65495 Economy Profile: Ukraine © 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. 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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 Ukraine 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 40 Registering property .................................................................................................................. 48 Getting credit .............................................................................................................................. 58 Protecting investors ................................................................................................................... 65 Paying taxes ................................................................................................................................ 75 Trading across borders .............................................................................................................. 83 Enforcing contracts .................................................................................................................... 92 Resolving insolvency .................................................................................................................. 99 Data notes ................................................................................................................................. 105 Resources on the Doing Business website ............................................................................ 110 Doing Business 2012 Ukraine 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2010). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 10 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts and transparency of government procurement, resolving insolvency. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 183 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 32 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 18 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for Ukraine. To allow useful comparison, it recommends regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2012, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2011 (except for http://www.doingbusiness.org. Doing Business 2012 Ukraine 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: Eastern Europe & Central Asia business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 45,759,961 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 3,010.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 152 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 149 investors, paying taxes, trading across borders, Change in rank: -3 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 Ukraine 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2012 Ukraine 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy’s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How Ukraine and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 Ukraine 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Ukraine ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 Ukraine 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the ―frontier,‖ a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy’s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy’s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy’s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has Ukraine come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 Ukraine 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Ukraine Kyrgyz Republic DB2012 Best performer globally Kazakhstan DB2012 Russian Federation Moldova DB2012 Ukraine DB2012 Ukraine DB2011 Belarus DB2012 Poland DB2012 Indicator DB2012 DB2012 Starting a Business 112 118 9 57 17 88 126 111 New Zealand (1) (rank) Procedures (number) 9 10 5 6 2 7 6 9 Canada (1)* Time (days) 24 27 5 19 10 9 32 30 New Zealand (1) Cost (% of income per 4.4 6.1 1.3 0.8 3.5 9.1 17.3 2.0 Denmark (0.0)* capita) Paid-in Min. Capital (% 1.8 2.2 0.0 0.0 0.0 9.9 14.0 1.6 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 180 182 44 147 62 164 160 178 China (1) (rank) Procedures (number) 21 21 13 32 12 27 30 51 Denmark (5) Time (days) 375 375 140 189 142 291 301 423 Singapore (26)* Cost (% of income per 1462.3 1731.4 41.0 93.2 171.8 79.2 53.6 183.8 Qatar (1.1) capita) Doing Business 2012 Ukraine 11 Kyrgyz Republic DB2012 Best performer globally Kazakhstan DB2012 Russian Federation Moldova DB2012 Ukraine DB2012 Ukraine DB2011 Belarus DB2012 Poland DB2012 Indicator DB2012 DB2012 Getting Electricity (rank) 169 169 175 86 181 160 64 183 Iceland (1) Procedures (number) 11 11 7 6 7 7 4 10 Germany (3)* Time (days) 274 274 254 88 337 140 143 281 Germany (17) Cost (% of income per 229.2 275.2 1383.8 88.4 2545.6 660.6 209.3 1852.4 Japan (0.0) capita) Registering Property 166 165 4 29 17 18 89 45 New Zealand (3) (rank) Procedures (number) 10 10 2 4 4 5 6 5 Portugal (1)* Time (days) 117 117 10 40 5 5 152 43 Portugal (1) Cost (% of property 3.9 4.1 0.0 0.1 2.2 0.9 0.4 0.2 Slovak Republic (0.0) value) Getting Credit (rank) 24 21 98 78 8 40 8 98 United Kingdom (1)* Strength of legal rights 9 9 3 4 10 8 9 3 New Zealand (10)* index (0-10) Depth of credit 4 4 5 5 4 4 5 5 Japan (6)* information index (0-6) Public registry coverage 0.0 0.0 49.5 0.0 0.0 0.0 0.0 0.0 Portugal (86.2) (% of adults) Private bureau coverage 17.0 10.1 0.0 37.6 18.7 3.0 74.8 35.8 New Zealand (100.0)* (% of adults) Protecting Investors 111 108 79 10 13 111 46 111 New Zealand (1) (rank) Extent of disclosure 5 5 7 9 8 7 7 6 France (10)* index (0-10) Doing Business 2012 Ukraine 12 Kyrgyz Republic DB2012 Best performer globally Kazakhstan DB2012 Russian Federation Moldova DB2012 Ukraine DB2012 Ukraine DB2011 Belarus DB2012 Poland DB2012 Indicator DB2012 DB2012 Extent of director 2 2 1 6 7 1 2 2 Singapore (9)* liability index (0-10) Ease of shareholder suits 7 7 8 9 8 6 9 6 New Zealand (10)* index (0-10) Strength of investor 4.7 4.7 5.3 8.0 7.7 4.7 6.0 4.7 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 181 181 156 13 162 83 128 105 Canada (8) Payments (number per 135 135 18 7 52 48 29 9 Norway (4) year) Time (hours per year) 657 657 654 188 210 228 296 290 Luxembourg (59) Trading Across Borders 140 136 152 176 171 134 46 160 Singapore (1) (rank) Documents to export 6 6 9 9 8 6 5 8 France (2) (number) Hong Kong SAR, Time to export (days) 30 30 15 76 63 32 17 36 China (5)* Cost to export (US$ per 1865 1560 2210 3130 3210 1545 1050 1850 Malaysia (450) container) Documents to import 8 8 10 12 9 7 5 10 France (2) (number) Time to import (days) 33 33 30 62 72 35 16 36 Singapore (4) Cost to import (US$ per 2155 1580 2615 3290 3450 1740 1000 1800 Malaysia (435) container) Enforcing Contracts 44 44 14 27 48 26 68 13 Luxembourg (1) (rank) Doing Business 2012 Ukraine 13 Kyrgyz Republic DB2012 Best performer globally Kazakhstan DB2012 Russian Federation Moldova DB2012 Ukraine DB2012 Ukraine DB2011 Belarus DB2012 Poland DB2012 Indicator DB2012 DB2012 Time (days) 343 345 275 390 260 352 830 281 Singapore (150) Cost (% of claim) 41.5 41.5 23.4 22.0 29.0 28.6 12.0 13.4 Bhutan (0.1) Procedures (number) 30 30 29 36 38 30 37 36 Ireland (21)* Resolving Insolvency 156 158 82 54 150 91 87 60 Japan (1) (rank) Time (years) 2.9 2.9 5.8 1.5 4.0 2.8 3.0 2.0 Ireland (0.4) Cost (% of estate) 42 42 22 15 15 9 15 9 Singapore (1)* Recovery rate (cents on 8.9 7.9 33.5 42.7 11.7 31.3 31.5 41.5 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practiceâ€? marks, see the data notes for details. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2012 Ukraine 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur ï‚· Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that all government and nongovernment entities involved in the process ï‚· Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business: ï‚· Does not qualify for any special benefits. ï‚· Is a limited liability company, located in the ï‚· Does not own real estate. largest business city. ï‚· Is 100% domestically owned. ï‚· Conducts general commercial or industrial activities. Doing Business 2012 Ukraine 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Ukraine? costs 4.4% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 1.8% of income per capita (figure a business there requires 9 procedures, takes 24 days, 2.1). Figure 2.1 What it takes to start a business in Ukraine Paid-in minimum capital (% of income per capita): 1.8 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Ukraine 16 STARTING A BUSINESS Globally, Ukraine stands at 112 in the ranking of 183 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Ukraine to start a business. Figure 2.2 How Ukraine and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 Ukraine 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in Ukraine That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in Ukraine over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 118 112 Procedures (number) 15 15 15 10 10 10 10 10 9 Time (days) 40 34 34 33 27 27 27 27 24 Cost (% of income per 25.6 17.6 10.6 9.2 7.8 5.5 5.8 6.1 4.4 capita) Paid-in Min. Capital (% 121.5 113.9 183.0 198.8 203.1 174.2 153.5 2.2 1.8 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Ukraine 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by Ukraine on ways to improve the ease of starting a the economies that today have the best performance business. And changes in regional averages can show regionally or globally on the procedures, time, cost or where Ukraine is keeping up—and where it is falling paid-in minimum capital required to start a business behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 Ukraine 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 8 economies in Eastern Europe & Central Asia have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 Ukraine 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Ukraine (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Ukraine made starting a business easier—or not? By Doing Business report year DB Year Reform Ukraine made starting a business easier by eliminating the DB2012 requirement to obtain approval for a new corporate seal. Ukraine eased business start-up by substantially reducing DB2011 the minimum capital requirement. