65515 Economy Profile: United States © 2012 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org All rights reserved. 1 2 3 4 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone 978-750-8400; fax 978-750-4470; Internet www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax 202-522-2422; e-mail pubrights@worldbank.org. Copies of Doing Business 2012: Doing Business in a More Transparent World, Doing Business 2011: Making a Difference for Entrepreneurs, Doing Business 2010: Reforming through Difficult Times, Doing Business 2009, Doing Business 2008, Doing Business 2007: How to Reform, Doing Business in 2006: Creating Jobs, Doing Business in 2005: Removing Obstacles to Growth and Doing Business in 2004: Understanding Regulations may be downloaded at www.doingbusiness.org. ISBN: 978-0-8213-8833-4 E-ISBN: 978-0-8213-8834-1 DOI: 10.1596/978-0-8213-8833-4 ISSN: 1729-2638 Printed in the United States Doing Business 2012 United States 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 36 Registering property .................................................................................................................. 42 Getting credit .............................................................................................................................. 52 Protecting investors ................................................................................................................... 59 Paying taxes ................................................................................................................................ 69 Trading across borders .............................................................................................................. 77 Enforcing contracts .................................................................................................................... 86 Resolving insolvency .................................................................................................................. 93 Data notes ................................................................................................................................... 99 Resources on the Doing Business website ............................................................................ 104 Doing Business 2012 United States 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is (except for the paying taxes indicators, which cover the for a local entrepreneur to open and run a small to period January–December 2010). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 10 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts and transparency of government procurement, resolving insolvency. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 183 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 32 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 18 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for United States. To allow useful recommends regulatory reforms. The data, along with comparison, it also provides data for other selected information on ordering Doing Business 2012, are economies (comparator economies) for each indicator. available on the Doing Business website at The data in this report are current as of June 1, 2011 http://www.doingbusiness.org. Doing Business 2012 United States 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: OECD high income business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: High income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 309,712,000 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 47,140.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 4 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 4 investors, paying taxes, trading across borders, Change in rank: 0 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 United States 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2012 United States 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy’s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How United States and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 United States 8 THE BUSINESS ENVIRONMENT Figure 1.3 How United States ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 United States 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the ―frontier,‖ a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy’s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy’s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy’s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has United States come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 United States 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for United States Best performer globally United States DB2012 United States DB2011 Russian Federation Germany DB2012 Canada DB2012 Mexico DB2012 Indicator China DB2012 India DB2012 DB2012 DB2012 Starting a Business 13 11 3 151 98 166 75 111 New Zealand (1) (rank) Procedures (number) 6 6 1 14 9 12 6 9 Canada (1)* Time (days) 6 6 5 38 15 29 9 30 New Zealand (1) Cost (% of income per 1.4 1.4 0.4 3.5 4.6 46.8 11.2 2.0 Denmark (0.0)* capita) Paid-in Min. Capital (% 0.0 0.0 0.0 100.4 0.0 149.6 8.4 1.6 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 17 17 25 179 15 181 43 178 China (1) (rank) Procedures (number) 15 15 12 33 9 34 10 51 Denmark (5) Time (days) 26 26 73 311 97 227 81 423 Singapore (26)* Cost (% of income per 12.8 12.8 57.5 444.1 49.7 1631.4 333.1 183.8 Qatar (1.1) capita) Doing Business 2012 United States 11 Best performer globally United States DB2012 United States DB2011 Russian Federation Germany DB2012 Canada DB2012 Mexico DB2012 Indicator China DB2012 India DB2012 DB2012 DB2012 Getting Electricity (rank) 17 16 156 115 2 98 142 183 Iceland (1) Procedures (number) 4 4 8 5 3 7 7 10 Germany (3)* Time (days) 68 68 168 145 17 67 114 281 Germany (17) Cost (% of income per 16.8 16.9 143.9 640.9 49.9 216.2 395.5 1852.4 Japan (0.0) capita) Registering Property 16 11 41 40 77 97 140 45 New Zealand (3) (rank) Procedures (number) 4 4 6 4 5 5 7 5 Portugal (1)* Time (days) 12 12 17 29 40 44 74 43 Portugal (1) Cost (% of property 0.8 0.5 1.8 3.6 5.2 7.3 5.3 0.2 Slovak Republic (0.0) value) Getting Credit (rank) 4 4 24 67 24 40 40 98 United Kingdom (1)* Strength of legal rights 9 9 7 6 7 8 6 3 New Zealand (10)* index (0-10) Depth of credit 6 6 6 4 6 4 6 5 Japan (6)* information index (0-6) Public registry coverage 0.0 0.0 0.0 82.5 1.3 0.0 0.0 0.0 Portugal (86.2) (% of adults) Private bureau coverage 100.0 100.0 0.0 0.0 100.0 15.1 98.1 35.8 New Zealand (100.0)* (% of adults) Protecting Investors 5 5 5 97 97 46 46 111 New Zealand (1) (rank) Extent of disclosure 7 7 8 10 5 7 8 6 France (10)* index (0-10) Doing Business 2012 United States 12 Best performer globally United States DB2012 United States DB2011 Russian Federation Germany DB2012 Canada DB2012 Mexico DB2012 Indicator China DB2012 India DB2012 DB2012 DB2012 Extent of director 9 9 9 1 5 4 5 2 Singapore (9)* liability index (0-10) Ease of shareholder suits 9 9 8 4 5 7 5 6 New Zealand (10)* index (0-10) Strength of investor 8.3 8.3 8.3 5.0 5.0 6.0 6.0 4.7 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 72 70 8 122 89 147 109 105 Canada (8) Payments (number per 11 11 8 7 12 33 6 9 Norway (4) year) Time (hours per year) 187 187 131 398 221 254 347 290 Luxembourg (59) Trading Across Borders 20 20 42 60 12 109 59 160 Singapore (1) (rank) Documents to export 4 4 3 8 4 8 5 8 France (2) (number) Hong Kong SAR, Time to export (days) 6 6 7 21 7 16 12 36 China (5)* Cost to export (US$ per 1050 1050 1610 500 872 1095 1450 1850 Malaysia (450) container) Documents to import 5 5 4 5 5 9 4 10 France (2) (number) Time to import (days) 5 5 11 24 7 20 12 36 Singapore (4) Cost to import (US$ per 1315 1315 1660 545 937 1070 1780 1800 Malaysia (435) container) Enforcing Contracts 7 7 59 16 8 182 81 13 Luxembourg (1) (rank) Doing Business 2012 United States 13 Best performer globally United States DB2012 United States DB2011 Russian Federation Germany DB2012 Canada DB2012 Mexico DB2012 Indicator China DB2012 India DB2012 DB2012 DB2012 Time (days) 300 300 570 406 394 1420 415 281 Singapore (150) Cost (% of claim) 14.4 14.4 22.3 11.1 14.4 39.6 32.0 13.4 Bhutan (0.1) Procedures (number) 32 32 36 34 30 46 38 36 Ireland (21)* Resolving Insolvency 15 14 3 75 36 128 24 60 Japan (1) (rank) Time (years) 1.5 1.5 0.8 1.7 1.2 7.0 1.8 2.0 Ireland (0.4) Cost (% of estate) 7 7 4 22 8 9 18 9 Singapore (1)* Recovery rate (cents on 81.5 81.5 90.7 36.1 53.8 20.1 67.1 41.5 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practice� marks, see the data notes for details. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2012 United States 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that all government and nongovernment entities involved in the process  Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business:  Does not qualify for any special benefits.  Is a limited liability company, located in the  Does not own real estate. largest business city.