91995 Doing Business 2015 Ecuador Economy Profile 2015 Ecuador Doing Business 2015 Ecuador 2 © 2014 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 17 16 15 14 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2015 Ecuador 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 25 Getting electricity ....................................................................................................................... 34 Registering property .................................................................................................................. 42 Getting credit .............................................................................................................................. 50 Protecting minority investors ................................................................................................... 57 Paying taxes ................................................................................................................................ 66 Trading across borders .............................................................................................................. 69 Enforcing contracts .................................................................................................................... 74 Resolving insolvency .................................................................................................................. 81 Labor market regulation ........................................................................................................... 84 Distance to frontier and ease of doing business ranking ...................................................... 91 Resources on the Doing Business website .............................................................................. 94 Doing Business 2015 Ecuador 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). 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 11 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, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for Ecuador. To allow useful comparison, it information on ordering Doing Business 2015, are also provides data for other selected economies available on the Doing Business website at (comparator economies) for each indicator. The data in http://www.doingbusiness.org. this report are current as of June Doing Business 2015 Ecuador 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 Ecuador 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: Latin America & Caribbean based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Upper middle income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. This Population: 15,737,878 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 5,510 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 115 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 115* distance to the best performance in each Doing Business Change in rank: 0 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 58.9 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 58.3 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 0.6 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and 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. Doing Business 2015 Ecuador 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 2015 Ecuador THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Ecuador and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Ecuador 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Ecuador (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Ecuador (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Ecuador 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Ecuador come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 Ecuador 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Ecuador Best performer globally Argentina DB2015 Colombia DB2015 Ecuador DB2015 Ecuador DB2014 Mexico DB2015 Indicator Bolivia DB2015 Brazil DB2015 Chile DB2015 DB2015 Starting a Business 165 157 146 171 167 59 84 67 New Zealand (1) (rank) Starting a Business (DTF 65.31 65.15 72.58 59.07 63.37 89.83 86.13 88.85 New Zealand (99.96) Score) Procedures (number) 13.0 13.0 14.0 15.0 11.6 7.0 8.0 6.0 New Zealand (1.0)* Time (days) 55.5 55.5 25.0 49.0 83.6 5.5 11.0 6.3 New Zealand (0.5) Cost (% of income per 24.0 25.2 15.2 64.4 4.3 0.7 7.5 18.6 Slovenia (0.0) capita) Paid-in min. capital (% 3.5 3.7 4.0 1.6 0.0 0.0 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 59 59 181 129 174 62 61 108 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 76.86 76.82 42.54 64.97 48.31 76.13 76.45 68.43 China (95.53) (DTF Score) Doing Business 2015 Ecuador 12 Best performer globally Argentina DB2015 Colombia DB2015 Ecuador DB2015 Ecuador DB2014 Mexico DB2015 Indicator Bolivia DB2015 Brazil DB2015 Chile DB2015 DB2015 Hong Kong SAR, Procedures (number) 15.0 15.0 21.0 12.0 18.2 13.0 10.0 11.3 China (5.0) Time (days) 114.0 114.0 341.0 275.0 426.1 152.0 73.0 87.6 Singapore (26.0) Cost (% of warehouse 0.8 0.8 3.5 1.1 0.4 0.7 7.4 10.3 Qatar (0.0)* value) Getting Electricity 120 116 104 127 19 49 92 116 Korea, Rep. (1) (rank) Getting Electricity (DTF 67.03 66.87 72.42 65.33 89.20 81.34 74.20 68.47 Korea, Rep. (99.83) Score) Procedures (number) 7.0 7.0 6.0 8.0 4.0 6.0 5.0 6.8 12 Economies (3.0)* Time (days) 74.0 74.0 92.0 42.0 53.3 30.0 105.0 78.9 Korea, Rep. (18.0)* Cost (% of income per 638.5 677.7 45.4 829.3 31.6 62.1 504.4 346.1 Japan (0.0) capita) Registering Property 80 79 119 130 138 45 42 110 Georgia (1) (rank) Registering Property 70.21 70.16 60.63 58.55 56.18 78.96 79.33 62.45 Georgia (99.88) (DTF Score) Procedures (number) 8.0 8.0 7.0 7.0 13.6 6.0 6.0 6.8 4 Economies (1.0)* Time (days) 39.0 39.0 51.5 91.0 31.7 28.5 16.0 63.6 3 Economies (1.0)* Cost (% of property 1.9 2.0 6.6 4.7 2.5 1.2 2.0 5.1 4 Economies (0.0)* value) Getting Credit (rank) 89 86 71 116 89 71 2 12 New Zealand (1) Getting Credit (DTF 45.00 45.00 50.00 35.00 45.00 50.00 95.00 80.00 New Zealand (100) Score) Strength of legal rights 1 1 2 0 2 4 12 8 3 Economies (12)* index (0-12) Doing Business 2015 Ecuador 13 Best performer globally Argentina DB2015 Colombia DB2015 Ecuador DB2015 Ecuador DB2014 Mexico DB2015 Indicator Bolivia DB2015 Brazil DB2015 Chile DB2015 DB2015 Depth of credit 8 8 8 7 7 6 7 8 23 Economies (8)* information index (0-8) Credit registry coverage 0.0 0.0 41.2 15.1 52.5 44.7 0.0 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 73.0 70.9 100.0 39.0 63.6 8.8 87.0 100.0 23 Economies (100.0)* (% of adults) Protecting Minority 117 136 62 160 35 56 10 62 New Zealand (1) Investors (rank) Protecting Minority 46.67 42.50 57.50 40.83 62.50 58.33 71.67 57.50 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 4.3 4.0 5.0 4.0 5.7 6.7 8.0 6.0 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 5.0 4.5 6.5 4.2 6.8 5.0 6.3 5.5 France (7.8)* 10) Strength of minority investor protection 4.7 4.3 5.8 4.1 6.3 5.8 7.2 5.8 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 138 133 170 189 177 29 146 105 (1)* Paying Taxes (DTF United Arab Emirates 62.84 62.50 44.99 12.18 41.31 84.50 59.71 71.17 Score) (99.44)* Payments (number per Hong Kong SAR, 8.0 8.0 9.0 42.0 9.0 7.0 11.0 6.0 year) China (3.0)* Time (hours per year) 654.0 654.0 405.0 1,025.0 2,600.0 291.0 239.0 334.0 Luxembourg (55.0) Trading Across Borders 114 116 128 125 123 40 93 44 Singapore (1) (rank) Trading Across Borders 68.23 67.31 65.11 65.79 66.11 82.05 72.69 81.26 Singapore (96.47) Doing Business 2015 Ecuador 14 Best performer globally Argentina DB2015 Colombia DB2015 Ecuador DB2015 Ecuador DB2014 Mexico DB2015 Indicator Bolivia DB2015 Brazil DB2015 Chile DB2015 DB2015 (DTF Score) Documents to export 7 7 6 7 6 5 4 4 Ireland (2)* (number) Time to export (days) 19.0 20.0 12.0 22.0 13.4 15.0 14.0 12.0 5 Economies (6.0)* Cost to export (US$ per 1,535.0 1,535.0 1,770.0 1,440.0 2,322.8 910.0 2,355.0 1,499.3 Timor-Leste (410.0) container) Cost to export (deflated 1,535.0 1,581.0 1,770.0 1,440.0 2,322.8 910.0 2,355.0 1,499.3 US$ per container) Documents to import 6 6 8 6 8 5 6 4 Ireland (2)* (number) Time to import (days) 24.0 25.0 30.0 28.0 17.0 12.0 13.0 11.2 Singapore (4.0) Cost to import (US$ per 1,520.0 1,520.0 2,320.0 1,745.0 2,322.8 860.0 2,470.0 1,887.6 Singapore (440.0) container) Cost to import (deflated 1,520.0 1,565.6 2,320.0 1,745.0 2,322.8 860.0 2,470.0 1,887.6 US$ per container) Enforcing Contracts 88 88 63 111 118 64 168 57 Singapore (1) (rank) Enforcing Contracts 58.30 58.30 63.88 54.93 53.60 63.85 37.66 64.61 Singapore (89.54) (DTF Score) Time (days) 588.0 588.0 590.0 591.0 731.0 480.0 1,288.0 388.9 Singapore (150.0) Cost (% of claim) 27.2 27.2 20.5 33.2 16.5 28.6 47.9 30.9 Iceland (9.0) Procedures (number) 39.0 39.0 36.0 40.0 43.6 36.0 33.0 36.8 Singapore (21.0)* Resolving Insolvency 151 150 83 96 55 73 30 27 Finland (1) (rank) Resolving Insolvency 28.36 28.37 45.10 42.82 54.52 47.38 70.00 72.59 Finland (93.85) (DTF Score) Doing Business 2015 Ecuador 15 Best performer globally Argentina DB2015 Colombia DB2015 Ecuador DB2015 Ecuador DB2014 Mexico DB2015 Indicator Bolivia DB2015 Brazil DB2015 Chile DB2015 DB2015 Time (years) 5.3 2.8 1.8 4.0 3.2 1.7 1.8 Ireland (0.4) Cost (% of estate) 18.0 18.0 12.0 14.5 12.0 14.5 6.0 18.0 Norway (1.0) Outcome (0 as piecemeal sale and 1 as 0 0 0 0 1 0 1 1 going concern) Recovery rate (cents on 17.9 17.9 28.6 38.9 25.8 30.0 72.0 68.1 Japan (92.9) the dollar) Strength of insolvency 6.0 6.0 9.5 7.0 13.0 10.0 10.0 11.5 5 Economies (15.0)* framework index (0-16) Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of s uch factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2015 Ecuador 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Is a limited liability company, located in the  Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. owned . 