103365 Regional Profile 2016 Europe and Central Asia (ECA) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 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 EUROPE AND CENTRAL ASIA (ECA) 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 26 Getting electricity ....................................................................................................................... 38 Registering property .................................................................................................................. 47 Getting credit .............................................................................................................................. 57 Protecting minority investors ................................................................................................... 65 Paying taxes ................................................................................................................................ 73 Trading across borders .............................................................................................................. 86 Enforcing contracts .................................................................................................................. 101 Resolving insolvency ................................................................................................................ 108 Distance to frontier and ease of doing business ranking .................................................... 117 Resources on the Doing Business website ............................................................................ 120 Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is performance globally for each indicator and data for the for a local entrepreneur to open and run a small to following comparator regions: European Union (EU), medium-size business when complying with relevant Latin America, East Asia and the Pacific (EAP), Middle regulations. It measures and tracks changes in East and North Africa (MENA) and OECD High Income.. regulations affecting 11 areas in the life cycle of a The data in this report are current as of June 1, 2015 business: starting a business, dealing with construction (except for the paying taxes indicators, which cover the permits, getting electricity, registering property, getting period January–December 2014). credit, protecting minority investors, paying taxes, The Doing Business methodology has limitations. Other trading across borders, enforcing contracts, resolving areas important to business—such as an economy’s insolvency and labor market regulation. Doing Business proximity to large markets, the quality of its 2016 presents the data for the labor market regulation infrastructure services (other than those related to indicators in an annex. The report does not present trading across borders and getting electricity), the rankings of economies on labor market regulation security of property from theft and looting, the indicators or include the topic in the aggregate distance transparency of government procurement, to frontier score or ranking on the ease of doing macroeconomic conditions or the underlying strength of business. institutions—are not directly studied by Doing Business. In a series of annual reports Doing Business presents The indicators refer to a specific type of business, quantitative indicators on business regulations and the generally a local limited liability company operating in protection of property rights that can be compared the largest business city. Because standard assumptions across 189 economies, from Afghanistan to Zimbabwe, are used in the data collection, comparisons and over time. The data set covers 47 economies in Sub- benchmarks are valid across economies. The data not Saharan Africa, 32 in Latin America and the Caribbean, 25 only highlight the extent of obstacles to doing business; in East Asia and the Pacific, 25 in Eastern Europe and they also help identify the source of those obstacles, Central Asia, 20 in the Middle East and North Africa and supporting policy makers in designing regulatory reform. 8 in South Asia, as well as 32 OECD high-income More information is available in the full report. Doing economies. The indicators are used to analyze economic Business 2016 presents the indicators, analyzes their outcomes and identify what reforms have worked, where relationship with economic outcomes and recommends and why. regulatory reforms. The data, along with information on This regional profile presents the Doing Business ordering the Doing Business 2016 report, are available on indicators for economies in Europe and Central Asia the Doing Business website at (ECA). It also shows the regional average, the best http://www.doingbusiness.org. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 5 THE BUSINESS ENVIRONMENT 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 EUROPE AND CENTRAL ASIA (ECA) 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s permits, getting electricity, registering property, regulatory environment for business, a good place to getting credit, protecting minority investors, paying start is to find out how it compares with the regulatory taxes, trading across borders, enforcing contracts environment in other economies. Doing Business and resolving insolvency. The labor market provides an aggregate ranking on the ease of doing regulation indicators are not included in this year’s business based on indicator sets that measure and aggregate ease of doing business ranking, but the benchmark regulations applying to domestic small to data are presented in the economy profile. medium-size businesses through their life cycle. The ease of doing business ranking compares Economies are ranked from 1 to 189 by the ease of economies with one another; the distance to frontier doing business ranking. Doing Business presents results score benchmarks economies with respect to for 2 aggregate measures: the distance to frontier score regulatory best practice, showing the absolute and the ease of doing business ranking. The ranking of distance to the best performance on each Doing economies is determined by sorting the aggregate Business indicator. When compared across years, the distance to frontier scores, rounded to two decimals. An distance to frontier score shows how much the economy’s distance to frontier score is indicated on a regulatory environment for local entrepreneurs in an scale from 0 to 100, where 0 represents the worst economy has changed over time in absolute terms, performance and 100 the frontier. (See the chapter on while the ease of doing business ranking can show the distance to frontier and ease of doing business). only how much the regulatory environment has The 10 topics included in the ranking in Doing Business changed relative to that in other economies. 2016: starting a business, dealing with construction Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy stands in regional average (figure 1.2). Another perspective is the aggregate ranking on the ease of doing business is provided by the regional average rankings on the topics useful. Also useful is to know how it ranks compared with included in the ease of doing business ranking (figure 1.3) other economies in the region and compared with the and the distance to frontier scores (figures 1.4 and 1.5). Figure 1.2 How economies in Europe and Central Asia (ECA) 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 EUROPE AND CENTRAL ASIA (ECA) 8 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Europe and Central Asia (ECA) (Scale: Rank 189 center, Rank 1 outer edge) Regional average ranking Source: Doing Business database. Figure 1.4 Distance to frontier scores on Doing Business topics - Europe and Central Asia (ECA) (Scale: Score 0 center, Score 100 outer edge) 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 respec t 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 EUROPE AND CENTRAL ASIA (ECA) 9 Figure 1.5 How far has Europe and Central Asia (ECA) come in the areas measured by Doing Business? Source: Doing Business database. 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. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business The absolute values of the indicators tell another part of tells only part of the story, so do changes in that ranking. the story (table 1.1). Policy makers can learn much by Yearly movements in rankings can provide some comparing the indicators for their economy with those indication of changes in an economy’s regulatory for the lowest- and highest-scoring economies in the environment for firms, but they are always relative. An region as well as those for the best performers globally. economy’s ranking might change because of These comparisons may reveal unexpected strengths in developments in other economies. An economy that an area of business regulation—such as a regulatory implemented business regulation reforms may fail to rise process that can be completed with a small number of in the rankings (or may even drop) if it is passed by procedures in a few days and at a low cost. others whose business regulation reforms had a more significant impact as measured by Doing Business. Table 1.1 Summary of Doing Business indicators for Europe and Central Asia (ECA) Lowest regional Best regional Best global Indicator Regional average performance performance performance Starting a Business 175 (Bosnia and 2 (Macedonia, FYR) 47 1 (New Zealand) (rank) Herzegovina) Starting a Business 63.52 (Bosnia and 99.86 (Macedonia, FYR) 91.27 99.96 (New Zealand) (DTF Score) Herzegovina) 12.0 (Bosnia and Procedures (number) 1.0 (Macedonia, FYR) 4.7 1.0 (New Zealand*) Herzegovina) 67.0 (Bosnia and Time (days) 1.0 (Macedonia, FYR) 10.0 0.5 (New Zealand) Herzegovina) Cost (% of income per 21.5 (Tajikistan) 0.1 (Macedonia, FYR*) 4.8 0.0 (Slovenia) capita) Paid-in min. capital (% 29.8 (San Marino) 0.0 (20 Economies*) 3.8 0.0 (105 Economies*) of income per capita) Dealing with Construction Permits 189 (Albania) 10 (Macedonia, FYR) 98 1 (Singapore) (rank) Dealing with Construction Permits 0.00 (Albania) 83.14 (Macedonia, FYR) 65.23 92.97 (Singapore) (DTF Score) Procedures (number) 27.0 (Tajikistan*) 7.0 (Georgia) 15.9 7.0 (5 Economies*) Time (days) 617.0 (Cyprus) 48.0 (Georgia) 176.3 26.0 (Singapore) Cost (% of warehouse 19.3 (Bosnia and 0.2 (Georgia) 4.4 0.0 (Qatar) value) Herzegovina) Building quality control 0.0 (Albania) 14.0 (4 Economies*) 11.2 15.0 (New Zealand) index (0-15) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 11 Lowest regional Best regional Best global Indicator Regional average performance performance performance Getting Electricity 177 (Tajikistan) 10 (San Marino) 94 1 (Korea, Rep.) (rank) Getting Electricity 34.79 (Tajikistan) 90.63 (San Marino) 66.24 99.88 (Korea, Rep.) (DTF Score) Procedures (number) 9.0 (Tajikistan) 3.0 (3 Economies*) 5.7 3.0 (14 Economies*) Time (days) 263.0 (Ukraine) 45.0 (San Marino) 118.5 18.0 (Korea, Rep.*) Cost (% of income per 1,393.1 (Uzbekistan) 51.2 (Kazakhstan) 440.2 0.0 (Japan) capita) Reliability of supply and transparency of 0.0 (4 Economies*) 8.0 (Lithuania*) 4.7 8.0 (18 Economies*) tariff index (0-8) Registering Property 107 (Albania) 2 (Lithuania) 49 1 (New Zealand) (rank) Registering Property 58.47 (Albania) 93.04 (Lithuania) 75.32 94.46 (New Zealand) (DTF Score) Procedures (number) 9.0 (Uzbekistan*) 1.0 (Georgia) 5.4 1.0 (4 Economies*) Time (days) 69.0 (Montenegro) 1.0 (Georgia) 22.0 1.0 (3 Economies*) Cost (% of property 10.4 (Cyprus) 0.0 (Belarus) 2.6 0.0 (Saudi Arabia) value) Quality of the land administration index 7.5 (Tajikistan) 28.5 (Lithuania) 19.4 28.5 (3 Economies*) (0-30) Getting Credit (rank) 181 (San Marino) 7 (3 Economies*) 51 1 (New Zealand) Getting Credit (DTF 5.00 (San Marino) 85.00 (3 Economies*) 62.20 100.00 (New Zealand) Score) Strength of legal rights 1.0 (Tajikistan*) 12.0 (Montenegro) 6.2 12.0 (3 Economies*) index (0-12) Depth of credit 0.0 (San Marino) 8.0 (3 Economies*) 6.3 8.0 (26 Economies*) information index (0-8) Credit registry 15.9 (Romania) 95.2 (Kosovo) 23.8 100.0 (Portugal) coverage (% of adults) Credit bureau coverage 9.9 (Bosnia and 100.0 (Croatia*) 37.4 100.0 (22 Economies*) (% of adults) Herzegovina) Protecting Minority 122 (San Marino) 8 (Albania) 46 1 (3 Economies*) Investors (rank) Protecting Minority 45.00 (San Marino) 73.33 (Albania) 61.87 83.33 (3 Economies*) Investors (DTF Score) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 12 Lowest regional Best regional Best global Indicator Regional average performance performance performance Strength of minority investor protection 4.5 (San Marino) 7.3 (Albania) 6.2 8.3 (3 Economies*) index (0-10) Extent of conflict of interest regulation 4.0 (Ukraine) 7.7 (4 Economies*) 6.1 9.3 (Singapore*) index (0-10) Extent of shareholder governance index (0- 3.0 (San Marino) 8.0 (Bulgaria*) 6.3 8.0 (4 Economies*) 10) 1 (United Arab Paying Taxes (rank) 172 (Tajikistan) 7 (Macedonia, FYR) 73 Emirates*) Paying Taxes (DTF 99.44 (United Arab 43.53 (Tajikistan) 94.17 (Macedonia, FYR) 76.15 Score) Emirates*) Payments (number per 3.0 (Hong Kong SAR, 51.0 (Kyrgyz Republic) 5.0 (Georgia*) 19.2 year) China*) Time (hours per year) 423.0 (Bulgaria) 52.0 (San Marino) 232.7 55.0 (Luxembourg) Total tax rate (% of 81.8 (Tajikistan) 12.9 (Macedonia, FYR) 34.8 25.9 (Ireland) profit) Trading Across 170 (Russian Federation) 1 (Romania*) 58 1 (16 Economies*) Borders (rank) Trading Across 37.39 (Russian 100.00 (Romania*) 82.42 100.00 (16 Economies*) Borders (DTF Score) Federation) Time to export: Border 133 (Kazakhstan) 0 (3 Economies*) 28 0 (15 Economies*) compliance (hours) Cost to export: Border 1,125 (Russian 0 (4 Economies*) 219 0 (18 Economies*) compliance (USD) Federation) Time to export: Documentary 174 (Uzbekistan) 1 (3 Economies*) 31 0 (Jordan) compliance (hours) Cost to export: Documentary 500 (Russian Federation) 0 (3 Economies*) 144 0 (20 Economies*) compliance (USD) Time to import: Border 111 (Uzbekistan) 0 (4 Economies*) 23 0 (19 Economies*) compliance (hours) Cost to import: Border 1,125 (Russian 0 (8 Economies*) 202 0 (28 Economies*) compliance (USD) Federation) Time to import: Documentary 174 (Uzbekistan) 1 (5 Economies*) 27 1 (21 Economies*) compliance (hours) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 13 Lowest regional Best regional Best global Indicator Regional average performance performance performance Cost to import: Documentary 500 (Russian Federation) 0 (8 Economies*) 108 0 (30 Economies*) compliance (USD) Enforcing Contracts 143 (Cyprus) 3 (Lithuania) 50 1 (Singapore) (rank) Enforcing Contracts 48.59 (Cyprus) 79.79 (Lithuania) 66.43 84.91 (Singapore) (DTF Score) Time (days) 1,100.0 (Cyprus) 225.0 (Uzbekistan) 480.7 150.0 (Singapore) Cost (% of claim) 47.0 (Kyrgyz Republic) 13.9 (San Marino) 26.2 9.0 (Iceland) Quality of judicial 4.5 (Kyrgyz Republic) 15.5 (Macedonia, FYR) 10.5 15.5 (3 Economies*) processes index (0-18) Resolving Insolvency 163 (Kosovo) 17 (Cyprus) 74 1 (Finland) (rank) Resolving Insolvency 20.30 (Kosovo) 79.04 (Cyprus) 51.06 93.81 (Finland) (DTF Score) Recovery rate (cents on 8.3 (Ukraine) 71.4 (Cyprus) 38.3 92.9 (Japan) the dollar) Time (years) 4.5 (Turkey) 1.4 (Montenegro) 2.3 0.4 (Ireland) Cost (% of estate) 42.0 (Ukraine) 5.0 (San Marino) 13.2 1.0 (Norway) Strength of insolvency 15.0 (Bosnia and 0.0 (Kosovo) 9.7 15.0 (4 Economies*) framework index (0-16) Herzegovina) * 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). Note: 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. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 14 STARTING A BUSINESS WHAT THE STARTING A BUSINESS Formal registration of companies has many INDICATORS MEASURE immediate benefits for the companies and for business owners and employees. Legal entities can Procedures to legally start and operate a outlive their founders. Resources are pooled as company (number) several shareholders join forces to start a company. Formally registered companies have access to Preregistration (for example, name services and institutions from courts to banks as well verification or reservation, notarization) as to new markets. And their employees can benefit Registration in the economy’s largest from protections provided by the law. An additional business city 1 benefit comes with limited liability companies. These Postregistration (for example, social security limit the financial liability of company owners to their registration, company seal) investments, so personal assets of the owners are not put at risk. Where governments make registration Time required to complete each procedure easy, more entrepreneurs start businesses in the (calendar days) formal sector, creating more good jobs and Does not include time spent gathering generating more revenue for the government. information What do the indicators cover? Each procedure starts on a separate day (2 procedures cannot start on the same day). Doing Business measures the ease of starting a Procedures that can be fully completed business in an economy by recording all procedures online are recorded as ½ day. officially required or commonly done in practice by an entrepreneur to start up and formally operate an Procedure completed once final document is industrial or commercial business—as well as the received time and cost required to complete these procedures. No prior contact with officials It also records the paid-in minimum capital that Cost required to complete each procedure companies must deposit before registration (or (% of income per capita) within 3 months). The ranking of economies on the ease of starting a business is determined by sorting Official costs only, no bribes their distance to frontier scores for starting a No professional fees unless services required business. These scores are the simple average of the by law distance to frontier scores for each of the component indicators. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Conducts general commercial or industrial and that there has been no prior contact with activities. officials. It also assumes that the entrepreneur will pay no bribes. And it assumes that the business:  Has a start-up capital of 10 times income per capita.  