score of 4 on the regional average ranking provide other useful 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 Russian Federation support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How Russian Federation and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2015 Russian Federation 60 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Russian Federation and shows the scores indicators into context is to see where the economy for comparator economies as well as the regional stands in the distribution of scores across economies. average score. Figure 6.3 shows the same for the depth Figure 6.2 highlights the score on the strength of legal of credit information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index 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. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2015 Russian Federation 61 GETTING CREDIT What are the details? The getting credit indicators reported here for Russian The data on the legal rights of borrowers and lenders are Federation are based on detailed information collected gathered through a survey of financial lawyers and in that economy. The data on credit information sharing verified through analysis of laws and regulations as well are collected through a survey of a credit registry and/or 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, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Moscow Saint Petersburg Strength of legal rights index (0–12) Index score: 4 Index score: 4 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional No No equivalents to security interests in movable assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description No No of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of No No collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to the products, proceeds or replacements of the No No original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between Yes Yes parties; and can the collateral agreement include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non- incorporated entities, that is unified geographically and by asset type, with No No an electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional No No equivalents can be registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed online by any No No interested third party? Are secured creditors paid first (i.e. before tax claims and employee Yes Yes claims) when a debtor defaults outside an insolvency procedure? Doing Business 2015 Russian Federation 62 Moscow Saint Petersburg Strength of legal rights index (0–12) Index score: 4 Index score: 4 Are secured creditors paid first (i.e. before tax claims and employee Yes Yes claims) when a business is liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law No No protect secured creditors’ rights by providing clear grounds for relief from the stay and/or sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor Yes Yes to sell the collateral through public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 7 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on Yes No 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their Yes No 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an Yes No 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions Yes No 1 assess the creditworthiness of borrowers? Note: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2015 Russian Federation 63 Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 1,000,000 0 Number of individuals 65,000,000 0 Percent of total 64.6 0.0 Source: Doing Business database. Doing Business 2015 Russian Federation 64 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions ; Disclosure requirements for related-party transactions What do the indicators cover? Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5)  Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from  Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects  Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3  The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10)  All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 Russian Federation 65 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Russian Federation? The economy has a not measure all aspects related to the protection of score of 5.1 on the strength of minority investor minority investors, a higher ranking does indicate that an protection index, with a higher score indicating stronger economy’s regulations offer stronger minority investor protections. protections against self-dealing in the areas measured. Globally, Russian Federation stands at 100 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Russian Federation and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 Russian Federation 66 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Russian Federation in 2014. A summary of minority investors indicators into context is to see where scoring for the protecting minority investors indicators at the economy stands in the distribution of scores across the end of this chapter provides details on how the comparator economies. Figures 7.2 through 7.7 highlight indices were calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 Russian Federation 67 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 Russian Federation 68 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 Russian Federation 69 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 Russian Federation 70 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported of conditions relating to disclosure, director liability, here for Russian Federation are based on detailed shareholder suits, shareholder rights, governance information collected through