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Ukraine 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Ukraine is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Kiev firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Tovarystvo z Obmezhenoyu Vidpovidalnistyu - professionals and the study of laws, regulations and Limited Liability Company publicly available information on business entry in Start-up capital: 10 times GNI per capita that economy. Following is a detailed summary of those procedures, along with the associated time Paid-in minimum capital (% of income per and cost. These procedures are those that apply to capita): 1.8 a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Ukraine—and the time and cost Time to No. Procedure Cost to complete complete Notarize company charter and execute premises (if needed) The notary fees range from UAH 30 to UAH 75 at the state notary and from UAH 500 to 800 UAH at the private notary. The exact fee depends on the number of participants for approval, the number of pages and 1 copies of registration documents, and the additional notary fees 1 day UAH 600 approved by the Regional (Oblast) Department of Justice. To open a temporary bank account, the founders must submit evidence of their decision to appoint a person with signature authority to execute transactions on this account. The decision should be formalized by a notarized power of attorney. Open a bank account for initial capital Founders must contribute 50% of their charter fund contribution before registering the company. Founder contributions may be made in cash, including foreign currency, as well as in kind. Temporary accounts are restricted to receiving the contributions of funds for the formation of the nominal (share) capital of the company being incorporated. No other operations are allowed. no charge or up to 2 1 day UAH 100 The following documents must be submitted to the bank to open a temporary account: - Application for opening the account in the form established by Regulation No. 492. The application should be signed by the person authorized by the founders of the legal entity (could be a separate power of attorney granted to the individual concerned). - Original or notarized copy of the constituent documents (charter and, Doing Business 2012 Ukraine 22 Time to No. Procedure Cost to complete complete in some cases, foundation agreement). - The founders’ decision to grant a power of attorney, which should be notarized if at least one founder is an individual). - The signature specimen and the imprint of the seal (as specified in Regulation No. 492). The signature specimen should contain the signature of the person(s) authorized by the founders to sign the bank account documents. While the company is under formation, it does not have a corporate seal. Thus, at this point, the card should be submitted without the seal and signed by the authorized bank employee. Pay registration fee at the bank 3 1 day nominal The cost for regular procedure (5 days) is UAH 81 and for expedited procedure (3 days) is UAH 162. Register at the Registration Office Founders must submit the following documents when registering at the Registration Office: - The charter (two copies). - Minutes of founders’ meeting. 4 - Application form (registration card). 5 days UAH 170 - Bank document, evidencing payment of registration fee. - Proof of payment of minimum capital requirement, that is, either bank documents for cash contributions or, otherwise, transfer acceptance act (executed between the founders and the company) for in-kind contributions. Register at the State Statistics Committee 5 Companies must register with the State Statistics Committee, although 1 day UAH 25.94 the Registration Office has already filed some information with the Statistics Office. Register VAT at the State Tax Authority and obtain a VAT number A company with annual turnover of up to UAH 1 million is eligible for registration as a 6% or 10% consolidated taxpayer. A 10% consolidated 10 days UAH 17 6 taxpayer may not register as a VAT payer. A company is automatically registered as a profit taxpayer during primary registration (see Procedure 4). However, those companies that must register as a VAT payer must register for this tax separately. Prepare a seal UAH 190-250, 7 2 days depending on the complexity of a seal Open a permanent bank account bank’s charge or no 8 After the company is registered with all relevant state authorities, a 1 day charge temporary bank account can be converted into an operational account, which under Ukrainian banking law, is designated as a "current Doing Business 2012 Ukraine 23 Time to No. Procedure Cost to complete complete account." To change the account status from temporary to current, the bank must receive the following: - The set of company documents stipulated by Ukrainian banking law (the same documents as those to be provided by an existing company) to open a new bank account. One of these is the copy of the company’s certificate of registration, which contains the company's tax identification number. - A confirmation (reply) from the tax authorities that they have registered this bank account. Notify the District Tax Inspectorate of the opening of the permanent bank account Before converting the temporary account to a permanent (current) account, the bank must receive a confirmation (reply) from the tax authorities that they have registered the current account. To receive the confirmation, the bank must notify the tax inspectorate in its district that the current account has been opened; this notification should be made via a special email system of the National Bank of Ukraine. During this transitional stage, some banks still provide notification by postal mail. The bank must provide this notification within 3 working days of converting the temporary account to current. Before sending the notification, the bank must obtain prior written consent from the account owner. 9 2 days no charge Within 3 working days of receiving the bank notification, the tax authorities must provide the bank (via email) the confirmation of the account registration (due to the transitional stage of implementing the confirmation email, tax authorities may send the confirmation to the bank by postal mail). Upon receiving the confirmation, the bank must change the status of the account from "temporary" to "current." After this change, both credit (deposit) and debit (payment) operations are allowed. Until the bank receives the confirmation, the account cannot be used for debit operations (withdrawal or transfer of funds). Owing to the transitional period for implementing the bank e-mail notification to the tax authorities, currently some accountholders opt to notify, and to receive the confirmation from, the tax authorities themselves and then forward the confirmation to the bank. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Ukraine 24 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes ï‚· Is a limited liability company operating in ï‚· Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The ï‚· Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long. ï‚· Has 60 builders and other employees. ï‚· Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring ï‚· Is a new construction (there was no special conditions). previous construction on the land). ï‚· Will take 30 weeks to construct (excluding all ï‚· Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2012 Ukraine 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 21 procedures, takes 375 days build a warehouse in Ukraine? According to data and costs 1462.3% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Ukraine Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Ukraine 26 DEALING WITH CONSTRUCTION PERMITS Globally, Ukraine stands at 180 in the ranking of 183 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Ukraine to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Ukraine and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 Ukraine 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to deal with construction permits 3.1). That can help identify where the potential for in Ukraine today, data over time show which aspects of improvement is greatest. Table 3.1 The ease of dealing with construction permits in Ukraine over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 182 180 Procedures (number) 29 29 29 30 30 21 21 Time (days) 511 511 511 544 528 375 375 Cost (% of income per 1,006.6 829.9 676.2 1,815.5 1,535.0 1,731.4 1,462.3 capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practiceâ€? marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Ukraine 28 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by ways to improve the ease of dealing with construction the economies that today have the best performance permits. And changes in regional averages can show regionally or globally on the procedures, time or cost where Ukraine is keeping up—and where it is falling required to deal with construction permits (figure 3.3). behind. These economies may provide a model for Ukraine on Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 Ukraine 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practiceâ€? mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Ukraine 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Ukraine (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Ukraine made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. Ukraine made dealing with construction permits easier by DB2011 implementing national and local regulations that streamlined procedures. DB2010 No reform. The cost and time for dealing with construction permits DB2009 increased. All new construction projects are now subject to an infrastructure tax. And an administrative backlog has increased the time. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Ukraine 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Ukraine are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Kiev information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers UAH 9,582,356 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Ukraine —and the time and cost Time to No. Procedure Cost to complete complete Hire a Private Design Institute to develop a pre-project city planning justification The contents and scope of the pre-project city-planning justification must be prepared according to the State Construction Regulations (ДБÐ? Б.1.1.-4-2002). The justification is prepared by a private and independent organization licensed for such an activity. The private firm can be chosen by the applicant. In accordance with provision of Law No. 509-VI, effective as of 15 April 2009, customers should obtain pre-project city planning justification only if there are no local rules of building up the area or if customers’ intentions to build new construction are not corresponded with existing local rules of building up (Rules of Construction in City of Kyiv, approved by the Decision of Kyiv City Council, dated 27 January 2005, 1 day USD 9,104 1 No. 11/2587). However, due to early stages of reforms all companies must obtain this pre-project city planning justification. According to provision of Law No. 509-VI, the pre-project city-planning justification is to be approved only by the following authorities: - the state authority of city-planning and architecture (the Chief Department of Town-Planning, Architecture and Urban Environment Design of the Kyiv City State Administration), - the state authority of land resources (the Chief Department of Land Resources of the Kyiv City State Administration (Kyivzem), - the state authority of cultural heritage protection (the Chief Department of Cultural Heritage Protection of the Kyiv City State Administration), - the state nature conservation authority (the Department of Natural Resources Protection of the Kyiv City State Administration), Doing Business 2012 Ukraine 32 Time to No. Procedure Cost to complete complete - the state sanitary and epidemiological authority (the Kyiv City Sanitary and Epidemiological Inspection) The cost of the pre-project justification may vary from one company to another, but ranges from USD 4 and USD 10. Assuming an average price, the total cost would be: USD 7 x 1,300.6 sq. m. = USD 9,104.2. Request and obtain certificate of approval from the Kiev Center of City Planning and Architecture 2 The Kiev Center of City Planning and Architecture provides its 30 days no charge conclusions on the pre-project city-planning justification in connection with the requirements showing the expected parameters of the warehouse, general plan, cost estimates, and legal justification. Request and obtain architectural and technical objectives/ conditions from the Chief Department of Town-Planning, Architecture and Urban Environment Design of the Kiev City State Administration The architectural and technical objectives/conditions are part of the input data needed for designing the project. The maximum official cost for obtaining of the architectural-planning task should be calculated as: UAH 237.4 x 7.01= UAH 1664.17. Resolution 489 of the Cabinet of Ministers "On Approval of the Procedure for Issuance of the Benchmark Data for the Designing of TownPlanning Objects" dated 20 May 2009 develops provisions of Law of Ukraine No. 509-VI dated 16 September 2008. Under Regulation No. 489, the benchmark data include: (a) city planning conditions; (b) technical conditions; and (c) design assignment. The city planning conditions and restrictions are based on the respective city development rules (Rules of Development of Kiev City). 