Doing Business 2016 Mexico 100788 Economy Profile 2016 Mexico Doing Business 2016 Mexico 2 © 2016 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 Some rights reserved 1 2 3 4 18 17 16 15 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 2016 Mexico 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 27 Getting electricity ....................................................................................................................... 47 Registering property .................................................................................................................. 60 Getting credit .............................................................................................................................. 80 Protecting minority investors ................................................................................................... 87 Paying taxes ................................................................................................................................ 93 Trading across borders .............................................................................................................. 98 Enforcing contracts .................................................................................................................. 106 Resolving insolvency ................................................................................................................ 115 Labor market regulation ......................................................................................................... 123 Distance to frontier and ease of doing business ranking .................................................... 129 Resources on the Doing Business website ............................................................................ 132 Doing Business 2016 Mexico 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is economies) for each indicator. The data in this report are for a local entrepreneur to open and run a small to current as of June 1, 2015 (except for the paying taxes medium-size business when complying with relevant indicators, which cover the period January–December regulations. It measures and tracks changes in 2014). regulations affecting 11 areas in the life cycle of a The Doing Business methodology has limitations. Other business: starting a business, dealing with construction areas important to business—such as an economy’s permits, getting electricity, registering property, getting proximity to large markets, the quality of its credit, protecting minority investors, paying taxes, infrastructure services (other than those related to trading across borders, enforcing contracts, resolving trading across borders and getting electricity), the insolvency and labor market regulation. Doing Business security of property from theft and looting, the 2016 does not present rankings of economies on labor transparency of government procurement, market regulation indicators or include the topic in the macroeconomic conditions or the underlying strength of aggregate distance to frontier score or ranking on the institutions—are not directly studied by Doing Business. ease of doing business. The indicators refer to a specific type of business, In a series of annual reports Doing Business presents generally a local limited liability company operating in quantitative indicators on business regulations and the the largest business city. Because standard assumptions protection of property rights that can be compared are used in the data collection, comparisons and across 189 economies, from Afghanistan to Zimbabwe, benchmarks are valid across economies. The data not over time. The data set covers 47 economies in Sub- only highlight the extent of obstacles to doing business; Saharan Africa, 32 in Latin America and the Caribbean, 25 they also help identify the source of those obstacles, in East Asia and the Pacific, 25 in Eastern Europe and supporting policy makers in designing regulatory reform. Central Asia, 20 in the Middle East and North Africa and More information is available in the full report. Doing 8 in South Asia, as well as 32 OECD high-income Business 2016 presents the indicators, analyzes their economies. The indicators are used to analyze economic relationship with economic outcomes and presents outcomes and identify what reforms have worked, where business regulatory reforms. The data, along with and why. information on ordering Doing Business 2016, are This economy profile presents the Doing Business available on the Doing Business website at indicators for Mexico. To allow useful comparison, it also http://www.doingbusiness.org. provides data for other selected economies (comparator Doing Business 2016 Mexico 5 CHANGES IN DOING BUSINESS 2016 As part of a two-year update in methodology, Doing The case study underlying the trading across borders Business 2016 expands the focus of five indicator sets indicators has been changed to increase its relevance. (dealing with construction permits, getting electricity, For each economy the export product and partner are registering property, enforcing contracts and labor now determined on the basis of the economy’s market regulation), substantially revises the comparative advantage, the import product is auto parts, methodology for one indicator set (trading across and the import partner is selected on the basis of which borders) and implements small updates to the economy has the highest trade value in that product. The methodology for another (protecting minority investors). indicators continue to measure the time and cost to export and import. The indicators on dealing with construction permits now include an index of the quality of building regulation and Beyond these changes there is one other update in its implementation. The getting electricity indicators now methodology, for the protecting minority investors include a measure of the price of electricity consumption indicators. A few points for the extent of shareholder and an index of the reliability of electricity supply and governance index have been fine-tuned, and the index transparency of tariffs. Starting this year, the registering now also measures aspects of the regulations applicable property indicators include an index of the quality of the to limited companies rather than privately held joint land administration system in each economy in addition stock companies. to the indicators on the number of procedures and the For more details on the changes, see the “What is time and cost to transfer property. And for enforcing changing in Doing Business?” chapter starting on page contracts an index of the quality and efficiency of judicial 27 of the Doing Business 2016 report. For more details processes has been added while the indicator on the on the data and methodology, please see the “Data number of procedures to enforce a contract has been Notes” chapter starting on page 119 of the Doing dropped. Business 2016 report. For more details on the distance to The scope of the labor market regulation indicator set frontier metric, please see the “Distance to frontier and has also been expanded, to include more areas capturing ease of doing business ranking” chapter in this profile. aspects of job quality. The labor market regulation indicators continue to be excluded from the aggregate distance to frontier score and ranking on the ease of doing business. Doing Business 2016 Mexico 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: Latin America & Caribbean based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Upper middle income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. Population: 123,799,215 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 9,980 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2016 rank: 38 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2015 rank: 42* 0 represents the worst performance and 100 the frontier. Change in rank: 4 (See the chapter on the distance to frontier and ease of doing business). DB 2016 DTF: 73.72 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2015 DTF: 72.15 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 1.57 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2015 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2015 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 119 of the Doing Business 2016 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2016: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in this year’s economy profile. Doing Business 2016 Mexico 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 2016 Mexico 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 Mexico and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2015 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 2016 Mexico 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Mexico (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Mexico (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2015 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. Doing Business 2016 Mexico 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, 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 over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Mexico 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. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. 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 119 of the Doing Business 2016 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2016 Mexico 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 Mexico Best performer globally Mexico City DB2016 Monterrey DB2016 Argentina DB2016 Mexico DB2016 Mexico DB2015 Indicator China DB2016 Brazil DB2016 Chile DB2016 DB2016 Starting a Business 65 63 -- -- 157 174 62 136 New Zealand (1) (rank) Starting a Business (DTF 88.94 88.85 88.86 89.32 73.36 64.33 89.84 77.46 New Zealand (99.96) Score) Procedures (number) 6.0 6.0 6.0 6.0 14.0 11.0 7.0 11.0 New Zealand (1.00)* Time (days) 6.3 6.3 6.0 8.0 25.0 83.0 5.5 31.4 New Zealand (0.50) Cost (% of income per 17.9 18.7 19.2 11.6 9.7 3.8 0.7 0.7 Slovenia (0.00) capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 2.3 0.0 0.0 0.0 105 Economies (0.00)* of income per capita) Dealing with Construction Permits 67 65 -- -- 173 169 24 176 Singapore (1) (rank) Dealing with Construction Permits 71.76 71.76 71.28 74.1 49.67 51.92 78.78 48.29 Singapore (92.97) (DTF Score) Procedures (number) 10.5 10.5 10.0 13.0 21.0 18.2 13.0 22.0 5 Economies (7.00)* Doing Business 2016 Mexico 12 Best performer globally Mexico City DB2016 Monterrey DB2016 Argentina DB2016 Mexico DB2016 Mexico DB2015 Indicator China DB2016 Brazil DB2016 Chile DB2016 DB2016 Time (days) 86.4 86.4 81.0 113.0 341.0 425.7 152.0 244.3 Singapore (26.00) Cost (% of warehouse 10.2 10.2 11.8 2.6 2.6 0.4 0.6 7.2 Qatar (0.00) value) Building quality control 11.7 11.7 12.0 10.0 10.0 9.4 13.0 9.0 New Zealand (15.00) index (0-15) Getting Electricity 72 76 -- -- 85 22 51 92 Korea, Rep. (1) (rank) Getting Electricity (DTF 73.27 70.64 71.83 80.29 70 85.5 79.71 68.66 Korea, Rep. (99.88) Score) Procedures (number) 6.8 6.8 7.0 6.0 6.0 4.0 6.0 5.5 14 Economies (3.00)* Time (days) 78.9 78.9 85.0 49.0 92.0 43.6 30.0 143.2 Korea, Rep. (18.00)* Cost (% of income per 332.9 346.1 353.8 231.2 24.9 28.6 76.8 413.3 Japan (0.00) capita) Reliability of supply and transparency of tariff 7.0 6.2 7.0 7.0 5.0 5.6 6.0 6.0 18 Economies (8.00)* index (0-8) Registering Property 106 105 -- -- 116 130 56 43 New Zealand (1) (rank) Registering Property 58.74 58.72 56.51 69.61 56.31 52.48 71.72 75.02 New Zealand (94.46) (DTF Score) Procedures (number) 6.8 6.8 7.0 6.0 7.0 13.6 6.0 4.0 4 Economies (1.00)* Time (days) 63.7 63.7 73.0 18.0 51.5 31.7 28.5 19.5 3 Economies (1.00)* Cost (% of property 5.1 5.1 5.4 3.5 6.6 3.1 1.2 3.4 Saudi Arabia (0.00) value) Quality of the land administration index (0- 14.3 14.3 14.0 15.5 13.0 13.6 15.0 17.0 3 Economies (28.50)* 30) Doing Business 2016 Mexico 13 Best performer globally Mexico City DB2016 Monterrey DB2016 Argentina DB2016 Mexico DB2016 Mexico DB2015 Indicator China DB2016 Brazil DB2016 Chile DB2016 DB2016 Getting Credit (rank) 5 12 -- -- 79 97 79 79 New Zealand (1) Getting Credit (DTF 90 80 90 90 50 45 50 50 New Zealand (100) Score) Strength of legal rights 10.0 8.0 10.0 10.0 2.0 2.0 4.0 4.0 3 Economies (12.00)* index (0-12) Depth of credit 8.0 8.0 8.0 8.0 8.0 7.0 6.0 6.0 26 Economies (8.00)* information index (0-8) Credit registry coverage 0.0 0.0 0.0 0.0 42.6 55.1 45.1 89.5 Portugal (100.00) (% of adults) Credit bureau coverage 22 Economies 100.0 100.0 100.0 100.0 100.0 79.0 11.2 0.0 (% of adults) (100.00)* Protecting Minority 57 54 -- -- 49 29 36 134 Singapore (1)* Investors (rank) Protecting Minority 58.33 58.33 58.33 58.33 60 65 63.33 43.33 Singapore (83.33)* Investors (DTF Score) Strength of minority investor protection 5.8 5.8 5.8 5.8 6.0 6.5 6.3 4.3 3 Economies (8.30)* index (0-10) Extent of conflict of interest regulation 6.0 6.0 6.0 6.0 5.0 5.7 7.0 5.0 Singapore (9.30)* index (0-10) Extent of shareholder governance index (0- 5.7 5.7 5.7 5.7 7.0 7.3 5.7 3.7 4 Economies (8.00)* 10) United Arab Emirates Paying Taxes (rank) 92 103 -- -- 170 178 33 132 (1)* Paying Taxes (DTF United Arab Emirates 73.67 71.17 73.67 73.67 44.99 40.85 84 64.46 Score) (99.44)* Payments (number per 6.0 6.0 6.0 6.0 9.0 9.6 7.0 9.0 Hong Kong SAR, Doing Business 2016 Mexico 14 Best performer globally Mexico City DB2016 Monterrey DB2016 Argentina DB2016 Mexico DB2016 Mexico DB2015 Indicator China DB2016 Brazil DB2016 Chile DB2016 DB2016 year) China (3.00)* Time (hours per year) 286.0 334.0 286.0 286.0 405.0 2,600.0 291.0 261.0 Luxembourg (55.00) Total tax rate (% of 51.7 51.8 51.7 51.7 137.4 69.2 28.9 67.8 Ireland (25.90) profit) Trading Across Borders 59 57 -- -- 143 145 63 96 Denmark (1)* (rank) Trading Across Borders 82.09 82.09 82.09 82.09 53 52.43 80.56 69.13 Denmark (100)* (DTF Score) Time to export: Border 20 20 20 20 21 49 60 26 15 Economies (0.00)* compliance (hours) Cost to export: Border 400 400 400 400 150 959 290 522 18 Economies (0.00)* compliance (USD) Time to export: Documentary 8 8 8 8 30 42 24 21 Jordan (0.00) compliance (hours) Cost to export: Documentary 60 60 60 60 60 226 50 85 20 Economies (0.00)* compliance (USD) Time to import: Border 44 44 44 44 300 63 54 92 19 Economies (0.00)* compliance (hours) Cost to import: Border 450 450 450 450 1,200 970 290 777 28 Economies (0.00)* compliance (USD) Time to import: Documentary 18 18 18 18 336 146 36 66 21 Economies (1.00)* compliance (hours) Cost to import: Documentary 100 100 100 100 120 107 50 171 30 Economies (0.00)* compliance (USD) Enforcing Contracts 41 41 -- -- 38 45 56 7 Singapore (1) Doing Business 2016 Mexico 15 Best performer globally Mexico City DB2016 Monterrey DB2016 Argentina DB2016 Mexico DB2016 Mexico DB2015 Indicator China DB2016 Brazil DB2016 Chile DB2016 DB2016 (rank) Enforcing Contracts 67.39 67.39 65.95 74.43 67.65 66.48 62.81 77.56 Singapore (84.91) (DTF Score) Time (days) 389.0 389.0 400.0 335.0 590.0 731.0 480.0 452.8 Singapore (150.00) Cost (% of claim) 30.9 30.9 31.0 30.4 22.5 20.7 28.6 16.2 Iceland (9.00) Quality of judicial 10.6 10.6 10.0 13.5 12.0 13.1 9.0 14.1 3 Economies (15.50)* processes index (0-18) Resolving Insolvency 28 26 -- -- 95 62 58 55 Finland (1) (rank) Resolving Insolvency 73.03 72.59 73.03 73.03 42.87 52.68 54.18 55.43 Finland (93.81) (DTF Score) Recovery rate (cents on 68.9 68.1 68.9 68.9 24.5 22.4 31.0 36.2 Japan (92.90) the dollar) Time (years) 1.8 1.8 1.8 1.8 2.8 4.0 3.2 1.7 Ireland (0.40) Cost (% of estate) 18.0 18.0 18.0 18.0 12.0 12.0 14.5 22.0 Norway (1.00) Outcome (0 as piecemeal sale and 1 as 1 1 1 1 0 1 0 0 going concern) Strength of insolvency 11.5 11.5 11.5 11.5 9.5 13.0 12.0 11.5 4 Economies (15.00)* framework index (0-16) Source: Doing Business database. Note: DB2015 rankings shown are not last year’s published rankings but comparable rankings for DB2015 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2016 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” mark if regulation exists but is never used in practice 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). Doing Business 2016 Mexico 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 records all procedures officially required, or commonly done in practice, for an Each procedure starts on a separate day (2 entrepreneur to start up and formally operate an procedures cannot start on the same day). industrial or commercial business, as well as the time Procedures that can be fully completed and cost to complete these procedures and the paid- online are recorded as ½ day. in minimum capital requirement. These procedures Procedure completed once final document is include obtaining all necessary licenses and permits received and completing any required notifications, verifications or inscriptions for the company and No prior contact with officials employees with relevant authorities. The ranking of Cost required to complete each procedure economies on the ease of starting a business is (% of income per capita) determined by sorting their distance to frontier scores for starting a business. These scores are the Official costs only, no bribes simple average of the distance to frontier scores for No professional fees unless services required each of the component indicators. by law or commonly used in practice To make the data comparable across economies, Paid-in minimum capital (% of income several assumptions about the business and the per capita) procedures are used. It is assumed that any required information is readily available and that the Deposited in a bank or with a notary before entrepreneur will pay no bribes. Assumptions about registration (or within 3 months) the business:  Is a limited liability company (or its legal  Has a start-up capital of 10 times income per equivalent), located in the largest business city capita and a turnover of at least 100 times 1 and is 100% domestically owned with five income per capita. owners, none of whom is a legal entity.  Has a company deed 10 pages long.  Has at least 10 and up to 50 employees, all of  Does not qualify for any special benefits. them domestic nationals.  Leases the commercial plant or offices and is not  Performs general commercial or industrial a proprietor of real estate. activities. 1 For 11 economies the data are also collected for the second largest business city. Doing Business 2016 Mexico 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Mexico? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 6.00 procedures, takes 6.30 days, average of the 2 largest business cities. See the chapter costs 17.90% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 0.00% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the Figure 2.1 What it takes to start a business in Mexico - Mexico City Paid-in minimum capital (% of income per capita): 0.00 Doing Business 2016 Mexico 18 What it takes to start a business in Mexico - Monterrey Source: Doing Business database. 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. Doing Business 2016 Mexico 19 STARTING A BUSINESS Globally, Mexico stands at 65 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Mexico to The rankings for comparator economies and the regional start a business. Figure 2.2 How Mexico and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2016 Mexico 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 Mexico (table 2.1)? Table 2.1 How has Mexico made starting a business easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Mexico launched an online one-stop shop for initiating DB2011 business registration. Mexico made starting a business easier by eliminating the DB2013 minimum capital requirement for limited liability companies. Source: Doing Business database. 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. Doing Business 2016 Mexico 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Mexico is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Sociedad Anónima (S.A.) - firm. These are identified by Doing Business through Corporation collaboration with relevant local professionals and the study of laws, regulations and publicly available Paid-in minimum capital requirement: MXN 1 information on business entry in that economy. City: Mexico City, Monterrey 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 Mexico - Mexico City Time to No. Procedure Cost to complete complete Obtain the authorization of using the company name online and file the draft deed of incorporation with the notary online The applicant can obtain the authorization of using the company name online from the website www.tuempresa.gob.mx and the Ministry of Economy will issue the corresponding authorization. After the authorization is given, the entrepreneur can choose the notary public Less than one day 1 that will grant the incorporation deed and then file online the draft of no charge (online procedure) incorporation deed together with the authorization issued by the Ministry of Economy. The notary public informs the entrepreneur by email of the appointment to sign the incorporation deed. Agency: Ministry of Economy (Secretaría de Economia) Sign the deed of incorporation before a notary public, obtain Tax Registry Number (RFC) and file online the deed of incorporation with the Public Register of Commerce If the notary public drafts or provides expert advice on the company bylaws, notary fees are generally high, from MXN 5,000 to MXN 11,000. MXN 10,500 (notary The company charter and bylaws must be drafted before appearing fees) + MXN 14,899 2 before a notary public. 