65451 Economy Profile: Russian Federation © 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 Russian Federation 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 39 Registering property .................................................................................................................. 46 Getting credit .............................................................................................................................. 57 Protecting investors ................................................................................................................... 64 Paying taxes ................................................................................................................................ 74 Trading across borders .............................................................................................................. 82 Enforcing contracts .................................................................................................................... 91 Resolving insolvency .................................................................................................................. 98 Data notes ................................................................................................................................. 104 Resources on the Doing Business website ............................................................................ 109 Doing Business 2012 Russian Federation 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 Russian Federation. 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 Russian Federation 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: Eastern Europe & Central Asia business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Upper middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 141,750,000 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 9,910.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 120 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 124 investors, paying taxes, trading across borders, Change in rank: 4 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 Russian Federation 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 Russian Federation 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 Russian Federation and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 Russian Federation 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Russian Federation ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 Russian Federation 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 Russian Federation 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 Russian Federation 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 Russian Federation Best performer globally Kazakhstan DB2012 Russian Federation Russian Federation Mexico DB2012 Indicator Japan DB2012 China DB2012 Brazil DB2012 India DB2012 DB2012 DB2012 DB2011 Starting a Business 111 106 120 151 166 107 57 75 New Zealand (1) (rank) Procedures (number) 9 9 13 14 12 8 6 6 Canada (1)* Time (days) 30 30 119 38 29 23 19 9 New Zealand (1) Cost (% of income per 2.0 2.6 5.4 3.5 46.8 7.5 0.8 11.2 Denmark (0.0)* capita) Paid-in Min. Capital (% 1.6 1.9 0.0 100.4 149.6 0.0 0.0 8.4 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 178 179 127 179 181 63 147 43 China (1) (rank) Procedures (number) 51 51 17 33 34 14 32 10 Denmark (5) Time (days) 423 483 469 311 227 193 189 81 Singapore (26)* Cost (% of income per 183.8 210.9 40.2 444.1 1631.4 27.9 93.2 333.1 Qatar (1.1) capita) Doing Business 2012 Russian Federation 11 Best performer globally Kazakhstan DB2012 Russian Federation Russian Federation Mexico DB2012 Indicator Japan DB2012 China DB2012 Brazil DB2012 India DB2012 DB2012 DB2012 DB2011 Getting Electricity (rank) 183 183 51 115 98 26 86 142 Iceland (1) Procedures (number) 10 10 6 5 7 3 6 7 Germany (3)* Time (days) 281 281 34 145 67 117 88 114 Germany (17) Cost (% of income per 1852.4 4125.4 130.3 640.9 216.2 0.0 88.4 395.5 Japan (0.0) capita) Registering Property 45 51 114 40 97 58 29 140 New Zealand (3) (rank) Procedures (number) 5 6 13 4 5 6 4 7 Portugal (1)* Time (days) 43 43 39 29 44 14 40 74 Portugal (1) Cost (% of property 0.2 0.1 2.3 3.6 7.3 5.7 0.1 5.3 Slovak Republic (0.0) value) Getting Credit (rank) 98 96 98 67 40 24 78 40 United Kingdom (1)* Strength of legal rights 3 3 3 6 8 7 4 6 New Zealand (10)* index (0-10) Depth of credit 5 5 5 4 4 6 5 6 Japan (6)* information index (0-6) Public registry coverage 0.0 0.0 36.1 82.5 0.0 0.0 0.0 0.0 Portugal (86.2) (% of adults) Private bureau coverage 35.8 14.4 61.5 0.0 15.1 99.0 37.6 98.1 New Zealand (100.0)* (% of adults) Protecting Investors 111 108 79 97 46 17 10 46 New Zealand (1) (rank) Extent of disclosure 6 6 6 10 7 7 9 8 France (10)* index (0-10) Doing Business 2012 Russian Federation 12 Best performer globally Kazakhstan DB2012 Russian Federation Russian Federation Mexico DB2012 Indicator Japan DB2012 China DB2012 Brazil DB2012 India DB2012 DB2012 DB2012 DB2011 Extent of director 2 2 7 1 4 6 6 5 Singapore (9)* liability index (0-10) Ease of shareholder suits 6 6 3 4 7 8 9 5 New Zealand (10)* index (0-10) Strength of investor 4.7 4.7 5.3 5.0 6.0 7.0 8.0 6.0 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 105 107 150 122 147 120 13 109 Canada (8) Payments (number per 9 10 9 7 33 14 7 6 Norway (4) year) Time (hours per year) 290 320 2600 398 254 330 188 347 Luxembourg (59) Trading Across Borders 160 166 121 60 109 16 176 59 Singapore (1) (rank) Documents to export 8 9 7 8 8 3 9 5 France (2) (number) Hong Kong SAR, Time to export (days) 36 36 13 21 16 10 76 12 China (5)* Cost to export (US$ per 1850 1900 2215 500 1095 880 3130 1450 Malaysia (450) container) Documents to import 10 11 8 5 9 5 12 4 France (2) (number) Time to import (days) 36 36 17 24 20 11 62 12 Singapore (4) Cost to import (US$ per 1800 1850 2275 545 1070 970 3290 1780 Malaysia (435) container) Enforcing Contracts 13 19 118 16 182 34 27 81 Luxembourg (1) (rank) Doing Business 2012 Russian Federation 13 Best performer globally Kazakhstan DB2012 Russian Federation Russian Federation Mexico DB2012 Indicator Japan DB2012 China DB2012 Brazil DB2012 India DB2012 DB2012 DB2012 DB2011 Time (days) 281 281 731 406 1420 360 390 415 Singapore (150) Cost (% of claim) 13.4 13.4 16.5 11.1 39.6 32.2 22.0 32.0 Bhutan (0.1) Procedures (number) 36 37 45 34 46 30 36 38 Ireland (21)* Resolving Insolvency 60 60 136 75 128 1 54 24 Japan (1) (rank) Time (years) 2.0 2.0 4.0 1.7 7.0 0.6 1.5 1.8 Ireland (0.4) Cost (% of estate) 9 9 12 22 9 4 15 18 Singapore (1)* Recovery rate (cents on 41.5 39.3 17.9 36.1 20.1 92.7 42.7 67.1 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 Russian Federation 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 Russian Federation 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Russian procedures, takes 30 days, costs 2.0% of income per Federation? According to data collected by Doing capita and requires paid-in minimum capital of 1.6% of Business, starting a business there requires 9 income per capita (figure 2.1). Figure 2.1 What it takes to start a business in Russian Federation Paid-in minimum capital (% of income per capita): 1.6 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Russian Federation 16 STARTING A BUSINESS Globally, Russian Federation stands at 111 in the other useful information for assessing how easy it is for ranking of 183 economies on the ease of starting a an entrepreneur in Russian Federation to start a business (figure 2.2). The rankings for comparator business. economies and the regional average ranking provide Figure 2.2 How Russian Federation and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 Russian Federation 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to start a business in Russian (table 2.1). That can help identify where the potential Federation today, data over time show which aspects for improvement is greatest. Table 2.1 The ease of starting a business in Russian Federation over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 106 111 Procedures (number) 14 11 10 9 9 9 9 9 9 Time (days) 44 36 31 30 30 30 30 30 30 Cost (% of income per 13.3 12.2 8.2 4.6 3.7 2.9 1.8 2.6 2.0 capita) Paid-in Min. Capital (% 6.8 5.6 4.4 3.4 3.2 2.2 1.8 1.9 1.6 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 Russian Federation 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by Russian Federation on ways to improve the ease of the economies that today have the best performance starting a business. And changes in regional averages regionally or globally on the procedures, time, cost or can show where Russian Federation is keeping up— paid-in minimum capital required to start a business and where it is 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 Russian Federation 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 8 economies in Eastern Europe & Central Asia have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 Russian Federation 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 Russian Federation (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 Russian Federation 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 Russian Federation 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Russian Federation is a set of specific procedures— the bureaucratic and legal steps that an entrepreneur must complete to incorporate and City: Moscow register a new firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Liability Company (OOO) 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): 1.6 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 