Doing Business 2017 Mexico Economy Profile 2017 Mexico Doing Business 2017 Mexico 2 © 2017 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 19 18 17 16 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 2017 Mexico 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 17 Dealing with construction permits ........................................................................................... 29 Getting electricity ....................................................................................................................... 50 Registering property .................................................................................................................. 63 Getting credit .............................................................................................................................. 85 Protecting minority investors ................................................................................................... 92 Paying taxes ................................................................................................................................ 99 Trading across borders ............................................................................................................ 105 Enforcing contracts .................................................................................................................. 113 Resolving insolvency ................................................................................................................ 123 Labor market regulation ......................................................................................................... 132 Distance to frontier and ease of doing business ranking .................................................... 139 Resources on the Doing Business website ............................................................................ 142 Doing Business 2017 Mexico 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is provides data for other selected economies (comparator for a local entrepreneur to open and run a small to economies) for each indicator. The data in this report are medium-size business when complying with relevant current as of June 1, 2016 (except for the paying taxes regulations. It measures and tracks changes in indicators, which cover the period January–December regulations affecting 11 areas in the life cycle of a 2015). business: starting a business, dealing with construction The Doing Business methodology has limitations. Other permits, getting electricity, registering property, getting areas important to business—such as an economy’s credit, protecting minority investors, paying taxes, proximity to large markets, the quality of its trading across borders, enforcing contracts, resolving infrastructure services (other than those related to insolvency and labor market regulation. Doing Business trading across borders and getting electricity), the 2017 presents the data for the labor market regulation security of property from theft and looting, the indicators in an annex. The report does not present transparency of government procurement, rankings of economies on labor market regulation macroeconomic conditions or the underlying strength of indicators or include the topic in the aggregate distance institutions—are not directly studied by Doing Business. to frontier score or ranking on the ease of doing The indicators refer to a specific type of business, business. generally a local limited liability company operating in In a series of annual reports Doing Business presents the largest business city. Because standard assumptions quantitative indicators on business regulations and the are used in the data collection, comparisons and protection of property rights that can be compared benchmarks are valid across economies. The data not across 190 economies, from Afghanistan to Zimbabwe, only highlight the extent of obstacles to doing business; over time. The data set covers 48 economies in Sub- they also help identify the source of those obstacles, Saharan Africa, 32 in Latin America and the Caribbean, 25 supporting policy makers in designing regulatory reform. in East Asia and the Pacific, 25 in Eastern Europe and More information is available in the full report. Doing Central Asia, 20 in the Middle East and North Africa and Business 2017 presents the indicators, analyzes their 8 in South Asia, as well as 32 OECD high-income relationship with economic outcomes and presents economies. The indicators are used to analyze economic business regulatory reforms. The data, along with outcomes and identify what reforms have worked, where information on ordering Doing Business 2017, are and why. available on the Doing Business website at This economy profile presents the Doing Business http://www.doingbusiness.org. indicators for Mexico. To allow useful comparison, it also Doing Business 2017 Mexico 5 CHANGES IN DOING BUSINESS 2017 As part of a three-year update in methodology, Doing having equal evidentiary weight of women’s testimony in Business 2017 expands further by adding postfiling court. processes to the paying taxes indicator, including a Also for the first time this year Doing Business collects gender component in three of the indicators and data on Somalia, bringing the total number of developing a new pilot indicator on selling to the economies covered to 190. government. Also, for the first time this year Doing Business collects data on Somalia, bringing the total For more details on the changes, see the “”Old and new number of economies covered to 190. factors covered in Doing Business” section in the The paying taxes indicator is expanded this year to Overview chapter starting on page 1 of the Doing include postfiling processes – those processes that occur Business 2017 report. For more details on the data and after a firm complies with its regular tax obligations. methodology, please see the “Data Notes” chapter These include tax refunds, tax audits and tax appeals. In starting on page 114 of the Doing Business 2017 report. particular, Doing Business measures the time it takes to For more details on the distance to frontier metric, get a value added tax (VAT) refund, deal with a simple please see the “Distance to frontier and ease of doing mistake on a corporate tax return that can potentially business ranking” chapter in this profile. trigger an audit and good practices with administrative appeals process. This year’s Doing Business report presents a gender dimension in four of the indicator sets: starting a business, registering property, enforcing contracts and labor market regulation. Three of these areas are included in the distance to frontier score and in the ease of doing business ranking, while the fourth —labor market regulation—is not. Doing Business has traditionally assumed that the entrepreneurs or workers discussed in the case studies were men. This was incomplete by not reflecting correctly the Doing Business processes as applied to women—which in some economies may be different from the processes applied to men. Starting this year, Doing Business measures the starting a business process for two case scenarios: one where all entrepreneurs are men and one where all entrepreneurs are women. In economies where the processes are more onerous if the entrepreneur is a woman, Doing Business now counts the extra procedures applied to roughly half of the population that is female (for example, obtaining a husband’s consent or gender-specific requirements for opening a personal bank account when starting a business). Within the registering property indicators, a gender component has been added to the quality of land administration index. This component measures women’s ability to use, own, and transfer property according to the law. Finally, within the enforcing contracts indicator set, economies will be scored on Doing Business 2017 Mexico 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: Latin America & Caribbean based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Upper middle income businesses through their life cycle. Economies are ranked from 1 to 190 by the ease of doing business ranking. Population: 127,017,224 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 9,710 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2017 rank: 47 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2016 rank: 45* 0 represents the worst performance and 100 the frontier. Change in rank: -2 (See the chapter on the distance to frontier and ease of doing business). DB 2017 DTF: 72.29 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2016 DTF: 71.95 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 0.34 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2016 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2016 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 114 of the Doing Business 2017 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2017: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in the economy profile. Doing Business 2017 Mexico THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2017 Mexico THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Mexico and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2016 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 2017 Mexico 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Mexico (Scale: Rank 190 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Mexico (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2016 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Doing Business 2017 Mexico 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Mexico come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2017 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2017 Mexico 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Mexico Best performer globally United States DB2017 Mexico City DB2017 Monterrey DB2017 Colombia DB2017 Mexico DB2017 Mexico DB2016 Indicator Brazil DB2017 India DB2017 DB2017 Starting a Business 93 72 -- -- 175 61 155 51 1 (New Zealand) (Rank) Starting a Business (DTF 85.74 86.92 85.31 87.86 65.04 89.57 74.31 91.23 99.96 (New Zealand) Score) Procedure – Men 7.8 7.0 8.0 7.0 11.0 6.0 12.9 6.0 1.0 (New Zealand) (number) Time – Men (days) 8.4 8.4 8.5 8.0 79.5 9.0 26.0 5.6 0.5 (New Zealand) Cost – Men (% of 17.8 18.1 19.1 11.5 5.2 7.5 13.8 1.1 0.0 (Slovenia) income per capita) Procedure – Women 7.8 7.0 8.0 7.0 11.0 6.0 12.9 6.0 1.0 (New Zealand) (number) Time – Women (days) 8.4 8.4 8.5 8.0 79.5 9.0 26.0 5.6 0.5 (New Zealand) Cost – Women (% of 17.8 18.1 19.1 11.5 5.2 7.5 13.8 1.1 0.0 (Slovenia) income per capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (127 Economies*) of income per capita) Dealing with 83 87 -- -- 172 34 185 39 1 (New Zealand) Construction Permits Doing Business 2017 Mexico 12 Best performer globally United States DB2017 Mexico City DB2017 Monterrey DB2017 Colombia DB2017 Mexico DB2017 Mexico DB2016 Indicator Brazil DB2017 India DB2017 DB2017 (Rank) Dealing with Construction Permits 69.79 68.91 68.87 74.32 51.28 76.54 32.83 75.74 87.40 (New Zealand) (DTF Score) Procedures (number) 13.0 13.0 13.0 13.0 18.2 10.0 35.1 15.8 7.0 (4 Economies*) Time (days) 86.4 91.4 81.0 113.0 425.7 73.0 190.0 80.6 28.0 (Korea, Rep.) Cost (% of warehouse 0.1 (Trinidad and 9.8 10.2 11.3 2.5 0.4 6.7 25.9 1.0 value) Tobago) Building quality control 11.7 11.7 12.0 10.0 9.0 11.0 11.5 10.0 15.0 (Luxembourg*) index (0-15) Getting Electricity 98 84 -- -- 47 74 26 36 1 (Korea, Rep.) (Rank) Getting Electricity (DTF 68.32 70.11 65.76 80.83 81.23 73.73 85.09 83.39 99.88 (Korea, Rep.) Score) Procedures (number) 6.8 6.8 7.0 6.0 4.0 5.0 5.0 4.8 3.0 (15 Economies*) Time (days) 100.4 107.9 112.0 44.0 64.4 109.0 45.9 89.6 18.0 (Korea, Rep.*) Cost (% of income per 336.7 332.9 357.9 232.7 58.0 581.4 133.2 24.4 0.0 (Japan) capita) Reliability of supply and transparency of tariff 6.2 7.0 6.0 7.0 5.0 6.0 7.0 7.6 8.0 (26 Economies*) index (0-8) Registering Property 101 111 -- -- 128 53 138 36 1 (New Zealand) (Rank) Registering Property 61.05 56.89 59.08 70.68 52.62 73.29 50.00 76.80 94.46 (New Zealand) (DTF Score) Procedures (number) 7.7 7.7 8.0 6.0 13.6 6.0 7.0 4.4 1.0 (4 Economies*) Doing Business 2017 Mexico 13 Best performer globally United States DB2017 Mexico City DB2017 Monterrey DB2017 Colombia DB2017 Mexico DB2017 Mexico DB2016 Indicator Brazil DB2017 India DB2017 DB2017 Time (days) 42.1 65.3 46.0 23.0 31.4 16.0 46.8 15.2 1.0 (3 Economies*) Cost (% of property 5.2 5.2 5.6 3.5 3.1 2.0 7.7 2.4 0.0 (Saudi Arabia) value) Quality of the land administration index (0- 16.3 14.6 16.0 17.5 13.8 16.5 7.0 17.6 29.0 (Singapore) 30) Getting Credit (Rank) 5 5 -- -- 101 2 44 2 1 (New Zealand) Getting Credit (DTF 90.00 90.00 90.00 90.00 45.00 95.00 65.00 95.00 100.00 (New Zealand) Score) Strength of legal rights 10.0 10.0 10.0 10.0 2.0 12.0 6.0 11.0 12.0 (3 Economies*) index (0-12) Depth of credit 8.0 8.0 8.0 8.0 7.0 7.0 7.0 8.0 8.0 (30 Economies*) information index (0-8) Credit registry coverage 0.0 0.0 0.0 0.0 53.4 0.0 0.0 0.0 100.0 (3 Economies*) (% of adults) Credit bureau coverage 100.0 100.0 100.0 100.0 78.9 92.1 21.4 100.0 100.0 (23 Economies*) (% of adults) Protecting Minority 53 51 -- -- 32 13 13 41 1 (New Zealand*) Investors (Rank) Protecting Minority 60.00 60.00 60.00 60.00 65.00 73.33 73.33 64.67 83.33 (New Zealand*) Investors (DTF Score) Strength of minority investor protection 6.0 6.0 6.0 6.0 6.5 7.3 7.3 6.5 8.3 (New Zealand) index (0-10) Extent of conflict of interest regulation 6.0 6.0 6.0 6.0 5.7 8.0 6.7 8.3 9.3 (New Zealand) index (0-10) Extent of shareholder 6.0 6.0 6.0 6.0 7.3 6.7 8.0 4.6 8.3 (Norway) governance index (0- Doing Business 2017 Mexico 14 Best performer globally United States DB2017 Mexico City DB2017 Monterrey DB2017 Colombia DB2017 Mexico DB2017 Mexico DB2016 Indicator Brazil DB2017 India DB2017 DB2017 10) 1 (United Arab Paying Taxes (Rank) 114 112 -- -- 181 139 172 36 Emirates) Paying Taxes (DTF 99.44 (United Arab 65.81 65.85 65.81 65.81 33.03 58.91 46.58 83.85 Score) Emirates) Payments (number per 3.0 (Hong Kong SAR, 6.0 6.0 6.0 6.0 9.6 12.0 25.0 10.6 year) China*) Time (hours per year) 286.0 286.0 286.0 286.0 2038.0 239.0 241.0 175.0 55.0 (Luxembourg) Total tax rate (% of 52.0 51.9 52.0 52.0 68.4 69.8 60.6 44.0 26.1 (32 Economies*) profit) Postfiling index (0-100) 42.6 42.6 47.5 98.5 (Estonia) Trading across Borders 61 60 -- -- 149 121 143 35 1 (10 Economies*) (Rank) Trading across Borders 100.00 (10 82.09 82.09 82.09 82.09 55.57 62.83 57.61 92.01 (DTF Score) Economies*) Time to export: Border 20 20 20 20 49 112 106 2 0 (18 Economies*) compliance (hours) Cost to export: Border 400 400 400 400 959 545 413 175 0 (18 Economies*) compliance (USD) Time to export: Documentary 8 8 8 8 18 60 38 2 1 (25 Economies*) compliance (hours) Cost to export: Documentary 60 60 60 60 226 90 92 60 0 (19 Economies*) compliance (USD) Time to import: Border 44 44 44 44 63 112 283 2 0 (25 Economies*) compliance (hours) Doing Business 2017 Mexico 15 Best performer globally United States DB2017 Mexico City DB2017 Monterrey DB2017 Colombia DB2017 Mexico DB2017 Mexico DB2016 Indicator Brazil DB2017 India DB2017 DB2017 Cost to import: Border 450 450 450 450 970 545 574 175 0 (28 Economies*) compliance (USD) Time to import: Documentary 18 18 18 18 120 64 61 8 1 (29 Economies*) compliance (hours) Cost to import: Documentary 100 100 100 100 107 50 135 100 0 (30 Economies*) compliance (USD) Enforcing Contracts 40 42 -- -- 37 174 172 20 1 (Korea, Rep.) (Rank) Enforcing Contracts 67.01 65.69 65.45 74.60 67.41 34.29 35.19 72.61 84.15 (Korea, Rep.) (DTF Score) Time (days) 340.7 389.0 350.0 295.0 731.0 1288.0 1420.0 420.0 164.0 (Singapore) Cost (% of claim) 33.0 33.0 33.5 30.4 20.7 45.8 39.6 30.5 9.0 (Iceland) Quality of judicial 10.1 10.1 9.5 13.0 13.6 9.0 9.0 13.8 15.5 (Australia) processes index (0-18) Resolving Insolvency 30 29 -- -- 67 33 136 5 1 (Finland) (Rank) Resolving Insolvency 73.11 73.03 73.11 73.11 49.15 71.74 32.75 89.19 93.89 (Finland) (DTF Score) Recovery rate (cents on 69.1 68.9 69.1 69.1 15.8 69.4 26.0 78.6 92.9 (Norway) the dollar) Time (years) 1.8 1.8 1.8 1.8 4.0 1.7 4.3 1.5 0.4 (22 Economies*) Cost (% of estate) 18.0 18.0 18.0 18.0 12.0 8.5 9.0 10.0 1.0 (22 Economies*) Strength of insolvency 11.5 11.5 11.5 11.5 13.0 11.0 6.0 15.0 15.0 (6 Economies*) framework index (0-16) Source: Doing Business database. Note: DB2016 rankings shown are not last year’s published rankings but comparable rankings for DB2016 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest Doing Business 2017 Mexico 16 time recorded among all economies in the DB2016 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Doing Business 2017 Mexico 17 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Obtaining approval from spouse to start a generating more revenue for the government. business, to leave the home to register the company or open a bank account. What do the indicators cover? Obtaining any gender specific document for Doing Business records all procedures officially company registration and operation, national required, or commonly done in practice, for an identification card or opening a bank entrepreneur to start up and formally operate an account. industrial or commercial business, as well as the time and cost to complete these procedures and the paid- Time required to complete each procedure in minimum capital requirement. These procedures (calendar days) include obtaining all necessary licenses and permits Does not include time spent gathering and completing any required notifications, information verifications or inscriptions for the company and employees with relevant authorities. The ranking of Each procedure starts on a separate day (2 economies on the ease of starting a business is procedures cannot start on the same day). determined by sorting their distance to frontier Procedures that can be fully completed scores for starting a business. These scores are the online are recorded as ½ day. simple average of the distance to frontier scores for Procedure completed once final document is each of the component indicators. received To make the data comparable across economies, No prior contact with officials several assumptions about the business and the procedures are used. It is assumed that any required Cost required to complete each procedure information is readily available and that the (% of income per capita) entrepreneur will pay no bribes. Assumptions about Official costs only, no bribes the business: No professional fees unless services required  Is a limited liability company (or its legal by law or commonly used in practice equivalent). If there is more than one type of limited liability company in the economy, the Paid-in minimum capital (% of income limited liability form most common among per capita) domestic firms is chosen. Information on the Deposited in a bank or with a notary before most common form is obtained from registration (or within 3 months) incorporation lawyers or the statistical office.  Operates in the economy’s largest business  The size of the entire office space is city. For 11 economies the data are also approximately 929 square meters (10,000 square collected for the second largest business city. feet).  Is 100% domestically owned and has five Doing Business 2017 Mexico 18 owners, none of whom is a legal entity  Does not qualify for investment incentives or any special benefits.  Has start-up capital of 10 times income per capita  Has at least 10 and up to 50 employees one month after the commencement of operations, all  Performs general commercial or industrial of them domestic nationals. activities, such as the production or sale to the public of products or services. The business  Has a turnover of at least 100 times income per does not perform foreign trade activities and capita. does not handle products subject to a special  Has a company deed 10 pages long. tax regime, for example, liquor or tobacco. It is not using heavily polluting production The owners: processes.  Have reached the legal age of majority and are  Leases the commercial plant or offices and is capable of making decisions as an adult. If there not a proprietor of real estate. is no legal age of majority, they are assumed to be 30 years old.  The amount of the annual lease for the office space is equivalent to 1 times income per  Are sane, competent, in good health and have no capita criminal record.  Are married, the marriage is monogamous and registered with the authorities.  Where the answer differs according to the legal system applicable to the woman or man in question (as may be the case in economies where there is legal plurality), the answer used will be the one that applies to the majority of the population. Doing Business 2017 Mexico 19 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Mexico? indicator sets refer to a case scenario in the largest According to data collected by Doing Business, starting a business city of an economy, except for 11 economies for business there requires 7.8 procedures , takes 8.4 days, which the data are a population-weighted average of the costs 17.8% of income per capita for men, and requires 2 largest business cities. See the chapter on distance to 7.8 procedures , takes 8.4 days, costs 17.8% of income frontier and ease of doing business ranking at the end of per capita for women. A requirement of paid-in this profile for more details. minimum capital of 0.0% of income per capita (figure . 2.1) is legally mandatory for both men and women. Most Figure 2.1 What it takes to start a business in Mexico - Mexico City Paid-in minimum capital (% of income per capita): 0.0 Doing Business 2017 Mexico 20 What it takes to start a business in Mexico - Monterrey Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Procedures in light blue are for married women only. Doing Business 2017 Mexico 21 STARTING A BUSINESS Globally, Mexico stands at 93 in the ranking of 190 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Mexico to The rankings for comparator economies and the regional start a business. Figure 2.2 How Mexico and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2017 Mexico 22 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Mexico (table 2.1)? Table 2.1 How has Mexico made starting a business easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Mexico launched an online one-stop shop for initiating DB2011 business registration. Mexico made starting a business easier by eliminating the DB2013 minimum capital requirement for limited liability companies. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Mexico 23 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Mexico is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Sociedad Anónima (S.A.) - firm. These are identified by Doing Business through Corporation collaboration with relevant local professionals and the study of laws, regulations and publicly available Paid-in minimum capital requirement: MXN 1 information on business entry in that economy. City: Mexico City, Monterrey Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Mexico - Mexico City Time to No. Procedure Cost to complete complete Obtain the authorization of using the company name online The applicant can obtain the authorization of using the company name online at www.tuempresa.gob.mx. After the registration in the website, the entrepreneur provides the company name it wishes to use. The Secretariat of Economy will first check its availability and then proceed if 2 days no charge 1 it complies with the legal framework. The authorization is issued via email and is valid for 2 days. Agency: Ministry of Economy (Secretaría de Economia) Notary prepares the deed and parties sign it at the notary public This procedure consists in the formalization of the company’s charter by the notary. Upon receipt of authorization regarding the company name, the notary proceeds to notify of the use of the corporate name and drafts the articles of incorporation in order to be duly signed by the partners. The founding partners must provide their general personal information and present their official identifications and their Tax IDs. MXN 10,500 (notary In order to publicize the act of incorporation, companies registered 2 days on average fees) + MXN 15,950 2 must file the deed of incorporation with the Public Registry of (registration fees) commerce The notary public is in charge of making the registration of the articles of incorporation at the Public Registry of Commerce whether in person or through remote electronic means. The following documents are required: (i) a duly notarized articles of incorporation (+ a copy) and (ii) a document certifying age above 18 years old. It usually takes the notary 2-3 days for the notary to review the Doing Business 2017 Mexico 24 Time to No. Procedure Cost to complete complete documents and process the final incorporation deed for execution by the relevant parties. Agency: Public Notary File the deed of incorporation with the Public Registry of Commerce In order to publicize the act of incorporation, companies registered must file the deed of incorporation with the Public Registry of commerce The notary public is in charge of making the registration of the articles of incorporation at the Public Registry of Commerce whether in person or through remote electronic means. The following documents are required: (i) a duly notarized articles of incorporation (+ a copy) and (ii) Half a day (online Included in 3 a document certifying age above 18 years old. procedure) procedure 2 Once the fees are paid the information is uploaded into the Siger system (http://www.siger.gob.mx) the pre-coded forms are filled out with information included in the articles of incorporation, then they are sent to the Public Registry of Commerce and enrollment takes place immediately. Agency: Public Registry of Commerce Obtain Tax Registry Number (RFC) at the the Sistema de Administración Tributaria, SAT The company must obtain a tax ID number (Registro Federal de Contribuyentes "RFC") at the Ministry of Finance and Credit, Secretaría de Hacienda y Crédito Público. Notaries are able do obtain it via the online portal (http://www.rfc-sat.com.mx/). He/she submits the Half a day (online information on the company and retrieves the RFC and the Tax procedure) , 2 4 No charge Identification Card in pdf format. days if done by the entrepreneur The entrepreneur can also obtain the RFC but needs to go in person to the service center to obtain an electronic signature. Agency: Sistema de Administración Tributaria, SAT Register with the Mexican Social Security Institute (IMSS) This is a federal procedure that is performed to enroll at least one worker in Social Security. Information is available in person, by phone and on the agency’s website: http://www.imss.gob.mx/ The employer 1 day no charge 5 must file AFIL02 format. The application may be pre-submitted online and then visit the agency’s office where the entrepreneur will obtain his registry May be performed pre-internet high and then go to the IMSS administrative sub-delegation where the employer and the record high for at least one worker is obtained. The process is regulated by the Doing Business 2017 Mexico 25 Time to No. Procedure Cost to complete complete Social Security Act and the Regulations of the Law on Social Insurance regarding Membership, Business Classification, Collection and Taxation. At the same time the company registers with the IMSS, registration at the National Worker’s Housing Fund Institute (INFONAVIT) takes place and individual retirement savings accounts for the employees (Afore) are opened. Agency: Mexican Social Security Institute (IMSS) Register with the local tax administration (Secretaría de Finanzas del Gobierno del Distrito Federal) for payroll tax The company must register with the local tax administration after registering with the IMSS. The local office can be found at 6 www.finanzas.df.gob.mx. The tax registration number and the 1 day no charge company’s postal code are required to register. Agency: Ministry of Finance and Credit Notify the local government (Delegación) online of the opening of a mercantile establishment. The notice of opening a mercantile establishment is fully completed online through the website www.sedeco.df.gob.mx. For low risk Less than one day 7 no charge activities, the notification record is received automatically in an email. (online procedure) Agency: Local tax administration Register with the National Business Information Registry (Sistema de Information Empresarial, SIEM) Mandatory registration with the National Business Information Registry (Sistema de Information Empresarial, SIEM) has been in effect since January 1997. The company will be registered with the specific chamber corresponding to its corporate purpose or activities. The cost varies with the number of employees and the company’s activities as shown below. The costs can vary Fees for industry related activities (maximum fees) from MXN $100 to 8 1 day -6 or more employees $ 670 MXN $670 -3 to 5 employees $ 350 -Up to 2 employees $ 150 Fees for commercial and services related activities (maximum fees): -4 or more employees $ 640 -3 or less employees $ 300 -Up to 2 employees $ 100 Doing Business 2017 Mexico 26 Time to No. Procedure Cost to complete complete Agency: Local Government Office or Delegation * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Procedures in light blue are for married women only. Summary of time, cost and procedures for starting a business in Mexico - Monterrey Time to No. Procedure Cost to complete complete Obtain the authorization of using the company name online and file the draft deed of incorporation with the notary online The applicant can obtain the authorization of using the company name online at www.tuempresa.gob.mx. After the registration in the website, the entrepreneur provides the company name it wishes to use. The 1 Secretariat of Economy will first check its availability and then proceed if 2 days no charge it complies with the legal framework. The authorization is issued via email and is valid for 2 days. Agency: Ministry of Economy (Secretaría de Economia) Notary prepares the deed of incorporationa and parties sign it at the notary public This procedure consists in the formalization of the company’s charter by the notary. Upon receipt of authorization regarding the company name, the notary proceeds to notify of the use of the corporate name and 2 drafts the articles of incorporation in order to be duly signed by the 2 days MXN 8,500 partners. The founding partners must provide their general personal information and present their official identifications and their Tax IDs. Agency: Public Notary File online or in person the deed of incorporation with the Public Register of Commerce In order to publicize the act of incorporation, companies registered must file the deed of incorporation with the Public Registry of commerce Less than one day 5 per mil of share 3 The notary public is in charge of making the registration of the articles (online procedure) capital of incorporation at the Public Registry of Commerce whether in person or through remote electronic means. The following documents are required: (i) a duly notarized articles of incorporation (+ a copy) and (ii) a document certifying age above 18 years old. Once the fees are paid the information is uploaded into the portal Doing Business 2017 Mexico 27 Time to No. Procedure Cost to complete complete (http://www.siger.gob.mx/), the pre-coded forms are filled out with information included in the articles of incorporation and they are sent to the Public Registry of Commerce where enrollment takes place immediately. Agency: Public Registry of Commerce Obtain tax registration number (RCF) The company must obtain a tax ID number (Registro Federal de Contribuyentes "RFC") at the Ministry of Finance and Credit, Secretaría de Hacienda y Crédito Público. Notaries are able to obtain it via the online portal (http://www.rfc-sat.com.mx/). He/she submits the information on the company and retrieves the RFC and the Tax Less than a day Identification Card in pdf format. (online procedure), 4 No charge 1 day if done by The entrepreneur can also obtain the RFC but needs to go in person to the entrepreneur the service center to obtain an electronic signature. Agency: Tax Administration Service Register with the Mexican Social Security Institute (IMSS) This is a federal procedure that is performed to enroll at least one worker in Social Security. Information is available in person, by phone and on the agency’s website: http://www.imss.gob.mx/ The employer must file AFIL02 format. The application may be pre-submitted online and then visit the agency’s office where the entrepreneur will obtain his registry May be performed pre-internet high and then go to the IMSS administrative sub-delegation where the employer and the record high for at least one worker is obtained. The process is regulated by the 1 day no charge 5 Social Security Act and the Regulations of the Law on Social Insurance regarding Membership, Business Classification, Collection and Taxation. At the same time the company registers with the IMSS, registration at the National Worker’s Housing Fund Institute (INFONAVIT) takes place and individual retirement savings accounts for the employees (Afore) are opened. Agency: Mexican Social Security Institute (IMSS) Register with the State Taxpayer Registry at the Ministry of Finance of the State of Nuevo León This procedure consists in registering the tax payer’s information at the 1 day no charge 6 State Registry to obtain an account to file the tax returns corresponding to the payroll tax (ISN). To complete the procedure, the user must have: a. State Registry Form (original and copy); b. Proof of fiscal residence, no older than one month (original and copy); c. Official current photo Doing Business 2017 Mexico 28 Time to No. Procedure Cost to complete complete ID of the person concerned and her/his representative if applicable (original and copy); d . Articles of incorporation (copy); e . Proof of the identity of the legal representative, and where applicable the notarized power of attorney and a valid official identification with photograph of the representative (original and copy) ; f . Being a person or entity; g .Domicile or establishment located in the state of Nuevo León. Information about this procedure is available in person, by phone and on the agency’s website: http://www.nl.gob.mx/ The employer must go to the Taxpayers Registry, Lodging, Awards and ISAN window, and proceeded to register her/his data in the system and at the end is given an account number. The procedure is regulated by Arts. 154 and 155 of the Finance Act of the State of Nuevo León; and by the Agreement of Cooperation in Fiscal Federal Matters between Mexico’s Federal Ministry of Finance and the State of Nuevo León. Agency: Ministry of Finance Register with the National Business Information Registry (Sistema de Information Empresarial, SIEM) Mandatory registration with the National Business Information Registry (Sistema de Information Empresarial, SIEM) has been in effect since January 1997. The company will be registered with the specific chamber corresponding to its corporate purpose or activities. The cost varies with the number of employees and the company’s activities as shown below. Fees for industry related activities (maximum fees): -6 or more employees $ 670 The costs can vary 7 -3 to 5 employees $ 350 1 day from MXN $100 to -Up to 2 employees $ 150 MXN $670 Fees for commercial and services related activities (maximum fees): -4 or more employees $ 640 -3 or less employees $ 300 -Up to 2 employees $ 100 The costs can vary from MXN $100 to MXN $670. Agency: National Business Information Registry * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Procedures in light blue are for married women only. Doing Business 2017 Mexico 29 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, this year Doing Business completion introduces a new measure, the building quality Time required to complete each procedure control index, evaluating the quality of building (calendar days) regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and Does not include time spent gathering professional certification requirements. information The ranking of economies on the ease of dealing with Each procedure starts on a separate day. Procedures that can be fully completed online construction permits is determined by sorting their are recorded as ½ day distance to frontier scores for dealing with construction permits. These scores are the simple Procedure considered completed once final average of the distance to frontier scores for each of document is received the component indicators. No prior contact with officials To make the data comparable across economies, Cost required to complete each procedure (% several assumptions about the construction of warehouse value) company, the warehouse project and the utility Official costs only, no bribes connections are used. Building quality control index (0-15) Assumptions about the construction company Sum of the scores of six component indices: The construction company (BuildCo): Quality of building regulations (0-2)  Is a limited liability company (or its legal equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business city. Quality control during construction (0-3) For 11 economies the data are also collected for Quality control after construction (0-3) the second largest business city.  Is 100% domestically and privately owned. Liability and insurance regimes (0-2)  Has five owners, none of whom is a legal entity. Professional certifications (0-4)  Is fully licensed and insured to carry out construction projects, such as building warehouses. The construction company (BuildCo) (continued):  Has 60 builders and other employees, all of them nationals with the technical expertise and Doing Business 2017 Mexico 30 professional experience necessary to obtain  Will be a new construction (there was no previous construction permits and approvals. construction on the land), with no trees, natural  Has is a licensed architect and a licensed water sources, natural reserves or historical engineer, both registered with the local monuments of any kind on the plot. association of architects or engineers. BuildCo is  Will have complete architectural and technical plans not assumed to have any other employees who prepared by a licensed architect. If preparation of are technical or licensed experts, such as the plans requires such steps as obtaining further geological or topographical experts. documentation or getting prior approvals from  Has paid all taxes and taken out all necessary external agencies, these are counted as procedures. insurance applicable to its general business  Will include all technical equipment required to be activity (for example, accidental insurance for fully operational. construction workers and third-person liability).  Will take 30 weeks to construct (excluding all delays  Owns the land on which the warehouse will be due to administrative and regulatory requirements). built and will sell the warehouse upon its completion. Assumptions about the utility connections  Is valued at 50 times income per capita. The water and sewerage connections:  Will be 150 meters (492 feet) from the existing Assumptions about the warehouse water source and sewer tap. If there is no water delivery infrastructure in the economy, a borehole The warehouse: will be dug. If there is no sewerage infrastructure, a  Will be used for general storage activities, septic tank in the smallest size available will be such as storage of books or stationery. The installed or built. warehouse will not be used for any goods  Will not require water for fire protection reasons; a requiring special conditions, such as food, fire extinguishing system (dry system) will be used chemicals or pharmaceuticals. instead. If a wet fire protection system is required  Will have two stories, both above ground, by law, it is assumed that the water demand with a total constructed area of specified below also covers the water needed for approximately 1,300.6 square meters (14,000 fire protection. square feet). Each floor will be 3 meters (9  Will have an average water use of 662 liters (175 feet, 10 inches) high. gallons) a day and an average wastewater flow of  Will have road access and be located in the 568 liters (150 gallons) a day. Will have a peak periurban area of the economy’s largest water use of 1,325 liters (350 gallons) a day and a business city (that is, on the fringes of the peak wastewater flow of 1,136 liters (300 gallons) a city but still within its official limits). For 11 day. economies the data are also collected for the  Will have a constant level of water demand and second largest business city. wastewater flow throughout the year.  Will not be located in a special economic or  Will be 1 inch in diameter for the water connection industrial zone. Will be located on a land plot and 4 inches in diameter for the sewerage of approximately 929 square meters (10,000 connection. square feet) that is 100% owned by BuildCo and is accurately registered in the cadastre and land registry. Doing Business 2017 Mexico 31 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build economy, except for 11 economies for which the data a warehouse in Mexico? According to data collected by are a population-weighted average of the 2 largest Doing Business, dealing with construction permits there business cities. See the chapter on distance to frontier requires 13.0 procedures, takes 86.4 days and costs 9.8% and ease of doing business ranking at the end of this of the warehouse value (figure 3.1). Most indicator sets profile for more details. refer to a case scenario in the largest business city of an Figure 3.1 What it takes to comply with formalities to build a warehouse in Mexico - Mexico City Doing Business 2017 Mexico 32 What it takes to comply with formalities to build a warehouse in Mexico - Monterrey Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Mexico 33 dealing with construction permits Globally, Mexico stands at 83 in the ranking of 190 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Mexico to legally build a warehouse. Figure 3.2 How Mexico and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2017 Mexico 34 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Mexico (table 3.1)? Table 3.1 How has Mexico made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Mexico made dealing with construction permits faster by DB2012 consolidating internal administrative procedures. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Mexico 35 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Mexico are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction 7083837.5 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Mexico City, Monterrey service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Mexico - Mexico City Time to No. Procedure Cost to complete complete Request and obtain the alignment certificate (alineamiento) and official number (número official) The relevant agencies for this procedure are the Delegational One-Stop Shop (Ventanilla Única Delegacional), the Urban Development and Housing Ministry (Secretaría de Desarrollo Urbano y Vivienda), and the Federal District Department (Gobierno del Distrito Federal). Either a simple original copy or a certified one is acceptable. For the official number, the Federal District Department will assign a single official number for each property, at the request of the interested party, that has a front facing the public pathway. For the official alignment, the plot across the land indicates the restrictions or expropriation lines to be respected in the interaction between the property and the public pathway. Obtaining the single zoning certificate stating specific land use 1 and feasibility is required. 11 days MXN 1,104 The following documents must be submitted: • Proof of payment of applicable real estate taxes (copy) • Public deed certifying property or title ownership (original and copy) • Payment of all fees • Application form (original) • Identification of the person completing the procedure and document certifying the respective identity (original and copy) Payment is made the same day when the certificate is requested. At the same time, a date is set for the taxpayer to return to receive the certificate, generally within 3 or 4 working days. The certificate is valid for 2 years. The official time limit is 8 days, but in practice, the process can take 1 -- 2 weeks. As the first procedure, it is not a simultaneous Doing Business 2017 Mexico 36 Time to No. Procedure Cost to complete complete one. Agency: Delegational One-Stop Shop (Ventanilla Única Delegacional), Urban Development and Housing Ministry (Secretaría de Desarrollo Urbano y Vivienda), and Federal District Department (Gobierno del Distrito Federal) Request and obtain single zoning certificate stating specific land use and feasibility At this stage, BuildCo obtains the document that certifies whether a specific use of a given building is authorized. There has been a fee change, increase in minimum wage, effective as of January 1, 2016, which has impacted the price of 12 days MXN 1,296 2 this procedure. Agency: Subdirección de Ventanilla Única of the Secretaría de Desarrollo Urbano y Vivienda attached to the Dirección del Registro de los Planes y Programas de Desarrollo Urbano of the Dirección General de Desarrollo Urbano Request a water feasibility study Upon reception of the zoning certificate, BuildCo must request a water feasibility study in order to continue the request of building permit. This procedure precedes the application for 1 day no charge 3 drinking water supply. Agency: Sistema de Aguas de la Ciudad de México Receive inspection for a water feasibility study After requesting for a water feasibility study, there is an inspection to assess the feasibility of the water connection, sewage and rainwater drainage services will be installed in the 4 construction. 1 day no charge Agency: Water Services Agency Obtain a water feasibiilty study Once the inspection has been conducted, a water feasibility study report is given to BuildCo, which will be used to continue processing the building permits. 