65622 Regional Profile: Eastern Europe and Central Asia (ECA) © 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 3 CONTENTS Introduction ......................................................................................................................................................................4 The business environment..............................................................................................................................................5 Starting a business........................................................................................................................................................ 11 Dealing with construction permits ............................................................................................................................ 22 Getting electricity ......................................................................................................................................................... 31 Registering property .................................................................................................................................................... 36 Getting credit ................................................................................................................................................................ 45 Protecting investors ..................................................................................................................................................... 52 Paying taxes ................................................................................................................................................................... 61 Trading across borders ................................................................................................................................................ 71 Enforcing contracts....................................................................................................................................................... 82 Resolving insolvency .................................................................................................................................................... 89 Data notes ...................................................................................................................................................................... 97 Resources on the Doing Business website .............................................................................................................. 101 Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is data in this report are current as of June 1, 2011 for a local entrepreneur to open and run a small to (except for the paying taxes indicators, which cover the medium-size business when complying with relevant period January–December 2010). regulations. It measures and tracks changes in The Doing Business methodology has limitations. Other regulations affecting 10 areas in the life cycle of a areas important to business—such as an economy’s business: starting a business, dealing with construction proximity to large markets, the quality of its permits, getting electricity, registering property, infrastructure services (other than those related to getting credit, protecting investors, paying taxes, trading across borders and getting electricity), the trading across borders, enforcing contracts and security of property from theft and looting, the resolving insolvency. transparency of government procurement, In a series of annual reports Doing Business presents macroeconomic conditions or the underlying strength quantitative indicators on business regulations and the of institutions—are not directly studied by Doing protection of property rights that can be compared Business. The indicators refer to a specific type of across 183 economies, from Afghanistan to Zimbabwe, business, generally a local limited liability company over time. The data set covers 46 economies in Sub- operating in the largest business city. Because Saharan Africa, 32 in Latin America and the Caribbean, standard assumptions are used in the data collection, 24 in East Asia and the Pacific, 24 in Eastern Europe comparisons and benchmarks are valid across and Central Asia, 18 in the Middle East and North economies. The data not only highlight the extent of Africa and 8 in South Asia, as well as 31 OECD high- obstacles to doing business; they also help identify the income economies. The indicators are used to analyze source of those obstacles, supporting policy makers in economic outcomes and identify what reforms have designing regulatory reform. worked, where and why. More information is available in the full report. Doing This regional profile presents the Doing Business Business 2012 presents the indicators, analyzes their indicators for Eastern Europe and Central Asia (ECA). It relationship with economic outcomes and also shows the regional average, the best performance recommends regulatory reforms. The data, along with globally for each indicator and data for the following information on ordering the Doing Business 2012 comparator regions: European Union (EU), Latin report, are available on the Doing Business website at America, East Asia and the Pacific (EAP), Middle East http://www.doingbusiness.org. and North Africa (MENA) and OECD high income. The Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s The ranking on each topic is the simple average of regulatory environment for business, a good place to the percentile rankings on its component 1 start is to find out how it compares with the indicators (see the data notes for more details). regulatory environment in other economies. Doing The aggregate ranking on the ease of doing Business provides an aggregate ranking on the ease business benchmarks each economy’s of doing business based on indicator sets that performance on the indicators against that of all measure and benchmark regulations applying to other economies in the Doing Business sample domestic small to medium-size businesses through (figure 1.1). While this ranking tells much about their life cycle. Economies are ranked from 1 to 183 the business environment in an economy, it does by the ease of doing business index. For each not tell the whole story. The ranking on the ease of economy the index is calculated as the ranking on the doing business, and the underlying indicators, do simple average of its percentile rankings on each of not measure all aspects of the business the 10 topics included in the index in Doing Business environment that matter to firms and investors or 2012: starting a business, dealing with construction that affect the competitiveness of the economy. permits, getting electricity, registering property, Still, a high ranking does mean that the getting credit, protecting investors, paying taxes, government has created a regulatory environment trading across borders, enforcing contracts and conducive to operating a business. resolving insolvency. Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 6 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy stands regional average (figure 1.2). Another perspective is in the aggregate ranking on the ease of doing business is provided by the regional average rankings on the topics useful. Also useful is to know how it ranks compared with included in the ease of doing business index (figure 1.3). other economies in the region and compared with the Figure 1.2 How economies in Eastern Europe and Central Asia (ECA) rank on the ease of doing business *The economy with the best performance globally is included as a benchmark. In some cases 2 or more economies share the top ranking on an indicator. Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 7 THE BUSINESS ENVIRONMENT Figure 1.3 How Eastern Europe and Central Asia (ECA) ranks on Doing Business topics Regional average ranking Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 8 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing The absolute values of the indicators tell another part business tells only part of the story, so do changes in of the story (table 1.1). Policy makers can learn much that ranking. Yearly movements in rankings can by comparing the indicators for their economy with provide some indication of changes in an economy’s those for the lowest- and highest-scoring economies regulatory environment for firms, but they are always in the region as well as those for the best performers relative. An economy’s ranking might change because globally. These comparisons may reveal unexpected of developments in other economies. An economy that strengths in an area of business regulation—such as a implemented business regulation reforms may fail to regulatory process that can be completed with a small rise in the rankings (or may even drop) if it is passed number of procedures in a few days and at a low cost. by others whose business regulation reforms had a more significant impact as measured by Doing Business. Table 1.1 Summary of Doing Business indicators for Eastern Europe and Central Asia (ECA) Lowest regional Best regional Best global Indicator Regional average performance performance performance Starting a Business 168 (Kosovo) 6 (Macedonia, FYR) 65 1 (New Zealand) (rank) 12 (Bosnia and Procedures (number) 2 (Georgia)* 6 1 (Canada)* Herzegovina) Time (days) 58 (Kosovo) 2 (Georgia) 16 1 (New Zealand) Cost (% of income per 33.3 (Tajikistan) 0.8 (Kazakhstan) 8.3 0 (Denmark)* capita) Paid-in Min. Capital (% 104.6 (Kosovo) 0.0 (Georgia)* 10.0 (82 Economies*) of income per capita) Dealing with 1 (Hong Kong SAR, Construction Permits 180 (Ukraine) 4 (Georgia) 127 China) (rank) Procedures (number) 51 (Russian Federation) 9 (Georgia)* 20 5 (Denmark) Time (days) 677 (Cyprus) 74 (Georgia) 238 26 (Singapore)* Cost (% of income per 1,603.8 (Serbia) 20.2 (Georgia) 440.8 1.1 (Qatar) capita) Getting Electricity 183 (Russian Federation) 56 (Croatia) 129 1 (Iceland) (rank) Procedures (number) 11 (Ukraine) 4 (Serbia) 7 3 (Germany)* Time (days) 337 (Kyrgyz Republic) 60 (Kosovo) 168 17 (Germany) Cost (% of income per 2,545.6 (Kyrgyz 63.3 (Lithuania) 751.2 0 (Japan) capita) Republic) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 9 Lowest regional Best regional Best global Indicator Regional average performance performance performance Registering Property 166 (Ukraine) 1 (Georgia) 60 3 (New Zealand) (rank) Procedures (number) 12 (Uzbekistan) 1 (Georgia) 6 1 (Portugal)* Time (days) 117 (Ukraine) 2 (Georgia) 33 1 (Portugal) Cost (% of property 11.9 (Albania) 0.0 (Belarus) 2.8 0 (Slovak Republic) value) Getting Credit (rank) 177 (Tajikistan) 4 (Latvia) 51 1 (United Kingdom)* Strength of legal rights 2 (Uzbekistan)* 10 (Latvia)* 7 10 (New Zealand)* index (0-10) Depth of credit 3 (Uzbekistan) 6 (Georgia)* 5 6 (Japan)* information index (0-6) Public registry coverage 5.0 (Uzbekistan) 59.7 (Latvia) 16.2 86.2 (Portugal) (% of adults) Private bureau coverage 3.0 (Moldova) 100.0 (Croatia)* 29.5 100 (New Zealand)* (% of adults) Protecting Investors 174 (Kosovo) 10 (Kazakhstan) 68 1 (New Zealand) (rank) Extent of disclosure 1 (Croatia) 10 (Bulgaria) 7 10 (France)* index (0-10) Extent of director 1 (Uzbekistan)* 9 (Albania) 4 9 (Singapore)* liability index (0-10) Ease of shareholder 3 (Kosovo)* 9 (Kazakhstan) 6 10 (New Zealand)* suits index (0-10) Strength of investor 2.7 (Kosovo) 8.0 (Kazakhstan) 5.7 9.7 (New Zealand) protection index (0-10) Paying Taxes (rank) 181 (Ukraine) 13 (Kazakhstan) 99 8 (Canada) Payments (number per 135 (Ukraine) 4 (Georgia) 37 4 (Norway) year) Time (hours per year) 657 (Ukraine) 119 (Macedonia, FYR) 302 59 (Luxembourg) Trading Across 183 (Uzbekistan) 15 (Latvia) 105 1 (Singapore) Borders (rank) Documents to export 11 (Tajikistan) 4 (Georgia) 7 2 (France) (number) 5 (Hong Kong SAR, Time to export (days) 82 (Tajikistan) 7 (Cyprus) 27 China)* Cost to export (US$ per 3850 (Tajikistan) 600 (Latvia) 1774 450 (Malaysia) container) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 10 Lowest regional Best regional Best global Indicator Regional average performance performance performance Documents to import 12 (Kazakhstan) 4 (Georgia) 8 2 (France) (number) Time to import (days) 92 (Uzbekistan) 5 (Cyprus) 29 4 (Singapore) Cost to import (US$ per 4650 (Uzbekistan) 730 (Albania) 1990 435 (Malaysia) container) Enforcing Contracts 157 (Kosovo) 13 (Russian Federation) 61 1 (Luxembourg) (rank) Time (days) 735 (Cyprus) 195 (Uzbekistan) 412 150 (Singapore) 13.4 (Russian Cost (% of claim) 61.2 (Kosovo) 27.3 0.1 (Bhutan) Federation) Procedures (number) 53 (Kosovo) 27 (Latvia) 37 21 (Ireland)* Resolving Insolvency 156 (Ukraine) 23 (Cyprus) 81 1 (Japan) (rank) Time (years) 5.8 (Belarus) 1.5 (Lithuania)* 2.7 0.4 (Ireland) Cost (% of estate) 42 (Ukraine) 4 (Georgia) 13 1 (Singapore)* Recovery rate (cents on 8.9 (Ukraine) 70.8 (Cyprus) 35.8 92.7 (Japan) 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. * 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 11 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for INDICATORS MEASURE business owners and employees. Legal entities can 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 No prior contact with officials formally operate an industrial or commercial 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 Official costs only, no bribes deposit before registration (or within 3 months). 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 Paid-in minimum capital (% of income and paid-in minimum capital requirement. per capita) To make the data comparable across economies, Deposited in a bank or with a notary before Doing Business uses several assumptions about the registration (or within 3 months) business and the procedures. It assumes that all information is readily available to the entrepreneur • Conducts general commercial or industrial and that there has been no prior contact with activities. officials. It also assumes that all government and • Has a start-up capital of 10 times income per nongovernment entities involved in the process capita. function without corruption. And it assumes that the business: • Has a turnover of at least 100 times income per capita. • Is a limited liability company, located in the largest business city. • Does not qualify for any special benefits. • Has between 10 and 50 employees. • Does not own real estate. • Is 100% domestically owned. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 12 STARTING A BUSINESS Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in the ease of starting a business suggest an answer Eastern Europe and Central Asia (ECA) to start a (figure 2.1). The average ranking of the region and business? The global rankings of these economies on comparator regions provide a useful benchmark. Figure 2.1 How economies in Eastern Europe and Central Asia (ECA) rank on the ease of starting a business Source: Doing Business database. The indicators underlying the rankings may be more and the paid-in minimum capital requirement (figure revealing. Data collected by Doing Business show what 2.2). Comparing these indicators across the region and it takes to start a business in each economy in the with averages both for the region and for comparator region: the number of procedures, the time, the cost regions can provide useful insights. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 13 STARTING A BUSINESS Figure 2.2 What it takes to start a business in economies in Eastern Europe and Central Asia (ECA) Procedures (number) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 14 STARTING A BUSINESS Time (days) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 15 STARTING A BUSINESS Cost (% of income per capita) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 16 STARTING A BUSINESS Paid-in minimum capital (% of income per capita) Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 17 STARTING A BUSINESS What are the changes over time? Economies around the world have taken steps making satisfaction and savings and more registered it easier to start a business—streamlining procedures businesses, financial resources and job opportunities. by setting up a one-stop shop, making procedures What business registration reforms has Doing Business simpler or faster by introducing technology, and recorded in Eastern Europe and Central Asia (ECA) reducing or eliminating minimum capital requirements. (table 2.1)? Many have undertaken business registration reforms in stages—and often as part of a larger regulatory reform program. Among the benefits have been greater firm Table 2.1 How have economies in Eastern Europe and Central Asia (ECA) made starting a business easier— or not? By Doing Business report year DB Year Economy Reform Armenia made starting a business easier by establishing a one-stop shop that merged the procedures for name DB2012 Armenia reservation, business registration and obtaining a tax identification number and by allowing for online company registration. Bosnia and Herzegovina made starting a business easier by replacing the required utilization permit with a simple DB2012 Bosnia and Herzegovina notification of commencement of activities and by streamlining the process for obtaining a tax identification number. Georgia simplified business start-up by eliminating the DB2012 Georgia requirement to visit a bank to pay the registration fees. Latvia made starting a business easier by reducing the DB2012 Latvia minimum capital requirement and introducing a common application for value added tax and company registration. Moldova made starting a business easier by implementing a DB2012 Moldova one-stop shop. Romania made starting a business more difficult by requiring DB2012 Romania a tax clearance certificate for a new company’s headquarters before company registration. Tajikistan made starting a business easier by allowing entrepreneurs to pay in their capital up to 1 year after the DB2012 Tajikistan start of operations, thereby eliminating the requirements related to opening a bank account. Turkey made starting a business less costly by eliminating DB2012 Turkey notarization fees for the articles of association and other documents. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 18 DB Year Economy Reform Ukraine made starting a business easier by eliminating the DB2012 Ukraine requirement to obtain approval for a new corporate seal. Uzbekistan made starting a business easier by reducing the DB2012 Uzbekistan minimum capital requirement, eliminating 1 procedure and reducing the cost of registration. Montenegro made starting a business easier by DB2012 Montenegro implementing a one-stop shop. Bulgaria eased business start-up by reducing the minimum DB2011 Bulgaria capital requirement from 5,000 leva ($3,250) to 2 leva ($1.30). Croatia eased business start-up by allowing limited liability DB2011 Croatia companies to file their registration application with the court registries electronically through the notary public. Kazakhstan eased business start-up by reducing the minimum capital requirement to 100 tenge ($0.70) and eliminating the DB2011 Kazakhstan need to have the memorandum of association and company charter notarized. The Kyrgyz Republic eased business start-up by eliminating DB2011 Kyrgyz Republic the requirement to have the signatures of company founders notarized. Lithuania tightened the time limit for completing the DB2011 Lithuania registration of a company. FYR Macedonia made it easier to start a business by further DB2011 Macedonia, FYR improving its one-stop shop. Tajikistan made starting a business easier by creating a one- DB2011 Tajikistan stop shop that consolidates registration with the state and the tax authority. Ukraine eased business start-up by substantially reducing the DB2011 Ukraine minimum capital requirement. Montenegro eliminated several procedures for business start- DB2011 Montenegro up by introducing a single registration form for submission to the tax administration. Kosovo made business start-up more difficult by replacing the tax number previously required with a “fiscal number,� DB2011 Kosovo which takes longer to issue and requires the tax administration to first inspect the business premises. Business start-up was eased by making registration electronic, enhancing the registry’s capacity, reducing the minimum DB2010 Albania capital requirement from ALL 100 000 to ALL 100, and eliminating the requirement to register at the Chamber of Commerce. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 19 DB Year Economy Reform Business start-up was eased by removing the minimum capital requirement and the need to obtain an approval from DB2010 Armenia the national police department to prepare the company seal, and by making registration forms available online. Business start-up was eased by simplifying registration formalities, abolishing the minimum capital requirement, DB2010 Belarus limiting the role of notaries, and removing the need for a company seal approval. Business start-up was made easier by reducing the paid-in minimum capital requirement to about 24 percent of gross DB2010 Bulgaria national income per capita and making the company registry more efficient. Business start-up was made easier by simplifying DB2010 Kazakhstan documentation requirements and abolishing the requirement to register at the local tax office. Business start-up was eased by eliminating the minimum capital requirement, reducing the registration time, and DB2010 Kyrgyz Republic abolishing various post-registration fees and the need to open a bank account before registration. Business start-up was simplified by integrating procedures at DB2010 Macedonia, FYR a one-stop shop. Business start-up was eased by implementing an expedited DB2010 Moldova company registration service. Business start-up was eased by reducing the minimum capital DB2010 Tajikistan requirement and shortening the time to obtain a tax identification number. Business start-up was eased by creating a one-stop shop for DB2010 Serbia company registration. Business start-up was eased by simplifying post-registration, including registration for taxes, social security, and DB2010 Montenegro employment, as well as the process of obtaining a municipal license. Starting a business became easier with online publication, reduction of the registration cost, and the consolidation of DB2009 Albania tax, health insurance, and labor registration into a single application. The country created a one-stop shop for company DB2009 Azerbaijan registration, cutting the number of procedures and reducing the time required to start a business. Starting a business became easier: a unified registry database DB2009 Belarus was created, a time limit was introduced for registration, and the minimum capital requirement was cut by half. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 20 DB Year Economy Reform Business start-up was made easier by creating a central electronic database for commercial registration. This reform DB2009 Bulgaria consolidated and reduced the number of registration procedures and cut other registration formalities. Amendments to the Law on Entrepreneurs made it easier to start a company by eliminating the requirements for a DB2009 Georgia minimum capital, a company seal, and a company charter and by making the use of notaries optional. A new one-stop shop made it easier to start a business by streamlining and simplifying business registration processes DB2009 Kyrgyz Republic and eliminating certain requirements such as proof of residence. Obtaining a company seal became optional. The one-stop shop system was updated to carry out the full DB2009 Macedonia, FYR range of business start-up processes, reducing both the number of procedures and the time required. New laws on limited liability companies and company registration sped business registration by introducing DB2009 Moldova statutory time limits. The time required to file an application with the State Registration Chamber was reduced. The requirement to obtain approval of the company seal DB2008 Azerbaijan design by the Ministry of Justice was abolished. A one-stop shop was implemented combining company registration, seal design approval, and registrations with tax, DB2008 Belarus statistical and social security authorities. This, together with a new notary fee schedule, results in a reduction in the number of procedures, the time, and cost to start a business The time and procedures for starting a business were lowered DB2008 Croatia by enhancing the services through better implementation of the one-stop shop. Pursuant to amendments to the Georgian law on entrepreneurs, tax authorities are now responsible for state DB2008 Georgia and tax registration. In addition, the paid-in capital requirement was abolished. The country eliminated the paid-in minimum capital DB2008 Macedonia, FYR requirement and is working on online registration system for business start-up. The license regime was simplified, reducing the number of DB2008 Tajikistan business activities subject to government approval. One procedure was cut and time was reduced. Substantive review at the registry was eliminated, internal proceedings were simplified and clear rules for refusal of DB2008 Uzbekistan registration were established. Social insurance registration can now be done in a one-stop shop within 1 working day. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 21 Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 22 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 is better off. Completing all required notifications and 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 can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking on the ease of dealing with Does not include time spent gathering construction permits is the simple average of the information percentile rankings on its component indicators: Each procedure starts on a separate day procedures, time and cost. Procedure completed once final document is To make the data comparable across economies, received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of income per capita) • Is a limited liability company operating in Official costs only, no bribes the construction business and located in • Will be connected to water, sewerage the largest business city. (sewage system, septic tank or their • Is domestically owned and operated. equivalent) and a fixed telephone line. The connection to each utility network will be 10 • Has 60 builders and other employees. meters (32 feet, 10 inches) long. The warehouse: • Will be used for general storage, such as of • Is a new construction (there was no books or stationery (not for goods requiring previous construction on the land). special conditions). • Has complete architectural and technical • Will take 30 weeks to construct (excluding all plans prepared by a licensed architect. delays due to administrative and regulatory requirements). Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 23 DEALING WITH CONSTRUCTION PERMITS Where do the region’s economies stand today? How easy it is for entrepreneurs in economies in suggest an answer (figure 3.1). The average ranking of Eastern Europe and Central Asia (ECA) to legally build a the region and comparator regions provide a useful warehouse? The global rankings of these economies benchmark. on the ease of dealing with construction permits Figure 3.1 How economies in Eastern Europe and Central Asia (ECA) rank on the ease of dealing with construction permits Source: Doing Business database. The indicators underlying the rankings may be more of procedures, the time and the cost (figure 3.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to comply with formalities to build a averages both for the region and for comparator warehouse in each economy in the region: the number regions can provide useful insights. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 24 DEALING WITH CONSTRUCTION PERMITS Figure 3.2 What it takes to comply with formalities to build a warehouse in economies in Eastern Europe and Central Asia (ECA) Procedures (number) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 25 DEALING WITH CONSTRUCTION PERMITS Time (days) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 26 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? Smart regulation ensures that standards are met while worked on consolidating permitting requirements. making compliance easy and accessible to all. What construction permitting reforms has Doing Coherent and transparent rules, efficient processes and Business recorded in Eastern Europe and Central Asia adequate allocation of resources are especially (ECA) (table 3.1)? important in sectors where safety is at stake. Construction is one of them. In an effort to ensure building safety while keeping compliance costs reasonable, governments around the world have Table 3.1 How have economies in Eastern Europe and Central Asia (ECA) made dealing with construction permits easier—or not? By Doing Business report year DB Year Economy Reform In Albania dealing with construction permits became more DB2012 Albania difficult because the main authority in charge of issuing building permits has not met since April 2009. Armenia made dealing with construction permits easier by DB2012 Armenia eliminating the requirement to obtain an environmental impact assessment for small projects. Bosnia and Herzegovina made dealing with construction DB2012 Bosnia and Herzegovina permits easier by fully digitizing and revamping its land registry and cadastre. FYR Macedonia made dealing with construction permits DB2012 Macedonia, FYR easier by transferring oversight processes to the private sector and streamlining procedures. Croatia replaced the location permit and project design DB2011 Croatia confirmation with a single certificate, simplifying and speeding up the construction permitting process. Kazakhstan made dealing with construction permits easier by DB2011 Kazakhstan implementing a one-stop shop related to technical conditions for utilities. Romania amended regulations related to construction DB2011 Romania permitting to reduce fees and expedite the process. Russia eased construction permitting by implementing a DB2011 Russian Federation single window for all procedures related to land use. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 28 DB Year Economy Reform Ukraine made dealing with construction permits easier by DB2011 Ukraine implementing national and local regulations that streamlined procedures. Uzbekistan increased all fees for procedures relating to DB2011 Uzbekistan construction permits. Belarus eased the process for getting construction permits DB2010 Belarus by simplifying approval processes. The building permit system was improved by reducing the DB2010 Bosnia and Herzegovina time to register a new building at the courts and land cadastre. The process for getting construction permits was eased by DB2010 Croatia opening a one-stop shop and through enforcement of the building code. The process for dealing with construction permits was eased by introducing a simplified process for obtaining DB2010 Georgia confirmation from utilities, a risk-based approval process for building permits, and new time limits for the occupancy certificate. The process for getting construction permits was eased by eliminating the requirement to pay for new electrical DB2010 Kazakhstan connection, reducing time limits for building permits, and lowering the cost of topographic surveys. The process for getting construction permits by streamlining the fee structure, introducing a risk-based system of DB2010 Kyrgyz Republic approval and building control, allowing low-risk projects to conduct an internal building control process, and simplifying the process for obtaining utility connections. The construction permit process has been reformed, DB2010 Macedonia, FYR shortening waiting times but raising fees. Construction permit costs rose because of a new fee equal to DB2010 Romania 0.05 percent of the project value. Changes were introduced that simplified the construction DB2010 Tajikistan permit process, reducing procedures and time. DB2010 Uzbekistan A presidential resolution reduced building permit fees. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 29 DB Year Economy Reform The process for construction permits was improved with a new construction law that eliminated procedures, provided new mechanisms for permit approval and building control DB2010 Montenegro processes in general, and introduced a risk-based approval system that assigns control for small projects to municipalities. The cost to obtain construction permits in Yerevan was DB2009 Armenia significantly reduced by abolishing “mandatory charitable contributions� paid to obtain the right to design. The time required for dealing with construction permits fell DB2009 Belarus by 140 days, thanks to new statutory time limits for preapproval clearances and building permits. The reform at the Land Registry has benefited entrepreneurs dealing with construction permits, reducing the time to DB2009 Bosnia and Herzegovina obtain a cadastre excerpt before construction and to register the newly completed building in the cadastre and land book. Dealing with construction permits has become more difficult. The fees for obtaining construction permits were increased by about 16 percent in 2008. Stricter environmental DB2009 Bulgaria requirements mean that companies in Sofia now have to obtain a certificate of energy efficiency before and after construction. A new building code came into force in October 2007 and made it easier to deal with construction permits by DB2009 Croatia eliminating five procedures. Even so, the reform led to an administrative backlog for building and occupancy permits, increasing the overall time. Dealing with construction permits also became easier, thanks to a one-stop shop making it possible to obtain a designing permit, construction license, and occupancy permit at a DB2009 Kyrgyz Republic single place. This reform eliminated several procedures, reduced the time required to build a warehouse, and lowered the cost. Administrative backlogs in obtaining location permits DB2009 Tajikistan increased the time for dealing with construction permits. The cost and time for dealing with construction permits increased. All new construction projects are now subject to DB2009 Ukraine an infrastructure tax. And an administrative backlog has increased the time. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 30 DB Year Economy Reform An administrative backlog at the Belgrade Municipality’s DB2009 Serbia Construction Department added 75 days to the time for obtaining construction permits. Obtaining construction permits takes longer compared to last year. Stricter compliance requirements introduced to DB2009 Montenegro conform with EU best practices led to an administrative backlog, increasing the time to build a warehouse. In the construction sector, inspections were made more DB2008 Bulgaria transparent and liabilities are from now on more clearly defined after technical passports were introduced this year. The regulation of construction permits was reformed. The procedure for occupancy certificates was simplified (abandoning the need for a special commission), and time DB2008 Georgia limits shortened (from 45 to 30). Water utility and electricity providers can now be approached as one administrative body, and project documentation was made easier. The time to obtain a construction license was decreased DB2008 Macedonia, FYR through administrative reform of the Real Estate Registry. Since July 2006, the Moscow Committee for State Construction supervision is responsible for both construction permits and technical compliance. A new law requires the building authority to issue permits within 10 days from the receipt of all documents. A simple notification replaced the DB2008 Russian Federation former requirement of a second formal authorization to begin construction after the construction permit has been granted. Companies are now required to purchase a license for connection to the electricity network, a measure to offset high demand, but resulted in a substantial increase in cost. 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 31 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 Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information • Is located in the economy’s largest Reflects the time spent in practice, with little business city, in an area where other follow-up and no prior contact with officials warehouses are located. Cost required to complete each procedure (% • Is not in a special economic zone where of income per capita) the connection would be eligible for 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 • Has 2 stories, both above ground, with a overhead or underground, whichever is more total surface of about 1,300.6 square common in the economy and in the area meters (14,000 square feet), and is built on where the warehouse is located. The length a plot of 929 square meters (10,000 square of any connection in the customer’s private feet). domain is 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 32 GETTING ELECTRICITY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in an answer (figure 4.1). The average ranking of the Eastern Europe and Central Asia (ECA) to connect a region and comparator regions provide a useful warehouse to electricity? The global rankings of these benchmark. economies on the ease of getting electricity suggest Figure 4.1 How economies in Eastern Europe and Central Asia (ECA) rank on the ease of getting electricity Source: Doing Business database. The indicators underlying the rankings may be more time and the cost (figure 4.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to get a new electricity connection in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 33 GETTING ELECTRICITY Figure 4.2 What it takes to get an electricity connection in economies in Eastern Europe and Central Asia (ECA) Procedures (number) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 34 GETTING ELECTRICITY Time (days) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 35 GETTING ELECTRICITY Cost (% of income per capita) Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 36 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 property title to the buyer’s name. The transaction the municipality) 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 resell it. The ranking on the ease of registering Does not include time spent gathering property is the simple average of the percentile information rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is To make the data comparable across economies, received several assumptions about the parties to the transaction, the property and the procedures are No prior contact with officials used. Cost required to complete each procedure The parties (buyer and seller): (% of property value) • Are limited liability companies, 100% Official costs only, no bribes domestically and privately owned. No value added or capital gains taxes included • Are located in the periurban area of the economy’s largest business city. • Have 50 employees each, all of whom are nationals. • Has no mortgages attached and has been under the same ownership for the past 10 • Perform general commercial activities. years. The property (fully owned by the seller): • Consists of 557.4 square meters (6,000 square • Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000 square feet). The warehouse is in good • Is registered in the land registry or condition and complies with all safety cadastre, or both, and is free of title standards, building codes and legal disputes. requirements. The property will be transferred • Is located in a periurban commercial zone, in its entirety. and no rezoning is required. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 37 REGISTERING PROPERTY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in the ease of registering property suggest an answer Eastern Europe and Central Asia (ECA) to transfer (figure 5.1). The average ranking of the region and property? The global rankings of these economies on comparator regions provide a useful benchmark. Figure 5.1 How economies in Eastern Europe and Central Asia (ECA) rank on the ease of registering property Source: Doing Business database. The indicators underlying the rankings may be more time and the cost (figure 5.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to complete a property transfer in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 38 REGISTERING PROPERTY Figure 5.2 What it takes to register property in economies in Eastern Europe and Central Asia (ECA) Procedures (number) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 39 REGISTERING PROPERTY Time (days) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 40 REGISTERING PROPERTY Cost (% of property value) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 41 REGISTERING PROPERTY What are the changes over time? Economies worldwide have been making it easier for buyers to use or mortgage their property earlier. What entrepreneurs to register and transfer property—such property registration reforms has Doing Business as by computerizing land registries, introducing time recorded in Eastern Europe and Central Asia (ECA) limits for procedures and setting low fixed fees. Many (table 5.1)? have cut the time required substantially—enabling Table 5.1 How have economies in Eastern Europe and Central Asia (ECA) made registering property easier—or not? By Doing Business report year DB Year Economy Reform Albania made property registration easier by setting time DB2012 Albania limits for the land registry to register a title. Belarus simplified property transfer by doing away with the DB2012 Belarus requirement to obtain the municipality’s approval for transfers of most commercial buildings in Minsk. Latvia made transferring property easier by allowing electronic access to municipal tax databases that show the tax DB2012 Latvia status of property, eliminating the requirement to obtain this information in paper format. FYR Macedonia made registering property easier by reducing DB2012 Macedonia, FYR notary fees and enforcing time limits. Russia made registering property transfers easier by DB2012 Russian Federation eliminating the requirement to obtain cadastral passports on land plots. Serbia made transferring property quicker by offering an DB2012 Serbia expedited option. Bosnia and Herzegovina reduced delays in property DB2011 Bosnia and Herzegovina registration at the land registry in Sarajevo. Property registration continues to improve, with faster DB2010 Belarus processing and elimination of the requirement for notarization. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 42 DB Year Economy Reform An integrated Web-based property register providing online DB2010 Bulgaria access to the ownership and cadastre status of properties shortened the time required to register property. Surveying and notarization requirements were made optional DB2010 Kyrgyz Republic for property registration. Registering property is easier due to simplified procedures, DB2010 Latvia including allowing payment of registration fees and stamp duties at the land registry. Property registration was eased with the introduction of new time limits at the real estate cadastre—reducing the average DB2010 Macedonia, FYR time to register a title deed by eight days—and a non- encumbrance certificate can now be obtained from the real estate registry instead of through the court. Property registration was simplified by eliminating the DB2010 Moldova requirement for a cadastral sketch, reducing procedures from six to five and days from 48 to 5. Property registration was expedited with the introduction of DB2010 Romania new procedures at the land registry and cadastre. Property registration was expedited by introducing new DB2010 Russian Federation documentation requirements—such as cadastral passports— in lieu of inventory documents and cadastral maps. The state duty for property transfer has quadrupled, raising DB2010 Tajikistan the cost of registering property by 2.8 percent of a property’s value. A new unified property registry was introduced, reducing the DB2009 Azerbaijan number of procedures required to register property. A one-stop shop for property registration was created and a broad administrative simplification program was introduced DB2009 Belarus that set strict time limits at the registry and computerized its records. The computerization of files at the Land Registry in Sarajevo DB2009 Bosnia and Herzegovina has sped property registration. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 43 DB Year Economy Reform A new online business registry makes it easier to register property by eliminating the requirement for legal entities to DB2009 Georgia obtain several preregistration documents. This reduced the number of procedures required to transfer a title, and the time to do so. Registration fees were also reduced. A new law introduced substantial changes to the property registration system, creating a unified registry for all land and buildings and establishing public service centers to handle DB2009 Kazakhstan property transactions in major cities. The law also eliminated requirements, reducing the number of procedures and the time. The State Land Service sped the registration of property by introducing an online database that allows registry DB2009 Latvia employees to check the cadastral value of the real estate. That reduced the number of procedures and the total time to register property. Registering property was made easier by merging the procedure for obtaining the certificate of transaction with the DB2009 Lithuania notarization procedure. The reform reduced the number of procedures. A new cadastre law and a staff increase at the cadastre office DB2009 Macedonia, FYR helped to reduce the time needed to register property. The property transfer tax was reduced from 5 percent of the DB2009 Serbia property value to 2.5 percent. Property registration time has been reduced gradually due to DB2008 Croatia ongoing reforms at the Land Registry. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 44 DB Year Economy Reform The revised Civil Code of Georgia , issued March 2007, in clause 183, states that notarization of a sales agreement is no longer necessary. The parties can register the agreement by simply signing it in person at the National Agency of Public Registry (NAPR). This option is already used in practice at DB2008 Georgia NAPR as of July 2007. this removed one procedure, along with 3 days and a cost equal to 0.37% property value. In addition, the time needed to obtain an entrepreneurial registry excerpt of seller's/purchaser's registration from the district court has been reduced. Although the cost for property registration was cut in March 2006 by introducing a fixed fee for notarization of the sale DB2008 Kyrgyz Republic agreement (as opposed to a percentage of property value,) a decree of the Council of Ministers increased this fee fourfold to KZS 40,000. Following a decree, published June 7, 2006, the fee to DB2008 Uzbekistan notarize a property sale agreement is now calculated through a formula that takes into account the minimum wage. 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 45 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 information index measures rules and practices Private credit bureau coverage (% of adults) affecting the coverage, scope and accessibility of Number of individuals and firms listed in credit information available through a public credit largest private credit bureau as percentage of registry or a private credit bureau. The strength of adult population 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 46 GETTING CREDIT Where do the region’s economies stand today? How well do the credit information systems and ease of getting credit suggest an answer (figure 6.1). collateral and bankruptcy laws in economies in Eastern The average ranking of the region and comparator Europe and Central Asia (ECA) facilitate access to regions provide a useful benchmark. credit? The global rankings of these economies on the Figure 6.1 How economies in Eastern Europe and Central Asia (ECA) rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 47 GETTING CREDIT Another way to assess how well regulations and particular score on the strength of legal rights index. institutions support lending and borrowing in the Figure 6.3 shows the same thing for the depth of credit region is to look at the distribution of its economies by information index. Higher scores indicate stronger their scores on the getting credit indicators. Figure 6.2 legal rights for borrowers and lenders and more credit shows how many economies in the region received a information. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How extensive—and how accessible—is and lenders in economies in Eastern Europe and credit information in economies in Eastern Europe and Central Asia (ECA)? Central Asia (ECA)? Number of economies in region with each score on strength Number of economies in region with each score on depth of of legal rights index (0–10) credit information index (0–6) Source: Doing Business database. Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 48 GETTING CREDIT What are the changes over time? When economies strengthen the legal rights of lenders access to credit. What credit reforms has Doing and borrowers under collateral and bankruptcy laws, Business recorded in Eastern Europe and Central Asia and increase the scope, coverage and accessibility of (ECA) (table 6.1)? credit information, they can increase entrepreneurs’ Table 6.1 How have economies in Eastern Europe and Central Asia (ECA) made getting credit easier—or not? By Doing Business report year DB Year Economy Reform Armenia improved its credit information system by DB2012 Armenia introducing a requirement to collect and distribute information from utility companies. In Croatia the private credit bureau started to collect and DB2012 Croatia distribute information on firms, improving the credit information system. Georgia expanded access to credit by amending its civil code DB2012 Georgia to broaden the range of assets that can be used as collateral. FYR Macedonia improved its credit information system by DB2012 Macedonia, FYR establishing a private credit bureau. Moldova improved its credit information system by DB2012 Moldova establishing its first private credit bureau. Access to credit using movable property in Tajikistan became DB2012 Tajikistan more complicated because the movable collateral registry stopped its operations in January, 2011. Azerbaijan improved access to credit by establishing an DB2011 Azerbaijan online platform allowing financial institutions to provide information to, and retrieve it from, the public credit registry. Belarus enhanced access to credit by facilitating the use of DB2011 Belarus the pledge as a security arrangement and providing for out- of-court enforcement of the pledge on default. Georgia improved access to credit by implementing a central DB2011 Georgia collateral registry with an electronic database accessible online. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 49 DB Year Economy Reform Lithuania’s private credit bureau now collects and distributes DB2011 Lithuania positive information on borrowers. Access to credit information was strengthened by establishing DB2010 Armenia a legal framework for credit bureaus and regulating credit information collection and the preparation of credit reports. The public credit registry enhanced access to credit information by giving banks online access to the database, DB2010 Azerbaijan providing more data on borrowers, and introducing penalties for banks that send late or incorrect information. Access to credit was enhanced by making secured lending more flexible and allowing general descriptions of DB2010 Kyrgyz Republic encumbered assets and of debts and obligations. In addition, amendments to the Civil Code provide for automatic extension of security rights to proceeds of the original assets. The new public credit registry started sharing data on loans, DB2010 Latvia improving access to credit information. The public credit bureau increased its coverage by DB2010 Macedonia, FYR introducing a better database that includes more information and by lowering the minimum loan threshold. A new law on credit histories improves access to credit DB2010 Tajikistan information by creating a private credit bureau. DB2010 Turkey The private credit bureau now includes firms in its database. A new law on personal data protection guarantees that DB2010 Serbia borrowers can inspect their own data, thus improving access to credit information. A public credit registry was established allowing financial institutions to share credit information and covering 8.3 DB2009 Albania percent of the adult population. This reform allows banks to better evaluate the creditworthiness of potential borrowers, facilitating access to credit for firms and individuals. The minimum threshold was eliminated for reporting loans to the public credit registry in September 2007. The public DB2009 Azerbaijan registry now records information on all loans made by the financial system, more than doubling the coverage of borrowers with a credit history. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 50 DB Year Economy Reform The public credit registry expanded credit information by eliminating the minimum threshold for loans recorded in its DB2009 Belarus database. It also guaranteed the right of borrowers to review their data, improving accuracy. The private credit bureau now distributes a full range of information, including on-time repayment patterns and outstanding loan amounts. Coverage increased 20-fold, and banks can now have a better understanding of the payment patterns of potential borrowers. In addition, new regulations guarantee the right of borrowers to inspect their data at the DB2009 Georgia private credit bureau, helping to improve the quality and accuracy of credit information. Amendments to the civil code, effective in December 2007, address secured transactions, allowing parties to a security agreement to agree to out-of- court enforcement of the creditor’s security right at the time the parties sign the security agreement. The private credit bureau is adding two new suppliers of information a month, including retailers (such as furniture DB2009 Kazakhstan companies) and utilities (such as the gas company). Borrower coverage increased by 80 percent in the past year. A new law on personal data protection allows borrowers to DB2009 Macedonia, FYR check their information at the credit registry, improving its quality and accuracy. A new law was passed facilitating the creation of a private DB2009 Moldova credit bureau. A new private credit bureau has made it easier to get credit by sharing credit information among financial institutions. DB2009 Ukraine Now banks can better assess the creditworthiness of potential borrowers. A private credit bureau and a public credit registry were established to share credit information among financial DB2009 Uzbekistan institutions. The credit registries will enable banks to better assess the creditworthiness of potential borrowers. A new public credit registry was created, increasing the coverage of borrowers from 0 to 26 percent of the adult DB2009 Montenegro population. The new registry will facilitate access to credit by providing lenders with credit information on potential borrowers. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 51 DB Year Economy Reform A private credit bureau started operating on February 1, 2007. It distributes credit information about firms and individuals, DB2008 Armenia has no minimum loan requirement and guarantees all borrowers access to their credit reports. Access to credit for businesses was significantly improved by DB2008 Croatia implementing a unified system of securities registry and setting up a new private credit bureau, HROK. Adding retailers, utilities and trade creditors as suppliers of information, the private credit bureau now collects credit data from 17 out of Georgia 's 18 banks, microfinance institutions, DB2008 Georgia cell phone and electricity companies, in addition to the courts. The Doing Business credit information index rose from 3 to 4. A private bureau, National Bureau of Credit Histories (NBKI), started operations in March 2006. A draft of the law dates back to 1992, but only increased consumer lending and the DB2008 Russian Federation requirement for banks to submit credit data, made the reform possible. This afforded Russia to climb from 0 to 4 in DB's credit information index rose from 0 to 4. 