Russian Federation—and the time and cost Time to No. Procedure Cost to complete complete Notarize registration application and agreement on establishment of a company 1 1 day RUB 200 per copy Copy of the agreement of establishment of a company and the filled out and signed registration application must also be notarized. Deposit capital in the bank and get proof thereof At least 50% of the charter capital shall be paid before company incorporation. The balance must be paid in the first year of operation. In order to open a bank account the following documents are required: (i) 1 day no charge 2 application form, notarized copy of the charter; (ii) notarized copy of the decision of establishment of the limited liability company; and (iii) notarized copy of the foundation agreement. The deposit of the capital requires opening an accumulative bank account for the name of the entity which is not created yet. Pay registration fee The registration fee must be paid for the registration of the legal entity with the State Tax Inspectorate. Many applicants use Sberbank for paying the registration fee as the tax authorities are familiar will the 1 day no charge 3 payment order issued by the Sberbank and in case of the payment order issued by any other banks may request some additional confirmation that the payment was actually completed. The registration fee of RUR 4,000 shall be transferred to the account of the State Tax Inspectorate. Register with the unified register at the Federal Tax Service on the 18 days RUB 4,000 4 local level, to obtain the single number of state registration and Doing Business 2012 Russian Federation 22 Time to No. Procedure Cost to complete complete the number of tax registration (identification number of taxpayer,INN) Documents required for registration: - Decision of the founders meeting; - Charter (2 copies); - Registration Application, notarized; - Payment receipt. The tax authorities sometimes implement a number of requirements, and failure to comply may lead to the rejection of the application. In addition, recently the tax authorities stopped issuing the original of the Charter (Articles of Association) which is filed for the state registration. Only a certified copy is issued. As a result, if the company has to file the copy of the Charter with any other state authorities, another copy of the Charter has to be requested by the tax authorities every time. The copy is usually issued within 5 working days and requires a payment of RUR 200 or RUR 400. Notarize Bank Signature Card. For a limited liability company with 50 employees, generally the General director and Chief accountant have a signature right. Required documents: - Registration certificate, notarized must be original document ; 5 - Taxpayer Identification Number (INN) certificate, notarized must be 1 day RUB 1200 original document; - Charter, originals or notarized copies notarized; - Documents confirming authority of the signatories (decision on the founders on appointment/election of the Director etc.), notarized. - Signature card with the print of the seal - notarized Make a seal in a private company in order to open a bank account 6 1 day USD 30 The company need to make a company seal before it opens a bank account. Open the company bank account Banks may require documents related to the founders of the newly established company and investigate the founder's history and its financial status. Requirements in terms of client acceptance procedure 5 days nominal 7 vary depending on the bank. The bank finally provides the entrepreneur with a confirmation letter w that contains details about the bank account. The entrepreneur needs this information to inform the Federal Tax Service about the opening of a bank account through the required notification. Inform Federal Tax Service of the company bank account number and obtain a special letter of confirmation 8 1 day no charge The representative of the newly founded company has to submit a notification (a standard form) in person or by mail to the Federal Tax Service giving notice of the opening of the bank account. In addition, Doing Business 2012 Russian Federation 23 Time to No. Procedure Cost to complete complete banks have the obligation to notify the Pension Fund and the Social Insurance Fund of the opening of the bank account of a new legal entity. Register the company with Moscow Center of Quotation of Work Places All companies and individual entrepreneurs employing personnel are 1 day no charge 9 required to be registered with the Moscow Center of Quotation of Work Places having its local departments in each district of Moscow irrespective of whether such companies are obliged to comply with the quotas (if the staff represents more than 100 persons) or not. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Russian Federation 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 Russian Federation 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to construction permits there requires 51 procedures, build a warehouse in Russian Federation? According to takes 423 days and costs 183.8% of income per capita data collected by Doing Business, dealing with (figure 3.1). Figure 3.1 What it takes to comply with formalities to build a warehouse in Russian Federation Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Russian Federation 26 DEALING WITH CONSTRUCTION PERMITS Globally, Russian Federation stands at 178 in the ranking provide other useful information for assessing ranking of 183 economies on the ease of dealing with how easy it is for an entrepreneur in Russian construction permits (figure 3.2). The rankings for Federation to legally build a warehouse. comparator economies and the regional average Figure 3.2 How Russian Federation and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 Russian Federation 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how which aspects of the process have changed—and easy (or difficult) it is to deal with construction permits which have not (table 3.1). That can help identify where in Russian Federation today, data over time show the potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Russian Federation over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 179 178 Procedures (number) 62 62 61 61 61 51 51 Time (days) 642 642 632 632 632 483 423 Cost (% of income per 9,692.6 7,546.1 7,072.3 4,877.5 3,994.4 210.9 183.8 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 Russian Federation 28 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by Federation on ways to improve the ease of dealing the economies that today have the best performance with construction permits. And changes in regional regionally or globally on the procedures, time or cost averages can show where Russian Federation is required to deal with construction permits (figure 3.3). keeping up—and where it is falling behind. These economies may provide a model for Russian Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 Russian Federation 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 Russian Federation 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 Russian Federation (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Russian Federation made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 Russia eased construction permitting by implementing a single window for all procedures related to land use. 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 Russian Federation 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Russian BUILDING A WAREHOUSE Federation are based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified City : Moscow by Doing Business through information collected from experts in construction licensing, including Estimated architects, construction lawyers, construction firms, RUB 26,120,000 Warehouse Value : utility service providers and public officials who deal with building regulations. These procedures The procedures, along with the associated time and are those that apply to a company and structure cost, are summarized below. matching the standard 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 Russian Federation —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain the development plan of land plot at the Moscow Architecture and City Planning Committee The Moscow Architecture and City Planning Committee ( MoskomArchitektura) A one stop shop has been implemented in order 1 to deal with all procedures related to the Land. The applicant does not 120 days no charge have to go to each agency in order to obtain documents. The applicant applies for the copy development plan of the land plot at Moskomarchitecture which will deal with all the steps. The legal time limit is 1 month but in practice this takes on average 6 months according to private sector contributors. * Request and obtain Act of Moscow Geological - Geodesic Department The applicant obtains a geodesic map of the plot with all communication lines indicated and analyzed. 