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2012 United States 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in United States? costs 1.4% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 0.0% of income per capita (figure a business there requires 6 procedures, takes 6 days, 2.1). Figure 2.1 What it takes to start a business in United States Paid-in minimum capital (% of income per capita): 0.0 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 United States 16 STARTING A BUSINESS Globally, United States stands at 13 in the ranking of and the regional average ranking provide other useful 183 economies on the ease of starting a business information for assessing how easy it is for an (figure 2.2). The rankings for comparator economies entrepreneur in United States to start a business. Figure 2.2 How United States and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 United States 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in United That can help identify where the potential for States today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in United States over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 11 13 Procedures (number) 6 6 6 6 6 6 6 6 6 Time (days) 6 6 6 6 6 6 6 6 6 Cost (% of income per 0.7 0.7 0.8 0.8 0.7 0.7 0.7 1.4 1.4 capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 United States 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by United States on ways to improve the ease of starting the economies that today have the best performance a business. And changes in regional averages can show regionally or globally on the procedures, time, cost or where United States is keeping up—and where it is paid-in minimum capital required to start a business falling behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 United States 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 7 economies in OECD high income have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 United States 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in United States (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has United States made starting a business easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 United States 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY United States is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: New York City firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Limited Liability Company professionals and the study of laws, regulations and Start-up capital: 10 times GNI per capita publicly available information on business entry in that economy. Following is a detailed summary of Paid-in minimum capital (% of income per those procedures, along with the associated time capita): 0.0 and cost. These procedures are those that apply to a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in United States—and the time and cost Time to No. Procedure Cost to complete complete Reserve the company's business name (optional), file the company's articles of organization and adopt the company's operating agreement The founders may, but are not required to, reserve the name of the company with the New York State Department of State, Division of Corporations, prior to filing the company's articles of organization. To reserve a name, the founders should file an Application for Reservation of Name. The fee for filing this application is USD 20. The application holds the name for 60 days and may be extended twice for additional periods of 60 days. In order to extend the name reservation, the founder needs to submit a written request for the Extension of the Application for Reservation of Name prior to the expiration of the USD 275 (USD 200 1 current reservation. The filing receipt entitled ―Certificate of 1 day filing fee, USD 75 Reservation‖ issued by the Department of State for an Application for expedited service fee) Reservation of Name must also accompany any request to extend the name reservation.The fee to extend the reservation of name is also USD 20. The founders must file the company's articles of organization with the New York State Department of State, Division of Corporations. Forms can be purchased at a legal supply store or downloaded from the depatment's Web site. Application processing time is about 2 weeks. However, optional expedited processing is available according to the following fee schedule: - 2-hour turnaround: USD 150 (additional fee). - Same-day service: USD 75 (additional fee). Doing Business 2012 United States 22 Time to No. Procedure Cost to complete complete - 24-hour turnaround: USD 25 (additional fee). Apply for federal identification number (EIN) for tax and employer purposes To apply for the federal employer identification number ("EIN"), used for tax and employer purposes, founders must file IRS Form SS-4 1 day no charge 2 (available from the US Internal Revenue Service). Applicants may apply online (processing time: immediate), by telephone (processing time: immediate), by fax (processing time: 4 business days) or by mail (processing time: 4 weeks). If applicants apply online, they do not need fill out IRS Form SS-4. Register to collect State sales tax A company selling "tangible personal property (goods), as well as certain other goods and types of services" must register as a sales tax vendor at least 20 days prior to starting business in New YorkState. To 1 day no charge 3 register, the founders must file Form DTF-17 or register online at the Web site of the New York State Department of Taxation and Finance. After the company has registered, it generally must file quarterly sales and use tax returns regardless of whether it has started or done any business. Register as an employer with the Unemployment Insurance Division of the state Department of Labor Founders must register as an employer by completing Form NYS-100 so that the New York State Department of Labor may determine if the company is liable under the New York State Unemployment Insurance Law. If the company is determined liable, the Department of Labor will 4 send the company quarterly combined withholding, wage reporting and 1 day no charge unemployment insurance returns for reporting wages paid to the company's employees. General business employers may register online at the New York State Department of Labor Web site or by completing Form NYS-100 and submitting it by mail. Before an employer can register, it must obtain a federal employer identification number from the US Internal Revenue Service. The Form NYS-100 can also be submitted by fax. Arrange for workers' compensation insurance and disability insurance As an employer, founders must obtain and maintain workers' compensation insurance and disability insurance for their employees by purchasing a workers' compensation insurance policy and a disability 5 benefits insurance policy from an authorized private insurance carrier or 1 day no charge by another approved means. The company's federal employer identification number ("EIN") is the company's primary identification with respect to communications with the Workers' Compensation Board (the "Board"). The company must give its EIN to its insurance carrier when obtaining or maintaining its workers' compensation or disability coverage. Workers' compensation insurance floor is calculated using Doing Business 2012 United States 23 Time to No. Procedure Cost to complete complete each employee's risk classification, salary, and total payroll. Arrange for publication and submit certificate and affidavits of publication A new limited liability company must publish two notices within 120 1 day USD 400 6 days of the entity’s formation. Entities must also file two affidavits and one certificate of publication with the New York State Department of State, Division of Corporations. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 United States 24 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2012 United States 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 15 procedures, takes 26 days build a warehouse in United States? According to data and costs 12.8% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in United States Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 United States 26 DEALING WITH CONSTRUCTION PERMITS Globally, United States stands at 17 in the ranking of ranking provide other useful information for assessing 183 economies on the ease of dealing with how easy it is for an entrepreneur in United States to construction permits (figure 3.2). The rankings for legally build a warehouse. comparator economies and the regional average Figure 3.2 How United States and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 United States 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed—and which have easy (or difficult) it is to deal with construction permits not (table 3.1). That can help identify where the in United States today, data over time show which potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in United States over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 17 17 Procedures (number) 15 15 15 15 15 15 15 Time (days) 26 26 26 26 26 26 26 Cost (% of income per 14.6 13.8 13.4 13.1 12.6 12.8 12.8 capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 United States 28 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by States on ways to improve the ease of dealing with the economies that today have the best performance construction permits. And changes in regional regionally or globally on the procedures, time or cost averages can show where United States is keeping required to deal with construction permits (figure 3.3). up—and where it is falling behind. These economies may provide a model for United Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 United States 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 United States 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in United States (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has United States made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 United States 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for United States are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : New York City information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers USD 409,509 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in United States —and the time and cost Time to No. Procedure Cost to complete complete Request plan approval and obtain approval from the New York City Department of Buildings (DOB) The Department of Buildings (DOB) reviews construction plans to ensure that they comply with the Building Code and meet current safety standards and zoning requirements. Once plans are approved, a contractor or contractor’s representative may apply for a construction work permit. Simple projects, as in the case of BuildCo, can opt for a fast-track service offered by the New York City Department of Buildings (DOB), called the Professional Certification Program. The program, introduced in 1996, enables registered architects and professional engineers to certify, through an affidavit signed by the owner, contractor, and all responsible professionals (architects, engineers, plumbers, and the like) that the plans they file with the department are in compliance with all 5 days USD 3,574 1 applicable laws. This reduces the amount of time a builder normally would wait for a DOB permit by eliminating the process of DOB examination and approval of the plans. The professional certification must be submitted at the time of pre- filing and in advance. A professionally certified application goes through the same pre-filing, payment, and data entry process as normal applications: - Information on the availability of a public sewer system. - If a private sewage treatment plant is proposed, evidence of submission of plans for approval of such a plant to the department of environmental protection and the department of health as required by law. - The lot diagram showing compliance with the zoning resolution. - The foundation plans. Doing Business 2012 United States 32 Time to No. Procedure Cost to complete complete - The floor and roof plans showing compliance with exit requirements. - The detailed architectural, structural, and mechanical drawings. - General description of the proposed work. After analyzing the plans (assuming that all required documents are present), the DOB approves the application at the end of data entry. A professionally certified application does not go through plan examination. The applicant can check the application status by using the Buildings Information System and, upon approval, can retrieve the application folder from the DOB to apply for a permit. Twenty percent of all professionally certified applications are selected for audit within 10 days of first permit issuance. The audits for new projects may take place within 30 days after the application is issued. The overall time of application clearance is 5 days on average. According to Building Code No. 26-212, the fee for the new building permit is "twenty-five cents and fifty-three one hundredths of a cent (25.53¢) per square foot or fraction thereof, of the total floor area of the new building, but not less than one hundred dollars per structure." The plumbing permit and foundation fee are calculated inside the above flat rate. The total would be USD 3,574.20 (14, 000 sq. ft. x USD 0.2553). The Building Code says that "fifty percent of the total fee for the work permit, but not less than one hundred dollars, or the total fee for the work permit where such fee is less than one hundred dollars, shall be paid by or on behalf of the owner or lessee of the building premises or property affected, and shall accompany the first application for the approval of plans or other statement describing the building work when submitted prior to submission of the permit application; and the whole or remainder of the total fee shall be paid before the work permit may be issued.‖ Still, most companies of BuildCo’s size would opt to pay the amount upfront, not in two separate transactions. Only for large projects is dividing the amount widespread. Notarize signatures of contractor and site safety manager on work permit application form, and notarize owner’s and contractor’s signature in cost affidavit 2 1 day USD 2 The site safety manager must be an employee of BuildCo and possess a valid site safety manager certificate. The cost affidavit must be filed to certify estimated and actual costs, in order to obtain a work permit. Obtain work permit from the Department of Buildings (DOB) After obtaining the plan approval, the company must request a work permit. The request should be accompanied by a copy of the current insurance policy of workers’ compensation insurance. This procedure 1 day USD 35 3 must be done by the contractor even if they are not the owner of the land. Different types of work require separate licenses. However, in one application, more than one permit can be requested. For instance, plumbing and construction work permits can be requested in the same application. Nonetheless, for electrical work, the company must get a Doing Business 2012 United States 33 Time to No. Procedure Cost to complete complete separate permit directly from the DOB’s Bureau of Electrical Control. For a warehouse, BuildCo must request a new building permit, a plumbing permit, and a foundation and earthwork permit. The request must include the detailed architectural, structural, and mechanical plans. One to two days prior to construction works, the company must notify the DOB by phone. There is no need to obtain any confirmation or approval from notification; the notification is only to register the data in DOB’s system. The only cost associated at this stage would be USD 35 for microfilming fees. Notify all the owners of adjacent plots about the works 4 Notification of adjacent owners, done 5 days prior to excavations for 1 day no charge new building foundations, is necessary for obtaining the foundation and earthwork permit. Request and obtain work permit from the Department of Buildings (DOB) Electrical Division This work permit/approval can be requested after construction has started. Several inspections are need to obtain this approval, taking around 6 months. This process happens during construction. The 1 day USD 40 5 company must have the work permit before it can obtain the final certificate of occupancy. Assuming that construction takes 30 weeks, the company will be able to obtain this document before requesting the certificate of occupancy. The procedure is undertaken by a licensed engineer, who is part of staff of BuildCo and applies on behalf of the company. The application fee is USD 40. Request and obtain work permit from the Department of Environmental Protection 6 1 day USD 75 A licensed professional must apply on behalf of the company to the authority. Request and obtain work permit from the Department of Transportation A Construction Activity Permit fee costs USD 50, and is valid for 90 days unless otherwise stated. Once after the 90 days expire, the company buys another work permit for the remaining period of construction. On applying, the company gets an account number, and on the next day 7 obtains the work permit. 