2 days on average (registration fees) Certain notaries in Mexico City have signed an agreement with the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) (through the Sistema de Administración Tributaria, SAT) to grant the tax registration number. The notary who issues the tax registration number must also issue the deed of incorporation. The notary files the notarized deed of incorporation with the Public Registry Doing Business 2016 Mexico 22 Time to No. Procedure Cost to complete complete of Commerce through the online portal - tuempresa.gob.mx - and obtain the tax number online as well. It usually takes the notary 2-3 days to review the documents and process the final incorporation deed for execution by the relevant parties. Agency: Public Notary Register with the Mexican Social Security Institute (IMSS) In order to make this registration faster the company must file a pre- application on the website of the IMSS, and an appointment in order to register the company at the IMSS offices is generated, the website 1 day no charge 3 follows: http://www.imss.gob.mx/patrones/alta-patronal. Agency: Mexican Social Security Institute (IMSS) Register with the local tax administration (Secretaría de Finanzas del Gobierno del Distrito Federal) for payroll tax The company must register with the local tax administration after registering with the IMSS. The local office can be found at 4 www.finanzas.df.gob.mx. The tax registration number and the 1 day no charge company’s postal code are required to register. Agency: Ministry of Finance and Credit Notify the local government (Delegación) online of the opening of a mercantile establishment. The notice of opening a mercantile establishment is fully completed online through the website www.sedeco.df.gob.mx. For low risk Less than one day 5 no charge activities, the notification record is received automatically in an email. (online procedure) Agency: local tax administration Register with the National Business Information Registry (Sistema de Information Empresarial, SIEM) Mandatory registration with the National Business Information Registry (Sistema de Information Empresarial, SIEM) has been in effect since The costs can vary January 1997. The company will be registered with the specific chamber from MXN $100 to 6 1 day corresponding to its corporate purpose or activities. The cost varies MXN $670 with the number of employees and the company’s activities as shown below. Fees for industry related activities (maximum fees) -6 or more employees $ 670 Doing Business 2016 Mexico 23 Time to No. Procedure Cost to complete complete -3 to 5 employees $ 350 -Up to 2 employees $ 150 Fees for commercial and services related activities (maximum fees): -4 or more employees $ 640 -3 or less employees $ 300 -Up to 2 employees $ 100 The costs can vary from MXN $100 to MXN $670. Agency: Local Government Office or Delegation * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for starting a business in Mexico - Monterrey Time to No. Procedure Cost to complete complete Obtain the authorization of using the company name online and file the draft deed of incorporation with the notary online The entrepreneurs can check the availability and reserve the company name online through the website tuempresa.gob.mx with their Advanced Electronic Signature. Once the name is reserved and the entrepreneur selects the public broker or notary with whom the process will be completed and should visit her/him to draft the company charter. Less than one day 1 no charge This is a federal procedure regulated by the General Commercial Law, (online procedure) the Organic Law of the Federal Public Administration, the Foreign Investment Law and the Regulations for the Authorization of Use of Company Names. Agency: Ministry of Economy (Secretaría de Economia) Sign the deed of incorporation before a notary public, obtain Tax Registry Number (RFC) This procedure consists in the formalization of the company’s charter by the notary. Upon receipt of authorization regarding the company name, the notary proceeds to notify of the use of the corporate name and drafts the articles of incorporation in order to be duly signed by the 4 days MXN 8,500 2 partners. The founding partners must provide their general personal information and present their official identifications and their Tax IDs. Some notaries in the city signed an agreement with the Ministry of Finance through the Tax Administration Service (SAT) to obtain the certificate and register the company in the Federal Taxpayers Registry (RFC) through remote means. The process is legislated in Arts. 24 to 27 of the Regulations for the Authorization of Use of Company Names; Doing Business 2016 Mexico 24 Time to No. Procedure Cost to complete complete Arts. 5 and 6 of the General Corporations Law; Article 27 of the Fiscal Code of the Federation; Arts. 19 and 20 of the Regulations of the Fiscal Code of the Federation; and Rule II.2.3.1. of the Fiscal Miscellaneous Resolution. The notary fees vary between MXN 8,000 and MXN 14,000. Agency: Public Notary File online or in person the deed of incorporation with the Public Register of Commerce In order to publicize the act of incorporation, companies registered must file the deed of incorporation with the Public Registry of commerce The notary public is in charge of making the registration of the articles of incorporation at the Public Registry of Commerce whether in person or through remote electronic means. The following documents are required: (i) a duly notarized articles of incorporation (+ a copy) and (ii) a document certifying age above 18 years old. If the procedure is completed online the payment to the Registry is generated through Recaudanet (www.recuadanet.gob.mx ). Once it is paid the information is uploaded into the RIE system, the pre-coded Less than one day 3 MXN 6,369 forms are filled out with information included in the articles of (online procedure) incorporation, then they are sent to the Public Registry of Commerce and enrollment takes place immediately. If the procedure is completed online the payment to the Registry is generated through Recaudanet ( www.recuadanet.gob.mx ), once it is paid the information is uploaded into the RIE system, the pre-coded forms are filled out with information included in the articles of incorporation, then they are sent to the Public Registry of Commerce and enrollment takes place immediately. Agency: Public Registry of Commerce Register with the Mexican Social Security Institute (IMSS) This is a federal procedure that is performed to enroll at least one worker in Social Security. Information is available in person, by phone and on the agency’s website: http://www.imss.gob.mx/ The employer must file AFIL02 format. The application may be pre-submitted online and then visit the agency’s office where the entrepreneur will obtain his registry May be performed pre-internet high and then go to the IMSS 4 administrative sub-delegation where the employer and the record high 1 day no charge for at least one worker is obtained. The process is regulated by the Social Security Act and the Regulations of the Law on Social Insurance regarding Membership, Business Classification, Collection and Taxation. At the same time the company registers with the IMSS, registration at the National Worker’s Housing Fund Institute (INFONAVIT) takes place and individual retirement savings accounts for the employees (Afore) are opened. Doing Business 2016 Mexico 25 Time to No. Procedure Cost to complete complete Agency: Mexican Social Security Institute (IMSS) Register with the State Taxpayer Registry at the Ministry of Finance of the State of Nuevo León This procedure consists in registering the tax payer’s information at the State Registry to obtain an account to file the tax returns corresponding to the payroll tax (ISN). To complete the procedure, the user must have: a. State Registry Form (original and copy); b. Proof of fiscal residence, no older than one month (original and copy); c. Official current photo ID of the person concerned and her/his representative if applicable (original and copy); d . Articles of incorporation (copy); e . Proof of the identity of the legal representative, and where applicable the notarized power of attorney and a valid official identification with photograph of the representative (original and copy) ; f . Being a person or entity; g 1 day no charge 5 .Domicile or establishment located in the state of Nuevo León. Information about this procedure is available in person, by phone and on the agency’s website: http://www.nl.gob.mx/ The employer must go to the Taxpayers Registry, Lodging, Awards and ISAN window, and proceeded to register her/his data in the system and at the end is given an account number. The procedure is regulated by Arts. 154 and 155 of the Finance Act of the State of Nuevo León; and by the Agreement of Cooperation in Fiscal Federal Matters between Mexico’s Federal Ministry of Finance and the State of Nuevo León. Agency: Ministry of Finance Register with the National Business Information Registry (Sistema de Information Empresarial, SIEM) Mandatory registration with the National Business Information Registry (Sistema de Information Empresarial, SIEM) has been in effect since January 1997. The company will be registered with the specific chamber corresponding to its corporate purpose or activities. The cost varies with the number of employees and the company’s activities as shown below. The costs can vary Fees for industry related activities (maximum fees): 1 day from MXN $100 to 6 -6 or more employees $ 670 MXN $670 -3 to 5 employees $ 350 -Up to 2 employees $ 150 Fees for commercial and services related activities (maximum fees): -4 or more employees $ 640 -3 or less employees $ 300 -Up to 2 employees $ 100 The costs can vary from MXN $100 to MXN $670. Doing Business 2016 Mexico 26 Time to No. Procedure Cost to complete complete Agency: National Business Information Registry * 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 2016 Mexico 27 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 all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, this year Doing Business completion introduces a new measure, the building quality Time required to complete each procedure control index, evaluating the quality of building (calendar days) regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and Does not include time spent gathering professional certification requirements. information The ranking of economies on the ease of dealing with Each procedure starts on a separate day. Procedures that can be fully completed online construction permits is determined by sorting their are recorded as ½ day distance to frontier scores for dealing with construction permits. These scores are the simple Procedure considered completed once final average of the distance to frontier scores for each of document is received the component indicators. No prior contact with officials To make the data comparable across economies, Cost required to complete each procedure (% several assumptions about the construction of warehouse value) company, the warehouse project and the utility Official costs only, no bribes connections are used. Building quality control index (0-15) Assumptions about the construction company Sum of the scores of six component indices: The construction company (BuildCo): Quality of building regulations (0-2)  Is a limited liability company (or its legal equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business Quality control during construction (0-3) city. For 11 economies the data are also Quality control after construction (0-3) collected for the second largest business Liability and insurance regimes (0-2) city. Professional certifications (0-4)  Is 100% domestically and privately owned.  Has five owners, none of whom is a legal entity.  Is fully licensed and insured to carry out construction projects, such as building warehouses. Doing Business 2016 Mexico 28 The construction company (BuildCo) (continued):  Will be a new construction (there was no previous construction on the land), with no  Has 60 builders and other employees, all of trees, natural water sources, natural reserves them nationals with the technical expertise or historical monuments of any kind on the and professional experience necessary to plot. obtain construction permits and approvals.  Will have complete architectural and  Has at least one employee who is a technical plans prepared by a licensed licensed architect or engineer and architect. If preparation of the plans requires registered with the local association of such steps as obtaining further architects or engineers. BuildCo is not documentation or getting prior approvals assumed to have any other employees who from external agencies, these are counted as are technical or licensed experts, such as procedures. geological or topographical experts.  Will include all technical equipment required  Has paid all taxes and taken out all to be fully operational. necessary insurance applicable to its general business activity (for example,  Will take 30 weeks to construct (excluding all accidental insurance for construction delays due to administrative and regulatory workers and third-person liability). requirements).  Owns the land on which the warehouse will be built and will sell the warehouse upon Assumptions about the utility connections its completion. The water and sewerage connections:  Is valued at 50 times income per capita.  Will be 150 meters (492 feet) from the Assumptions about the warehouse existing water source and sewer tap. If there The warehouse: is no water delivery infrastructure in the economy, a borehole will be dug. If there is  Will be used for general storage activities, no sewerage infrastructure, a septic tank in such as storage of books or stationery. The the smallest size available will be installed or warehouse will not be used for any goods built. requiring special conditions, such as food, chemicals or pharmaceuticals.  Will not require water for fire protection reasons; a fire extinguishing system (dry  Will have two stories, both above ground, system) will be used instead. If a wet fire with a total constructed area of protection system is required by law, it is approximately 1,300.6 square meters assumed that the water demand specified (14,000 square feet). Each floor will be 3 below also covers the water needed for fire meters (9 feet, 10 inches) high. protection.  Will have road access and be located in the  Will have an average water use of 662 liters periurban area of the economy’s largest (175 gallons) a day and an average business city (that is, on the fringes of the wastewater flow of 568 liters (150 gallons) a city but still within its official limits). For 11 day. Will have a peak water use of 1,325 liters economies the data are also collected for (350 gallons) a day and a peak wastewater the second largest business city. flow of 1,136 liters (300 gallons) a day.  Will not be located in a special economic  Will have a constant level of water demand or industrial zone. Will be located on a land and wastewater flow throughout the year. plot of approximately 929 square meters (10,000 square feet) that is 100% owned by  Will be 1 inch in diameter for the water BuildCo and is accurately registered in the connection and 4 inches in diameter for the cadastre and land registry. sewerage connection. Doing Business 2016 Mexico 29 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 Mexico? According to data collected by which the data are a population-weighted average of the Doing Business, dealing with construction permits there 2 largest business cities. See the chapter on distance to requires 10.50 procedures, takes 86.40 days and costs frontier and ease of doing business ranking at the end of 10.20% of the warehouse value (figure 3.1). Most this profile for more details. 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 Mexico - Mexico City Doing Business 2016 Mexico 30 What it takes to comply with formalities to build a warehouse in Mexico - Monterrey Source: Doing Business database. 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. . Doing Business 2016 Mexico 31 DEALING WITH CONSTRUCTION PERMITS Globally, Mexico stands at 67 in the ranking of 189 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Mexico to legally build a warehouse. Figure 3.2 How Mexico and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2016 Mexico 32 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Mexico (table 3.1)? Table 3.1 How has Mexico made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Mexico made dealing with construction permits faster by DB2012 consolidating internal administrative procedures. Source: Doing Business database. 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. Doing Business 2016 Mexico 33 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Mexico are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction MXN 6,700,685 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Mexico City, Monterrey service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. 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 Mexico - Mexico City Time to No. Procedure Cost to complete complete Request and obtain the alignment certificate (alineamiento) and official number (número official) The relevant agencies for this procedure are the Delegational One-Stop Shop (Ventanilla Única Delegacional), the Urban Development and Housing Ministry (Secretaría de Desarrollo Urbano y Vivienda), and the Federal District Department (Gobierno del Distrito Federal). Either a simple original copy or a certified one is acceptable. For the official number, the Federal District Department will assign a single official number for each property, at the request of the interested party, that has a front facing the public pathway. For the official alignment, the plot across the land indicates the restrictions or expropriation lines to be respected in the interaction between the property and the public pathway. Obtaining the single zoning certificate stating specific land use 1 and feasibility is required. 11 days MXN 1,080 The following documents must be submitted: • Proof of payment of applicable real estate taxes (copy) • Public deed certifying property or title ownership (original and copy) • Payment of all fees • Application form (original) • Identification of the person completing the procedure and document certifying the respective identity (original and copy) Payment is made the same day when the certificate is requested. At the same time, a date is set for the taxpayer to return to receive the certificate, generally within 3 or 4 working days. The certificate is valid for 2 years. The cost is established by the Financial Code of the Federal District, Articles 233 and 234. The official cost, as amended in Doing Business 2016 Mexico 34 Time to No. Procedure Cost to complete complete December 2014, is the sum of the alignment at MXN 37.24 per linear meter in the front of the building, plus a general fee for the official number at MXN 242.30. In this case, the front of the building is assumed to be 22.5 meters, so the total cost would be MXN 1,080.20 (= 37.24 x 22.5 m+242.30) . The official time limit is 8 days, but in practice, the process can take 1 -- 2 weeks. Agency: Delegational One-Stop Shop (Ventanilla Única Delegacional), Urban Development and Housing Ministry (Secretaría de Desarrollo Urbano y Vivienda), and Federal District Department (Gobierno del Distrito Federal) Request and obtain single zoning certificate stating specific land use and feasibility At this stage, BuildCo obtains the document that certifies whether a specific use of a given building is authorized. The Financial Code of the Federal District, Article 235, Section III, was amended in December 2014. 12 days MXN 1,296 2 Agency: Subdirección de Ventanilla Única of the Secretaría de Desarrollo Urbano y Vivienda attached to the Dirección del Registro de los Planes y Programas de Desarrollo Urbano of the Dirección General de Desarrollo Urbano Request and obtain a water feasibility study This certificate reflects the technical opinion of the competent administrative units and indicates whether water supply and sewage and rainwater drainage services are feasible. This 3 procedure precedes the application for drinking water supply. 