45 days RUB 39,000 2 As of January 1, 2009, the fee for obtaining a geodesic map of the plot from the Moscow Geological –Geodesic Department has increased from RUB 36,700 to RUB 39,000. * Request and obtain an engineering ecological survey - Mosgorgeorest or any other licensed entity This is one of the pieces of information needed for project design – 3 information about conditions of your land plot – geological, geodesic 45 days RUB 100,000 and ecological. There are 5 types of mandatory engineering surveys. All or a few of them are requested depending on the land plot and surrounding territory conditions. Doing Business 2012 Russian Federation 32 Time to No. Procedure Cost to complete complete In our case there could be 2-3 types of surveys. Mosgorgeotrest does these surveys. Private licensed companies also can do these surveys but they are requested to get the results ‗stamped‘ by Mosgorgeotrest. * Request and obtain sanitary and epidemiological certificate - Rospotrebnadzor 30 days no charge 4 * Request and obtain technical conditions from water services and sewage The technical conditions are defined by the Moscow water and the sewage company. The list of conditions may be obtained simultaneously with the act of permission for use. Under Government Regulation No. 83 dated 13 February 2006, (1) a list of technical conditions must be prepared by the local government when preparing the city development plan of the land plot; (2) if the 30 days RUB 21,300 5 city development plan of the land plot does not contain this information, the technical conditions as well as the information on payment for connection to such services must be provided by the respective agency within 14 business days after receiving the request, however in practice it takes longer. According to update fee schedule of Moscow State Unitary Enterprise ―Vodokanal‖ for 2009, the fee for obtaining the technical conditions has been increased from RUB 17,673 to RUB 21,300. * Request and obtain technical conditions to connect to electricity with MosEnergo Technical conditions are determined by MosEnergo. The list of conditions may be obtained simultaneously with the act of permission for use. Under Government Regulation No. 83 dated 13 February 2006, (1) a list of technical conditions must be prepared by the local government 30 days no charge 6 when preparing the city development plan of the land plot; (2) if the city development plan of the land plot does not contain this information, the technical conditions as well as the information on payment for connection to such services must be provided by the respective agency within 14 business days after receiving the request, however in practice it takes longer. The cost depends on the district of Moscow. RUB 75,000 per kva is an average of the fees to be paid to Moscow Power Grid Company. * Request and obtain technical conditions to connect to telephone line from Moscow City Telephone Service (MGTS) 7 30 days RUB 5,000 Technical conditions are set by the district telephone network services, which are either branches of the Moscow City Telephone Service (MGTS) or private operators like Komstar or Sovintel. The list of Doing Business 2012 Russian Federation 33 Time to No. Procedure Cost to complete complete conditions can be obtained simultaneously with the act of permission for use. * Request and obtain technical conditions for heavy shower sewage 30 days RUB 10,000 8 These technical conditions are also required for the project design. * Request and obtain technical conditions to install radio from the Moscow Broadcasting Network 9 30 days RUB 4,500 These technical conditions are also required for the project design and needed by law for civil security. It is supposed to be used for public announcements (likein case of force majeure). * Request and obtain approval of Sketch No. 2 with Moscow Architecture Committee 10 On the Sketch No. 2 prepared by the Moscow Geological Institute, the 30 days no charge Moscow Architecture Committee (MoskomArchitektura) draws the communication lines and power grids in accordance with the technical conditions obtained from the company. * Request and obtain Sketch No. 2 from Moscow Geological Institute 11 30 days RUB 20,000 Sketch No. 2 is prepared by the Moscow Geological Institute (Mosgorgeotrest). * Request and obtain approval from Moscomarchitectura on engineering supply of the facility 14 days RUB 4,500 12 Request and obtain Extract from Minutes of Meeting and Decision of the „Reglament‟ Commission by the Chief Architect of Moscow on approval of architectural design (facades, profiles, color) and the certificate of Approval of architectural design - Moskoma The following documents must be submitted to obtain Regulation No. 30 days no charge 13 2 at the MoskomArchitektura: - Architecture and construction designs and drawings. - Approved (by all instances) designs and drawings of the general plan (as mentioned in previous procedures). - Approved design conditions. - Decision on construction. Request and obtain Disposition of Prefect on Inception of Construction Designing (Decision on Construction) 14 The decision on construction is a prerequisite for beginning to collect 30 days no charge all design documents. By law, obtaining the decision should not take more than 30 days. However, the deadline is never respected, and this procedure takes 60 days on average. * Request and obtain the approval of conditions for designs by Department of Preparation of Project Approvals of (No 15 Suggestions) 14 days RUB 12,100 The seal of the Department of Preparation of Project Approvals of Doing Business 2012 Russian Federation 34 Time to No. Procedure Cost to complete complete MoskomArchitektura is placed on the cover page of the conditions list. * Request and obtain approval of conditions for designs by the Ministry of Emergency Situation and Civil Defense 16 14 days RUB 14,728 The Emergency Situation Department specifies whether a shelter for civil defense must be constructed on the site. * Request and obtain approval of conditions for designs with Sanitary Services (Rospotrebnadzor) 17 30 days RUB 13,800 The Sanitary Services (Rospotrebnadzor) analyze the drawings and designs according to sanitary norms and conditions. * Request and obtain the approval on transport routes from Moscow City Transport Agency 18 30 days RUB 8,837 The Moscow City Transport Agency analyzes the drawings and designs according to the norms and conditions for main and adjacent roads. * Request and obtain the approval from State Inspection of Road Safety (GIBBD) 19 30 days RUB 8,837 The State Inspectorate of Road Safety (GIBBD) analyzes the drawings and designs according to its norms and conditions. * Request and obtain the approval from Department of Comprehensive Well-Being of City 20 30 days RUB 4,600 The Department of Comprehensive Well-Being of the city analyses the drawings and designs according to its norms and conditions. * Request and obtain approval for project design from Department of Nature Management and Environment Protection of Moscow 21 21 days RUB 29,455 The Department of Nature Use analyzes the drawings and designs according to its norms and conditions. * Request and obtain approval of Volumes of «Outline of Construction Arrangement» and “GenPlan� from GenPlan Institute 30 days RUB 30,000 22 Request and obtain the construction passport from Moscow City Geological Unit 23 30 days RUB 8,837 Based on the approved Sketch No. 2, the Moscow City Geological Institute prepares the passport that is later submitted to the State Inspectorate of Architecture and Construction Supervision. * Request and obtain approval of conditions for designs by Local Government (uprava) 24 7 days no charge The seal of the local government is placed on the cover page of the conditions list. * Request and obtain approval of conditions for designs by Prefect‟s Office 25 14 days no charge The seal of the local government is placed on the cover page of the conditions list. Doing Business 2012 Russian Federation 35 Time to No. Procedure Cost to complete complete Request and obtain approval on project by Moscow State Expertise The Moscow State Expertise relies on internal expertise. In accordance with the Moscow Government regulation ―Regulation of the document preparation by the ―Moscow State Expertise‖ № 670, dated 29 July 2008 should be no more than 60 days and is conducted regardless of project size. In practice, this takes abouit 45 days. The fee for issuing 45 days RUB 59,500 26 project approval is calculated according to a formula based on the square meters. According to the articlen 49 of the City Planning Code, this approval on project by the Moscow State Expertise is not needed for a two stories warehouse with a total surface up to 1500 m2 with non-residential or production purposes if they are not considered dangerous, technically difficult or unique. Yet, in practice, this approval is often required. Request and obtain Permission for construction To obtain the building permit, BuildCo must submit the following documents to the Moscow State Committee of Construction Supervision: - An application form. 10 days no charge 27 - Documents confirming title to the land. - Town (planning) plan of land. - Relevant project documentation. After reforms in 2006, the statutory time line of issuing the permit fell from 30 days to 10. This is free of charge. Request and obtain an opening order of production of works from UATI 1 day RUB 30,000 28 Inform the Moscow District Municipality about the work schedule, get a stamp and leave a copy of the work schedule 1 day no charge 29 Inform the Department of Nature Management about the work schedule, get a stamp and leave a copy of the work schedule 1 day no charge 30 Inform the Traffic Police about the work schedule, get a stamp and leave a copy of the work schedule 1 day no charge 31 Inform the Fire Department about the work schedule, get a stamp and leave a copy of the work schedule 1 day no charge 32 Inform the Rospotrebnadzor about the work schedule, get a stamp and leave a copy of the work schedule 1 day no charge 33 Receive inspection from the Moscow Committee of State 