30 days UAH 1,664 3 These should not interfere with the engineering and architectural solutions of the project, unless only required by the need to protect the existing architectural, historical or cultural environment. The form of the city planning conditions and restrictions has been approved by the same Regulation No. 489. In order to obtain the city planning conditions and restrictions, BuildCo should submit to the Main Deparment of the City-Planning, Architecture and Urban Environment Design of the Kiev City State Administration the application together with the notarized copies of its foundation documents and of the documents confirming its land title as well as predesign documents, if any. The documents are checked for compliance with the city development rules (Rules of Development of Kiev City) within 10 days upon receipt of the documents. In case of the positive outcome of such compliance check, the city planning conditions and restrictions are issued to the developer (BuildCo) within a two-week. If, however, the outcome is negative, the respective conclusion and recommendations on elimination on incompliance is issued within a one-month term. If the developer's intention to construct the property does not comply with the city planning documentation, it can initiate the proceeding for the amendment of such documentation by filing a respective Doing Business 2012 Ukraine 33 Time to No. Procedure Cost to complete complete application with the Main Deparment of the City-Planning, Architecture and Urban Environment Design of the Kiev City State Administration which decides on the matter within 2 weeks in coordination with the relevant bodies (land resources, environmental and cultural protection authorities, sanitary and epidemiological stations) and submits its respective proposals to the Kiev City Council for the final approval. The implementation of the relevant practice of issuing city planning conditions and restrictions to developers has already started in Kiev. Upon obtaining of the city planning conditions and restrictions, the developer should apply for the technical conditions. These include the data on engineering and utilitity servicing of the to- beconstructed property (the warehouse), including the sources of supply, connection points as well as the basic engineering parameters of the property. The city planning conditions and restrictions as well as the technical conditions are valid until completion of construction, but for the term not less than 2 and not longer than 5 years and they can be extended at the request of the developer. The design assignment should comply with the city planning conditions and terms and refine the benchmark for design, with account for the specific features of the project. The design assignment is developed and approved by the developer and is provided to the general designer for the project. * Request and obtain technical terms and conditions from the sewage authority The application must include the plan, information on the expected volume of sewerage system use, and basic characteristics of the 4 building. 15 days UAH 2,895 Regulation 489 does not include any official fee. An unofficial fee estimated to UAH 2895 might be paid by BuildCo. A new regulation with a fee schedule might be passed in the coming future. * Request and obtain technical terms and conditions from the water supply authority The application must include the plan, information on the expected 5 volume of water use, and basic characteristics of the building. 15 days no charge Regulation 489 does not include any official fee. An unofficial fee estimated to UAH 2895 might be paid by BuildCo. A new regulation with a fee schedule might be passed in the coming future. * Request and obtain technical terms and conditions from the electricity distribution authority The application must include the plan, information on the expected rate of electricity consumption, and basic characteristics of the building. 15 days UAH 700 6 Regulation 489 does not include any official fee. An unofficial fee estimated between UAH 500 and UAH 957 might be paid by BuildCo. A new regulation with a fee schedule might be passed in the coming future. Doing Business 2012 Ukraine 34 Time to No. Procedure Cost to complete complete * Request and obtain technical terms and conditions from the fixed telephone line provider The application must include the plan, information on the expected 7 level of telephone service, and basic characteristics of the building. 15 days UAH 700 Regulation 489 does not include any official fee. An unofficial fee estimated to UAH 697 might be paid by BuildCo. A new regulation with a fee schedule might be passed in the coming future. * Request and obtain technical terms and conditions from the Fire Safety Department 8 Project drawings are verified against the fire safety requirements. 15 days no charge Regulation 489 does not include any official fee. A new regulation with a fee schedule has to be developed by the Fire Safety Department * Request and obtain technical terms and conditions from the Department of State Auto Inspection, Main Office of the Ministry of Interior Affairs of Ukraine in Kiev City The Department of State Auto Inspection at the Main Office of the 15 days no charge 9 Ministry of Interior Affairs of Ukraine in Kiev City compares the general plan of the building with the traffic safety requirements. Regulation 489 does not include any official fee. A new fee schedule has to be developed. * Contribution to the city social and engineering-transport infrastructure As of 27 January 2007 according the Resolution of the Cabinet of Ministers of Ukraine, No. 40 which updates the Decree of Kiev City Council from 27 February 2003 "On shared participation (shares) of investors (Building Owners) creation of city social and engineering- transport infrastructure in Kiev City", the building which is set into operation will be approved only after paying the obligatory share of participation fees of investor into development of social, civil, engineering and traffic infrastructure of the city of Kyiv. The amount of such contribution is defined by the Chief Department of Economics and Investments of the Kyiv Municipal State Administration in certificate on 10 approval on the stage of elaborating the project documentation. 1 day UAH 246,360 According to Law of Ukraine "On Alteration of Some Legislative Acts of Ukraine Regarding Assistance of the Construction", dated 16 September 2008, No. 509-VI, there is a new order on paying the contribution to the city social and engineering-transport infrastructure. This amends the relevant Law of Ukraine ―On the Planification and Building-up of the Territories‖, dated 20 April 2000, No. 1699-III. Under this amendment the following main features are introduced: - BuildCo should sigh agreement with local municipal council (the Kyiv City Administration), where the terms of paying contribution to the city social and engineering-transport infrastructure (hereinafter – ―contribution payment‖) is to be stipulated; such agreement should be signed before building permit obtaining; Doing Business 2012 Ukraine 35 Time to No. Procedure Cost to complete complete - BuildCo should pay contribution payment after finishing the warehouse construction, but not later than one month after it; - contribution payment should not exceed 10% of warehouse construction budget (4% for residential buildings), excluding expenses related to obtaining the land plot for construction, installation building utility facilities and transport communications; - if technical terms and conditions establish need for building new utility facilities outside of the land plot, the amount of contribution payment should be decreased by the cost of such expenses; - contribution payment should not be charged for rendering services, performing of works or transferring of any assets for benefits of local authorities. The Decision of Kyiv City Council, dated 17 January 2008, No. 3/4475 stipulates special conditions for calculating contribution payment: Si = Nbe * S * Iz * Ii, where: Si - amount of share of investor Nbe - normative for certain branch of economy, which depends on functional use of a new building. In BuildCo’s case this is "other non- residential premises", so Nbe = 52,5 S- square of an object, in our case S = 1300,6 Iz - index of zone of Kiev. In our case we'll take one for peri-urban area of Kiev, Iz = 2,0 Ii- inflation index from 01.01.2003 to present. Periods to be captured are from 2003 to 2009 = 8,3 +9,9 + 12,1 + 15,5+22,3+12,3 = 80,4 % or Ii = UAH 1,804 Si = 52.5 * 1300.6 * 2,0 * 1,804 = UAH 246,359.65 Request and obtain approval of project design drawings and estimates by comprehensive state expertise Approval of project design drawings and estimates is granted by the State Enterprises ―Special-purpose State Organization – Central Service of Ukrainian State Construction Expertise‖(hereinafter – SE ―Ukrderzhbudexpertyza‖). The agency operates as a one-stop shop. It obtains all the approvals and pays the fees to the relevant agencies within 30 days. However, in practice, this agency is not functional, and the company must gather all the information itself. The relevant agencies are the municipal architecture and construction 74 days UAH 17,248 11 department; the road traffic safety department; the fire safety department; the fixed telephone line provider; the electricity distribution authority; the water supply authority; the water and sewerage authority; the sanitary and hygienic department; and the labor safety department. According to the Resolution of the Cabinet Ministers of Ukraine No.1269 as of 31 October 2007 effective January 1, 2008 the procedure related to obtaining the state expertise from Ukrainian Expertize Authority ―Ukrderzhbudexpertiza‖ has been modified. According to it now there is a timelimit for issuing the expertise between 45 and 120 days. However, the time for the expertise may be prolonged from 45 to Doing Business 2012 Ukraine 36 Time to No. Procedure Cost to complete complete 120 days due to environmental aspects of the project. The final clearance is granted after the project is discussed at the next session of the city construction board. It is also stipulated that the authority will be subordinate to to Ministry of Regional Constructions. The fees have been reviewed and vary from 0,05% to 0,7% (depends on normative construction cost), but in all cases such cost may not be higher UAH 180,000. Request and obtain the building permit from the State Inspection of Architecture and Construction Control in Kiev The application for a building permit is submitted to the State Inspection of