12 days no charge Agency: Sistema de Aguas de la Ciudad de México Register Construction Statement Type B Construction Statement Type B applies to nonresidential or mixed uses of up to 5,000 square meters or up to 10,000 square meters for residential use or for single-family dwelling units within a risk zone. 4 The following documents must be submitted: 1 day MXN 788,549 • Valid alignment certificate and official number (simple original copy or certified one) • Single zoning certificate for specific land use and feasibility (simple original copy or certified copy for collation) • Four copies of the architectural project for the construction work on duly outlined scale maps and containing all specifications regarding materials, finishes, and equipment to be Doing Business 2016 Mexico 35 Time to No. Procedure Cost to complete complete used, signed by the owner, the director responsible for the construction work, and the co-responsible party for urban and architectural design and installations, as the case may be • Project descriptive report • Calculation report • Registration and identification card of the director responsible for the construction work and the co-responsible party for structural safety, urban and architectural design, and installations as appropriate (simple original copy or certified copy for collation) • Two copies of the structural design signed by the director responsible for the construction work and the co-responsible party for structural safety • Proof of payment of improvement taxes for potable water and sewerage works provided by the Federal District Department and license issuance fees if the application is required (simple original copy or certified copy for collation). Because the building considered here requires installation or modification of the water main and hook-up to the sewage system, the application and proof of payment of the corresponding fees are attached. After registration of the construction statement, the one-stop shop (Ventanilla Única Delegacional) reviews the submitted data and documents and verifies the progress of the construction work under the terms stated in the Administrative Verification Rules (Reglamento de Verificación Administrativa) for the Federal District. The director responsible for the construction work undertakes to post a signboard showing the registration number in the construction work statement and the general construction work data, including the location and statement validity. The signboard must be posted in a visible place and legible from the public pathway. The validity of the statement (for construction work completion) is as follows: • Up to 300 square meters: 1 year • 300 -- 1,000 square meters: 2 years • More than 1,000 square meters: 3 years The cost breakdown for obtaining the building permit is the following: • Register: MXN 545.50 (DF Tax Code 2015 Article 185, Sec. B, fr. I, p.a) • Analysis: MXN 79.53 x 1,300.6 m2 = MXN 103,436.71 (DF Tax Code 2015 Article 185, Sec. B, fr. I, p.b) • Compensations for the Environment: MXN 42.10 x 1300.6 m2 = 54,755.26 MXN (DF Tax Code 2015 Article 300) • Compensations for road impact: MXN 121.50 x 1300.6 m2 = 158,022.9 MXN (DF Tax Code 2015 Article 301) • Rights for new water and sewage connection: MXN 306.68 x 1300.6 m2= 398,868 MXN (DF Tax Code 2015 Article 302) TOTAL= 715,628.39 MXN Doing Business 2016 Mexico 36 Time to No. Procedure Cost to complete complete The cost breakdown for water and sewage: A) Services of Hydraulic Construction and Operation (Art. 181) • Water Connection: MXN 13,924.20 (DF Tax Code Article 181, Section A, fr. I, p. c) • Water measurer device: MXN 6,986.34 (DF Tax Code Article 181, Section A, fr. III, p. c) • "Armado de Cuadro": MXN 1,461.50 (DF Tax Code Article 181, Section A, fr. IV, p. c) • Sewage Connection: MXN 9,428.22 (DF Tax Code, Article 181, Section B, fr. I, p. a) (Escogemos terreno tipo I y II) B) Authorization to use the Water and Sewage Network (Art. 182) • Technical assessment: MXN 39,908.58 (DF Tax Code, Article 182, fr. I, p. 2) • Water pipes usage fee: MXN 1,211.85 (DF Tax Code, Article 182, fr. III) TOTAL = 72,920.69 Thus, the total cost to Register Construction Statement Type B based on "Codigo Fiscal del Distrito Federal" amended in December 2014 is the following: MXN 715,628.39 + MXN 72,920.69 = MXN 788,549.08 The cost for the water connection includes the installation of the main pipeline, board, and meter. The cost to connect to water and sewage services are included in this procedure since the proof of payment of such fees are needed to request connection to these utility services (procedure 10). The cost is established by the Financial Code of the Federal District. Agency: Ventanilla Única Delegacional Notify the Municipal Authority upon completion of construction work The notification of completion is made in writing once the construction has been completed. Once notified, inspectors may 5 visit the location within a week to verify the construction is in 1 day no charge compliance with all applicable regulation. Agency: Municipality Receive inspection upon completion of construction work from Directorate of General Works 6 1 day no charge Agency: Directorate of General Works (Municipality) Doing Business 2016 Mexico 37 Time to No. Procedure Cost to complete complete Request and obtain occupancy clearance Building use clearance is granted by the one-stop shop. 7 6 days no charge Agency: Delegational One-Stop Shop Request and obtain authorization from civil protection An inspection from the civil protection agency (Secretaria de Protección Civil) will not be necessary -- only for more complex installations. After the form and the emergency plan are filed, 7 days no charge 8 the civil protection agency will issue a certificate within 7 days. Agency: Secretaria de Protección Civil Request and connect to water and sewage services 9 30 days no charge Agency: Sistema de Aguas de la Ciudad de México * Update the building record at the Tax Ministry The time and cost of updating the building record are established by the Financial Code of the Federal District, Article 217. The building is not actually registered with the Property Registry. Once built, a cadastral actualization document (manifestacion de actualisacion del valor cadastral) is filed for tax purposes with the Tax Ministry. The information in the new deed is updated only when the property (with the building included) is 10 sold. In Mexico, the owner of the land is automatically the owner 1 day no charge of the building unless otherwise specified. Only in cases where the owner of the building and the owner of the property are two different people would the building be registered. Agency: Tax Ministry * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for dealing with construction permits in Mexico - Monterrey Time to No. Procedure Cost to complete complete Obtain feasibility of zoning certificate (uso de suelo) in the Secretariat for Urban Development and Ecology 1 5 days MXN 140 The zoning certificate provides information on the type of constructions that are allowed on the land. Doing Business 2016 Mexico 38 Time to No. Procedure Cost to complete complete The following documents must be provided: a. Feasibility application for urbanizing the land (original) b. Property title (1 copy) c. A document certifying the legal status of the applicant: d. Incorporation charter registered with the relevant authority (1 copy) e. Power of Attorney (1 copy) f. Official identification of owner and agent (1 copy) g. Updated proof of payment of the property tax (1 copy) h. Location plan of the property i. Payment of the corresponding fees In areas considered high risk, a geophysical, geological and hydrological study done by a registered expert may also be requested. The procedure is legislated in Arts. 140 and 143 of the Zoning and Land Use Regulations of the City of Monterrey, Nuevo León. The basis of the cost is Art. BIS-52, Section I of the Finance Act for the Municipalities of Nuevo León. Agency: Secretariat for Urban Development and Ecology Receive civil protection authorization from the Department of Civil Protection at the Secretariat for Urban Development and Ecology (SEDUE) This consists of the verification that the premises comply with the security measures and minimum standards of protection to prevent civil contingencies when in operation. The following documents must be provided: a. Official identification of the legal representative; b. 2 copies of the architectural plan; 8 days no charge 2 c. Proof of payment of the property taxes; d. Photograph of the land; e. Constitutive Act. The procedure is legislated in Art. 12, Section XXVI of the Civil Protection Rules of the City of Monterrey, and Art. 26, Section XXI of the Civil Protection Code of the State of Nuevo León. Agency: Department of Civil Protection * Obtain alignment certificate (alineamiento vial) from the Secretariat for Urban Development and Ecology The certificate of alignment is issued by the Secretariat for Urban 3 Development and Ecology to provide the exact limit of the private 5 days MXN 105 property in regards to public roads. The following documents must be provided: a. Document proving ownership; Doing Business 2016 Mexico 39 Time to No. Procedure Cost to complete complete b. Official identification of the legal representative; c. Proof of property taxes paid; d. Plan of the location of the property The procedure is legislated in Art. Regulation 73 of the Zoning and Land Use Rules of the City of Monterrey, Nuevo León. The basis of the cost is in Art. 52-BIS, Section IX of the Finance Act for the Municipalities of Nuevo León. Agency: Secretariat for Urban Development and Ecology Request zoning certificate, building use license, official number and construction license from the Secretariat for Urban Development and Ecology 4 1 day no charge Agency: Secretariat for Urban Development and Ecology Receive inspection prior to issuing of construction license by the Secretariat for Urban Development and Ecology Prior to the issuance of the building permit, there is a site visit to verify the conditions of the property. The inspection is scheduled at the time of the application for licenses of land use, building use and construction. 5 1 day no charge The procedure is legislated in Art. 351 of the Law of Urban Development of the State of Nuevo Leon. Agency: Secretariat for Urban Development and Ecology Receive zoning certificate, building use license, official number and construction license from the Secretariat for Urban Development and Ecology Through a unique form issued by the City of Monterrey, the official number that corresponds to the property is provided, in addition to the permitted and prohibited uses at the site. The authorization of the construction of a new building on the premises is also provided. 6 The following documents must be presented: 40 days MXN 52,416 a. Application form; b. Document proving ownership; c. Proof of payment of property tax; d. Professional license and responsive letter signed by the DRO; e. 4 photographs of the exterior of the property; f. Drawings of the draft; g. Architectural plans of the project in physical and AutoCAD 2004 format; Doing Business 2016 Mexico 40 Time to No. Procedure Cost to complete complete h. Evidence of alignment; i. Soil mechanics and technical report of the proyect; j. Policy of liability insurance; k. Approval of Municipal Civil Protection; l. Proof of payment of fees. The customer must go to the Dirección de Control Urbano to complete the procedure from Monday to Friday between 8:00 am to 2:00 pm. The procedure is legislated in Art. 11 of the Zoning and Land Use Rules of the Municipality of Monterrey, Nuevo Leon and Arts. 17 and 20 of the Building Rules of the City of Monterrey, Nuevo León. The basis of the cost is in Art. 52, Section I, Subsection A, Art. 52- BIS, Section II, Paragraph E, Section III, Paragraph E and Art. 55 of the Finance Act for the Municipalities of the State of Nuevo León. Agency: Secretariat for Urban Development and Ecology Update the cadastral registry BuildCo must update the cadastral information of the property (surface and value) before beginning construction. The following documents must be presented: a. Application form b. Official property plan approved by the municipal authority c. Proof of payment of the property tax d. Land use license e. Title deed f. Power of attorney of the legal representative g. Identification document of the person submitting the 7 application 6 days MXN 33,503 h. Payment of the corresponding fees The procedure is regulated in Arts. 9, 22, and 31 bis 1 of the Cadastral Law of the State of Nuevo León and Arts. 12, 14, 25, 26, 29, 31 and 21 of the regulations of the Cadastral Law of the State of Nuevo León. The cost is regulated by Art. 277, Section V of the Finance Law of the State of Nuevo León. Agency: Municipal Treasury Request and obtain feasibility study for water and drainage services from the Water and Drainage Services of Monterrey (SADM) 8 It is the process that confirms the possibility of providing a potable 21 days no charge water and sewer service connection in a certain area of the city. To perform the procedure, BuildCo must have: a. Unique form to request the service; Doing Business 2016 Mexico 41 Time to No. Procedure Cost to complete complete b. Sketch of the location. BuildCo must visit any commercial office the SADM at the Costumer Service Section and request the feasibility to contract the service. The procedure is legislated in Art. 42 of the Finance Act for the Municipalities of Nuevo León. Agency: Water and Drainage Services of Monterrey (SADM) Obtain excavation permit from the Secretariat of Public Services (Technical Department, Permit Coordination) This permit allows BuildCo to conduct any excavation of the road to install the pipes. The pavement must be repaired to its initial status after the completion of the work. To obtain the permit, BuildCo must submit: a. Communication addressed to the Technical Director; b. Proof of payment of property tax; c. Copy of the constitution; d. Official identification of the legal representative; e. Work project; f. Work program; 5 days MXN 52,575 9 g. Copy of professional license and identification of the DRO; h. Payment of fees; i. Escrow; j. Feasibility of water and drainage. The procedure is legislated in Art. 37 of the Building Code of the City of Monterrey, Nuevo León. The basis of the cost is in the Art. 52, Section III of the Finance Act for the Municipalities of Nuevo León. Agency: Secretariat of Public Services (Technical Department, Permit Coordination) Request and connect to water and drainage services at the Water and Drainage Services of Monterrey (SADM) BuildCo must submit the following: a. Document proving ownership; b. Official identification of the legal representative; c. Articles of incorporation; d. Land use permit; 21 days MXN 37,928 10 e. Building permit; f. Registration of wastewater discharge; g. Architectural plan. The procedure is legislated in Art. 42 of the Finance Act for the Municipalities of Nuevo Leon and Art. 31 of the Building Code of the City of Monterrey, Nuevo León. The basis of the cost is in the Second Agreement, Title Services Water and Sewerage of Monterrey, IPD Meter Doing Business 2016 Mexico 42 Time to No. Procedure Cost to complete complete Installation Fees for Connection and Service Standards Reinstalling Meter; Official Gazette no. 147. The cost is calculated as follows: [MXN 17688.40 for the infrastructure contribution] + [MXN 9,140 for water connection] + [MXN 9,350 for drain connection] + [MXN 1,750 for the meter and installation]. It is assumed that the average water need is 662 liters/day and the average wastewater flow is 568 liters/day. A diameter of 1 inch for the drinking water connection and 4 inches for the drain connection are also assumed. Connection costs include labor, materials and costs of repaving. Agency: Water and Drainage Services of Monterrey (SADM) Submit completion of construction work report (oficio de obra terminada) and request stamp by the Secretariat for Urban Development and Ecology BuildCo or the Responsible of Construction works (Responsable de Obra) must provide a final report to the Secretariat for Urban Development and Ecology which certifies that the construction work was executed under his supervision, complying with the rules and following what was authorized. BuildCo or the Responsible of Construction Works must submit the following: a. Application form; b. Proof of payment of property tax; c. Responsive letter and copy of the professional license of the DRO; 1 day no charge 11 d. 2 original and 1 copy of the flat plane of history; e. Approval of civil protection; f. Articles of incorporation. g. Approved building license Payment is then made to obtain the stamp. The procedure is legislated in Art. 123 of the Building Code the City of Monterrey, Nuevo León. Moreover the obligations corresponding to the "Responsable de Obra" can be found in Art. 12 of the Building Code Agency: Secretariat for Urban Development and Ecology Receive final inspection from the Secretariat for Urban Development and Ecology A final inspection is carried out to verify that the warehouse has been built in accordance with the regulations and the approved plans. The 1 day no charge 12 inspection is scheduled at the time of the notification of the completion of the construction. The procedure is legislated in Art. 351 of the Urban Development Law of the State of Nuevo Leon. Doing Business 2016 Mexico 43 Time to No. Procedure Cost to complete complete Agency: Secretariat for Urban Development and Ecology Obtain certificate of completion of construction work from the Secretariat for Urban Development and Ecology Once the final report is revised and the appropriate fees are paid, the Secretariat for Urban Development and Ecology will issue the certificate of completion, certifying that the warehouse is built in accordance with existing regulations and approved plans. 13 3 days MXN 175 The procedure is legislated in Art. 123 of the Building Code of the City of Monterrey, Nuevo León. The basis of the cost is in Art. 52-BIS, Section VIII of the Finance Act for the Municipalities of Nuevo León. Agency: Secretariat for Urban Development and Ecology * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. . Doing Business 2016 Mexico 44 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Source: Doing Business database. Table 3.3 Summary of time quality control and safety mechanisms in Mexico Answer Score Answer Score (Mexico (Mexico (Monterrey) (Monterrey) City) City) Building quality control index (0-15) 12.00 10.00 Quality of building regulations index (0-2) 2.00 2.00 In what way are the building regulations (including the Available 1.0 Available building code) or any regulations dealing with online. 1.0 online. construction permits made available? (0-1) List of 1.0 List of required required documents; Which requirements for obtaining a building permit are documents; Fees to be clearly specified by the building regulations or by any Fees to be 1.0 paid; accessible website, brochure or pamphlet? (0-1) paid; Required Required preapproval preapprovals. s. Quality control before construction index (0-1) 1.00 1.00 Licensed 1.0 Licensed Who is part of the committee or team that reviews and architect; architect; approves building permit applications in the relevant 1.0 Licensed Licensed permit-issuing agency? (0-1) engineer. engineer. Quality control during construction index (0-3) 2.00 2.00 Inspections 1.0 Inspections by What types of inspections (if any) are required by law to by in-house in-house 1.0 be carried out during construction? (0-2) engineer. engineer. Mandatory 1.0 Mandatory inspections inspections Do legally mandated inspections occur in practice during are always are always 1.0 construction? (0-1) done in done in practice. practice. Quality control after construction index (0-3) 2.00 3.00 Doing Business 2016 Mexico 45 Answer Score Answer Score (Mexico (Mexico (Monterrey) (Monterrey) City) City) Yes, final 2.0 Yes, final inspection inspection is is done by done by government government Is there a final inspection required by law to verify that agency. agency; Yes, the building was built in accordance with the approved in-house 2.0 plans and regulations? (0-2) engineer submits report for final inspection. Final 0.0 Final Do legally mandated final inspections occur in practice? inspection inspection 1.0 (0-1) occurs most always occurs of the time. in practice. Liability and insurance regimes index (0-2) 1.00 2.00 Professional 1.0 Architect or in charge of engineer; the Professional supervision; in charge of Which parties (if any) are held liable by law for structural Constructio the 1.0 flaws or problems in the building once it is in use? (0-1) n company; supervision; Owner or Construction investor. company; Owner or investor. No party is 0.0 Which parties (if any) are required by law to obtain an required by Owner or insurance policy to cover possible structural flaws or law to 1.0 investor. problems in the building once it is in use? (0-1) obtain insurance . Professional certifications index (0-4) 4.00 0.00 Minimum 2.0 number of years of experience; University degree in University What are the qualification requirements for the architecture degree in professional responsible for verifying that the or architecture 0.0 architectural plans or drawings are in compliance with engineering or existing building regulations? (0-2) ; Being a engineering. registered architect or engineer; Passing a certification Doing Business 2016 Mexico 46 Answer Score Answer Score (Mexico (Mexico (Monterrey) (Monterrey) City) City) exam. Minimum 2.0 number of years of experience; University degree in engineering University , degree in constructio What are the qualification requirements for the engineering, n or professional who supervises the construction on the construction 0.0 constructio ground? (0-2) or n construction manageme management. nt; Being a registered architect or engineer; Passing a certification exam. Source: Doing Business database. Doing Business 2016 Mexico 47 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 connection a customer is always to gain access by obtaining a (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. In obtaining final supply addition, this year Doing Business adds two new measures: the reliability of supply and transparency Time required to complete each procedure of tariffs index (included in the aggregate distance to (calendar days) frontier score and ranking on the ease of doing Is at least 1 calendar day business) and the price of electricity (omitted from these aggregate measures). The ranking of Each procedure starts on a separate day economies on the ease of getting electricity is Does not include time spent gathering determined by sorting their distance to frontier information scores for getting electricity. These scores are the Reflects the time spent in practice, with little simple average of the distance to frontier scores for follow-up and no prior contact with officials each of the component indicators. To make the data comparable across economies, several assumptions Cost required to complete each procedure (% are used. of income per capita) Assumptions about the warehouse Official costs only, no bribes The warehouse: Excludes value added tax  Is owned by a local entrepreneur. The reliability of supply and transparency of tariffs index  Is located in the economy’s largest business city. For 11 economies the data Sum of the scores of six component indices: are also collected for the second largest Duration and frequency of outages business city. Tools to monitor power outages  Is located in an area where similar warehouses are typically located. In this Tools to restore power supply area a new electricity connection is not Regulatory monitoring of utilities’ performance eligible for a special investment promotion Financial deterrents aimed at limiting outages regime (offering special subsidization or faster service, for example). Transparency and accessibility of tariffs  Is located in an area with no physical Price of electricity (cents per kilowatt-hour)* constraints. For example, the property is Price based on monthly bill for commercial not near a railway. warehouse in case study  Is a new construction and is being *Price of electricity is not included in the calculation of connected to electricity for the first time. distance to frontier nor ease of doing business ranking Doing Business 2016 Mexico 48 The warehouse (continued): Assumptions about the monthly consumption  Has two stories, both above ground, with a  It is assumed that the warehouse operates 8 total surface area of approximately 1,300.6 hours a day for 30 days a month, with square meters (14,000 square feet). The equipment utilized at 80% of capacity on plot of land on which it is built is 929 average, and that there are no electricity cuts square meters (10,000 square feet). (assumed for simplicity). The subscribed capacity of the warehouse is 140 kVA, with a  Is used for storage of goods. power factor of 1 (1 kVA = 1 kW). The monthly energy consumption is therefore Assumptions about the electricity connection 26,880 kWh, and the hourly consumption 112 kWh (26,880 kWh/30 days/8 hours). The electricity connection:  If multiple electricity suppliers exist, the  Is a permanent one. warehouse is served by the cheapest supplier.  