a survey of corporate and structure and corporate transparency in a standard case securities lawyers about securities regulations, company study (for more details, see the Data Notes section of the laws and court rules of evidence and procedure. To Doing Business 2015 report). The summary below shows construct the six indicators on minority investor the details underlying the scores for Russian Federation. protection, scores are assigned to each based on a range Table 7.2 Summary of scoring for the protecting minority investors indicators in Russian Federation Answer Score Answer (Saint Score (Saint (Moscow) (Moscow) Petersburg) Petersburg) Extent of disclosure index (0-10) 6.0 6.0 Shareholders Shareholders Which corporate body can provide legally sufficient approval excluding excluding 3 3 for the Buyer-Seller transaction? (0-3) interested interested parties parties Existence of a Existence of a Is disclosure by the interested director to the board of conflict without 1 conflict without 1 directors required? (0-2) any specifics any specifics Disclosure on Is disclosure of the transaction in published periodic filings Disclosure on the 1 the transaction 1 (annual reports) required? (0-2) transaction only only Disclosure on Is immediate disclosure of the transaction to the public Disclosure on the 1 the transaction 1 and/or shareholders required? (0-2) transaction only only Must an external body review the terms of the transaction No 0 No 0 before it takes place? (0-1) Extent of director liability index (0-10) 2.0 2.0 Can shareholders sue directly or derivatively for the damage Yes 1 Yes 1 caused by the Buyer-Seller transaction to the company? (0-1) Can shareholders hold the interested director liable for the Not liable 0 Not liable 0 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body Liable if liable for the damage cause by the transaction to the Liable if negligent 1 1 negligent company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a No 0 No 0 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder No 0 No 0 plaintiff? (0-1) Can both fines and imprisonment be applied against the No 0 No 0 interested indrector? (0-1) Can a court void the transaction upon a successful claim by a Only in case of Only in case of 0 0 shareholder plaintiff? (0-2) fraud or bad faith fraud or bad Doing Business 2015 Russian Federation 71 faith Ease of shareholder suits index (0-10) 7.0 7.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? No 0 No 0 (0-1) Can the plaintiff obtain any documents from the defendant Any relevant Any relevant 3 3 and witnesses during trial? (0-3) document document Can the plaintiff request categories of documents from the No 0 No 0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2 Yes 2 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1 Yes 1 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if Yes if successful 1 1 the company? (0-2) successful Strength of minority investor protection index (0-10) 5.1 5.1 Extent of conflict of interest regulation index (0-10) 5.0 5.0 Extent of shareholder rights index (0-10.5) 7.5 7.5 Can shareholders amend company bylaws or statutes with a No 0 No 0 simple majority? Can shareholders owning 10% of the company's share Yes 1.5 Yes 1.5 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of directors Yes 1.5 Yes 1.5 before the end of their term. Must a company obtain its shareholders’ approval every time No 0 No 0 it issues new shares? Are shareholders automatically granted subscription rights Yes 1.5 Yes 1.5 on new shares? Must shareholders approve the election and dismissal of the Yes 1.5 Yes 1.5 external auditor? Can shareholders freely trade shares prior to a major Yes 1.5 Yes 1.5 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 3.0 3.0 Is the CEO barred from also serving as chair of the board of No 0 No 0 directors? Must the board of directors include independent board No 0 No 0 members? Must a company have a separate audit committee? No 0 No 0 Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected No 0 No 0 shares? Must a potential acquirer make a tender offer to all Yes 1.5 Yes 1.5 shareholders upon acquiring 50% of a company? Is cross-shareholding between 2 independent companies No 0 No 0 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its Yes 1.5 Yes 1.5 parent company? Extent of corporate transparency index (0-9) 5.0 5.0 Must ownership stakes representing 10% be disclosed? No 0 No 0 Must information about board members’ other directorships Yes for listed Yes for listed as well as basic information on their primary employment be 1 1 companies companies disclosed? Doing Business 2015 Russian Federation 72 Must the compensation of individual managers be disclosed? No 0 No 0 Must financial statements contain explanatory notes on significant accounting policies, trends, risks, uncertainties Yes 1.5 Yes 1.5 and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Yes 1.5 auditor? Yes for listed Yes for listed Must audit reports be disclosed to the public? 1 1 companies companies Extent of shareholder governance index (0-10) 5.2 5.2 Source: Doing Business database. Doing Business 2015 Russian Federation PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2013 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business measures the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to Profit or corporate income tax one of the component indicators, the total tax rate . 5 The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes  TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paid by the and mandatory contributions paid during company. the second year of operation are recorded.  