Architecture and Construction Control Supervision in Kiev, and should include the location permit, the plan, the state comprehensive expertise opinion, proof of proof of authorization to carry out the construction project, and proof of land title. The provincial law on construction of buildings was revised: The Kiev Development Regulation was adopted by Kiev City Administration Council Decision No. 11/2587 (dated January 27, 2005). According to this regulation, the time to issue a permit is 7 days. The company must provide notification of the start of construction to the state inspectorate 7 days in advance and in writing (either by fax or by letter). As provided by Law of Ukraine "On Alteration of Some Legislative Acts of Ukraine Regarding Assistance of the Construction", dated 09 September 2008, No. 509-VI the procedure of obtaining the building permit has been modified. In particular these changes concern the 12 documents to be submitted along with application: 30 days no charge (1) a document of land title (the State Act on the Right of Ownership to the Land Plot, lease agreement or superficies), (2) a project documentation for construction with all certificates of approval, (3) the information about field and technical supervision and (4) documents proving contractor’s capacity (statutory documents, registration certificate, building licenses, contractor's agreement etc.). Additionally, these changes provide for a possibility to execute preliminary works on the construction site without permit for construction of a city-planning object (building permit). For such reason applicant should submit to the State Inspection of Architecture and Construction Control in Kyiv the following documents: (1) a document of land title (the State Act on the Right of Ownership to the Land Plot, lease agreement or superficies), (2) a city-planning conditions and restrictions for building up of the land plot from local authorities, (3) a project documentation for execution preliminary works approved and confirmed in compliance with state construction rules, (4) a document about assigning contractors. The term for issuance of mentioned permit is 10 working days and it is Doing Business 2012 Ukraine 37 Time to No. Procedure Cost to complete complete free of charge. Constructors should execute preliminary works upon the expiration of 7 days from the day of obtaining the permit. However, this option has not been fully implemented in practice. The scheduled and unscheduled inspections take place during the construction. The inspection procedure during the construction is regulated by Regulation of the Cabinet of Ministers of Ukraine ―On Approval of the Regulation on the State Architectural and Building Control‖, dated 25 March 1993, No. 225. According to the Regulation the architectural and building control and supervision should be exercised by the State Architectural and Building Inspection and its territorial branches (hereinafter – ―Build Inspection‖). For this reason Build Inspection has free access to the construction sites and is entitled to execute selective examination. Build Inspection is also authorized to demand the elimination of construction legislation breaches and even to terminate the construction works once they don’t meet the requirements of legislation. Nevertheless, Law of Ukraine ―On the Fundamental Bases of the State Supervision (Control) in the Economic Activity Sphere‖, dated 05 April 2007, No. 877-V stipulates the restrictions for state inspection in general. The unscheduled inspection should be carried out in particular cases which are stipulated by the abovementioned law, namely: (1) on request of BuildCo, (2) on queries of other entities to Build Inspection with information on construction legislation breaches by BuildCo, (3) breaches of the terms and conditions for submission of obligatory reports or submission of such reports with false dates. In any way, scheduled or unscheduled inspections should be executed only in presence of the BuildCo authorized person. Build Inspection is obligated to send to BuildCo notice on the scheduled inspection in 10 days before examination. Request and obtain order on city layout modification from the Main Department of Control for the Improvements in Kiev City In accordance with Decision of Kyiv City Council, dated 31 October 2006, No. 118/175 the Main Department of Control of City Layout and Design in Kyiv City was reorganized to the Main Department of Control 40 days no charge 13 for the Improvements. The company must obtain an order from the Main Department of Control for the Improvements in Kiev City, clearing it to dig culverts and post road signs for construction work. Request and connect to water and sewage services 14 The Agency is Kyivvodokanal Joint Stock Company. 4 days UAH 700 The exact total price and other terms for connection the warehouse to water and sewage services should be stipulated in the agreement Doing Business 2012 Ukraine 38 Time to No. Procedure Cost to complete complete between the BuildCo as the customer and Kyivvodokanal Joint Stock Company as the supplier on the basis of project documentation elaborated for the purpose of connection. Therefore the cost provided above should be deemed as an average and approximate. * Request and connect to phone services The Ukrainian State Telecommunications Corporation (Ukrtelecom) is the monopolistic organization in this sphere, but not the only one. The other licensed enterprises can provide the communicational services. The terms and conditions for connection the warehouse to phone 15 services should be stipulated in agreement between the BuildCo as the 4 days UAH 720 customer and Ukrtelecom as the supplier. On May 18, 2009, Decision Number 1491 of the National Committee on Telecommunication of Ukraine, entered into force and set the cost for phone connection to UAH 720 without VAT. The former cost was UAH 692. (http://www.ukrtelecom.ua/services/business/cityphone/tariff) Obtain Act of Readiness for Exploitation of Warehouse from the State Inspectorate 14 days no charge 16 Receive Inspection from State Inspectorate 17 1 day no charge Obtain Certificate of Compliance from State Inspection of Architecture and Construction Control in Kiev The Act of Readiness for Exploitation of Warehouse should be submitted to the State Inspection of Architecture and Construction Control in Kyiv. Certificate of warehouse compliance with the project documentation, state standards and construction regulations (hereinafter - the ―Certificate of compliance‖) by State Inspection of Architecture and Construction Control in Kyiv is then issued within 2 working days. However in practice it may take up to 2 months. 18 30 days UAH 2,160 The date of issuance of mentioned certificate is the date of setting the warehouse into operation. The customer of construction should enter into contract with electricity, gas, water, heating etc. Since 14.01.2010, the cost of this certificate has been estimated between 0.1 and 5.2 of the minimum wage. Considering a 1300 m2 warehouse and the current amount of minimum wage (UAH 864), the cost will be 2.5* 864 = UAH 2160. Request and obtain warehouse architectural and technical passport approval from the Chief Department of Town-Planning, 19 Architecture and Urban Environment Design of the Kiev City State 30 days no charge Administration Doing Business 2012 Ukraine 39 Time to No. Procedure Cost to complete complete Register the warehouse with the Main Department of Municipal Property of the Kiev City State Administration The procedure of registration of ownership rights to the warehouse consists of the formalization of ownership rights by issuance of the Certificate for the Right to Ownership to the Immoveable Property (ownership certificate) by the Main Department of Municipal Property of the Kyiv City State Administration. The registration of the ownership rights with the Technical Inventory Bureau by means of making the respective record in the Register of the Ownership Rights for Immoveable Property. 90 days UAH 325 20 To register the warehouse, BuildCo must present the acceptance certificate, the technical passport approval documents, proof of ownership of the land, and the building permit. BuildCo is then granted the warehouse ownership certificate. The timeline for issuance of the certificate of ownership by the Main Department of Municipal Property of the Kiev City State Administration should not exceed 20 days. However, if additional information or documents are required, the term can be extended to up to 45 days. * Register a ownership title over the building with Main Department of Municipal Property of the Kiev City State Administration 21 30 days UAH 51 Then, the Building Company has to register a ownership title over the Building with the Technical Inventory Bureau by means of making the respective record in the Register of the Ownership Rights for Immoveable Property. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Ukraine 40 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information ï‚· Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials ï‚· Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes ï‚· 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. ï‚· Is 150 meters long. ï‚· Is a new construction being connected to ï‚· Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead ï‚· Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection: ï‚· Involves installing one electricity meter. The monthly electricity consumption will be 0.07 ï‚· 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 Ukraine 41 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 274 days and costs 229.2% of connection in Ukraine? According to data collected by income per capita (figure 4.1). Doing Business, getting electricity there requires 11 Figure 4.1 What it takes to obtain an electricity connection in Ukraine Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Ukraine 42 GETTING ELECTRICITY Globally, Ukraine stands at 169 in the ranking of 183 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Ukraine to connect a warehouse to electricity. Figure 4.2 How Ukraine and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 Ukraine 43 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for Ukraine on ways to improve the ease of 4.1). If obtaining a new electricity connection requires getting electricity. Regional and global averages on fewer procedures, less time or less cost in other these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in Ukraine and comparator economies Kyrgyz Republic Global average Eastern Europe & Central Asia Kazakhstan Federation Moldova average Ukraine Russian Belarus Poland Indicator Rank 169 175 86 181 160 64 183 129 .. Procedures (number) 11 7 6 7 7 4 10 7 5 Time (days) 274 254 88 337 140 143 281 168 111 Cost (% of income per capita) 229.2 1383.8 88.4 2545.6 660.6 209.3 1852.4 751.2 1,942.3 Source: Doing Business database. Doing Business 2012 Ukraine 44 GETTING ELECTRICITY What are the details? The indicators reported here for Ukraine are based on OBTAINING AN ELECTRICITY CONNECTION a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Kiev utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: JSC Kievenergo verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Ukraine—and the time and cost Time to No. Procedure Cost to complete complete Submit an application for connection to Kievenergo and await technical conditions and conclude supply contract The customer submits to Kievenergo an application for an electricity connection. Attached to the application the customer has to submit a number of documents: a letter with a company seal requesting the connection, bank details of the applicant, company statute, registration certificate from the tax authorities, registration certificate of the company, certificate stating that the company is included in the national company registry, document stating the appointment of the CEO, property ownership certificate and location plan of the property to be connected. After reviewing the application Kievenergo issues technical conditions. The technical conditions concern only the external 1 connection. In general they may include instructions for construction of 7 calendar days UAH 1,442.0 a new substation; lining of high-voltage and low-voltage cables; in a case of reconstruction works - participation of the subscriber in the given actions. The application for technical conditions is submitted to the Department of Development (департамент перÑ?