Is a three-phase, four-wire Y, 140-kilovolt-  Tariffs effective in March of the current year ampere (kVA) (subscribed capacity) are used for calculation of the price of connection (where the voltage is 120/208 electricity for the warehouse. V, the current would be 400 amperes; where it is 230/400 B, the current would be nearly 200 amperes).  Is 150 meters long. The connection is to either the low-voltage or the medium- voltage distribution network and either overhead or underground, whichever is more common in the area where the warehouse is located.  Requires works that involve the crossing of a 10-meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Will supply monthly electricity consumption of 26,880 kilowatt-hours (kWh).  Does not involve work to install the internal electrical wiring. This has already been completed, up to and including the customer’s service panel or switchboard and installation of the meter base. Doing Business 2016 Mexico 49 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection business city of an economy, except for 11 economies for in Mexico? According to data collected by Doing which the data are a population-weighted average of the Business, getting electricity there requires 6.80 2 largest business cities. See the chapter on distance to procedures, takes 78.90 days and costs 332.90% of frontier and ease of doing business ranking at the end of income per capita (figure 4.1). this profile for more details. Most indicator sets refer to a case scenario in the largest Figure 4.1 What it takes to obtain an electricity connection in Mexico - Mexico City What it takes to obtain an electricity connection in Mexico - Monterrey Doing Business 2016 Mexico 50 Source: Doing Business database. 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. Doing Business 2016 Mexico 51 GETTING ELECTRICITY Globally, Mexico stands at 72 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Mexico to connect a The rankings for comparator economies and the regional warehouse to electricity. Figure 4.2 How Mexico and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2016 Mexico 52 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 Mexico practices and internal wiring installations. In an effort to (table 4.1)? Table 4.1 How has Mexico made getting electricity easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform In Mexico the distribution utility made getting electricity easier by streamlining procedures, offering training opportunities to DB2013 private contractors, using a geographic information system (GIS) to map the electricity distribution network and increasing the stock of materials. Mexico made getting electricity easier by increasing the efficiency of the utility’s internal processes and by enforcing a DB2014 “silence is consent” rule for the approval of the feasibility study for a new connection. Source: Doing Business database. Doing Business 2016 Mexico 53 GETTING ELECTRICITY What are the details? The indicators reported here for Mexico are based on a OBTAINING AN ELECTRICITY CONNECTION* 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 Mexico City: CFE distribution utility, then completed and verified by electricity regulatory agencies and independent Name of utility - Comisión Federal de professionals such as electrical engineers, electrical Monterrey: Electricidad (CFE) contractors and construction companies. The electricity distribution utility surveyed is the one serving the area Price of electricity (or areas) in which warehouses are located. If there is a (US cents per kWh) - 15 choice of distribution utilities, the one serving the largest Mexico City: number of customers is selected. Price of electricity The procedures are those that apply to a warehouse and (US cents per kWh) - 10 electricity connection matching the standard Monterrey: 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 City: Mexico City, Monterrey associated time and cost, are summarized below. *Price is calculated as a monthly consumption of 26,880 kWh for business customers, based on a standardized case study adopted by the Getting Electricity methodology. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. Table 4.2 Summary of time, cost and procedures for getting electricity in Mexico Time to No. Procedure Cost to complete complete Request feasibility study from CFE The client request a feasibility study to the Comisión Federal de Electricidad (CFE). The energy demand and a sketch of the localization of the warehouse are requested by the CFE. 1 5 calendar days MXN 0 Agency: Comisión Federal de Electricidad (CFE) Doing Business 2016 Mexico 54 Time to No. Procedure Cost to complete complete Hire electrical contractor to design connection and submit plans to CFE for approval Once the feasibility of the project has been confirmed by Comisión Federal de Electricidad (CFE), the clients electrical contractor obtains the design specifications from CFE, prepares the design of the electrical 26 calendar days MXN 0 2 works needed to carry out the connection on the basis of these specifications and awaits approval of the plans from CFE. Agency: Comisión Federal de Electricidad (CFE) * Receive technical inspection by CFE for design approval This external inspection is necessary to validate the design of the connection works. 1 calendar day MXN 0 3 Agency: Comisión Federal de Electricidad (CFE) Obtain permit from municipality for external works The customer or the electrical contractor obtains the authorization from the municipality to carry out the connection works in public land. 30 calendar days MXN 2,445 4 Agency: Municipality Await completion of external works by electrical contractor The installation of the transformer substation and the external connection works are the responsibility of the customer, who can choose 5 to hire a private contractor to do the works. 20 calendar days MXN 441,500 Agency: Comisión Federal de Electricidad (CFE) * Obtain approval of internal wiring installation from specialized firm The monitoring of the internal wiring installations is done by a specialized firm (Unidad de Verificación de Instalaciones Eléctricas ) which is responsible for checking that the wiring was done according to 6 Mexican standards. 2 calendar days MXN 25,000 The applicant must go to a Unidad de Verificación de Instalaciones Eléctricas (UVIE), accredited with the Entidad Mexicana de Acreditamiento (EMA) and registered with the Ministry of Energy (Secretaria de Energia). The firm will verify that the electrical installation meets the safety standards established in NOM-001-SEDE 2012; the UVIE Doing Business 2016 Mexico 55 Time to No. Procedure Cost to complete complete also oversees the external work that is performed by the client (construction of the electrical substation). A certificate issued at the end of the inspection is needed by the time the supply contract is signed. This procedure may be performed simultaneously with other procedures. The costs associated with this procedure are determined by the Unidad Verificadora and the applicant. If the wiring is done within the provisions of the Mexican Standards, usually one inspection is sufficient to issue the approval (Dictamen de Verificación), but if the applicant did not perform its electrical work within the rules, then the Unidad Verificadora must make several visits to ensure that the wiring corresponds to the standards. Link to http://www.sener.gob.mx/webSener/portal/index.jsp?id=120 Agency: Empresa privada Sign supply contract, pay security deposit and await meter installation by CFE At the signing of the contract for providing electrical service connection the certificate of verification for the internal wiring installation must be submitted. The process of signing the supply contract is done after the security deposit has been paid for. Payment is made at the offices of the company. It is possible to settle the security deposit with a bank 4 calendar days MXN 5,191.48 7 guarantee. The meter installation is done by the Área comercial which coordinates with the Departamento de Distribuccion. Agency: Comisión Federal de Electricidad (CFE) * Takes place simultaneously with another procedure. Source: Doing Business database. Summary of time, cost and procedures for getting electricity in Mexico - Monterrey Time to No. Procedure Cost to complete complete Request feasibility study from CFE The client request a feasibility study to the Comisión Federal de Electricidad (CFE). The energy demand and a sketch of the localization of 1 the warehouse are requested by the CFE. 10 calendar days MXN 0 Agency: Comisión Federal de Electricidad (CFE) Doing Business 2016 Mexico 56 Time to No. Procedure Cost to complete complete Hire electrical contractor to design connection and submit plans to CFE for approval Once the feasibility of the project has been confirmed by Comisión Federal de Electricidad (CFE), the clients electrical contractor obtains the design specifications from CFE, prepares the design of the electrical 15 calendar days MXN 0 2 works needed to carry out the connection on the basis of these specifications and awaits approval of the plans from CFE. Agency: Comisión Federal de Electricidad (CFE) * Receive technical inspection by CFE for design approval This external inspection is necessary to validate the design of the connection works. 1 calendar day MXN 0 3 Agency: Comisión Federal de Electricidad (CFE) Await completion of external works by electrical contractor The installation of the transformer substation and the external connection works are the responsibility of the private contractor hired by 4 the client 20 calendar days MXN 280,000 Agency: Comisión Federal de Electricidad (CFE) * Obtain approval of internal wiring installation by specialized firm The monitoring of the internal wiring installations is done by a specialized firm (Unidad de Verificación de Instalaciones Eléctricas ) which is responsible for checking that the wiring was done according to Mexican standards. The applicant must go to a Unidad de Verificación de Instalaciones Eléctricas (UVIE), accredited with the Entidad Mexicana de Acreditamiento (EMA) and registered with the Ministry of Energy (Secretaria de Energia). The firm will verify that the electrical installation 2 calendar days MXN 25,000 5 meets the safety standards established in NOM-001-SEDE 2012; the UVIE also oversees the external work that is performed by the client (construction of the electrical substation). A certificate issued at the end of the inspection is needed by the time the supply contract is signed. This procedure may be performed simultaneously with other procedures. The costs associated with this procedure are determined by the Unidad Verificadora and the applicant. If the wiring is done within the provisions of the Mexican Standards, usually one inspection is sufficient to issue the approval (Dictamen de Verificación), but if the applicant did not perform its electrical work Doing Business 2016 Mexico 57 Time to No. Procedure Cost to complete complete within the rules, then the Unidad Verificadora must make several visits to ensure that the wiring corresponds to the standards. Agency: Private company Sign supply contract, pay security deposit and await meter installation by CFE At the signing of the contract for providing electrical service connection the certificate of verification for the internal wiring installation must be submitted. The process of signing the supply contract is done after the security deposit has been paid for. Payment is made at the offices of the 4 calendar days MXN 4,772.88 6 company. It is possible to settle the security deposit with a bank guarantee. The meter installation is done by the Área comercial which coordinates with the Departamento de Distribuccion. Agency: Comisión Federal de Electricidad (CFE) * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2016 Mexico 58 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in Mexico Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) Reliability of supply and transparency of tariff index 7.00 7.00 (0-8) Total duration and frequency of outages per customer 3.00 3.00 a year (0-3) System average interruption duration index (SAIDI) 0.8 0.0 System average interruption frequency index (SAIFI) 1.0 0.0 Mechanisms for monitoring outages (0-1) 1.0 1.0 Does the distribution utility use automated tools to Yes Yes monitor outages? Mechanisms for restoring service (0-1) 1.0 1.0 Does the distribution utility use automated tools to Yes Yes restore service? Regulatory monitoring (0-1) 1.00 1.00 Does a regulator—that is, an entity separate from the utility—monitor the utility’s performance on reliability Yes Yes of supply? Doing Business 2016 Mexico 59 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) Financial deterrents aimed at limiting outages (0-1) 0.00 0.00 Does the utility either pay compensation to customers or face fines by the regulator (or both) if outages No No exceed a certain cap? Communication of tariffs and tariff changes (0-1) 1.00 1.00 Are effective tariffs available online? Yes Yes http://app. http://app.cfe cfe.gob.mx .gob.mx/aplic /aplicacion aciones/ccfe/ Link to the website, if available online es/ccfe/tari tarifas/tarifas fas/tarifas/t /tarifas_indus arifas_indus tria.asp tria.asp Are customers notified of a change in tariff ahead of Yes Yes the billing cycle? Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March (for 11 economies the data are also collected for the second largest business city). As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of- use tariff is available. Doing Business 2016 Mexico 60 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. In (calendar days) addition, this year Doing Business adds a new Does not include time spent gathering measure to the set of registering property information indicators, an index of the quality of the land administration system in each economy. The Each procedure starts on a separate day. ranking of economies on the ease of registering Procedures that can be fully completed online are recorded as ½ day. property is determined by sorting their distance to frontier scores for registering property. These scores Procedure considered completed once final are the simple average of the distance to frontier document is received scores for each of the component indicators. To No prior contact with officials make the data comparable across economies, several assumptions about the parties to the Cost required to complete each procedure transaction, the property and the procedures are (% of property value) used. Official costs only, no bribes The parties (buyer and seller): No value added or capital gains taxes included  Are limited liability companies, 100% Quality of land administration index (0-30) domestically and privately owned and  Is located in a periurban commercial zone, and perform general commercial activities and no rezoning is required. are located in the economy’s largest business city .  Has no mortgages attached, has been under 2 the same ownership for the past 10 years.  Have 50 employees each, all of whom are nationals.  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value and entire condition and complies with all safety property will be transferred. standards, building codes and legal  Is registered in the land registry or cada- requirements. There is no heating system. stre, or both, and is free of title disputes. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 Mexico 61 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 Mexico? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 6.80 procedures, which the data are a population-weighted average of the takes 63.70 days and costs 5.10% of the property value 2 largest business cities. See the chapter on distance to (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 Mexico - Mexico City What it takes to register property in Mexico - Monterrey Doing Business 2016 Mexico 62 Source: Doing Business database. 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. Doing Business 2016 Mexico 63 REGISTERING PROPERTY Globally, Mexico stands at 106 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Mexico to transfer property. Figure 5.2 How Mexico and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2016 Mexico 64 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: MXN 6,700,685 notaries and property registries. These procedures are those that apply to a transaction matching the Mexico City, City: standard assumptions used by Doing Business in Monterrey 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 5.2 Summary of time, cost and procedures for registering property in Mexico Mexico City Time to No. Procedure Cost to complete complete The notary obtains a certificate of good standing with the water service Article 27 of the Fiscal Code for the Federal District establishes that the interested parties shall provide the notary evidence that there are no outstanding fees concerning water supply service and property tax of the property subject to transfer, for the five years preceding the granting of the public deed. In order to obtain a certificate of good standing with the water service, the interested party must submit before the SACM the following documentation in original and copy: 15 days (simultaneous 1 MXN 140 with Procedures - Application for certificate of good standing with the water service. 2, 3, 4 & 5) - Official ID of the owner of the property. - Proof of domicile no older than 3 month. - Proof of payment of fees established in article 248, section VIII. - If the procedure is not carried not by the owner of the property, it must also submit a proxy letter or a power of attorney, as applicable. Agency: Sistema de Aguas de la Ciudad de México (SACM) Doing Business 2016 Mexico 65 Time to No. Procedure Cost to complete complete * The notary checks the good standing of the seller on the property tax (predial) The certificate of good standing of the seller on the property tax (predial) is one of the documents to be provided by the interested parties under art. 27 of the Fiscal Code of the Federal Disctrict; the receipts of payments of the predial (boletas) are no longer required. To obtain the certificate, the applicant must submit at any Treasury office the following documents: 1 day if checked - A written request (there is no official application form), that fulfills the online or 13 days MXN 140 if requirements established in art. 430 of the Fiscal Code of the Federal Disctrict, which include but are not limited to the name of the applicant, if certificate of certificate of good her/his address, to whom the request is addressed, the "predial" account. good standing standing ("constancia de ("constancia de no 2 - Copy of an official identification document of the applicant. no adeudo") is adeudo") is requested requested; no cost - If the request is presented by a legal representative, a copy of her/his (simultaneous if information is power-of-attorney. with procedures checked online. 