2 days USD 50 Unless otherwise authorized, permits shall be kept at the work site or designated field headquarters at all times and shall be made available for inspection upon request of any police officer or any authorized employee of the Departments of Environmental Protection, Buildings, Police, and Transportation, or any other city employees specifically authorized by the Commissioner to enforce these rules. Request and obtain work permit from the Department of Transportation 8 2 days USD 50 The construction activity permit fee is USD 50, and the permit is valid for 90 days unless otherwise stated. Once the 90 days expire, the Doing Business 2012 United States 34 Time to No. Procedure Cost to complete complete company buys another work permit for the remaining period of construction. On applying, the company gets an account number and obtains the work permit the next day. Unless otherwise authorized, permits shall be kept at the work site or designated field headquarters at all times and shall be made available for inspection upon request of any police officer or any authorized employee of the Departments of Environmental Protection, Buildings, Police, and Transportation, or any other city employees specifically authorized by the Commissioner to enforce these rules. Request Occupancy certificate from the Department of Buildings (DOB) Upon completion of construction, the company must arrange for DOB inspections. For construction and plumbing, the company should contact the borough office where property is located. After completion of satisfactory inspections and submission of the required fillings (including inspections reports), DOB issues a new certificate of occupancy that describes the legal use and occupancy of a property. Each application must be accompanied by an accurate and complete lot survey made by a licensed surveyor. If the certificate of occupancy application is not signed by a professional engineer or registered architect, the form must be notarized by an official notary public. 9 1 day no charge To obtain the certificate of occupancy, the company must obtain the work permit/approval from the Bureau of Electrical Control, the Department of Environmental Protection, and the Department of Transportation. If these approvals have not yet been granted at the time of applying for the certificate of occupancy, a temporary certificate can be issued. The company then has a year to obtain all the necessary approvals. If the building does not comply with all the plans and the New York City building code, the company must make the necessary changes. Then the Department of Buildings inspects the warehouse again. This process is repeated until the building complies with all the rules. It is common to have 2–3 inspections of this sort. Once the building passes the inspection, the issuance of the certificate of occupancy is immediate. * Receive on-site inspection by the Department of Buildings (DOB) 10 1 day no charge The inspection takes place after all inspections (electricity, water and sewerage, and transport) have taken place. * Obtain occupancy certificate from the Department of Buildings (DOB) 8 days no charge 11 * Receive on-site inspection by the Department of Environmental 12 Protection (DEP) and obtain approval 1 day no charge Doing Business 2012 United States 35 Time to No. Procedure Cost to complete complete Approval from the Department of Environmental Protection is granted after inspection. * Receive on-site inspection by the Department of Transportation (DOT) and obtain approval 13 1 day no charge Approval from the Department of Transportation is granted after inspection. Request and connect to telephone services 14 2 days USD 55 Information can be obtained from www.verizon.com. * Request and connect to water and sewage services The connection is established by the plumber. After obtaining the certificate of occupancy, the company must call the Department of 1 day USD 2,155 15 Environmental Protection to request the service and provide billing. Part of this cost is paid upfront for the approval by the Department of Environmental Protection, and the remaining part is paid in the quarterly bill. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 United States 36 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 United States 37 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity requires 4 procedures, takes 68 days and costs 16.8% connection in United States? According to data of income per capita (figure 4.1). collected by Doing Business, getting electricity there Figure 4.1 What it takes to obtain an electricity connection in United States Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 United States 38 GETTING ELECTRICITY Globally, United States stands at 17 in the ranking of perspective in assessing how easy it is for an 183 economies on the ease of getting electricity entrepreneur in United States to connect a warehouse (figure 4.2). The rankings for comparator economies to electricity. and the regional average ranking provide another Figure 4.2 How United States and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 United States 39 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for United States on ways to improve the ease of 4.1). If obtaining a new electricity connection requires getting electricity. Regional and global averages on fewer procedures, less time or less cost in other these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in United States and comparator economies income average Global average United States Federation OECD high Germany Russian Canada Mexico China India Indicator Rank 17 156 115 2 98 142 183 53 .. Procedures (number) 4 8 5 3 7 7 10 5 5 Time (days) 68 168 145 17 67 114 281 103 111 Cost (% of income per capita) 16.8 143.9 640.9 49.9 216.2 395.5 1852.4 92.8 1,942.3 Source: Doing Business database. Doing Business 2012 United States 40 GETTING ELECTRICITY What are the details? The indicators reported here for United States are OBTAINING AN ELECTRICITY CONNECTION based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: New York City utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Con Edison verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in United States—and the time and cost Time to No. Procedure Cost to complete complete Electrician files contractor work request with Con Edison (Coned) and receives service layout from them Application for service may be made by mail, fax or by using Con Edison web site at www.coned.com/es/. However, written confirmation is required. The customer or their contractor should consult Con Edison regarding the characteristics of service available before plans are completed, equipment purchased or construction started on facilities to be connected to the company's distribution system. Information the customer or their contractor furnishes Con Edison with regard to the customer's proposed electrical installation, must be in writing. The company has Electrical Contractor or Work Request Pads for your convenience. Only licensed electricians can conduct electrical 16 calendar days USD 7,500.0 1 connections. The licensing is done by the City of NY. The electrician hired by customer should be a licensed master electrician. The licensing is done by the City of New York. The service layout usually requires an inspection by Coned's staff who then give the technical conditions on the spot. After that the electrician can start the works. The electrician could have completed the works until the panels/ switchboard before Coned comes and inspects and then only do the wiring when they know from Coned where the service room is going to be. If the electrician however, wants to avoid to have to re-wire, they can first wait for the service layout that tells them where the service room should be. The electrician is in charge of all the works until the connection point. The connection point should be on the customer's land and within a distance of 10 feet from the property line (border between public and private lands), which we assume here. The service layout usually require an Doing Business 2012 United States 41 Time to No. Procedure Cost to complete complete inspection by Coned's staff who then give the technical conditions on the spot. After that the electrician can start the works. Now, the electrician could have completed the works until the panels/ switchboard before Coned comes and inspects and then only do the wiring when they know from Coned where the service room is going to be, etc. If they want to avoid to have to re-wire though, they can first wait for the service layout that tells them where the service room should be. The electrician is in charge of all the works until the connection point. The connection point should be on the customer's land and within a distance of 10 feet from the property line (border between public and private lands). Electrician submits final checklist to Coned and security deposit (online), requests and receives external works from Coned The security deposit will not be recorded as it is refunded to the customer in 3 months time. The security deposit amount is twice the average monthly usage. Con Edison representative performs an inspection to verify that the site is ready for service construction 38 calendar days no charge 2 (property-line box or sweep is installed, area graded to within 6‖ of final grade, curbs are installed, sewer & water lines installed, etc.). Electrician