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 52 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 shareholder protections against directors’ use of Available legal remedies (damages, repayment corporate assets for personal gain—or self-dealing. of profits, fines, imprisonment and rescission The indicators distinguish 3 dimensions of investor of the transaction) 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 shareholders’ ability to sue officers and directors for Ease of shareholder suits index (0–10) misconduct (ease of shareholder suits index). The Documents and information available during ranking on the strength of investor protection index is trial the simple average of the percentile rankings on these 3 indices. To make the data comparable across Access to internal corporate documents economies, a case study uses several assumptions (directly or through a government inspector) about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, • Is a publicly traded corporation listed on the extent of director liability and ease of economy’s most important stock exchange shareholder suits indices (or at least a large private company with multiple shareholders). • The price is higher than the going price for used • Has a board of directors and a chief executive trucks, but the transaction goes forward. officer (CEO) who may legally act on behalf of • All required approvals are obtained, and all Buyer where permitted, even if this is not required disclosures made, though the specifically required by law. transaction is prejudicial to Buyer. The transaction involves the following details: • Shareholders sue the interested parties and the • Mr. James, a director and the majority members of the board of directors. shareholder of the company, proposes that the company purchase used trucks from another company he owns. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 53 PROTECTING INVESTORS Where do the region’s economies stand today? How strong are investor protections in economies in related to the protection of minority investors, a higher Eastern Europe and Central Asia (ECA)? The global ranking does indicate that an economy’s regulations rankings of these economies on the strength of offer stronger investor protections against self-dealing investor protection index suggest an answer (figure in the areas measured. 7.1). While the indicator does not measure all aspects Figure 7.1 How economies in Eastern Europe and Central Asia (ECA) rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 54 PROTECTING INVESTORS But the overall ranking on the strength of investor shareholder suits indices may also be revealing (figure protection index tells only part of the story. Economies 7.2). Higher scores indicate stronger investor may offer strong protections in some areas but not protections. Comparing the scores across the region others. So the scores recorded for economies in and with averages both for the region and for Eastern Europe and Central Asia (ECA) on the extent of comparator regions can provide useful insights. disclosure, extent of director liability and ease of Figure 7.2 How strong are investor protections in economies in Eastern Europe and Central Asia (ECA)? Strength of investor protection index (0–10) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 55 PROTECTING INVESTORS Extent of disclosure index (0–10) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 56 PROTECTING INVESTORS Extent of director liability index (0–10) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 57 PROTECTING INVESTORS Ease of shareholder suits index (0–10) Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 58 PROTECTING INVESTORS What are the changes over time? 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 revisions to court well-functioning courts and up-to-date procedural procedures. What investor protection reforms has rules that give minority investors the means to prove Doing Business recorded in Eastern Europe and Central their case and obtain a judgment within a reasonable Asia (ECA) (table 7.1)? Table 7.1 How have economies in Eastern Europe and Central Asia (ECA) strengthened investor protections—or not? By Doing Business report year DB Year Economy Reform Belarus strengthened investor protections by introducing DB2012 Belarus requirements for greater corporate disclosure to the board of directors and to the public. Cyprus strengthened investor protections by requiring DB2012 Cyprus greater corporate disclosure to the board of directors, to the public and in the annual report. Georgia strengthened investor protections by introducing DB2012 Georgia requirements relating to the approval of transactions between interested parties. Kazakhstan strengthened investor protections by regulating the approval of transactions between interested parties and DB2012 Kazakhstan making it easier to sue directors in cases of prejudicial transactions between interested parties. Lithuania strengthened investor protections by introducing DB2012 Lithuania greater requirements for corporate disclosure to the public and in the annual report. Georgia strengthened investor protections by allowing DB2011 Georgia greater access to corporate information during the trial. Kazakhstan strengthened investor protections by requiring DB2011 Kazakhstan greater corporate disclosure in company annual reports. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 59 DB Year Economy Reform Tajikistan strengthened investor protections by requiring DB2011 Tajikistan greater corporate disclosure in the annual report and greater access to corporate information for minority investors. Investor protections were increased by regulating the approval of transactions between interested parties, DB2010 Macedonia, FYR increasing disclosure requirements in annual reports, and making it easier to sue directors in cases of prejudicial transactions between interested parties. Investor protections were strengthened with amendments to the joint stock company law, increasing disclosure requirements for transactions involving conflicts of interest, DB2010 Tajikistan allowing for greater director liability, and giving shareholders the chance to request that harmful related-party transactions be rescinded. Investor protections were enhanced by adopting a new law on joint stock companies that regulates approval of transactions between interested parties, increases disclosure DB2010 Ukraine requirements in annual reports, and makes it easier to sue directors in cases of prejudicial transactions between interested parties. A new company law requires that disinterested shareholders approve transactions between interested parties and obligates those parties to disclose all information on the DB2009 Albania transaction to the public. The law also reinforces directors’ duties and requires directors, when found liable, to pay damages and return profits to the company. A new law strengthens investor protections by requiring that transactions between interested parties be approved by DB2009 Azerbaijan shareholders. Interested parties are allowed to vote on the matter. Other provisions protect investors because directors who are held liable must pay damages and disgorge profits. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 60 DB Year Economy Reform Investor protections were strengthened through legal amendments allowing minority investors to take legal actions as shareholders. The amendments also require an DB2009 Kyrgyz Republic independent assessment of a related-party transaction before it is approved. Moreover, directors can be held liable for negligence if they harm minority shareholders and will be forced to pay damages and disgorge profits. Investor protections were enhanced through a new law requiring that transactions between interested parties be approved by a shareholders meeting at which interested DB2009 Tajikistan directors cannot vote. In addition, the transaction must be disclosed to the board of directors. The new law allows minority shareholders to sue directors on behalf of the company. Investor protections were further strengthened through a new law requiring that an independent auditor assess DB2009 Turkey transactions between interested parties before the transactions are approved. In an amendment, Belarus directly addressed approval and disclosure requirements for related-party transactions. The new law specifies the conditions for conducting joint-stock DB2008 Belarus companies, limited liability companies, and added-liability companies and lays out the duties of its members. Therefore, Belrarus improved its score from 1 point to 5 in the disclosure index of the Doing Business' protecting investors indicator. An amended securities law now provides a definition of "interested parties in a transaction", and makes such transactions contingent on supervisory board or shareholder approval. Companies must disclose the transaction's DB2008 Georgia information to the securities commission, as well as in the company's annual report. The law also requires all conflicts of interest to be disclosed to the supervisory board and improves ways for judicial redress. 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 61 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 transactions made over the year. Information is Completing tax return forms, filing with also compiled on the frequency of filing and proper agencies payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is the simple average of the percentile rankings on Preparing separate tax accounting books, if its component indicators: number of annual required payments, time and total tax rate, with a threshold Total tax rate (% of profit before all taxes) 2 being applied to the total tax rate. To make the data comparable across economies, several Profit or corporate income tax assumptions about the business and the taxes and Social contributions and labor taxes paid by contributions are used. the employer • TaxpayerCo is a medium-size business that Property and property transfer taxes started operations on January 1, 2009. Dividend, capital gains and financial • The business starts from the same financial transactions taxes position in each economy. All the taxes and mandatory contributions paid during Waste collection, vehicle, road and other taxes 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 62 PAYING TAXES Where do the region’s economies stand today? What is the administrative burden of complying with paying taxes offer useful information for assessing the taxes in economies in Eastern Europe and Central Asia tax compliance burden for businesses (figure 8.1). The (ECA)—and how much do firms pay in taxes? The average ranking of the region and comparator regions global rankings of these economies on the ease of provide a useful benchmark. Figure 8.1 How economies in Eastern Europe and Central Asia (ECA) 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 63 PAYING TAXES The indicators underlying the rankings may be more as well as the total tax rate (figure 8.2). Comparing revealing. Data collected by Doing Business show what these indicators across the region and with averages it takes to comply with tax regulations in each both for the region and for comparator regions can economy in the region—the number of payments per provide useful insights. year and the time required to prepare and file taxes— Figure 8.2 How easy is it to pay taxes in economies in Eastern Europe and Central Asia (ECA)—and what are the total tax rates? Payments (number per year) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 64 PAYING TAXES Time (hours per year) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 65 PAYING TAXES Total tax rate (% of profit) 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 66 PAYING TAXES What are the changes over time? 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. Eastern Europe and Central Asia (ECA) (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How have economies in Eastern Europe and Central Asia (ECA) made paying taxes easier—or not? By Doing Business report year DB Year Economy Reform Armenia made tax compliance easier for firms by reducing the number of payments for social security contributions and DB2012 Armenia corporate income, property and land taxes and by introducing mandatory electronic filing and payment for major taxes. Belarus abolished several taxes, including turnover and sales taxes, and simplified compliance with corporate income, value DB2012 Belarus added and other taxes by reducing the frequency of filings and payments and facilitating electronic filing and payment. Georgia made paying taxes easier for firms by simplifying the DB2012 Georgia reporting for value added tax and introducing electronic filing and payment of taxes. The Kyrgyz Republic made paying taxes costlier for firms by DB2012 Kyrgyz Republic introducing a real estate tax, though it also reduced the sales tax rate. Romania made paying taxes easier for companies by introducing an electronic payment system and a unified DB2012 Romania return for social security contributions. It also abolished the annual minimum tax. Russia increased the social security contribution rate for DB2012 Russian Federation employers. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 67 DB Year Economy Reform Turkey lowered the social security contribution rate for DB2012 Turkey companies by offering them a 5% rebate Ukraine made paying taxes easier and less costly for firms by DB2012 Ukraine revising and unifying tax legislation, reducing corporate income tax rates and unifying social security contributions. Montenegro made paying taxes easier and less costly for firms by abolishing a tax, reducing the social security DB2012 Montenegro contribution rate and merging several returns into a single unified one. Albania made it easier and less costly for companies to pay DB2011 Albania taxes by amending several laws, reducing social security contributions and introducing electronic filing and payment. A revision of Azerbaijan’s tax code lowered several tax rates, DB2011 Azerbaijan including the profit tax rate, and simplified the process of paying corporate income tax and value added tax. Reductions in the turnover tax, social security contributions and the base for property taxes along with continued efforts DB2011 Belarus to encourage electronic filing made it easier and less costly for companies in Belarus to pay taxes. Bosnia and Herzegovina simplified its labor tax processes, DB2011 Bosnia and Herzegovina reduced employer contribution rates for social security and abolished its payroll tax. Bulgaria reduced employer contribution rates for social DB2011 Bulgaria security. DB2011 Lithuania Lithuania reduced corporate tax rates. FYR Macedonia lowered tax costs for businesses by requiring DB2011 Macedonia, FYR that corporate income tax be paid only on distributed profits. Moldova reduced employer contribution rates for social DB2011 Moldova security. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 68 DB Year Economy Reform Romania introduced tax changes, including a new minimum DB2011 Romania tax on profit, that made paying taxes more costly for companies. DB2011 Tajikistan Tajikistan lowered its corporate income tax rate. Ukraine eased tax compliance by introducing and continually DB2011 Ukraine enhancing an electronic filing system for value added tax. An amendment to Montenegro’s corporate income tax law DB2011 Montenegro removed the obligation for advance payments and abolished the construction land charge. Tax payments were made more convenient through increased use of electronic systems—reducing tax compliance times— DB2010 Belarus while lower ecological and turnover tax rates and a reduction in the number of payments for property tax reduced the tax burden on businesses. The tax burden on companies was eased by lowering the DB2010 Kazakhstan social tax for 2008 and the corporate income tax for 2009 (from 30 percent to 10 percent). The tax burden on businesses was eased by reducing the DB2010 Kyrgyz Republic rates for several taxes and the number of payments for several. The corporate income tax was raised from 15 percent to 20 DB2010 Lithuania percent. Social security payments were classified in five groups, and DB2010 Macedonia, FYR social security contribution rates reduced. The rates were lowered for social security contributions paid DB2010 Moldova by employers. DB2010 Romania Labor taxes were increased. The corporate income tax rate was cut from 24 percent to 20 DB2010 Russian Federation percent. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 69 DB Year Economy Reform A new tax code was introduced combining corporate income DB2010 Uzbekistan tax provisions. The corporate income tax rate was cut by almost half, to 9 DB2010 Montenegro percent, and social security tax rates to 12 percent for 2009 and 9 percent for 2010. The corporate income tax rate was cut from 20 percent to 10 DB2010 Kosovo percent in 2009. The corporate income tax rate was reduced from 20 percent DB2009 Albania to 10 percent effective January 1, 2008. The tax burden was reduced by introducing an online filing and payment system with advanced accounting software for DB2009 Azerbaijan calculating taxes due. This saves more than 500 hours a year on average in dealing with paperwork. The tax burden was eased by abolishing the “Chernobyl tax� DB2009 Belarus (3 percent) and unemployment tax (1 percent) and amending the simplified tax system for small businesses. The corporate income tax rate was reduced from 30 percent to 10 percent effective January 1, 2008. Profit distribution DB2009 Bosnia and Herzegovina (including dividends) is now tax exempt, and tax losses can be carried forward for five years. A new Corporate Income Tax Act and a new Value Added Tax DB2009 Bulgaria Act were introduced to synchronize local tax legislation with EU legislation. The corporate income tax rate was reduced from 20 percent DB2009 Georgia to 15 percent, and the social tax abolished. The corporate income tax was reduced to 10 percent effective DB2009 Macedonia, FYR January 1, 2008. The tax burden on businesses was eased by reducing several social security tax rates including: pension fund, social DB2009 Ukraine security fund, and social insurance for accidents at work. Thanks to electronic tax filing systems, the time to pay taxes was reduced. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 70 DB Year Economy Reform A new fiscal package was introduced which reduced the tax burden on firms by lowering the corporate income tax by 3% DB2008 Albania and amending depreciation rates. Labor taxes and contributions were lowered by 9 percentage points. The tax burden was reduced on businesses by lowering DB2008 Bulgaria corporate income tax, labor and one-off taxes, and through more widespread use of the online system. While the country increased environmental pollution fee on fuel and waste and flattened personal income tax at 10%, the DB2008 Kazakhstan country also increased depreciation rates and cut VAT by one point to 14%. It intends to reduce VAT further to 13% (2008) and 12% (2009). The corporate income tax was cut from 20% to 10% in 2006, social security contributions were abolished in 2006. Pension DB2008 Kyrgyz Republic contributions dropped from 21% to 19% in 2006. In 2007, a new tax code will reduce VAT to 14% (as well as apply the flat rate of 10% to personal income tax.) . The corporate tax rate was lowered to 12% (with further DB2008 Macedonia, FYR reduction to 10% planned for 2008) and introduced a new e- tax service. The interest tax and corporate income tax were lowered to DB2008 Turkey 20%, and online filing was introduced and implemented. The corporate income tax was reduced further to 10% (effective January 2007), following its path from 18% (in 2004), 15% (in 2005) and 12% (in 2006;) CIT can now be paid quarterly, rather than monthly. The social security DB2008 Uzbekistan contribution payable by employers was reduced from 33% in 2004 to 24% in 2007 and the single tax payment rate applicable to micro-firms and small businesses was decreased from 13% to 10%. 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 71 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 importing a standard shipment of goods by ocean Inland transport and handling transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover procedural requirements such as documentation Port and terminal handling requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also cover trade logistics, including the time and cost of Cost required to export and import (US$ per inland transport to the largest business city. The container) ranking on the ease of trading across borders is All documentation the simple average of the percentile rankings on its component indicators: documents, time and cost Inland transport and handling to export and import. Customs clearance and inspections To make the data comparable across economies, Port and terminal handling Doing Business uses several assumptions about the Official costs only, no bribes business and the traded goods. The business: • Do not require refrigeration or any other • Is of medium size and employs 60 people. special environment. • Is located in the periurban area of the • Do not require any special phytosanitary or economy’s largest business city. environmental safety standards other than • Is a private, limited liability company, accepted international standards. domestically owned, formally registered • Are one of the economy’s leading export or and operating under commercial laws and import products. regulations of the economy. • Are transported in a dry-cargo, 20-foot full The traded goods: container load. • Are not hazardous nor do they include military items. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 72 TRADING ACROSS BORDERS Where do the region’s economies stand today? How easy it is for businesses in economies in Eastern ease of trading across borders suggest an answer Europe and Central Asia (ECA) to export and import (figure 9.1). The average ranking of the region and goods? The global rankings of these economies on the comparator regions provide a useful benchmark. Figure 9.1 How economies in Eastern Europe and Central Asia (ECA) rank on the ease of trading across borders Source: Doing Business database. The indicators underlying the rankings may be more documents, the time and the cost (figure 9.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to export or import a standard container of averages both for the region and for comparator goods in each economy in the region: the number of regions can provide useful insights. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 73 TRADING ACROSS BORDERS Figure 9.2 What it takes to trade across borders in economies in Eastern Europe and Central Asia (ECA) Documents to export (number) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 74 TRADING ACROSS BORDERS Time to export (days) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 75 TRADING ACROSS BORDERS Cost to export (US$ per container) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 76 TRADING ACROSS BORDERS Documents to import (number) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 77 TRADING ACROSS BORDERS Time to import (days) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 78 TRADING ACROSS BORDERS Cost to import (US$ per container) Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 79 TRADING ACROSS BORDERS What are the changes over time? 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 Eastern Europe and Central Asia risk-based inspections and electronic data interchange (ECA) (table 9.1)? Table 9.1 How have economies in Eastern Europe and Central Asia (ECA) made trading across borders easier—or not? By Doing Business report year DB Year Economy Reform Bulgaria made trading across borders faster by introducing DB2012 Bulgaria online submission of customs declaration forms. Russia made trading across borders easier by reducing the DB2012 Russian Federation number of documents needed for each export or import transaction and lowering the associated cost. Ukraine made trading across borders more difficult by DB2012 Ukraine introducing additional inspections for customs clearance of imports. Armenia made trading easier by introducing self-declaration desks at customs houses and warehouses, investing in new DB2011 Armenia equipment to improve border operations and introducing a risk management system. Belarus reduced the time to trade by introducing electronic DB2011 Belarus declaration of exports and imports. Kazakhstan speeded up trade through efforts to modernize DB2011 Kazakhstan customs, including implementation of a risk management system and improvements in customs automation. Latvia reduced the time to export and import by introducing DB2011 Latvia electronic submission of customs declarations. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 80 DB Year Economy Reform Lithuania reduced the time to import by introducing, in DB2011 Lithuania compliance with EU law, an electronic system for submitting customs declarations. Montenegro’s customs administration simplified trade by DB2011 Montenegro eliminating the requirement to present a terminal handling receipt for exporting and importing. Implementation of ASYCUDA World and the purchase of DB2010 Albania scanners have reduced import customs clearance time. By encouraging competition in banking, transportation, and customs brokerage services, as well as reducing the number DB2010 Armenia of goods requiring inspection and streamlining the number of documents needed to clear goods, Armenia has sped trade across borders. The time required to clear goods and get them across DB2010 Azerbaijan borders was shortened by regrouping various agencies into a single customs service window. Implementation of a risk-based management system and DB2010 Belarus improvement of border crossing operations reduced transit times for trade. The documentation requirements for import and export were DB2010 Georgia simplified, and there was a significant decrease in the cost of trade. The elimination of six previously required documents and the DB2010 Kyrgyz Republic simplification of inspection procedures has sped up trading across borders. A new customs code and new banking regulations reduced DB2009 Belarus the time to export. Ongoing improvements to port infrastructure sped terminal DB2009 Croatia handling for exports. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 81 DB Year Economy Reform The time required to import and export fell, thanks to rationalization of the customs fee schedule, permit structure, DB2009 Macedonia, FYR improved risk based inspections, simplification of a customs procedure, and abolishment of required documents. In trade, improvements to port infrastructure and services DB2009 Ukraine reduced the time to import. The implementation of an electronic data interchange system ("Direct Trader Input") allows customs brokers to submit declarations electronically to the customs offices. Still in its DB2008 Armenia early stage, the new process already contributed to halving the time for document preparation. Electronic transmission also means less opportunity for corruption. A comprehensive customs reform project was implemented, DB2008 Bosnia and Herzegovina creating a new customs law and establishing a new customs administration which has lowered the time needed for trade. 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 82 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 What do the indicators cover? the judge or court officer Doing Business measures the efficiency of the Steps to file and serve the case 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 component indicators: procedures, time and cost. Time for trial and obtaining judgment The dispute in the case study involves the breach Time to enforce the judgment 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 distinguishes the case from simple debt No bribes enforcement. To make the data comparable across Average attorney fees economies, Doing Business uses several assumptions about the case: Court costs, including expert fees • The seller and buyer are located in the Enforcement costs economy’s largest business city. • The buyer orders custom-made goods, then fails to pay. • The dispute on the quality of the goods • The seller sues the buyer before a requires an expert opinion. competent court. • The judge decides in favor of the seller; there • The value of the claim is 200% of income is no appeal. per capita. • The seller enforces the judgment through a • The seller requests a pretrial attachment to public sale of the buyer’s movable assets. secure the claim. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 83 ENFORCING CONTRACTS Where do the region’s economies stand today? How efficient is the process of resolving a commercial suggest an answer (figure 10.1). The average ranking dispute through the courts in economies in Eastern of the region and comparator regions provide a useful Europe and Central Asia (ECA)? The global rankings of benchmark. these economies on the ease of enforcing contracts Figure 10.1 How economies in Eastern Europe and Central Asia (ECA) rank on the ease of enforcing contracts Source: Doing Business database. The indicators underlying the rankings may also be procedures, the time and the cost (figure 10.