1  Has a turnover of at least 100 times income per  Has between 10 and 50 employees. capita.  Conducts general commercial or industrial  Does not qualify for any special benefits. activities.  Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Ecuador 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Ecuador? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 13.0 procedures, takes 55.5 days, average of the 2 largest business cities. See the chapter costs 24.0% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 3.5% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the Figure 2.1 What it takes to start a business in Ecuador - Paid-in minimum capital (% of income per capita): 3.5 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Ecuador 18 STARTING A BUSINESS Globally, Ecuador stands at 165 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Ecuador The rankings for comparator economies and the regional to start a business. Figure 2.2 How Ecuador and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2015 Ecuador 19 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Ecuador (table 2.1)? Table 2.1 How has Ecuador made starting a business easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Ecuador made starting a business easier by introducing an DB2011 online registration system for social security. 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 2015 Ecuador 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Ecuador is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Compañía Limitada firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid in minimum capital requirement: USD 200 the study of laws, regulations and publicly available City: Quito information on business entry in that economy. Following is a detailed summary of those procedures, Start-up Capital: 10 times GNI per capita along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Ecuador - Time to No. Procedure Cost to complete complete Reservation of the company name at the Superintendent of Companies The certificate of reservation is valid for 30 days according the Resolution No. 06-Q-IJ-002 dated on 24-07-2006 issued by the Less than one day 1 Superintendence of Companies. no charge (online procedure) Agency: Superintendence of Companies (National Ecuadorian Office of Companies) Hire a lawyer to prepare the minutes of incorporation The minutes include the constituting contract, the articles of incorporation, the company’s bylaws, and the formation of capital. A lawyer must prepare and sign the minutes for the company’s incorporation. Moreover, a notary public must notarize these 1 day USD 800-1,000 2 documents; the lawyer cannot do so. The cost includes all the operating expenses and legal fees. Agency: Lawyer Deposit 50% of paid-in minimum capital in a special account of “completion of capital” (Integración de Capital) in the name of the 3 company being formed 1 day no charge The entrepreneurs need to deposit 50% of the minimum capital Doing Business 2015 Ecuador 21 Time to No. Procedure Cost to complete complete requirement into a bank account in the company’s name. Proof of the approved name is required. Agency: Bank Notarize the charter of incorporation and bylaws The entrepreneurs need to notarize the charter of incorporation and the bylaws with a notary public. USD 245 for the first USD 25,000 of According to the Regulation Number 073-2012 issued by the National the start up capital Judicial Council (Consejo Nacional de la Judicatura) published in the 2 days + 0.2% of capital 4 Official Gazette on July 2, 2012, the notarization cost of the charter of for notary fees for incorporation and bylaws is given according the paid-in minimum the rest of the start capital of the company. up capital Agency: Notary The lawyer presents the documents (attached with three certified copies of the charter and the bylaws) to the Superintendent of Companies for the approval of the company’s incorporation The registration fee is paid annually to the Superintendent of Companies. The cost of contribution is 1% of total assets. 5 The Superintendent of Companies cut the time for processing company 5 days no charge applications, by eliminating internal processes, increasing staff, and upgrading the computer system. The company founders can now verify the status of the registration procedure online. Agency: Superintendence of Companies. Publish an abstract of the charter in a daily newspaper that circulates in the area in which the company operates The company needs to publish its incorporation in a daily newspaper 6 located where the company will operate. 2 days USD 75 Agency: Daily Newspaper Inscribe the company’s charter and resolutions, as well as the name of the company’s legal representatives in the Mercantile Registry Office 7 After inscribing the charter and resolution, as well as the name of the 5 days USD 80 legal representatives, the Mercantile Registry office (“Registro Mercantil”) will provide a registration number “Numero de codigo”, with the date that the company started its legal existence. Doing Business 2015 Ecuador 22 Time to No. Procedure Cost to complete complete Agency: Mercantile Registry Apply for the Registro Unico de Contribuyentes (RUC) The Registro Unico de Contribuyentes (RUC) must be obtained: (a) once the constitution procedure is completed; and (b) after the company has appointed its legal representatives and registered those appointments in the Register of Commerce. The application procedure is done at the Servicio de Rentas Internas (SRI) and takes 48 hours after the submission of all required documents (the registered deed, the registered appointments, and the certification of publication). 4 days no charge 8 Because the VAT (Impuesto al Valor Agregado) goes by the same identification number, it does not require a separate registration. The RUC is obtained immediately, but a paper receipt is sent by mail in the following 3 days. Agency: Servicio de Rentas Internas SRI (National Office of Tax) Print invoices and VAT forms at an authorized printing shop With the RUC, companies must buy invoices from SRI-authorized companies and state monthly VAT declarations on special forms. The cost to print a 100-page book of invoices (one original and two copies) 1 day USD 40 9 is about USD 40. Agency: Any authorized print shop Sign up online for Social Security- Instituto Ecuatoriano de Seguridad Social (IESS) and obtain password to operate the online system The company must present a petition for an employer identification number (cédula patronal). This identification number is obligatory for employers for purposes of social security, payments covering health, pension, accident and work-related illness. 