1 day no charge 34 Construction Supervision during foundation works Doing Business 2012 Russian Federation 36 Time to No. Procedure Cost to complete complete Construction activities are not interrupted during inspections. These inspections need not be requested. The first inspection takes place during foundation construction. * Receive inspection from from the Moscow Committee of State Construction Supervision during structure works 35 1 day no charge Construction activities are not interrupted during inspections. These inspections need not be requested. The second inspection takes place during structure construction. * Receive inspection from the Moscow Committee of State Construction Supervision during engineering works 36 1 day no charge Construction activities are not interrupted during inspections. These inspections need not be requested. The third inspection takes place during engineering work * Order and receive results of laboratory tests of foundation pits from Mosgorgeotrest for the acceptance commission 37 1 day RUB 10,000 During the construction phase of an approved project, the Buildong Company has to obtain results of laboratory tests which are then required by the acceptance commission. * Receive an inspection from the Mosgorgeotrest to make sure that the building has been built where it was planned to be 1 day RUB 50,000 38 * Receive inspection by Union of Administrative Technical Inspection (UATI) - I Construction activities are not interrupted during inspections. These 1 day no charge 39 inspections need not be requested and take place at least once a month during the construction cycle. The Union of Administrative Technical Inspection (UATI) inspects whether the construction boundaries have remained the same. * Receive inspection by Union of Administrative Technical Inspection (UATI) - II 40 Construction activities are not interrupted during inspections. These 1 day no charge inspections need not be requested and take place at least once a month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. * Receive inspection by Union of Administrative Technical Inspection (UATI) - III 41 Construction activities are not interrupted during inspections. These 1 day no charge inspections need not be requested and take place at least once a month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. * Receive inspection by Union of Administrative Technical Inspection (UATI) - IV 1 day no charge 42 Construction activities are not interrupted during inspections. These Doing Business 2012 Russian Federation 37 Time to No. Procedure Cost to complete complete inspections need not be requested and take place at least once a month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. * Receive inspection by Union of Administrative Technical Inspection (UATI) - V 43 Construction activities are not interrupted during inspections. These 1 day no charge inspections need not be requested and take place at least once a month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. * Receive inspection by Union of Administrative Technical Inspection (UATI) - VI 44 Construction activities are not interrupted during inspections. These 1 day no charge inspections need not be requested and take place at least once a month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. * Receive inspection by Union of Administrative Technical Inspection (UATI) - VII 45 Construction activities are not interrupted during inspections. These 1 day no charge inspections need not be requested and take place at least once a month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. Connect to water services 46 30 days no charge An agreement must be concluded between BuildCo and the Water and Sewerage Services. The connection to water service is then installed. * Request and connect to telephone services 47 According to Decree # 312, as of February 27, 2009 by Moscow City 10 days RUB 8,640 Telephone Network Company the cost of connection works is now RUB 8,640 and done in 10 days. * Request and convene Acceptance Commission BuildCo files application forms with the Moscow State Committee of Construction Supervision in order to convene the Approval Commission. The commission includes representatives from different backgrounds, such as ecology, the prefecture, the local government, the sanitary services, the company, and the designer. After the commission has convened, BuildCo collects the signatures of all its members. 60 days no charge 48 The time line established by Government of Moscow Resolution No. 530, dated November 7, 2001, for the relevant authorities to appoint representatives to the Approval Commission is 10 days. The time required for approval of the building depends on the state of the building (whether it is ready to be occupied or not) and on the inspection results. In practice, this takes on average 60 days. The most difficult part is to convene the commission members and gather their signatures for approval. Doing Business 2012 Russian Federation 38 Time to No. Procedure Cost to complete complete Request and receive the Disposition on operation of building (Occupancy Permit) 10 days no charge 49 Obtaining an occupancy permit takes 10 days. Request and receive Plans from Bureau of Technical Inventory (BTI) 30 days RUB 55,000 50 Register the building after completion According to the Russian Federation Civil Code, the right to own and "create" immovable things, including buildings, is subject to state registration at the Unified State Register by the justice agencies. The procedure for state registration is established by the law and encompasses registration of the rights to immovable property, and the associated transactions. 51 30 days RUB 15,000 To complete the registration, BuildCo must submit an application (which is a constitutive document), the real property plan, and approval of the building, confirming the fact that real property has been created. The state registration must be processed within a month of the application date. Payment of a duty is required for registration. The amount of the duty is determined by the local authorities. The maximum duty is established by the Russian government at RUR 7,500 for legal persons. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Russian Federation 39 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 Russian Federation 40 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity requires 10 procedures, takes 281 days and costs connection in Russian Federation? According to data 1852.4% 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 Russian Federation Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Russian Federation 41 GETTING ELECTRICITY Globally, Russian Federation stands at 183 in the another perspective in assessing how easy it is for an ranking of 183 economies on the ease of getting entrepreneur in Russian Federation to connect a electricity (figure 4.2). The rankings for comparator warehouse to electricity. economies and the regional average ranking provide Figure 4.2 How Russian Federation and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 Russian Federation 42 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 Russian Federation on ways to improve the 4.1). If obtaining a new electricity connection requires ease of getting electricity. Regional and global averages fewer procedures, less time or less cost in other on these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in Russian Federation and comparator economies Global average Eastern Europe & Central Asia Kazakhstan Federation average Russian Mexico Japan China Brazil India Indicator Rank 183 51 115 98 26 86 142 129 .. Procedures (number) 10 6 5 7 3 6 7 7 5 Time (days) 281 34 145 67 117 88 114 168 111 Cost (% of income per capita) 1852.4 130.3 640.9 216.2 0.0 88.4 395.5 751.2 1,942.3 Source: Doing Business database. Doing Business 2012 Russian Federation 43 GETTING ELECTRICITY What are the details? The indicators reported here for Russian Federation OBTAINING AN ELECTRICITY CONNECTION are based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local City: Moscow distribution utility—identified by Doing Business. Data are collected from the distribution utility, then Name of Utility: MOESK completed and verified by electricity regulatory agencies and independent professionals such as The procedures are those that apply to a warehouse electrical engineers, electrical contractors and and electricity connection matching the standard construction companies. The electricity distribution assumptions used by Doing Business in collecting the utility surveyed is the one serving the area (or areas) in data (see the section in this chapter on what the which warehouses are located. If there is a choice of indicators cover). The procedures, along with the distribution utilities, the one serving the largest associated time and cost, are summarized below. number of customers is selected. Summary of procedures for getting electricity in Russian Federation—and the time and cost Time to No. Procedure Cost to complete complete Submit an application for an electricity connection to the local office of MOESK and await technical conditions If the required load is less than 750 KW an application for an electricity connection is submitted to a local office of MOESK. Above 750 KW an application is submitted to the central office of MOESK. The following documents are attached to the application: 1) Plan of the location of electrical equipment 2) Plan of electrical cables with the justification of the required load 3)a copy of the