пективного развитиÑ?) at Kievenergo which is then internally passed on to the Regional Office in the particular area of Kiev where the warehouse is located and the regional office determines the point of connection. Technicians in the Regional offices know the network and the substations in their area very well and usually do not need to visit the site for preparation of technical conditions. At this point the connection contract is concluded which outlines the responsibilities between the customer and the utility. Doing Business 2012 Ukraine 45 Time to No. Procedure Cost to complete complete Await completion and approval of the external connection design by a private electrical design company Once the technical conditions are issued the customer hires a licensed project design company to prepare the electrical project design of the external connection. As part of the project design the company prepares a topogeodesic plan (топогеодезичеÑ?кую Ñ?ъемку Ðœ 1:500). The topogeodosic plan is prepared to determine the technical aspects of running cable through the landscape. At the same time the project design firm develops a project on the protection against corrosion of 10 kV cables if installation of a substation is required. These plans are developed simultaneously with the general electrical project design of the external connection. While the project is being developed the approval of the location of the 2 substation connection to the network and/or the route of the cable 10 53 calendar days UAH 11,474.4 kV and 0.4 kV has to be obtained from Kievenergo and from the Main Architectural Planning Organization. At this point the customer should have an operation permit for the warehouse or Main Plan with the Landscape Allocation Plan. The approvals are obtained by the project design firm. If a substation is required before the project design is submitted for approval to Kievenergo it will have to be approved at the State Energy Inspectorate (Energonadzor/―Dergenergonaglyadu‖). Considering the load (140 kW) when receiving an approval of the project of external connection from Kievenergo it is required to attach the project of the internal wiring of the warehouse which at this point should be approved as part of the general architectural design of the warehouse. Obtain an excavation permit at the Head Directorate for Control of Maintenance of Kiev. 3 3 calendar days UAH 250.0 Electrical contractor obtains the permit. Await completion of the external connection works by a private electrical contractor Once the external connection design is ready and approved the external connection works can be carried out by a company which has licenses for external electrical connection works, for installing, testing and preparing substations 10/0.4 kV, for running 10 and 0.4 kV cable and which also has a certificate from an electrotechnical laboratory to take 4 electrical measurements and to test high voltage equipment. If the 40 calendar days UAH 39,750.0 customer hires a qualified electrical contractor he will have all of the above licenses. In addition, the customer or the electrical contractor should have on their team an employee who has special certificate (level 5) for dealing with high voltage equipment. The installed 10 and 0.4 kV cable lines have to be transferred to the city as ―Underground Communication‖ and the electrical contractor has to obtain technical certificates for the lines. First the electrical contractor Doing Business 2012 Ukraine 46 Time to No. Procedure Cost to complete complete has to visit the Main Architectural Planning Organization then Regional Cable Lines and then finally submit the whole package of documents to the Department of Development at Kievenergo and receive there the technical certificate. After the external connection works are finished electrical measurements have to be taken, and the cable lines, transformer and other electrical equipment including internal wiring have to be tested by the electrical contractor. After the testing the electrical contractor prepares a package of technical documents (more than 20 different documents). Await and obtain an inspection by the Acceptance Committee (приемочнаÑ? комиÑ?Ñ?иÑ? ГоÑ?ударÑ?твенного Ð?рхитектурно Строительного КонтролÑ?) of the Inspectorate of the State Archictecture and Construction control The Committee consists of different members from government 11 calendar days no charge 5 construction organizations. Kievenergo can be one of the members. The Committee checks the external installation and internal wiring. They accept the installation for operation (прием в Ñ?кÑ?плуатацию) and issue an Act for the final operation. The inspection is related to the operation of the whole building but the Committee checks the electrical part as well. Await an external inspection carried out by the State Energy Inspectorate (Energonadzor) Once the external connection works are completed the State Energy Inspectorate (Gosenergonadzor) inspects the completed external 7 calendar days no charge 6 connection works. Someone from the applicant’s party has to be present. The Inspectorate checks whether the completed external connection works follow prescribed in the technical conditions specifications. The inspection by the State Inspectorate for Protection of Workers below is carried out to check the safety of the electrical installation. Await and obtain an external inspection carried out by Kievenergo Energosbyt 5 calendar days UAH 435.0 7 Kievenergo supply checks the meters. Await and obtain an external inspection carried out by the State Inspectorate for Protection of Workers 8 The State Inspectorate for Protection of Workers inspects the completed 5 calendar days UAH 350.0 external connection works. Someone from the applicant’s party has to be present. Conclude a supply contract with Kievenergo (Energosbyt) and a contract for maintenance of the installed substation 9 To receive all the approvals required for energization (see next 20 calendar days no charge procedures) the customer has to first conclude a supply contract with Kievenergo (Energosbyt). The supply contract can be concluded only after all the inspections above are completed. Doing Business 2012 Ukraine 47 Time to No. Procedure Cost to complete complete The documents for the supply contract can be sent by mail. It is required to submit a number of documents regarding internal wiring including a Technical Report of the tests of the internal wiring which should be completed after the internal wiring was finished by an electrician. * Await issuance of various approvals from various departments of Kievenergo required for energization Once the supply contract is concluded the electrical contractor obtains 10 from Kievenergo a package of documents which includes a form 150 calendar days no charge specifying all the electrical parameters of the substation, its plan, aprovals from the Inspectorates and a form which has to be signed in 14 to 15 various departments of Kievenergo to obtain a permission to turn the substation on and connect it to the 10 kV line. Submit a request to Kievenergo for a power turn on and electricity starts flowing Once the form is signed at all the department of Kievenergo the 11 customer submits all the approvals and forms to the dispatcher 3 calendar days UAH 350.0 department of Kievenergo. The dispatcher department processes the order which permits it to turn off the 10 kV cable line, do the testing of the high voltage cable and finally turn on the electricity for the substation. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Ukraine 48 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes ï‚· Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned. ï‚· Are located in the periurban area of the economy’s largest business city. ï‚· Has no mortgages attached and has been under the same ownership for the past 10 ï‚· Have 50 employees each, all of whom are years. nationals. ï‚· Consists of 557.4 square meters (6,000 square ï‚· Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000 ï‚· Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal ï‚· Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes. ï‚· Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2012 Ukraine 49 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 117 days and costs 3.9% of the Ukraine? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 10 Figure 5.1 What it takes to register property in Ukraine Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Ukraine 50 REGISTERING PROPERTY Globally, Ukraine stands at 166 in the ranking of 183 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Ukraine to transfer property. Figure 5.2 How Ukraine and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 Ukraine 51 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in Ukraine That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in Ukraine over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 165 166 Procedures (number) 10 10 10 10 10 10 10 10 Time (days) 93 93 93 93 93 93 117 117 Cost (% of property value) 6.4 5.6 4.7 4.9 4.3 4.0 4.1 3.9 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practiceâ€? marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Ukraine 52 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by These economies may provide a model for Ukraine on the economies that today have the best performance ways to improve the ease of registering property. And regionally or globally on the procedures, time or cost changes in regional averages can show where Ukraine required to complete a property transfer (figure 5.3). is keeping up—and where it is falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 Ukraine 53 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practiceâ€? mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Ukraine 54 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Ukraine (table 5.2)? Table 5.2 How has Ukraine made registering property easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Ukraine 55 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business City: Kiev through information collected from local property Property Value: 1,179,191.6 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Ukraine—and the time and cost Time to No. Procedure Cost to complete complete Obtain ownership certificate The seller has to obtain an extract from the Registry of Ownership Rights on Immovable Property or, in those localities where the Registry is not yet established, a