10 An employer can register with the Social Security online through the 2 days no charge webpage of Ecuador’s Social Security Institute. After completing the registration online, the employer needs to obtain a password which will allow the employer to operate the system online. The day after registering online, the employer can present the documents/information to the Social Security and obtain the password to operate the online system. The online system will allow the employer to register all employees’ movements (entries of new employees and termination of the employment contract, contributions, etc.). Doing Business 2015 Ecuador 23 Time to No. Procedure Cost to complete complete Agency: Ecuadorian Institute of Social Security IESS Inscribe all employee contracts with the Ministry of Labor (Inspectoria de Trabajo) The department responsible for registering labor contracts is the National Technical Secretariat of Human Resources Development and Public Sector Remuneration SENRES (Secretaría Nacional Técnica de 11 Desarrollo de Recursos Humanos y de Remuneraciones del Sector 2 days no charge Público). SENRES is part of the Ministry of Labor. Agency: National Technical Secretariat of Human Resources Development and Public Sector Receive inspection and operations permit from the municipality Since 2010, it is necessary for companies to apply for the operations permit in the municipality of Quito. In approximately 15 days after filing the application, the company will receive the inspection of Fire Department and the Secretary of Environment (Secretaría del Ambiente). Then, in approximately 5 days, these two institutions will give the final report to the Municipality of Quito. If these reports are 29 days no charge 12 favorable, the Municipality will give the operations permit in approximately 10 days. Agency: Municipality of Quito (Administración Zonal del Municipio de Quito) Obtain “tasa de habilitación” and pay commercial patent at the competent municipality The Law of Municipal Regime, which regulates the operation of Municipalities in each city, contemplates the possibility of the Municipalities collecting certain fees or “tasas”, as a compensation for a service provided by the municipality. One of the provisions of the Law of Municipal Regime is to collect a fee 1 day USD 50 13 or “tasa” for the “habilitación y control de establecimientos comerciales e industriales” or the “approval of the ability to operate and control commercial and industrial establishments”. Although the tasa de habilitación was phased out on December 31, 2004 for all companies, the payment of the "tasa" is still required in practice for some companies. The fee varies depending on the type of company and the location, and size of the facilities in which the company will operate Before any commercial or industrial business starts operating, the Doing Business 2015 Ecuador 24 Time to No. Procedure Cost to complete complete Municipality will inspect the building/offices/shop where the business is going to operate to make sure that such place complies with the City’s operation requirements for such business. Once the inspection has been made, and the operation of the business has been approved, the Municipality declares such business as able to operate, and grants the “tasa de habilitacion” as evidence of such ability to operate. The average time to obtain the permit is a month. The entrepreneur is also required to pay the Commercial Patent - a tax that every person or company engaged in commercial or industrial activities has to pay to the Municipality of the City where such activities are being executed. The Commercial Patent has to be paid each year. Companies should pay the Commercial Patent Tax within 30 days following the last day of the month when the company started operating. Agency: Municipality of Quito (Administración Zonal del Municipio de Quito) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Ecuador 25 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes  Is a limited liability company operating in the construction business and located in  Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have  Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility  Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse:  Will be used for general storage, such as of books or stationery (not for goods requiring  Is valued at 50 times income per capita. special conditions).  Is a new construction (there was no  Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 Ecuador 26 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build an economy, except for 11 economies for which the data a warehouse in Ecuador? According to data collected by are a population-weighted average of the 2 largest Doing Business, dealing with construction permits there business cities. See the chapter on distance to frontier requires 15.0 procedures, takes 114.0 days and costs and ease of doing business ranking at the end of this 0.8% of the warehouse value (figure 3.1). Most indicator profile for more details. sets refer to a case scenario in the largest business city of Figure 3.1 What it takes to comply with formalities to build a warehouse in Ecuador - Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Ecuador 27 DEALING WITH CONSTRUCTION PERMITS Globally, Ecuador stands at 59 in the ranking of 189 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Ecuador to legally build a warehouse. Figure 3.2 How Ecuador and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 Ecuador 28 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Ecuador are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated cost of information collected from experts in construction USD 281,877 construction : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Quito service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and cost, that apply to a company and structure matching the are summarized below. standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Ecuador - Time to No. Procedure Cost to complete complete Obtain urban regulation report (Informe de Regulación Urbana - IRM) The Urban Regulation Report (Informe de Regulacion Urbana, IRM) is required for most procedures before the District Municipality, such as purchasing, selling, dividing, and building a property, as well as determining if the site is affected by road construction design. Valid for 2 years, this report provides the parameters to subdivide or urbanize the following: • Area available to construct the ground floor • Maximum building area • Maximum building height permitted • Maximum number of dwelling units • Building separation distances • Permitted and unauthorized land use • Basic service availability • Manufacturing line (línea de fábrica) reference 15 days USD 2 1 To obtain the report, BuildCo must do the following: • Purchase the IRM form, whose value is equivalent to 5% of the effective unified basic wage (salario básico unificado vigente) at the respective Subdivision Administration (Administración Zonal) • Register the property's data and enclose a copy of the property tax payment receipt • Submit copies of the citizenship identification and of the updated voting voucher or owner's exemption certificate • Enclose a cartographic sheet of the Geographical Military Institute (scale, 1:5,000 or 1:25,000), showing the exact property location and the respective public deeds registered at the Property Registry • Enclose a copy of the public writ of the estate (a request signed by the owner to guarantee the payment of water, electricity, or telephone service) Agency: Municipality of Quito (Municipio de Quito, Administración Zonal) Doing Business 2015 Ecuador 29 Time to No. Procedure Cost to complete complete Obtain proof of compliance with contribution to Association of Architects The proof of payment for the construction contribution is one of the documents required for the approval of the layout plans and the building permit application. The cost is 0.1% of the warehouse value. 1 day USD 282 2 Agency: Association of Architects of Ecuador (Colegio de Arquitectos del Ecuador – CAE) and/or Association of Civil Engineers of Pichincha (Colegio de Ingenieros Civiles de Pichincha) Request and obtain permit from the Fire Department 3 15 days USD 200 Agency: Fire Department Request approval of the plans To request approval of the plans, the following documents must be submitted to the Subdivision Administration (Administración Zonal): • Plan approval form for buildings, with data record and stamps • Metropolitan Regulation Report (Informe de Regulación Metropolitana, IRM), updated • Two sets of architectural drawings (scale, 1:100 to 1:50), with an area map plotted on the first sheet of the project. The drawings must contain the plot area, (COS) percentage; (CUS) percentage; construction area at ground level; total building floor area; and total gross construction area, including housing area, business store and office area, parking area, community area, number of dwelling units, and number of parking lots. • If the construction is financed with a mortgage loan, three additional sets must be attached 20 days USD 423 4 • Proof of payment of contribution to the Association of Architects • Proof of payment of property tax (impuesto predial) corresponding to the current year (simple copy of receipt) • Real estate deed or purchase option agreement duly notarized and registered at the Property Registry • Copies of the municipal registration and professional registration identification cards • Copy of the citizenship card and updated voting voucher or owner’s exemption certificate (Los Chillos deemed unnecessary) • Certificates granted by the Metropolitan