license of the firm which prepared the plan. 30 calendar days RUB 2,330,832.0 1 Furthermore the followign documents are required for the conclusion of a connection contract with MOESK 1) Documents certifying the legal status of the customer or his representative: certificate from the Business Registry, certificate from tax authorities, document certifying the head of the organization. Once technical conditions are ready MOESK notifies the customer and a connection contract is signed. There is not external inspection for the preparation of the technical conditions. Await completion of the external connection design and its approval by a specialized private electrical design firm Once the technical conditions are ready, the design/plan of the external 90 calendar days RUB 240,000.0 2 connection can be prepared by an electrical design firm. It is usually more convenient to prepare plans of the internal wiring and external connection separately so that not to delay the approval of the designs. The electrical design firm should have a special license for preparation of Doing Business 2012 Russian Federation 44 Time to No. Procedure Cost to complete complete electrical plans. The plan has to be approved at Rostechnadzor (electrical safety inspectorate, Mosenergosbyt ( in charge of metering and consumption contracts, tariffs, they approve the part of the project which concerns metering) and organization in charge of underground works, MOESK and possibly other organizations. The approvals are obtained by the project design firm. Customer obtains an excavation permit at the Directorate for Public Services of the District The electrical contractor obtains an excavation permit. Potentially the 3 electrical contractor will also need to obtain a permit at the gas, 30 calendar days no charge telephone and water companies depending on the requirements of the connection. Permits might be needed first at the stage of digging, then at the stage of laying the cable, then when the pavement is restored. Await completion of the external connection works by a private electrical contractor After the electrical design is ready the installation of the substation is completed by an electrical contractor hired by the customer. After the 4 external connection works the electrical contractor fills out a package of 37 calendar days RUB 3,100,000.0 technical documents specifying results of equipment tests and characteristics of the electrical installation. The meter is also installed by the electrical contractor. Obtain from MOESK a document on the completion of external connection works according to technical conditions 5 After the works are completed it is required to obtain from MOESK a 14 calendar days no charge document on the completion of works according to technical conditions. At this stage it is also possible that the utility inspects the completed works. Await inspection of the meter by Mosenergosbyt (supply company) 6 After the external connection works and installation of the meter by the 12 calendar days RUB 10,000.0 electrical contractor the meter is checked by Mosenergosbyt (supply company). Obtain a questionnaire of consumer of electrical energy at the department of transportation of energy at the local office MOESK In order to conclude the document on the division of responsibilities and 3 calendar days no charge 7 onwership document in the next procedure the client has to receive a questionnaire of the consumer of electrical energy at the local office of MOESK. Await physical/actual connection by the utility and sign a contract dividing responsibilities for maintenance and ownership of the line. 14 calendar days no charge 8 The utility completes the physical/actual connection of the customer Doing Business 2012 Russian Federation 45 Time to No. Procedure Cost to complete complete without turning on the power yet. The customer visits the regional office of MOESK, concludes a contract dividing responsibilities for maintenance and ownership of electrical equipment, signs a document on the completion of the technical connection and a document that the service was accepted. Await and obtain an inspection by Rostechnadzor (Technical Inspectorate of Russia) 9 Rostechnadzor visits the site to inspect the completed external 30 calendar days no charge connection works. Rostechnadzor checks the technical documents filled out by the electrical contractor, external electrical works and internal wiring. After the inspection Rostechnadzor issues an operation permit. Sign a supply contract with Mosenergosbyt (supply company) and await final connection. 10 21 calendar days no charge After the issuance of the operation permit a supply contract is signed at Mosenergosbyt. Once the contract is signed the supply company sends a request to MOESK to turn on power. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Russian Federation 46 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 Russian Federation 47 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 43 days and costs 0.2% of the Russian Federation? According to data collected by property value (figure 5.1). Doing Business, registering property there requires 5 Figure 5.1 What it takes to register property in Russian Federation Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Russian Federation 48 REGISTERING PROPERTY Globally, Russian Federation stands at 45 in the other useful information for assessing how easy it is for ranking of 183 economies on the ease of registering an entrepreneur in Russian Federation to transfer property (figure 5.2). The rankings for comparator property. economies and the regional average ranking provide Figure 5.2 How Russian Federation and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 Russian Federation 49 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to register property in Russian (table 5.1). That can help identify where the potential Federation today, data over time show which aspects for improvement is greatest. Table 5.1 The ease of registering property in Russian Federation over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 51 45 Procedures (number) 6 6 6 6 6 6 6 5 Time (days) 52 52 52 52 52 43 43 43 Cost (% of property value) 0.5 0.4 0.3 0.3 0.2 0.1 0.1 0.2 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 Russian Federation 50 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by Federation 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 Russian Federation is keeping up—and where it required to complete a property transfer (figure 5.3). is falling behind. These economies may provide a model for Russian Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 Russian Federation 51 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 Russian Federation 52 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 Russian Federation (table 5.2)? Table 5.2 How has Russian Federation made registering property easier—or not? By Doing Business report year DB Year Reform Russia made registering property transfers easier by DB2012 eliminating the requirement to obtain cadastral passports on land plots. DB2011 No reform. Property registration was expedited by introducing new DB2010 documentation requirements—such as cadastral passports— in lieu of inventory documents and cadastral maps. 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 Russian Federation 53 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: Moscow through information collected from local property Property Value: 15,333,526.8 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 Russian Federation—and the time and cost Time to No. Procedure Cost to complete complete * Obtain cadastral certificate The seller should obtain technical inventory document for the building – the cadastral passport – from the local bureau of technical inventory. As of May 13, 2008 per the changes in the Federal Law No. 66-FZ, inventory documents and cadastral maps were replaced by cadastral passports. The only technical inventory document obtained from the bureau of technical inventory is a cadastral passport. This document replaces the previously required three documents: extract from the technical passport, floor plan and explanation of the floor plan. The documentation shall include: Application (standard form) The document certifying rights of the seller to the property (must be in 10 days possession of the seller) (simultaneous with 1 A letter of guarantee (with respect to payments for BTI services) RUB 1,000 procedures 2, 3, An official document confirming applicant's authority to act on behalf of and 4) a legal entity (i.e. power of attorney and passport of the applicant) A document showing the legal boundaries of the property (i.e. to ensure that there are no unauthorized alterations or modifications). Under Clause 28 of the New Competition Law (dated 26 July 2006) the buyer must obtain preliminary approval of the Federal Antimonopoly Service (the FAS) for an acquisition of real estate property if the book value of the real estate property being acquired exceeds 20% of the book value of fixed and intangible assets of the seller, provided that (i) the aggregate value of assets of the buyer, according to its latest financial statements and the seller (group of the seller) exceeds three billion roubles (currently approximately US$83 mln); or (ii) their aggregate proceeds from the sale of products (works, services) for the last calendar year exceeds six billion roubles (currently approximately US$167 mln) and, at the same time, the value of assets as per the latest Doing Business 2012 Russian