1, 2, 3 & 5). The cost is established in the Fiscal Code of the Federal District (article 248, section VIII). The applicable Treasury office will take 10 working days to process the certificate. The notary would double check this information online at: http://ovica.finanzas.df.gob.mx/ Agency: Secretaria de Finanzas * The notary obtains the Zoning Certificate of the property The Public Registry of Property and Commerce will require the zoning certificate together with the application to register the transfer of property. The notary shall request the zoning certificate at the Ministry of Urban Development and Housing (Secretaría de Desarrollo Urbano y Vivienda). The cost is established in article 235, section III of the Fiscal 12 days Code for the Federal District. (simultaneous 3 MXN 1,296 with Procedures 1, 3, 4 & 5) The applicant must submit an original and copy, the documents below with the corresponding delegation’s single-counter service. The authority will retain only the copies. - Form AU-01 http://www.tramitesyservicios.df.gob.mx/work/sites/TyS/resources/Local Doing Business 2016 Mexico 66 Time to No. Procedure Cost to complete complete Content/1288/3/AU01CUnicoZ_SEDUVI.pdf - Proof of payment of property taxes to date. - Proof of payment of fees. - Official identification. - Relotificaton or subdivision license, if applicable. - Street number designation and boundry alignment certificate (certificado de alineamiento y número oficial), if applicable. - Public deeds, if applicable. Agency: SEDUVI (Secretaria de Desarrollo Urbano y Vivienda del Distrito Federal) * The notary obtains a non-encumbrance certificate Pursuant to article 3016 of the Civil Code for the Federal District, the notary before whom the transfer deed is being formalized must request a non-encumbrance certificate to the Public Registry. Likewise, such request shall be considered as a preventive notice. The applicant must submit before the Public Registry of Property and Commerce the following documentation: - Application for request in triplicate, including the name and signature of the of the applicant, term of the certificate, location of the property 7 days and real estate folio. MXN 524.00 (Non (simultaneous 4 urgent) MXN with Procedures - Proof of payment of fees established in article 198, section I of the 1,048.00 (Urgent) 1, 2, 4 & 5) Fiscal Code for the Federal District in duplicate. - The application for request may also be made via internet, as well as the payment of fees. This procedure can be done online at the following website: http://187.141.34.93/RPPyC/ Agency: Public Registry of Property of the Federal District ("Registro Público de la Propiedad y del Comercio del Distrito Federal") Doing Business 2016 Mexico 67 Time to No. Procedure Cost to complete complete * The notary requests a commercial valuation of the property A commercial valuation is required under the Fiscal Code of the Federal District to determine the taxable value of the property subject to transfer. Article 116 of the Fiscal Code of the Federal District establishes that the property tax shall be calculated taking in to account the highest of (i) the purchase price, (ii) the cadastral value, and (iii) the value resulting from the commercial valuation by the fiscal authorities or authorized appraiser. The notaries usually have their own appraisers. Nevertheless, the parties 7 days may hire the appraiser they choose. When banks are involved in the (simultaneous MXN 3,000 - MXN 5 transaction, they will usually bring in the valuers they usually work with. with Procedures 5,500 Sometimes parties have a previous valuation, and the notary can have it 1, 2, 3 & 4) reviewed to see if it suffices. However, these previous valuations are usually not fiscal ones and therefore another one has to be done to determine the value of the property for the ISAI tax, but also for the VAT tax to which commercial constructions are subject to when transferred (please note that the land is not taxable under VAT, just the commercial constructions). Agency: Licensed valuer The notary formalizes the sale purchase agreement The Property Acquisition Tax is The notary public will request from the seller: determined, pursuant to article 113 of the Fiscal • Property title (escritura), which the seller already has Code of the • Receipts evidencing the payment for real estate taxes for a period of Federal District, five years (boletas del impuesto predial) which establishes the following scale • Receipts evidencing the payment of water fees for a period of five years pursuant to which (boletas del servicio de agua) the taxes are calculated (and 6 • Public deed(s) containing the incorporation and by-laws of the seller 3 days based on the company (escritura constitutiva), together with copy of any public appraisal over the deed(s) containing amendments to the by-laws of the seller company property): Lower Value Higher • Public deed(s) containing the powers of attorney granted in favor of Value Fixed Fee the seller’s representatives (for acts of domain and acts of administration Rate over excess in terms of the second and third paragraph of article 2554 of the Civil Code of the Federal District) MXN 0.12 94,072.57 • Copy of the official identification of the seller's and buyer's 207.92 representatives 0.0110594,072.57 150,516.06 1,247.52 The notary will procure on behalf of the parties: 0.03315150,516.07 Doing Business 2016 Mexico 68 Time to No. Procedure Cost to complete complete 225,773.88 • The zoning certificate (obtained in Procedure 2) 3,118.80 0.05526225,773.89 • The valuation (obtained in Procedure 3) 451,547.89 7,277.20 • Certificate of good standing with the water company (obtained in 0.03684451,547.90 Procedure 1) 1,128,869.71 • Certificate of good standing in the property tax (obtained in procedure 15,594.00 4) 0.035301,128,869. 72 2,257,739.43 The buyer is subject to pay the acquisition tax ("Impuesto sobre 39,504.80 Adquisiciones o Transmisión de Dominio"). In this respect, on the date of 0.043282,257,739. execution of the real estate purchase agreement before the notary 44 public, said notary public will retain the above mentioned taxes and pay 4,349,334.30 them before Treasury Department. 88,366.00 0.047224,349,334. The scale of notary tariffs is with respect to the Notary Publics of the 31 Federal District only. Other Mexican states have varying scales. 11,326,391.96 The seller will also have to pay the income tax and the value added tax as 187,128.00 follows: 0.0476811,326,391 .97 The applicable Income Tax for transferors resident in Mexico is 28% on 20,887,467.14 the gain (the excess of the sale price over the adjusted tax basis). The tax 519,800.00 basis of real estates is in general terms the original cost of acquisition as 0.0481220,887,467 updated for inflation. .15 En adelante The value added tax (16%) is applicable only with respect to the 981,000.00 constructions that conform to the property and therefore an allocation 0.04997The of the price to the land and constructions should be made in the sales applicable Notary agreement based on an appraisal. The value added tax will be shifted to the buyer. Fees, in accordance with article 15 of the The notary public shall calculate its fees as set forth in Article 15 of the Notary Fees of the Notary Fees of the Federal District (Arancel de Notarios), taking into Federal District account the highest of (i) the purchase price, (ii) the cadastral value, and regulations (iii) the value resulting from the commercial valuation by the fiscal (Arancel de authorities or authorized appraiser. Notarios del Distrito Federal).I. Agency: Notary Transactions of amounts of up to MXN $137,293.00, shall have a fixed quota of MXN $4,000.00II. Transactions of $137,293.01 or Doing Business 2016 Mexico 69 Time to No. Procedure Cost to complete complete more shall have a fixed quota of the amount established in numeral I. above, to which it will be added any amounts that result by applying the progressive amounts of all the lines, until a fixed amount has been set on a line, of the following table:Value of the Transaction Cummulative additional rate over the …................................... .......................excess amounts over the inferior limit. More than MXN up to the excess of the lower value$ 137,293.01 $ 274,586.00 1.125%$ 274,586.01 $ 549,172.00 0.975%$ 549,172.01 $ 1,098,344.00 0.825%$ 1,098,344.01 $ 2,196,688.00 0.675%$ 2,196,688.01 $ 4,393,376.00 0.578%$ 4,393,376.01 $ 8,786,752.00 0.420%$ 8,786,752.01 Any excess Doing Business 2016 Mexico 70 Time to No. Procedure Cost to complete complete amounts 0.327% Registration of the transfer of title at the Public Registry of Property of the Federal District The notary public will proceed with the registration of the first testimony of the public deed containing the formalization of the purchase agreement of a real estate and the transfer of title, before the Public Registry of Property of the Federal District. After registration, the buyer 7 will have to give notice to the corresponding water department, and any 30 - 90 days MXN 15,479 other company that provides any service to the property (i.e. electric company, water, etc.) Agency: Public Registry of Property of the Federal District ("Registro Público de la Propiedad y del Comercio del Distrito Federal") * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for registering property in Mexico Monterrey Time to No. Procedure Cost to complete complete The notary obtains the non-encumbrance certificate and gives the pre-preventive notice (aviso pre-preventivo) to the Public Registry (IRCNL) MXN 210 for the The non-encumbrance certificate contains information including the non-encumbrance description of the property and information regarding any charges, liens, certificate (3 daily mortgages or other encumbrances. minimum wages at To complete the procedure the notary must present the non- encumbrance certificate form (original and copy) with the information MXN 70 per included in the deed. The pre-preventive notice serves as a notification minimum wage for 2 days of the intention to conduct the transfer of a property and as a protection (simultaneous the geographic 1 of the transfer against the registration of any encumbrances by third area A with procedure 2) parties such as mortgages. corresponding to The procedure is regulated by Art. 2910 of the Civil Code of the State of Monterrey) and Nuevo León, Art. 8 Section VII and Articles 59, 61 and 63 of the MXN 280 for the Regulatory Law of the Property and Commercial Public Registry of the pre-preventive State of Nuevo León. The cost is regulated by Art. 271 Sections X and XII notice (4 daily of the Finance Law of the State of Nuevo León. minimum wages) Agency: Public Registry (Instituto Registral y Catastral del Estado de Nuevo León, IRCNL) Doing Business 2016 Mexico 71 Time to No. Procedure Cost to complete complete * Obtain the cadastral value of the property from the Cadaster (Dirección de Catastro - IRCNL) The property transfer tax is calculated based on the cadastral value obtained through this procedure. The notaries can complete this procedure online through the Cadaster’s online platform receiving the response immediately. If the value is requested in person the following documents are required: a. Application form (original and copy) Less than 1 day b. Receipt of payment of property tax “predial” (copy) (online c. ID of the owner MXN 280 (4 daily 2 procedure, d. Document identifying the applicant as the legal representative of the minimum wages) simultaneous company (when requested on behalf of a company, copy) with procedure 1) e. Public deed or sale agreement (copy) f. Receipt of payment of fees The procedure is regulated by Art. 34 of the Regulatory Law of the Cadaster Law. The cost is regulated by Art. 276, Section III-A of the Finance Law of the State of Nuevo León. Agency: Cadaster (Dirección del Catastro - IRCNL) The notary prepares and executes the public deed, and collects and pays the property transfer (ISAI) tax at the municipality Currently there is not an official fee schedule for notary fees in Monterrey. Notaries in would normay charge 1% of the property value. To complete the payment of the property transfer tax the notarey would go the municipality and present the following documents: a. Public deed b. Cadastral value (obtained in procedure 2) 2% of the property c. Receipt of payment of property tax “predial” value for the d. Statement of payment property transfer 3 The procedure is regulated by Art. 28 Bis fo the Finance Law for the 12 days tax + 1% of the Municipalities of the State of Nuevo León. The property transfer taxi is property value for based on the highest value between the sale price or the cadastral value. notary fees With the entry into force in July 2013 of the Federal Law for the Prevention and Identification of Operations with Illicit Resources (Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita) the notaries have to notify the Ministry of Finance (Secretaría de Hacienda y Crédito Público) if they provide services related with the transfer of a property above a certain amount. Agency: Notary Doing Business 2016 Mexico 72 Time to No. Procedure Cost to complete complete The notary gives the preventive notice to the Public Registry (IRCNL) Once the deed is signed the notary gives notice to the Public Registry informing of the conclusion of the transaction. The notice will have a validity of 60 days during which this transaction will have the priority over any other recordable action on the property. To complete this procedure the notary must present the following: a. Notice with the names of the parties of the transaction b. The purpose of the transaction c. The deed number MXN 280 (4 daily 4 1 day d. Signature date minimum wages) The notary must bring the documentation to the Public Registry, pay the corresponding fees and receive the confirmation that the notice has been processed by the Registry. The procedure is regulated by Art. 2910 of the Civil Code of the State of Nuevo León. The cost is regulated by Art. 271, Section XII of the Finance Law of the State of Nuevo León. Agency: Public Registry (Instituto Registral y Catastral del Estado de Nuevo León, IRCNL) The deed is registered at the Public Registry (IRCNL) To complete the registration the notary must bring the following documents: a. Notarized public deed b. Receipt of payment of transfer tax (ISAI) c. Paymet of Income Tax d. Non-encumbrance certificate e. Cadastral value The notary must bring the documentation to the Public Registry and pay the corresponding fees. Once the procedure is completed the notary will MXN 5 for every come back to the registry to pick up the documentation. The cost is 3 days thousand or 5 MXN 5 for every thousand or fraction of the property value with a (simultaneous fraction of the minimum of 5 daily minimum wages (MXN 336) and a maximum of 570 with procedure 6) property value daily minimum wages (MXN 38,355). The procedure is regulated by Art. 8, Section IV and Arts. 21, 22 and 23 of the Regulatory Law of the Commercial and Property Public Registry of the State of Nuevo León as well as by Arts. 2901, 2904 and 2910 of the Civil Code of the State of Nuevo León. The cost is regulated by Art. 271, Section I of the Finance Law of the State of Nuevo León. Agency: Public Registry (Instituto Registral y Catastral del Estado de Nuevo León, IRCNL) Doing Business 2016 Mexico 73 Time to No. Procedure Cost to complete complete * The notary gives notice of the sale to the Cadaster (Dirección del Catastro – IRCNL) In this procedure the changes in property ownership are recorded in the cadastral registry through the notice provided by the notary. To complete this procedure the following documents are presented by the notary: a. Notification of sale form (original) b. Copy of the receipt of payment of the property tax (predial) 1 day c. Description of the property (simultaneous no cost 6 The notary presents the sale notice at the Tax Payer Service Department with procedure 5) with the required documents. The documents are reviewed and processed by the corresponding department for their approval. After their evaluation the notary returns for the results of the procedure. The procedure is regulated by Art. 29 of the Cadastral Law and Art. 28 of the Regulatory Law of the Cadastral Law. Agency: Cadaster (Dirección del Catastro - IRCNL) * 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 2016 Mexico 74 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2014 and June transparency of information, geographic coverage 2015, the economy receives a “no practice” mark on the and land dispute resolution indices. procedures, time and cost indicators. A “no practice” economy receives a score of 0 on the quality of land The index ranges from 0 to 30, with higher values administration index even if its legal framework includes indicating better quality of the land administration provisions related to land administration. system. Table 5.3 Summary of quality of land administration in Mexico Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) Quality of the land administration index (0-30) 14.00 15.50 Reliability of infrastructure index (0-8) 3.00 5.00 Dirección de Registro Público de la Propiedad Regis y del tro Público What is the institution in charge of immovable Comercio de la property registration? des Propiedad y Instituto de Comercio Registral y Catastral del Estado de Nuevo León In what format are the majority of title or deed records Computer/ kept in the largest business city—in a paper format or in Paper 0.0 1.0 Scanned a computerized format (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, mortgages, restrictions and the No 0.0 Yes 1.0 like)? Dirección del Institution in charge of the plans showing legal Catastro SEDUVI boundaries in the largest business city: del Instituto Registral y Doing Business 2016 Mexico 75 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) Catastral del Estado de Nuevo León In what format are the majority of maps of land plots Computer/Ful Computer/ kept in the largest business city—in a paper format or in 2.0 2.0 ly digital Fully digital a computerized format (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral Yes 1.0 Yes 1.0 information (geographic information system)? Is the information recorded by the immovable property registration agency and the cadastral or mapping Separate Separate 0.0 0.0 agency kept in a single database, in different but linked databases databases databases or in separate databases? Do the immovable property registration agency and cadastral or mapping agency use the same No 0.0 No 0.0 identification number for properties? Transparency of information index (0–6) 4.00 1.50 Only intermediar Who is able to obtain information on land ownership at Anyone who ies the agency in charge of immovable property pays the 1.0 0.0 (notaries, registration in the largest business city? official fee lawyers, etc.) Is the list of documents that are required to complete any type of property transaction made publicly Yes, online 0.5 Yes, online 0.5 available–and if so, how? The website http://www.c onsejeria.df.g ob.mx/index. php/rppyc lists all the http://nl.go services b.mx/depe Link for online access: provided by ndencias/ir the registry, c/servicios including their costs and waiting time. Doing Business 2016 Mexico 76 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) For transfers: http://www.c onsejeria.df.g ob.mx/portal_ old/portal_de talle.php?con tenido=Mjg5 &direccion= NQ==& For non encumbrance s certificates: http://www.c onsejeria.df.g ob.mx/portal_ old/portal_de talle.php?con tenido=Mzc1 &direccion= NQ==& Is the applicable fee schedule for any property transaction at the agency in charge of immovable Yes, online 0.5 Yes, online 0.5 property registration in the largest business city made publicly available–and if so, how? http://www.c onsejeria.df.g http://nl.go ob.mx/portal_ b.mx/depe Link for online access: old/civica/RP ndencias/ir PyCDF01Cost c/servicios os2015.pdf Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property ownership within a Yes, online 0.5 Yes, online 0.5 specific time frame–and if so, how does it communicate the service standard? The website http://www.c onsejeria.df.g http://nl.go ob.mx/index. b.mx/depe Link for online access: php/rppyc ndencias/ir lists all the c/servicios services provided by the registry, Doing Business 2016 Mexico 77 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) including their costs and waiting time. For transfers: http://www.c onsejeria.df.g ob.mx/portal_ old/portal_de talle.php?con tenido=Mjg5 &direccion= NQ==& For non encumbrance s certificates: http://www.c onsejeria.df.g ob.mx/portal_ old/portal_de talle.php?con tenido=Mzc1 &direccion= NQ==& Is there a specific and separate mechanism for filing complaints about a problem that occurred at the No 0.0 No 0.0 agency in charge of immovable property registration? Contact information: Are there publicly available official statistics tracking the number of transactions at the immovable property No 0.0 No 0.0 registration agency? Number of property transfers in the largest business city in 2014: Anyone who Records are Who is able to consult maps of land plots in the largest pays the 0.5 not publicly 0.0 business city? official fee available Is the applicable fee schedule for accessing maps of Yes, online 0.5 No 0.0 land plots made publicly available—and if so, how? http://ovica.fi Link for online access: nanzas.df.gob .mx/TRAM/Inf Doing Business 2016 Mexico 78 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) ormacionDet alladaTramite. aspx Does the cadastral or mapping agency commit to delivering an updated map within a specific time Yes, online 0.5 No 0.0 frame—and if so, how does it communicate the service standard? http://ovica.fi nanzas.df.gob .mx/TRAM/Inf Link for online access: ormacionDet alladaTramite. aspx Is there a specific and separate mechanism for filing complaints about a problem that occurred at the No 0.0 No 0.0 cadastral or mapping agency? Contact information: Geographic coverage index (0–8) 2.00 4.00 Are all privately held land plots in the economy No 0.0 No 0.0 formally registered at the immovable property registry? Are all privately held land plots in the largest business city formally registered at the immovable property No 0.0 Yes 2.0 registry? Are all privately held land plots in the economy No 0.0 No 0.0 mapped? Are all privately held land plots in the largest business Yes 2.0 Yes 2.0 city mapped? Land dispute resolution index (0–8) 5.00 5.00 Does the law require that all property sale transactions be registered at the immovable property registry to Yes 1.5 Yes 1.5 make them opposable to third parties? Is the system of immovable property registration Yes 0.5 Yes 0.5 subject to a state or private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction based on erroneous No 0.0 No 0.0 information certified by the immovable property registry? Doing Business 2016 Mexico 79 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) Does the legal system require a control of legality of the documents necessary for a property transaction Yes 0.5 Yes 0.5 (e.g., checking the compliance of contracts with requirements of the law)? If yes, who is responsible for checking the legality of Registrar; Registrar. the documents? Notary. Does the legal system require verification of the Yes 0.5 Yes 0.5 identity of the parties to a property transaction? If yes, who is responsible for verifying the identity of Registrar; Notary. the parties? Notary. Is there a national database to verify the accuracy of No 0.0 No 0.0 identity documents? For a standard land dispute between two local businesses over tenure rights of a property worth 50 Juzgado Civil First times gross national income (GNI) per capita and del Distrito instance located in the largest business city, what court would be Federal civil court in charge of the case in the first instance? How long does it take on average to obtain a decision Between 1 Between 1 from the first-instance court for such a case (without 2.0 2.0 and 2 years and 2 years appeal)? Are there any statistics on the number of land disputes No 0.0 No 0.0 in the first instance? Number of land disputes in the largest business city in 2014: Source: Doing Business database. Doing Business 2016 Mexico 80 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s financial Strength of legal rights index (0–12) 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 movable property, as security to generate capital— Depth of credit information index (0–8) 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 2016 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. Doing Business 2016 Mexico 81 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Mexico stands at 5 in the ranking of 189 and bankruptcy laws in Mexico facilitate access to credit? economies on the ease of getting credit (figure 6.1). The The economy has a score of 8.00 on the depth of credit rankings for comparator economies provide useful information index and a score of 10.00 on the strength of information for assessing how well regulations and legal rights index (see the summary of scoring at the end institutions in Mexico support lending and borrowing. of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Mexico and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2016 Mexico 82 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Mexico and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal 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 Source: Doing Business database. Source: Doing Business database. 