Water and Sewage Utility Company (EMAAP), stating utility service provision (potable water and sewage) (Los Chillos Administration) The company may request the approval of the draft project (for consultation before final plan approval). The plans also must be approved by the Fire Department and the Associations for Architects Doing Business 2015 Ecuador 30 Time to No. Procedure Cost to complete complete and Engineers. The approval of the draft project is valid for 2 years and is informative in nature. The fee is 1.5 x 1/1,000 of total project cost. Agency: Association of Architects of Ecuador (Colegio de Arquitectos del Ecuador – CAE) and/or Association of Civil Engineers of Pichincha (Colegio de Ingenieros Civiles de Pichincha) Verify structure plan with Association of Engineers 5 Agency: Association of Architects of Ecuador (Colegio de Arquitectos del 10 days USD 282 Ecuador –CAE) and/or Association of Civil Engineers of Pichincha (Colegio de Ingenieros Civiles de Pichincha) Obtain construction guarantee and deposit it with the Municipality Proof of the guarantee deposit is a required document for the building permit application. Once the land plans have been registered for zoning and before their approval, the Municipality notifies the applicant the amount to be guaranteed (fondo de garantia). The applicant can deposit the guarantee in cash or certified check or in the form of an insurance policy. The insurance policy is purchased in 2 days from a local insurance company. The fee to purchase the guarantee depends on the value to be guaranteed. After construction is finalized, the Municipality will return the guarantee upon inspecting the construction. The guarantee will be returned in full only if the actual construction conforms to the plans approved by the Municipality. It is assumed that the full guarantee is returned to BuildCo 6 upon successful completion of construction. Therefore, the cost is not 2 days USD 6 recorded. However, the transaction fee for the guarantee, which amounts to 0.05% of the guarantee itself, is taken into account because it is non- refundable. The guarantee amount is determined by the Municipality and depends on the type of construction, the size, the sector, and the relevant zone. For construction under 600 sq. m., the guarantee will range between 1.5% and 3% of the warehouse value. For construction over 600 sq. m., the guarantee will be about 4% of the warehouse value. Agency: Municipality of Quito (Municipio de Quito) Obtain the final building permit 7 The documents required to obtain the construction work execution 16 days USD 595 clearance are the following: • Building permit application form, with stamps and data record Doing Business 2015 Ecuador 31 Time to No. Procedure Cost to complete complete • Architectural drawing approval report (original or certified copy) • Set of approved architectural drawings (original or certified copy) • Sets (two) of structural maps, with the professional signature registration • Sets (two) of electrical and hydro sanitary installation plans, with the professional signature registration • Proof of payment for building work to professional associations • Proof of the guarantee fund deposit • Proof of payment for plan and drawing approval • Proof of payment to the Metropolitan Water and Sewage Utility Company (EMAAP) for service installation • Construction statistical sheet • Copy of municipal and professional registration cards for the builder and designer (Los Chillos) • Copy of the citizenship card and updated voting voucher or owner’s exemption certificate • For four stories or more, survey report for soil and subsoil of more than 2.5 mh and structural calculation report • Proof of payment received of the corresponding property tax for the current year (La Delicia) This procedure does not entail any charges. However, the scanner services fee is 20% of the current minimum wage for each sheet, and a form must be purchased with the required stamps. The form fee is USD 0.40, which is the same as the cost of the stamps. These fees are on a per-filing basis, and more than one filing is normally necessary. Agency: Municipality of Quito/ Empresa Metropolitana de Obras Públicas (EMOP-Q) Request and obtain foundation inspection 8 1 day no charge Agency: Municipality of Quito/ Empresa Metropolitana de Obras Públicas (EMOP-Q) Request and obtain structure inspection 9 1 day no charge Agency: Municipality of Quito/ Empresa Metropolitana de Obras Públicas (EMOP-Q) Request potable water and drainage connection The proof of payment for service installation is one of the documents required for the approval of the layout plans and the building permit 1 day no charge 10 application. Agency: Water and Sewage Authority (Empresa Metropolitana de Alcantarillado y Agua Potable -EMAAP) Doing Business 2015 Ecuador 32 Time to No. Procedure Cost to complete complete Receive water and sewage inspection Depending on whether a meter is already available, an inspection may be conducted before BuildCo obtains its water connection. Given that the project considered here is a new construction, it is assumed that BuildCo must obtain the meter. Hence, an inspection also takes place to 1 day no charge 11 evaluate the cost of the new service. Agency: Water and Sewage Authority (Empresa Metropolitana de Alcantarillado y Agua Potable -EMAAP) Obtain potable water and drainage connection 12 10 days no charge Agency: Water and Sewage Authority (Empresa Metropolitana de Alcantarillado y Agua Potable -EMAAP) * Request and obtain final inspection 13 10 days no charge Agency: Municipality of Quito/ Unidad de Control de Edificaciones Obtain habitability permit and guarantee retrieval The habitability permit authorizes BuildCo to bring the building into service and enables retrieval of the guarantee fund. To this end, BuildCo must present the following documents at the respective Subdivision Administration (Administración Zonal): • Inhabitability permit application form, with stamps and data record • Approved architectural drawings (one copy) • Plan and drawing approval report • Building permit 14 • Original proof of guarantee fund receipt 20 days no charge • Citizenship card and updated voting voucher or owner exemption certificate (copy) • For guarantee fund retrieval in cash, an application form must be filed with the General Financial Department (Dirección General Financiera), with the respective stamps Agency: Municipality of Quito (Municipio de Quito) Doing Business 2015 Ecuador 33 Time to No. Procedure Cost to complete complete * Register the building at the Property Registry If the value of the property exceeds the amount of USD 10,000, the builder will pay a flat fee of USD 500 (plus VAT) for property registration. 14 days USD 500 15 Agency: Property Registry (Registro de la Propiedad) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Ecuador 34 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity a customer is always to gain access by obtaining a connection (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information  Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax  Is not in a special economic zone where the connection would be eligible for subsidization or faster service.  Is to either the low-voltage or the medium- voltage distribution network and either  Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is  Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain.  Is 2 stories, both above ground, with a total  Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods  Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal  Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 Ecuador 35 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Ecuador? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 7.0 procedures, which the data are a population-weighted average of the takes 74.0 days and costs 638.5% of income per capita 2 largest business cities. See the chapter on distance to (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Ecuador - Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Ecuador 36 GETTING ELECTRICITY Globally, Ecuador stands at 120 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Ecuador to connect The rankings for comparator economies and the regional a warehouse to electricity. Figure 4.2 How Ecuador and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2015 Ecuador 37 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in practices and internal wiring installations. In an effort to Ecuador (table 4.1)? Table 4.1 How has Ecuador made getting electricity easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Ecuador made getting electricity easier by dividing the city of Quito into zones for the purpose of DB2014 handling applications for new connections—a changethat improved the utility’s customer service—and by reducing the fees to obtain a connection. Source: Doing Business database. Doing Business 2015 Ecuador 38 GETTING ELECTRICITY What are the details? The indicators reported here for Ecuador are based on a OBTAINING AN ELECTRICITY CONNECTION set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility: Empresa Electrica Quito identified by Doing Business. Data are collected from the distribution utility, then completed and verified by City: Quito electricity regulatory agencies and independent professionals such as electrical engineers, electrical The procedures are those that apply to a warehouse and contractors and construction companies. The electricity electricity connection matching the standard distribution utility surveyed is the one serving the area assumptions used by Doing Business in collecting the (or areas) in which warehouses are located. If there is a data (see the section in this chapter on what the choice of distribution utilities, the one serving the largest indicators cover). The procedures, along with the number of customers is selected. associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Ecuador - Time to No. Procedure Cost to complete complete The client hires an electrical engineer listed within the list of Companies or qualified by the Empresa Eléctrica Quito S.A. The customer must hire an electrical engineer listed with Empresa Eléctrica Quito S.A. (EEQ). The electrical engineer sends the feasibility request to EEQ on behalf of the client. The electrical engineer also 1 prepares the design to perform the external connection and is in charge 1 calendar day USD 5,000 of carrying out the works of the external connection. Agency: Private Electrical Engineer registered with Empresa Electrica Quito (EEQ) The electrical engineer presents the connection request to Empresa Eléctrica Quito S.A. and awaits the feasibility report The service request must be made by a private electrical engineer, who is listed in the listing of Companies or Electrical Engineers qualified by Empresa Eléctrica Quito SA (EEQ). The applicant must provide the Service Feasibility Form, attaching the required documents. The service feasibility is required for projects with a demand greater than 125 kVA. EEQ 2 determines the possibility of meeting the requested demand in the area 9 calendar days USD 0 in question and establishes the conditions needed to optimize the use of the network. The applicant should approach with the following documents: • Letter of authorization from the owner. • Copy of identity card of the owner. • Sketch of location in AutoCAD; standards established by the EEQ SA (to provide in hand writing) Doing Business 2015 Ecuador 39 Time to No. Procedure Cost to complete complete • Estimate of the installed load, peak demand and capacity required with the signature of liability by the qualified Private Engineer EEQ SA • Service Feasibility Form. Agency: Empresa Electrica Quito (EEQ) * Empresa Eléctrica Quito S.A. conducts an inspection on site to prepare the feasibility study Taking as reference the sketch of the location, an electrical engineer of the Empresa Eléctrica Quito SA (EEQ) performs the inspection of the site, verifies the technical data of the project and prepares the technical feasibility report. The Head of the Direccion de Distribucion de la Zona 1 calendar day USD 0 3 reviews the technical report for subsequent approval by the Head of the Engineering Division of Distribution. Finally the customer picks up the approved report at the Secretariat of the relevant Zone. Agency: Empresa Electrica Quito (EEQ) The contracted engineer prepares the design, submits it for approval by Empresa Eléctrica Quito S.A. Before starting with the external connection works, the private electrical engineer must submit the final designs to Empresa Eléctrica Quito S.A. (EEQ). For the approval of the project it is necessary to revise the design, verifying that it is within the norms of the company. The Secretaría de la Zona receives the application for approval with the conditions required. The assigned engineer reviews the technical documentation of the project on site, for verification of the information presented. Any discrepancies between the design and the standards is discussed with the private engineer responsible for the project. Once all comments have been addressed, the Engineer Reviewer assigned 20 calendar days USD 2,750 4 proceeds to prepare the Technical Report. The Jefatura del Departamento de la Zona reviews the technical report for their approval. The Secretaría de la Zona reports and delivers the Project Approval Letter to the Private Engineer responsible of the project. After receiving the Project Approval Letter, the private electrical engineer can start the connection works. Agency: Private Electrical Engineer registered with Empresa Electrica Quito (EEQ) Doing Business 2015 Ecuador 40 Time to No. Procedure Cost to complete complete The contracted engineer carries out the external connection according to the standards set by Empresa Eléctrica Quito S.A. During the external connection, EEQ performs a review of the work done by the electrical engineer (Work inspection). The purpose of the inspections is to ensure that facilities are constructed as established in the approved project, that correct materials are used and that the installation is a reliable and safe. In order to solicit the final inspection of the construction the engineer has to submit the following documents: • Project Approval Letter issued by the Company. 5 • Design Documentation Project Approved (folder). 33 calendar days USD 26,000 • Order Form for inspection of the work. The Private Engineer presents the request for Project Approval attaching the requirements needed for this procedure at the Direccion de Distribucion Zonal which assigns an inspector to review the work on the site and to coordinate the scheduled job with the area of Operación y Mantenimiento. Finally the auditing Engineer prepares the Notice of Charge for services provided on site. Agency: Private Electrical Engineer registered with Empresa Electrica Quito (EEQ) * The client obtains an excavation permit for the laying of the underground cable from the relevant department at the Municipality (La Empresa Metropolitana de Movilidad y Obras Públicas de Quito (EMMOP-Q)) The client has to submit the electrical project approved by EEQ with the 21 calendar days USD 500 6 application in order to obtain an excavation permit. Agency: La Empresa Metropolitana de Movilidad y Obras Públicas de Quito (EMMOP-Q) en el Municipio de Quito The client pays the guarantee deposit and Empresa Eléctrica Quito S.A. provides the power for the project The engineer in charge of the project requests the powering of the Work at the Secretaría del Departamento de Fiscalización de Redes. The applicant should approach with the following documents: 11 calendar days USD 954.27 7 • Receipt of payment of work undertaken by the company on site. • Reentry form of materials to the warehouse. • Payment Receipt to the College of Engineering (CIEEPI). This receipt is no longer required • Receipt of equipment and materials. Doing Business 2015 Ecuador 41 Time to No. Procedure Cost to complete complete • updated map with the requested changes. • Powering request. The Auditing Engineer is assigned to coordinate the powering of the work with the Departamento de Operación y Mantenimiento Urbano/Rural. The powering works are done by the Department of Operación y Mantenimiento Urbano/Rural , the department will report any updates or the successful implementation. The guarantee deposit is a deposit equivalent to one month's consumption, calculated at current rates, by type of consumer. In the case of new customers, the value of the guarantee is calculated based on estimated monthly consumption according to the installed load. The security deposit is returned without interest when the consumer stops using the service, and is current with payments. It is not possible to pay with a bank guarantee. Agency: Empresa Electrica Quito (EEQ) * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Ecuador 42 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure  Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included  Are located in the economy’s largest business city . 2  Is located in a periurban commercial zone, and no rezoning is required.  Have 50 employees each, all of whom are nationals.  Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square  Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000  Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal  Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Ecuador 43 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Ecuador? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 8.0 procedures, takes which the data are a population-weighted average of the 39.0 days and costs 1.9% of the property value (figure 2 largest business cities. See the chapter on distance to 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Ecuador - Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Ecuador 44 REGISTERING PROPERTY Globally, Ecuador stands at 80 in the ranking of 189 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 Ecuador to transfer property. Figure 5.2 How Ecuador and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2015 Ecuador 45 REGISTERING PROPERTY Economies worldwide have been making it easier for the time required substantially—enabling buyers to use entrepreneurs to register and transfer property—such as or mortgage their property earlier. What property by computerizing land registries, introducing time limits registration reforms has Doing Business recorded in for procedures and setting low fixed fees. Many have cut Ecuador (table 5.1)? Table 5.1 How has Ecuador made registering property easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform In Ecuador property transfers became more time consuming as DB2013 a result of implementation problems in transferring authority over property records to the municipality of Quito. 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 2015 Ecuador 46 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: USD 281,877 notaries and property registries. These procedures are those that apply to a transaction matching the City: Quito standard assumptions used by Doing Business in collecting the data (see the section in this chapter on The procedures, along with the associated time and what the indicators cover). cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Ecuador Time to No. Procedure Cost to complete complete Lawyer prepares the contract • A rough copy of the contract, “Minuta”, is prepared by a lawyer. • It is mandatory to hire a lawyer to register property in Ecuador, according to the “Ley de federación de Abogados" of March 7th 1974 • Lawyer’s fees 2 days USD 1,000 1 are calculated on the market price of the property Agency: Lawyer Obtain a non-encumbrance certificate (“Certificado de gravamenes”) from the Property Registry A certificate of real estate encumbrances ("Certificado de Gravámenes") must be obtained at the Municipality (Real Estate Public Registry). The certificate remains valid for 45 days (with the certificate dated with the 2 request date, and not the date the document is issued). If the 7-15 days USD 7.00 registration has not been requested by then, a new certificate would have to be requested. Agency: Municipality, Real Estate Public Registry Pay various taxes at the Municipality These taxes are paid based on the official or on the market value of the property. The Municipality calculates the taxes according to the highest 3 days 1% of property value of the two. The Property Appreciation tax (a capital gains tax) is (simultaneous 3 price (Transfer tax, also paid at this stage and is calculated on the difference between the with Procedures 4 or "Alcabala") sale-price and acquisition-price of the property. In addition, the amount and 5) of the tax is reduced taking into account the economic benefits added to the property by the seller and the antiquity of the property. The tax is 10% of the difference. The tax was cut to 0.5% only for the first transfer Doing Business 2015 Ecuador 47 Time to No. Procedure Cost to complete complete of any real estate delivered after January 1st, 2006, with a discount of 5% of that for every year old that the property/building is. The registration tax (1% of the official value) was eliminated. After payment of the taxes, the Municipality will issue a municipal permit-letter and register the property in the cadastre. The documentation shall include: (a) Notarized public deed (b) Previous property titles (c) Contracting parties identification documents (d) Encumbrance certificate (obtained in Procedure 2) (e) Copy of the municipal permit for commercial activities for companies for the year in which the transfer is performed (patente municipal); (f) Copy of the Unique Contributors Number (RUC); (g) Copy of the 1.5 x 1000 municipal tax of the companies; (h) Property Appreciation Tax form duly signed by the Seller; (i) Letter of appointment of the legal representatives of both companies; (j) Minutes of the meeting of the Board of Shareholder of both companies in which the board authorizes the legal representative to buy and/or sell the property of the company; Copy of the voting certificate of the legal representatives which appear in the contract; (k) Certificate of payment of the municipal annual tax of the property (impuesto predial) Agency: Municipality of Quito (Administración Zonal del Distrito Metropolitano de Quito) * Pay taxes at the Province Council (Consejo Provincial) Some additional taxes must be paid at the Consejo Provincial de Pichincha (Provincial Council). These taxes were lowered in 2006 in Quito 0.11% of property to 0.1% ("Adicional de registro") + 0.01% ("Adicional de alcabala"), and 1 day value (Provincial $1.80 administrative fee for each tax (total charge $3.60). The value used (simultaneous transfer tax) + 4 to calculate the fees is the highest value between the cadastral value and with Procedures 3 USD 1.80 the contract value. The cadastre was updated in 2005 and the values are and 5) administrative fee reasonably close to reality. is for each tax Agency: Province Council (Consejo Provincial) Notary notarizes the public deed The public deed is notarized by a public notary. Notary's fees were changed according to regulations passed on May 22nd, 2012. The fees for property transfer are as follows: USD 510 of notary's fees + The Notary's fees are calculated according to 0.1% (notary's 5 the following table: 1 day general expenses) 0-5.000 10% of Minimum Salary of the property 5.000-10.000 15% of Minimum Salary value 10.000-30.000 25% of Minimum Salary 30.000-60.000 35% of Minimum Salary 60.000-90.000 60% of Minimum Salary 90.000-150.000 90% of Minimum Salary 150.000-300.000 150% of Minimum Salary Doing Business 2015 Ecuador 48 Time to No. Procedure Cost to complete complete 300.000-600.000 200% of Minimum Salary 600.000… 250% of Minimum Salary After the amount surpasses 2 million dollars, the Notary will charge an addiotional Minimum Salary for each million or fraction of a million, the maximum amount that can be charged is USD 6,800.00. Note: According to the Ministry Agreement No. 253, published in the Official Gazette No. 167 of January 22, 2014, determined that the Minimun Salary for 2014 is USD 340.00. Agency: Notary Conduct a general check at the Property Registry The Municipal permit-letter obtained in Procedure 5 must be taken to the Real Estate Public Registry together with the notarized public deed. The Registry does a general check of the documents and the history of 6 the property. The documentation shall include: (i) Public deed (notarized 5-10 days no cost in Procedure 6) (ii) Receipts of tax payments obtained in Procedures 3-4 Agency: Municipality, Real Estate Public Registry The current municipal fee is as follows:0.01 - 3,000.00: inscription fee of USD 223,000.01 - 6,600.00 : Pay registration fee at the Property Registry inscription fee of USD 306,600.01 - After the revision, the amount of the registration fee to be paid is 10,000.00:inscripti obtained from the Registry. The fee is paid according to the ordinance on fee of USD No.0185 issued by the Consejo Metropolitano de Quito issue in February 3510,000.01 - 7 23, 2012. The fee is paid in the same building and office where the 1 day 15,000.00: documentation is submitted at the property registry. inscription fee of USD 40 Agency: Municipality, Real Estate Public Registry 15,000.01 - 25,000.00:inscripti on fee of USD 50 25,000.01 - 30,000.00: inscription fee of USD 10030,000.01 - 35,000.00: inscription fee of USD 16035,000.01 Doing Business 2015 Ecuador 49 Time to No. Procedure Cost to complete complete - 40,000.00: inscription fee of USD 20040,000.01 - and up: for the first US$ 10,000 the amount charged will be US$ 100, plus 0.5% of the amount exceeding US$ 10,000.In no case will the tariff for each service will exceed US$ 500 Obtain notice of registration from the Property Registry After payment of the registration fee, the Real Estate Public Registry issues a notice of registration. 