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to enforce a contract through the courts in averages both for the region and for comparator each economy in the region: the number of regions can provide useful insights. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 84 ENFORCING CONTRACTS Figure 10.2 What it takes to enforce a contract through the courts in economies in Eastern Europe and Central Asia (ECA) Procedures (number) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 85 ENFORCING CONTRACTS Time (days) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 86 ENFORCING CONTRACTS Cost (% of claim) Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 87 ENFORCING CONTRACTS What are the changes over time? 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 Eastern Europe and introducing new technology. Lower-income economies Central Asia (ECA) (table 10.1)? often work on reducing backlogs by introducing Table 10.1 How have economies in Eastern Europe and Central Asia (ECA) made enforcing contracts easier—or not? By Doing Business report year DB Year Economy Reform Belarus modified its code of economic procedure, altering DB2012 Belarus the time frames for commercial dispute resolution. Moldova made enforcement of judgments more efficient by DB2012 Moldova introducing private bailiffs. Russia made filing a commercial case easier by introducing an DB2012 Russian Federation electronic case filing system. Ukraine amended legislation to streamline commercial DB2012 Ukraine dispute resolution and increase the efficiency of enforcement procedures. Georgia made the enforcement of contracts easier by streamlining the procedures for public auctions, introducing DB2011 Georgia private enforcement officers and modernizing its dispute resolution system. The court system was reorganized and the procedural code was overhauled. New requirements to front-load evidence DB2009 Armenia eased contract enforcement, removing 1 procedure and reducing the time required to resolve commercial disputes. A second commercial court was created in Baku, increasing the number of judges dealing with commercial cases from DB2009 Azerbaijan five to nine. The average time to enforce a contract through the courts fell. Amendments to the civil procedural code have helped speed contract enforcement. They reformed rules for evidence and default judgments, raised the minimum threshold for cases in DB2009 Bulgaria the lower courts, and empowered the civil court of last instance to decide which cases to hear, limiting abuse of the appeals process. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 88 DB Year Economy Reform The government continued to systematically equip courts with electronic case management systems, and the DB2009 Macedonia, FYR commercial court in Skopje became operational, speeding contract enforcement in commercial matters. The enforcement of judgments was simplified by eliminating the need for a separate enforcement order and allowing the DB2009 Romania attachment of credit balances and accounts receivable. The reform reduced the time to enforce contracts by a month from 537 days to 512 days. Private bailiffs started working in May 2006 in Bulgaria, and it DB2008 Bulgaria also amended its Judicial System Act in order to increase efficiency and transparency in the judicial system. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 89 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 of insolvency proceedings involving domestic Fees of insolvency administrators entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial institutions. The data are derived from survey Assessors’ and auctioneers’ fees responses by local insolvency practitioners and Other related fees verified through a study of laws and regulations as well as public information on bankruptcy systems. Recovery rate for creditors (cents on the dollar) The ranking on the ease of resolving insolvency is based on the recovery rate, which is recorded as Measures the cents on the dollar recovered cents on the dollar recouped by creditors through by creditors reorganization, liquidation or debt enforcement Present value of debt recovered (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings function of time, cost and other factors, such as are deducted lending rate and the likelihood of the company continuing to operate. Depreciation of furniture is taken into account To make the data comparable across economies, Doing Business uses several assumptions about the Outcome for the business (survival or not) business and the case. It assumes that the affects the maximum value that can be company: recovered • 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 90 RESOLVING INSOLVENCY Where do the region’s economies stand today? How efficient are insolvency proceedings in economies provide a useful benchmark for assessing the efficiency in Eastern Europe and Central Asia (ECA)? The global of insolvency proceedings. Speed, low costs and rankings of these economies on the ease of resolving continuation of viable businesses characterize the top- insolvency suggest an answer (figure 11.1). The performing economies. average ranking of the region and comparator regions Figure 11.1 How economies in Eastern Europe and Central Asia (ECA) rank on the ease of resolving insolvency Source: Doing Business database. The indicators underlying the rankings may be more Comparing these indicators across the region and with revealing. Data collected by Doing Business show the averages both for the region and for comparator average time and cost required to resolve insolvency regions can provide useful insights. as well as the average recovery rate (figure 11.2). Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 91 RESOLVING INSOLVENCY Figure 11.2 How efficient is the insolvency process in economies in Eastern Europe and Central Asia (ECA) Time (years) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 92 RESOLVING INSOLVENCY Cost (% of estate) Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 93 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 94 RESOLVING INSOLVENCY What are the changes over time? A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Eastern Europe and Central Asia (ECA) even viable businesses are liquidated. This is starting to (table 11.1)? Table 11.1 How have economies in Eastern Europe and Central Asia (ECA) made resolving insolvency easier—or not? By Doing Business report year DB Year Economy Reform Armenia amended its bankruptcy law to clarify procedures for appointing insolvency administrators, reduce the processing DB2012 Armenia time for bankruptcy proceedings and regulate asset sales by auction. Bulgaria amended its commerce act to extend further rights DB2012 Bulgaria to secured creditors and increase the transparency of insolvency proceedings. Latvia adopted a new insolvency law that streamlines and DB2012 Latvia expedites the insolvency process and introduces a reorganization option for companies. Lithuania amended its reorganization law to simplify and shorten reorganization proceedings, grant priority to secured DB2012 Lithuania creditors and introduce professional requirements for insolvency administrators. FYR Macedonia increased the transparency of bankruptcy DB2012 Macedonia, FYR proceedings through amendments to its company and bankruptcy laws. Moldova amended its insolvency law to grant priority to DB2012 Moldova secured creditors. Romania amended its insolvency law to shorten the duration DB2012 Romania of insolvency proceedings. Ukraine amended its legislation on enforcement, introducing DB2012 Ukraine more guarantees for secured creditors. Serbia adopted legislation introducing professional DB2012 Serbia requirements for insolvency administrators and regulating their compensation. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 95 DB Year Economy Reform Montenegro passed a new bankruptcy law that introduces reorganization and liquidation proceedings, introduces time DB2012 Montenegro limits for these proceedings and provides for the possibility of recovery of secured creditors’ claims and settlement before completion of the entire bankruptcy procedure. Belarus amended regulations governing the activities of DB2011 Belarus insolvency administrators and strengthened the protection of creditor rights in bankruptcy. Georgia improved insolvency proceedings by streamlining the DB2011 Georgia regulation of auction sales. The Kyrgyz Republic streamlined insolvency proceedings and updated requirements for administrators, but new formalities DB2011 Kyrgyz Republic added to prevent abuse of proceedings made closing a business more difficult. Latvia introduced a mechanism for out-of-court settlement of DB2011 Latvia insolvencies to alleviate pressure on courts and tightened some procedural deadlines. Lithuania introduced regulations relating to insolvency DB2011 Lithuania administrators that set out clear rules of liability for violations of law. Substantial amendments to Romania’s bankruptcy laws— DB2011 Romania introducing, among other things, a procedure for out-of- court workouts—made dealing with insolvency easier. Russia introduced a series of legislative measures in 2009 to DB2011 Russian Federation improve creditor rights and the insolvency system. Serbia passed a new bankruptcy law that introduced out-of- DB2011 Serbia court workouts and a unified reorganization procedure. A new insolvency law established time limits during insolvency, professional qualifications for insolvency DB2010 Albania administrators, and an Agency of Insolvency Supervision to regulate insolvency administrators. A simplified insolvency procedure for small businesses was introduced as well. The process of closing a business was eased through DB2010 Lithuania amendments to the enterprise bankruptcy law. The cost of insolvency procedures was increased by requiring that 1.5 percent of the amount recovered from each DB2010 Romania insolvency procedure be transferred to a fund that reimburses the expenses of insolvency administrators when debtors have no assets. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 96 DB Year Economy Reform Several changes were introduced to the insolvency law to DB2010 Russian Federation speed up liquidation and strengthen the legal status of secured creditors. The insolvency law was amended, aiming to reduce statutory DB2010 Tajikistan time limits and the costs of proceedings. Professional requirements were tightened for trustees to DB2009 Bosnia and Herzegovina speed bankruptcy procedures. Two new laws- the Civil Procedure Code and the Law for the Commercial Registry- were passed which will speed up the resolution of bankruptcy. The Civil Procedure Code removed DB2009 Bulgaria the requirement for the Supreme Cassation Court to hear all cases. Now the court can decide whether or not to hear a case. A new insolvency law made it possible for the first time for financially distressed companies to continue operating by DB2009 Latvia pursuing reorganization. The reform also tightened the qualification standards for bankruptcy administrators. A new law introduces a number of important changes to the bankruptcy procedure, increasing the range of actions available to companies in reorganization. The law also DB2008 Armenia excludes the debtor's founders, shareholders and partners from voting on a reorganization plan, and sets a two-day limit for the judge to decide whether to approve a plan. The Insolvency Act was amended to set out professional DB2008 Croatia requirements for bankruptcy trustees and reduce statutory time requirements. A new law on insolvency procedure allots shorter time limits for the reorganization of a distressed company or the DB2008 Georgia disposition of the debtor's assets, thus ensuring a more productive use of debtors' assets and an overall decrease in time. A presidential decree for a special procedure for the voluntary liquidation of private companies was signed into force in April 2007. The decree specifies the state bodies required to DB2008 Uzbekistan participate in the procedure as well as all necessary documents; it also introduces a “one window�-concept to the procedure. 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 97 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the protection of property rights—and their effect on ECONOMY CHARACTERISTICS businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of regulation, such as the number of procedures to start a Gross national income (GNI) per capita business or to register and transfer commercial property. Second, they gauge the time and cost of Doing Business 2012 reports 2010 income per capita achieving a regulatory goal or complying with as published in the World Bank’s World regulation, such as the time and cost to enforce a Development Indicators 2011. Income is calculated contract, go through bankruptcy or trade across using the Atlas method (current US$). For cost borders. Third, they measure the extent of legal indicators expressed as a percentage of income per protections of property, for example, the protections capita, 2010 GNI in U.S. dollars is used as the of investors against looting by company directors or denominator. Data were not available from the the range of assets that can be used as collateral World Bank for Afghanistan; Australia; The Bahamas; according to secured transactions laws. Fourth, a set of Bahrain; Brunei Darussalam; Canada; Cyprus; indicators documents the tax burden on businesses. Djibouti; the Islamic Republic of Iran; Kuwait; New Finally, a set of data covers different aspects of Zealand; Oman; Puerto Rico (territory of the United employment regulation. States); Qatar; Saudi Arabia; Suriname; Taiwan, China; the United Arab Emirates; West Bank and The data for all sets of indicators in Doing Business Gaza; and the Republic of Yemen. In these cases 3 2012 are for June 2011. GDP or GNP per capita data and growth rates from the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Methodology Unit were used. The Doing Business data are collected in a standardized way. To start, the Doing Business team, Region and income group with academic advisers, designs a questionnaire. The Doing Business uses the World Bank regional and questionnaire uses a simple business case to ensure income group classifications, available at comparability across economies and over time—with http://www.worldbank.org/data/countryclass. The assumptions about the legal form of the business, its World Bank does not assign regional classifications size, its location and the nature of its operations. to high-income economies. For the purpose of the Questionnaires are administered through more than Doing Business report, high-income OECD 9,028 local experts, including lawyers, business economies are assigned the “regional� classification consultants, accountants, freight forwarders, OECD high income. Figures and tables presenting government officials and other professionals routinely regional averages include economies from all administering or advising on legal and regulatory income groups (low, lower middle, upper middle requirements. These experts have several rounds of and high income). interaction with the Doing Business team, involving conference calls, written correspondence and visits by Population the team. For Doing Business 2012 team members Doing Business 2012 reports midyear 2010 visited 40 economies to verify data and recruit population statistics as published in World respondents. The data from questionnaires are Development Indicators 2011. subjected to numerous rounds of verification, leading to revisions or expansions of the information collected. 