Is a limited liability company, located in the largest business city , is 100% domestically 1  Has a turnover of at least 100 times income per owned with between 10 and 50 employees. capita.  Does not qualify for any special benefits.  Does not own real estate. For the 11 economies with a population of more than 100 million, data for a second city have been added. 1 Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 15 STARTING A BUSINESS Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in Europe business suggest an answer (figure 2.1). The average and Central Asia (ECA) to start a business? The global ranking of the region and comparator regions provide a rankings of these economies on the ease of starting a useful benchmark. Figure 2.1 How economies in Europe and Central Asia (ECA) rank on the ease of starting a business Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 16 STARTING A BUSINESS The indicators underlying the rankings may be more and the paid-in minimum capital requirement (figure revealing. Data collected by Doing Business show what 2.2). Comparing these indicators across the region and it takes to start a business in each economy in the with averages both for the region and for comparator region: the number of procedures, the time, the cost regions can provide useful insights. Figure 2.2 What it takes to start a business in economies in Europe and Central Asia (ECA) Procedures (number) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 17 STARTING A BUSINESS Time (days) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 18 STARTING A BUSINESS Cost (% of income per capita) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 19 STARTING A BUSINESS Paid-in minimum capital (% of income per capita) Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 20 STARTING A BUSINESS What are the changes over time? Economies around the world have taken steps making it often as part of a larger regulatory reform program. easier to start a business—streamlining procedures by Among the benefits have been greater firm satisfaction setting up a one-stop shop, making procedures simpler and savings and more registered businesses, financial or faster by introducing technology, and reducing or 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 Europe and Central Asia (ECA) (table 2.1)? Table 2.1 How have economies in Europe and Central Asia (ECA) made starting a business easier —or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Azerbaijan made starting a business easier by abolishing the DB2016 Azerbaijan requirement to use a corporate seal. Belarus made starting a business simpler by expanding the DB2016 Belarus geographic coverage of online registration and improving online services. Kazakhstan made starting a business simpler by eliminating registration fees for small and medium-size firms, shortening DB2016 Kazakhstan registration times and eliminating the legal requirement to use a company seal. Lithuania made starting a business easier by introducing DB2016 Lithuania online VAT registration. Moldova made starting a business easier by eliminating an DB2016 Moldova inspection by the Territorial State Fiscal Inspectorate. The former Yugoslav Republic of Macedonia made starting a DB2016 Macedonia, FYR business simpler by introducing compulsory online registration carried out by certified agents. The Russian Federation made starting a business in Moscow DB2016 Russian Federation easier by reducing the number of days required to open a corporate bank account. San Marino made starting a business easier by encouraging DB2016 San Marino the use of the online system for obtaining the operator code and business license. Ukraine made starting a business easier by reducing the time required for VAT registration and by eliminating business DB2016 Ukraine registration fees. Uzbekistan made starting a business easier by introducing an DB2016 Uzbekistan online one-stop shop and streamlining registration Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 21 DB year Economy Reform procedures. Albania made starting a business easier by lowering DB2015 Albania registration fees. Armenia made starting a business easier by streamlining DB2015 Armenia postregistration procedures. Azerbaijan made starting a business easier by reducing the DB2015 Azerbaijan time to obtain an electronic signature for online tax registration. Bulgaria made starting a business easier by lowering DB2015 Bulgaria registration fees. Croatia made starting a business easier by reducing notary DB2015 Croatia fees. Lithuania made starting a business easier by eliminating the DB2015 Lithuania need to have a company seal and speeding up the value added tax (VAT) registration at the State Tax Inspectorate. Latvia made starting a business more difficult by increasing DB2015 Latvia registration fees, bank fees and notary fees. Moldova made starting a business easier by abolishing the DB2015 Moldova minimum capital requirement. The former Yugoslav Republic of Macedonia made starting a DB2015 Macedonia, FYR business easier by making online registration free of charge. The Russian Federation made starting a business easier by eliminating the requirement to deposit the charter capital DB2015 Russian Federation before company registration as well as the requirement to notify tax authorities of the opening of a bank account. This reform applies to both Moscow and St. Petersburg. Tajikistan made starting a business easier by enabling the DB2015 Tajikistan Statistics Agency to issue the statistics code for the new business at the time of registration. Turkey made starting a business more difficult by increasing DB2015 Turkey the notary and company registration fees. Armenia made starting a business easier by eliminating the DB2014 Armenia company registration fees. Azerbaijan made starting a business easier by introducing DB2014 Azerbaijan free online registration services and eliminating preregistration formalities. Belarus made starting a business easier by reducing the DB2014 Belarus registration fees and eliminating the requirement for an initial capital deposit at a bank before registration. Croatia made starting a business easier by introducing a new DB2014 Croatia form of limited liability company with a lower minimum capital requirement and simplified incorporation procedures. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 22 DB year Economy Reform Kazakhstan made starting a business easier by reducing the DB2014 Kazakhstan time it takes to register a company at the Public Registration Center. Kosovo made starting a business easier by creating a one- DB2014 Kosovo stop shop for incorporation. Lithuania made starting a business easier by creating a new DB2014 Lithuania form of limited liability company with no minimum capital requirement. Latvia made starting a business easier by making it possible to file the applications for company registration and value DB2014 Latvia added tax registration simultaneously at the commercial registry. Romania made starting a business easier by transferring responsibility for issuing the headquarters clearance DB2014 Romania certificate from the Fiscal Administration Office to the Trade Registry. Russia made starting a business easier by abolishing the DB2014 Russian Federation requirement to have the bank signature card notarized before opening a company bank account. Tajikistan made starting a business more difficult by requiring DB2014 Tajikistan preliminary approval from the tax authority and the submission of additional documents at registration. Turkey made starting a business more difficult by increasing DB2014 Turkey the minimum capital requirement. Ukraine made starting a business easier by eliminating the DB2014 Ukraine requirement for registration with the statistics authority and by eliminating the cost for value added tax registration. Uzbekistan made starting a business easier by abolishing the paid-in minimum capital requirement and by eliminating the DB2014 Uzbekistan requirement to have signature samples notarized before opening a bank account. Albania made starting a business easier by making the DB2013 Albania notarization of incorporation documents optional. Belarus made starting a business more difficult by increasing DB2013 Belarus the cost of business registration and the cost to obtain a company seal. Bulgaria made starting a business easier by reducing the cost DB2013 Bulgaria of registration. Kazakhstan made starting a business easier by eliminating the DB2013 Kazakhstan requirement to pay in minimum capital within 3 months after incorporation. Lithuania made starting a business easier by introducing DB2013 Lithuania online registration for limited liability companies and eliminating the notarization requirement for incorporation Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 23 DB year Economy Reform documents. FYR Macedonia made starting a business easier by simplifying DB2013 Macedonia, FYR the process for obtaining a company seal. Romania made starting a business easier by reducing the DB2013 Romania time required to obtain a clearance certificate from the fiscal administration agency. Ukraine made starting a business easier by eliminating the minimum capital requirement for company incorporation as DB2013 Ukraine well as the requirement to have incorporation documents notarized. Uzbekistan made starting a business easier by introducing an DB2013 Uzbekistan online facility for name reservation and eliminating the fee to open a bank account for small businesses. Serbia made starting a business easier by eliminating the DB2013 Serbia paid-in minimum capital requirement. Kosovo made starting a business easier by eliminating the DB2013 Kosovo minimum capital requirement and business registration fee and streamlining the business registration process. Montenegro made starting a business easier by DB2012 Montenegro implementing a one-stop shop. Uzbekistan made starting a business easier by reducing the DB2012 Uzbekistan minimum capital requirement, eliminating 1 procedure and reducing the cost of registration. Ukraine made starting a business easier by eliminating the DB2012 Ukraine requirement to obtain approval for a new corporate seal. Tajikistan made starting a business easier by allowing entrepreneurs to pay in their capital up to 1 year after the DB2012 Tajikistan start of operations, thereby eliminating the requirements related to opening a bank account. Turkey made starting a business less costly by eliminating DB2012 Turkey notarization fees for the articles of association and other documents. Moldova made starting a business easier by implementing a DB2012 Moldova one-stop shop. Romania made starting a business more difficult by requiring DB2012 Romania a tax clearance certificate for a new company’s headquarters before company registration. Latvia made starting a business easier by reducing the DB2012 Latvia minimum capital requirement and introducing a common application for value added tax and company registration. Georgia simplified business start-up by eliminating the DB2012 Georgia requirement to visit a bank to pay the registration fees. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 24 DB year Economy Reform Bosnia and Herzegovina made starting a business easier by replacing the required utilization permit with a simple DB2012 Bosnia and Herzegovina notification of commencement of activities and by streamlining the process for obtaining a tax identification number. Armenia made starting a business easier by establishing a one-stop shop that merged the procedures for name DB2012 Armenia reservation, business registration and obtaining a tax identification number and by allowing for online company registration. Croatia eased business start-up by allowing limited liability DB2011 Croatia companies to file their registration application with the court registries electronically through the notary public. Bulgaria eased business start-up by reducing the minimum DB2011 Bulgaria capital requirement from 5,000 leva ($3,250) to 2 leva ($1.30). Kazakhstan eased business start-up by reducing the minimum capital requirement to 100 tenge ($0.70) and eliminating the DB2011 Kazakhstan need to have the memorandum of association and company charter notarized. Lithuania tightened the time limit for completing the DB2011 Lithuania registration of a company. The Kyrgyz Republic eased business start-up by eliminating DB2011 Kyrgyz Republic the requirement to have the signatures of company founders notarized. FYR Macedonia made it easier to start a business by further DB2011 Macedonia, FYR improving its one-stop shop. Ukraine eased business start-up by substantially reducing the DB2011 Ukraine minimum capital requirement. Tajikistan made starting a business easier by creating a one- DB2011 Tajikistan stop shop that consolidates registration with the state and the tax authority. Kosovo made business start-up more difficult by replacing the tax number previously required with a “fiscal number,” DB2011 Kosovo which takes longer to issue and requires the tax administration to first inspect the business premises. Montenegro eliminated several procedures for business start- DB2011 Montenegro up by introducing a single registration form for submission to the tax administration. Montenegro made starting a business easier by simplifying the postregistration process—including tax, social security DB2010 Montenegro and employment registration—as well as the process of obtaining a municipal license. Serbia made starting a business easier by creating a one-stop DB2010 Serbia shop for company registration. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 25 DB year Economy Reform Tajikistan made starting a business easier by reducing the DB2010 Tajikistan minimum capital requirement and speeding up the issuance of tax identification numbers. FYR Macedonia made starting a business easier by integrating DB2010 Macedonia, FYR procedures at a one-stop shop. Moldova made starting a business easier by implementing an expedited company registration service and making the DB2010 Moldova authentication of specimen signatures when opening a corporate bank account optional. The Kyrgyz Republic made starting a business easier by eliminating the minimum capital requirement, reducing the DB2010 Kyrgyz Republic registration time and abolishing certain postregistration fees as well as the need to open a bank account before registration. Kazakhstan made starting a business easier by simplifying DB2010 Kazakhstan documentation requirements and eliminating the requirement to register at the local tax office. Bulgaria made starting a business easier by reducing the DB2010 Bulgaria paid-in minimum capital requirement and enhancing efficiency at the company registry. Belarus made starting a business easier by simplifying registration formalities, abolishing the minimum capital DB2010 Belarus requirement, limiting the role of notaries and eliminating the need for approval of the company seal. Armenia made starting a business easier by making the registration forms available online and by eliminating the DB2010 Armenia minimum capital requirement and the requirement to obtain approval from the National Police Department to prepare the company seal. Albania made business start-up easier by making registration electronic and enhancing capacity at the registry, reducing DB2010 Albania the minimum capital requirement and eliminating the requirement to register at the chamber of commerce. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 26 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse (number) many builders opt out. They may pay bribes to pass 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 receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water and Doing Business records all procedures required for a sewerage business in the construction industry to build a 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 Does not include time spent gathering mechanisms, liability and insurance regimes, and information professional certification requirements. Each procedure starts on a separate day. The ranking of economies on the ease of dealing with 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 document is received average of the distance to frontier scores for each of 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. Assumptions about the construction company Building quality control index (0-15) 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 city. Liability and insurance regimes (0-2)  Is 100% domestically and privately owned Professional certifications (0-4) with 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 EUROPE AND CENTRAL ASIA (ECA) 27 The construction company (BuildCo) (continued):  Has 60 builders and other employees, all of  Will be a new construction (there was no them nationals with the technical expertise previous construction on the land), with no and professional experience necessary to trees, natural water sources, natural reserves obtain construction permits and approvals. or historical monuments of any kind on the plot.  Has at least one employee who is a licensed architect or engineer and  Will have complete architectural and registered with the local association of technical plans prepared by a licensed architects or engineers. BuildCo is not architect. If preparation of the plans requires assumed to have any other employees who such steps as obtaining further are technical or licensed experts, such as documentation or getting prior approvals geological or topographical experts. from external agencies, these are counted as procedures.  Has paid all taxes and taken out all necessary insurance applicable to its  Will include all technical equipment required general business activity (for example, to be fully operational. accidental insurance for construction  Will take 30 weeks to construct (excluding all workers and third-person liability). delays due to administrative and regulatory  Owns the land on which the warehouse will requirements). 