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. Doing Business 2016 Mexico 83 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Mexico (table 6.1)? Table 6.1 How has Mexico made getting credit easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Mexico strengthened its secured transactions system by DB2012 implementing a centralized collateral registry with an electronic database that is accessible online. Mexico improved access to credit by amending its insolvency proceedings law and establishing clear grounds for relief from a DB2015 stay of enforcement actions by secured creditors during reorganization procedures. This reform applies to both Mexico City and Monterrey. Mexico improved access to credit by implementing a decree DB2016 allowing a general description of assets granted as collateral. This reform applies to both Mexico City and Monterrey. Source: Doing Business database. 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. Doing Business 2016 Mexico 84 GETTING CREDIT What are the details? The getting credit indicators reported here for Mexico The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well 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. Mexico City Monterrey Strength of legal rights index (0–12) Index score: Index score: 10.00 10.00 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional Yes Yes 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 Yes Yes 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 Yes Yes 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 Yes Yes 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 Yes Yes an electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional Yes Yes equivalents can be registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed online by any Yes Yes interested third party? Doing Business 2016 Mexico 85 Mexico City Monterrey Strength of legal rights index (0–12) Index score: Index score: 10.00 10.00 Are secured creditors paid first (i.e. before tax claims and employee No No claims) when a debtor defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee No No 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 Yes Yes 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: 8.00 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 - Yes No 1 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? Doing Business 2016 Mexico Note: 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. Coverage Credit bureau Credit registry Number of firms 3,498,724 0 Number of individuals 86,831,266 0 Total 90,329,990 0 Total percentage of adult population 100.00 0.00 Source: Doing Business database. Doing Business 2016 Mexico 87 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- What do the indicators cover? party transactions 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 indicators and shareholders’ rights in corporate interested directors liable for prejudicial related- governance through another. The ranking of economies party transactions; Available legal remedies on the strength of minority investor protections is (damages, disgorgement of profits, fines, determined by sorting their distance to frontier scores imprisonment, rescission of the transaction) for protecting minority investors. These scores are the Ease of shareholder suits index (0–10) simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Access to internal corporate documents; Evidence extent of shareholder governance index. To make the obtainable during trial and allocation of legal data comparable across economies, a case study uses expenses several assumptions about the business and the Extent of conflict of interest regulation index transaction. (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of shareholder indices  Is a publicly traded corporation listed on the economy’s most important stock exchange Extent of shareholder rights index (0-10) (or at least a large private company with Shareholders’ rights and role in major corporate multiple shareholders). decisions  Has a board of directors and a chief executive Extent of ownership and control index (0-10) officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Governance safeguards protecting shareholders from undue board control and entrenchment specifically required by law. Extent of corporate transparency index (0-10) The transaction involves the following details: Corporate transparency on ownership stakes,  Mr. James, a director and the majority compensation, audits and financial prospects shareholder of the company, proposes that the company purchase used trucks from Extent of shareholder governance index another company he owns. (0–10)  The price is higher than the going price for Simple average of the extent of shareholders rights, used trucks, but the transaction goes forward. extent of ownership and control and extent of corporate transparency indices  All required approvals are obtained, and all required disclosures made, though the Strength of investor protection index (0–10) transaction is prejudicial to Buyer. Simple average of the extent of conflict of interest regulation and extent of shareholder governance  Shareholders sue the interested parties and indices the members of the board of directors. Doing Business 2016 Mexico 88 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 Mexico? The economy has a score of 5.80 not measure all aspects related to the protection of on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Mexico stands at 57 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Mexico and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2016 Mexico 89 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for Mexico. Figure 7.2 Summary of the various minority investor protection indices for Mexico and comparator economies. Source: Doing Business database. Doing Business 2016 Mexico 90 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Mexico are based on detailed information shareholder rights, ownership and control and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2016 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Mexico. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Mexico Answer (Mexico Score (Mexico Answer Score City) City) (Monterrey) (Monterrey) Strength of minority investor protection index (0-10) 5.80 5.80 Extent of conflict of interest regulation index (0-10) 6.00 6.00 Extent of disclosure index (0-10) 8.00 8.00 Board of Board of directors directors Which corporate body can provide legally sufficient approval excluding 2.0 excluding 2.0 for the Buyer-Seller transaction? (0-3) interested interested members members Existence of a Existence of a Is disclosure by the interested director to the board of conflict without 1.0 conflict without 1.0 directors required? (0-2) any specifics any specifics Disclosure on Disclosure on the the transaction Is disclosure of the transaction in published periodic filings transaction and 2.0 and on the 2.0 (annual reports) required? (0-2) on the conflict of conflict of interest interest Disclosure on Disclosure on the the transaction Is immediate disclosure of the transaction to the public transaction and 2.0 and on the 2.0 and/or shareholders required? (0-2) on the conflict of conflict of interest interest Must an external body review the terms of the transaction Yes 1.0 Yes 1.0 before it takes place? (0-1) Extent of director liability index (0-10) 5.00 5.00 Can shareholders sue directly or derivatively for the damage Yes 1.0 Yes 1.0 caused by the Buyer-Seller transaction to the company? (0-1) Can shareholders hold the interested director liable for the Liable if unfair or Liable if unfair 2.0 2.0 damage caused by the transaction to the company? (0-2) prejudicial or prejudicial Can shareholders hold members of the approving body Liable if liable for the damage cause by the transaction to the Liable if negligent 1.0 1.0 negligent company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1.0 Yes 1.0 shareholder plaintiff? (0-1) Must the interested director repay profits made from the No 0.0 No 0.0 Doing Business 2016 Mexico 91 transaction upon a successful claim by a shareholder plaintiff? (0-1) Is the interested director fined and imprisoned or disqualified upon a successful claim by the shareholder No 0.0 No 0.0 plaintiff? (0-1) Only in case of Can a court void the transaction upon a successful claim by a Only in case of 0.0 fraud or bad 0.0 shareholder plaintiff? (0-2) fraud or bad faith faith Ease of shareholder suits index (0-10) 5.00 5.00 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? Yes 1.0 Yes 1.0 (0-1) Documents that Documents directly prove that directly Can the plaintiff obtain any documents from the defendant specific facts in 2.0 prove specific 2.0 and witnesses during trial? (0-3) the plaintiff’s facts in the claim plaintiff’s claim Can the plaintiff request categories of documents from the No 0.0 No 0.0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and No 1.0 No 1.0 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of No 0.0 No 0.0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if Yes if successful 1.0 1.0 the company? (0-2) successful Extent of shareholder governance index (0-10) 5.70 5.70 Extent of shareholder rights index (0-10) 8.00 8.00 Does the sale of 51% of Buyer’s assets require shareholder Yes 1.0 Yes 1.0 approval? Can shareholders representing 10% of Buyer’s share capital Yes 1.0 Yes 1.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it Yes 1.0 Yes 1.0 issues new shares? Do shareholders automatically receive preemption rights Yes 1.0 Yes 1.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the No 0.0 No 0.0 external auditor? Must changes to the voting rights of a class of shares be Yes 1.0 Yes 1.0 approved only by the holders of the affected shares? Assuming that Buyer is a limited company, does the sale of Yes 1.0 Yes 1.0 51% of Buyer’s assets requires shareholder approval? Assuming that Buyer is a limited company, can shareholders representing 10% of Buyer’s share capital call for an No 0.0 No 0.0 extraordinary meeting of shareholders? Assuming that Buyer is a limited company, must Buyer obtain its shareholders’ approval every time it issues new Yes 1.0 Yes 1.0 shares? Assuming that Buyer is a limited company, do shareholders automatically receive preemption rights every time Buyer Yes 1.0 Yes 1.0 issues new shares? Extent of ownership and control index (0-10) 6.00 6.00 Is the CEO prohibited from also being chair of the board of No 0.0 No 0.0 Doing Business 2016 Mexico 92 directors? Must the board of directors include independent and Yes 1.0 Yes 1.0 nonexecutive board members? Can shareholders remove members of Buyer’s board of Yes 1.0 Yes 1.0 directors without cause before the end of their term? Must Buyer’s board of directors include a separate audit Yes 1.0 Yes 1.0 committee? Must a potential acquirer make a tender offer to all Yes 1.0 Yes 1.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by No 0.0 No 0.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its Yes 1.0 Yes 1.0 parent company? Assuming that Buyer is a limited company, can shareholders remove members of Buyer’s board of directors without cause Yes 1.0 Yes 1.0 before the end of their term? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer pay dividends within a maximum period set by law after the No 0.0 No 0.0 declaration date? Extent of corporate transparency index (0-10) 3.00 3.00 Must Buyer disclose direct and indirect beneficial ownership No 0.0 No 0.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their Yes 1.0 Yes 1.0 primary employment? Must Buyer disclose the compensation of individual No 0.0 No 0.0 managers? Must a detailed notice of general meeting be sent 30 days No 0.0 No 0.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital No 0.0 No 0.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public. Yes 1.0 Yes 1.0 Assuming that Buyer is a limited company, must a detailed notice of general meeting be sent 30 days before the No 0.0 No 0.0 meeting? Assuming that Buyer is a limited company, can shareholders representing 5% of Buyer’s share capital put items on the No 0.0 No 0.0 agenda for the general meeting? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external No 0.0 No 0.0 auditor? Source: Doing Business database. Doing Business 2016 Mexico 93 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 2014 (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, Using a case scenario, Doing Business records the sales tax or goods and service tax) 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 Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax transactions made over the year. Information is also payable 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 the simple average of the distance to frontier scores required for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to one of the component indicators, the total tax rate . 3 Profit or corporate income tax All financial statement variables are proportional to Social contributions and labor taxes paid by 2012 income per capita. To make the data the employer comparable across economies, several assumptions Property and property transfer taxes are used. Dividend, capital gains and financial  TaxpayerCo is a medium-size business that transactions taxes started operations on January 1, 2013. Waste collection, vehicle, road and other taxes  The business starts from the same financial  Taxes and mandatory contributions include position in each economy. All the taxes corporate income tax, turnover tax and all and mandatory contributions paid during labor taxes and contributions paid by the the second year of operation are recorded. company.  Taxes and mandatory contributions are  A range of standard deductions and measured at all levels of government. exemptions are also recorded. 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. 3 The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. Doing Business 2016 Mexico 94 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Mexico—and how much do firms pay in taxes? frontier and ease of doing business ranking at the end of On average, firms make 6.00 tax payments a year, spend this profile for more details. 286.00 hours a year filing, preparing and paying taxes Globally, Mexico stands at 92 in the ranking of 189 and pay total taxes amounting to 51.70% of profit (see economies on the ease of paying taxes (figure 8.1). The the summary at the end of this chapter for details). Most rankings for comparator economies and the regional indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Mexico. Figure 8.1 How Mexico and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2016 Mexico 95 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses—such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in Mexico (table 8.1)? Table 8.1 How has Mexico made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Mexico increased taxes on companies by raising several tax rates, including the corporate income tax and the rate on cash DB2011 deposits. At the same time, the administrative burden was reduced slightly with more options for online payment and increased use of accounting software. Mexico continued to ease the administrative burden of paying taxes for firms by ending the requirement to file a yearly value DB2012 added tax return and reduced filing requirements for other taxes Mexico made paying taxes easier for companies by abolishing the business flat tax—though it also made paying taxes more costly by allowing only a portion of salaries to be deductible. DB2016 These changes apply to both Mexico City and Monterrey. In addition, the payroll tax rate paid by employers was increased for Mexico City. Source: Doing Business database. 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. Doing Business 2016 Mexico 96 PAYING TAXES What are the details? The indicators reported here for Mexico are based on LOCATION OF STANDARDIZED COMPANY the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Mexico City, Monterrey chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of The taxes and contributions paid are listed in the assumptions and transactions that the company summary below, along with the associated number of completed during its 2nd year of operation. payments, time and tax rate. Respondents are asked how much taxes and 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 Mexico City: Tax or Payments Notes on Time Statutory Tax base rate (% of total tax mandatory contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online 122 0.3 25.44 profit Employer paid - Social various gross 1 online 64 22.01 security contributions rates salaries gross Employer paid - Payroll tax 1 online 0.03 3.38 salaries various property Property tax 1 online 0.86 rates value various value of Vehicle tax 1 online 0.04 rates vehicle not Value added tax (VAT) 1 online 100 0.16 sales price 0 included Employee paid - Social various gross 0 jointly 0 withheld security contributions rates salaries Totals 6.00 286.00 51.70 Doing Business 2016 Mexico 97 Total tax Notes on Monterrey: Tax or Payments Notes on Time Statutory Tax base rate (% of total tax mandatory contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online 122 0.3 25.44 profit Employer paid - Social various gross 1 online 64 22.01 security contributions rates salaries gross Employer paid - Payroll tax 1 online 0.03 3.38 salaries various property Property tax 1 online 0.86 rates value various value of Vehicle tax 1 online 0.04 rates vehicle IETU not Business flat tax (IETU) 0 online 0.175 taxable 0 included profits not Value added tax (VAT) 1 online 100 0.16 sales price 0 included Employee paid - Social various gross 0 jointly 0 withheld security contributions rates salaries Totals 6.00 286.00 51.70 Source: Doing Business database. Doing Business 2016 Mexico 98 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE FOR IMPORT & EXPORT business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance – cost (USD) & time to extra costs and delays for exporters and (hours) importers, stifling trade potential. Obtain, prepare and submit documents: What do the indicators cover? -During transport, clearance, inspections and port or border handling in origin economy Doing Business records the time and cost associated with the logistical process of exporting -Required by origin, destination and transit and importing goods. Under the new methodology economies introduced this year, Doing Business measures the Covers all documents by law and in practice time and cost (excluding tariffs) associated with Border compliance – cost (USD) & time (hours) three sets of procedures—documentary compliance, border compliance and domestic Customs clearance and inspections transport—within the overall process of exporting Inspections by other agencies or importing a shipment of goods. The ranking of Port or border handling economies on the ease of trading across borders is determined by sorting their distance to frontier Obtaining, preparing and submitting documents scores for trading across borders. These scores are during clearance, inspections and port or border the simple average of the distance to frontier handling scores for the time and cost for documentary Domestic transport* compliance and border compliance to export and Loading and unloading of shipment import. Transport between warehouse and terminal/port To make the data comparable across economies, a Transport between terminal/port and border few assumptions are made about the traded goods Obtaining, preparing and submitting documents and the transactions: during domestic transport Time Traffic delays and road police checks while shipment is en route  Time is measured in hours, and 1 day is 24 hours (for example, 22 days are recorded as * Although Doing Business collects and publishes data on the 22 × 24 = 528 hours). If customs clearance time and cost for domestic transport, it does not use these takes 7.5 hours, the data are recorded as is. data in calculating the distance to frontier score for trading Alternatively, suppose that documents are across borders or the ranking on the ease of trading across submitted to a customs agency at 8:00 a.m., borders. are processed overnight and can be picked up Cost at 8:00 a.m. the next day. In this case the time  Insurance cost and informal payments for which no for customs clearance would be recorded as receipt is issued are excluded from the costs 24 hours because the actual procedure took recorded. Costs are reported in U.S. dollars. 