10-15 days no cost 8 Agency: Municipality, Real Estate Public Registry * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Ecuador 50 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable Strength of legal rights index (0–12) 3 lenders’ rights to view a potential borrower’s financial history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially Depth of credit information index (0–8) 4 movable property, as security to generate capital— while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2015 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 Ecuador 51 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Ecuador stands at 89 in the ranking of 189 and bankruptcy laws in Ecuador facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 8 on the depth of rankings for comparator economies and the regional credit information index and a score of 1 on the strength average ranking provide other useful information for of legal rights index (see the summary of scoring at the assessing how well regulations and institutions in end of this chapter for details). Higher scores indicate Ecuador support lending and borrowing. more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Ecuador and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2015 Ecuador 52 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Ecuador and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2015 Ecuador 53 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Ecuador (table 6.1)? Table 6.1 How has Ecuador made getting credit easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Ecuador’s credit bureau started to distribute historical data, DB2010 improving access to credit information. 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 2015 Ecuador 54 GETTING CREDIT What are the details? The getting credit indicators reported here for Ecuador The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 1 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable No assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of No movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of No its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically No 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 for both incorporated and non-incorporated entities, that is unified geographically and by asset type, with an electronic database indexed by debtor's No name? Does a notice-based collateral registry exist in which all functional equivalents can be No registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and No searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor No defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is No liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by No providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2015 Ecuador 55 Strength of legal rights index (0–12) Index score: 1 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through No public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 8 By law, do borrowers have the right to access their Yes No 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an Yes No 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions Yes No 1 assess the creditworthiness of borrowers? Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - Yes No 1 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on Yes No 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? Note: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 84,211 0 Number of individuals 7,217,515 0 Percent of total 73.0 0.0 Doing Business 2015 Ecuador 56 Source: Doing Business database. Doing Business 2015 Ecuador 57 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions ; Disclosure requirements for related-party transactions What do the indicators cover? Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5)  Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from  Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects  Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3  The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10)  All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 Ecuador 58 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Ecuador? The economy has a score of 4.7 not measure all aspects related to the protection of on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Ecuador stands at 117 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Ecuador and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 Ecuador 59 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Ecuador in 2014. A summary of scoring for minority investors indicators into context is to see where the protecting minority investors indicators at the end of the economy stands in the distribution of scores across this chapter provides details on how the indices were comparator economies. Figures 7.2 through 7.7 highlight calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 Ecuador 60 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 Ecuador 61 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 Ecuador 62 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 Ecuador 63 PROTECTING MINORITY INVESTORS Economies with the strongest protections of minority result, reforms to strengthen minority investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have well- as through new or amended company laws, securities functioning courts and up-to-date procedural rules that regulations or civil procedure rules. What minority give minority shareholders the means to prove their case investor protection reforms has Doing Business recorded and obtain a judgment within a reasonable time. As a in Ecuador (table 7.1)? Table 7.1 How has Ecuador strengthened minority investor protections—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Ecuador strengthened minority investor protections by introducing greater requirements for disclosure of related- DB2015 party transactions as well as a requirement that a potential acquirer make a tender offer to all shareholders upon acquiring voting shares. 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 2015 Ecuador 64 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Ecuador are based on detailed information shareholder rights, governance structure and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2015 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Ecuador. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Ecuador Answer Score Extent of disclosure index (0-10) 2.0 Which corporate body can provide legally sufficient CEO alone 0 approval for the Buyer-Seller transaction? (0-3) Is disclosure by the interested director to the board of No disclosure obligation 0 directors required? (0-2) Is disclosure of the transaction in published periodic filings Disclosure on the transaction only 1 (annual reports) required? (0-2) Is immediate disclosure of the transaction to the public Disclosure on the transaction only 1 and/or shareholders required? (0-2) Must an external body review the terms of the transaction No 0 before it takes place? (0-1) Extent of director liability index (0-10) 5.0 Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0- Yes 1 1) Can shareholders hold the interested director liable for the Liable if negligent 1 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Liable if negligent 1 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder No 0 plaintiff? (0-1) Can both fines and imprisonment be applied against the Yes 1 interested indrector? (0-1) Can a court void the transaction upon a successful claim by Only in case of fraud or bad faith 0 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 6.