certificate from the Bureau of Technical Inventory (BTI) that such building and ownership rights in it are duly registered. Since the building is situated within the territory of Kiev, the procedure to obtain such certificate is stipulated in Decision No: 74/74 of the Kiev City 7, 14 or 30 days UAH 99,17 (7 days); Council dated June 20, 2002 (otherwise, the Order of Ministry of Justice, (depends on choice UAH 81,12 (14 1 dated Feb. 7, 2002 would apply). An on-site inspection is performed in of expedited days); UAH 58,65 order to obtain the certificate. The documentation shall include: procedure) (30 days) Request to issue the certificate Founding documents of the company (original and photocopies) Information with respect to balance-sheet value of the building Documentation confirming title to the building Technical passport of the building Document confirming authorities of an applicant to represent seller (e.g. Power of Attorney) Obtain non-encumbrance certificate 2 Before notarization of the agreement, the notary should check whether 1 day UAH 150-200 or not any prohibitions for real estate alienation and tax encumbrance exist for both the land and the building. Notarization of sale deed 1% of transaction value of the building The sale purchase agreement of the building is notarized by a private or (state duty) + 1% of public notary. Notary’s fees are agreed among parties. There could be 1 day property value 3 one single agreement underpinning both sale of building and sale of (State Pension Fund) land or be two separate agreements: the sale of building (warehouse) + UAH 3,000 and the sale of land parcel. Parties can prepare the sale agreements by (Notary’s fees) themselves before notarization, but usually the notary prefers to use his Doing Business 2012 Ukraine 56 Time to No. Procedure Cost to complete complete standard proforma. State Duty (fee) is paid to the notary and equals 1% of the transactional value of the building. The buyer of the building will also pay a special assessment in the amount of 1% of building’s transactional value to the State Pension Fund. The buyer can make the payment to the State Pension Fund prior to the notarization of building sale agreement or provide the notary with the money to make such payment. The documentation shall include: BTI Certificate (obtained in Procedure 1) Ownership documents Founding documents of the company Decision with respect to the sale of the building (if necessary) Inspect property for valuation The document on evaluation of the price of land can be provided either by the local divisions of the State Centre of the Land Cadastre, or by the legal entities that are licensed by the State Centre of the Land Cadastre 14 days UAH 1000 4 for providing such services. In Kiev, such service would cost around 300 UAH (around 60 USD) and take minimum 2 weeks. The procedure of evaluation of the price of land is quite complex, it includes land inspection, market research, etc. Evaluation of the price of land is required before the notarization of the agreement. Obtain ownership certificate The seller must obtain a certificate that the company’s rights in a land 5 parcel are duly registered. Such certificate is issued by the Center of 10 days UAH 50 State Land Cadastre within 10 days after receiving the request – but may take longer in practice. In Kiev, such a certificate is issued by the Kiev Center of Land Cadastre. Notarization of sale deed The sale purchase agreement of the building is notarized by a private or public notary. Notary’s fees are agreed among parties. There could be one single agreement underpinning both sale of building and sale of land or be two separate agreements: the sale of building (warehouse) and the sale of land parcel. Parties can prepare the sale agreements by themselves before notarization, but usually the notary prefers to use his 1% of transaction standard proforma. State Duty (fee) is paid to the notary and equals 1% value of the land 6 of the transactional value of the building. The buyer of the building will 1 day (state duty) + Notary also pay a special assessment in the amount of 1% of building’s fees (already paid in transactional value to the State Pension Fund. The buyer can make the Procedure 3) payment to the State Pension Fund prior to the notarization of building sale agreement or provide the notary with the money to make such payment. The documentation shall include: BTI Certificate (obtained in Procedure 1) Ownership documents Founding documents of the company Decision with respect to the sale of the building (if necessary) Registration of new title 3, 7 or 14 days UAH 110,83, UAH 7 (depends on choice 86,26, or UAH 61,57 When the sale purchase agreement is notarized, the buying company of expedited respectively Doing Business 2012 Ukraine 57 Time to No. Procedure Cost to complete complete can then proceed with the registration of its property rights. The procedure) company will submit the notarized sale agreement to the Kiev City Bureau of Technical Inventory and Registration of Property Rights in Real Estate. The documentation shall include: Request to register the property rights Notarized sale purchase agreement (original and notarized copy) (obtained in Procedure 3) Technical passport of the building Document confirming authorities of an applicant to represent the buyer (e.g. Power of Attorney) Receipt of fees paid for services Copy of company’s State Registration Certificate and State Statistics Committee Certificate Registration of new title The Law No.1878 of 11 February 2010 of Ukraine "On Amendments of 54-85 days UAH 266 8 the Law of Ukraine "On State Registration of Rights to Immovable Property and Other Legislative Acts of Ukraine" set the time limit for this procedure at 14 days and cost at 266 UAH. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Ukraine 58 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine ï‚· Has 100 employees. the scope of the secured transactions system, ï‚· 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 ï‚· Is a private, limited liability company. (weighted at 62.5%). ï‚· Has its headquarters and only base of operations in the largest business city. Doing Business 2012 Ukraine 59 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Ukraine stands at 24 in the ranking of 183 collateral and bankruptcy laws in Ukraine facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 4 on the The rankings for comparator economies and the depth of credit information index and a score of 9 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Ukraine support lending and borrowing. scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Ukraine and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 Ukraine 60 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Ukraine support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Ukraine over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 21 24 Strength of legal rights 5 9 9 9 9 9 9 9 index (0-10) Depth of credit 0 0 0 0 3 3 4 4 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau 0.0 0.0 0.0 0.0 3.0 3.0 10.1 17.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Ukraine 61 GETTING CREDIT One way to put an economy’s getting credit indicators index for Ukraine in 2011 and shows the number of into context is to see where the economy stands in the other economies having the same score in 2011. distribution of scores across other economies. Figure Figure 6.3 shows the same thing for the depth of credit 6.2 highlights the score on the strength of legal rights information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 Ukraine 62 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Ukraine (table 6.2)? Table 6.2 How has Ukraine made getting credit easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. A new private credit bureau has made it easier to get credit by sharing credit information among financial institutions. DB2009 Now banks can better assess the creditworthiness of potential borrowers. 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 Ukraine 63 GETTING CREDIT What are the details? The getting credit indicators reported here for Ukraine The data on the legal rights of borrowers and lenders are based on detailed information collected in that are gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as collected through a survey of a public credit registry or well as public sources of information on collateral and private credit bureau (if one exists). To construct the bankruptcy laws. For the strength of legal rights index, depth of credit information index, a score of 1 is a score of 1 is assigned for each of 8 aspects related to assigned for each of 6 features of the public credit legal rights in collateral law and 2 aspects in registry or private credit bureau (see summary of bankruptcy law. scoring below). Summary of scoring for the getting credit indicators in Ukraine Eastern Europe & Indicator Ukraine OECD high income Central Asia Strength of legal rights index (0-10) 9 7 7 Depth of credit information index (0-6) 4 5 5 Public registry coverage (% of adults) 0.0 16.2 9.5 Private bureau coverage (% of adults) 17.0 29.4 63.9 Strength of legal rights index (0–10) Index score: 9 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend Yes automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Doing Business 2012 Ukraine 64 Strength of legal rights index (0–10) Index score: 9 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law No provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 4 bureau registry Are data on both firms and individuals distributed? No No 0 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as No No 0 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 0 0 Number of individuals 5,500,000 0 Source: Doing Business database. Doing Business 2012 Ukraine 65 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices ï‚· Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns. ï‚· Has a board of directors and a chief executive ï‚· The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law. ï‚· All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer. ï‚· Mr. James, a director and the majority ï‚· Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2012 Ukraine 66 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Ukraine? The index (figure 7.1). While the indicator does not economy has a score of 4.7 on the strength of investor measure all aspects related to the protection of protection index, with a higher score indicating minority investors, a higher ranking does indicate that stronger protections (see the summary of scoring at an economy’s regulations offer stronger investor the end of this chapter for details). protections against self-dealing in the areas measured. Globally, Ukraine stands at 111 in the ranking of 183 economies on the strength of investor protection Figure 7.1 How Ukraine and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 Ukraine 67 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how ranking on the strength of investor protection index well regulations in Ukraine protect minority investors over time shows whether the economy is slipping today, data over time show whether the protections behind other economies in investor protections—or have been strengthened (table 7.1). And the global surpassing them. Table 7.1 The strength of investor protections in Ukraine over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 108 111 Extent of disclosure 1 1 1 1 5 5 5 index (0-10) Extent of director 3 3 3 3 2 2 2 liability index (0-10) Ease of shareholder 7 7 7 7 7 7 7 suits index (0-10) Strength of investor 3.7 3.7 3.7 3.7 4.7 4.7 4.7 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Ukraine 68 PROTECTING INVESTORS But the overall ranking on the strength of investor and ease of shareholder suits indices may also be protection index tells only part of the story. Economies revealing (figure 7.2). Equally interesting may be the may offer strong protections in some areas but not changes over time in the regional average scores for others. So the scores recorded over time for Ukraine those indices. on the extent of disclosure, extent of director liability Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 Ukraine 69 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Ukraine 70 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Ukraine (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Ukraine strengthened investor protections—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. Investor protections were enhanced by adopting a new law on joint stock companies that regulates approval of transactions between interested parties, increases DB2010 disclosure requirements in annual reports, and makes it easier to sue directors in cases of prejudicial transactions between interested parties. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Ukraine 71 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for shareholder suits indices, a score is assigned for each Ukraine are based on detailed information collected of a range of conditions relating to disclosure, director through a survey of corporate and securities lawyers liability and shareholder suits in a standard case study and are based on securities regulations, company laws transaction (see the notes at the end of this chapter). and court rules of evidence. To construct the extent of The summary below shows the details underlying the disclosure, extent of director liability and ease of scores for Ukraine. Summary of scoring for the protecting investors indicators in Ukraine Eastern Europe & Indicator Ukraine OECD high income Central Asia Extent of disclosure index (0-10) 5 7 6 Extent of director liability index (0-10) 2 4 5 Ease of shareholder suits index (0-10) 7 6 7 Strength of investor protection index (0-10) 4.7 5.7 6.0 Score Extent of disclosure index (0-10) 5 What corporate body provides legally sufficient approval for the transaction? 2 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 2 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 0 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 1 required? Whether an external body must review the terms of the transaction before it takes place? 0 Extent of director liability index (0-10) 2 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 0 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 1 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 0 Doing Business 2012 Ukraine 72 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 0 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 0 Ease of shareholder suits index (0-10) 7 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 0 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 1 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 4 trial? Whether the plaintiff can request categories of documents from the defendant without 0 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 2 Whether the level of proof required for civil suits is lower than that of criminal cases? 0 Strength of investor protection index (0-10) 4.7 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide legally sufficient approval for the transaction 0 = CEO or managing director alone; 1 = shareholders or board of directors vote and Mr. James can vote; 2 = board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Doing Business 2012 Ukraine 73 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company’s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is liable only if he acted fraudulently or in bad faith; 1 = Mr. James is liable if he influenced the approval or was negligent; 2 = Mr. James is liable if the transaction is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes to the company 0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1 = liable for negligence in the approval of the transaction; 2 = liable if the transaction is unfair or prejudicial to the other shareholders. Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 = rescission is unavailable or available only in case of Seller’s fraud or bad faith; 1 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff’s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 Ukraine 74 Whether the plaintiff can directly examine the defendant and witnesses during trial 0 = no; 1 = yes, with prior approval by the court of the questions posed; 2 = yes, without prior approval. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 Ukraine 75 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 2 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes ï‚· TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2009. transactions taxes ï‚· The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. ï‚· Taxes and mandatory contributions include ï‚· 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. ï‚· 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 Ukraine 76 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Ukraine stands at 181 in the ranking of 183 taxes in Ukraine—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 135 tax payments a rankings for comparator economies and the regional year, spend 657 hours a year filing, preparing and average ranking provide other useful information for paying taxes and pay total taxes amounting to 12.2% assessing the tax compliance burden for businesses in of profit (see the summary at the end of this chapter Ukraine. for details). Figure 8.1 How Ukraine and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Ukraine 77 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how the process have changed — and which have not easy (or difficult) it is to comply with tax rules in (table 8.1). That can help identify where the potential Ukraine today, data over time show which aspects of for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Ukraine over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 181 181 Payments (number per 147 147 147 147 147 135 135 year) Time (hours per year) 2,085 2,085 2,085 848 736 657 657 Total tax rate (% profit) 57.3 57.0 56.6 57.2 57.2 55.5 57.1 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Ukraine 78 PAYING TAXES Equally helpful may be the benchmarks provided by ways to ease the administrative burden of tax the economies that today have the best performance compliance. And changes in regional averages can regionally or globally on the number of payments or show where Ukraine is keeping up—and where it is the time required to prepare and file taxes (figure 8.2). falling behind. These economies may provide a model for Ukraine on Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 Ukraine 79 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Ukraine 80 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Ukraine (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Ukraine made paying taxes easier—or not? By Doing Business report year DB Year Reform Ukraine made paying taxes easier and less costly for firms by DB2012 revising and unifying tax legislation, reducing corporate income tax rates and unifying social security contributions. Ukraine eased tax compliance by introducing and continually DB2011 enhancing an electronic filing system for value added tax. DB2010 No reform. The tax burden on businesses was eased by reducing several social security tax rates including: pension fund, social DB2009 security fund, and social insurance for accidents at work. Thanks to electronic tax filing systems, the time to pay taxes was reduced. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Ukraine 81 PAYING TAXES What are the details? The indicators reported here for Ukraine are based on completed during the year. Respondents are asked a standard set of taxes and contributions that would how much in taxes and mandatory contributions the be paid by the case study company used by Doing business must pay and what the process is for doing Business in collecting the data (see the section in this so. The taxes and contributions paid are listed in the chapter on what the indicators cover). Tax practitioners summary below, along with the associated number of are asked to review standard financial statements as payments, time and tax rate. well as a standard list of transactions that the company Summary of tax rates and administrative burden in Ukraine Eastern Europe & Indicator Ukraine OECD high income Central Asia Payments (number per year) 135 37 13 Time (hours per year) 657 302 186 Profit tax (%) 12.2 9.3 15.4 Labor tax and contributions (%) 43.3 21.7 24.0 Other taxes (%) 1.6 9.5 3.2 Total tax rate (% profit) 57.1 40.4 42.7 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate gross Pension fund contributions 24 364 33.2% 37.4 salaries taxable Corporate income tax 4 112 25.0% 12.2 income gross included in Dividend tax 1 0 25.0% amount of 2.7 other taxes dividends Work accident insurance gross 24 0 1.99% 2.2 fund contribution salaries Unemployment insurance gross 24 0 1.6% 1.8 contributions salaries Social Security gross 24 0 1.4% 1.6 contributions salaries Doing Business 2012 Ukraine 82 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate UAH 1354 per square Land tax 12 0 land area 1.3 meter at 1% UAH 1.70 per each number of Municipal tax 12 0 permanent 0.2 employees employee per month UAH 15.00 engine Vehicle tax 4 0 per 100 0.2 capacity cubic cm advertising Advertising tax 1 0 0.5% 0.1 expenses weight of various contaminan Environmental taxes 4 0 0 rates ts discharged Value added tax (VAT) 1 online filing 181 20.0% value added 0 not included Totals 135 657 57.1 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 Ukraine 83 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: ï‚· Is of medium size and employs 60 people. ï‚· Do not require refrigeration or any other ï‚· Is located in the periurban area of the special environment. economy’s largest business city. ï‚· Do not require any special phytosanitary or ï‚· Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy. ï‚· Are one of the economy’s leading export or import products. The traded goods: ï‚· Are transported in a dry-cargo, 20-foot full ï‚· Are not hazardous nor do they include container load. military items. Doing Business 2012 Ukraine 84 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Ukraine? Globally, Ukraine stands at 140 in the ranking of 183 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 6 (figure 9.1). The rankings for comparator economies documents, takes 30 days and costs $1865. Importing and the regional average ranking provide other useful the same container of goods requires 8 documents, information for assessing how easy it is for a business takes 33 days and costs $2155 (see the summary of in Ukraine to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Ukraine and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 Ukraine 85 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in Ukraine That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in Ukraine over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 136 140 Documents to export 6 6 6 6 6 6 6 (number) Time to export (days) 30 30 30 30 30 30 30 Cost to export (US$ per 1,375 1,375 1,375 1,560 1,560 1,560 1,865 container) Documents to import 8 8 8 8 8 8 8 (number) Time to import (days) 36 36 36 33 33 33 33 Cost to import (US$ per 1,395 1,395 1,395 1,580 1,580 1,580 2,155 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by economies may provide a model for Ukraine on ways the economies that today have the best performance to improve the ease of trading across borders. And regionally or globally on the documents, time or cost changes in regional averages can show where Ukraine required to export or import (figure 9.2). These is keeping up—and where it is falling behind. Doing Business 2012 Ukraine 86 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 Ukraine 87 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 Ukraine 88 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Ukraine 89 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Ukraine (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Ukraine made trading across borders easier—or not? By Doing Business report year DB Year Reform Ukraine made trading across borders more difficult by DB2012 introducing additional inspections for customs clearance of imports. DB2011 No reform. DB2010 No reform. In trade, improvements to port infrastructure and services DB2009 reduced the time to import. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Ukraine 90 TRADING ACROSS BORDERS What are the details? The indicators reported here for Ukraine are based on freight forwarders, shipping lines, customs brokers, a set of specific procedural requirements for trading a port officials and banks. The procedural requirements, standard shipment of goods by ocean transport (see and the associated time and cost, for exporting and the section in this chapter on what the indicators importing a standard shipment of goods are listed in cover). Information on the procedures as well as the the summary below, along with the required required documents and the time and cost to documents. complete each procedure is collected from local Summary of procedures and documents for trading across borders in Ukraine Eastern Europe & Indicator Ukraine OECD high income Central Asia Documents to export (number) 6 7 4 Time to export (days) 30 27 10 Cost to export (US$ per container) 1865 1,774 1,032 Documents to import (number) 8 8 5 Time to import (days) 33 29 11 Cost to import (US$ per container) 2155 1,990 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 22 235 Customs clearance and technical control 2 250 Ports and terminal handling 3 430 Inland transportation and handling 3 950 Totals 30 1865 Procedures to import Time (days) Cost (US$) Documents preparation 20 255 Customs clearance and technical control 7 300 Ports and terminal handling 3 600 Inland transportation and handling 3 1000 Totals 33 2155 Doing Business 2012 Ukraine 91 TRADING ACROSS BORDERS Documents to export Documents to import Technical standard certificate Commercial invoice Customs export declaration Customs import declaration Bill of Lading Customs transit document Certificate of Origin Packing list Commercial invoice Technical standard certificate Packing list Cargo release order/ Delivery order Bill of Lading Certificate of origin Doing Business 2012 Ukraine 92 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs, including expert fees assumptions about the case: Enforcement costs ï‚· The seller and buyer are located in the economy’s largest business city. ï‚· The buyer orders custom-made goods, ï‚· The dispute on the quality of the goods then fails to pay. requires an expert opinion. ï‚· The seller sues the buyer before a ï‚· The judge decides in favor of the seller; there competent court. is no appeal. ï‚· The value of the claim is 200% of income ï‚· The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets. ï‚· The seller requests a pretrial attachment to secure the claim. Doing Business 2012 Ukraine 93 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Ukraine stands at 44 in the ranking of 183 dispute through the courts in Ukraine? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, enforcing a contract 10.1). The rankings for comparator economies and the requires 30 procedures, takes 343 days and costs regional average ranking provide other useful 41.5% of the value of the claim (see the summary at benchmarks for assessing the efficiency of contract the end of this chapter for details). enforcement in Ukraine. Figure 10.1 How Ukraine and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 Ukraine 94 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how identify which areas have changed and where the easy (or difficult) it is to enforce a contract in Ukraine potential for improvement is greatest (table 10.1). today, data on the underlying indicators over time help Table 10.1 The ease of enforcing contracts in Ukraine over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 44 44 Time (days) 354 354 354 354 354 354 345 345 343 Cost (% of claim) 41.5 41.5 41.5 41.5 41.5 41.5 41.5 41.5 41.5 Procedures (number) 30 30 30 30 30 30 30 30 30 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Ukraine 95 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for Ukraine on ways to improve the efficiency of the economies that today have the best performance contract enforcement. And changes in regional regionally or globally on the number of steps, time or averages can show where Ukraine is keeping up—and cost required to enforce a contract through the courts where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 Ukraine 96 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Ukraine 97 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Ukraine (table 10.2)? Table 10.2 How has Ukraine made enforcing contracts easier—or not? By Doing Business report year DB Year Reform Ukraine amended legislation to streamline commercial DB2012 dispute resolution and increase the efficiency of enforcement procedures. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Ukraine 98 ENFORCING CONTRACTS What are the details? The indicators reported here for Ukraine are based on codes of civil procedure and other court regulations, as a set of specific procedural steps required to resolve a well as through surveys completed by local litigation standardized commercial dispute through the courts lawyers (and, in a quarter of the economies covered by (see the section in this chapter on what the indicators Doing Business, by judges as well). The procedures for cover). These procedures, and the time and cost of resolving a commercial lawsuit, and the associated completing them, are identified through study of the time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in Ukraine—and the time and cost Eastern Europe & Indicator Ukraine OECD high income Central Asia Time (days) 343 411.63 518.03 Filing and service 33 Trial and judgment 130 Enforcement of judgment 180 Cost (% of claim) 41.5 27.33 19.71 Attorney cost (% of claim) 22.7 Court cost (% of claim) 7.4 Enforcement Cost (% of claim) 11.4 Procedures (number) 30 37.29 31.42 Source: Doing Business database. Doing Business 2012 Ukraine 99 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be business and the case. It assumes that the recovered company: ï‚· Is a domestically owned, limited liability company operating a hotel. ï‚· Has 201 employees, 1 main secured creditor ï‚· Operates in the economy’s largest business and 50 unsecured creditors. city. ï‚· 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 Ukraine 100 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, Ukraine stands at 156 in the ranking of 183 characterize the top-performing economies. How economies on the ease of resolving insolvency (figure efficient are insolvency proceedings in Ukraine? 11.1). The rankings for comparator economies and the According to data collected by Doing Business, regional average ranking provide other useful resolving insolvency takes 2.9 years on average and benchmarks for assessing the efficiency of insolvency costs 42% of the debtor’s estate. The average recovery proceedings in Ukraine. rate is 8.9 cents on the dollar. Figure 11.1 How Ukraine and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 Ukraine 101 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in Ukraine today, help identify where the potential for improvement is data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in Ukraine over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 158 156 Time (years) 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 Cost (% of estate) 42 42 42 42 42 42 42 42 42 Recovery rate (cents on 8.1 8.3 8.4 8.7 9.1 9.1 9.1 7.9 8.9 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2012 Ukraine 102 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where Ukraine is keeping up—and where it is proceedings or on the recovery rate (figure 11.2). falling behind. These economies may provide a model for Ukraine on Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 Ukraine 103 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practiceâ€? mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Ukraine 104 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Ukraine (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Ukraine made resolving insolvency easier—or not? By Doing Business report year DB Year Reform Ukraine amended its legislation on enforcement, introducing DB2012 more guarantees for secured creditors. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Ukraine 105 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2011. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund’s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the ―regional‖ classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 Ukraine 106 Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy’s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 Ukraine 107 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year’s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year’s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea’s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website’s ―Ask a Question‖ on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year’s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the ―distance to frontier.‖ Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 Ukraine 108 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is ―no practice‖ mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree ―no practice‖ or ―not possible‖ mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a ―no ability of different government agencies to deliver practice‖ mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy’s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year’s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It‖ (World Bank, Washington, DC, 2005). Principal components This year’s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the ―frontier‖ and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 Ukraine 109 the extent to which the economy has closed this gap The difference between an economy’s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many th are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95 the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy’s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 Ukraine 110 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 Ukraine 111