24 hours. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. Doing Business 2016 Mexico 99 Assumptions of the case study  Shipping cost based on weight is assumed to be  For each of the 189 economies covered by greater than shipping cost based on volume. Doing Business, it is assumed that a shipment travels from a warehouse in the largest business city of the exporting economy to a  If government fees are determined by the value of warehouse in the largest business city of the the shipment, the value is assumed to be $50,000. importing economy. For 11 economies the data are also collected, under the same case  The product is new, not secondhand or used study assumptions, for the second largest merchandise. business city.  The exporting firm is responsible for hiring and  The import and export case studies assume paying for a freight forwarder or customs broker (or different traded products. It is assumed that both) and pays for all costs related to international each economy imports a standardized shipping, domestic transport, clearance and shipment of 15 metric tons of containerized mandatory inspections by customs and other auto parts (HS 8708) from its natural import government agencies, port or border handling, partner—the economy from which it imports documentary compliance fees and the like for the largest value (price times quantity) of auto exports. The importing firm is responsible for the parts. It is assumed that each economy above costs for imports. exports the product of its comparative advantage (defined by the largest export  The mode of transport is the one most widely used value) to its natural export partner—the for the chosen export or import product and the economy that is the largest purchaser of this trading partner, as is the seaport, airport or land product. Precious metal and gems, live border crossing. animals and pharmaceuticals are excluded from the list of possible export products,  All electronic submissions of information requested however, and the second largest product by any government agency in connection with the category is considered as needed. shipment are considered to be documents obtained, prepared and submitted during the export or import  To identify the trading partners and export process. product for each economy, Doing Business collected data on trade flows for the most  A port or border is defined as a place (seaport, recent four-year period from international airport or land border crossing) where merchandise databases such as the United Nations can enter or leave an economy. Commodity Trade Statistics Database (UN Comtrade). For economies for which trade  Government agencies considered relevant are flow data were not available, data from agencies such as customs, port authorities, road ancillary government sources (various police, border guards, standardization agencies, ministries and departments) and World Bank ministries or departments of agriculture or industry, Group country offices were used to identify national security agencies and any other government the export product and natural trading authorities. partners.  A shipment is a unit of trade. Export shipments do not necessarily need to be containerized, while import shipments of auto parts are assumed to be containerized. Doing Business 2016 Mexico 100 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Border indicator refers to a case Globally, Mexico stands at 59 in the ranking of 189 study scenario of a warehouse in the largest business city economies on the ease of trading across borders (figure of an economy (except for 11 economies for which the 9.1). For more information on distance to frontier and data are a population-weighted average of the 2 largest ease of doing business ranking, please see the Distance business cities) trading with the main import and export to frontier and ease of doing business ranking chapter. partner through the economy’s main border crossing. Figure 9.1 How Mexico and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2016 Mexico 101 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 Mexico (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Mexico made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Mexico made trading across borders easier by implementing DB2014 an electronic single-window system. Source: Doing Business database. 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. Doing Business 2016 Mexico 102 TRADING ACROSS BORDERS What are the details? The indicators reported here for Mexico are based on LOCATION OF STANDARDIZED COMPANY a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea, land, air or some combination City: Mexico City, Monterrey of these). The information on the time and cost to complete export and import is collected from local The details on the predefined set of procedures, and the freight forwarders, customs brokers and traders. associated time and cost, for exporting and importing a shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in Mexico Latin America & Mexico City Monterrey Caribbean Time to export: Border compliance 20 20 86 (hours) Cost to export: Border compliance 400 400 493 (USD) Time to export: Documentary 8 8 68 compliance (hours) Cost to export: Documentary 60 60 134 compliance (USD) Time to import: Border compliance 44 44 107 (hours) Cost to import: Border compliance 450 450 665 (USD) Time to import: Documentary 18 18 93 compliance (hours) Cost to import: Documentary 100 100 128 compliance (USD) Source: Doing Business database. Doing Business 2016 Mexico 103 Table 9.3 Summary of trading details, transport time and documents for trading across borders in Mexico Mexico City Monterrey Export Import Export Import HS 85 : Electrical HS 85 : Electrical machinery and machinery and equipment and equipment and parts thereof; sound parts thereof; sound recorders and recorders and reproducers, HS 8708: Parts and reproducers, HS 8708: Parts and Product television image accessories of television image accessories of and sound motor vehicles and sound motor vehicles recorders and recorders and reproducers, and reproducers, and parts and parts and accessories of such accessories of such articles articles Trade partner United States United States United States United States Domestic transport time (hours) 32 32 7 7 Domestic transport cost (USD) 1361 1361 514 514 Nuevo Laredo Nuevo Laredo Nuevo Laredo Nuevo Laredo Border border crossing border crossing border crossing border crossing Distance (km) 1117 1117 219 219 Domestic transport speed 35.4 35.4 32.9 32.9 (km/hour) Domestic transport cost per 1.2 1.2 2.3 2.3 distance (USD/km) Source: Doing Business database. Documents to export Commercial invoice Customs Export Declaration NAFTA Certificate of origin Packing list Road Transport Document (Guía de Transporte) Documents to import Commercial invoice COVE (Comprobante de Valor Electronico) Customs Import Declaration Doing Business 2016 Mexico 104 NAFTA - Certificate of origin Packing list Road Transport Document (Guía de Transporte) Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2016 Mexico 105 Figure 9.2 Summary of Mexico on the ease of trading across borders Export (Mexico City) Import (Mexico City) Export (Monterrey) Import (Monterrey) Source: Doing Business database. Doing Business 2016 Mexico 106 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 Time required to enforce a contract through businesses know they can rely on the courts if a new the courts (calendar days) customer fails to pay. Speedy trials are essential for Time to file and serve the case small enterprises, which may lack the resources to Time for trial and to obtain the judgment stay in business while awaiting the outcome of a long court dispute. Time to enforce the judgment What do the indicators cover? Cost required to enforce a contract through the courts (% of claim) Doing Business measures the time and cost for resolving a standardized commercial dispute through Attorney fees a local first-instance court. In addition, this year it Court fees introduces a new measure, the quality of judicial Enforcement fees processes index, evaluating whether each economy has adopted a series of good practices that promote Quality of judicial processes index (0-18) quality and efficiency in the court system. This new Court structure and proceedings (0-5) index replaces the indicator on procedures, which was eliminated this year. The ranking of economies Case management (0-6) on the ease of enforcing contracts is determined by Court automation (0-4) sorting their distance to frontier scores. These scores Alternative dispute resolution (0-3) are the simple average of the distance to frontier scores for each of the component indicators. The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The  The value of the dispute is 200% of the case study assumes that the court hears an expert on income per capita or the equivalent in local the quality of the goods in dispute. This distinguishes currency of USD 5,000, whichever is greater. the case from simple debt enforcement. To make the  The seller sues the buyer before the court data comparable across economies, Doing Business with jurisdiction over commercial cases worth uses several assumptions about the case: 200% of income per capita or $5,000.  The dispute concerns a lawful transaction  The seller requests a pretrial attachment to between two businesses (Seller and Buyer), secure the claim. both located in the economy’s largest  The dispute on the quality of the goods business city. For 11 economies the data requires an expert opinion. are also collected for the second largest business city.  The judge decides in favor of the seller; there is no appeal.  The buyer orders custom-made goods, then fails to pay.  The seller enforces the judgment through a public sale of the buyer’s movable assets. Doing Business 2016 Mexico 107 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial and ease of doing business ranking at the end of this dispute through the courts in Mexico? According to data profile for more details. collected by Doing Business, contract enforcement takes Globally, Mexico stands at 41 in the ranking of 189 389.00 days and costs 30.90% of the value of the claim. economies on the ease of enforcing contracts (figure Most indicator sets refer to the largest business city of an 10.1). The rankings for comparator economies and the economy, except for 11 economies for which the data regional average ranking provide other useful are a population-weighted average of the 2 largest benchmarks for assessing the efficiency of contract business cities. See the chapter on distance to frontier enforcement in Mexico. Figure 10.1 How Mexico and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2016 Mexico 108 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 contract enforcement faster. What reforms making it for ways to enhance efficiency by introducing new easier (or more difficult) to enforce contracts has Doing technology. Lower-income economies often work on Business recorded in Mexico (table 10.1)? Table 10.1 How has Mexico made enforcing contracts easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Mexico made enforcing contracts easier by creating small DB2014 claims courts, with oral proceedings, that can hear both civil and commercial cases. Source: Doing Business database. 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. Doing Business 2016 Mexico 109 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for Mexico ECONOMY DETAILS are built by following the step-by-step evolution of a commercial sale dispute within the court, under the Court name - Mexico Mexico City First Instance assumptions about the case described above (figure City: Oral Civil Court 10.2). The time and cost of resolving the standardized dispute are identified through study of Court name - Monterrey First Instance the codes of civil procedure and other court Monterrey: Oral Civil Court regulations, as well as through questionnaires completed by local litigation lawyers (and, in a City: Mexico City, Monterrey quarter of the economies covered by Doing Business, by judges as well). Figure 10.2 Time and cost of contract enforcement in Mexico and comparator economies Source: Doing Business database. Doing Business 2016 Mexico 110 Table 10.2 Details on time and cost for enforcing contracts in Mexico Latin America & Indicator Mexico City Monterrey Caribbean average Time (days) 400.00 335.00 737 Filing and service 42.0 15.0 Trial and judgment 175.0 160.0 Enforcement of judgment 183.0 160.0 Cost (% of claim) 31.00 30.40 30.8 Attorney fees (% of claim) 20.0 20.4 Court fees (% of claim) 5.0 5.0 Enforcement fees (% of claim) 6.0 5.0 Source: Doing Business database. Doing Business 2016 Mexico 111 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in Mexico. practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating better, more efficient judicial processes. Figure 10.3 Quality of judicial processes index in Mexico and comparator economies Source: Doing Business database. Doing Business 2016 Mexico 112 Table 10.3 Details of the quality of judicial processes index in «dsGetData.Economy_Name» Answer Score Answer Score (Monterrey (Monterrey (Mexico City) (Mexico City) ) ) Quality of judicial processes index (0-18) 10.00 13.50 Court structure and proceedings (0-5) 3.5 3.5 Court structure and proceedings (0-5) 5.0 5.0 1. Is there a court or division of a court dedicated No 0.0 Yes 1.5 solely to hearing commercial cases? 2. Small claims court 1.5 1.5 2.a. Is there a small claims court or a fast-track Yes Yes procedure for small claims? 2.b. If yes, is self-representation allowed? Yes Yes 3. Is pretrial attachment available? Yes 1.0 Yes 1.0 4. Are new cases assigned randomly to judges? Yes 1 Yes 1 Case management (0-6) 3.5 3.5 Case management (0-6) 5.5 5.5 1. Time standards 1.0 1.0 1.a. Are there laws setting overall time standards for Yes Yes key court events in a civil case? 1.b. If yes, are the time standards set for at least Yes Yes three court events? 1.c. Are these time standards respected in more than Yes Yes 50% of cases? 2. Adjournments 0.5 0.5 2.a. Does the law regulate the maximum number of No No adjournments that can be granted? 2.b. Are adjournments limited to unforeseen and Yes Yes exceptional circumstances? 2.c. If rules on adjournments exist, are they respected Yes Yes in more than 50% of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; (iii) age of Yes 1.0 Yes 1.0 pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case Yes 1.0 Yes 1.0 management techniques used before the competent Doing Business 2016 Mexico 113 Answer Score Answer Score (Monterrey (Monterrey (Mexico City) (Mexico City) ) ) court? 5. Are there any electronic case management tools in No 0.0 Yes 1.0 place within the competent court for use by judges? 6. Are there any electronic case management tools in No 0.0 Yes 1.0 place within the competent court for use by lawyers? Court automation (0-4) 0.5 0.5 1. Can the initial complaint be filed electronically through a dedicated platform within the competent No 0.0 No 0.0 court? 2. Is it possible to carry out service of process electronically for claims filed before the competent No 0.0 No 0.0 court? 3. Can court fees be paid electronically within the No 0.0 No 0.0 competent court? 4. Publication of judgments 0.5 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public No No through publication in official gazettes, in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through publication in official Yes Yes gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 2.5 1. Arbitration 1.5 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section Yes Yes of the applicable code of civil procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy— No No that cannot be submitted to arbitration? 1.c. Are valid arbitration clauses or agreements Yes Yes usually enforced by the courts? 2. Mediation/Conciliation 1.0 1.0 2.a. Is voluntary mediation or conciliation available? Yes Yes Doing Business 2016 Mexico 114 Answer Score Answer Score (Monterrey (Monterrey (Mexico City) (Mexico City) ) ) 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section Yes Yes of the applicable code of civil procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or No No conciliation is successful, a refund of court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2016 Mexico 115 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Lawyers’ fees dollar recovered by secured creditors through Assessors’ and auctioneers’ fees reorganization, liquidation or debt enforcement Other related fees (foreclosure or receivership) proceedings. To determine the present value of the amount Outcome recovered by creditors, Doing Business uses the Whether business continues operating as a lending rates from the International Monetary Fund, going concern or business assets are sold supplemented with data from central banks and the piecemeal 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) framework index. The index tests whether economies determines the maximum value that can be adopted internationally accepted good practices in recovered 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 economies on the ease of resolving account insolvency is determined by sorting their distance to Present value of debt recovered frontier scores for resolving insolvency. These scores are the simple average of the distance to frontier Strength of insolvency framework index (0- scores for the recovery rate and the strength of 16) insolvency framework index. The Resolving Sum of the scores of four component indices: Insolvency indicator does not measure insolvency Commencement of proceedings index (0-3) proceedings of individuals and financial institutions. The data are derived from questionnaire responses Management of debtor’s assets index (0-6) by local insolvency practitioners and verified through Reorganization proceedings index (0-3) a study of laws and regulations as well as public information on bankruptcy systems. Creditor participation index (0-4) Doing Business 2016 Mexico 116 RESOLVING INSOLVENCY Where does the economy stand today? According to data collected by Doing Business, resolving 11.1). The resolving insolvency indicators are based on insolvency takes 1.80 years on average and costs 18.00% detailed information collected through questionnaires of the debtor’s estate. The average recovery rate is 68.90 completed by insolvency experts, including lawyers, cents on the dollar. Most indicator sets refer to a case practitioners (administrators, trustees), accountants and scenario in the largest business city of an economy, judges. Data on the time, cost and outcome refer to the except for 11 economies for which the data are a most likely in-court insolvency procedure applicable population-weighted average of the 2 largest business under specific case study assumptions. Data on cities. provisions applicable to judicial liquidation and reorganization is based on the current law governing Globally, Mexico stands at 28 in the ranking of 189 insolvency proceedings in each economy. economies on the ease of resolving insolvency (figure Figure 11.1 How Mexico and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2016 Mexico 117 Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Mexico and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2014 lending rates. Doing Business 2016 Mexico 118 Table 11.1 Summary of data for the strength of insolvency framework index Mexico Answer Explanation The Law of the Commercial Insolvency Law (LCM) provides a unitary form of insolvency proceedings (concurso mercantil) which has two phases: Conciliation (reorganization) and Bankruptcy (Liquidation). Mirage would commence a reorganization proceeding (conciliation) by Mexico City, filing for a “concurso mercantil” in light of Art. 10 of the (LCM). It will Proceeding reorganization Monterrey be sufficient to demonstrate that the debtor is generally unable to pay its debts as they mature. One of the main advantages of this option is that once the “concurso mercantil” commences, all all enforcement actions against the debtor would be automatically suspended, allowing Mirage to reorganize. Mexico City, Since it would be possible to reach a reorganization agreement, the Outcome going concern Monterrey hotel will continue operating as a going concern. It would take approximately 21 months to resolve an insolvency proceeding in Mexico City, similar to the case study, in which a debtor reaches a reorganization agreement with its creditors and the agreement is approved. All necessary steps to complete the entire Time (in Mexico City, process are included within this estimate, including the appointment 1.8 years) Monterrey of an inspector, a conciliator and insolvency administrator, and the preparation of the creditor’s claims. The period prescribed by Article 145 of the Commercial Insolvency Law is rarely enforced, but it is taken into account when approving the agreement. The costs associated with an insolvency proceeding (in which a reorganization agreement is approved) in Mexico would amount to Cost (% of Mexico City, approximately 18% of Mirage’s estate. The main components of this 18.0 estate) Monterrey cost would be the attorney’s fees (5-11 %), as well as the inspector, conciliator and insolvency administrator (7%) and additional judicial costs (1%). Recovery rate: 68.90 Source: Doing Business database. Doing Business 2016 Mexico 119 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 Mexico (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Mexico made resolving insolvency easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Mexico made resolving insolvency easier by clarifying several rules, shortening the time extensions allowed during reorganization, facilitating the electronic submission of DB2015 documents and improving the legal rights of creditors and other parties involved in bankruptcy procedures. This reform applies to both Mexico City and Monterrey. Source: Doing Business database. 