10 days no charge 5 Agency: Water Services Agency Doing Business 2017 Mexico 37 Time to No. Procedure Cost to complete complete Obtain a certificate of debts for Water services Once the water feasibility process is on its way, Buildco. can also request a certificate of debts. This is another mandatory requirement to register a construction statement type B. The *6 warehouse in the case study is considered a construction Type B, 0.5 days MXN 145 therefore this is applicable. Agency: Water Services Agency Register Construction Statement Type B Construction Statement Type B applies to nonresidential or mixed uses of up to 5,000 square meters or up to 10,000 square meters for residential use or for single-family dwelling units within a risk zone. The following documents must be submitted: • Valid alignment certificate and official number (simple original copy or certified one) • Single zoning certificate for specific land use and feasibility (simple original copy or certified copy for collation) • Four copies of the architectural project for the construction work on duly outlined scale maps and containing all specifications regarding materials, finishes, and equipment to be used, signed by the owner, the director responsible for the construction work, and the co-responsible party for urban and architectural design and installations, as the case may be • Project descriptive report • Calculation report • Registration and identification card of the director responsible for the construction work and the co-responsible party for 7 structural safety, urban and architectural design, and installations 1 day MXN 800,407 as appropriate (simple original copy or certified copy for collation) • Two copies of the structural design signed by the director responsible for the construction work and the co-responsible party for structural safety • Proof of payment of improvement taxes for potable water and sewerage works provided by the Federal District Department and license issuance fees if the application is required (simple original copy or certified copy for collation). Because the building considered here requires installation or modification of the water main and hook-up to the sewage system, the application and proof of payment of the corresponding fees are attached. After registration of the construction statement, the one-stop shop (Ventanilla Única Delegacional) reviews the submitted data and documents and verifies the progress of the construction work under the terms stated in the Administrative Verification Rules (Reglamento de Verificación Administrativa) for the Federal District. The director responsible for the construction work undertakes to post a signboard showing the registration number in the Doing Business 2017 Mexico 38 Time to No. Procedure Cost to complete complete construction work statement and the general construction work data, including the location and statement validity. The signboard must be posted in a visible place and legible from the public pathway. The validity of the statement (for construction work completion) is as follows: • Up to 300 square meters: 1 year • 300 -- 1,000 square meters: 2 years • More than 1,000 square meters: 3 years The cost breakdown for obtaining the building permit is the following: • Register: MXN 562.20 (DF Tax Code 2016 Article 185, Sec. B, fr. I, p.a) • Analysis: MXN 81.95 x 1,300.6 m2 = MXN 106,584.71 (DF Tax Code 2016 Article 185, Sec. B, fr. I, p.b) • Compensations for the Environment: MXN 43.38 x 1300.6 m2 = 56,420.028 MXN (DF Tax Code 2016 Article 300) • Compensations for road impact: MXN 125.20 x 1300.6 m2 = 161,835.9 MXN (DF Tax Code 2016 Article 301) • Rights for new water and sewage connection: MXN 306.68 x 1300.6 m2= 398,868 MXN (DF Tax Code 2016 Article 302) TOTAL= 725,269.53 MXN The cost breakdown for water and sewage: . A) Services of Hydraulic Construction and Operation (Art. 181) • Water Connection: MXN 14,347.50 (DF Tax Code Article 181, Section A, fr. I, p. c) • Water measurer device: MXN 7,198.73 (DF Tax Code Article 181, Section A, fr. III, p. c) • "Armado de Cuadro": MXN 1,505.93 (DF Tax Code Article 181, Section A, fr. IV, p. c) • Sewage Connection: MXN 9,714.84 (DF Tax Code, Article 181, Section B, fr. I, p. a) (Escogemos terreno tipo I y II) B) Authorization to use the Water and Sewage Network (Art. 182) • Technical assessment: MXN 41,121.80 (DF Tax Code, Article 182, fr. I, p. 2) • Water pipes usage fee: MXN 1,248.69 (DF Tax Code, Article 182, fr. III) TOTAL = 75,137.49 Thus, the total cost to Register Construction Statement Type B based on "Codigo Fiscal del Distrito Federal" amended in December 2014 is the following: MXN 725,269.53 + MXN 75,137.49 = MXN 800,407.016 The cost for the water connection includes the installation of the main pipeline, board, and meter. The cost to connect to water and sewage services are included in this procedure since the proof of payment of such fees are needed to request connection to these utility services (procedure 10). The cost is established by Doing Business 2017 Mexico 39 Time to No. Procedure Cost to complete complete the Financial Code of the Federal District. This procedure cannot be done without the results of the previous one, so it cannot be simultaneous. Agency: Ventanilla Única Delegacional Notify the Municipal Authority upon completion of construction work The notification of completion is made in writing once the construction has been completed. Once notified, inspectors may 8 visit the location within a week to verify the construction is in 1 day no charge compliance with all applicable regulation. Agency: Municipality Receive inspection upon completion of construction work from Directorate of General Works BuildCo. request the occupancy clearance once all the previous 9 inspections have been passed in a satisfactory way. 1 day no charge Agency: Directorate of General Works (Municipality) Request and obtain occupancy clearance Building use clearance is granted by the one-stop shop, once the occupancy clearance is issued to BuildCo. 6 days no charge 10 Agency: Delegational One-Stop Shop Request and obtain authorization from civil protection An inspection from the civil protection agency (Secretaria de Protección Civil) will be conducted upon request by BuildCo. After the form and the emergency plan are filed, the civil 11 protection agency will issue a certificate within 7 days. 7 days no charge Agency: Secretaria de Protección Civil Request and connect to water and sewage services Once BuildCo. receives the authorization by the Civil Protection Department, it can request and obtain the water and sewage 12 services. 30 days no charge Agency: Sistema de Aguas de la Ciudad de México Doing Business 2017 Mexico 40 Time to No. Procedure Cost to complete complete Update the building record at the Tax Ministry Finally, BuildCo. is apt to register the new warehouse.The time and cost of updating the building record are established by the Financial Code of the Federal District, Article 217. The building is not actually registered with the Property Registry. Once built, a cadastral actualization document (manifestacion de actualisacion del valor cadastral) is filed for tax purposes with the Tax Ministry. The information in the new deed is updated only when the property (with the building included) is sold. In Mexico, the 1 day no charge * 13 owner of the land is automatically the owner of the building unless otherwise specified. Only in cases where the owner of the building and the owner of the property are two different people would the building be registered. Agency: Tax Ministry * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for dealing with construction permits in Mexico - Monterrey Time to No. Procedure Cost to complete complete Obtain feasibility of zoning certificate (uso de suelo) in the Secretariat for Urban Development and Ecology The zoning certificate provides information on the type of constructions that are allowed on the land. The following documents must be provided: a. Feasibility application for urbanizing the land (original) b. Property title (1 copy) c. A document certifying the legal status of the applicant: d. Incorporation charter registered with the relevant authority (1 copy) e. Power of Attorney (1 copy) f. Official identification of owner and agent (1 copy) g. Updated proof of payment of the property tax (1 copy) 1 h. Location plan of the property 5 days MXN 146 i. Payment of the corresponding fees In areas considered high risk, a geophysical, geological and hydrological study done by a registered expert may also be requested. The procedure is legislated in Arts. 140 and 143 of the Zoning and Land Use Regulations of the City of Monterrey, Nuevo León. The basis of the cost is Art. BIS-52, Section I of the Finance Act for the Municipalities of Nuevo León. Agency: Secretariat for Urban Development and Ecology Doing Business 2017 Mexico 41 Time to No. Procedure Cost to complete complete Receive civil protection authorization from the Department of Civil Protection at the Secretariat for Urban Development and Ecology (SEDUE) This consists of the verification that the premises comply with the security measures and minimum standards of protection to prevent civil contingencies when in operation. The following documents must be provided: a. Official identification of the legal representative; b. 2 copies of the architectural plan; 8 days MXN 3,652 2 c. Proof of payment of the property taxes; d. Photograph of the land; e. Constitutive Act. The procedure is legislated in Art. 12, Section XXVI of the Civil Protection Rules of the City of Monterrey, and Art. 26, Section XXI of the Civil Protection Code of the State of Nuevo León. Agency: Department of Civil Protection Obtain alignment certificate (alineamiento vial) from the Secretariat for Urban Development and Ecology The certificate of alignment is issued by the Secretariat for Urban Development and Ecology, not the Fire Department, to provide the exact limit of the private property in regards to public roads. The following documents must be provided: a. Document proving ownership; b. Official identification of the legal representative; c. Proof of property taxes paid; 5 days MXN 365 *3 d. Plan of the location of the property The procedure is legislated in Art. Regulation 73 of the Zoning and Land Use Rules of the City of Monterrey, Nuevo León. The basis of the cost is in Art. 52-BIS, Section IX of the Finance Act for the Municipalities of Nuevo León. Agency: Secretariat for Urban Development and Ecology Request land use license, building use license, official number and construction license from the Secretariat for Urban Development and Ecology ONce the certificate of alingment is issued, BuildCo. can request the 1 day no charge 4 land use license, building use license, official number and construction license from the Secretariat for Urban Development and Ecology. Agency: Secretariat for Urban Development and Ecology Doing Business 2017 Mexico 42 Time to No. Procedure Cost to complete complete Receive inspection prior to issuing the land use license, building use license, official number and construction license from the Secretariat for Urban Development and Ecology Prior to the issuance of the building permit, there is a site visit to verify the conditions of the property. The inspection is scheduled at the time of the application for licenses of land use, building use and construction. 1 day no charge 5 The procedure is legislated in Art. 351 of the Law of Urban Development of the State of Nuevo Leon. Agency: Secretariat for Urban Development and Ecology Receive land use license, building use license, official number and construction license from the Secretariat for Urban Development and Ecology Through a unique form issued by the City of Monterrey, the official number that corresponds to the property is provided, in addition to the permitted and prohibited uses at the site. The authorization of the construction of a new building on the premises is also provided. The following documents must be presented: a. Application form; b. Document proving ownership; c. Proof of payment of property tax; d. Professional license and responsive letter signed by the DRO; e. 4 photographs of the exterior of the property; f. Drawings of the draft; 6 g. Architectural plans of the project in physical and AutoCAD 2004 40 days MXN 51,195 format; h. Evidence of alignment; i. Soil mechanics and technical report of the proyect; j. Policy of liability insurance; k. Approval of Municipal Civil Protection; l. Proof of payment of fees. The customer must go to the Dirección de Control Urbano to complete the procedure from Monday to Friday between 8:00 am to 2:00 pm. The procedure is legislated in Art. 11 of the Zoning and Land Use Rules of the Municipality of Monterrey, Nuevo Leon and Arts. 17 and 20 of the Building Rules of the City of Monterrey, Nuevo León. The basis of the cost is in Art. 52, Section I, Subsection A, Art. 52- BIS, Section II, Paragraph E, Section III, Paragraph E and Art. 55 of the Finance Act for the Municipalities of the State of Nuevo León. Doing Business 2017 Mexico 43 Time to No. Procedure Cost to complete complete Agency: Secretariat for Urban Development and Ecology Update the cadastral registry BuildCo must update the cadastral information of the property (surface and value) before beginning construction. The following documents must be presented: a. Application form b. Official property plan approved by the municipal authority c. Proof of payment of the property tax d. Land use license e. Title deed f. Power of attorney of the legal representative g. Identification document of the person submitting the 7 application 6 days MXN 35,419 h. Payment of the corresponding fees The procedure is regulated in Arts. 9, 22, and 31 bis 1 of the Cadastral Law of the State of Nuevo León and Arts. 12, 14, 25, 26, 29, 31 and 21 of the regulations of the Cadastral Law of the State of Nuevo León. The cost is regulated by Art. 277, Section V of the Finance Law of the State of Nuevo León. Agency: Municipal Treasury Request and obtain feasibility study for water and drainage services from the Water and Drainage Services of Monterrey (SADM) It is the process that confirms the possibility of providing a potable water and sewer service connection in a certain area of the city. To perform the procedure, BuildCo must have: a. Unique form to request the service; b. Sketch of the location. 8 21 days no charge BuildCo must visit any commercial office the SADM at the Costumer Service Section and request the feasibility to contract the service. The procedure is legislated in Art. 42 of the Finance Act for the Municipalities of Nuevo León. Agency: Water and Drainage Services of Monterrey (SADM) Doing Business 2017 Mexico 44 Time to No. Procedure Cost to complete complete Obtain excavation permit from the Secretariat of Public Services (Technical Department, Permit Coordination) This permit allows BuildCo to conduct any excavation of the road to install the pipes. The pavement must be repaired to its initial status after the completion of the work. To obtain the permit, BuildCo must submit: a. Communication addressed to the Technical Director; b. Proof of payment of property tax; c. Copy of the constitution; d. Official identification of the legal representative; e. Work project; f. Work program; 5 days MXN 54,780 9 g. Copy of professional license and identification of the DRO; h. Payment of fees; i. Escrow; j. Feasibility of water and drainage. The procedure is legislated in Art. 37 of the Building Code of the City of Monterrey, Nuevo León. The basis of the cost is in the Art. 52, Section III of the Finance Act for the Municipalities of Nuevo León. Agency: Secretariat of Public Services (Technical Department, Permit Coordination) Request and connect to water and drainage services at the Water and Drainage Services of Monterrey (SADM) BuildCo must submit the following: a. Document proving ownership; b. Official identification of the legal representative; c. Articles of incorporation; d. Land use permit; e. Building permit; f. Registration of wastewater discharge; g. Architectural plan. The procedure is legislated in Art. 42 of the Finance Act for the Municipalities of Nuevo Leon and Art. 31 of the Building Code of the 21 days MXN 28,984 10 City of Monterrey, Nuevo León. The basis of the cost is in the Second Agreement, Title Services Water and Sewerage of Monterrey, IPD Meter Installation Fees for Connection and Service Standards Reinstalling Meter; Official Gazette no. 147. The cost is calculated as follows: [MXN 13,266.30 for the infrastructure contribution] + [MXN 9,140 for water connection] + [MXN 9,350 for drain connection] + [MXN 1,750 for the meter and installation]. It is assumed that the average water need is 662 liters/day and the average wastewater flow is 568 liters/day. A diameter of 1 inch for the drinking water connection and 4 inches for the drain connection are also assumed. Connection costs include labor, materials and costs of repaving. Doing Business 2017 Mexico 45 Time to No. Procedure Cost to complete complete Agency: Water and Drainage Services of Monterrey (SADM) Submit completion of construction work report (oficio de obra terminada) and request stamp by the Secretariat for Urban Development and Ecology BuildCo or the Responsible of Construction works (Responsable de Obra) must provide a final report to the Secretariat for Urban Development and Ecology which certifies that the construction work was executed under his supervision, complying with the rules and following what was authorized. BuildCo or the Responsible of Construction Works must submit the following: a. Application form; b. Proof of payment of property tax; c. Responsive letter and copy of the professional license of the DRO; 1 day no charge 11 d. 2 original and 1 copy of the flat plane of history; e. Approval of civil protection; f. Articles of incorporation. g. Approved building license Payment is then made to obtain the stamp. The procedure is legislated in Art. 123 of the Building Code the City of Monterrey, Nuevo León. Moreover the obligations corresponding to the "Responsable de Obra" can be found in Art. 12 of the Building Code Agency: Secretariat for Urban Development and Ecology Receive final inspection from the Secretariat for Urban Development and Ecology A final inspection is carried out to verify that the warehouse has been built in accordance with the regulations and the approved plans. The inspection is scheduled at the time of the notification of the completion of the construction. 12 1 day no charge The procedure is legislated in Art. 351 of the Urban Development Law of the State of Nuevo Leon. Agency: Secretariat for Urban Development and Ecology Obtain certificate of completion of construction work from the Secretariat for Urban Development and Ecology 13 3 days MXN 183 Once the final report is revised and the appropriate fees are paid, the Secretariat for Urban Development and Ecology will issue the certificate of completion, certifying that the warehouse is built in accordance with Doing Business 2017 Mexico 46 Time to No. Procedure Cost to complete complete existing regulations and approved plans. The procedure is legislated in Art. 123 of the Building Code of the City of Monterrey, Nuevo León. The basis of the cost is in Art. 52-BIS, Section VIII of the Finance Act for the Municipalities of Nuevo León. Agency: Secretariat for Urban Development and Ecology * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. . Doing Business 2017 Mexico 47 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Table 3.3 Summary of time quality control and safety mechanisms in Mexico Answer Score Answer Score (Mexico (Mexico (Monterrey) (Monterrey) City) City) Building quality control index (0-15) 12.0 10.0 Licensed Licensed Which third-party entities are required by law to verify architect; architect; that the building plans are in compliance with existing Licensed Licensed building regulations? (0-1) engineer. engineer. Quality of building regulations index (0-2) 2.0 2.0 Available 1.0 Available How accessible are building laws and regulations in your online; Free online; Free of 1.0 economy? (0-1) of charge. charge. List of 1.0 List of required required documents; Which requirements for obtaining a building permit are documents; Fees to be clearly specified in the building regulations or on any Fees to be 1.0 paid; accessible website, brochure or pamphlet? (0-1) paid; Required Required preapproval preapprovals. s. Quality control before construction index (0-1) 1.0 1.0 Licensed 1.0 Licensed Which third-party entities are required by law to verify architect; architect; that the building plans are in compliance with existing 1.0 Licensed Licensed building regulations? (0-1) engineer. engineer. Quality control during construction index (0-3) 2.0 2.0 Inspections 1.0 Inspections by by in-house in-house engineer; What types of inspections (if any) are required by law to engineer; No No 1.0 be carried out during construction? (0-2) inspections inspections are legally are legally required required during during Doing Business 2017 Mexico 48 Answer Score Answer Score (Mexico (Mexico (Monterrey) (Monterrey) City) City) constructio construction. n. Mandatory 1.0 Mandatory inspections inspections Do legally mandated inspections occur in practice during are always are always 1.0 construction? (0-1) done in done in practice. practice. Quality control after construction index (0-3) 2.0 3.0 Yes, final 2.0 Yes, final inspection inspection is is done by done by government government Is there a final inspection required by law to verify that agency; Yes, agency; Yes, the building was built in accordance with the approved in-house in-house 2.0 plans and regulations? (0-2) engineer engineer submits submits report for report for final final inspection. inspection. Final 0.0 inspection does not always Final Do legally mandated final inspections occur in practice? occur in inspection 1.0 (0-1) practice; always occurs Final in practice. inspection occurs most of the time. Liability and insurance regimes index (0-2) 1.0 2.0 Professional 1.0 Architect or in charge of engineer; the Professional supervision; in charge of Which parties (if any) are held liable by law for structural Constructio the flaws or problems in the building once it is in use (Latent 1.0 n company; supervision; Defect Liability or Decennial Liability)? (0-1) Owner or Construction investor. company; Owner or investor. No party is 0.0 No party is Which parties (if any) are required by law to obtain an required by required by insurance policy to cover possible structural flaws or law to law to obtain 1.0 problems in the building once it is in use (Latent Defect obtain insurance ; Liability Insurance or Decennial Insurance)? (0-1) insurance . Owner or Doing Business 2017 Mexico 49 Answer Score Answer Score (Mexico (Mexico (Monterrey) (Monterrey) City) City) investor. Professional certifications index (0-4) 4.0 0.0 Minimum 2.0 number of years of experience; University degree in University What are the qualification requirements for the architecture degree in professional responsible for verifying that the or architecture 0.0 architectural plans or drawings are in compliance with engineering or existing building regulations? (0-2) ; Being a engineering. registered architect or engineer; Passing a certification exam. Minimum 2.0 number of years of experience; University degree in engineering University , degree in constructio What are the qualification requirements for the engineering, n or professional who supervises the construction on the construction 0.0 constructio ground? (0-2) or n construction manageme management. nt; Being a registered architect or engineer; Passing a certification exam. Source: Doing Business database. Doing Business 2017 Mexico 50 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity connection a customer is always to gain access by obtaining a (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, Obtaining external installation works and as well as the time and cost to complete them. These possibly purchasing material for these works procedures include applications and contracts with Concluding any necessary supply contract and electricity utilities, clearances from other agencies obtaining final supply and the external and final connection works. In addition, this year Doing Business adds two new Time required to complete each procedure measures: the reliability of supply and transparency (calendar days) of tariffs index (included in the aggregate distance to Is at least 1 calendar day frontier score and ranking on the ease of doing Each procedure starts on a separate day business) and the price of electricity (omitted from these aggregate measures). The ranking of Does not include time spent gathering economies on the ease of getting electricity is information determined by sorting their distance to frontier Reflects the time spent in practice, with little scores for getting electricity. These scores are the follow-up and no prior contact with officials simple average of the distance to frontier scores for Cost required to complete each procedure (% each of the component indicators. To make the data of income per capita) comparable across economies, several assumptions are used. Official costs only, no bribes Excludes value added tax Assumptions about the warehouse 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 city. Duration and frequency of outages For 11 economies the data are also collected for Tools to monitor power outages the second largest business city. Tools to restore power supply  Is located in an area where similar warehouses are typically located. In this area a new electricity Regulatory monitoring of utilities’ performance connection is not eligible for a special investment Financial deterrents aimed at limiting outages promotion regime (offering special subsidization Transparency and accessibility of tariffs or faster service, for example). Price of electricity (cents per kilowatt-hour)*  Is located in an area with no physical constraints. For example, the property is not near a railway. Price based on monthly bill for commercial warehouse in case study  Is a new construction and is being connected to electricity for the first time. *Price of electricity is not included in the calculation of distance to frontier nor ease of doing business ranking The warehouse (continued): Doing Business 2017 Mexico 51  Has two stories, both above ground, with a total surface area of approximately 1,300.6 square Assumptions about the monthly consumption meters (14,000 square feet). The plot of land on which it is built is 929 square meters (10,000  It is assumed that the warehouse operates 30 days square feet). a month from 9:00 a.m. to 5:00 p.m. (8 hours a day),  Is used for storage of goods. with equipment utilized at 80% of capacity on average and that there are no electricity cuts Assumptions about the electricity connection (assumed for simplicity reasons).  