submits final checklist to Coned, requests and receives the works. The works consist of laying out a cable from the connection point to the closest supply source on the LV network (usually a manhole and not necessarily all the way to the distribution transformer). The works by Coned can be carried out in parallel with the electrician's works. Customer requests meter installation and electricity turn on from Coned 3 7 calendar days no charge The electrician contacts the utility to inform them that the certificate of completion has been obtained, gives them the Dept of Buildings Control Number, and requests the utility to turn electricity on. Electrician requests and receives internal inspection from NY Buildings Dept. TThe NY Building Dept Electric division inspector does the internal and external wiring inspection once all wiring and connections are final. This step is usually carried out after electricity has been turned on, and is not a requirement to obtain supply. It is required however in order to obtain 4 an occupancy permit. If the inspector finds that everything is ok, he 7 calendar days USD 380.0 submits his report to the clerk in the NY Buildings office, who files it, and then publishes the Certificate of Completion online on the NY Buildings Website. This is usually done on the same day or next business day after inspection. The actual application for Certificate of Internal Inspection is done by the electrician before internal wiring commences. The Dept of Buildings then issues a Control Number to the electrician. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 United States 42 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy’s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2012 United States 43 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 12 days and costs 0.8% of the United States? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 4 Figure 5.1 What it takes to register property in United States Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 United States 44 REGISTERING PROPERTY Globally, United States stands at 16 in the ranking of and the regional average ranking provide other useful 183 economies on the ease of registering property information for assessing how easy it is for an (figure 5.2). The rankings for comparator economies entrepreneur in United States to transfer property. Figure 5.2 How United States and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 United States 45 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in United That can help identify where the potential for States today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in United States over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 11 16 Procedures (number) 4 4 4 4 4 4 4 4 Time (days) 12 12 12 12 12 12 12 12 Cost (% of property value) 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.8 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 United States 46 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by States on ways to improve the ease of registering the economies that today have the best performance property. And changes in regional averages can show regionally or globally on the procedures, time or cost where United States is keeping up—and where it is required to complete a property transfer (figure 5.3). falling behind. These economies may provide a model for United Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 United States 47 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 United States 48 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in United States (table 5.2)? Table 5.2 How has United States made registering property easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 United States 49 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 City: New York City through information collected from local property Property Value: 2,350,844.9 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in United States—and the time and cost Time to No. Procedure Cost to complete complete * Obtain ownership certificate A title report is obtained from one of many competing private companies, regulated by the state. Fees for title insurance are set by state regulators. Fees for services vary. A title report is not technically mandatory, but is routinely used to analyze the quality of title. A title report is an essential prerequisite to securing title insurance. No title company would offer title insurance without a title report tracing the About 10 days 1 deed history and clearly articulating the liens, covenants and other (simultaneous with 9500 (title report) limitations on title. A title report and title insurance are typically required procedure 2) by lenders. Most buyers buy a title insurance to assure the title is clear (i.e. no defects in the title). Companies that provide title reports also provide title insurance. One application for title report and title insurance is enough. Thus, no additional procedure or time is needed. Banks usually require title insurance for a property to be accepted as a loan. The cost of such title insurance is USD 9,500 given the assumptions of our case study, including the cost of the Title report. varies depending * Obtain environmental certificate on factual The environmental review is typically conducted by a private firm circumstances specializing in the field. It is not technically mandatory, but a prudent (simultaneous with investor will routinely require an environmental review and no bank procedure 1) would ever advance a commercial mortgage without conducting an depends on nature environmental review. The environmental review may have up to 3 (According to the and extent of 2 phases: assumptions of the contamination, if any 1. The history of the property in the public records is analyzed to check if case study, it is there was any record of contamination or any violation. assumed that no 2. If yes, an inspection of the property takes place, where some samples violation nor are taken problem is found in 3. Clean-up phase if needed. the first phase of the review, and that Doing Business 2012 United States 50 Time to No. Procedure Cost to complete complete the whole procedure does not take m Pay taxes The buyer must obtain and fill the NYS Transfer Tax Form TP-584 regarding real estate transfer tax, and the NYS Real Property Transfer Report (Equalization) Form RP-5217. The state forms RP-5217 and TP- 584 are available in many local government offices and on the Internet. Additionally, the property disclosure form is typically drafted by the attorney for the seller and given to the buyer prior to or at closing. The title deed is usually prepared by the seller. The fees for state forms RP- Filing fee for state 5217 ($250) and TP-584 ($5 + 0.4% of property value) are typically collected by the title company at closing, prior to recording, and must be form RP-5217 is paid to the state upon filing the deed for recording with the registry. It $250 + Filing fee for 3 is common practice to obtain title insurance from one of the competing 1 day stare form TP-584 is title insurance companies. (The cost of title insurance, according to New $5 + 0.4% of York State Title Insurance Rates for Zone 2, will cost an additional property value $7,978.) The title insurance can only be acquired at closing, after the (transfer tax) transaction has been completed between buyer and seller and the price has been paid. Where financing is involved, the lender typically requires the purchaser to obtain insurance as a condition of the loan. There is a separate mortgage recording tax required to be paid, in addition to the real property transfer tax. The title insurance company will take the responsibility of recording the title at the county clerk. Registration of new title The transfer deed (together with the applicable tax forms and payment) is then presented to the applicable public official, e.g. county clerk, for recordation in the public records of the jurisdiction. The date of acceptance of the deed by the clerk is the date which controls for transfer purposes. Nonetheless, it often can take many weeks (and even months) for the actual recordation to take place and become available on the public record. However, the transaction is valid and opposable to third parties on the date it is submitted. $28 + $ 3 per page Although the law states that title passes upon delivery of the deed, (assuming that the 4 1 day where there are competing claims the law recognizes the 1st recorded title consists of deed. about 12 pages) The title insurance company usually takes the responsibility of recording the title at the County Clerk, paying the fees for state forms RP-5217 and TP-584 . The documentation shall include: Title deed NYS Real Property form TP-584 on real estate transfer tax Property Disclosure Form Real Property form RP-5217 Doing Business 2012 United States 51 Time to No. Procedure Cost to complete complete Title Insurance * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 United States 52 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 the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine  Has 100 employees. the scope of the secured transactions system,  Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index  Is a private, limited liability company. (weighted at 62.5%).  