A range of standard deductions and  Taxes and mandatory contributions are exemptions are also recorded. measured at all levels of government. 5 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis. 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 26.1%. Doing Business 2015 Russian Federation 74 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with average of the 2 largest business cities. See the chapter taxes in Russian Federation—and how much do firms pay on distance to frontier and ease of doing business in taxes? On average, firms make 7.0 tax payments a ranking at the end of this profile for more details. year, spend 168.0 hours a year filing, preparing and Globally, Russian Federation stands at 49 in the ranking paying taxes and pay total taxes amounting to 48.9% of of 189 economies on the ease of paying taxes (figure profit (see the summary at the end of this chapter for 8.1). The rankings for comparator economies and the details). Most indicator sets refer to a case scenario in regional average ranking provide other useful the largest business city of an economy, except for 11 information for assessing the tax compliance burden for economies for which the data are a population-weighted businesses in Russian Federation. Figure 8.1 How Russian Federation and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 Russian Federation 75 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 rise. consolidating filings, reducing the frequency of What tax reforms has Doing Business recorded in Russian payments or offering electronic filing and payment. Federation (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Russian Federation made paying taxes easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Russia made paying taxes less costly for companies by reducing DB2010 the corporate income tax rate. Russia increased the social security contribution rate for DB2012 employers. Russia eased the administrative burden of taxes for firms by simplifying compliance procedures for value added tax and by DB2013 promoting the use of tax accounting software and electronic services. 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 2015 Russian Federation 76 PAYING TAXES What are the details? The indicators reported here for Russian Federation LOCATION OF STANDARDIZED COMPANY are based on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the City: Moscow, Saint Petersburg section in this chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Moscow: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate gross Pension fund contribution 1 online filing 0 22% 24.1 salaries taxable Corporate income tax 1 online filing 53 20% 8.4 profits Federal obligatory medical gross 0 paid jointly 0 5.1% 5.4 insurance fund contributions salaries book value Property tax 1 online filing 0 2.2% of 4.7 property gross Social security insurance 1 online filing 76 2.9% 3.1 salaries gross Accidents tax 0 paid jointly 0 2.5% 2.8 salaries cadastral value of Land tax 1 online filing 0 0.3%-1.5% 0.5 the land plot Doing Business 2015 Russian Federation 77 Total tax Notes on Moscow: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate engine various Transport tax 1 online filing 0 capacity of 0.1 rates vehicles value not Value Added Tax 1 online filing 39 18% 0 added included gross Personal income tax 0 paid jointly 0 13% 0 withheld salaries Totals 7.0 168.0 49.0 Total tax Notes on Saint Petersburg: Tax or Payments Notes on Time Statutory Tax base rate (% of total tax mandatory contribution (number) payments (hours) tax rate profit) rate gross Pension fund contribution 1 online filing 0 22% 24.1 salaries taxable Corporate income tax 1 online filing 53 20% 8.5 profits Federal obligatory medical gross 0 paid jointly 0 5.1% 5.4 insurance fund contributions salaries book value Property tax 1 online filing 0 2.2% of 4.7 property gross Social security insurance 1 online filing 76 2.9% 3.1 salaries gross Accidents tax 0 paid jointly 0 2.5% 2.8 salaries cadastral value of Land tax 1 online filing 0 0.3%-1.5% 0.1 the land plot engine various Transport tax 1 online filing 0 capacity of 0.1 rates vehicles value not Value Added Tax 1 online filing 39 18% 0 added included gross Personal income tax 0 paid jointly 0 13% 0 withheld salaries Totals 7.0 168.0 48.7 Doing Business 2015 Russian Federation 78 Source: Doing Business database. Doing Business 2015 Russian Federation 79 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 a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents 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 a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business:  Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data  Is not hazardous nor includes military items. for a second city have been added.  Does not require refrigeration or any other  Is a private, limited liability company, special environment. domestically owned and does not operate  Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than  Conducts export and import activities, but accepted international standards. does not have any special accreditation  Is one of the economy’s leading export or such as an authorized economic operator import products. status.  Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 Russian Federation 80 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Russian are a population-weighted average of the 2 largest Federation? According to data collected by Doing business cities. See the chapter on distance to frontier Business, exporting a standard container of goods and ease of doing business ranking at the end of this requires 9 documents, takes 21.1 days and costs $2400.5. profile for more details. Importing the same container of goods requires 10 Globally, Russian Federation stands at 155 in the ranking documents, takes 19.4 days and costs $2594.5 (see the of 189 economies on the ease of trading across borders summary of four predefined stages and documents at (figure 9.1). The rankings for comparator economies and the end of this chapter for details). Most indicator sets the regional average ranking provide other useful refer to a case scenario in the largest business city of an information for assessing how easy it is for a business in economy, except for 11 economies for which the data Russian Federation to export and import goods. Figure 9.1 How Russian Federation and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Russian Federation 81 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 Business tools to facilitate trade—including single windows, risk- recorded in Russian Federation (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Russian Federation made trading across borders easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Russia made trading across borders easier by reducing the DB2012 number of documents needed for each export or import transaction and lowering the associated cost. Russia made trading across borders easier by implementing an DB2014 electronic system for submitting export and import documents and by reducing the number of physical inspections. 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 2015 Russian Federation 82 TRADING ACROSS BORDERS What are the details? The indicators reported here for Russian Federation LOCATION OF STANDARDIZED COMPANY are based on a set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the Port Name - Moscow: St. Petersburg (First indicators cover). Information on the required container terminal) documents and the time and cost to complete export and import is collected from local freight forwarders, Port Name - Saint Petersburg: St. Petersburg shipping lines, customs brokers, port officials and (First container terminal) banks. City: Moscow, Saint Petersburg The predefined stages, and the associated time and cost, for exporting and importing a standard shipment of goods are listed in the summary below, along with the required documents. Moscow Saint Petersburg Stages to export Time (days) Cost (US$) Time (days) Cost (US$) Customs clearance and inspections 1 550 1 550 Documents preparation 13 290 12 360 Inland transportation and handling 5 1,385 3 300 Ports and terminal handling 3 480 3 480 Totals 22 2,705 19 1,690 Moscow Saint Petersburg Stages to import Time (days) Cost (US$) Time (days) Cost (US$) Customs clearance and inspections 1 650 1 650 Documents preparation 12 335 12 335 Inland transportation and handling 5 1,385 3 300 Ports and terminal handling 2 550 2 550 Totals 20 2,920 18 1,835 Doing Business 2015 Russian Federation 83 Documents to export Acceptance order (priemnii akt) Bill of lading (konosament) Commercial Invoice (schet-faktura) Consignment note/ CMR (tovarno-transportnaya nakladnaya) Customs export declaration (tamojennaya deklaraciya) Declaration of origin (Statement of manufacturer - zayavlenie proizvoditelya)/ Certificate of Origin Export/loading order (eksportnoe/pogruzochnoe poruchenie) Packing List (upakovochnii list) Sales purchase contract (dogovor kupli- prodaji/kontrakt) Documents to import Acceptance order (priemo-sdatochnii order) Bill of lading (konosament) Certificate of conformity (sertifikat sootvetstviya) Commercial invoice (schet-faktura) Consignment note (tovarno-transportnaya nakladnaya) Customs import declaration (tamojennaya deklaraciya) Document of warehouse (dokument ucheta skalda) Letter from the bank certifying opening of letter of credit (izveshenie/dokument banka, podtverjdayushii otkritie akkreditiva) Packing list (upakovochnii list) Sales purchase contract (dogovor kupli- prodaji/kontrakt) Doing Business 2015 Russian Federation 84 Source: Doing Business database. Doing Business 2015 Russian Federation 85 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 courts encourage new business relationships because Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs 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. For the 11 economies with a population of more than  The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added.  The dispute on the quality of the goods  The buyer orders custom-made goods, requires an expert opinion. then fails to pay.  The judge decides in favor of the seller; there  The seller sues the buyer before a is no appeal. competent court.  The seller enforces the judgment through a  The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 Russian Federation 86 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial 2 largest business cities. See the chapter on distance to dispute through the courts in Russian Federation? frontier and ease of doing business ranking at the end of According to data collected by Doing Business, contract this profile for more details. enforcement takes 267.0 days, costs 14.9% of the value Globally, Russian Federation stands at 14 in the ranking of the claim and requires 35.0 procedures (see the of 189 economies on the ease of enforcing contracts summary at the end of this chapter for details). Most (figure 10.1). The rankings for comparator economies indicator sets refer to a case scenario in the largest and the regional average ranking provide other useful business city of an economy, except for 11 economies for benchmarks for assessing the efficiency of contract which the data are a population-weighted average of the enforcement in Russian Federation. Figure 10.1 How Russian Federation and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Russian Federation 87 ENFORCING CONTRACTS Economies in all regions have improved contract reducing backlogs by introducing periodic reviews to enforcement in recent years. A judiciary can be improved clear inactive cases from the docket and by making in different ways. Higher-income economies tend to look procedures faster. What reforms making it easier (or for ways to enhance efficiency by introducing new more difficult) to enforce contracts has Doing Business technology. Lower-income economies often work on recorded in Russian Federation (table 10.1)? Table 10.1 How has Russian Federation made enforcing contracts easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Russia made filing a commercial case easier by introducing an DB2012 electronic case filing system. 