The monthly energy consumption is 26,880 The electricity connection: kilowatt-hours (kWh); hourly consumption is 112  Is a permanent one. kWh.  Is a three-phase, four-wire Y connection with a  If multiple electricity suppliers exist, the warehouse subscribed capacity of 140-kilo-volt-ampere is served by the cheapest supplier. (kVA) with a power factor of 1, when 1 kVA = 1  Tariffs effective in March of the current year are kilowatt (kW). used for calculation of the price of electricity for the  Has a length of 150 meters. The connection is to warehouse. Although March has 31 days, for either the low- or medium-voltage distribution calculation purposes only 30 days are used. network and is 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.  Does not require work to install the internal wiring of the warehouse. This has already been completed up to and including the customer’s service panel or switchboard and the meter base Doing Business 2017 Mexico 52 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection business city of an economy, except for 11 economies for in Mexico? According to data collected by Doing which the data are a population-weighted average of the Business, getting electricity there requires 6.8 procedures, 2 largest business cities. See the chapter on distance to takes 100.4 days and costs 336.7% of income per capita frontier and ease of doing business ranking at the end of (figure 4.1). this profile for more details. Most indicator sets refer to a case scenario in the largest Figure 4.1 What it takes to obtain an electricity connection in Mexico - Mexico City Doing Business 2017 Mexico 53 What it takes to obtain an electricity connection in Mexico - Monterrey Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Mexico 54 GETTING ELECTRICITY Globally, Mexico stands at 98 in the ranking of 190 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Mexico to connect a The rankings for comparator economies and the regional warehouse to electricity. Figure 4.2 How Mexico and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2017 Mexico 55 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in Mexico practices and internal wiring installations. In an effort to (table 4.1)? Table 4.1 How has Mexico made getting electricity easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform In Mexico the distribution utility made getting electricity easier by streamlining procedures, offering training opportunities to DB2013 private contractors, using a geographic information system (GIS) to map the electricity distribution network and increasing the stock of materials. Mexico made getting electricity easier by increasing the efficiency of the utility’s internal processes and by enforcing a DB2014 “silence is consent” rule for the approval of the feasibility study for a new connection. Source: Doing Business database. Doing Business 2017 Mexico 56 GETTING ELECTRICITY What are the details? The indicators reported here for Mexico are based on a OBTAINING AN ELECTRICITY CONNECTION* set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— identified by Doing Business. Data are collected from the distribution utility, then completed and verified by electricity regulatory agencies and independent Name of utility - Mexico City: CFE professionals such as electrical engineers, electrical contractors and construction companies. The electricity distribution utility surveyed is the one serving the area Name of utility - Comisión Federal de (or areas) in which warehouses are located. If there is a Monterrey: Electricidad (CFE) choice of distribution utilities, the one serving the largest number of customers is selected. Price of electricity (US cents per kWh) - 6.7 The procedures are those that apply to a warehouse and Mexico City: electricity connection matching the standard assumptions used by Doing Business in collecting the Price of electricity data (see the section in this chapter on what the (US cents per kWh) - 7.1 indicators cover). The procedures, along with the Monterrey: associated time and cost, are summarized below. City: Mexico City, Monterrey *Price is calculated as a monthly consumption of 26,880 kWh for business customers, based on a standardized case study adopted by the Getting Electricity methodology. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. Table 4.2 Summary of time, cost and procedures for getting electricity in Mexico Time to No. Procedure Cost to complete complete Request feasibility study from CFE The client request a feasibility study to the Comisión Federal de Electricidad (CFE). The energy demand and a sketch of the localization of the warehouse are requested by the CFE. 1 5 calendar days MXN 0 Agency: Comisión Federal de Electricidad (CFE) Doing Business 2017 Mexico 57 Time to No. Procedure Cost to complete complete Hire electrical contractor to design connection and submit plans to CFE for approval Once the feasibility of the project has been confirmed by Comisión Federal de Electricidad (CFE), the clients electrical contractor obtains the design specifications from CFE, prepares the design of the electrical 18 calendar days MXN 0 2 works needed to carry out the connection on the basis of these specifications and awaits approval of the plans from CFE. Agency: Comisión Federal de Electricidad (CFE) Receive technical inspection by CFE for design approval This external inspection is necessary to validate the design of the connection works. 1 calendar day MXN 0 *3 Agency: Comisión Federal de Electricidad (CFE) Obtain permit from municipality for external works The customer or the electrical contractor obtains the authorization from the Municipality to carry out the connection works in public land. Authorizations from the Public Works Secretary and from the Civil 4 Protection Secretary are also needed. 65 calendar days MXN 2,620 Agency: Municipality district, Public Works Secretary and Civil Protection Secretary Await completion of external works by electrical contractor The installation of the transformer substation and the external connection works are the responsibility of the customer, who can choose 5 to hire a private contractor to do the works. 20 calendar days MXN 475,000 Agency: Comisión Federal de Electricidad (CFE) Obtain approval of internal wiring installation from specialized firm The monitoring of the internal wiring installations is done by a specialized firm (Unidad de Verificación de Instalaciones Eléctricas ) which is responsible for checking that the wiring was done according to 2 calendar days MXN 25,000 *6 Mexican standards. The applicant must go to a Unidad de Verificación de Instalaciones Eléctricas (UVIE), accredited with the Entidad Mexicana de Acreditamiento (EMA) and registered with the Ministry of Energy Doing Business 2017 Mexico 58 Time to No. Procedure Cost to complete complete (Secretaria de Energia). The firm will verify that the electrical installation meets the safety standards established in NOM-001-SEDE 2012; the UVIE also oversees the external work that is performed by the client (construction of the electrical substation). A certificate issued at the end of the inspection is needed by the time the supply contract is signed. This procedure may be performed simultaneously with other procedures. The costs associated with this procedure are determined by the Unidad Verificadora and the applicant. If the wiring is done within the provisions of the Mexican Standards, usually one inspection is sufficient to issue the approval (Dictamen de Verificación), but if the applicant did not perform its electrical work within the rules, then the Unidad Verificadora must make several visits to ensure that the wiring corresponds to the standards. Link to http://www.sener.gob.mx/webSener/portal/index.jsp?id=120 Agency: Empresa privada Sign supply contract, pay security deposit and await meter installation by CFE At the signing of the contract for providing electrical service connection the certificate of verification for the internal wiring installation must be submitted. The process of signing the supply contract is done after the security deposit has been paid for. Payment is made at the offices of the company. It is possible to settle the security deposit with a bank 4 calendar days MXN 4,508.67 7 guarantee. The meter installation is done by the Área comercial which coordinates with the Departamento de Distribuccion. Agency: Comisión Federal de Electricidad (CFE) * Takes place simultaneously with previous procedure. Source: Doing Business database. Summary of time, cost and procedures for getting electricity in Mexico - Monterrey Time to No. Procedure Cost to complete complete Request feasibility study from CFE The client request a feasibility study to the Comisión Federal de Electricidad (CFE). The energy demand and a sketch of the localization of 10 calendar days MXN 0 1 the warehouse are requested by the CFE. Agency: Comisión Federal de Electricidad (CFE) Doing Business 2017 Mexico 59 Time to No. Procedure Cost to complete complete Hire electrical contractor to design connection and submit plans to CFE for approval Once the feasibility of the project has been confirmed by Comisión Federal de Electricidad (CFE), the clients electrical contractor obtains the design specifications from CFE, prepares the design of the electrical 10 calendar days MXN 0 2 works needed to carry out the connection on the basis of these specifications and awaits approval of the plans from CFE. Agency: Comisión Federal de Electricidad (CFE) Receive technical inspection by CFE for design approval This external inspection is necessary to validate the design of the connection works. 1 calendar day MXN 0 *3 Agency: Comisión Federal de Electricidad (CFE) Await completion of external works by electrical contractor The installation of the transformer substation and the external connection works are the responsibility of the private contractor hired by 4 the client 20 calendar days MXN 300,000 Agency: Comisión Federal de Electricidad (CFE) Obtain approval of internal wiring installation by specialized firm The monitoring of the internal wiring installations is done by a specialized firm (Unidad de Verificación de Instalaciones Eléctricas ) which is responsible for checking that the wiring was done according to Mexican standards. The applicant must go to a Unidad de Verificación de Instalaciones 2 calendar days MXN 25,000 *5 Eléctricas (UVIE), accredited with the Entidad Mexicana de Acreditamiento (EMA) and registered with the Ministry of Energy (Secretaria de Energia). The firm will verify that the electrical installation meets the safety standards established in NOM-001-SEDE 2012; the UVIE also oversees the external work that is performed by the client (construction of the electrical substation). A certificate issued at the end of the inspection is needed by the time the Doing Business 2017 Mexico 60 Time to No. Procedure Cost to complete complete supply contract is signed. This procedure may be performed simultaneously with other procedures. The costs associated with this procedure are determined by the Unidad Verificadora and the applicant. If the wiring is done within the provisions of the Mexican Standards, usually one inspection is sufficient to issue the approval (Dictamen de Verificación), but if the applicant did not perform its electrical work within the rules, then the Unidad Verificadora must make several visits to ensure that the wiring corresponds to the standards. Agency: Private company Sign supply contract, pay security deposit and await meter installation by CFE At the signing of the contract for providing electrical service connection the certificate of verification for the internal wiring installation must be submitted. The process of signing the supply contract is done after the security deposit has been paid for. Payment is made at the offices of the 4 calendar days MXN 4,688.88 6 company. It is possible to settle the security deposit with a bank guarantee. The meter installation is done by the Área comercial which coordinates with the Departamento de Distribuccion. Agency: Comisión Federal de Electricidad (CFE) * Takes place simultaneously with previous procedure. Source: Doing Business database. Doing Business 2017 Mexico 61 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in Mexico Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) Reliability of supply and transparency of tariff index 6.0 7.0 (0-8) Total duration and frequency of outages per customer 2.0 3.0 a year (0-3) System average interruption duration index (SAIDI) 0 0.01 System average interruption frequency index (SAIFI) 1.54 0.95 Mechanisms for monitoring outages (0-1) 1.0 1.0 Does the distribution utility use automated tools to Yes Yes monitor outages? Mechanisms for restoring service (0-1) 1.0 1.0 Does the distribution utility use automated tools to Yes Yes restore service? Regulatory monitoring (0-1) 1.0 1.0 Does a regulator—that is, an entity separate from the utility—monitor the utility’s performance on reliability Yes Yes of supply? Financial deterrents aimed at limiting outages (0-1) 0.0 0.0 Doing Business 2017 Mexico 62 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) Does the utility either pay compensation to customers or face fines by the regulator (or both) if outages Yes No exceed a certain cap? Communication of tariffs and tariff changes (0-1) 1.0 1.0 Are effective tariffs available online? Yes Yes http://app. http://app.cfe cfe.gob.mx .gob.mx/Aplic /Aplicacion aciones/CCFE Link to the website, if available online es/CCFE/Ta /Tarifas/Tarifa rifas/Tarifas s/tarifas_indu /tarifas_ind stria.asp ustria.asp Are customers notified of a change in tariff ahead of Yes Yes the billing cycle? Price of electricity (US cents per kWh) 6.7 7.1 Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March (for 11 economies the data are also collected for the second largest business city). As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of- use tariff is available. Doing Business 2017 Mexico 63 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 city2 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 perform . The parties (buyer and seller): general commercial activities in the economy’s largest business city.  Are limited liability companies, 100% domestically and privately owned and perform general  Have 50 employees each, all of whom are commercial activities in the economy’s largest nationals. business city. The property (fully owned by the seller):  Have 50 employees each, all of whom are nationals.  Has a value of 50 times income per capita. The The property (fully owned by the seller): sale price equals the value and entire property will be transferred.  Has a value of 50 times income per capita. The sale price equals the value and entire property will be  Is registered in the land registry or cadastre, or transferred. both, and is free of title disputes.  Is registered in the land registry or cadastre, or both, Is located in a periurban commercial zone, and no and is free of title disputes. rezoning is required. Doing Business 2017 Mexico 64 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Mexico? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 7.7 procedures, takes which the data are a population-weighted average of the 42.1 days and costs 5.2% of the property value (figure 2 largest business cities. See the chapter on distance to 5.1). The score on the quality of land administration frontier and ease of doing business ranking at the end of index is 16.3 this profile for more details. Figure 5.1 What it takes to register property in Mexico - Mexico City What it takes to register property in Mexico - Monterrey Doing Business 2017 Mexico 65 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Mexico 66 REGISTERING PROPERTY Globally, Mexico stands at 101 in the ranking of 190 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Mexico to transfer property. Figure 5.2 How Mexico and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2017 Mexico 67 REGISTERING PROPERTY Economies worldwide have been making it easier for the time required substantially—enabling buyers to use entrepreneurs to register and transfer property—such as or mortgage their property earlier. What property by computerizing land registries, introducing time limits registration reforms has Doing Business recorded in for procedures and setting low fixed fees. Many have cut Mexico (table 5.1)? Table 5.1 How has Mexico made registering property easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Mexico made registering property easier by digitizing its land records, improving the quality of the Land Registry DB2017 infrastructure and making the registration process more efficient. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Mexico 68 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: 7083837.5 notaries and property registries. These procedures are those that apply to a transaction matching the Mexico City, City: standard assumptions used by Doing Business in Monterrey collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Mexico Mexico City Time to No. Procedure Cost to complete complete The notary obtains the Zoning Certificate of the property The Public Registry of Property and Commerce requires a zoning certificate of the property to be attached together with the application to register the property transfer. The notary shall request the zoning certificate at the Ministry of Urban Development and Housing (Secretaría de Desarrollo Urbano y Vivienda). The cost is established in article 235, section III of the Fiscal Code for the Federal District. The applicant must submit an original and copy, the documents below with the corresponding delegation’s single-counter service. The authority will retain only the copies. 12 days - Form AU-01. (simultaneous 1 MXN 1,336 with Procedures - Proof of payment of property taxes to date. 2, 3, 4 & 5) - Proof of payment of fees. - Official identification. - Relotificaton or subdivision license, if applicable. - Street number designation and boundary alignment certificate (certificado de alineamiento y número oficial), if applicable. - Public deeds, if applicable. -If the procedure is not carried out by the owner of the property, it must also submit a proxy letter or a notarized power of attorney. Doing Business 2017 Mexico 69 Time to No. Procedure Cost to complete complete Agency: Ministry of Housing and Urban Development of the Federal District (Secretaría de Desarrollo Urbano y Vivienda del Distrito Federal or SEDUVI) The notary obtains a non-encumbrance certificate Pursuant to article 3016 of the Civil Code for the Federal District, the notary before whom the transfer deed is being formalized must request a non-encumbrance certificate to the Public Registry. This request also acts as the mandatory pre-preventive notice (aviso preventivo) to the Public Registry, which suspends any inscription on the corresponding property for 60 days. The applicant must submit before the Public Registry of Property and Commerce the following documentation: - Application for request in triplicate, including the name and signature 1 day if urgent of the of the applicant, term of the certificate, location of the property process, 7 days if MXN 540.00 (Non and real estate folio. regular process *2 urgent) MXN (simultaneous 1,080.00 (Urgent) - Proof of payment of fees established in article 198, section I of the with Procedures Fiscal Code for the Federal District in duplicate. 