Federation 54 Time to No. Procedure Cost to complete complete financial statements of the seller exceeds one hundred fifty million roubles (currently approximately US$4.2 mln); or (iii) either the buyer or the seller is included in the register of business entities as having a market share of a particular product (work or service) of more than 35% . The FAS must be notified about the purchase of real estate property by the buyer if the aggregate assets value, according to the latest financial statements of the buyer and the seller, or their aggregate proceeds from the sale of products (works, services) for the calendar year preceding the year of acquisition of real estate property or other actions, exceeds two hundred million roubles (currently approximately US$5.6 mln); and, at the same time, the aggregate assets' value according to the latest financial statements of the seller (group of the seller) exceeds thirty million roubles (currently approximately US$0.8 mln) The antimonopoly permission is not necessary for the state registration of the transfer of title to the property in Procedure 6, but its absence may lead to recognizing the transaction as void. NOTE: Due to the recent changes in the Russian antimonopoly legislation, such would normally apply to major transactions and would not be necessary for small and medium transactions such as the one described in this case study.It would take about one month and cost the equivalent of 100 minimum wages. The documentation shall include: Application (standard form) Other documents specified in the governmental regulations * Obtain non-encumbrance certificate A non-encumbrance certificate on the property must be obtained from the Unified State Register of Real Estate Property maintained by the 7 days State Registration Department of Rights to the Real Estate Property. The (simultaneous with RUB 600 per extract 2 cost of the extract is RUB 100 for individuals and RUB 300 for legal procedures 1, 2, (legal entities) entities. and 4) 7 days (regular * Obtain seller certificate procedure) or 1 day RUB 200 (regular Legal entities must obtain extracts from the Unified State Register of (expedited procedure) or RUB 3 Legal Entities. Although Russian legislation does not establish the term procedure) 400 (expedited of validity for the extracts, in practice most state authorities accept the (simultaneous with procedure) extracts issued not earlier than 30 days before their submission to the procedures 1, 2, respective state authority. and 3) Notarization of sale deed 4 1-2 days RUB 500 The seller should obtain notarized copies of the certificate on state registration of ownership title on the building as well as the certificate of Doing Business 2012 Russian Federation 55 Time to No. Procedure Cost to complete complete ownership. The buyer and seller should obtain notarized copies of the certificate of LLC state registration, the charter, the foundation agreement, the certificate on individual taxpayer numbers, and the informational letter of State Committee on Statistics. Notarization costs about 500 RUR for each document (RUB 10 per page) with a state notary, whatever rates are established by a private notary. The documentation shall include: Certificate on state registration of ownership title to the building and certificate on state registration of ownership title to the land plot (Obtained in Procedure 3). Certificate of LLC state registration, the charter, the foundation agreement, the certificate on individual number of a taxpayer, and the informational letter of state committee on statistics (must be in possession of the buyer and seller). Registration of new title Starting from 30 December 2008, state registration is carried out by the Federal Service of State Registration, Cadastre and Cartography (Rosreestr) and its departments in the constituent territories of the Russian Federation where the respective real estate property is located. In addition to the documents obtained in accordance with procedures 1- 3, duly authorized representatives of the seller and the buyer must submit to the Moscow department of Rosreestr: • applications (standard form); • payment order(s) confirming payment of the state registration duty by the buyer; • title documents and ownership certificates of the seller in respect of each property; • corporate approvals of the sale and purchase transaction (if necessary in accordance with the Russian law and corporate documents of the RUB 15,000 parties); (building) + RUR 5 • 3 originals of the executed sale and purchase agreement. 30 days 15,000 (land plot State registration of the title transfer will include the following actions of transfer) Rosreestr: • receipt of the documents from the parties; • legal due diligence of the documents and of the validity of the transaction; • determination of absence of contradictions between rights to be state registered and rights that have already been registered as well as any other grounds for refusal or suspension of state registration; • making of entries in the Unified State Register of Rights to Real Estate and Transactions Therewith; and • placing of registration stamps on the sale and purchase agreement and issue of ownership certificates. The statutory term of state registration of any right and transaction is one month from date of the application and documents submission to Rosreestr. Departments of Rosreestr in different regions may issue orders establishing shorter terms of state registration of rights and transactions Doing Business 2012 Russian Federation 56 Time to No. Procedure Cost to complete complete with certain property. In Moscow the term of state registration of title transfer is one month for non-residential property and 12 days for residential property. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Russian Federation 57 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 Russian Federation 58 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Russian Federation stands at 98 in the collateral and bankruptcy laws in Russian Federation ranking of 183 economies on the ease of getting credit facilitate access to credit? The economy has a score of (figure 6.1). The rankings for comparator economies 5 on the depth of credit information index and a score and the regional average ranking provide other useful of 3 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 Russian Federation support lending and details). Higher scores indicate more credit information borrowing. and stronger legal rights for borrowers and lenders. Figure 6.1 How Russian Federation and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 Russian Federation 59 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how where institutions and regulations have been well the credit information system and collateral and strengthened—and where they have not (table 6.1). bankruptcy laws in Russian Federation support lending That can help identify where the potential for and borrowing today, data over time can help show improvement is greatest. Table 6.1 The ease of getting credit in Russian Federation over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 96 98 Strength of legal rights 3 3 3 3 3 3 3 3 index (0-10) Depth of credit 0 0 0 4 4 5 5 5 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 0.0 0.0 0.0 4.4 10.0 14.3 14.4 35.8 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 Russian Federation 60 GETTING CREDIT One way to put an economy‘s getting credit indicators index for Russian Federation in 2011 and shows the into context is to see where the economy stands in the number of other economies having the same score in distribution of scores across other economies. Figure 2011. Figure 6.3 shows the same thing for the depth of 6.2 highlights the score on the strength of legal rights credit 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 Russian Federation 61 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 Russian Federation (table 6.2)? Table 6.2 How has Russian Federation 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 Russian Federation 62 GETTING CREDIT What are the details? The getting credit indicators reported here for Russian The data on the legal rights of borrowers and lenders Federation are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a public well as public sources of information on collateral and credit registry or private credit bureau (if one exists). bankruptcy laws. For the strength of legal rights index, To 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 Russian Federation Russian Eastern Europe & Indicator OECD high income Federation Central Asia Strength of legal rights index (0-10) 3 7 7 Depth of credit information index (0-6) 5 5 5 Public registry coverage (% of adults) 0.0 16.2 9.5 Private bureau coverage (% of adults) 35.8 29.4 63.9 Strength of legal rights index (0–10) Index score: 3 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 No 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 No its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend No 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 No debtor defaults outside an insolvency procedure? Doing Business 2012 Russian Federation 63 Strength of legal rights index (0–10) Index score: 3 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No 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 No 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: 5 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 No No 0 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 115,403 0 Number of individuals 