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 2015 Russian Federation 88 ENFORCING CONTRACTS What are the details? The indicators reported here for Russian Federation COURT NAME are based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this Claim value - chapter on what the indicators cover). These RUB 843,258 Moscow: procedures, and the time and cost of completing them, are identified through study of the codes of Claim value - Saint civil procedure and other court regulations, as well RUB 843,258 Petersburg: as through questionnaires completed by local litigation lawyers (and, in a quarter of the economies Court name - covered by Doing Business, by judges as well). Moscow Arbitrazh Court Moscow: Commercial (Arbitrazh) Court name - Saint Court of St. Petersburg Petersburg: and Leningard Moscow, Saint City: Petersburg Table 10.2 Summary of time, cost and procedures for enforcing a contract in Russian Federation Europe & Central Indicator Moscow Saint Petersburg Asia average Time (days) 270 260 448 Filing and service 30 30 Trial and judgment 160 150 Enforcement of judgment 80 80 Cost (% of claim) 13.4 18.4 25.2 Attorney cost (% of claim) 10 15 Court cost (% of claim) 3.4 3.4 Enforcement Cost (% of claim) 0 0 Procedures (number) 35 35 37 Number of procedures (without bonus points) 36 36 Specialized commercial courts -1 -1 Doing Business 2015 Russian Federation 89 Europe & Central Indicator Moscow Saint Petersburg Asia average Total number of procedures (including bonus points) 35 35 Doing Business 2015 Russian Federation 90 No. Moscow Procedures Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff hires a lawyer: Plaintiff hires a lawyer. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 3 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Judicial scrutiny of summons and complaint: Judge examines Plaintiff's summons and complaint for 4 formal requirements as a matter of law or standard practice. Judge admits summons and complaint: Judge admits summons and complaint (after verifying the formal * requirements). Attempt at physical delivery: An attempt to physically deliver summons and complaint to Defendant is 5 made. * Proof of service: Plaintiff submits proof of service to court, as 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. Decision on pre-judgment attachment: Judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 6 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Custody of assets attached prior to judgment: If physical attachment is ordered, Defendant's attached 7 assets are placed in the custody or control of an enforcement officer or private bailiff. Report on pre-judgment attachment: Court enforcement officer or private bailiff issues and delivers a 8 report on the attachment of Defendant’s property to the judge. Trial and judgment: Defendant files preliminary objections.: Defendant presents preliminary objections to the court. * (Preliminary exemptions differ from answers on the merits. Examples of preliminary motions are motions to dismiss on the basis of the statute of limitations or jurisdictional objections, etc.) Checke Doing Business 2015 Russian Federation 91 No. Moscow Procedures Plaintiff’s answer to preliminary motions: Plaintiff responds to preliminary motions raised by Defendant. * Checked as ‘yes’ if preliminary motions are commonly raised (step 30) and if Plaintiff responds to them immediately. Judge’s resolution on preliminary objections: Judge decides on preliminary objections separately from the 9 merits of the case. Checked as ‘yes’ if preliminary objections are commonly made (step 30) and if judge resolves the question before rendering his decision. Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 10 or defense on the merits of the case (see assumption 4). Plaintiff’s written reply to Defendant's answer: Plaintiff responds to Defendant’s answer with a written 11 pleading, which may or may not include witness statements or expert (witness) statements. Filing of written submissions: Plaintiff and Defendant file written pleadings and submissions with the court 12 and transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Adjournments: Court procedure is delayed because one or both parties request and obtain an 13 adjournment to submit written pleadings. Check as ‘yes’ if this commonly happens. 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 5-b). Notification of court-appointment of independent expert: The court notifies both parties that the court is 14 appointing an independent expert (see assumption 5-b). 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 5-b). 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. * Setting of date(s) for oral hearing or trial: Judge sets the date(s) for the oral hearing or trial. Preliminary hearing aimed at preparing for the oral hearing: The judge meets the parties to make practical 15 arrangements for the oral hearing on the merits of the case. * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court (see assumption 5-a). Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 16 hearing or trial (see assumption 5-a). Adjournments: Court proceedings are delayed because one or both parties request and obtain an 17 adjournment to prepare for the oral hearing or trial as a matter of common practice. Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 18 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Adjournments: Court proceedings are delayed because one or both parties request and obtain an 19 adjournment during the oral hearing or trial, resulting in an additional or later trial or hearing date. Doing Business 2015 Russian Federation 92 No. Moscow Procedures Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 20 Judgment date: The judge sets a date for delivery of the judgment. 21 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 22 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 23 judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 24 judgment is available at the courthouse. Plaintiff receives a copy of the judgment: Plaintiff receives a copy of the written judgment which is 100% 25 in favor of Plaintiff (see assumption 6). Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 26 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Order for reimbursement by Defendant of Plaintiff's court fees: The judgment orders Defendant to 27 reimburse Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff retains an enforcement agent to enforce the judgment.: Plaintiff retains the services of a court 28 enforcement officer such as a court bailiff or sheriff, or a private bailiff. 29 Publication of judgment: The judgment is published in an official journal, gazette or local newspaper. Plaintiff requests an 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 30 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 commonly fears that Defendant might physically * resist the taking into custody of its previously attached movable assets, Plaintiff requests the judge or the police authorities to obtain police assistance during the physical enforcement of the Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 31 private bailiff requests Defendant to voluntarily comply with the judgment. Identification of Defendant's assets by court official or Defendant for purposes of enforcement: The judge, 32 a court enforcement officer, a private bailiff or the Defendant himself identifies Defendant's movable assets for the purposes of enforcing the judgment through a sale of Defendant’s assets. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 33 assets). Doing Business 2015 Russian Federation 93 No. Moscow Procedures Valuation or appraisal of attached movable goods: The court or court-appointed valuation expert 34 evaluates the attached goods. 35 Sale through public auction: The Defendant’s movable property is sold at public auction. 36 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. No. Saint Petersburg Procedures Filing and service: * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2015 Russian Federation 94 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) 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 of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 Russian Federation 95 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, Russian characterize the top-performing economies. How Federation scores 2.5 out of 3 points on the efficient are insolvency proceedings in Russian commencement of proceedings index, 3.5 out of 6 points Federation? According to data collected by Doing on the management of debtor’s assets index, 0.5 out of 3 Business, resolving insolvency takes 2.0 years on average points on the reorganization proceedings index, and 2.0 and costs 9.0% of the debtor’s estate, with the most out of 4 points on the creditor participation index. likely outcome being that the company will be sold as Russian Federation’s total score on the strength of piecemeal sale. The average recovery rate is 43.0 cents insolvency framework index is 8.5 out of 16. on the dollar. Most indicator sets refer to a case scenario Globally, Russian Federation stands at 65 in the ranking in the largest business city of an economy, except for 11 of 189 economies on the ease of resolving insolvency economies for which the data are a population-weighted (figure 11.1). The rankings for comparator economies average of the 2 largest business cities. See the chapter and the regional average ranking provide other useful on distance to frontier and ease of doing business benchmarks for assessing the efficiency of insolvency ranking at the end of this profile for more details. proceedings in Russian Federation. Figure 11.1 How Russian Federation and comparator economies rank on the ease of resolving insolvency Doing Business 2015 Russian Federation 96 Source: Doing Business database. Doing Business 2015 Russian Federation 97 Figure 11.2 Recovery Rate (0-100) - Russian Federation Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - Russian Federation Source: Doing Business database. Doing Business 2015 Russian Federation 98 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 Russian Federation (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Russian Federation made resolving insolvency easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Russia enhanced its insolvency process by introducing several DB2010 changes to its insolvency law to speed up the liquidation procedure and strengthen the legal status of secured creditors. Russia introduced a series of legislative measures in 2009 to DB2011 improve creditor rights and the insolvency system. 