Has its headquarters and only base of operations in the largest business city. Doing Business 2012 United States 53 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, United States stands at 4 in the ranking of collateral and bankruptcy laws in United States 183 economies on the ease of getting credit (figure facilitate access to credit? The economy has a score of 6.1). The rankings for comparator economies and the 6 on the depth of credit information index and a score regional average ranking provide other useful of 9 on the strength of legal rights index (see the information for assessing how well regulations and summary of scoring at the end of this chapter for institutions in United States support lending and details). Higher scores indicate more credit information borrowing. and stronger legal rights for borrowers and lenders. Figure 6.1 How United States and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 United States 54 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in United States support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in United States over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 4 4 Strength of legal rights 9 9 9 9 9 9 9 9 index (0-10) Depth of credit 6 6 6 6 6 6 6 6 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 United States 55 GETTING CREDIT One way to put an economy’s getting credit indicators index for United States in 2011 and shows the number into context is to see where the economy stands in the of other economies having the same score in 2011. distribution of scores across other economies. Figure Figure 6.3 shows the same thing for the depth of credit 6.2 highlights the score on the strength of legal rights information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 United States 56 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in United States (table 6.2)? Table 6.2 How has United States made getting credit easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 United States 57 GETTING CREDIT What are the details? The getting credit indicators reported here for United The data on the legal rights of borrowers and lenders States are based on detailed information collected in are gathered through a survey of financial lawyers and that economy. The data on credit information sharing verified through analysis of laws and regulations as are collected through a survey of a public credit well as public sources of information on collateral and registry or private credit bureau (if one exists). To bankruptcy laws. For the strength of legal rights index, construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in United States OECD high Indicator United States OECD high income income Strength of legal rights index (0-10) 9 7 Depth of credit information index (0-6) 6 5 Public registry coverage (% of adults) 0.0 9.5 Private bureau coverage (% of adults) 100.0 63.9 Strength of legal rights index (0–10) Index score: 9 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend Yes automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an No electronic database indexed by debtor's names? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Doing Business 2012 United States 58 Strength of legal rights index (0–10) Index score: 9 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 6 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as Yes No 1 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms .. 0 Number of individuals .. 0 Source: Doing Business database. Doing Business 2012 United States 59 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2012 United States 60 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in United States? index (figure 7.1). While the indicator does not The economy has a score of 8.3 on the strength of measure all aspects related to the protection of investor protection index, with a higher score minority investors, a higher ranking does indicate that indicating stronger protections (see the summary of an economy’s regulations offer stronger investor scoring at the end of this chapter for details). protections against self-dealing in the areas measured. Globally, United States stands at 5 in the ranking of 183 economies on the strength of investor protection Figure 7.1 How United States and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 United States 61 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in United States protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in United States over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 5 5 Extent of disclosure 7 7 7 7 7 7 7 index (0-10) Extent of director 9 9 9 9 9 9 9 liability index (0-10) Ease of shareholder 9 9 9 9 9 9 9 suits index (0-10) Strength of investor 8.3 8.3 8.3 8.3 8.3 8.3 8.3 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 United States 62 PROTECTING INVESTORS But the overall ranking on the strength of investor liability and ease of shareholder suits indices may also protection index tells only part of the story. Economies be revealing (figure 7.2). Equally interesting may be the may offer strong protections in some areas but not changes over time in the regional average scores for others. So the scores recorded over time for United those indices. States on the extent of disclosure, extent of director Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 United States 63 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 United States 64 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in United States (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has United States strengthened investor protections—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 United States 65 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for liability and ease of shareholder suits indices, a score is United States are based on detailed information assigned for each of a range of conditions relating to collected through a survey of corporate and securities disclosure, director liability and shareholder suits in a lawyers and are based on securities regulations, standard case study transaction (see the notes at the company laws and court rules of evidence. To end of this chapter). The summary below shows the construct the extent of disclosure, extent of director details underlying the scores for United States. Summary of scoring for the protecting investors indicators in United States OECD high Indicator United States OECD high income income Extent of disclosure index (0-10) 7 6 Extent of director liability index (0-10) 9 5 Ease of shareholder suits index (0-10) 9 7 Strength of investor protection index (0-10) 8.3 6.0 Score Extent of disclosure index (0-10) 7 What corporate body provides legally sufficient approval for the transaction? 1 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 2 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 2 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 2 required? Whether an external body must review the terms of the transaction before it takes place? 0 Extent of director liability index (0-10) 9 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 2 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 2 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 2 Doing Business 2012 United States 66 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 1 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 0 Ease of shareholder suits index (0-10) 9 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 1 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 0 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 4 trial? Whether the plaintiff can request categories of documents from the defendant without 1 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 2 Whether the level of proof required for civil suits is lower than that of criminal cases? 1 Strength of investor protection index (0-10) 8.3 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide legally sufficient approval for the transaction 0 = CEO or managing director alone; 1 = shareholders or board of directors vote and Mr. James can vote; 2 = board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Doing Business 2012 United States 67 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company’s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is liable only if he acted fraudulently or in bad faith; 1 = Mr. James is liable if he influenced the approval or was negligent; 2 = Mr. James is liable if the transaction is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes to the company 0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1 = liable for negligence in the approval of the transaction; 2 = liable if the transaction is unfair or prejudicial to the other shareholders. Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 = rescission is unavailable or available only in case of Seller’s fraud or bad faith; 1 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff’s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 United States 68 Whether the plaintiff can directly examine the defendant and witnesses during trial 0 = no; 1 = yes, with prior approval by the court of the questions posed; 2 = yes, without prior approval. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 United States 69 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 2 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2009. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded.  Taxes and mandatory contributions include  Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company.  A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 United States 70 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, United States stands at 72 in the ranking of taxes in United States—and how much do firms pay in 183 economies on the ease of paying taxes (figure 8.1). taxes? On average, firms make 11 tax payments a year, The rankings for comparator economies and the spend 187 hours a year filing, preparing and paying regional average ranking provide other useful taxes and pay total taxes amounting to 27.6% of profit information for assessing the tax compliance burden (see the summary at the end of this chapter for for businesses in United States. details). Figure 8.1 How United States and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 United States 71 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how process have changed — and which have not (table easy (or difficult) it is to comply with tax rules in United 8.1). That can help identify where the potential for States today, data over time show which aspects of the easing tax compliance is greatest. Table 8.1 The ease of paying taxes in United States over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 70 72 Payments (number per 10 10 10 10 10 11 11 year) Time (hours per year) 325 325 325 187 187 187 187 Total tax rate (% profit) 46.0 47.6 46.2 46.6 46.3 46.8 46.7 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 United States 72 PAYING TAXES Equally helpful may be the benchmarks provided by States on ways to ease the administrative burden of the economies that today have the best performance tax compliance. And changes in regional averages can regionally or globally on the number of payments or show where United States is keeping up—and where it the time required to prepare and file taxes (figure 8.2). is falling behind. These economies may provide a model for United Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 United States 73 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 United States 74 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. United States (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has United States made paying taxes easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. In the United States the introduction of a new tax on payroll DB2011 increased taxes on companies operating within the New York City metropolitan commuter transportation district. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 United States 75 PAYING TAXES What are the details? The indicators reported here for United States are that the company completed during the year. based on a standard set of taxes and contributions Respondents are asked how much in taxes and that would be paid by the case study company used by mandatory contributions the business must pay and Doing Business in collecting the data (see the section in what the process is for doing so. The taxes and this chapter on what the indicators cover). Tax contributions paid are listed in the summary below, practitioners are asked to review standard financial along with the associated number of payments, time statements as well as a standard list of transactions and tax rate. Summary of tax rates and administrative burden in United States OECD high Indicator United States OECD high income income Payments (number per year) 11 13 Time (hours per year) 187 186 Profit tax (%) 27.6 15.4 Labor tax and contributions (%) 10.0 24.0 Other taxes (%) 9.1 3.2 Total tax rate (% profit) 46.7 42.7 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 34% Federal corporate income taxable 1 99 (progressiv 18 tax income e schedule) Employer paid - Federal gross old-age, survivors and 1 online filing 55 6.2% salaries with 7 disability insurance tax ceiling (OASDI) 10.426% Property tax (NY City and 1 0 per $100 45% of FMV 7 State) valuation taxable NYS corporation tax 0 paid jointly 0 7.1% 5.5 income taxable NYC corporation tax 1 online filing 0 8.85% 4.1 income Doing Business 2012 United States 76 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Employer paid - Hospital gross 0 paid jointly 0 1.45% 1.6 insurance contributions salaries NYC Real estate transfer tax 1 0 2.63% sale price 1.6 gross Employer paid - NYS 1 online filing 0 4.1% salaries with 0.8 unemployment tax ceiling USD 0,184 fuel + USD Fuel tax 1 0 consumptio 0.4 0,008 per n gallon Employer paid - Metropolitan commuter gross 1 online filing 0 0.34% 0.4 transportation mobility tax salaries (MCTMT) gross Employer paid - Federal 1 online filing 0 6.2% salaries with 0.2 unemployment tax (FUTA) ceiling NY City and State sales and leasing 1 0 8.88% 0.1 use tax of lease truck expenses Sales tax 1 online filing 33 8.875% sales 0 withheld Totals 11 187 46.7 Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 United States 77 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other  Is located in the periurban area of the special environment. economy’s largest business city.  Do not require any special phytosanitary or  Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy.  Are one of the economy’s leading export or import products. The traded goods:  Are transported in a dry-cargo, 20-foot full  Are not hazardous nor do they include container load. military items. Doing Business 2012 United States 78 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in United States? Globally, United States stands at 20 in the ranking of According to data collected by Doing Business, 183 economies on the ease of trading across borders exporting a standard container of goods requires 4 (figure 9.1). The rankings for comparator economies documents, takes 6 days and costs $1050. Importing and the regional average ranking provide other useful the same container of goods requires 5 documents, information for assessing how easy it is for a business takes 5 days and costs $1315 (see the summary of in United States to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How United States and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 United States 79 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in United That can help identify where the potential for States today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in United States over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 20 20 Documents to export 4 4 4 4 4 4 4 (number) Time to export (days) 6 6 6 6 6 6 6 Cost to export (US$ per 960 960 960 990 1,050 1,050 1,050 container) Documents to import 5 5 5 5 5 5 5 (number) Time to import (days) 5 5 5 5 5 5 5 Cost to import (US$ per 1,160 1,160 1,160 1,245 1,315 1,315 1,315 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by ways to improve the ease of trading across borders. the economies that today have the best performance And changes in regional averages can show where regionally or globally on the documents, time or cost United States is keeping up—and where it is falling required to export or import (figure 9.2). These behind. economies may provide a model for United States on Doing Business 2012 United States 80 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 United States 81 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 United States 82 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 United States 83 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in United States (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has United States made trading across borders easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 United States 84 TRADING ACROSS BORDERS What are the details? The indicators reported here for United States are freight forwarders, shipping lines, customs brokers, based on a set of specific procedural requirements for port officials and banks. The procedural requirements, trading a standard shipment of goods by ocean and the associated time and cost, for exporting and transport (see the section in this chapter on what the importing a standard