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. Doing Business 2016 Mexico 120 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the with higher values indicating insolvency legislation that is sum of the scores on the commencement of better designed for rehabilitating viable firms and proceedings index, management of debtor’s assets liquidating nonviable ones. Mexico scores 11.50 out of 16 index, reorganization proceedings index and creditor on the strength of resolving insolvency index. participation index. The index ranges from 0 to 16, Figure 11.3 Strength of insolvency framework index (0-16) in Mexico and comparator economies Source: Doing Business database. Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice”. Doing Business 2016 Mexico 121 Table 11.3 Summary of data for the strength of insolvency framework index Mexico Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) Strength of insolvency framework index (0-16) 11.50 11.50 Commencement of proceedings index (0-3) 2.50 2.50 (a) Debtor (a) Debtor may file for may file for both both What procedures are available to a DEBTOR when liquidation 1.0 liquidation 1.0 commencing insolvency proceedings? and and reorganizatio reorganizati n on (a) Yes, a (a) Yes, a creditor creditor may may file for file for both Does the insolvency framework allow a CREDITOR to both liquidation 1.0 1.0 file for insolvency of the debtor? liquidation and and reorganizatio reorganizati n on What basis for commencement of the insolvency (e) Other, (e) Other, proceedings is allowed under the insolvency 0.5 please 0.5 please specify framework? specify Management of debtor's assets index (0-6) 5.50 5.50 Does the insolvency framework allow the continuation of contracts supplying essential goods and services to Yes 1.0 Yes 1.0 the debtor? Does the insolvency framework allow the rejection by Yes 1.0 Yes 1.0 the debtor of overly burdensome contracts? Does the insolvency framework allow avoidance of Yes 1.0 Yes 1.0 preferential transactions? Does the insolvency framework allow avoidance of Yes 1.0 Yes 1.0 undervalued transactions? Does the insolvency framework provide for the possibility of the debtor obtaining credit after Yes 1.0 Yes 1.0 commencement of insolvency proceedings? (a) Yes over (a) Yes over Does the insolvency framework assign priority to post- all pre- all pre- commencem 0.5 commence 0.5 commencement credit? ent creditors, ment secured or creditors, Doing Business 2016 Mexico 122 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) unsecured secured or unsecured Reorganization proceedings index (0-3) 1.50 1.50 Which creditors vote on the proposed reorganization (a) All (a) All 0.5 0.5 plan? creditors creditors Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as No 0.0 No 0.0 what they would obtain in a liquidation? Are the creditors divided into classes for the purposes of voting on the reorganization plan, does each class Yes 1.0 Yes 1.0 vote separately and are creditors in the same class treated equally? Creditor participation index (0-4) 2.00 2.00 Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency No 0.0 No 0.0 representative? Does the insolvency framework require approval by the No 0.0 No 0.0 creditors for sale of substantial assets of the debtor? Does the insolvency framework provide that a creditor has the right to request information from the insolvency Yes 1.0 Yes 1.0 representative? Does the insolvency framework provide that a creditor has the right to object to decisions accepting or Yes 1.0 Yes 1.0 rejecting creditors' claims? Source: Doing Business database. Doing Business 2016 Mexico 123 LABOR MARKET REGULATION Doing Business has historically studied the flexibility of regulations as well as secondary sources are reviewed to regulation of employment, specifically as it relates to the ensure accuracy. areas of hiring, working hours and redundancy. This year Doing Business has expanded the scope of the labor To make the data comparable across economies, several market regulation indicators by adding 16 new assumptions about the worker and the business are questions, most of which focus on measuring job quality. used. Over the period from 2007 to 2011 improvements were The worker: made to align the methodology for the labor market  Is a cashier in a supermarket or grocery store, regulation indicators (formerly the employing workers age 19, with one year of work experience. indicators) with the letter and spirit of the International  Is a full-time employee. Labour Organization (ILO) conventions. Ten of the 189  Is not a member of the labor union, unless ILO conventions cover areas now measured by Doing membership is mandatory. Business (up from four previously): employee The business: termination, weekend work, holiday with pay, night work,  Is a limited liability company (or the equivalent protection against unemployment, sickness benefits, in the economy). maternity protection, working hours, equal remuneration  Operates a supermarket or grocery store in the and labor inspections. economy’s largest business city. For 11 economies the data are also collected for the Between 2009 and 2011 the World Bank Group worked second largest business city. with a consultative group—including labor lawyers,  Has 60 employees. employer and employee representatives, and experts  Is subject to collective bargaining agreements if from the ILO, the Organisation for Economic Co- such agreements cover more than 50% of the operation and Development (OECD), civil society and the food retail sector and they apply even to firms private sector—to review the methodology for the labor that are not party to them. market regulation indicators and explore future areas of  Abides by every law and regulation but does not research. grant workers more benefits than those mandated by law, regulation or (if applicable) A full report with the conclusions of the consultative collective bargaining agreements. group, along with the methodology it proposed, is available on the Doing Business website at: http://www.doingbusiness.org/methodology/labor- market-regulation. Doing Business 2016 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and Doing Business 2016 Mexico 124 LABOR MARKET REGULATION What are the details? The data reported here for Mexico are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Hiring Data on hiring cover five areas: (i) whether fixed-term wage to the average value added per worker (the ratio of contracts are prohibited for permanent tasks; (ii) the an economy’s GNI per capita to the working-age maximum cumulative duration of fixed-term contracts; population as a percentage of the total population), and (iii) the minimum wage for a cashier, age 19, with one (v) the availability of incentives for employers to hire year of work experience; (iv) the ratio of the minimum employees under the age of 25*. Mexico City Monterrey Hiring Data Data Fixed-term contracts prohibited for permanent tasks? Yes Yes Maximum length of a single fixed-term contract (months) No limit No limit Maximum length of fixed-term contracts, including renewals (months) No limit No limit Minimum wage applicable to the worker assumed in the case study 175.5 175.5 (US$/month) Ratio of minimum wage to value added per worker 0.1 0.1 Incentives for employing workers under age 25? No No Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 Mexico 125 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men*; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work*; and (ix) the average paid annual leave percentage of hourly pay); (iv) the premium for overtime for workers with 1 year of tenure, 5 years of tenure, and work (as a percentage of hourly pay)*; (v) whether there 10 years of tenure. are restrictions on night work; (vi) whether nonpregnant Mexico City Monterrey Working Hours Data Data Maximum number of working days per week 6.0 6.0 Premium for night work (% of hourly pay) 0.0 0.0 Premium for work on weekly rest day (% of hourly pay) 25.0 25.0 Premium for overtime work (% of hourly pay) 100.0 100.0 Restrictions on night work? 0.0 0.0 Whether nonpregnant and nonnursing women can work the same Yes Yes night hours as men Restrictions on weekly holiday? 0.0 0.0 Restrictions on overtime work? Yes Yes Paid annual leave for a worker with 1 year of tenure (working days) 6.0 6.0 Paid annual leave for a worker with 5 years of tenure (working days) 14.0 14.0 Paid annual leave for a worker with 10 years of tenure (working days) 16.0 16.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, 12.0 12.0 in working days) Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 Mexico 126 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Mexico City Monterrey Difficulty of redundancy index Data Data Maximum length of probationary period (months) 1.0 1.0 Dismissal due to redundancy allowed by law? Yes Yes Third-party notification if one worker is dismissed? Yes Yes Third-party approval if one worker is dismissed? Yes Yes Third-party notification if nine workers are dismissed? Yes Yes Third-party approval if nine workers are dismissed? Yes Yes Retraining or reassignment obligation before redundancy? No No Priority rules for redundancies? Yes Yes Priority rules for reemployment? Yes Yes Source: Doing Business database. Doing Business 2016 Mexico 127 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year requirements and severance payments due when of tenure, a worker with 5 years and a worker with 10 terminating a redundant worker, expressed in weeks of years is considered. One month is recorded as 4 and salary. The average value of notice requirements and 1/3 weeks. Mexico City Monterrey Redundancy cost indicator (in salary weeks) Data Data Notice period for redundancy dismissal for a worker with 1 year of 0.0 0.0 tenure Notice period for redundancy dismissal for a worker with 5 years of 0.0 0.0 tenure Notice period for redundancy dismissal for a worker with 10 years of 0.0 0.0 tenure Notice period for redundancy dismissal (average for workers with 1, 5 0.0 0.0 and 10 years of tenure) Severance pay for redundancy dismissal for a worker with 1 year of 14.6 14.6 tenure Severance pay for redundancy dismissal for a worker with 5 years of 21.4 21.4 tenure Severance pay for redundancy dismissal for a worker with 10 years of 30.0 30.0 tenure Severance pay for redundancy dismissal (average for workers with 1, 5 22.0 22.0 and 10 years of tenure) Source: Doing Business database. Doing Business 2016 Mexico 128 LABOR MARKET REGULATION Job quality Doing Business 2016 report presents, for the first time, on-the-job training at no cost to the employee; (viii) data on 12 job quality areas: (i) whether the law whether a worker is eligible for an unemployment mandates equal remuneration for work of equal value; protection scheme after one year of service; (ix) the (ii) whether the law mandates nondiscrimination based minimum duration of the contribution period (in months) on gender in hiring, (iii) whether the law mandates paid required for unemployment protection; (x) whether an or unpaid maternity leave; (iv) the minimum length of employee can create or join a union; (xi) the availability maternity leave in calendar days (minimum number of of administrative or judicial relief in case of infringement days that legally have to be paid by the government, the of employees’ rights; and (xii) the availability of a labor employer or both); (v) whether employees on maternity inspection system. If no maternity leave is mandated by leave receive 100 % of wages; (vi) the availability of five law, parental leave is measured if applicable. fully paid days of sick leave a year; (vii) the availability of Mexico City Monterrey Job Quality Data Data Equal remuneration for work of equal value? No No Gender nondiscrimination in hiring? Yes Yes Paid or unpaid maternity leave mandated by law? Yes Yes Minimum length of maternity leave (calendar days)? 84.0 84.0 Receive 100% of wages on maternity leave? Yes Yes Five fully paid days of sick leave a year? No No On-the-job training? Yes Yes Unemployment protection after one year of employment? No No Minimum contribution period for unemployment protection (months)? n.a. n.a. Can employee create or join union? Yes Yes Administrative or judicial relief for infringement of employees' rights? Yes Yes Labor inspection system? Yes Yes Source: Doing Business database. Doing Business 2016 Mexico 129 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate even though it is no longer at the frontier in a measures: the distance to frontier score and the ease of subsequent year. doing business ranking, which is based on the distance For scores such as those on the strength of legal rights to frontier score. The ease of doing business ranking index or the quality of land administration index, the compares economies with one another; the distance to frontier is set at the highest possible value. For the total frontier score benchmarks economies with respect to tax rate, consistent with the use of a threshold in regulatory best practice, showing the absolute distance calculating the rankings on this indicator, the frontier is to the best performance on each Doing Business defined as the total tax rate at the 15th percentile of the indicator. When compared across years, the distance to overall distribution for all years included in the analysis frontier score shows how much the regulatory up to and including Doing Business 2015. For the time to environment for local entrepreneurs in an economy has pay taxes the frontier is defined as the lowest time changed over time in absolute terms, while the ease of recorded among all economies that levy the three major doing business ranking can show only how much the taxes: profit tax, labor taxes and mandatory regulatory environment has changed relative to that in contributions, and value added tax (VAT) or sales tax. For other economies. the different times to trade across borders, the frontier is Distance to Frontier defined as 1 hour even though in many economies the time is less than that. The distance to frontier score captures the gap between an economy’s performance and a measure of best In the same formulation, to mitigate the effects of practice across the entire sample of 36 indicators for 10 extreme outliers in the distributions of the rescaled data Doing Business topics (the labor market regulation for most component indicators (very few economies indicators are excluded). For starting a business, for need 700 days to complete the procedures to start a example, the former Yugoslav Republic of Macedonia business, but many need 9 days), the worst performance and New Zealand have the smallest number of is calculated after the removal of outliers. The definition procedures required (1), and New Zealand the shortest of outliers is based on the distribution for each time to fulfill them (0.5 days). Slovenia has the lowest component indicator. To simplify the process two rules cost (0.0), and Australia, Colombia and 103 other were defined: the 95th percentile is used for the economies have no paid-in minimum capital indicators with the most dispersed distributions requirement (table 14.1 in the Doing Business 2016 (including minimum capital, number of payments to pay report). taxes, and the time and cost indicators), and the 99th percentile is used for number of procedures. No outlier is Calculation of the distance to frontier score removed for component indicators bound by definition Calculating the distance to frontier score for each or construction, including legal index scores (such as the economy involves two main steps. In the first step depth of credit information index, extent of conflict of individual component indicators are normalized to a interest regulation index and strength of insolvency common unit where each of the 36 component framework index) and the recovery rate. indicators y (except for the total tax rate) is rescaled In the second step for calculating the distance to frontier using the linear transformation (worst − y)/(worst − score, the scores obtained for individual indicators for frontier). In this formulation the frontier represents the each economy are aggregated through simple averaging best performance on the indicator across all economies into one distance to frontier score, first for each topic since 2005 or the third year in which data for the and then across all 10 topics: starting a business, dealing indicator were collected. Both the best performance and with construction permits, getting electricity, registering the worst performance are established every five years property, getting credit, protecting minority investors, based on the Doing Business data for the year in which paying taxes, trading across borders, enforcing contracts they are established, and remain at that level for the five and resolving insolvency. More complex aggregation years regardless of any changes in data in interim years. methods—such as principal components and Thus an economy may set the frontier for an indicator unobserved components—yield a ranking nearly Doing Business 2016 Mexico 130 identical to the simple average used by Doing Business . The nonlinear transformation is not based on any 4 Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components . overall tax system. Instead, it is mainly empirical in 5 nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2015 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 in the Doing Business 2016 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 in the Doing Business 2016 report). 4 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 5 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights Doing Business 2016 Mexico 131 Table 13.1 Weights used in calculating the distance to implemented regulatory reforms making it easier to do frontier scores for economies with 2 cities covered business in 3 or more of the 10 topics included in this year’s aggregate distance to frontier score. Changes Economy City Weight (%) making it more difficult to do business are subtracted Dhaka 78 Bangladesh from the total number of those making it easier to do Chittagong 22 São Paulo 61 business. Twenty-four economies meet this criterion: Brazil Armenia; Azerbaijan; Benin; Costa Rica; Côte d’Ivoire; Rio de Janeiro 39 Shanghai 55 Cyprus; Hong Kong SAR, China; Indonesia; Jamaica; China Beijing 45 Kazakhstan; Kenya; Lithuania; Madagascar; Mauritania; Mumbai 47 Morocco; Romania; the Russian Federation; Rwanda; India Delhi 53 Senegal; Togo; Uganda; the United Arab Emirates; Jakarta 78 Uzbekistan; and Vietnam. Second, Doing Business sorts Indonesia Surabaya 22 these economies on the increase in their distance to Tokyo 65 Japan frontier score from the previous year using comparable Osaka 35 data. Mexico City 83 Mexico Monterrey 17 Selecting the economies that implemented regulatory Lagos 77 reforms in at least three topics and had the biggest Nigeria Kano 23 improvements in their distance to frontier scores is Karachi 65 intended to highlight economies with ongoing, broad- Pakistan Lahore 35 based reform programs. The improvement in the Moscow 70 Russian Federation distance to frontier score is used to identify the top St. Petersburg 30 New York 60 improvers because this allows a focus on the absolute United States improvement—in contrast with the relative improvement Los Angeles 40 Source: United Nations, Department of Economic and Social shown by a change in rankings—that economies have Affairs, Population Division, World Urbanization Prospects, made in their regulatory environment for business. 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking Economies that improved the most across 3 or more Doing Business topics in 2014/15 The ease of doing business ranking ranges from 1 to 189. The ranking of economies is determined by sorting the Doing Business 2016 uses a simple method to calculate aggregate distance to frontier scores, rounded to 2 which economies improved the ease of doing business decimals. the most. First, it selects the economies that in 2014/15 Doing Business 2016 Mexico 132 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 11,400 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 136 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, case studies and repreneurship customized economy and regional profiles http://www.doingbusiness.org/reports Distance to frontier Data benchmarking 189 economies to the frontier Methodology in regulatory practice and a distance to frontier The methodologies and research papers underlying calculator Doing Business http://www.doingbusiness.org/data/distance-to- http://www.doingbusiness.org/methodology frontier Research Information on good practices Abstracts of papers on Doing Business topics and Showing where the many good practices identified related policy issues by Doing Business have been adopted http://www.doingbusiness.org/research http://www.doingbusiness.org/data/good-practice Doing Business reforms Short summaries of DB2016 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2016 Mexico 133