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 2015 Russian Federation 99 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers  Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International  Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188  Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment  Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6  Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of  Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked  Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 Russian Federation LABOR MARKET REGULATION What are the details? The data reported here for Russian Federation are based Employment laws and regulations as well as secondary on a detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum Moscow Saint Petersburg Difficulty of hiring index Data Data Fixed-term contracts prohibited for permanent tasks? Yes Yes Maximum length of a single fixed-term contract (months) 60 60 Maximum length of fixed-term contracts, including renewals (months) 60 60 Minimum wage applicable to the worker assumed in the case study 390.11 274.56 (US$/month) Ratio of minimum wage to value added per worker 0.24 0.17 Source: Doing Business database. Doing Business 2015 Russian Federation 101 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. Moscow Saint Petersburg Rigidity of hours index Data Data 50-hour workweek allowed for 2 months a year in case of a seasonal Yes Yes increase in workload? Maximum working days per week 6.0 6.0 Premium for night work (% of hourly pay) 20% 20% Premium for work on weekly rest day (% of hourly pay) 100% 100% Major restrictions on night work? No No Major restrictions on weekly holiday? Yes Yes Paid annual leave for a worker with 1 year of tenure (in working days) 22.0 22.0 Paid annual leave for a worker with 5 years of tenure (in working days) 22.0 22.0 Paid annual leave for a worker with 10 years of tenure (in working 22.0 22.0 days) Paid annual leave (average for workers with 1, 5 and 10 years of tenure, 22.0 22.0 in working days) Source: Doing Business database. Doing Business 2015 Russian Federation 102 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 redundant workers; (v) priority rules apply for reemployment. Moscow Saint Petersburg Difficulty of redundancy index Data Data Maximum length of probationary period (months) 3.0 3.0 Dismissal due to redundancy allowed by law? Yes Yes Third-party notification if 1 worker is dismissed? Yes Yes Third-party approval if 1 worker is dismissed? No No Third-party notification if 9 workers are dismissed? Yes Yes Third-party approval if 9 workers are dismissed? No No Retraining or reassignment obligation before redundancy? Yes Yes Priority rules for redundancies? Yes Yes Priority rules for reemployment? No No Source: Doing Business database. Doing Business 2015 Russian Federation 103 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 and 1/3 weeks. Moscow Saint Petersburg Redundancy cost indicator (in salary weeks) Data Data Notice period for redundancy dismissal for a worker with 1 year of 8.7 8.7 tenure Notice period for redundancy dismissal for a worker with 5 years of 8.7 8.7 tenure Notice period for redundancy dismissal for a worker with 10 years of 8.7 8.7 tenure Notice period for redundancy dismissal (average for workers with 1, 5 8.7 8.7 and 10 years of tenure) Severance pay for redundancy dismissal for a worker with 1 year of 8.7 8.7 tenure Severance pay for redundancy dismissal for a worker with 5 years of 8.7 8.7 tenure Severance pay for redundancy dismissal for a worker with 10 years of 8.7 8.7 tenure Severance pay for redundancy dismissal (average for workers with 1, 5 8.7 8.7 and 10 years of tenure) Source: Doing Business database. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of unemployment protection schemes as well as data on whether employers are legally required to provide health insurance for employees with permanent contracts. Doing Business also assesses the mechanisms available to resolve labor disputes. More specifically, it collects data on what courts would be competent to hear labor disputes and whether the competent court is specialized in resolving labor disputes. Doing Business 2015 Russian Federation 104 Moscow Saint Petersburg Social protection schemes and benefits & Labor disputes indicator Data Data Availability of unemployment protection scheme? Yes Yes Health insurance existing for permanent employees? Yes Yes Availability of courts or court sections specializing in labor disputes? No No Source: Doing Business database. Doing Business 2015 Russian Federation 105 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components—yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in Doing Business . Thus Doing Business uses the simplest 6 calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 Russian Federation 106 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the components . threshold reduces the bias in the indicator toward 7 economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 Tokyo 65 2015 report). Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 Russian Federation correlations among indicators do not differ much. An alternative to the St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. Source: United Nations, Department of Economic and Social 7 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 Russian Federation 107 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 Russian Federation 108 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 10,700 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 Russian Federation 109