1, 3, 4 & 5) - The application for request may also be made online, as well as the payment of fees. This procedure can be done online at the following website: http://www.consejeria.cdmx.gob.mx/index.php/dgrppyc/certificado-de- existencia-o-inexistencia-de-gravamenes Agency: Public Registry of Property of the Federal District ("Registro Público de la Propiedad y del Comercio del Distrito Federal") The notary requests a commercial valuation of the property A commercial valuation is required under the Fiscal Code of the Federal District to determine the taxable value of the property subject to transfer. Article 116 of the Fiscal Code of the Federal District establishes that the 7 days property tax shall be calculated taking in to account the highest of (i) the (simultaneous 0.2% of the *3 purchase price, (ii) the cadastral value, and (iii) the value resulting from with Procedures Property Value the commercial valuation by the fiscal authorities or authorized 1, 2, 4 & 5) appraiser. The notaries usually have their own appraisers. Nevertheless, the parties may hire the appraiser they choose. When banks are involved in the Doing Business 2017 Mexico 70 Time to No. Procedure Cost to complete complete transaction, they will usually bring in the valuers they usually work with. Sometimes parties have a previous valuation, and the notary can have it reviewed to see if it suffices. However, these previous valuations are usually not fiscal ones and therefore another one has to be done to determine the value of the property for the ISAI tax, but also for the VAT tax to which commercial constructions are subject to when transferred (please note that the land is not taxable under VAT, just the commercial constructions). Agency: Licensed valuer The notary obtains a certificate of good standing with the water service Article 27 of the Fiscal Code for the Federal District establishes that the interested parties shall provide the notary evidence that the property subject to transfer has no outstanding debts to the water supply provider and property tax. This evidence should cover any outstanding from up to five years before the date when the public deed of sale and less than a day purchase is signed. (online procedure *4 simultaneous MXN 144.7 with Procedures In January 2016, a new online platform was introduced to complete this 1, 2, 3 & 5) procedure online (http://www.finanzas.df.gob.mx). In order to request this information ("constancia de adeudo de aguas"), the petitioner only has to submit the water utility Account Number associated with the property to the system and pay the corresponding fee of MXN 144.70. Agency: Sistema de Aguas de la Ciudad de México (SACM) The notary checks the good standing of the seller on the property tax (predial) less than a day if The certificate of good standing of the seller on the property tax checked online or ("impuesto predial") is one of the documents to be provided by the 13 days if MXN 144.7 if interested parties under art. 27 of the Fiscal Code of the Federal District; the receipts of payments of the predial (boletas) are no longer required. certificate of certificate of good good standing standing ("constancia de ("constancia de no *5 Since February 2015, it has been possible to obtain this information no adeudo") is adeudo") is online (http://www.finanzas.df.gob.mx). The petitioner has to submit the requested (online requested; no cost Cadaster Number (Cuenta Predial) in order to obtain the information of procedure, if information is any outstanding debts of the property for the last 5 years. simultaneous checked online. with procedures Agency: Ministry of Finance of the Federal District (Secretaría de Finanzas 1, 2, 3 & 4). del Distrito Federal) Doing Business 2017 Mexico 71 Time to No. Procedure Cost to complete complete The notary formalizes the sale purchase agreement MXN 342,412.82 according to our The notary public will request from the seller: case study (Property Acquisition Tax • Property title (escritura), which the seller already has plus Notary Fees • Receipts evidencing the payment for real estate taxes for a period of Tax) five years (boletas del impuesto predial) The Property • Receipts evidencing the payment of water fees for a period of five years Acquisition Tax is (boletas del servicio de agua) determined, pursuant to article • Public deed(s) containing the incorporation and by-laws of the seller 113 of the Fiscal company (escritura constitutiva), together with copy of any public Code of the deed(s) containing amendments to the by-laws of the seller company Federal District. The Tax schedule • Public deed(s) containing the powers of attorney granted in favor of is as follows the seller’s representatives (for acts of domain and acts of administration in terms of the second and third paragraph of article 2554 of the Civil (cumulative and Code of the Federal District) progressive fee schedule): • Copy of the official identification of the seller's and buyer's representatives From MXN 0.12 to MXN 94,072.57: 6 3 days MXN 207.92. Rate The notary will procure on behalf of the parties: between these amounts 0.01105 • The zoning certificate (obtained in Procedure 2) From MXN 94,072.58 to MXN • The valuation (obtained in Procedure 3) 150,516.06: MXN • Certificate of good standing with the water company (obtained in 1,247.52 Rate Procedure 1) between these amounts 0.03315 • Certificate of good standing in the property tax (obtained in procedure From MXN 4) 150,516.07 to MXN 225,773.88: MXN 3,118.80 The buyer is subject to pay the acquisition tax ("Impuesto sobre Rate between Adquisiciones o Transmisión de Dominio"). In this respect, on the date of these amounts execution of the real estate purchase agreement before the notary 0.05526 public, said notary public will retain the above mentioned taxes and pay From MXN them before Treasury Department. 225,773.89 to The scale of notary tariffs is with respect to the Notary Publics of the MXN 451,547.89: Federal District only. Other Mexican states have varying scales. MXN 7,277.20 Rate between The seller will also have to pay the income tax and the value added tax as these amounts follows: 0.03684 From MXN Doing Business 2017 Mexico 72 Time to No. Procedure Cost to complete complete The applicable Income Tax for transferors resident in Mexico is 28% on 451,547.90 to the gain (the excess of the sale price over the adjusted tax basis). The tax MXN 1,128,869.71: basis of real estates is in general terms the original cost of acquisition as MXN 15,594.00 updated for inflation. Rate between these amounts The value added tax (16%) is applicable only with respect to the 0.03530 constructions that conform to the property and therefore an allocation of the price to the land and constructions should be made in the sales From MXN agreement based on an appraisal. The value added tax will be shifted to 1,128,869.72 to the buyer. MXN 2,257,739.43: MXN 39,504.80 Rate between The notary public shall calculate its fees as set forth in Article 15 of the these amounts Notary Fees of the Federal District (Arancel de Notarios of March 2015), 0.04328 taking into account the highest of (i) the purchase price, (ii) the cadastral From MXN value, and (iii) the value resulting from the commercial valuation by the 2,257,739.44 to fiscal authorities or authorized appraiser. MXN 4,349,334.30: MXN 88,366.00 Agency: Notary Rate between these amounts 0.04722 From MXN 4,349,334.31 to MXN 11,326,391.96: MXN 187,128.00 Rate between these amounts 0.04768 From MXN 11,326,391.97 to MXN 20,887,467.14: MXN 519,800.00 Rate between these amounts 0.04812 From MXN 20,887,467.15 and up: MXN 981,000.00 Rate after this amount 0.04997 Notary fees are calculated according to Art. Doing Business 2017 Mexico 73 Time to No. Procedure Cost to complete complete 15 of the official Mexico DF Notary Fees schedule.The fee schedule is as follows (cumulative and regressive fee schedule): Until MXN 143,183.00: Fix fee of MXN 4,172.00 From MXN 143,183.01 to MXN 286,366.00: Rate of 1.125% From MXN 286,366.01 to MXN 572,732.00: Rate of 0.975% From MXN 572,732.01 to MXN 1,145,464.00: Rate of 0.825% From MXN 1,145,464.01 to MXN 2,290,928.00: Rate of 0.675% From MXN 2,290,928.01 to MXN 4,581,856.00: Rate of 0.578% From MXN 4,581,856.01 to MXN 9,163,713.00: Rate of 0.420% From MXN 9,163,713.01 onwards: Rate of 0.327% The Notary lodges the preventive notice (aviso preventivo) at the Public Registry of Property of the Federal District 7 1 day No cost According to Article 3016 of the Civil Code of Mexico DF establishes that the Notary has to give a preventive notice to the Public Registry of Property during the next 48 hours after the public deed has been signed Doing Business 2017 Mexico 74 Time to No. Procedure Cost to complete complete by both parties of the transaction. In practice, the Notary will fill up a specific form for the "aviso preventivo" and lodge it to the Registry the next day after the signature (sometimes even during the same say of the signature). This notice suspends any possible inscription to the property object of the transaction up to 30 days. Agency: Public Registry of Property of the Federal District ("Registro Público de la Propiedad y del Comercio del Distrito Federal") Registration of the transfer of title at the Public Registry of Property of the Federal District The notary public will proceed with the registration of the first testimony of the public deed containing the formalization of the purchase agreement of a real estate and the transfer of title, before the Public Registry of Property of the Federal District. After registration, the buyer 8 will have to give notice to the corresponding water department, and any 30 days MXN 15,950 other company that provides any service to the property (i.e. electric company, water, etc.) Agency: Public Registry of Property of the Federal District ("Registro Público de la Propiedad y del Comercio del Distrito Federal") * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for registering property in Mexico Monterrey Time to No. Procedure Cost to complete complete The notary obtains the non-encumbrance certificate and gives the pre-preventive notice (aviso pre-preventivo) to the Public Registry (IRCNL) MXN 219.12 for the non- The non-encumbrance certificate contains information including the encumbrance description of the property and information regarding any charges, liens, certificate (3 daily mortgages or other encumbrances. minimum wages at 2 days MXN 73.04 per To complete the procedure the notary must present the non- (simultaneous harmonized 1 encumbrance certificate form (original and copy) with the information with procedure 2) minimum wage for included in the sale and purchase agreement. By presenting this form the Mexico) and MXN Notary sends the mandatory pre-preventive notice on behalf of the parties as well. The pre-preventive notice serves a double purpose: (i) As 292.16 for the pre- a notification to the Public Registry of the intention to transfer a preventive notice registered property; and (ii) as a suspension of registration of any (4 daily minimum transaction or encumbrance (such as mortgages) upon the wages) corresponding property by any third party. This suspension lasts 30 days. Doing Business 2017 Mexico 75 Time to No. Procedure Cost to complete complete The procedure is regulated by Article 2910 of the Civil Code of the State of Nuevo León, Art. 8 Section VII and Articles 59, 61 and 63 of the Regulatory Law of the Property and Commercial Public Registry of the State of Nuevo León. The cost is regulated by Art. 271 Sections X and XII of the Finance Law of the State of Nuevo León. Agency: Public Registry (Instituto Registral y Catastral del Estado de Nuevo León, IRCNL) Obtain the cadastral value of the property from the Cadaster (Dirección de Catastro - IRCNL) The property transfer tax is calculated based on the cadastral value obtained through this procedure. The notaries can complete this procedure online through the Cadaster’s online platform receiving the response immediately. The value obtained is merely informative. If the value is requested in person the following documents are required: a. Application form (original and copy) b. Receipt of payment of property tax “predial” (copy) Less than 1 day (online MXN 292.16 (4 c. ID of the owner procedure, daily minimum *2 simultaneous wages) d. Document identifying the applicant as the legal representative of the with procedure 1) company (when requested on behalf of a company, copy) e. Public deed or sale agreement (copy) f. Receipt of payment of fees The procedure is regulated by Art. 34 of the Regulatory Law of the Cadaster Law. The cost is regulated by Art. 276, Section III-A of the Finance Law of the State of Nuevo León. Agency: Cadaster (Dirección del Catastro - IRCNL) The notary prepares and executes the public deed, and collects and pays the property transfer (ISAI) tax at the municipality 2% of the property Currently there is not an official fee schedule for notary fees in value for the Monterrey. Notaries would normally charge 1% of the property value, property transfer 3 14 days but is negotiable between the parties and the Notary. tax + 1% of the property value for To complete the payment of the property transfer tax the notary would notary fees go the municipality and present the following documents: Doing Business 2017 Mexico 76 Time to No. Procedure Cost to complete complete a. Public deed b. Cadastral value (obtained in procedure 2) c. Receipt of payment of property tax “predial” d. Statement of payment The procedure is regulated by Art. 28 Bis fo the Finance Law for the Municipalities of the State of Nuevo León. The property transfer tax is based on the highest value between the sale price or the cadastral value. With the entry into force in July 2013 of the Federal Law for the Prevention and Identification of Operations with Illicit Resources (Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita) the notaries have to notify the Ministry of Finance (Secretaría de Hacienda y Crédito Público) if they provide services related with the transfer of a property above a certain amount. Agency: Notary The notary gives the preventive notice to the Public Registry (IRCNL) Once the deed is signed the notary gives notice to the Public Registry informing of the conclusion of the transaction. The notice will have a validity of 60 days during which this transaction will have the priority over any other recordable action on the property. To complete this procedure the notary must present the following: a. Notice with the names of the parties of the transaction b. The purpose of the transaction MXN 292.16 (4 4 1 day daily minimum c. The deed number wages) d. Signature date The notary must bring the documentation to the Public Registry, pay the corresponding fees and receive the confirmation that the notice has been processed by the Registry. The procedure is regulated by Art. 2910 of the Civil Code of the State of Nuevo León. The cost is regulated by Art. 271, Section XII of the Finance Law of the State of Nuevo León. Agency: Public Registry (Instituto Registral y Catastral del Estado de Nuevo León, IRCNL) Doing Business 2017 Mexico 77 Time to No. Procedure Cost to complete complete The notary gives notice of the sale to the Cadaster (Dirección del Catastro – IRCNL) It is a common practice to update ownership at the Cadaster before starting the registration procedure at the Property Registry. In practice, the Property Registry requests proof that the Cadaster records have been updated with the new owner. In this procedure the changes in property ownership are recorded in the cadastral registry through the notice provided by the notary. To complete this procedure the following documents are presented by the notary: a. Notification of sale form (original) 5 1 day no cost b. Copy of the receipt of payment of the property tax (predial) c. Description of the property The notary presents the sale notice at the Tax Payer Service Department with the required documents. The documents are reviewed and processed by the corresponding department for their approval. After their evaluation the notary returns for the results of the procedure. The procedure is regulated by Art. 29 of the Cadastral Law and Art. 28 of the Regulatory Law of the Cadastral Law. Agency: Cadaster (Dirección del Catastro - IRCNL) The deed is registered at the Public Registry (IRCNL) To complete the registration the notary must bring the following documents: a. Notarized public deed b. Receipt of payment of transfer tax (ISAI) MXN 5 for every c. Paymet of Income Tax d. Non-encumbrance certificate thousand or 6 5 days fraction of the e. Cadastral value property value The notary must bring the documentation to the Public Registry and pay the corresponding fees. Once the procedure is completed the notary will come back to the registry to pick up the documentation. The cost is MXN 5 for every thousand or fraction of the property value with a minimum of 5 daily minimum wages (MXN 365.20) and a maximum of 570 daily minimum wages (MXN 41,632.80). The procedure is regulated by Art. 8, Section IV and Arts. 21, 22 and 23 Doing Business 2017 Mexico 78 Time to No. Procedure Cost to complete complete of the Regulatory Law of the Commercial and Property Public Registry of the State of Nuevo León as well as by Arts. 2901, 2904 and 2910 of the Civil Code of the State of Nuevo León. The cost is regulated by Art. 271, Section I of the Finance Law of the State of Nuevo León. Agency: Public Registry (Instituto Registral y Catastral del Estado de Nuevo León, IRCNL) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2017 Mexico 79 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2014 and June transparency of information, geographic coverage 2015, the economy receives a “no practice” mark on the and land dispute resolution indices. procedures, time and cost indicators. A “no practice” economy receives a score of 0 on the quality of land The index ranges from 0 to 30, with higher values administration index even if its legal framework includes indicating better quality of the land administration provisions related to land administration. system. Table 5.3 Summary of quality of land administration in Mexico Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) Quality of the land administration index (0-30) 16.0 17.5 Reliability of infrastructure index (0-8) 5.0 5.0 Instituto Registral y Catastral del Estado de Nuevo León Registro dependient What is the institution in charge of immovable Público de la e de la property registration? Propiedad y Dirección de Comercio de Registro Público de la Propiedad y del Comercio In what format are the majority of title or deed records Computer/Sc Computer/ kept in the largest business city—in a paper format or in 1.0 1.0 anned Scanned a computerized format (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, mortgages, restrictions and the Yes 1.0 Yes 1.0 like)? In what format are the majority of maps of land plots Computer/Ful Computer/ kept in the largest business city—in a paper format or in 2.0 2.0 ly digital Fully digital a computerized format (scanned or fully digital)? Is there an electronic database for recording Yes 1.0 Yes 1.0 boundaries, checking plans and providing cadastral Doing Business 2017 Mexico 80 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) information (geographic information system)? Is the information recorded by the immovable property registration agency and the cadastral or mapping Separate Separate 0.0 0.0 agency kept in a single database, in different but linked databases databases databases or in separate databases? Do the immovable property registration agency and cadastral or mapping agency use the same No 0.0 No 0.0 identification number for properties? Transparency of information index (0–6) 4.0 3.5 Anyone Who is able to obtain information on land ownership at Anyone who who pays the agency in charge of immovable property pays the 1.0 1.0 the official registration in the largest business city? official fee fee Is the list of documents that are required to complete any type of property transaction made publicly Yes, online 0.5 Yes, online 0.5 available–and if so, how? The website http://www.c onsejeria.df.g ob.mx/index. php/rppyc lists all the services provided by the registry, including their costs and waiting http://nl.go time. b.mx/depe Link for online access: ndencias/ir For transfers: c/servicios http://www.c onsejeria.df.g ob.mx/portal_ old/portal_de talle.php?con tenido=Mjg5 &direccion= NQ==& For non encumbrance s certificates: http://www.c Doing Business 2017 Mexico 81 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) onsejeria.df.g ob.mx/portal_ old/portal_de talle.php?con tenido=Mzc1 &direccion= NQ==& Is the applicable fee schedule for any property transaction at the agency in charge of immovable Yes, online 0.5 Yes, online 0.5 property registration in the largest business city made publicly available–and if so, how? http://www.c onsejeria.df.g http://nl.go ob.mx/portal_ b.mx/depe Link for online access: old/civica/RP ndencias/ir PyCDF01Cost c/servicios os2015.pdf Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property ownership within a Yes, online 0.5 Yes, online 0.5 specific time frame–and if so, how does it communicate the service standard? The website http://www.c onsejeria.df.g ob.mx/index. php/rppyc lists all the services provided by the registry, including http://nl.go their costs b.mx/depe Link for online access: and waiting ndencias/ir time. c/servicios For transfers: http://www.c onsejeria.df.g ob.mx/portal_ old/portal_de talle.php?con tenido=Mjg5 &direccion= Doing Business 2017 Mexico 82 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) NQ==& For non encumbrance s certificates: http://www.c onsejeria.df.g ob.mx/portal_ old/portal_de talle.php?con tenido=Mzc1 &direccion= NQ==& Is there a specific and separate mechanism for filing complaints about a problem that occurred at the No 0.0 No 0.0 agency in charge of immovable property registration? Contact information: Are there publicly available official statistics tracking the number of transactions at the immovable property No 0.0 No 0.0 registration agency? Number of property transfers in the largest business city in 2015: Only Anyone who intermediar Who is able to consult maps of land plots in the largest pays the 0.5 ies and 0.0 business city? official fee interested parties Is the applicable fee schedule for accessing maps of Yes, online 0.5 Yes, online 0.5 land plots made publicly available—and if so, how? http://ovica.fi http://www. nanzas.df.gob nl.gob.mx/s .mx/TRAM/Inf ervicios/co Link for online access: ormacionDet pia-de- alladaTramite. plano-de- aspx terreno Does the cadastral or mapping agency commit to delivering an updated map within a specific time Yes, online 0.5 Yes, online 0.5 frame—and if so, how does it communicate the service standard? http://ovica.fi http://www. Link for online access: nanzas.df.gob nl.gob.mx/s .mx/TRAM/Inf ervicios/co Doing Business 2017 Mexico 83 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) ormacionDet pia-de- alladaTramite. plano-de- aspx terreno Is there a specific and separate mechanism for filing complaints about a problem that occurred at the No 0.0 No 0.0 cadastral or mapping agency? Geographic coverage index (0–8) 2.0 4.0 Are all privately held land plots in the economy No 0.0 No 0.0 formally registered at the immovable property registry? Are all privately held land plots in the largest business city formally registered at the immovable property No 0.0 Yes 2.0 registry? Are all privately held land plots in the economy No 0.0 No 0.0 mapped? Are all privately held land plots in the largest business Yes 2.0 Yes 2.0 city mapped? Land dispute resolution index (0–8) 5.0 5.0 Does the law require that all property sale transactions be registered at the immovable property registry to Yes 1.5 Yes 1.5 make them opposable to third parties? Is the system of immovable property registration Yes 0.5 Yes 0.5 subject to a state or private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction based on erroneous No 0.0 No 0.0 information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction Yes 0.5 Yes 0.5 (e.g., checking the compliance of contracts with requirements of the law)? If yes, who is responsible for checking the legality of Registrar; Registrar; the documents? Notary. Notary. Does the legal system require verification of the Yes 0.5 Yes 0.5 identity of the parties to a property transaction? If yes, who is responsible for verifying the identity of Registrar; Notary. the parties? Notary. Doing Business 2017 Mexico 84 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) Is there a national database to verify the accuracy of No 0.0 No 0.0 identity documents? For a standard land dispute between two local businesses over tenure rights of a property worth 50 Juzgado Civil First times gross national income (GNI) per capita and del Distrito instance located in the largest business city, what court would be Federal civil court in charge of the case in the first instance? How long does it take on average to obtain a decision Between 1 Between 1 from the first-instance court for such a case (without 2.0 2.0 and 2 years and 2 years appeal)? Are there any statistics on the number of land disputes No 0.0 No 0.0 in the first instance? Number of land disputes in the largest business city in 2015: Equal access to property rights index (-2–0) 0.0 0.0 Do unmarried men and unmarried women have equal Yes 0.0 Yes 0.0 ownership rights to property? Do married men and married women have equal Yes 0.0 Yes 0.0 ownership rights to property? Source: Doing Business database. Doing Business 2017 Mexico 85 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 to view and consider a potential borrower’s Strength of legal rights index (0–12) financial history (positive or negative) when assessing Rights of borrowers and lenders through risk and they allow borrowers to establish a good collateral laws credit history that will facilitate their access to credit. Protection of secured creditors’ rights through Sound collateral laws enable businesses to use their bankruptcy laws assets, especially movable property, as security to generate capital—while strong creditors’ rights have Depth of credit information index (0–8) been associated with higher ratios of private sector Scope and accessibility of credit information credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting credit Notes section of the Doing Business 2017 report). is determined by sorting their distance to frontier These scenarios assume that the borrower: scores for getting credit. These scores are the distance to frontier score for the strength of legal rights index  Is a domestic limited liability company. and the depth of credit information index.  