shipment of goods are listed in indicators cover). Information on the procedures as the summary below, along with the required well as the required documents and the time and cost documents. to complete each procedure is collected from local Summary of procedures and documents for trading across borders in United States OECD high Indicator United States OECD high income income Documents to export (number) 4 4 Time to export (days) 6 10 Cost to export (US$ per container) 1050 1,032 Documents to import (number) 5 5 Time to import (days) 5 11 Cost to import (US$ per container) 1315 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 2 190 Customs clearance and technical control 1 60 Ports and terminal handling 2 400 Inland transportation and handling 1 400 Totals 6 1050 Procedures to import Time (days) Cost (US$) Documents preparation 2 205 Customs clearance and technical control 1 90 Ports and terminal handling 1 420 Inland transportation and handling 1 600 Totals 5 1315 Doing Business 2012 United States 85 TRADING ACROSS BORDERS Documents to export Documents to import Bill of Lading Bill of Lading Certificate of Origin Cargo release order Commercial invoice Commercial invoice Customs export declaration Customs import declaration Packing list Doing Business 2012 United States 86 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs, including expert fees assumptions about the case: Enforcement costs  The seller and buyer are located in the economy’s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2012 United States 87 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, United States stands at 7 in the ranking of dispute through the courts in United States? According 183 economies on the ease of enforcing contracts to data collected by Doing Business, enforcing a (figure 10.1). The rankings for comparator economies contract requires 32 procedures, takes 300 days and and the regional average ranking provide other useful costs 14.4% of the value of the claim (see the summary benchmarks for assessing the efficiency of contract at the end of this chapter for details). enforcement in United States. Figure 10.1 How United States and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 United States 88 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how time help identify which areas have changed and easy (or difficult) it is to enforce a contract in United where the potential for improvement is greatest (table States today, data on the underlying indicators over 10.1). Table 10.1 The ease of enforcing contracts in United States over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 7 7 Time (days) 300 300 300 300 300 300 300 300 300 Cost (% of claim) 14.4 14.4 14.4 14.4 14.4 14.4 14.4 14.4 14.4 Procedures (number) 33 33 33 32 32 32 32 32 32 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 United States 89 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for United States on ways to improve the efficiency of the economies that today have the best performance contract enforcement. And changes in regional regionally or globally on the number of steps, time or averages can show where United States is keeping cost required to enforce a contract through the courts up—and where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 United States 90 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 United States 91 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in United States (table introducing new technology. Lower-income economies 10.2)? often work on reducing backlogs by introducing Table 10.2 How has United States made enforcing contracts easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 United States 92 ENFORCING CONTRACTS What are the details? The indicators reported here for United States are regulations, as well as through surveys completed by based on a set of specific procedural steps required to local litigation lawyers (and, in a quarter of the resolve a standardized commercial dispute through economies covered by Doing Business, by judges as the courts (see the section in this chapter on what the well). The procedures for resolving a commercial indicators cover). These procedures, and the time and lawsuit, and the associated time and cost, are listed in cost of completing them, are identified through study the summary below. of the codes of civil procedure and other court Summary of procedures for enforcing a contract in United States—and the time and cost OECD high Indicator United States OECD high income income Time (days) 300 518.03 518.03 Filing and service 30 Trial and judgment 180 Enforcement of judgment 90 Cost (% of claim) 14.4 19.71 19.71 Attorney cost (% of claim) 8 Court cost (% of claim) 5.39 Enforcement Cost (% of claim) 1 Procedures (number) 32 31.42 31.42 Source: Doing Business database. Doing Business 2012 United States 93 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be business and the case. It assumes that the recovered company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy’s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 United States 94 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, United States stands at 15 in the ranking of characterize the top-performing economies. How 183 economies on the ease of resolving insolvency efficient are insolvency proceedings in United States? (figure 11.1). The rankings for comparator economies According to data collected by Doing Business, and the regional average ranking provide other useful resolving insolvency takes 1.5 years on average and benchmarks for assessing the efficiency of insolvency costs 7% of the debtor’s estate. The average recovery proceedings in United States. rate is 81.5 cents on the dollar. Figure 11.1 How United States and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 United States 95 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in United States help identify where the potential for improvement is today, data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in United States over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 14 15 Time (years) 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 Cost (% of estate) 7 7 7 7 7 7 7 7 7 Recovery rate (cents on 80.3 80.5 80.2 77.0 75.9 76.7 76.7 81.5 81.5 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2012 United States 96 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by States on ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where United States is keeping up—and where it proceedings or on the recovery rate (figure 11.2). is falling behind. These economies may provide a model for United Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 United States 97 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 United States 98 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in United States (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has United States made resolving insolvency easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 United States 99 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2011. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund’s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the ―regional‖ classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 United States 100 Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy’s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 United States 101 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year’s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year’s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea’s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website’s ―Ask a Question‖ on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year’s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the ―distance to frontier.‖ Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 United States 102 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is ―no practice‖ mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree ―no practice‖ or ―not possible‖ mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a ―no ability of different government agencies to deliver practice‖ mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy’s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year’s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It‖ (World Bank, Washington, DC, 2005). Principal components This year’s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the ―frontier‖ and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 United States 103 the extent to which the economy has closed this gap The difference between an economy’s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many th are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95 the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy’s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 United States 104 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 United States 105