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 is no water delivery infrastructure in the economy, a  The warehouse: borehole will be dug. If there is no sewerage  Will be used for general storage activities, infrastructure, a septic tank in the smallest size such as storage of books or stationery. The available will be installed or built. warehouse will not be used for any goods  Will not require water for fire protection requiring special conditions, such as food, reasons; a fire extinguishing system (dry chemicals or pharmaceuticals. system) will be used instead. If a wet fire  Will have two stories, both above ground, protection system is required by law, it is with a total constructed area of assumed that the water demand specified approximately 1,300.6 square meters below also covers the water needed for fire (14,000 square feet). Each floor will be 3 protection. meters (9 feet, 10 inches) high.  Will have an average water use of 662 liters  Will have road access and be located in the (175 gallons) a day and an average periurban area of the economy’s largest wastewater flow of 568 liters (150 gallons) a business city (that is, on the fringes of the day. Will have a peak water use of 1,325 liters city but still within its official limits). For 11 (350 gallons) a day and a peak wastewater economies the data are also collected for flow of 1,136 liters (300 gallons) a day. the second largest business city.  Will have a constant level of water demand • Will not be located in a special economic and wastewater flow throughout the year. or industrial zone. Will be located on a land  Will be 1 inch in diameter for the water plot of approximately 929 square meters connection and 4 inches in diameter for the (10,000 square feet) that is 100% owned by sewerage connection. BuildCo and is accurately registered in the cadastre and land registry. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 28 DEALING WITH CONSTRUCTION PERMITS Where do the region’s economies stand today? How easy it is for entrepreneurs in economies in Europe dealing with construction permits suggest an answer and Central Asia (ECA) to legally build a warehouse? The (figure 3.1). The average ranking of the region and global rankings of these economies on the ease of comparator regions provide a useful benchmark. Figure 3.1 How economies in Europe and Central Asia (ECA) rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 29 DEALING WITH CONSTRUCTION PERMITS The indicators underlying the rankings may be more the time and the cost (figure 3.2). Comparing these revealing. Data collected by Doing Business show what it indicators across the region and with averages both for takes to comply with formalities to build a warehouse in the region and for comparator regions can provide each economy in the region: the number of procedures, useful insights. Figure 3.2 What it takes to comply with formalities to build a warehouse in economies in Europe and Central Asia (ECA) Procedures (number) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 30 DEALING WITH CONSTRUCTION PERMITS Time (days) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 31 DEALING WITH CONSTRUCTION PERMITS Cost (% of warehouse value) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in 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. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 32 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index (0-15) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in 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. Note: The index ranges from 0 to 15, with higher values indicating better quality control and safety mechanisms in the construction permitting system. The indicator is based on the same case study assumptions as the measures of efficiency. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 33 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? Smart regulation ensures that standards are met while compliance costs reasonable, governments around the making compliance easy and accessible to all. Coherent world have worked on consolidating permitting and transparent rules, efficient processes and adequate requirements. What construction permitting reforms has allocation of resources are especially important in sectors Doing Business recorded in Europe and Central Asia where safety is at stake. Construction is one of them. In (ECA) (table 3.1)? an effort to ensure building safety while keeping Table 3.1 How have economies in Europe and Central Asia (ECA) made dealing with construction permits easier —or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Albania made dealing with construction permits more DB2016 Albania difficult by suspending the issuance of building permits. Armenia made dealing with construction permits easier by exempting lower-risk projects from requirements for DB2016 Armenia approval of the architectural drawings by an independent expert and for technical supervision of the construction. Azerbaijan made dealing with construction permits easier by DB2016 Azerbaijan establishing a one-stop shop for issuing preapprovals for project documentation. Georgia made dealing with construction permits easier by DB2016 Georgia reducing the time needed for issuing building permits. Kazakhstan made dealing with construction permits easier by DB2016 Kazakhstan eliminating the requirement to obtain a topographic survey of the land plot. Latvia made dealing with construction permits more time- consuming by increasing the time required to obtain a DB2016 Latvia building permit—despite having streamlined the process by having the building permit issued together with the architectural planning conditions. Montenegro made dealing with construction permits easier DB2016 Montenegro by reducing the time needed to issue building permits. Serbia made dealing with construction permits less costly by eliminating the land development tax for warehouses. On DB2016 Serbia the other hand, it also introduced a mandatory inspection of foundation works. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 34 DB year Economy Reform Turkey made dealing with construction permits easier by DB2016 Turkey streamlining the process to obtain the fire clearance. Albania made dealing with construction permits easier by resuming the issuance of construction permits and by DB2015 Albania consolidating the land permit and construction permit into a single construction development permit. Croatia made dealing with construction permits easier by DB2015 Croatia reducing the requirements and fees for building permits and carrying out the final building inspection more promptly. Kosovo made dealing with construction permits easier by DB2015 Kosovo establishing a new phased inspection scheme and substantially reducing the building permit fee. Lithuania made dealing with construction permits easier by DB2015 Lithuania reducing the time required for processing building permit applications. Montenegro made dealing with construction permits substantially less costly by reducing the fee for the provision DB2015 Montenegro of utilities on construction land and eliminating the fee for obtaining urban development and technical requirements from the municipality. Tajikistan made dealing with construction permits less costly DB2015 Tajikistan by reducing the fee to obtain the architectural planning assignment. Azerbaijan adopted a new construction code that streamlined procedures relating to the issuance of building DB2014 Azerbaijan permits and established official time limits for some procedures. Kosovo made dealing with construction permits easier by eliminating the requirement for validation of the main DB2014 Kosovo construction project, eliminating fees for technical approvals from the municipality and reducing the building permit fee. Latvia made dealing with construction permits easier by introducing new time limits for issuing a building permit and DB2014 Latvia by eliminating the Public Health Agency’s role in approving building permits and conducting inspections. DB2014 Macedonia, FYR FYR Macedonia made dealing with construction permits easier by reducing the time required to register a new Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 35 DB year Economy Reform building and by authorizing the municipality to register the building on behalf of the owner. Montenegro made dealing with construction permits easier DB2014 Montenegro by introducing a one-stop shop and imposing strict time limits for the issuance of approvals. Russia made dealing with construction permits easier by eliminating several requirements for project approvals from DB2014 Russian Federation government agencies and by reducing the time required to register a new building. Turkey reduced the time required for dealing with construction permits by setting strict time limits for granting DB2014 Turkey a lot plan and by reducing the documentation requirements for an occupancy permit. Ukraine made dealing with construction permits easier by introducing a risk-based approval system, eliminating DB2014 Ukraine requirements for certain approvals and technical conditions and simplifying the process for registering real estate ownership rights. Russia made obtaining a construction permit simpler by DB2013 Russian Federation eliminating requirements for several preconstruction approvals. Turkey made dealing with construction permits easier by eliminating the requirement to build a shelter in DB2013 Turkey nonresidential buildings with a total area of less than 1,500 square meters. Montenegro made construction permitting less costly by DB2013 Montenegro reducing the cost of pre-construction and post-construction procedures Bosnia and Herzegovina made dealing with construction DB2012 Bosnia and Herzegovina permits easier by fully digitizing and revamping its land registry and cadastre. FYR Macedonia made dealing with construction permits DB2012 Macedonia, FYR easier by transferring oversight processes to the private sector and streamlining procedures. In Albania dealing with construction permits became more DB2012 Albania difficult because the main authority in charge of issuing building permits has not met since April 2009. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 36 DB year Economy Reform Armenia made dealing with construction permits easier by DB2012 Armenia eliminating the requirement to obtain an environmental impact assessment for small projects. Kazakhstan made dealing with construction permits easier by DB2011 Kazakhstan implementing a one-stop shop related to technical conditions for utilities. Croatia replaced the location permit and project design DB2011 Croatia confirmation with a single certificate, simplifying and speeding up the construction permitting process. Ukraine made dealing with construction permits easier by DB2011 Ukraine implementing national and local regulations that streamlined procedures. Uzbekistan increased all fees for procedures relating to DB2011 Uzbekistan construction permits. Romania amended regulations related to construction DB2011 Romania permitting to reduce fees and expedite the process. Russia eased construction permitting by implementing a DB2011 Russian Federation single window for all procedures related to land use. Tajikistan made dealing with construction permits easier and DB2010 Tajikistan less time consuming by eliminating several procedures. Montenegro improved its construction permitting system by implementing a new construction law, reducing the number of procedures, providing for new mechanisms of building DB2010 Montenegro permit approval and building control and introducing a risk- based approval system in which small-scale projects are handled by the local municipality. Uzbekistan made dealing with construction permits less DB2010 Uzbekistan costly by reducing the building permit fees. Georgia made dealing with construction permits easier by simplifying the process of obtaining confirmation from DB2010 Georgia utilities, introducing a risk-based approval process for building permits and setting new time limits for issuance of the occupancy certificate. Kazakhstan made dealing with construction permits easier by DB2010 Kazakhstan eliminating the requirement to pay for a new electrical connection, tightening time limits for the issuance of Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 37 DB year Economy Reform building permits and reducing the cost of topographic surveys. Croatia improved its construction permitting process DB2010 Croatia through the operation of a one-stop shop and enforcement of the building code. The Kyrgyz Republic made dealing with construction permits easier by streamlining the fee structure, introducing a risk- based system of approval and construction supervision, DB2010 Kyrgyz Republic allowing low-risk projects to take responsibility for construction supervision and simplifying the process of obtaining utility connections. FYR Macedonia reduced the time required for dealing with DB2010 Macedonia, FYR construction permits through changes in the permitting process. Romania made dealing with construction permits more DB2010 Romania costly by introducing a new fee. Belarus made dealing with construction permits easier by DB2010 Belarus simplifying the environmental and project design approval processes. Bosnia and Herzegovina improved its construction DB2010 Bosnia and Herzegovina permitting system by reducing the time needed to register a new building at the courts and land cadastre. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 38 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely on INDICATORS MEASURE self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity connection first step for a customer is always to gain access by (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized Obtaining external installation works and warehouse, as well as the time and cost to complete possibly purchasing material for these works them. These procedures include applications and Concluding any necessary supply contract and contracts with electricity utilities, clearances from obtaining final supply other agencies and the external and final connection works. In addition, this year Doing Business adds Time required to complete each procedure two new measures: the reliability of supply and (calendar days) transparency of tariffs index (included in the Is at least 1 calendar day aggregate distance to frontier score and ranking on Each procedure starts on a separate day the ease of doing business) and the price of electricity (omitted from these aggregate measures). Does not include time spent gathering The ranking of economies on the ease of getting information electricity is determined by sorting their distance to Reflects the time spent in practice, with little frontier scores for getting electricity. These scores follow-up and no prior contact with officials are the simple average of the distance to frontier Cost required to complete each procedure (% scores for each of the component indicators. To of income per capita) make the data comparable across economies, several assumptions are used. Official costs only, no bribes Assumptions about the warehouse Excludes value added tax The reliability of supply and transparency of The warehouse: tariffs index  Is owned by a local entrepreneur. Sum of the scores of six component indices:  Is located in the economy’s largest business Duration and frequency of outages city. For 11 economies the data are also collected for the second largest business city. Tools to monitor power outages  Is located in an area where similar warehouses Tools to restore power supply are typically located. In this area a new Regulatory monitoring of utilities’ performance electricity connection is not eligible for a Financial deterrents aimed at limiting outages special investment promotion regime (offering special subsidization or faster service, for Transparency and accessibility of tariffs example), and located in an area with no Price of electricity (cents per kilowatt-hour)* physical constraints. For example, the property Price based on monthly bill for commercial is not near a railway. warehouse in case study  Is a new construction and is being connected *Price of electricity is not included in the calculation of to electricity for the first time. distance to frontier nor ease of doing business ranking Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 39 The warehouse (continued):  Has two stories, both above ground, with Assumptions about the monthly consumption a total surface area of approximately  It is assumed that the warehouse operates 8 1,300.6 square meters (14,000 square hours a day for 30 days a month, with feet). The plot of land on which it is built equipment utilized at 80% of capacity on is 929 square meters (10,000 square feet). average, and that there are no electricity cuts  Is used for storage of goods. (assumed for simplicity). The subscribed capacity of the warehouse is 140 kVA, with a power factor of 1 (1 kVA = 1 kW). The monthly Assumptions about the electricity connection energy consumption is therefore 26,880 kWh, and the hourly consumption 112 kWh (26,880 The electricity connection: kWh/30 days/8 hours).  Is a permanent one.  If multiple electricity suppliers exist, the  Is a three-phase, four-wire Y, 140-kilovolt- warehouse is served by the cheapest supplier. ampere (kVA) (subscribed capacity) connection (where the voltage is 120/208  Tariffs effective in March of the current year are used for calculation of the price of V, the current would be 400 amperes; electricity for the warehouse. 