36,437,460 0 Source: Doing Business database. Doing Business 2012 Russian Federation 64 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 Russian Federation 65 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Russian protection index (figure 7.1). While the indicator does Federation? The economy has a score of 4.7 on the not measure all aspects related to the protection of strength of investor protection index, with a higher minority investors, a higher ranking does indicate that score indicating stronger protections (see the an economy‘s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, Russian Federation stands at 111 in the ranking of 183 economies on the strength of investor Figure 7.1 How Russian Federation and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 Russian Federation 66 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 Russian Federation 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 Russian Federation over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 108 111 Extent of disclosure 6 6 6 6 6 6 6 index (0-10) Extent of director 2 2 2 2 2 2 2 liability index (0-10) Ease of shareholder 6 6 6 6 6 6 6 suits index (0-10) Strength of investor 4.7 4.7 4.7 4.7 4.7 4.7 4.7 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 Russian Federation 67 PROTECTING INVESTORS But the overall ranking on the strength of investor director liability and ease of shareholder suits indices protection index tells only part of the story. Economies may also be revealing (figure 7.2). Equally interesting may offer strong protections in some areas but not may be the changes over time in the regional average others. So the scores recorded over time for Russian scores for those indices. Federation on the extent of disclosure, extent of Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 Russian Federation 68 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 Russian Federation 69 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 Russian Federation (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Russian Federation 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 Russian Federation 70 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for liability and ease of shareholder suits indices, a score is Russian Federation 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 Russian Federation. Summary of scoring for the protecting investors indicators in Russian Federation Russian Eastern Europe & Indicator OECD high income Federation Central Asia Extent of disclosure index (0-10) 6 7 6 Extent of director liability index (0-10) 2 4 5 Ease of shareholder suits index (0-10) 6 6 7 Strength of investor protection index (0-10) 4.7 5.7 6.0 Score Extent of disclosure index (0-10) 6 What corporate body provides legally sufficient approval for the transaction? 3 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 1 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 1 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 1 required? Whether an external body must review the terms of the transaction before it takes place? 0 Extent of director liability index (0-10) 2 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 0 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 1 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 0 Doing Business 2012 Russian Federation 71 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 0 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 0 Ease of shareholder suits index (0-10) 6 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 0 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 3 trial? Whether the plaintiff can request categories of documents from the defendant without 0 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) 4.7 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 Russian Federation 72 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 Russian Federation 73 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 Russian Federation 74 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 Russian Federation 75 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Russian Federation stands at 105 in the taxes in Russian Federation—and how much do firms ranking of 183 economies on the ease of paying taxes pay in taxes? On average, firms make 9 tax payments a (figure 8.1). The rankings for comparator economies year, spend 290 hours a year filing, preparing and and the regional average ranking provide other useful paying taxes and pay total taxes amounting to 8.9% of information for assessing the tax compliance burden profit (see the summary at the end of this chapter for for businesses in Russian Federation. details). Figure 8.1 How Russian Federation 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 Russian Federation 76 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed — and which easy (or difficult) it is to comply with tax rules in have not (table 8.1). That can help identify where the Russian Federation today, data over time show which potential for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Russian Federation over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 107 105 Payments (number per 14 10 10 10 10 10 9 year) Time (hours per year) 448 448 448 448 320 320 290 Total tax rate (% profit) 60.0 51.2 51.2 48.3 48.3 46.5 46.9 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 Russian Federation 77 PAYING TAXES Equally helpful may be the benchmarks provided by Federation on ways to ease the administrative burden the economies that today have the best performance of tax compliance. And changes in regional averages regionally or globally on the number of payments or can show where Russian Federation is keeping up— the time required to prepare and file taxes (figure 8.2). and where it is falling behind. These economies may provide a model for Russian Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 Russian Federation 78 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 Russian Federation 79 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. Russian Federation (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Russian Federation made paying taxes easier—or not? By Doing Business report year DB Year Reform Russia increased the social security contribution rate for DB2012 employers. DB2011 No reform. The corporate income tax rate was cut from 24 percent to 20 DB2010 percent. 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 Russian Federation 80 PAYING TAXES What are the details? The indicators reported here for Russian Federation that the company completed during the year. are 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 Russian Federation Russian Eastern Europe & Indicator OECD high income Federation Central Asia Payments (number per year) 9 37 13 Time (hours per year) 290 302 186 Profit tax (%) 8.9 9.3 15.4 Labor tax and contributions (%) 32.1 21.7 24.0 Other taxes (%) 5.8 9.5 3.2 Total tax rate (% profit) 46.9 40.4 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 gross Pension fund contribution 1 online filing 0 20.0% 22.6 salaries taxable Corporate income tax 1 online filing 130 20.0% 8.9 profits book value Property tax 1 online filing 0 2.2% 4.7 of property Social security fund gross 1 online filing 96 2.9% 3.3 contribution salaries 0.2% to gross Accidents tax 0 paid jointly 0 2.8 8.5% salaries Municipal obligatory gross medical insurance fund 0 paid jointly 0 2.0% 2.3 salaries contributions Doing Business 2012 Russian Federation 81 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 Federal obligatory medical gross insurance fund 0 paid jointly 0 1.1% 1.2 salaries contributions cadastral Land tax 1 online filing 0 0.3%-1.5% value of the 1 land plot engine various Transport tax 1 0 capacity of 0.1 rates vehicles Value Added Tax 1 online filing 64 18.0% value added 0 not included level of pollution Environmental tax 1 online filing 0 various rate (fuel 0 small amount consumptio n) various type of Stamp duty 1 0 0 small amount rates contract Totals 9 290 46.9 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 Russian Federation 82 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 Russian Federation 83 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Russian Globally, Russian Federation stands at 160 in the Federation? According to data collected by Doing ranking of 183 economies on the ease of trading Business, exporting a standard container of goods across borders (figure 9.1). The rankings for requires 8 documents, takes 36 days and costs $1850. comparator economies and the regional average Importing the same container of goods requires 10 ranking provide other useful information for assessing documents, takes 36 days and costs $1800 (see the how easy it is for a business in Russian Federation to summary of procedures and documents at the end of export and import goods. this chapter for details). Figure 9.1 How Russian Federation and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 Russian Federation 84 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to export or import in Russian (table 9.1). That can help identify where the potential Federation today, data over time show which aspects for improvement is greatest. Table 9.1 The ease of trading across borders in Russian Federation over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 166 160 Documents to export 9 9 9 9 9 9 8 (number) Time to export (days) 36 36 36 36 36 36 36 Cost to export (US$ per 1,800 1,800 1,800 1,900 1,900 1,900 1,850 container) Documents to import 11 11 11 11 11 11 10 (number) Time to import (days) 36 36 36 36 36 36 36 Cost to import (US$ per 1,750 1,750 1,750 1,850 1,850 1,850 1,800 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 Federation on ways to improve the ease of trading the economies that today have the best performance across borders. And changes in regional averages can regionally or globally on the documents, time or cost show where Russian Federation is keeping up—and required to export or import (figure 9.2). These where it is falling behind. economies may provide a model for Russian Doing Business 2012 Russian Federation 85 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 Russian Federation 86 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 Russian Federation 87 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 Russian Federation 88 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 Russian Federation (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Russian Federation made trading across borders easier—or not? By Doing Business report year DB Year Reform Russia made trading across borders easier by reducing the DB2012 number of documents needed for each export or import transaction and lowering the associated cost. 