Has its headquarters and only base of 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 2017 Mexico 86 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Mexico stands at 5 in the ranking of 190 and bankruptcy laws in Mexico facilitate access to credit? economies on the ease of getting credit (figure 6.1). The The economy has a score of 8.0 on the depth of credit rankings for comparator economies provide useful information index and a score of 10.0 on the strength of information for assessing how well regulations and legal rights index (see the summary of scoring at the end institutions in Mexico support lending and borrowing. of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Mexico and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2017 Mexico 87 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Mexico and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Source: Doing Business database. Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2017 Mexico 88 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Mexico (table 6.1)? Table 6.1 How has Mexico made getting credit easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Mexico strengthened its secured transactions system by DB2012 implementing a centralized collateral registry with an electronic database that is accessible online. Mexico improved access to credit by amending its insolvency proceedings law and establishing clear grounds for relief from a DB2015 stay of enforcement actions by secured creditors during reorganization procedures. This reform applies to both Mexico City and Monterrey. Mexico improved access to credit by implementing a decree DB2016 allowing a general description of assets granted as collateral. This reform applies to both Mexico City and Monterrey. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Mexico 89 GETTING CREDIT What are the details? The getting credit indicators reported here for Mexico The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Mexico City Monterrey Strength of legal rights index (0–12) Index score: 10.0 Index score: 10.0 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional 1 1 equivalents to security interests in movable assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description 1 1 of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of 1 1 collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to the products, proceeds or replacements of the 1 1 original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between 1 1 parties; and can the collateral agreement include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non- incorporated entities, that is unified geographically and by asset type, with 1 1 an electronic database indexed by debtor's name? Can banks and financial institutions access borrowers’ credit information online (for example, through a web interface, a system-to-system 1 1 connection or both)? Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed online by any 1 1 interested third party? Are secured creditors paid first (i.e. before tax claims and employee 0 0 claims) when a debtor defaults outside an insolvency procedure? Doing Business 2017 Mexico 90 Mexico City Monterrey Strength of legal rights index (0–12) Index score: 10.0 Index score: 10.0 Are secured creditors paid first (i.e. before tax claims and employee 0 0 claims) when a business is liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law 1 1 protect secured creditors’ rights by providing clear grounds for relief from the stay and/or sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor 1 1 to sell the collateral through public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 8.0 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - Yes No 1 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on Yes No 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their Yes No 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an Yes No 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions Yes No 1 assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2017 Mexico 91 Coverage Credit bureau Credit registry Number of individuals 91,570,074 0 Number of firms 3,454,206 0 Total 95,024,280 0 Total percentage of adult population 100.0 0.0 Source: Doing Business database. Doing Business 2017 Mexico 92 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions; Disclosure requirements for related- What do the indicators cover? party transactions Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold indicators and shareholders’ rights in corporate interested directors liable for prejudicial related- governance through another. The ranking of economies party transactions; Available legal remedies on the strength of minority investor protections is (damages, disgorgement of profits, fines, determined by sorting their distance to frontier scores imprisonment, rescission of the transaction) for protecting minority investors. These scores are the Ease of shareholder suits index (0–10) simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Access to internal corporate documents; Evidence extent of shareholder governance index. To make the obtainable during trial and allocation of legal data comparable across economies, a case study uses expenses several assumptions about the business and the Extent of conflict of interest regulation index transaction. (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of shareholder indices  Is a publicly traded corporation listed on the economy’s most important stock exchange If the Extent of shareholder rights index (0-10) number of publicly traded companies listed on that Shareholders’ rights and role in major corporate exchange is less than 10, or if there is no stock decisions exchange in the economy, it is assumed that Buyer is a large private company with multiple Extent of ownership and control index (0-10) shareholders. Governance safeguards protecting shareholders  Has a board of directors and a chief executive from undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer Extent of corporate transparency index (0-10) where permitted, even if this is not specifically required by law. Corporate transparency on ownership stakes,  Has a supervisory board (applicable to economies compensation, audits and financial prospects with a two-tier board system) on which 60% of the Extent of shareholder governance index shareholder-elected members have been appointed (0–10) by Mr. James, who is Buyer’s controlling Simple average of the extent of shareholders rights, shareholder and a member of Buyer’s board of extent of ownership and control and extent of directors. corporate transparency indices  Has not adopted any bylaws or articles of Strength of minority investor protection association that differ from default minimum index (0–10) standards and does not follow any nonmandatory codes, principles, recommendations or guidelines Simple average of the extent of conflict of interest regulation and extent of shareholder governance relating to corporate governance. indices Doing Business 2017 Mexico 93  Is a manufacturing company with its own distribution network. The transaction involves the following details:  Mr. James owns 60% of Buyer and elected two directors to Buyer’s five-member board.  Mr. James also owns 90% of Seller, a company that operates a chain of retail hardware stores. Seller recently closed a large number of its stores Mr. James proposes that Buyer purchase Seller’s unused fleet of trucks to expand Buyer’s distribution of its food products, a proposal to which Buyer agrees. The price is equal to 10% of Buyer’s assets and is higher than the market value.  The proposed transaction is part of the company’ s ordinary course of business and is not outside the authority of the company.  Buyer enters into the transaction. All required approvals are obtained, and all required disclosures made (that is, the transaction is not fraudulent).  The transaction causes damages to Buyer. Shareholders sue Mr. James and the other parties that approved the transaction. Doing Business 2017 Mexico 94 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Mexico? The economy has a score of 6.0 not measure all aspects related to the protection of on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Mexico stands at 53 in the ranking of 190 economies on the strength of minority investor Figure 7.1 How Mexico and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2017 Mexico 95 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for Mexico. Figure 7.2 Summary of the various minority investor protection indices for Mexico and comparator economies. Source: Doing Business database. Doing Business 2017 Mexico 96 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Mexico are based on detailed information shareholder rights, ownership and control and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2017 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Mexico. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Mexico Answer (Mexico Score (Mexico Answer Score City) City) (Monterrey) (Monterrey) Strength of minority investor protection index (0-10) 6.0 6.0 Extent of conflict of interest regulation index (0-10) 6.0 6.0 Extent of disclosure index (0-10) 8.0 8.0 Board of Board of directors directors Which corporate body is legally sufficient to approve the excluding 2.0 excluding 2.0 Buyer-Seller transaction? (0-3) interested interested members members Existence of a Existence of a Must Mr. James disclose his conflict of interest to the board conflict without 1.0 conflict without 1.0 of directors? (0-2) any specifics any specifics Disclosure on Disclosure on the the transaction Must Buyer disclose the transaction in published periodic transaction and 2.0 and on the 2.0 filings (annual reports)? (0-2) on the conflict of conflict of interest interest Disclosure on Disclosure on the the transaction Must Buyer immediately disclose the transaction to the transaction and 2.0 and on the 2.0 public and/or shareholders? (0-2) on the conflict of conflict of interest interest Must an external body review the terms of the transaction Yes 1.0 Yes 1.0 before it takes place? (0-1) Extent of director liability index (0-10) 5.0 5.0 Can shareholders representing 10% of Buyer's share capital sue directly or derivatively for the damage the transaction Yes 1.0 Yes 1.0 caused to Buyer? (0-1) Can shareholders hold the interested director liable for the Liable if unfair or Liable if unfair 2.0 2.0 damage the transaction caused to Buyer? (0-2) prejudicial or prejudicial Can shareholders hold the other directors liable for the Liable if Liable if negligent 1.0 1.0 damage the transaction caused to Buyer (0-2) negligent Must Mr. James pay damages for the harm caused to Buyer Yes 1.0 Yes 1.0 upon a successful claim by shareholders? (0-1) Must Mr. James repay profits made from the transaction No 0.0 No 0.0 upon a successful claim by shareholders? (0-1) Doing Business 2017 Mexico 97 Is Mr. James disqualifed or fined and imprisoned upon a No 0.0 No 0.0 successful claim by shareholders? (0-1) Only in case of Can a court void the transaction upon a successful claim by Only in case of 0.0 fraud or bad 0.0 shareholders? (0-2) fraud or bad faith faith Ease of shareholder suits index (0-10) 5.0 5.0 Before suing can shareholders representing 10% of Buyer's Yes 1.0 Yes 1.0 share capital inspect the transaction documents? (0-1) Documents that Documents directly prove that directly Can the plaintiff obtain any documents from the defendant specific facts in 2.0 prove specific 2.0 and witnesses at trial? (0-3) the plaintiff’s facts in the claim plaintiff’s claim Can the plaintiff request categories of documents from the No 0.0 No 0.0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Preapproved Preapproved 1.0 1.0 witnesses at trial? (0-2) questions only questions only Is the level of proof required for civil suits lower than that of No 0.0 No 0.0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if Yes if successful 1.0 1.0 the company? (0-2) successful Extent of shareholder governance index (0-10) 6.0 6.0 Extent of shareholder rights index (0-10) 8.0 8.0 Does the sale of 51% of Buyer's assets require shareholder Yes 1.0 Yes 1.0 approval? Can shareholders representing 10% of Buyer's share capital Yes 1.0 Yes 1.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it Yes 1.0 Yes 1.0 issues new shares? Do shareholders automatically receive preemption rights Yes 1.0 Yes 1.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the No 0.0 No 0.0 external auditor? Are changes to the rights of a class of shares only possible if Yes 1.0 Yes 1.0 the holders of the affected shares approve? Assuming that Buyer is a limited company, does the sale of Yes 1.0 Yes 1.0 51% of its assets require member approval? Assuming that Buyer is a limited company, can members representing 10% call for an extraordinary meeting of No 0.0 No 0.0 members? Assuming that Buyer is a limited company, must all members Yes 1.0 Yes 1.0 consent to add a new member? Assuming that Buyer is a limited company, must a member first offer to sell his interest to the existing members before Yes 1.0 Yes 1.0 selling to a non-member? Extent of ownership and control index (0-10) 6.0 6.0 Is it forbidden to appoint the same individual as CEO and No 0.0 No 0.0 chair of the board of directors? Must the board of directors include independent and Yes 1.0 Yes 1.0 nonexecutive board members? Can shareholders remove members of the board of directors Yes 1.0 Yes 1.0 without cause before the end of their term? Doing Business 2017 Mexico 98 Must the board of directors include a separate audit Yes 1.0 Yes 1.0 committee exclusively comprising board members? Must a potential acquirer make a tender offer to all Yes 1.0 Yes 1.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by No 0.0 No 0.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its Yes 1.0 Yes 1.0 parent company? Assuming that Buyer is a limited company, is there a Yes 1.0 Yes 1.0 management deadlock breaking mechanism? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer distribute profits within a maximum period set by law after No 0.0 No 0.0 the declaration date? Extent of corporate transparency index (0-10) 4.0 4.0 Must Buyer disclose direct and indirect beneficial ownership No 0.0 No 0.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their Yes 1.0 Yes 1.0 primary employment? Must Buyer disclose the compensation of individual No 0.0 No 0.0 managers? Must a detailed notice of general meeting be sent 21 days No 0.0 No 0.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital No 0.0 No 0.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public? Yes 1.0 Yes 1.0 Assuming that Buyer is a limited company, must members Yes 1.0 Yes 1.0 meet at least once a year? Assuming that Buyer is a limited company, can members No 0.0 No 0.0 representing 5% put items on the meeting agenda? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external No 0.0 No 0.0 auditor? Source: Doing Business database. Doing Business 2017 Mexico 99 PAYING TAXES Taxes are essential. The level of tax rates needs to be WHAT THE PAYING TAXES INDICATORS carefully chosen—and needless complexity in tax rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2014 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business records the Method and frequency of filing and payment taxes and mandatory contributions that a medium- size company must pay in a given year as well as Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions and dealing with postfiling Collecting information and computing the tax processes. This case scenario uses a set of financial payable statements and assumptions about transactions made over the year. Information is also compiled on Completing tax return forms, filing with the frequency of filing and payments, time taken to proper agencies comply with tax laws, time taken to comply with the Arranging payment or withholding requirements of postfiling processes and time Preparing separate tax accounting books, if waiting for these processes to be completed. The required ranking of economies on the ease of paying taxes is 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 Profit or corporate income tax the simple average of the distance to frontier scores Social contributions and labor taxes paid by for each of the four component indicators – number the employer of tax payments. time, total tax rate and postfiling index – with a threshold and a nonlinear Property and property transfer taxes transformation applied to one of the component Dividend, capital gains and financial indicators, the total tax rate1. If both VAT (or GST) transactions taxes and corporate income tax apply, the postfiling index Waste collection, vehicle, road and other taxes is the simple average of the distance to frontier scores for each of the four components: the time to Postfiling Index comply with a VAT or GST refund, the time to obtain The time to comply with a VAT or GST refund a VAT or GST refund, the time to comply with a corporate income tax audit and the time to complete The time to receive a VAT or GST refund a corporate income tax audit. If only VAT (or GST) or The time to comply with a corporate income corporate income tax applies, the postfiling index is tax audit the simple average of the scores for only the two The time to complete a corporate income tax components pertaining to the applicable tax. If audit neither VAT (or GST) nor corporate income tax 1 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis 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 2017 Mexico 100 applies, the postfiling index is not included in the Assumptions about the corporate income tax ranking of the ease of paying taxes. audit process: Taxes and mandatory contributions include  An error in the calculation of the income tax corporate income tax, turnover tax and all labor liability (for example, use of incorrect tax taxes and contributions paid by the company. A depreciation rates, or incorrectly treating an range of standard deductions and exemptions are expense as tax deductible) leads to an also recorded. incorrect income tax return and consequently All financial statement variables are proportional to an underpayment of corporate income tax. 2012 income per capita. To make the data  TaxpayerCo. discovered the error and comparable across economies, several assumptions voluntarily notified the tax authority of the are used. error in the corporate income tax return. TaxpayerCo is a medium-size business that started operations on January 1, 2014. The business starts from the same financial position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. Taxes and mandatory contributions are measured at all levels of government. Assumptions about the VAT refund process:  In June 2015, TaxpayerCo. makes a large capital purchase: one additional machine for manufacturing pots.  The value of the machine is 65 times income per capita of the economy.  Sales are equally spread per month (that is, 1,050 times income per capita divided by 12).  Cost of goods sold are equally expensed per month (that is, 875 times income per capita divided by 12).  The seller of the machinery is registered for VAT or general sales tax (GST).  Excess input VAT incurred in June will be fully recovered after four consecutive months if the VAT or GST rate is the same for inputs, sales and the machine and the tax reporting period is every month. . Doing Business 2017 Mexico 101 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with tax the end of this chapter for details). Most indicator sets obligations and postfiling processes in Mexico—and how refer to a case scenario in the largest business city of an much do firms pay in taxes? Globally, Mexico stands at economy, except for 11 economies for which the data in the ranking of 190 economies on the ease of paying are a population-weighted average of the 2 largest taxes (figure 8.1). The rankings for comparator business cities. See the chapter on distance to frontier economies and the regional average ranking provide and ease of doing business ranking at the end of this other useful information for assessing the tax compliance profile for more details. burden for businesses in (see table 8.2 and table 8.3 at . Figure 8.1 How Mexico and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2017 Mexico 102 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses—such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in Mexico (table 8.1)? Table 8.1 How has Mexico made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Mexico increased taxes on companies by raising several tax rates, including the corporate income tax and the rate on cash DB2011 deposits. At the same time, the administrative burden was reduced slightly with more options for online payment and increased use of accounting software. Mexico continued to ease the administrative burden of paying taxes for firms by ending the requirement to file a yearly value DB2012 added tax return and reduced filing requirements for other taxes Mexico made paying taxes easier for companies by abolishing the business flat tax—though it also made paying taxes more costly by allowing only a portion of salaries to be deductible. DB2016 These changes apply to both Mexico City and Monterrey. In addition, the payroll tax rate paid by employers was increased for Mexico City. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Mexico 103 PAYING TAXES What are the details? The indicators reported here for Mexico are based on LOCATION OF STANDARDIZED COMPANY the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Mexico City, Monterrey chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of The taxes and contributions paid are listed in table 8.2 assumptions and transactions that the company below, along with the associated number of payments, completed during its 2nd year of operation. time and tax rate. Respondents are asked how much taxes and mandatory contributions the business must pay how The postfiling index is based on four components—the these taxes are filed and paid, how much time time to comply with a VAT or GST refund, the time to taxpayers spend preparing, filing and paying three obtain a VAT or GST refund, the time to comply with a major taxes (profit taxes, labor taxes including corporate income tax audit and the time to complete a mandatory contributions and consumption taxes) and corporate income tax audit. These components are how much time taxpayers spend complying with based on expanded case study assumptions. If only VAT postfiling processes and waiting for these processes (or GST) or corporate income tax applies for an to be completed. economy, the postfiling index is the simple average of the scores for only the two components pertaining to the applicable tax. If neither VAT (or GST) nor corporate income tax applies, the postfiling index is not included in the ranking of the ease of paying taxes. Table 8.2 Summary of tax rates and administration Total tax Notes on Mexico City: Tax or Payments Notes on Time Statutory Tax base rate (% of total tax mandatory contribution (number) payments (hours) tax rate profit) rate gross Employer paid - Payroll tax 1 online 3% 3.38 salaries taxable Corporate income tax 1 online 122 30% 25.56 profit Employer paid - Social various gross 1 online 64 22.15 security contributions rates salaries various property Property tax 1 online 0.86 rates value various value of Vehicle tax 1 online 0.04 rates vehicle not Value added tax (VAT) 1 online 100 16% sales price 0.00 included Doing Business 2017 Mexico 104 Total tax Notes on Mexico City: Tax or Payments Notes on Time Statutory Tax base rate (% of total tax mandatory contribution (number) payments (hours) tax rate profit) rate Employee paid - Social various gross 0 jointly 0.00 withheld security contributions rates salaries Totals 6.0 286.0 52.0 Total tax Notes on Monterrey: Tax or Payments Notes on Time Statutory Tax base rate (% of total tax mandatory contribution (number) payments (hours) tax rate profit) rate gross Employer paid - Payroll tax 1 online 3% 3.38 salaries taxable Corporate income tax 1 online 122 30% 25.56 profit Employer paid - Social various gross 1 online 64 22.15 security contributions rates salaries various property Property tax 1 online 0.86 rates value various value of Vehicle tax 1 online 0.04 rates vehicle not Value added tax (VAT) 1 online 100 16% sales price 0.00 included Employee paid - Social various gross 0 jointly 0.00 withheld security contributions rates salaries Totals 6.0 286.0 52.0 Source: Doing Business database. Doing Business 2017 Mexico 105 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 use of paper documents, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance – cost & time to extra costs and delays for exporters and Obtain, prepare and submit documents: importers, stifling trade potential. -During transport, clearance, inspections and port What do the indicators cover? or border handling in origin economy Doing Business records the time and cost -Required by origin, destination and transit associated with the logistical process of exporting economies and importing goods. Under the new Covers all documents by law and in practice methodology introduced this year, Doing Business Border compliance – cost & time measures the time and cost (excluding tariffs) associated with three sets of procedures — Customs clearance and inspections documentary compliance, border compliance and Inspections by other agencies if applied to more domestic transport—within the overall process of than 10% of shipments) exporting or importing a shipment of goods. The Port or border handling ranking of economies on the ease of trading across borders is determined by sorting their Processing documents during clearance, distance to frontier scores for trading across inspections and port or border handling borders. These scores are the simple average of Domestic transport* the distance to frontier scores for the time and Loading and unloading of shipment cost for documentary compliance and border compliance to export and import (domestic Transport between warehouse and terminal/port transport is not used for calculating the ranking). Transport between terminal/port and border Traffic delays and road police checks while To make the data comparable across economies, a shipment is en route few assumptions are made about the traded goods and the transactions: * Although Doing Business collects and publishes data on the time and cost for domestic transport, it does not use these Time data in calculating the distance to frontier score for trading  Time is measured in hours, and 1 day is 24 across borders or the ranking on the ease of trading across hours (for example, 22 days are recorded as 22 borders. × 24 = 528 hours). If customs clearance takes 7.5 hours, the data are recorded as is. Cost Alternatively, suppose that documents are  Insurance cost and informal payments for which no submitted to a customs agency at 8:00 a.m., are receipt is issued are excluded from the costs recorded. processed overnight and can be picked up at Costs are reported in U.S. dollars. Contributors are 8:00 a.m. the next day. In this case the time for asked to convert local currency into U.S. dollars based customs clearance would be recorded as 24 on the exchange rate prevailing on the day they answer hours because the actual procedure took 24 the questionnaire. hours. Doing Business 2017 Mexico 106 Assumptions of the case study  If government fees are determined by the value of the shipment, the value is assumed to be $50,000.  For each of the 190 economies covered by Doing Business, it is assumed that a shipment  The product is new, not secondhand or used travels from a warehouse in the largest business merchandise. city of the exporting economy to a warehouse in the largest business city of the importing  The exporting firm is responsible for hiring and paying economy. For 11 economies the data are also for a freight forwarder or customs broker (or both) and collected, under the same case study pays for all costs related to international shipping, assumptions, for the second largest business domestic transport, clearance and mandatory city. inspections by customs and other government agencies, port or border handling, documentary  The import and export case studies assume compliance fees and the like for exports. The importing different traded products. It is assumed that firm is responsible for the above costs for imports. each economy imports a standardized shipment of 15 metric tons of containerized  The mode of transport is the one most widely used for auto parts (HS 8708) from its natural import the chosen export or import product and the trading partner—the economy from which it imports partner, as is the seaport, airport or land border the largest value (price times quantity) of auto crossing. parts. It is assumed that each economy exports the product of its comparative advantage  All electronic submissions of information requested by (defined by the largest export value) to its any government agency in connection with the natural export partner—the economy that is the shipment are considered to be documents obtained, largest purchaser of this product. Special prepared and submitted during the export or import products such as precious metal and gems, live process. animals and pharmaceuticals are excluded from the list of possible export products. However,  A port or border is defined as a place (seaport, airport the second largest product category is or land border crossing) where merchandise can enter considered as needed. or leave an economy.  A shipment is a unit of trade. Export shipments  Government agencies considered relevant are agencies do not necessarily need to be containerized, such as customs, port authorities, road police, border while import shipments of auto parts are guards, standardization agencies, ministries or assumed to be containerized. departments of agriculture or industry, national security agencies and any other government authorities. Doing Business 2017 Mexico 107 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Borders indicator refers to a case Globally, Mexico stands at 61 in the ranking of 190 study scenario of a warehouse in the largest business city economies on the ease of trading across borders (figure of an economy (except for 11 economies for which the 9.1). data are a population-weighted average of the 2 largest While not included in the distance to frontier or ease of business cities) trading with the main import and export doing business ranking, data on domestic transportation partner through the economy’s main border crossing. is also recorded for all economies and provided in Table 9.3. Figure 9.1 How Mexico and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2017 Mexico 108 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Mexico (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Mexico made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Mexico made trading across borders easier by implementing DB2014 an electronic single-window system. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Mexico 109 TRADING ACROSS BORDERS What are the details? The indicators reported here for Mexico are based on LOCATION OF STANDARDIZED COMPANY a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea or land). The information on City: Mexico City, Monterrey the time and cost to complete export and import is collected from local freight forwarders, customs The details on the predefined set of procedures, and the brokers and traders. associated time and cost, for exporting and importing a shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in Mexico Latin America & Mexico City Monterrey Caribbean Time to export: Border compliance 20 20 63 (hours) Cost to export: Border compliance 400 400 527 (USD) Time to export: Documentary 8 8 56 compliance (hours) Cost to export: Documentary 60 60 111 compliance (USD) Time to import: Border compliance 44 44 65 (hours) Cost to import: Border compliance 450 450 685 (USD) Time to import: Documentary 18 18 83 compliance (hours) Cost to import: Documentary 100 100 120 compliance (USD) Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Mexico Mexico City Monterrey Export Import Export Import Product HS 85 : Electrical HS 8708: Parts and HS 85 : Electrical HS 8708: Parts and machinery and accessories of machinery and accessories of Doing Business 2017 Mexico 110 Mexico City Monterrey Export Import Export Import equipment and motor vehicles equipment and motor vehicles parts thereof; sound parts thereof; sound recorders and recorders and reproducers, reproducers, television image television image and sound and sound recorders and recorders and reproducers, and reproducers, and parts and parts and accessories of such accessories of such articles articles Trade partner United States United States United States United States Nuevo Laredo Nuevo Laredo Nuevo Laredo Nuevo Laredo Border border crossing border crossing border crossing border crossing Distance (km) 1117 1117 219 219 Domestic transport time (hours) 20 20 5 5 Domestic transport cost (USD) 1300 1300 500 500 Source: Doing Business database. Documents used to export Guía de Transporte (Road Transport Document) Customs Export Declaration Commercial Invoice Packing List NAFTA Certificate of Origin Documents used to import Guía de Transporte (Road Transport Document) Customs Export Declaration Commercial Invoice COVE Packing List NAFTA Certificate of Origin Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous Doing Business 2017 Mexico 111 years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2017 Mexico 112 Figure 9.2 Summary of Mexico on the ease of trading across borders Export (Mexico City) Import (Mexico City) Export (Monterrey) Import (Monterrey) Source: Doing Business database. Doing Business 2017 Mexico 113 ENFORCING CONTRACTS WHAT THE ENFORCING CONTRACTS Effective commercial dispute resolution has many 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 Time to enforce the judgment court dispute. Cost required to enforce a contract through What do the indicators cover? the courts (% of claim) Doing Business measures the time and cost for Attorney fees resolving a standardized commercial dispute through 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 Quality of judicial processes index (0-18) has adopted a series of good practices that promote quality and efficiency in the court system. This new Court structure and proceedings (0-6) index replaces the indicator on procedures, which Case management (0-6) was eliminated this year. The ranking of economies 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 seller requests a pretrial attachment to secure sales contract between 2 domestic businesses. The the claim. case study assumes that the court hears an expert on  The dispute on the quality of the goods requires an the quality of the goods in dispute. This distinguishes expert opinion. the case from simple debt enforcement. To make the  The judge decides in favor of the seller; there is no data comparable across economies, Doing Business appeal. uses several assumptions about the case:  The seller enforces the judgment through a public  The dispute concerns a lawful transaction sale of the buyer’s movable assets. between two businesses (Seller and Buyer), both located in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  The buyer orders custom-made goods, then fails to pay.  The value of the dispute is 200% of the income per capita or the equivalent in local currency of USD 5,000, whichever is greater.  The seller sues the buyer before the court with jurisdiction over commercial cases worth 200% of income per capita or $5,000. Doing Business 2017 Mexico 114 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial and ease of doing business ranking at the end of this dispute through the courts in Mexico? According to data profile for more details. collected by Doing Business, contract enforcement takes Globally, Mexico stands at 40 in the ranking of 190 340.7 days and costs 33.0% of the value of the claim. economies on the ease of enforcing contracts (figure Most indicator sets refer to the largest business city of an 10.1). The rankings for comparator economies and the economy, except for 11 economies for which the data regional average ranking provide other useful are a population-weighted average of the 2 largest benchmarks for assessing the efficiency of contract business cities. See the chapter on distance to frontier enforcement in Mexico. Figure 10.1 How Mexico and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2017 Mexico 115 ENFORCING CONTRACTS Economies in all regions have improved contract reducing backlogs by introducing periodic reviews to enforcement in recent years. A judiciary can be improved clear inactive cases from the docket and by making in different ways. Higher-income economies tend to look contract enforcement faster. What reforms making it for ways to enhance efficiency by introducing new easier (or more difficult) to enforce contracts has Doing technology. Lower-income economies often work on Business recorded in Mexico (table 10.1)? Table 10.1 How has Mexico made enforcing contracts easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Mexico made enforcing contracts easier by creating small DB2014 claims courts, with oral proceedings, that can hear both civil and commercial cases. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Mexico 116 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for Mexico ECONOMY DETAILS are built by following the step-by-step evolution of a commercial sale dispute within the court, under the Claim value - Mexico assumptions about the case described above (figure MXN 268,027 City: 10.2). The time and cost of resolving the standardized dispute are identified through study of Claim value - the codes of civil procedure and other court MXN 268,027 Monterrey: regulations, as well as through questionnaires completed by local litigation lawyers (and, in a Court name - Mexico Mexico City First Instance quarter of the economies covered by Doing Business, City: Oral Civil Court by judges as well). Court name - Monterrey First Instance Monterrey: Oral Commercial Court City: Mexico City, Monterrey Doing Business 2017 Mexico 117 Figure 10.2 Time and cost of contract enforcement in Mexico and comparator economies Source: Doing Business database. Doing Business 2017 Mexico 118 Table 10.2 Details on time and cost for enforcing contracts in Mexico Latin America & Indicator Mexico City Monterrey Caribbean average Time (days) 350.0 295.0 749 Filing and service 42 15 Trial and judgment 125 120 Enforcement of judgment 183 160 Cost (% of claim) 33.5 30.4 31.3 Attorney fees 22.5 20.4 Court fees 5.0 5.0 Enforcement fees 6.0 5.0 Source: Doing Business database. Doing Business 2017 Mexico 119 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in Mexico (figure 10.3). practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating better, more efficient judicial processes. Figure 10.3 Quality of judicial processes index in Mexico and comparator economies Source: Doing Business database. Doing Business 2017 Mexico 120 Table 10.3 Details of the quality of judicial processes index in Mexico Answer Score Answer Score (Monterrey (Monterrey (Mexico City) (Mexico City) ) ) Quality of judicial processes index (0-18) 9.5 13.0 Court structure and proceedings (0-5) 3.5 5.0 1. Is there a court or division of a court dedicated No 0.0 Yes 1.5 solely to hearing commercial cases? 2. Small claims court 1.5 1.5 2.a. Is there a small claims court or a fast-track Yes Yes procedure for small claims? 2.b. If yes, is self-representation allowed? Yes Yes 3. Is pretrial attachment available? Yes 1.0 Yes 1.0 Yes, Yes, 4. Are new cases assigned randomly to judges? 1.0 1.0 automatic automatic 5. Does a woman's testimony carry the same Yes 0.0 Yes 0.0 evidentiary weight in court as a man's? Case management (0-6) 3.0 5.0 1. Time standards 1.0 1.0 1.a. Are there laws setting overall time standards for Yes Yes key court events in a civil case? 1.b. If yes, are the time standards set for at least Yes Yes three court events? 1.c. Are these time standards respected in more than Yes Yes 50% of cases? 2. Adjournments 0.0 0.0 2.a. Does the law regulate the maximum number of No No adjournments that can be granted? 2.b. Are adjournments limited to unforeseen and No No exceptional circumstances? 2.c. If rules on adjournments exist, are they respected n.a. n.a. in more than 50% of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; (iii) age of Yes 1.0 Yes 1.0 pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case Yes 1.0 Yes 1.0 Doing Business 2017 Mexico 121 Answer Score Answer Score (Monterrey (Monterrey (Mexico City) (Mexico City) ) ) management techniques used before the competent court? 5. Are there any electronic case management tools in No 0.0 Yes 1.0 place within the competent court for use by judges? 6. Are there any electronic case management tools in No 0.0 Yes 1.0 place within the competent court for use by lawyers? Court automation (0-4) 0.5 0.5 1. Can the initial complaint be filed electronically through a dedicated platform within the competent No 0.0 No 0.0 court? 2. Is it possible to carry out service of process electronically for claims filed before the competent No 0.0 No 0.0 court? 3. Can court fees be paid electronically within the No 0.0 No 0.0 competent court? 4. Publication of judgments 0.5 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public No No through publication in official gazettes, in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through publication in official Yes Yes gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 2.5 1. Arbitration 1.5 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section Yes Yes of the applicable code of civil procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy— No No that cannot be submitted to arbitration? 1.c. Are valid arbitration clauses or agreements Yes Yes usually enforced by the courts? 2. Mediation/Conciliation 1.0 1.0 Doing Business 2017 Mexico 122 Answer Score Answer Score (Monterrey (Monterrey (Mexico City) (Mexico City) ) ) 2.a. Is voluntary mediation or conciliation available? Yes Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section Yes Yes of the applicable code of civil procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or No No conciliation is successful, a refund of court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2017 Mexico 123 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Lawyers’ fees dollar recovered by secured creditors through Assessors’ and auctioneers’ fees reorganization, liquidation or debt enforcement Other related fees (foreclosure or receivership) proceedings. To determine the present value of the amount Outcome recovered by creditors, Doing Business uses the Whether business continues operating as a lending rates from the International Monetary Fund, going concern or business assets are sold supplemented with data from central banks and the piecemeal Economist Intelligence Unit. Recovery rate for creditors To make the data on the time, cost and outcome Measures the cents on the dollar recovered comparable across economies, several assumptions by secured creditors about the business and the case are used: Outcome for the business (survival or not)  A hotel located in the largest city (or cities) has determines the maximum value that can be 201 employees and 50 suppliers. The hotel recovered experiences financial difficulties. Official costs of the insolvency proceedings  The value of the hotel is 100% of the income per are deducted capita or the equivalent in local currency of USD Depreciation of furniture is taken into 200,000, whichever is greater. account  The hotel has a loan from a domestic bank, Present value of debt recovered secured by a mortgage over the hotel’s real estate. The hotel cannot pay back the loan, but Strength of insolvency framework index (0- makes enough money to operate otherwise. 