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 EUROPE AND CENTRAL ASIA (ECA) 40 GETTING ELECTRICITY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in Europe 4.1). The average ranking of the region and comparator and Central Asia (ECA) to connect a warehouse to regions provide a useful benchmark. electricity? The global rankings of these economies on the ease of getting electricity suggest an answer (figure Figure 4.1 How economies in Europe and Central Asia (ECA) rank on the ease of getting electricity Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 41 GETTING ELECTRICITY The indicators underlying the rankings may be more time and the cost (figure 4.2). Comparing these revealing. Data collected by Doing Business show what it indicators across the region and with averages both for takes to get a new electricity connection in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Figure 4.2 What it takes to get an electricity connection in economies in Europe and Central Asia (ECA) Procedures (number) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 42 GETTING ELECTRICITY Time (days) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 43 GETTING ELECTRICITY Cost (% of income per capita) Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 44 GETTING ELECTRICITY Reliability of supply and transparency of tariff index (0-8) Source: Doing Business database. Note: The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 45 GETTING ELECTRICITY What are the changes over time? 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 Europe practices and internal wiring installations. In an effort to and Central Asia (ECA) (table 4.1)? Table 4.1 How have economies in Europe and Central Asia (ECA) made getting electricity easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform The utility in Cyprus made getting electricity easier by DB2016 Cyprus reducing the time required for obtaining a new connection. The utility in Lithuania has reduced the time of the connection works by enforcing the legal time limit to perform DB2016 Lithuania the external connection works. Russia made the process of obtaining an electricity connection simpler, faster and less costly by eliminating a DB2016 Russian Federation meter inspection by electricity providers and revising connection tariffs. This reform applies to both Moscow and St. Petersburg. Belarus made getting electricity easier by speeding up the process of issuing technical specifications and excavation DB2014 Belarus permits and by reducing the time needed to connect to the electricity network. FYR Macedonia made getting electricity easier by reducing the time required to obtain a new connection and by setting DB2014 Macedonia, FYR fixed connection fees per kilowatt (kW) for connections requiring a capacity below 400 kW. Russia made getting electricity simpler and less costly by DB2014 Russian Federation setting standard connection tariffs and eliminating many procedures previously required. Turkey made getting electricity easier by eliminating external DB2014 Turkey inspections and reducing some administrative costs. Ukraine made getting electricity easier by streamlining the DB2014 Ukraine process for obtaining a new connection. Armenia made getting electricity easier by streamlining DB2013 Armenia procedures and reducing connection fees. Georgia made getting electricity easier by simplifying the DB2013 Georgia process of connecting new customers to the distribution Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 46 DB year Economy Reform network and reducing connection fees. Latvia made getting electricity faster by introducing a DB2012 Latvia simplified process for approval of external connection designs. Lithuania made getting electricity more difficult by abolishing DB2012 Lithuania the one-stop shop for obtaining technical conditions for utility services. Russian Federation made getting electricity less costly by DB2012 Russian Federation revising the tariffs for connection. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 47 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. For the 11 economies with a population of more than 100 million, data for a second city have been added. 2 Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 48 REGISTERING PROPERTY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in Europe property suggest an answer (figure 5.1). The average and Central Asia (ECA) to transfer property? The global ranking of the region and comparator regions provide a rankings of these economies on the ease of registering useful benchmark. Figure 5.1 How economies in Europe and Central Asia (ECA) rank on the ease of registering property Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 49 REGISTERING PROPERTY The indicators underlying the rankings may be more time and the cost (figure 5.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to complete a property transfer in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Figure 5.2 What it takes to register property in economies in Europe and Central Asia (ECA) Procedures (number) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 50 REGISTERING PROPERTY Time (days) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 51 REGISTERING PROPERTY Cost (% of property value) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in 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. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 52 REGISTERING PROPERTY Quality of Land Administration Index (0-30) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such pra ctice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. Source: Doing Business database. Note: The index ranges from 0 to 30, with higher values indicating better quality of the land administration system. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 53 REGISTERING PROPERTY What are the changes over time? Economies worldwide have been making it easier for buyers to use or mortgage their property earlier. What entrepreneurs to register and transfer property—such as property registration reforms has Doing Business by computerizing land registries, introducing time limits recorded in Europe and Central Asia (ECA) (table 5.1)? for procedures and setting low fixed fees. Many have cut the time required substantially—enabling Table 5.1 How have economies in Europe and Central Asia (ECA) made registering property easier —or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Belarus made transferring property easier by introducing a DB2016 Belarus new expedited procedure. Kazakhstan made transferring property easier by eliminating the requirement to obtain a technical passport for the DB2016 Kazakhstan transfer and to have the seller’s and buyer’s incorporation documents notarized. The Kyrgyz Republic made transferring property easier by DB2016 Kyrgyz Republic introducing an online procedure for obtaining the nonencumbrance certificates. Latvia made transferring property easier by introducing a new DB2016 Latvia application form for transfers. Russia made transferring property easier by reducing the time DB2016 Russian Federation required for property registration. This reform applies to both Moscow and St. Petersburg. Uzbekistan made transferring property easier by eliminating the requirement to provide several different nonencumbrance DB2016 Uzbekistan certificates, though it also increased the costs associated with property transfers. Albania made transferring property easier by establishing DB2015 Albania effective time limits and computerizing the records on immovable property. DB2015 Azerbaijan Azerbaijan made transferring property easier by introducing an online procedure for obtaining the nonencumbrance Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 54 DB year Economy Reform certificate. Kazakhstan made registering property easier by introducing DB2015 Kazakhstan effective time limits and an expedited procedure. Kosovo made transferring property more difficult by DB2015 Kosovo increasing the fee for the registration of property transactions. The Russian Federation made transferring property easier by eliminating the requirement for notarization and introducing DB2015 Russian Federation tighter time limits for completing the property registration. This reform applies to both Moscow and St. Petersburg. San Marino made transferring property easier by lowering the DB2015 San Marino property registration tax rate. Serbia made transferring property more difficult by eliminating the expedited procedure for registering a DB2015 Serbia property transfer. Belarus made transferring property easier by introducing a DB2014 Belarus fast-track procedure for property registration. Kazakhstan made it easier to transfer property by introducing DB2014 Kazakhstan a fast-track procedure for property registration. Kosovo made transferring property easier by introducing a DB2014 Kosovo new notary system and by combining procedures for drafting and legalizing sale and purchase agreements. FYR Macedonia made property registration faster and less DB2014 Macedonia, FYR costly by digitizing the real estate cadastre and eliminating the requirement for an encumbrance certificate. Montenegro made registering property easier by introducing DB2014 Montenegro a notary system. DB2014 Russian Federation Russia made transferring property easier by streamlining Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 55 DB year Economy Reform procedures and implementing effective time limits for processing transfer applications. Turkey made transferring property more costly by increasing DB2014 Turkey the registration and several other fees. Ukraine made transferring property easier by streamlining DB2014 Ukraine procedures and revamping the property registration system. Uzbekistan made transferring property easier by reducing the DB2014 Uzbekistan notary fees. Bosnia and Herzegovina made it easier to transfer property DB2013 Bosnia and Herzegovina between companies by computerizing the commercial registry. Cyprus made property transfers faster by computerizing its DB2013 Cyprus land registry. Ukraine made property transfers faster by introducing an DB2013 Ukraine effective time limit for processing transfer applications at the land cadastre in Kiev. Serbia made transferring property quicker by offering an DB2012 Serbia expedited option. Russia made registering property transfers easier by DB2012 Russian Federation eliminating the requirement to obtain cadastral passports on land plots. FYR Macedonia made registering property easier by reducing DB2012 Macedonia, FYR notary fees and enforcing time limits. Latvia made transferring property easier by allowing electronic access to municipal tax databases that show the tax DB2012 Latvia status of property, eliminating the requirement to obtain this information in paper format. Belarus simplified property transfer by doing away with the DB2012 Belarus requirement to obtain the municipality’s approval for transfers of most commercial buildings in Minsk. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 56 DB year Economy Reform Albania made property registration easier by setting time DB2012 Albania limits for the land registry to register a title. Bosnia and Herzegovina reduced delays in property DB2011 Bosnia and Herzegovina registration at the land registry in Sarajevo. Bulgaria reduced the time required to register property by launching an integrated web-based property register making DB2010 Bulgaria it possible to check the ownership and cadastre status of properties online. FYR Macedonia made registering property easier by setting new time limits for registering a title deed at the real estate DB2010 Macedonia, FYR cadastre and by making it possible to obtain a nonencumbrance certificate from the real estate registry rather than through the court. The Kyrgyz Republic made registering property easier by DB2010 Kyrgyz Republic simplifying documentation requirements and making notarization optional. Moldova made registering property easier and less time DB2010 Moldova consuming by eliminating the requirement for a cadastral sketch. Romania speeded up property registration by introducing DB2010 Romania expedited procedures at the land registry and the cadastre. Russia reduced the time required to register property by DB2010 Russian Federation introducing cadastral passports in place of the previously required inventory documents and cadastral maps. Tajikistan made transferring property more costly by DB2010 Tajikistan increasing the state duty for property transactions. Belarus continued to improve the property registration process by increasing efficiency at the land registry in Minsk, DB2010 Belarus which reduced the time required to verify ownership, and by eliminating the requirement to have incorporation documents notarized during property transfers. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 57 Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. 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 The ranking of economies on the ease of getting collateral (for more details on each case, see the Data credit is determined by sorting their distance to Notes section of the Doing Business 2016 report). frontier scores for getting credit. These scores are These scenarios assume that the borrower: the distance to frontier score for the strength of  Is a private limited liability company. legal rights index and the depth of credit Has its headquarters and only base of information 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 EUROPE AND CENTRAL ASIA (ECA) 58 GETTING CREDIT Where do the region’s economies stand today? How well do the credit information systems and getting credit suggest an answer (figure 6.1). The collateral and bankruptcy laws in economies in Europe average ranking of the region and comparator regions and Central Asia (ECA) facilitate access to credit? The provide a useful benchmark. global rankings of these economies on the ease of Figure 6.1 How economies in Europe and Central Asia (ECA) rank on the ease of getting credit Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 59 GETTING CREDIT Another way to assess how well regulations and the strength of legal rights index for Europe and Central institutions support lending and borrowing in the region Asia (ECA) and comparators on the strength of legal is to see where the region stands in the distribution of rights index. Figure 6.3 shows the same thing for the scores across regions. Figure 6.2 highlights the score on depth of credit information index. Figure 6.2 How strong are legal rights for borrowers and lenders? Region scores on strength of legal rights index Note: Higher scores indicate that collateral and bankruptcy laws are better designed to facilitate access to credit. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 60 Figure 6.3 How much credit information is shared—and how widely? Region scores on depth of credit information index Note: Higher scores indicate the availability of more credit information, from either a credit registry or a credit bureau, to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 61 GETTING CREDIT What are the changes over time? 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 Europe and Central Asia (ECA) (table 6.1)? Table 6.1 How have economies in Europe and Central Asia (ECA) made getting credit easier —or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Cyprus improved access to credit information by allowing credit bureaus to collect and report positive credit DB2016 Cyprus information and to report credit histories for both borrowers and guarantors. Kazakhstan improved access to credit by adopting a new law DB2016 Kazakhstan on secured transactions allowing a general description of a combined category of assets granted as collateral. In the Kyrgyz Republic the credit bureau improved access to DB2016 Kyrgyz Republic credit information by beginning to distribute both positive and negative credit information. Latvia improved its credit information system through a new DB2016 Latvia law governing the licensing and functioning of credit bureaus. Russia improved access to credit by adopting a new law on secured transactions that established a centralized collateral DB2016 Russian Federation registry and allows a general description of a combined category of assets granted as collateral. This reform applies to both Moscow and St. Petersburg. Uzbekistan improved access to credit by adopting new laws on secured transactions that allow a general description of DB2016 Uzbekistan assets granted as collateral and establish a modern, unified, notice-based collateral registry. Albania weakened its secured transactions system through an amendment to the Securing Charges Law that does not allow DB2015 Albania intangible assets to be secured with a nonpossessory pledge. DB2015 Cyprus Cyprus improved its credit information system by adopting a central bank directive eliminating the minimum threshold for Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 62 DB year Economy Reform loans to be included in credit bureaus’ databases. Tajikistan improved access to credit information by beginning DB2015 Tajikistan to provide credit scores. Georgia improved its credit information system by DB2014 Georgia implementing a new law on personal data protection. Lithuania strengthened its secured transactions system by broadening the range of movable assets that can be used as collateral, DB2014 Lithuania allowing a general description in the security agreement of the assets pledged as collateral and permitting out-of-court enforcement. Latvia improved its credit information system by adopting a DB2014 Latvia new law regulating the public credit registry. Moldova strengthened its secured transactions system by DB2014 Moldova introducing new grounds for relief from an automatic stay during insolvency and restructuring proceedings. FYR Macedonia strengthened its secured transactions system by providing more flexibility on the description of assets in a DB2014 Macedonia, FYR collateral agreement and on the types of debts and obligations that can be secured. Tajikistan improved access to credit information by DB2014 Tajikistan establishing a private credit bureau. Ukraine improved access to credit information by collecting DB2014 Ukraine data on firms from financial institutions. Uzbekistan improved access to credit information by expanding the scope of credit information and requiring that DB2014 Uzbekistan more than 2 years of historical data be collected and distributed. Bosnia and Herzegovina made access to credit information DB2013 Bosnia and Herzegovina more difficult by stopping the private credit bureau’s collection of credit information on individuals. Georgia strengthened its secured transactions system through an amendment to the civil code allowing a security DB2013 Georgia interest to extend to the products, proceeds and replacement of collateral. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 63 DB year Economy Reform Kazakhstan strengthened secured creditor rights by DB2013 Kazakhstan introducing new grounds for relief from an automatic stay during rehabilitation proceedings. Romania strengthened its legal framework for secured transactions by allowing the automatic extension of security DB2013 Romania interests to the products, proceeds and replacement of collateral. Uzbekistan improved access to credit information by DB2013 Uzbekistan guaranteeing borrowers’ right to inspect their personal data. Montenegro improved access to credit information by DB2013 Montenegro guaranteeing borrowers’ right to inspect their personal data. Georgia expanded access to credit by amending its civil code DB2012 Georgia to broaden the range of assets that can be used as collateral. Access to credit using movable property in Tajikistan became DB2012 Tajikistan more complicated because the movable collateral registry stopped its operations in January, 2011. FYR Macedonia improved its credit information system by DB2012 Macedonia, FYR establishing a private credit bureau. Moldova improved its credit information system by DB2012 Moldova establishing its first private credit bureau. Bulgaria made access to credit information more difficult by DB2012 Bulgaria stopping the distribution of credit reports to financial institutions by the private credit bureau (Experian). In Croatia the private credit bureau started to collect and DB2012 Croatia distribute information on firms, improving the credit information system. Armenia improved its credit information system by DB2012 Armenia introducing a requirement to collect and distribute information from utility companies. Azerbaijan improved access to credit by establishing an DB2011 Azerbaijan online platform allowing financial institutions to provide information to, and retrieve it from, the public credit registry. Belarus enhanced access to credit by facilitating the use of DB2011 Belarus the pledge as a security arrangement and providing for out- of-court enforcement of the pledge on default. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 64 DB year Economy Reform Cyprus improved access to credit information by establishing DB2011 Cyprus its first private credit bureau. Georgia improved access to credit by implementing a central DB2011 Georgia collateral registry with an electronic database accessible online. Lithuania’s private credit bureau now collects and distributes DB2011 Lithuania positive information on borrowers. FYR Macedonia’s public credit bureau improved its database DB2010 Macedonia, FYR and expanded its coverage by including more information and lowering the minimum threshold for loans reported. The Kyrgyz Republic strengthened its secured transactions system through amendments to its civil code and pledge law making secured lending more flexible, allowing a general DB2010 Kyrgyz Republic description of encumbered assets and of debts and obligations and providing for the automatic extension of a security right to proceeds of the original asset. Latvia’s new public credit registry started sharing data on DB2010 Latvia loans, improving access to credit information. Azerbaijan’s public credit registry improved the credi t information system by providing banks with online access to DB2010 Azerbaijan its database, increasing the data available on borrowers and introducing penalties for banks that send information that is late or incorrect. Armenia improved its credit information system through a new law establishing a legal and regulatory framework for the DB2010 Armenia activities of credit bureaus, including collecting credit information and preparing credit reports. Turkey’s private credit bureau added firms to its database, DB2010 Turkey improving access to credit information. Tajikistan improved its credit information system through a DB2010 Tajikistan new law allowing the creation of a private credit bureau. Serbia improved access to credit information by guaranteeing DB2010 Serbia by law borrowers’ right to inspect their own data. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 65 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of WHAT THE PROTECTING MINORITY INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. Effective regulations define related-party transactions precisely, promote clear and efficient disclosure requirements, require Extent of disclosure index (0–10) shareholder participation in major decisions of the Review and approval requirements for related-party company and set detailed standards of accountability transactions ; Disclosure requirements for related-party for company insiders. transactions What do the indicators cover? Extent of director liability index (0–10) Doing Business measures the protection of minority Ability of minority shareholders to sue and hold interested investors from conflicts of interest through one set of directors liable for prejudicial related-party transactions; indicators and shareholders’ rights in corporate Available legal remedies (damages, disgorgement of profits, governance through another. The ranking of economies fines, imprisonment, rescission of the transaction) on the strength of minority investor protections is determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the Extent of conflict of interest regulation index extent of shareholder governance index. To make the (0–10) data comparable across economies, a case study uses Simple average of the extent of disclosure, extent of director several assumptions about the business and the liability and ease of shareholder indices transaction. Extent of shareholder rights index (0-10) The business (Buyer): Shareholders’ rights and role in major corporate decisions  Is a publicly traded corporation listed on the economy’s most important stock exchange Extent of ownership and control index (0-10) (or at least a large private company with Governance safeguards protecting shareholders from undue multiple shareholders). board control and entrenchment  Has a board of directors and a chief executive Extent of corporate transparency index (0-10) officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Corporate transparency on ownership stakes, compensation, specifically required by law. audits and financial prospects The transaction involves the following details: Extent of shareholder governance index (0–  Mr. James, a director and the majority 10) shareholder of the company, proposes that Simple average of the extent of shareholders rights, extent the company purchase used trucks from of ownership and control and extent of corporate another company he owns. transparency indices  The price is higher than the going price for Strength of investor protection index (0–10) used trucks, but the transaction goes forward. Simple average of the extent of conflict of interest  All required approvals are obtained, and all regulation and extent of shareholder governance indices required disclosures made, though the transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 66 PROTECTING MINORITY INVESTORS Where do the region’s economies stand today? How strong are investor protections against self-dealing to the protection of minority investors, a higher ranking in economies in Europe and Central Asia (ECA)? The does indicate that an economy’s regulations offer global rankings of these economies on the strength of stronger investor protections against self-dealing in the investor protection index suggest an answer (figure 7.1). areas measured. While the indicator does not measure all aspects related Figure 7.1 How economies in Europe and Central Asia (ECA) rank on the strength of investor protection index Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 67 PROTECTING MINORITY INVESTORS The strength of minority investor protection index is the highlight the scores on the various minority investor average of the extent of conflict of interest regulation protection indices for Europe and Central Asia (ECA). index and the extent of shareholder governance index. Comparing the scores across the region and with The index ranges from 0 to 10, rounded to the nearest averages both for the region and for comparator regions decimal place, with higher values indicating stronger can provide useful insights. minority investor protections. Figures 7.2 and 7.3 Figure 7.2 How extensive are conflict of interest regulations? Extent of conflict of interest regulation index (0-10) Note: Higher values indicate stronger regulation of conflicts of interest. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 68 Figure 7.3 How extensive is shareholder governance? Extent of shareholder governance index (0-10) Note: Higher scores indicate stronger rights of shareholders in corporate governance. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 69 PROTECTING MINORITY INVESTORS What are the changes over time? Economies with the strongest protections of minority reforms to strengthen minority investor protections may investors from self-dealing require detailed disclosure move ahead on different fronts—such as through new or and define clear duties for directors. They also have well- amended company laws, securities regulations or functioning courts and up-to-date procedural rules that revisions to court procedures. What minority investor give minority shareholders the means to prove their case protection reforms has Doing Business recorded in and obtain a judgment within a reasonable time. So Europe and Central Asia (ECA) (table 7.1)? Table 7.1 How have economies in Europe and Central Asia (ECA) strengthened minority investor protections—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Albania strengthened minority investor protections by DB2016 Albania introducing legal requirements for immediate disclosure of related-party transactions to the public. Azerbaijan strengthened minority investor protections by introducing requirements that related-party transactions DB2016 Azerbaijan undergo external review and be voted on by disinterested shareholders. Kazakhstan strengthened minority investor protections through new provisions requiring both immediate disclosure of related-party transactions and detailed disclosure in annual financial statements; expanding the way evidence can be obtained at trial; requiring that a change in the rights DB2016 Kazakhstan associated with shares be subject to approval by a vote of two-thirds of the affected shares; prohibiting subsidiaries from acquiring shares issued by their parent company; and requiring disclosure of information about board members’ other directorships as well as their primary employment. Lithuania strengthened minority investor protections by DB2016 Lithuania prohibiting subsidiaries from acquiring shares issued by their parent company. FYR Macedonia strengthened minority investor protections by DB2016 Macedonia, FYR providing for both fines and imprisonment of interested directors in prejudicial related-party transactions. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 70 DB year Economy Reform The former Yugoslav Republic of Macedonia strengthened DB2015 Macedonia, FYR minority investor protections by requiring prior review of related-party transactions by an external auditor. Uzbekistan strengthened minority investor protections by introducing a requirement for public joint stock companies to disclose information about related-party transactions in their DB2015 Uzbekistan annual report; setting higher standards for disclosure of such transactions to the board of directors; and establishing the right of shareholders to receive all documents related to such transactions. FYR Macedonia strengthened investor protections by allowing shareholders to request the rescission of unfair DB2014 Macedonia, FYR related-party transactions and the appointment of an auditor to investigate alleged irregularities in the company’s activities. Turkey strengthened investor protections through a new commercial code that requires directors found liable in abusive related-party transactions to disgorge their profits DB2014 Turkey and that allows shareholders to request the appointment of an auditor to investigate alleged prejudicial conflicts of interest. Armenia strengthened investor protections by introducing a requirement for shareholder approval of related-party DB2013 Armenia transactions, requiring greater disclosure of such transactions in the annual report and making it easier to sue directors when such transactions are prejudicial. Moldova strengthened investor protections by allowing the DB2013 Moldova rescission of prejudicial related-party transactions. Tajikistan strengthened investor protections by making it DB2013 Tajikistan easier to sue directors in cases of prejudicial related-party transactions. Kosovo strengthened investor protections by introducing a requirement for shareholder approval of related-party DB2013 Kosovo transactions, requiring greater disclosure of such transactions in the annual report and making it easier to sue directors when such transactions are prejudicial. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 71 DB year Economy Reform Georgia strengthened investor protections by introducing DB2012 Georgia requirements relating to the approval of transactions between interested parties. Kazakhstan strengthened investor protections by regulating the approval of transactions between interested parties and DB2012 Kazakhstan making it easier to sue directors in cases of prejudicial transactions between interested parties. Lithuania strengthened investor protections by introducing DB2012 Lithuania greater requirements for corporate disclosure to the public and in the annual report. Belarus strengthened investor protections by introducing DB2012 Belarus requirements for greater corporate disclosure to the board of directors and to the public. Cyprus strengthened investor protections by requiring DB2012 Cyprus greater corporate disclosure to the board of directors, to the public and in the annual report. Georgia strengthened investor protections by allowing DB2011 Georgia greater access to corporate information during the trial. Kazakhstan strengthened investor protections by requiring DB2011 Kazakhstan greater corporate disclosure in company annual reports. Tajikistan strengthened investor protections by requiring DB2011 Tajikistan greater corporate disclosure in the annual report and greater access to corporate information for minority investors. FYR Macedonia strengthened investor protections by introducing regulations on the approval of related-party DB2010 Macedonia, FYR transactions, increasing disclosure requirements in the annual report and making it easier to sue directors in cases where related-party transactions harm the company. Ukraine strengthened investor protections through a new joint stock companies law enhancing approval requirements for related-party transactions, increasing disclosure DB2010 Ukraine requirements in the annual report and making it easier to sue directors in cases where related-party transactions harm the company. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 72 DB year Economy Reform Tajikistan strengthened investor protections through amendments to the joint stock companies law enhancing disclosure requirements for related-party transactions, DB2010 Tajikistan increasing director liability in cases where related-party transactions harm the company and allowing shareholders to request the rescission of such transactions. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 73 WHAT THE PAYING TAXES INDICATORS PAYING TAXES Taxes are essential. The level of tax rates needs to MEASURE be carefully chosen—and needless complexity in tax rules avoided. Firms in economies that rank Tax payments for a manufacturing company better on the ease of paying taxes in the Doing in 2014 (number per year adjusted for Business study tend to perceive both tax rates and electronic and joint filing and payment) tax administration as less of an obstacle to Total number of taxes and contributions paid, business according to the World Bank Enterprise including consumption taxes (value added tax, Survey research. sales tax or goods and service tax) Method and frequency of filing and payment What do the indicators cover? Time required to comply with 3 major taxes Using a case scenario, Doing Business records the (hours per year) taxes and mandatory contributions that a medium- size company must pay in a given year as well as Collecting information and computing the tax measures of the administrative burden of paying payable taxes and contributions. This case scenario uses a set Completing tax return forms, filing with of financial statements and assumptions about proper agencies transactions made over the year. Information is also Arranging payment or withholding compiled on the frequency of filing and payments as well as time taken to comply with tax laws. The Preparing separate tax accounting books, if ranking of economies on the ease of paying taxes is required determined by sorting their distance to frontier Total tax rate (% of profit before all taxes) scores on the ease of paying taxes. These scores are the simple average of the distance to frontier scores Profit or corporate income tax for each of the component indicators, with a Social contributions and labor taxes paid by threshold and a nonlinear transformation applied to the employer one of the component indicators, the total tax rate . 3 Property and property transfer taxes The financial statement variables have been updated to be proportional to 2012 income per capita; Dividend, capital gains and financial previously they were proportional to 2005 income transactions taxes per capita. To make the data comparable across Waste collection, vehicle, road and other taxes economies, several assumptions are used.  