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 Russian Federation 89 TRADING ACROSS BORDERS What are the details? The indicators reported here for Russian Federation freight forwarders, shipping lines, customs brokers, are based on a set of specific procedural requirements port officials and banks. The procedural requirements, for 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 Russian Federation Russian Eastern Europe & Indicator OECD high income Federation Central Asia Documents to export (number) 8 7 4 Time to export (days) 36 27 10 Cost to export (US$ per container) 1850 1,774 1,032 Documents to import (number) 10 8 5 Time to import (days) 36 29 11 Cost to import (US$ per container) 1800 1,990 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 25 200 Customs clearance and technical control 3 500 Ports and terminal handling 3 250 Inland transportation and handling 5 900 Totals 36 1850 Procedures to import Time (days) Cost (US$) Documents preparation 25 150 Customs clearance and technical control 4 500 Ports and terminal handling 2 250 Inland transportation and handling 5 900 Totals 36 1800 Doing Business 2012 Russian Federation 90 TRADING ACROSS BORDERS Documents to export Documents to import Cargo release order Payment documents Inspection report Terminal handling receipts Packing list Commercial invoice Terminal handling receipts Contract Bill of lading Customs Cargo Declaration (CCD) Customs export declaration Customs import declaration Commercial invoice Inspection report Certificate of origin Packing list Bill of lading Cargo release order Doing Business 2012 Russian Federation 91 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 Russian Federation 92 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Russian Federation stands at 13 in the dispute through the courts in Russian Federation? ranking of 183 economies on the ease of enforcing According to data collected by Doing Business, contracts (figure 10.1). The rankings for comparator enforcing a contract requires 36 procedures, takes 281 economies and the regional average ranking provide days and costs 13.4% of the value of the claim (see the other useful benchmarks for assessing the efficiency of summary at the end of this chapter for details). contract enforcement in Russian Federation. Figure 10.1 How Russian Federation and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 Russian Federation 93 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how over time help identify which areas have changed and easy (or difficult) it is to enforce a contract in Russian where the potential for improvement is greatest (table Federation today, data on the underlying indicators 10.1). Table 10.1 The ease of enforcing contracts in Russian Federation over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 19 13 Time (days) 281 281 281 281 281 281 281 281 281 Cost (% of claim) 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 Procedures (number) 37 37 37 37 37 37 37 37 36 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 Russian Federation 94 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for Russian Federation on ways to improve the the economies that today have the best performance efficiency of contract enforcement. And changes in regionally or globally on the number of steps, time or regional averages can show where Russian Federation cost required to enforce a contract through the courts is keeping 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 Russian Federation 95 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 Russian Federation 96 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 Russian Federation introducing new technology. Lower-income economies (table 10.2)? often work on reducing backlogs by introducing Table 10.2 How has Russian Federation made enforcing contracts easier—or not? By Doing Business report year DB Year Reform Russia made filing a commercial case easier by introducing DB2012 an electronic case filing system. 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 Russian Federation 97 ENFORCING CONTRACTS What are the details? The indicators reported here for Russian Federation other court regulations, as well as through surveys are based on a set of specific procedural steps completed by local litigation lawyers (and, in a quarter required to resolve a standardized commercial dispute of the economies covered by Doing Business, by through the courts (see the section in this chapter on judges as well). The procedures for resolving a what the indicators cover). These procedures, and the commercial lawsuit, and the associated time and cost, time and cost of completing them, are identified are listed in the summary below. through study of the codes of civil procedure and Summary of procedures for enforcing a contract in Russian Federation—and the time and cost Russian Eastern Europe & Indicator OECD high income Federation Central Asia Time (days) 281 411.63 518.03 Filing and service 41 Trial and judgment 160 Enforcement of judgment 80 Cost (% of claim) 13.4 27.33 19.71 Attorney cost (% of claim) 10 Court cost (% of claim) 3.4 Enforcement Cost (% of claim) 0 Procedures (number) 36 37.29 31.42 Source: Doing Business database. Doing Business 2012 Russian Federation 98 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 Russian Federation 99 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, Russian Federation stands at 60 in the characterize the top-performing economies. How ranking of 183 economies on the ease of resolving efficient are insolvency proceedings in Russian insolvency (figure 11.1). The rankings for comparator Federation? According to data collected by Doing economies and the regional average ranking provide Business, resolving insolvency takes 2.0 years on other useful benchmarks for assessing the efficiency of average and costs 9% of the debtor‘s estate. The insolvency proceedings in Russian Federation. average recovery rate is 41.5 cents on the dollar. Figure 11.1 How Russian Federation and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 Russian Federation 100 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the efficiency has changed—and where it has not (table efficiency of insolvency proceedings in Russian 11.1). That can help identify where the potential for Federation today, data over time show where the improvement is greatest. Table 11.1 The ease of resolving insolvency in Russian Federation over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 60 60 Time (years) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Cost (% of estate) 9 9 9 9 9 9 9 9 9 Recovery rate (cents on 38.9 40.0 41.1 42.0 42.2 41.6 41.6 39.3 41.5 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 Russian Federation 101 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by Federation on ways to improve the efficiency of the economies that today have the best performance insolvency proceedings. And changes in regional regionally or globally on the time or cost of insolvency averages can show where Russian Federation is proceedings or on the recovery rate (figure 11.2). keeping up—and where it is falling behind. These economies may provide a model for Russian Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 Russian Federation 102 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 Russian Federation 103 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Russian Federation (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Russian Federation made resolving insolvency easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. Russia introduced a series of legislative measures in 2009 to DB2011 improve creditor rights and the insolvency system. Several changes were introduced to the insolvency law to DB2010 speed up liquidation and strengthen the legal status of secured creditors. 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 Russian Federation 104 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 Russian Federation 105 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 Russian Federation 106 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 Russian Federation 107 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 Russian Federation 108 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 Russian Federation 109 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 Russian Federation 110