16) In addition, Doing Business evaluates the adequacy Sum of the scores of four component indices: and integrity of the existing legal framework Commencement of proceedings index (0-3) applicable to liquidation and reorganization Management of debtor’s assets index (0-6) proceedings through the strength of insolvency framework index. The index tests whether economies Reorganization proceedings index (0-3) adopted internationally accepted good practices in Creditor participation index (0-4) four areas: commencement of proceedings, management of debtor’s assets, reorganization proceedings and creditor participation. Doing Business 2017 Mexico 124 RESOLVING INSOLVENCY Where does the economy stand today? Globally, Mexico stands at 30 in the ranking of 190 framework index. The Resolving Insolvency indicator economies on the ease of resolving insolvency (figure does not measure insolvency proceedings of individuals 11.1). The ranking of economies on the ease of resolving and financial institutions. The data are derived from insolvency is determined by sorting their distance to questionnaire responses by local insolvency practitioners frontier scores for resolving insolvency. These scores are and verified through a study of laws and regulations as the simple average of the distance to frontier scores for well as public information on bankruptcy systems. the recovery rate and the strength of insolvency Figure 11.1 How Mexico and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2017 Mexico 125 RESOLVING INSOLVENCY Recovery of debt in insolvency Data on the time, cost and outcome refer to the most scenario in the largest business city of an economy, likely in-court insolvency procedure applicable under except for 11 economies for which the data are a specific case study assumptions. population-weighted average of the 2 largest business cities. According to data collected by Doing Business, resolving insolvency takes 1.8 years on average and costs 18.0% of the debtor’s estate. The average recovery rate is 69.1 cents on the dollar. Most indicator sets refer to a case Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Mexico and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2015 lending rates. Doing Business 2017 Mexico 126 Table 11.1 Summary of data for the strength of insolvency framework index Mexico Answer Explanation The Law of the Commercial Insolvency Law (LCM) provides a unitary form of insolvency proceedings (concurso mercantil) which has two phases: Conciliation (reorganization) and Bankruptcy (Liquidation). Mirage would commence a reorganization proceeding (conciliation) Mexico by filing for a “concurso mercantil” in light of Art. 10 of the (LCM). It Proceeding City, reorganization will be sufficient to demonstrate that the debtor is generally unable Monterrey to pay its debts as they mature. One of the main advantages of this option is that once the “concurso mercantil” commences, all all enforcement actions against the debtor would be automatically suspended, allowing Mirage to reorganize. Mexico Since it would be possible to reach a reorganization agreement, the Outcome City, going concern hotel will continue operating as a going concern. Monterrey It would take approximately 21 months to resolve an insolvency proceeding in Mexico City, similar to the case study, in which a debtor reaches a reorganization agreement with its creditors and the agreement is approved. All necessary steps to complete the entire Mexico process are included within this estimate, including the appointment Time (in years) City, 1.8 of an inspector, a conciliator and insolvency administrator, and the Monterrey preparation of the creditor’s claims. The period prescribed by Article 145 of the Commercial Insolvency Law is rarely enforced, but it is taken into account when approving the agreement. The costs associated with an insolvency proceeding (in which a reorganization agreement is approved) in Mexico would amount to Mexico Cost (% of approximately 18% of Mirage’s estate. The main components of this City, 18.0 estate) cost would be the attorney’s fees (5-11 %), as well as the inspector, Monterrey conciliator and insolvency administrator (7%) and additional judicial costs (1%). Recovery rate: 69.1 Source: Doing Business database. Doing Business 2017 Mexico 127 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the with higher values indicating insolvency legislation that is sum of the scores on the commencement of better designed for rehabilitating viable firms and proceedings index, management of debtor’s assets liquidating nonviable ones. Mexico scores 11.5 out of 16 index, reorganization proceedings index and creditor on the strength of resolving insolvency index. participation index. The index ranges from 0 to 16, Figure 11.3 Strength of insolvency framework index (0-16) in Mexico and comparator economies Source: Doing Business database. Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome Doing Business 2017 Mexico 128 indicators are recorded as “no practice”. Doing Business 2017 Mexico 129 Table 11.2 Summary of data for the strength of insolvency framework index Mexico Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) Strength of insolvency framework index (0-16) 11.5 11.5 Commencement of proceedings index (0-3) 2.5 2.5 (a) Debtor (a) Debtor may file for may file for both both What procedures are available to a DEBTOR when liquidation 1.0 liquidation 1.0 commencing insolvency proceedings? and and reorganizatio reorganizati n on (a) Yes, a (a) Yes, a creditor creditor may may file for file for both Does the insolvency framework allow a CREDITOR to both liquidation 1.0 1.0 file for insolvency of the debtor? liquidation and and reorganizatio reorganizati n on What basis for commencement of the insolvency (e) Other, (e) Other, proceedings is allowed under the insolvency 0.5 please 0.5 please specify framework? specify Management of debtor's assets index (0-6) 5.5 5.5 Does the insolvency framework allow the continuation of contracts supplying essential goods and services to Yes 1.0 Yes 1.0 the debtor? Does the insolvency framework allow the rejection by Yes 1.0 Yes 1.0 the debtor of overly burdensome contracts? Does the insolvency framework allow avoidance of Yes 1.0 Yes 1.0 preferential transactions? Does the insolvency framework allow avoidance of Yes 1.0 Yes 1.0 undervalued transactions? Does the insolvency framework provide for the possibility of the debtor obtaining credit after Yes 1.0 Yes 1.0 commencement of insolvency proceedings? Does the insolvency framework assign priority to post- (a) Yes over (a) Yes over all pre- 0.5 all pre- 0.5 commencement credit? commencem commence Doing Business 2017 Mexico 130 Answer Score (Mexico Answer Score (Mexico City) City) (Monterrey) (Monterrey) ent creditors, ment secured or creditors, unsecured secured or unsecured Reorganization proceedings index (0-3) 1.5 1.5 Which creditors vote on the proposed reorganization (a) All (a) All 0.5 0.5 plan? creditors creditors Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as No 0.0 No 0.0 what they would obtain in a liquidation? Are the creditors devided into classes for the purposes of voting on the reorganization plan, does each class Yes 1.0 Yes 1.0 vote separately and are creditors in the same class treated equally? Creditor participation index (0-4) 2.0 2.0 Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency No 0.0 No 0.0 representative? Does the insolvency framework require approval by the No 0.0 No 0.0 creditors for sale of substantial assets of the debtor? Does the insolvency framework provide that a creditor has the right to request information from the insolvency Yes 1.0 Yes 1.0 representative? Does the insolvency framework provide that a creditor has the right to object to decisions accepting or Yes 1.0 Yes 1.0 rejecting creditors' claims? Source: Doing Business database. Doing Business 2017 Mexico 131 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Mexico (table 11.3)? even viable businesses are liquidated. This is starting to Table 11.3 How has Mexico made resolving insolvency easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Mexico made resolving insolvency easier by clarifying several rules, shortening the time extensions allowed during reorganization, facilitating the electronic submission of DB2015 documents and improving the legal rights of creditors and other parties involved in bankruptcy procedures. This reform applies to both Mexico City and Monterrey. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Mexico 132 LABOR MARKET REGULATION Doing Business studies the flexibility of regulation of  Operates a supermarket or grocery store in the employment, specifically as it relates to the areas of economy’s largest business city. For 11 hiring, working hours and redundancy. Doing Business economies the data are also collected for the also measures several aspects of job quality such as the second largest business city. availability of maternity leave, paid sick leave and the  Has 60 employees. equal treatment of men and women at the workplace.  Is subject to collective bargaining agreements if such agreements cover more than 50% of the Doing Business 2017 presents the data for the labor food retail sector and they apply even to firms market regulation indicators in an annex. The report that are not party to them. does not present rankings of economies on these  Abides by every law and regulation but does not indicators or include the topic in the aggregate distance grant workers more benefits than those to frontier score or ranking on the ease of doing mandated by law, regulation or (if applicable) business. Detailed data collected on labor market collective bargaining agreements. regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and regulations as well as secondary sources are reviewed to ensure accuracy. To make the data comparable across economies, several assumptions about the worker and the business are used. The worker:  Is a cashier in a supermarket or grocery store, age 19, with one year of work experience.  Is a full-time employee.  Is not a member of the labor union, unless membership is mandatory. The business:  Is a limited liability company (or the equivalent in the economy). Doing Business 2017 Mexico 133 LABOR MARKET REGULATION Employment laws are needed to protect workers from changes did Mexico adopt that affected the Doing arbitrary or unfair treatment and to ensure efficient Business indicators on labor market regulation (table contracting between employers and workers. What 12.1)? Table 12.1 What changes did Mexico make in terms of labor market regulation? DB year Reform The National Minimum Salary Commission of Mexico(CONASAMI) adopted a resolution, which eliminated DB2017 geographic differences in national minimum wages. Prior to the reform, Mexico was divided into zone A and zone B with different applicable minimum wages. Source: Doing Business database. Doing Business 2017 Mexico 134 LABOR MARKET REGULATION What are the details? The data reported here for Mexico are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Hiring Data on hiring cover five areas: (i) whether fixed-term minimum wage to the average value added per worker contracts are prohibited for permanent tasks; (ii) the (the ratio of an economy’s GNI per capita to the maximum cumulative duration of fixed-term contracts; working-age population as a percentage of the total (iii) the minimum wage for a cashier, age 19, with one population). year of work experience; and (iv) the ratio of the Mexico City Monterrey Hiring Data Data Fixed-term contracts prohibited for permanent tasks? Yes Yes Maximum length of a single fixed-term contract (months) No limit No limit Maximum length of fixed-term contracts, including renewals (months) No limit No limit Minimum wage applicable to the worker assumed in the case study 168.3 168.3 (US$/month) Ratio of minimum wage to value added per worker 0.1 0.1 Source: Doing Business database. Doing Business 2017 Mexico 135 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work; and (ix) the average paid annual leave for percentage of hourly pay); (iv) the premium for overtime workers with 1 year of tenure, 5 years of tenure, and 10 work (as a percentage of hourly pay); (v) whether there years of tenure. are restrictions on night work; (vi) whether nonpregnant Mexico City Monterrey Working Hours Data Data Maximum number of working days per week 6.0 6.0 Premium for night work (% of hourly pay) 0.0 0.0 Premium for work on weekly rest day (% of hourly pay) 25.0 25.0 Premium for overtime work (% of hourly pay) 100.0 100.0 Restrictions on night work? No No Whether nonpregnant and nonnursing women can work the same Yes Yes night hours as men Restrictions on weekly holiday? No No Restrictions on overtime work? Yes Yes Paid annual leave for a worker with 1 year of tenure (working days) 6.0 6.0 Paid annual leave for a worker with 5 years of tenure (working days) 14.0 14.0 Paid annual leave for a worker with 10 years of tenure (working days) 16.0 16.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, 12.0 12.0 in working days) Source: Doing Business database. Doing Business 2017 Mexico 136 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Mexico City Monterrey Difficulty of redundancy index Data Data Maximum length of probationary period (months) 1.0 1.0 Dismissal due to redundancy allowed by law? Yes Yes Third-party notification if one worker is dismissed? Yes Yes Third-party approval if one worker is dismissed? Yes Yes Third-party notification if nine workers are dismissed? Yes Yes Third-party approval if nine workers are dismissed? Yes Yes Retraining or reassignment obligation before redundancy? No No Priority rules for redundancies? Yes Yes Priority rules for reemployment? Yes Yes Source: Doing Business database. Doing Business 2017 Mexico 137 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year requirements and severance payments due when of tenure, a worker with 5 years and a worker with 10 terminating a redundant worker, expressed in weeks of years is considered. One month is recorded as 4 and salary. The average value of notice requirements and 1/3 weeks. Mexico City Monterrey Redundancy cost indicator (in salary weeks) Data Data Notice period for redundancy dismissal for a worker with 1 year of 0.0 0.0 tenure Notice period for redundancy dismissal for a worker with 5 years of 0.0 0.0 tenure Notice period for redundancy dismissal for a worker with 10 years of 0.0 0.0 tenure Notice period for redundancy dismissal (average for workers with 1, 5 0.0 0.0 and 10 years of tenure) Severance pay for redundancy dismissal for a worker with 1 year of 14.6 14.6 tenure Severance pay for redundancy dismissal for a worker with 5 years of 21.4 21.4 tenure Severance pay for redundancy dismissal for a worker with 10 years of 30.0 30.0 tenure Severance pay for redundancy dismissal (average for workers with 1, 5 22.0 22.0 and 10 years of tenure) Source: Doing Business database. Doing Business 2017 Mexico 138 LABOR MARKET REGULATION Job quality Doing Business introduced new data on job quality in 2015. Doing Business 2017 covers eight questions on job quality (i) whether the law mandates equal remuneration for work of equal value; (ii) whether the law mandates nondiscrimination based on gender in hiring; (iii) whether the law mandates paid or unpaid maternity leave; (iv) the minimum length of paid maternity leave (in calendar days); (v) whether employees on maternity leave receive 100% of wages; (vi) the availability of five fully paid days of sick leave a year; (vii) whether a worker is eligible for an unemployment protection scheme after one year of service; and (viii) the minimum duration of the contribution period (in months) required for unemployment. Mexico City Monterrey Job Quality Data Data Equal remuneration for work of equal value? No No Gender nondiscrimination in hiring? Yes Yes Paid or unpaid maternity leave mandated by law? Yes Yes Minimum length of maternity leave (calendar days)? 84.0 84.0 Receive 100% of wages on maternity leave? Yes Yes Five fully paid days of sick leave a year? No No Unemployment protection after one year of employment? No No Minimum contribution period for unemployment protection (months)? n.a. n.a. Source: Doing Business database. Doing Business 2017 Mexico 139 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 defined as 1 hour even though in many economies the Distance to Frontier time is less than that. The distance to frontier score captures the gap between In the same formulation, to mitigate the effects of an economy’s performance and a measure of best extreme outliers in the distributions of the rescaled data practice across the entire sample of 36 indicators for 10 for most component indicators (very few economies Doing Business topics (the labor market regulation need 700 days to complete the procedures to start a indicators are excluded). For starting a business, for business, but many need 9 days), the worst performance example, the former Yugoslav Republic of Macedonia is calculated after the removal of outliers. The definition and New Zealand have the smallest number of of outliers is based on the distribution for each procedures required (1), and New Zealand the shortest component indicator. To simplify the process two rules time to fulfill them (0.5 days). Slovenia has the lowest were defined: the 95th percentile is used for the cost (0.0), and Australia, Colombia and 103 other indicators with the most dispersed distributions economies have no paid-in minimum capital (including minimum capital, number of payments to pay requirement (table 14.1 in the Doing Business 2016 taxes, and the time and cost indicators), and the 99th report). percentile is used for number of procedures. No outlier is removed for component indicators bound by definition Calculation of the distance to frontier score or construction, including legal index scores (such as the Calculating the distance to frontier score for each depth of credit information index, extent of conflict of economy involves two main steps. In the first step interest regulation index and strength of insolvency individual component indicators are normalized to a framework index) and the recovery rate. common unit where each of the 36 component In the second step for calculating the distance to frontier indicators y (except for the total tax rate) is rescaled score, the scores obtained for individual indicators for using the linear transformation (worst − y)/(worst − each economy are aggregated through simple averaging frontier). In this formulation the frontier represents the into one distance to frontier score, first for each topic best performance on the indicator across all economies and then across all 10 topics: starting a business, dealing since 2005 or the third year in which data for the with construction permits, getting electricity, registering indicator were collected. Both the best performance and property, getting credit, protecting minority investors, the worst performance are established every five years paying taxes, trading across borders, enforcing contracts based on the Doing Business data for the year in which and resolving insolvency. More complex aggregation they are established, and remain at that level for the five methods—such as principal components and years regardless of any changes in data in interim years. unobserved components—yield a ranking nearly Thus an economy may set the frontier for an indicator Doing Business 2017 Mexico 140 identical to the simple average used by Doing Business2. The nonlinear transformation is not based on any Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components3. overall tax system. Instead, it is mainly empirical in nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2015 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 in the Doing Business 2016 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 in the Doing Business 2016 report). 2 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. 3 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 2017 Mexico 141 Table 13.1 Weights used in calculating the distance to implemented regulatory reforms making it easier to do frontier scores for economies with 2 cities covered business in 3 or more of the 10 topics included in this year’s aggregate distance to frontier score. Changes Economy City Weight (%) making it more difficult to do business are subtracted Dhaka 78 Bangladesh from the total number of those making it easier to do Chittagong 22 São Paulo 61 business. Twenty-four economies meet this criterion: Brazil Armenia; Azerbaijan; Benin; Costa Rica; Côte d’Ivoire; Rio de Janeiro 39 Shanghai 55 Cyprus; Hong Kong SAR, China; Indonesia; Jamaica; China Beijing 45 Kazakhstan; Kenya; Lithuania; Madagascar; Mauritania; Mumbai 47 Morocco; Romania; the Russian Federation; Rwanda; India Delhi 53 Senegal; Togo; Uganda; the United Arab Emirates; Jakarta 78 Uzbekistan; and Vietnam. Second, Doing Business sorts Indonesia Surabaya 22 these economies on the increase in their distance to Tokyo 65 Japan frontier score from the previous year using comparable Osaka 35 data. Mexico City 83 Mexico Monterrey 17 Selecting the economies that implemented regulatory Lagos 77 reforms in at least three topics and had the biggest Nigeria Kano 23 improvements in their distance to frontier scores is Karachi 65 intended to highlight economies with ongoing, broad- Pakistan Lahore 35 based reform programs. The improvement in the Moscow 70 Russian Federation distance to frontier score is used to identify the top St. Petersburg 30 New York 60 improvers because this allows a focus on the absolute United States improvement—in contrast with the relative improvement Los Angeles 40 Source: United Nations, Department of Economic and Social shown by a change in rankings—that economies have Affairs, Population Division, World Urbanization Prospects, made in their regulatory environment for business. 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking Economies that improved the most across 3 or more Doing Business topics in 2014/15 The ease of doing business ranking ranges from 1 to 190. The ranking of economies is determined by sorting the Doing Business 2016 uses a simple method to calculate aggregate distance to frontier scores, rounded to 2 which economies improved the ease of doing business decimals. the most. First, it selects the economies that in 2014/15 Doing Business 2017 Mexico 142 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 190 Contributors http://www.doingbusiness.org/rankings More than 11,400 specialists in 190 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 190 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 190 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 DB2017 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 2017 Mexico 143