Taxes and mandatory contributions are  TaxpayerCo is a medium-size business that measured at all levels of government. started operations on January 1, 2013.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paid by the and mandatory contributions paid during company. the second year of operation are recorded.  A range of standard deductions and 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 EUROPE AND CENTRAL ASIA (ECA) 74 PAYING TAXES Where do the region’s economies stand today? What is the administrative burden of complying with offer useful information for assessing the tax compliance taxes in economies in Europe and Central Asia (ECA) — burden for businesses (figure 8.1). The average ranking and how much do firms pay in taxes? The global of the region provides a useful benchmark. rankings of these economies on the ease of paying taxes Figure 8.1 How economies in Europe and Central Asia (ECA) rank on the ease of paying taxes Note: All economies with a total tax rate below the threshold of 26.1% applied in DB2015, receive the same distance to frontier score for the total tax rate (a distance to frontier score of 100 for the total tax rate) for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 75 PAYING TAXES The indicators underlying the rankings may be more major taxes (corporate income tax, VAT or sales tax and revealing. Data collected by Doing Business show what it labor taxes and mandatory contributions)—as well as the takes to comply with tax regulations in each economy in total tax rate (figure 8.2). Comparing these indicators the region—the number of payments per year and the across the region and with averages both for the region time required to prepare, and file and pay taxes the 3 and for comparator regions can provide useful insights. Figure 8.2 How easy is it to pay taxes in economies in Europe and Central Asia (ECA) —and what are the total tax rates? Payments (number per year) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 76 PAYING TAXES Time (hours per year) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 77 PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 78 PAYING TAXES What are the changes over time? Economies around the world have made paying taxes concrete results. Some economies simplifying faster and easier for businesses—such as by compliance with tax obligations and reducing rates have consolidating filings, reducing the frequency of seen tax revenue rise. What tax reforms has Doing payments or offering electronic filing and payment. Business recorded in Europe and Central Asia (ECA) (table Many have lowered tax rates. Changes have brought 8.1)? Table 8.1 How have economies in Europe and Central Asia (ECA) made paying taxes easier —or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Cyprus made paying taxes easier for companies by facilitating online payment of corporate income tax. At the same time, Cyprus raised the contribution rate for social insurance paid DB2016 Cyprus by employers, lowered the tax brackets for the social contribution fund, raised the rate on interest income and increased the vehicle tax. Kosovo made paying taxes easier for companies by DB2016 Kosovo abolishing the annual business license fee. Latvia made paying taxes more complicated for companies by eliminating the possibility of deducting bad debt provisions. DB2016 Latvia On the other hand, Latvia reduced the rate for social security contributions paid by employers. Montenegro made paying taxes easier for companies by introducing an electronic system for filing and paying labor DB2016 Montenegro taxes—though it also extended the application of the “crisis tax” for an indefinite period on income exceeding €720 a month. Romania made paying taxes less costly for companies by DB2016 Romania reducing the rate for social security contributions and the rate for accident risk fund contributions paid by employers. Russia made paying taxes less costly for companies by excluding movable property from the corporate property tax DB2016 Russian Federation base—though it also raised the wage ceiling used in calculating social contributions. These changes apply to both Moscow and St. Petersburg. In addition, the cadastral value of Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 79 DB year Economy Reform land in Moscow was updated. Serbia made paying taxes easier for companies by introducing an electronic system for filing and paying VAT DB2016 Serbia and social security contributions as well as by abolishing the urban land usage fee. On the other hand, Serbia increased the property tax and environmental tax rates. Tajikistan made paying taxes easier for companies by introducing an electronic filing and payment system for DB2016 Tajikistan corporate income tax, VAT and labor taxes. On the other hand, it increased real estate tax fees. Albania made paying taxes more costly for companies by DB2015 Albania increasing the corporate income tax rate. Azerbaijan made paying taxes easier for companies by DB2015 Azerbaijan introducing an electronic system for filing and paying social insurance contributions. Belarus made paying taxes easier for companies by introducing an electronic system for filing and paying contributions for the obligatory insurance for work accidents—and by simplifying the filing requirements for DB2015 Belarus corporate income tax and VAT. On the other hand, it increased the ecological tax rate and made bad debt provisions nondeductible for purposes of the corporate income tax. Cyprus made paying taxes easier for companies by reducing DB2015 Cyprus the number of provisional tax installments for corporate income tax. Croatia made paying taxes more complicated for companies by raising the health insurance contribution rate, increasing the Croatian Chamber of Commerce fees and introducing DB2015 Croatia more detailed filing requirements for VAT. On the other hand, it abolished the contribution to the Croatian Chamber of Commerce. Kazakhstan made paying taxes more complicated for DB2015 Kazakhstan companies by introducing a mandatory contribution to the National Chamber of Entrepreneurs and by increasing the Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 80 DB year Economy Reform vehicle and environmental taxes. Latvia made paying taxes easier for companies by simplifying the VAT return, enhancing the electronic system for filing DB2015 Latvia corporate income tax returns and reducing employers’ social security contribution rate. Moldova made paying taxes easier for companies by introducing an electronic system for filing and paying social security contributions. On the other hand, it increased the DB2015 Moldova minimum salary used for calculating the environmental tax liability. Furthermore, Moldova increased the employers’ health insurance contribution rate and introduced new filing requirements for VAT. Romania made paying taxes easier for companies, with the DB2015 Romania majority now using the electronic system for filing and paying taxes. Tajikistan made paying taxes easier for companies by DB2015 Tajikistan introducing an electronic system for filing and paying corporate income tax, VAT and labor taxes. Turkey made paying taxes more costly for companies by DB2015 Turkey increasing employers’ social security contribution rate. Ukraine made paying taxes easier for companies by DB2015 Ukraine introducing an electronic system for filing and paying labor taxes. On the other hand, it increased the environmental tax. Albania made paying taxes easier by allowing corporate DB2014 Albania income tax to be paid quarterly. Armenia made paying taxes easier by merging the employee DB2014 Armenia and employer social contributions and individual income tax into one unified income tax. Bosnia and Herzegovina introduced a penalty for failure to employ the required minimum number of people with DB2014 Bosnia and Herzegovina disabilities—though it also temporarily abolished the forestry tax. DB2014 Croatia Croatia made paying taxes easier for companies by Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 81 DB year Economy Reform introducing an electronic system for social security contributions and by reducing the rates for the forest and Chamber of Commerce contributions. Moldova made paying taxes easier for companies by introducing an electronic filing and payment system for the DB2014 Moldova value added tax, corporate income tax, land improvement tax and tax on immovable property. FYR Macedonia made paying taxes easier for companies by DB2014 Macedonia, FYR encouraging the use of electronic filing and payment systems for corporate income and value added taxes. Romania made paying taxes easier and less costly for companies by reducing the payment frequency for the firm DB2014 Romania tax from quarterly to twice a year and by reducing the vehicle tax rate. Serbia made paying taxes more costly for companies by DB2014 Serbia increasing the corporate income tax. Tajikistan made paying taxes easier and less costly for companies by reducing the corporate income tax rate, DB2014 Tajikistan merging the minimal income tax with the corporate income tax and abolishing the retail sales tax. At the same time, Tajikistan increased the land and vehicle tax rates. Ukraine made paying taxes easier for companies by DB2014 Ukraine simplifying tax returns and further improving its electronic filing system. Uzbekistan made paying taxes easier for companies by DB2014 Uzbekistan eliminating some small taxes. Albania made paying taxes easier for companies by DB2013 Albania abolishing the vehicle tax and encouraging electronic filing for taxes. Belarus made paying taxes easier and less costly for DB2013 Belarus companies by reducing the profit tax rate and encouraging the use of electronic filing and payment systems. DB2013 Bosnia and Herzegovina Bosnia and Herzegovina eased the administrative burden of Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 82 DB year Economy Reform filing and paying social security contributions by implementing electronic filing and payment systems. Croatia made paying taxes less costly for companies by DB2013 Croatia reducing the health insurance contribution rate. Cyprus made paying taxes more costly for companies by increasing the special defense contribution rate on interest income and introducing a private sector special contribution DB2013 Cyprus and a fixed annual fee for companies registered in Cyprus. At the same time, it simplified tax compliance by introducing electronic filing for corporate income tax. Georgia made paying taxes easier for companies by DB2013 Georgia enhancing the use of electronic systems and providing more services to taxpayers. Moldova made paying taxes more costly for companies by reintroducing the corporate income tax—but also made tax DB2013 Moldova compliance easier by encouraging electronic filing and payment. Russia eased the administrative burden of taxes for firms by simplifying compliance procedures for value added tax and DB2013 Russian Federation by promoting the use of tax accounting software and electronic services. Ukraine made paying taxes easier by implementing electronic DB2013 Ukraine filing and payment for medium-size and large enterprises. Montenegro made paying taxes easier and less costly for firms by abolishing a tax, reducing the social security DB2012 Montenegro contribution rate and merging several returns into a single unified one. Romania made paying taxes easier for companies by introducing an electronic payment system and a unified DB2012 Romania return for social security contributions. It also abolished the annual minimum tax. Turkey lowered the social security contribution rate for DB2012 Turkey companies by offering them a 5% rebate Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 83 DB year Economy Reform Russia increased the social security contribution rate for DB2012 Russian Federation employers. Ukraine made paying taxes easier and less costly for firms by DB2012 Ukraine revising and unifying tax legislation, reducing corporate income tax rates and unifying social security contributions. The Kyrgyz Republic made paying taxes costlier for firms by DB2012 Kyrgyz Republic introducing a real estate tax, though it also reduced the sales tax rate. Georgia made paying taxes easier for firms by simplifying the DB2012 Georgia reporting for value added tax and introducing electronic filing and payment of taxes. Belarus abolished several taxes, including turnover and sales taxes, and simplified compliance with corporate income, value DB2012 Belarus added and other taxes by reducing the frequency of filings and payments and facilitating electronic filing and payment. Armenia made tax compliance easier for firms by reducing the number of payments for social security contributions and DB2012 Armenia corporate income, property and land taxes and by introducing mandatory electronic filing and payment for major taxes. A revision of Azerbaijan’s tax code lowered several tax rates, DB2011 Azerbaijan including the profit tax rate, and simplified the process of paying corporate income tax and value added tax. Reductions in the turnover tax, social security contributions and the base for property taxes along with continued efforts DB2011 Belarus to encourage electronic filing made it easier and less costly for companies in Belarus to pay taxes. Bosnia and Herzegovina simplified its labor tax processes, DB2011 Bosnia and Herzegovina reduced employer contribution rates for social security and abolished its payroll tax. Bulgaria reduced employer contribution rates for social DB2011 Bulgaria security. DB2011 Croatia Croatia made paying taxes more difficult and costly for Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 84 DB year Economy Reform companies by introducting a tourist fee. Ukraine eased tax compliance by introducing and continually DB2011 Ukraine enhancing an electronic filing system for value added tax. DB2011 Tajikistan Tajikistan lowered its corporate income tax rate. Moldova reduced employer contribution rates for social DB2011 Moldova security. Romania introduced tax changes, including a new minimum DB2011 Romania tax on profit, that made paying taxes more costly for companies. DB2011 Lithuania Lithuania reduced corporate tax rates. FYR Macedonia lowered tax costs for businesses by requiring DB2011 Macedonia, FYR that corporate income tax be paid only on distributed profits. Albania made it easier and less costly for companies to pay DB2011 Albania taxes by amending several laws, reducing social security contributions and introducing electronic filing and payment. An amendment to Montenegro’s corporate income tax law DB2011 Montenegro removed the obligation for advance payments and abolished the construction land charge. Kosovo made paying taxes less costly for companies by DB2010 Kosovo reducing the corporate income tax rate. Uzbekistan made paying taxes easier for companies through DB2010 Uzbekistan a new tax code combining corporate income tax provisions. Montenegro made paying taxes less costly for companies by DB2010 Montenegro reducing the corporate income tax rate and employers’ social security contribution rates. Moldova made paying taxes less costly for companies by DB2010 Moldova reducing employers’ social security contribution rate. FYR Macedonia made paying taxes easier and less costly for DB2010 Macedonia, FYR companies by clarifying social security payments and reducing employers’ social security contribution rates. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 85 DB year Economy Reform Romania made paying taxes more costly for companies by DB2010 Romania increasing labor taxes. Russia made paying taxes less costly for companies by DB2010 Russian Federation reducing the corporate income tax rate. Lithuania made paying taxes more costly for companies by DB2010 Lithuania increasing the corporate income tax rate. Kazakhstan made paying taxes less costly for companies by DB2010 Kazakhstan reducing social tax rates and the corporate income tax rate. The Kyrgyz Republic made paying taxes less costly for DB2010 Kyrgyz Republic companies by reducing the rates of several taxes, including the corporate income tax. Belarus made paying taxes easier and less costly for companies by encouraging the use of electronic systems, DB2010 Belarus reducing the number of payments for the property tax, adjusting the ecological tax rates and lowering turnover tax rates. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 86 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 Documentary compliance – cost (US$) & time operations and inadequate infrastructure all lead to (hours) extra costs and delays for exporters and 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 and -Required by origin, transit and destination economies importing goods. Under the new methodology introduced this year, Doing Business measures the Covers all documents by law and in practice time and cost (excluding tariffs) associated with three Border compliance – cost (US$) & time sets of procedures—documentary compliance, (hours) border compliance and domestic transport—within the overall process of exporting or importing a Customs clearance and inspections shipment of goods. The ranking of economies on the Inspections by other agencies ease of trading across borders is determined by Port or border handling sorting their distance to frontier scores for trading across borders. These scores are the simple average Obtaining, preparing and submitting of the distance to frontier scores for the time and documents during clearance, inspections and port or border handling cost for documentary compliance and border compliance to export and import. Domestic transport* Loading and unloading of shipment To make the data comparable across economies, a few assumptions are made about the traded goods Transport between warehouse and terminal/port and the transactions: Transport between terminal/port and border Time Obtaining, preparing and submitting  Time is measured in hours, and 1 day is 24 documents during domestic transport hours (for example, 22 days are recorded Traffic delays and road police checks while as 22 × 24 = 528 hours). If customs shipment is en route clearance takes 7.5 hours, the data are recorded as is. Alternatively, suppose that * Although Doing Business collects and publishes data on documents are submitted to a customs the time and cost for domestic transport, it does not use agency at 8:00 a.m., are processed these data in calculating the distance to frontier score for overnight and can be picked up at 8:00 trading across borders or the ranking on the ease of trading a.m. the next day. In this case the time for across borders. customs clearance would be recorded as Cost 24 hours because the actual procedure  Insurance cost and informal payments for took 24 hours. which no receipt is issued are excluded from the costs recorded. Costs are reported in U.S. dollars. 