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 98 The Doing Business methodology offers several business lacks information or is unable to follow up advantages. It is transparent, using factual information promptly. Alternatively, the business may choose to about what laws and regulations say and allowing disregard some burdensome procedures. For both multiple interactions with local respondents to clarify reasons the time delays reported in Doing Business potential misinterpretations of questions. Having 2012 would differ from the recollection of representative samples of respondents is not an issue; entrepreneurs reported in the World Bank Enterprise Doing Business is not a statistical survey, and the texts Surveys or other perception surveys. of the relevant laws and regulations are collected and answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be Subnational Doing Business indicators collected in a large sample of economies. Because This year Doing Business published a subnational study standard assumptions are used in the data collection, for the Philippines and a regional report for Southeast comparisons and benchmarks are valid across Europe covering 7 economies (Albania, Bosnia and economies. Finally, the data not only highlight the Herzegovina, Kosovo, the former Yugoslav Republic of extent of specific regulatory obstacles to business but Macedonia, Moldova, Montenegro and Serbia) and 22 also identify their source and point to what might be cities. It also published a city profile for Juba, in the reformed. Republic of South Sudan. Information on the methodology for each Doing The subnational studies point to differences in Business topic can be found on the Doing Business business regulation and its implementation—as well as website at http://www.doingbusiness.org/methodology/. in the pace of regulatory reform—across cities in the same economy. For several economies subnational studies are now periodically updated to measure Limits to what is measured change over time or to expand geographic coverage The Doing Business methodology has 5 limitations that to additional cities. This year that is the case for the should be considered when interpreting the data. First, subnational studies in the Philippines; the regional the collected data refer to businesses in the economy’s report in Southeast Europe; the ongoing studies in largest business city and may not be representative of Italy, Kenya and the United Arab Emirates; and the regulation in other parts of the economy. To address projects implemented jointly with local think tanks in this limitation, subnational Doing Business indicators Indonesia, Mexico and the Russian Federation. were created (see the section on subnational Doing Besides the subnational Doing Business indicators, Business indicators). Second, the data often focus on a Doing Business conducted a pilot study this year on specific business form—generally a limited liability the second largest city in 3 large economies to assess company (or its legal equivalent) of a specified size— within-country variations. The study collected data for and may not be representative of the regulation on Rio de Janeiro in addition to São Paulo in Brazil, for other businesses, for example, sole proprietorships. Beijing in addition to Shanghai in China and for St. Third, transactions described in a standardized case Petersburg in addition to Moscow in Russia. scenario refer to a specific set of issues and may not represent the full set of issues a business encounters. Fourth, the measures of time involve an element of Changes in what is measured judgment by the expert respondents. When sources indicate different estimates, the time indicators The methodology for 3 of the Doing Business topics reported in Doing Business represent the median was updated this year—getting credit, dealing with values of several responses given under the construction permits and paying taxes. assumptions of the standardized case. First, for getting credit, the scoring of one of the 10 Finally, the methodology assumes that a business has components of the strength of legal rights index was full information on what is required and does not amended to recognize additional protections of waste time when completing procedures. In practice, secured creditors and borrowers. Previously the completing a procedure may take longer if the highest score of 1 was assigned if secured creditors Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 99 were not subject to an automatic stay or moratorium business and a new measure, the “distance to frontier.� on enforcement procedures when a debtor entered a While the ease of doing business ranking compares court-supervised reorganization procedure. Now the economies with one another at a point in time, the highest score of 1 is also assigned if the law provides distance to frontier measure shows how much the secured creditors with grounds for relief from an regulatory environment for local entrepreneurs in each automatic stay or moratorium (for example, if the economy has changed over time. movable property is in danger) or sets a time limit for Ease of doing business the automatic stay. The ease of doing business index ranks economies Second, because the ease of doing business index now from 1 to 183. For each economy the ranking is includes the getting electricity indicators, procedures, calculated as the simple average of the percentile time and cost related to obtaining an electricity rankings on each of the 10 topics included in the index connection were removed from the dealing with in Doing Business 2012: starting a business, dealing construction permits indicators. with construction permits, registering property, getting Third, a threshold has been introduced for the total tax credit, protecting investors, paying taxes, trading rate for the purpose of calculating the ranking on the across borders, enforcing contracts, resolving ease of paying taxes. All economies with a total tax insolvency and, new this year, getting electricity. The rate below the threshold (which will be calculated and employing workers indicators are not included in this adjusted on a yearly basis) will now receive the same year’s aggregate ease of doing business ranking. In ranking on the total tax rate indicator. The threshold is addition to this year’s ranking, Doing Business presents not based on any underlying theory. Instead, it is a comparable ranking for the previous year, adjusted meant to emphasize the purpose of the indicator: to for any changes in methodology as well as additions of 4 highlight economies where the tax burden on business economies or topics. is high relative to the tax burden in other economies. Construction of the ease of doing business index Giving the same ranking to all economies whose total tax rate is below the threshold avoids awarding Here is one example of how the ease of doing business economies in the scoring for having an unusually low index is constructed. In the Republic of Korea it takes 5 total tax rate, often for reasons unrelated to procedures, 7 days and 14.6% of annual income per government policies toward enterprises. For example, capita in fees to open a business. There is no minimum economies that are very small or that are rich in capital required. On these 4 indicators Korea ranks in th th rd natural resources do not need to levy broad-based the 18 , 14 , 53 and 0 percentiles. So on average st taxes. Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on th th getting credit, 25 percentile on paying taxes, 8 Data challenges and revisions th percentile on enforcing contracts, 7 percentile on resolving insolvency and so on. Higher rankings Most laws and regulations underlying the Doing indicate simpler regulation and stronger protection of Business data are available on the Doing Business property rights. The simple average of Korea’s website at http://www.doingbusiness.org. All the st percentile rankings on all topics is 21 . When all sample questionnaires and the details underlying the economies are ordered by their average percentile indicators are also published on the website. Questions on the methodology and challenges to data can be submitted through the website’s “Ask a Question� 4 In case of revisions to the methodology or corrections to the function at http://www.doingbusiness.org. underlying data, the data are back-calculated to provide a comparable time series since the year the relevant economy or topic was first included in the data set. The time series is available on the Ease of doing business and distance to Doing Business website (http://www.doingbusiness.org). The Doing Business report publishes yearly rankings for the year of publication frontier as well as the previous year to shed light on year-to-year developments. Six topics and more than 50 economies have been This year’s report presents results for 2 aggregate added since the inception of the project. Earlier rankings on the measures: the aggregate ranking on the ease of doing ease of doing business are therefore not comparable. Doing Business 2012 EASTERN EUROPE AND CENTRAL ASIA (ECA) 100 rankings, Korea stands at 8 in the aggregate ranking investors). These correlations suggest that economies on the ease of doing business. rarely score universally well or universally badly on the indicators. More complex aggregation methods—such as principal components and unobserved components— Consider the example of Canada. It stands at 12 in the yield a ranking nearly identical to the simple average aggregate ranking on the ease of doing business. Its 5 used by Doing Business. Thus, Doing Business uses ranking is 3 on both starting a business and resolving the simplest method: weighting all topics equally and, insolvency, and 5 on protecting investors. But its within each topic, giving equal weight to each of the ranking is only 59 on enforcing contracts, 42 on 6 topic components. trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a Variation in performance across the indicator sets is specific area—for example, insolvency—it receives a not at all unusual. It reflects differences in the degree “no practice� mark. Similarly, an economy receives a of priority that government authorities give to “no practice� or “not possible� mark if regulation exists particular areas of business regulation reform and the but is never used in practice or if a competing ability of different government agencies to deliver regulation prohibits such practice. Either way, a “no tangible results in their area of responsibility. practice� mark puts the economy at the bottom of the Economies that improved the most across 3 or more ranking on the relevant indicator. Doing Business topics in 2010/11 The ease of doing business index is limited in scope. It Doing Business 2012 uses a simple method to calculate does not account for an economy’s proximity to large which economies improved the most in the ease of markets, the quality of its infrastructure services (other doing business. First, it selects the economies that in than services related to trading across borders and 2010/11 implemented regulatory reforms making it getting electricity), the strength of its financial system, easier to do business in 3 or more of the 10 topics the security of property from theft and looting, its 7 included in this year’s ease of doing business ranking. macroeconomic conditions or the strength of Thirty economies meet this criterion: Armenia, Burkina underlying institutions. Faso, Burundi, Cape Verde, the Central African Variability of economies’ rankings across topics Republic, Chile, Colombia, the Democratic Republic of Congo, Côte d’Ivoire, The Gambia, Georgia, Korea, Each indicator set measures a different aspect of the Latvia, Liberia, FYR Macedonia, Mexico, Moldova, business regulatory environment. The rankings of an Montenegro, Morocco, Nicaragua, Oman, Peru, economy can vary, sometimes significantly, across Russian Federation, São Tomé and Príncipe, Senegal, indicator sets. The average correlation coefficient Sierra Leone, Slovenia, the Solomon Islands, South between the 10 indicator sets included in the Africa and Ukraine. Second, Doing Business ranks these aggregate ranking is 0.36, and the coefficients economies on the increase in their ranking on the ease between any 2 sets of indicators range from 0.17 of doing business from the previous year using (between protecting investors and getting electricity) comparable rankings. to 0.57 (between starting a business and protecting Selecting the economies that implemented regulatory 5 reforms in at least 3 topics and improved the most in See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to the aggregate ranking is intended to highlight Do It� (World Bank, Washington, DC, 2005). Principal components economies with ongoing, broad-based reform and unobserved components methods yield a ranking nearly programs. identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 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 EASTERN EUROPE AND CENTRAL ASIA (ECA) 101 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/