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 EUROPE AND CENTRAL ASIA (ECA) 87 Assumptions of the case study  For each of the 189 economies covered by  Shipping cost based on weight is assumed to Doing Business, it is assumed that a shipment be greater than shipping cost based on travels from a warehouse in the largest business volume. city of the exporting economy to a warehouse  If government fees are determined by the in the largest business city of the importing value of the shipment, the value is assumed economy. For 11 economies the data are also to be $50,000. collected, under the same case study assumptions, for the second largest business  The product is new, not secondhand or used city. merchandise.  The import and export case studies assume  The exporting firm is responsible for hiring different traded products. It is assumed that and paying for a freight forwarder or customs each economy imports a standardized shipment broker (or both) and pays for all costs related of 15 metric tons of containerized auto parts to international shipping, domestic transport, (HS 8708) from its natural import partner—the clearance and mandatory inspections by economy from which it imports the largest value customs and other government agencies, port (price times quantity) of auto parts. It is or border handling, documentary compliance assumed that each economy exports the fees and the like for exports. The importing product of its comparative advantage (defined firm is responsible for the above costs for by the largest export value) to its natural export imports. partner—the economy that is the largest  The mode of transport is the one most widely purchaser of this product. Precious metal and used for the chosen export or import product gems, live animals and pharmaceuticals are and the trading partner, as is the seaport, excluded from the list of possible export airport or land border crossing. products, however, and the second largest product category is considered as needed.  All electronic submissions of information requested by any government agency in  To identify the trading partners and export connection with the shipment are considered product for each economy, Doing Business to be documents obtained, prepared and collected data on trade flows for the most submitted during the export or import recent four-year period from international process. databases such as the United Nations Commodity Trade Statistics Database (UN  A port or border is defined as a place Comtrade). For economies for which trade flow (seaport, airport or land border crossing) data were not available, data from ancillary where merchandise can enter or leave an government sources (various ministries and economy. departments) and World Bank Group country  Government agencies considered relevant offices were used to identify the export product are agencies such as customs, port and natural trading partners. authorities, road police, border guards,  A shipment is a unit of trade. Export shipments standardization agencies, ministries or do not necessarily need to be containerized, departments of agriculture or industry, while import shipments of auto parts are national security agencies and any other assumed to be containerized. government authorities. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 88 TRADING ACROSS BORDERS Where do the region’s economies stand today? How easy it is for businesses in economies in Europe and trading across borders suggest an answer (figure 9.1). Central Asia (ECA) to export and import goods? The The average ranking of the region and comparator global rankings of these economies on the ease of regions provide a useful benchmark. Figure 9.1 How economies in Europe and Central Asia (ECA) rank on the ease of trading across borders Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 89 TRADING ACROSS BORDERS The indicators reported here are for trading a shipment and import is collected from local freight forwarders, of goods by the most widely used mode of transport customs brokers and traders. Comparing these indicators (whether sea, land, air or some combination of these). across the region and with averages both for the region The information on the time and cost to complete export and for comparator regions can provide useful insights. Figure 9.2 What it takes to trade across borders in economies in Europe and Central Asia (ECA) Time to export: Border compliance (hours) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 90 TRADING ACROSS BORDERS Cost to export: Border compliance (USD) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 91 TRADING ACROSS BORDERS Time to export: Documentary compliance (hours) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 92 TRADING ACROSS BORDERS Cost to export: Documentary compliance (USD) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 93 TRADING ACROSS BORDERS Time to import: Border compliance (hours) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 94 TRADING ACROSS BORDERS Cost to import: Border compliance (USD) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 95 TRADING ACROSS BORDERS Time to import: Documentary compliance (hours) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 96 TRADING ACROSS BORDERS Cost to import: Documentary compliance (USD) Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 97 TRADING ACROSS BORDERS What are the changes over time? In economies around the world, trading across borders systems. These changes help improve their trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Europe and Central Asia (ECA) (table 9.1)? based inspections and electronic data interchange Table 9.1 How have economies in Europe and Central Asia (ECA) made trading across borders easier —or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Albania made exporting easier by implementing an electronic risk-based inspection system, which reduced the time for DB2016 Albania border compliance. Armenia reduced the time and cost for documentary and DB2016 Armenia border compliance for trade with the Russian Federation by joining the Eurasian Economic Union. Tajikistan made trading across borders easier by making it DB2016 Tajikistan possible to submit customs declarations electronically. Croatia made trading across borders easier by implementing DB2015 Croatia a new electronic customs system. Kazakhstan made trading across borders easier by opening a DB2015 Kazakhstan new border station and railway link that helped reduce congestion at the border with China. Uzbekistan made trading across borders easier by reducing DB2015 Uzbekistan the number of documents to export and import and by making it possible to submit documents electronically. Azerbaijan made trading across borders easier by DB2014 Azerbaijan streamlining internal customs procedures. Croatia made trading across borders easier by improving the DB2014 Croatia physical and information system infrastructure at the port of Rijeka and by streamlining export customs procedures in preparation for accession to the Common Transit Convention Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 98 DB year Economy Reform of the European Union. Latvia made trading across borders easier by reducing the DB2014 Latvia number of documents required for importing. Russia made trading across borders easier by implementing an electronic system for submitting export and import DB2014 Russian Federation documents and by reducing the number of physical inspections. Ukraine made trading across borders easier by releasing DB2014 Ukraine customs declarations more quickly and reducing the number of physical inspections. Uzbekistan made trading across borders easier by eliminating the need to register import contracts with customs, DB2014 Uzbekistan tightening the time limits for banks to register export or import contracts and reducing the number of export documents required. Georgia reduced the time to export and import by creating DB2013 Georgia customs clearance zones. Uzbekistan reduced the time to export by introducing a single DB2013 Uzbekistan window for customs clearance and reduced the number of documents needed for each import transaction. Russia made trading across borders easier by reducing the DB2012 Russian Federation number of documents needed for each export or import transaction and lowering the associated cost. Ukraine made trading across borders more difficult by DB2012 Ukraine introducing additional inspections for customs clearance of imports. Bulgaria made trading across borders faster by introducing DB2012 Bulgaria online submission of customs declaration forms. Armenia made trading easier by introducing self-declaration desks at customs houses and warehouses, investing in new DB2011 Armenia equipment to improve border operations and introducing a risk management system. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 99 DB year Economy Reform Kazakhstan speeded up trade through efforts to modernize DB2011 Kazakhstan customs, including implementation of a risk management system and improvements in customs automation. Latvia reduced the time to export and import by introducing DB2011 Latvia electronic submission of customs declarations. Lithuania reduced the time to import by introducing, in DB2011 Lithuania compliance with EU law, an electronic system for submitting customs declarations. Montenegro’s customs administration simplified trade by DB2011 Montenegro eliminating the requirement to present a terminal handling receipt for exporting and importing. Belarus reduced the time to trade by introducing electronic DB2011 Belarus declaration of exports and imports. The Kyrgyz Republic made trading across borders easier and DB2010 Kyrgyz Republic less time consuming by eliminating some previously required documents and simplifying inspection procedures. Azerbaijan reduced the clearance and border crossing time DB2010 Azerbaijan for goods by streamlining and regrouping agencies behind a single customs service window. Belarus reduced the transit time for trade by implementing a DB2010 Belarus risk-based inspection system and improving operations at the border crossing. Georgia reduced the cost of trade and simplified the DB2010 Georgia documentation requirements for exporting and importing. Albania reduced the time needed for customs clearance of DB2010 Albania imports by implementing the ASYCUDA World electronic data interchange system and by purchasing scanners. Armenia reduced the time required for trading across borders by encouraging greater competition in the banking and DB2010 Armenia transport sectors and customs brokerage service industry and by reducing the number of goods requiring inspection and the number of documents needed to clear goods. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 100 Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 101 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 Time required to enforce a contract through courts encourage new business relationships because the courts (calendar days) businesses know they can rely on the courts if a new 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  The value of the dispute is 200% of the sales contract between 2 domestic businesses. The income per capita or the equivalent in local case study assumes that the court hears an expert on currency of USD 5,000, whichever is greater. the quality of the goods in dispute. This distinguishes  The seller sues the buyer before the court the case from simple debt enforcement. To make the with jurisdiction over commercial cases worth data comparable across economies, Doing Business 200% of income per capita or $5,000. uses several assumptions about the case:  The seller requests a pretrial attachment to  The dispute concerns a lawful transaction secure the claim. between two businesses (Seller and Buyer), 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  The judge decides in favor of the seller; there business city. is no appeal.  The buyer orders custom-made goods,  The seller enforces the judgment through a then fails to pay. public sale of the buyer’s movable assets. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 102 ENFORCING CONTRACTS Where do the region’s economies stand today? How efficient is the process of resolving a commercial economies on the ease of enforcing contracts suggest an dispute through the courts in economies in Europe and answer (figure 10.1). The average ranking of the region Central Asia (ECA)? The global rankings of these and comparator regions provide a useful benchmark. Figure 10.1 How economies in Europe and Central Asia (ECA) rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 103 ENFORCING CONTRACTS The indicators underlying the rankings may also be judicial processes index (figure 10.2). Comparing these revealing. Data collected by Doing Business show what it indicators across the region and with averages both for takes to enforce a contract through the courts in each the region and for comparator regions can provide economy in the region: the time, the cost and quality of useful insights. Figure 10.2 What it takes to enforce a contract through the courts in economies in Europe and Central Asia (ECA) Time (days) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 104 ENFORCING CONTRACTS Cost (% of claim) Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 105 ENFORCING CONTRACTS Quality of Judicial Processes Index (0-18) Source: Doing Business database. Note: Higher values indicate more efficient judicial processes. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 106 ENFORCING CONTRACTS What are the changes over time? Economies in all regions have improved contract reducing backlogs by introducing periodic reviews to enforcement in recent years. A judiciary can be improved clear inactive cases from the docket and by making in different ways. Higher-income economies tend to look procedures faster. What reforms making it easier (or for ways to enhance efficiency by introducing new more difficult) to enforce contracts has Doing Business technology. Lower-income economies often work on recorded in Europe and Central Asia (ECA) (table 10.1)? Table 10.1 How have economies in Europe and Central Asia (ECA) made enforcing contracts easier —or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Armenia made enforcing contracts easier through a new law requiring that cases be assigned to judges randomly—and DB2016 Armenia through a fully automated system—in courts throughout the country. Cyprus made enforcing contracts easier by introducing a fast- DB2016 Cyprus track simplified procedure for claims worth less than €3,000. Georgia made enforcing contracts easier by introducing an DB2016 Georgia electronic filing system for court users. Croatia made enforcing contracts easier by introducing an DB2016 Croatia electronic system to handle public sales of movable assets and by streamlining the enforcement process as a whole. Kazakhstan made enforcing contracts easier by introducing a DB2016 Kazakhstan simplified fast-track procedure for small claims and by streamlining the rules for enforcement proceedings. Latvia made enforcing contracts easier by restructuring its courts and by introducing comprehensive specialized laws DB2016 Latvia regulating domestic arbitration and voluntary mediation. Romania made enforcing contracts easier by transferring some enforcement responsibilities from the court to the DB2016 Romania bailiff, by making it easier for the bailiff to obtain information from third parties and by making use of the electronic auction registry mandatory. Kazakhstan made enforcing contracts easier by introducing DB2015 Kazakhstan an electronic filing system for court users. Kosovo made enforcing contracts easier by introducing a DB2015 Kosovo private bailiff system. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 107 DB year Economy Reform Lithuania made enforcing contracts easier by introducing an DB2015 Lithuania electronic filing system for court users. Turkey made enforcing contracts easier by introducing an DB2015 Turkey electronic filing system for court users. Croatia made enforcing contracts easier by streamlining DB2014 Croatia litigation proceedings and transferring certain enforcement procedures from the courts to state agencies. Romania made enforcing contracts easier by adopting a new DB2014 Romania civil procedure code that streamlines and speeds up all court proceedings. Uzbekistan made enforcing contracts easier by introducing an DB2014 Uzbekistan electronic filing system for court users. Georgia made enforcing contracts easier by simplifying and DB2013 Georgia speeding up the proceedings for commercial disputes. Moldova made the process of enforcing a contract more DB2013 Moldova difficult by abolishing the specialized economic court. Turkey made enforcing contracts easier by introducing a new DB2013 Turkey civil procedure law. Serbia made enforcing contracts easier by introducing a DB2013 Serbia private bailiff system. Ukraine amended legislation to streamline commercial DB2012 Ukraine dispute resolution and increase the efficiency of enforcement procedures. Russia made filing a commercial case easier by introducing an DB2012 Russian Federation electronic case filing system. Moldova made enforcement of judgments more efficient by DB2012 Moldova introducing private bailiffs. Belarus modified its code of economic procedure, altering DB2012 Belarus the time frames for commercial dispute resolution. Georgia made the enforcement of contracts easier by streamlining the procedures for public auctions, introducing DB2011 Georgia private enforcement officers and modernizing its dispute resolution system. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 108 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 to normal operation and increase returns to Time required to recover debt (years) creditors. By clarifying the expectations of creditors Measured in calendar years 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 businesses and sustainably grow the economy. Cost required to recover debt (% of debtor’s estate) What do the indicators cover? Doing Business studies the time, cost and outcome of Measured as percentage of estate value insolvency proceedings involving domestic legal Court fees entities. These variables are used to calculate the Fees of insolvency administrators recovery rate, which is recorded as cents on the dollar recovered by secured creditors through Lawyers’ fees reorganization, liquidation or debt enforcement Assessors’ and auctioneers’ fees (foreclosure or receivership) proceedings. To Other related fees determine the present value of the amount recovered by creditors, Doing Business uses the Outcome lending rates from the International Monetary Fund, Whether business continues operating as a supplemented with data from central banks and the going concern or business assets are sold Economist Intelligence Unit. piecemeal In addition, Doing Business evaluates the adequacy Recovery rate for creditors and integrity of the existing legal framework applicable to liquidation and reorganization Measures the cents on the dollar recovered by proceedings through the strength of insolvency secured creditors framework index. The index tests whether economies Outcome for the business (survival or not) adopted internationally accepted good practices in determines the maximum value that can be four areas: commencement of proceedings, recovered management of debtor’s assets, reorganization Official costs of the insolvency proceedings are proceedings and creditor participation. deducted The ranking of economies on the ease of resolving Depreciation of furniture is taken into account insolvency is determined by sorting their distance to frontier scores for resolving insolvency. These scores Present value of debt recovered 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 proceedings of individuals and financial institutions. Commencement of proceedings index (0-3) The data are derived from questionnaire responses Management of debtor’s assets index (0-6) by local insolvency practitioners and verified through a study of laws and regulations as well as public Reorganization proceedings index (0-3) information on bankruptcy systems. Creditor participation index (0-4) Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 109 RESOLVING INSOLVENCY Where do the region’s economies stand today? How efficient are insolvency proceedings in economies in the region and comparator regions provide a useful Europe and Central Asia (ECA)? The global rankings of benchmark for assessing the efficiency of insolvency these economies on the ease of resolving insolvency proceedings. Speed, low costs and continuation of viable suggest an answer (figure 11.1). The average ranking of businesses characterize the top-performing economies. Figure 11.1 How economies in Europe and Central Asia (ECA) rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 110 RESOLVING INSOLVENCY The indicators underlying the rankings may be more these indicators across the region and with averages revealing. Data collected by Doing Business show the both for the region and for comparator regions can average recovery rate and the average strength of provide useful insights. insolvency framework index (figure 11.2). Comparing Figure 11.2 How efficient is the insolvency process in economies in Europe and Central Asia (ECA) Recovery Rate (0–100) Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 111 Total Strength of Insolvency Framework index (0-16) Source: Doing Business database. * Indicates a “no practice” mark. See the data notes for details. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in 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 . Source: Doing Business database. Note: Higher values indicate insolvency legislation that is better designed for rehabilitating viable firms and liquidating nonviable ones. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 112 RESOLVING INSOLVENCY What are the changes over time? A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Europe and Central Asia (ECA) (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How have economies in Europe and Central Asia (ECA) made resolving insolvency easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Cyprus made resolving insolvency easier by introducing a reorganization procedure as well as provisions to facilitate the DB2016 Cyprus continuation of the debtor’s business during insolvency proceedings and allow creditors greater participation in important decisions during the proceedings. Kazakhstan made resolving insolvency easier by allowing creditors to initiate reorganization proceedings and encouraging sales of assets as a going concern. Kazakhstan DB2016 Kazakhstan also improved its bankruptcy regime, by explicitly authorizing post-commencement finance and granting it priority over existing unsecured claims. Moldova improved its insolvency system by introducing a licensing system for insolvency administrators, by increasing DB2016 Moldova qualification requirements to include a professional exam as well as training and by establishing supervisory bodies to regulate the profession of insolvency administrators. Romania improved its insolvency system by introducing time limits for the observation period (during which a reorganization plan must be confirmed or a declaration of bankruptcy made) and for the implementation of the DB2016 Romania reorganization plan; by introducing additional minimum voting requirements for the approval of the reorganization plan; and by clarifying rules on voidable transactions and on payment priority for claims of post-commencement creditors. Kazakhstan made resolving insolvency easier by clarifying and simplifying provisions on liquidation and reorganization, introducing the concept of creditors’ meetings, expanding the DB2015 Kazakhstan rights of creditors during insolvency proceedings, authorizing payment in kind to secured creditors and clarifying the process for submitting creditors’ claims. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 113 DB year Economy Reform The former Yugoslav Republic of Macedonia made resolving insolvency easier by establishing a framework for electronic auctions of debtors’ assets, streamlining and tightening the DB2015 Macedonia, FYR time frames for insolvency proceedings and the appeals process and establishing a framework for out-of-court restructurings. Bulgaria made resolving insolvency easier by expanding the DB2014 Bulgaria basis for commencement of insolvency proceedings and making it easier to void suspect transactions. Belarus improved its insolvency process through a new insolvency law that, among other things, changes the appointment process for insolvency administrators and DB2014 Belarus encourages the sale of assets in insolvency. The law also regulates the liability of shareholders and directors of the insolvent company. Croatia made resolving insolvency easier by introducing an DB2014 Croatia expedited out-of-court restructuring procedure. Moldova made resolving insolvency easier by introducing new restructuring mechanisms, reducing opportunities for DB2014 Moldova appeals, adding moratorium provisions and establishing strict statutory periods for several stages of the insolvency proceeding. Ukraine made resolving insolvency easier by strengthening the rights of secured creditors, introducing new rehabilitation DB2014 Ukraine procedures and mechanisms, making it easier to invalidate suspect transactions and shortening the statutory periods for several steps of the insolvency process. Belarus enhanced its insolvency process by exempting the previously state-owned property of a privatized company from the bankruptcy proceeding, requiring that immovable DB2013 Belarus property not sold in the auction be offered to creditors for purchase and allowing immovable property to be sold without proof of state registration in a bankruptcy auction if there are no funds to pay for the registration. Georgia expedited the process of resolving insolvency by DB2013 Georgia establishing or tightening time limits for all insolvency-related procedures, including auctions. Kazakhstan strengthened its insolvency process by introducing an accelerated rehabilitation proceeding, DB2013 Kazakhstan extending the period for rehabilitation, expanding the powers of and improving qualification requirements for insolvency administrators, changing requirements for bankruptcy filings, Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 114 DB year Economy Reform extending the rights of creditors, changing regulations related to the continuation of operations, introducing a time limit for adopting a rehabilitation plan and adding court supervision requirements. Lithuania made resolving insolvency easier by establishing which cases against the company’s property shall be taken to the bankruptcy court, tightening the time frame for decisions DB2013 Lithuania on appeals, abolishing the court’s obligation to individually notify creditors and other stakeholders about restructuring proceedings and setting new time limits for creditors to file claims. Moldova strengthened its insolvency process by extending DB2013 Moldova the duration of the reorganization proceeding and refining the qualification requirements for insolvency administrators. Uzbekistan strengthened its insolvency process by introducing new time limits for insolvency proceedings and DB2013 Uzbekistan new time limits and procedures for the second auction and by making it possible for businesses to continue operating throughout the liquidation proceeding. Serbia strengthened its insolvency process by introducing private bailiffs, reducing the starting prices for the sale of assets, prohibiting appeals, expediting service of process and DB2013 Serbia adopting an electronic registry for injunctions to make public all prohibitions on the disposal or pledge of movable or immovable property. Montenegro passed a new bankruptcy law that introduces reorganization and liquidation proceedings, introduces time DB2012 Montenegro limits for these proceedings and provides for the possibility of recovery of secured creditors’ claims and settlement before completion of the entire bankruptcy procedure. Serbia adopted legislation introducing professional DB2012 Serbia requirements for insolvency administrators and regulating their compensation. Ukraine amended its legislation on enforcement, introducing DB2012 Ukraine more guarantees for secured creditors. Romania amended its insolvency law to shorten the duration DB2012 Romania of insolvency proceedings. FYR Macedonia increased the transparency of bankruptcy DB2012 Macedonia, FYR proceedings through amendments to its company and bankruptcy laws. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 115 DB year Economy Reform Moldova amended its insolvency law to grant priority to DB2012 Moldova secured creditors. Latvia adopted a new insolvency law that streamlines and DB2012 Latvia expedites the insolvency process and introduces a reorganization option for companies. Lithuania amended its reorganization law to simplify and shorten reorganization proceedings, grant priority to secured DB2012 Lithuania creditors and introduce professional requirements for insolvency administrators. Bulgaria amended its commerce act to extend further rights DB2012 Bulgaria to secured creditors and increase the transparency of insolvency proceedings. Armenia amended its bankruptcy law to clarify procedures for appointing insolvency administrators, reduce the processing DB2012 Armenia time for bankruptcy proceedings and regulate asset sales by auction. Belarus amended regulations governing the activities of DB2011 Belarus insolvency administrators and strengthened the protection of creditor rights in bankruptcy. Georgia improved insolvency proceedings by streamlining the DB2011 Georgia regulation of auction sales. The Kyrgyz Republic streamlined insolvency proceedings and updated requirements for administrators, but new formalities DB2011 Kyrgyz Republic added to prevent abuse of proceedings made closing a business more difficult. Latvia introduced a mechanism for out-of-court settlement of DB2011 Latvia insolvencies to alleviate pressure on courts and tightened some procedural deadlines. Lithuania introduced regulations relating to insolvency DB2011 Lithuania administrators that set out clear rules of liability for violations of law. Russia introduced a series of legislative measures in 2009 to DB2011 Russian Federation improve creditor rights and the insolvency system. Substantial amendments to Romania’s bankruptcy laws— DB2011 Romania introducing, among other things, a procedure for out-of- court workouts—made dealing with insolvency easier. Serbia passed a new bankruptcy law that introduced out-of- DB2011 Serbia court workouts and a unified reorganization procedure. DB2010 Tajikistan Tajikistan improved its insolvency process by amending its Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 116 DB year Economy Reform insolvency law to reduce the duration and cost of proceedings. Russia enhanced its insolvency process by introducing several changes to its insolvency law to speed up the liquidation DB2010 Russian Federation procedure and strengthen the legal status of secured creditors. Lithuania made resolving insolvency easier through DB2010 Lithuania amendments to the Enterprise Bankruptcy Law. Romania made resolving insolvency more difficult by requiring that a percentage of recovered amounts be DB2010 Romania transferred to a fund for reimbursing the expenses of insolvency administrators in cases where the debtor has no assets. Albania improved its insolvency process through a new insolvency law introducing statutory time limits during the insolvency procedure, specifying professional qualifications DB2010 Albania for insolvency administrators, establishing an agency to regulate the profession of administrators and introducing a simplified insolvency procedure for small businesses Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 117 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 (figure 14.1). 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 EUROPE AND CENTRAL ASIA (ECA) 118 identical to the simple average used by Doing Business . than it would have had before (line D is bigger than line 4 Thus Doing Business uses the simplest method: C in figure 14.2 of the Doing Business 2016 report). weighting all topics equally and, within each topic, giving The nonlinear transformation is not based on any equal weight to each of the topic components . 5 economic theory of an “optimal tax rate” that minimizes An economy’s distance to frontier score is indicated on a distortions or maximizes efficiency in an economy’s scale from 0 to 100, where 0 represents the worst overall tax system. Instead, it is mainly empirical in performance and 100 the frontier. All distance to frontier nature. The nonlinear transformation along with the calculations are based on a maximum of five decimals. threshold reduces the bias in the indicator toward However, indicator ranking calculations and the ease of economies that do not need to levy significant taxes on doing business ranking calculations are based on two companies like the Doing Business standardized case decimals. study company because they raise public revenue in other ways—for example, through taxes on foreign The difference between an economy’s distance to companies, through taxes on sectors other than frontier score in any previous year and its score in 2015 manufacturing or from natural resources (all of which are illustrates the extent to which the economy has closed outside the scope of the methodology). In addition, it the gap to the regulatory frontier over time. And in any acknowledges the need of economies to collect taxes given year the score measures how far an economy is from firms. from the best performance at that time. Calculation of scores for economies with 2 cities Treatment of the total tax rate covered The total tax rate component of the paying taxes For each of the 11 economies in which Doing Business indicator set enters the distance to frontier calculation in collects data for the second largest business city as well a different way than any other indicator. The distance to as the largest one, the distance to frontier score is frontier score obtained for the total tax rate is calculated as the population-weighted average of the transformed in a nonlinear fashion before it enters the distance to frontier scores for these two cities (table distance to frontier score for paying taxes. As a result of 13.1). This is done for the aggregate score, the scores for the nonlinear transformation, an increase in the total tax each topic and the scores for all the component rate has a smaller impact on the distance to frontier indicators for each topic. 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 of 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 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 EUROPE AND CENTRAL ASIA (ECA) 119 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 The ease of doing business ranking ranges from 1 to 189. Doing Business topics in 2014/15 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 decimals. which economies improved the ease of doing business the most. First, it selects the economies that in 2014/15 Doing Business 2016 EUROPE AND CENTRAL ASIA (ECA) 120 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 EUROPE AND CENTRAL ASIA (ECA) 121