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? Yes 1 (0-1) Can the plaintiff obtain any documents from the defendant No 3 Doing Business 2015 Ecuador 65 and witnesses during trial? (0-3) Can the plaintiff request categories of documents from the No 0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and No 1 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of No 0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if successful 1 the company? (0-2) Strength of minority investor protection index (0-10) 4.7 Extent of conflict of interest regulation index (0-10) 4.3 Extent of shareholder rights index (0-10.5) 7.5 Can shareholders amend company bylaws or statutes with a Yes 1.5 simple majority? Can shareholders owning 10% of the company's share No 0 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of Yes 1.5 directors before the end of their term. Must a company obtain its shareholders’ approval every Yes 1.5 time it issues new shares? Are shareholders automatically granted subscription rights Yes 1.5 on new shares? Must shareholders approve the election and dismissal of the Yes 1.5 external auditor? Can shareholders freely trade shares prior to a major No 0 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 4.5 Is the CEO barred from also serving as chair of the board of Yes 1.5 directors? Must the board of directors include independent board No 0 members? Must a company have a separate audit committee? Yes 1.5 Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected Yes 1.5 shares? Must a potential acquirer make a tender offer to all Yes 1.5 shareholders upon acquiring 50% of a company? Is cross-shareholding between 2 independent companies No 0 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its Yes 1.5 parent company? Extent of corporate transparency index (0-9) 3.0 Must ownership stakes representing 10% be disclosed? No 0 Must information about board members’ other directorships as well as basic information on their primary employment No 0 be disclosed? Must the compensation of individual managers be No 0 disclosed? Must financial statements contain explanatory notes on significant accounting policies, trends, risks, uncertainties Yes 1.5 and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Doing Business 2015 Ecuador 66 auditor? Must audit reports be disclosed to the public? No 0 Extent of shareholder governance index (0-10) 5.0 Source: Doing Business database. PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2013 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business measures the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to Profit or corporate income tax one of the component indicators, the total tax rate . 5 The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes  TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paidof by the 5 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power 0.8. The threshold is defined as and mandatory the total contributions tax rate at the 15th percentilepaid during of the company. overall distribution for all years included in the analysis. It is calculated and adjusted on a the yearly basis. second The thresholdyear of is not operation based are recorded. on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set  range Alower at the end ofstandard of deductions the distribution and of tax rates levied on medium-size  Taxes and mandatory contributions are exemptions enterprises in the manufacturing sector as observed through the paying taxes indicators. are also This reduces recorded. the bias in the indicators toward economies that do not need to levyat measured all levels significant government. ofon taxes companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 26.1%. Doing Business 2015 Ecuador 67 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Ecuador—and how much do firms pay in taxes? frontier and ease of doing business ranking at the end of On average, firms make 8.0 tax payments a year, spend this profile for more details. 654.0 hours a year filing, preparing and paying taxes and Globally, Ecuador stands at 138 in the ranking of 189 pay total taxes amounting to 33.0% of profit (see the economies on the ease of paying taxes (figure 8.1). The summary at the end of this chapter for details). Most rankings for comparator economies and the regional indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Ecuador. Figure 8.1 How Ecuador and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 Ecuador 68 PAYING TAXES What are the details? The indicators reported here for Ecuador are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Quito chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration 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 taxable Corporate income tax 1 online filing 108 22% 15.6 profit Employer paid - Social gross 1 online filing 306 12.15% 13.7 security contributions salaries Patent tax 1 online filing 0 fixed fee 2.1 Capital gains tax (property capital 1 0 10% 0.5 transfer tax) gains Contribution to total 1 0 0%-0.85% 0.5 superintendence assets total Municipal assets tax 1 0 0.15% 0.4 assets vehicle Vehicle tax 1 0 2.5% 0.1 value Employee paid - Social gross 0 paid jointly 0 9.35% 0 withheld security contributions salaries value not Value added tax (VAT) 1 online filing 240 12% 0 added included Totals 8.0 654.0 33.0 Source: Doing Business database. Doing Business 2015 Ecuador 69 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 a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business:  Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data  Is not hazardous nor includes military items. for a second city have been added.  Does not require refrigeration or any other  Is a private, limited liability company, special environment. domestically owned and does not operate  Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than  Conducts export and import activities, but accepted international standards. does not have any special accreditation  Is one of the economy’s leading export or such as an authorized economic operator import products. status.  Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 Ecuador 70 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Ecuador? population-weighted average of the 2 largest business According to data collected by Doing Business, exporting cities. See the chapter on distance to frontier and ease of a standard container of goods requires 7 documents, doing business ranking at the end of this profile for more takes 19.0 days and costs $1535.0. Importing the same details. container of goods requires 6 documents, takes 24.0 Globally, Ecuador stands at 114 in the ranking of 189 days and costs $1520.0 (see the summary of four economies on the ease of trading across borders (figure predefined stages and documents at the end of this 9.1). The rankings for comparator economies and the chapter for details). Most indicator sets refer to a case regional average ranking provide other useful scenario in the largest business city of an economy, information for assessing how easy it is for a business in except for 11 economies for which the data are a Ecuador to export and import goods. Figure 9.1 How Ecuador and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Ecuador 71 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Ecuador (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Ecuador made trading across borders easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Ecuador made trading across borders easier by introducing a DB2015 new electronic data interchange system called ECUAPASS. 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 2015 Ecuador 72 TRADING ACROSS BORDERS What are the details? The indicators reported here for Ecuador are based LOCATION OF STANDARDIZED COMPANY on a set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the indicators Port Name: Guayaquil cover). Information on the required documents and the time and cost to complete export and import is City: Quito collected from local freight forwarders, shipping lines, The predefined stages, and the associated time and cost, customs brokers, port officials and banks. for exporting and importing a standard shipment of goods are listed in the summary below, along with the required documents. Table 9.2 Summary of predefined stages and documents for trading across borders in Ecuador Stages to export Time (days) Cost (US$) Customs clearance and inspections 3 200 Documents preparation 10 375 Inland transportation and handling 4 600 Ports and terminal handling 2 360 Totals 19 1,535 Stages to import Time (days) Cost (US$) Customs clearance and inspections 3 250 Documents preparation 15 350 Inland transportation and handling 2 600 Ports and terminal handling 4 320 Totals 24 1,520 Doing Business 2015 Ecuador 73 Documents to export Bill of lading Commercial invoice Customs export declaration Equipment interchange receipt Insurance certificate Packing list Technical standard/health certificate Documents to import Bill of lading Cargo release order Commercial invoice Customs import declaration Packing list Terminal handling receipts Source: Doing Business database. Doing Business 2015 Ecuador 74 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city. For the 11 economies with a population of more than  The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added.  The dispute on the quality of the goods  The buyer orders custom-made goods, requires an expert opinion. then fails to pay.  The judge decides in favor of the seller; there  The seller sues the buyer before a is no appeal. competent court.  The seller enforces the judgment through a  The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 Ecuador 75 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial business cities. See the chapter on distance to frontier dispute through the courts in Ecuador? According to and ease of doing business ranking at the end of this data collected by Doing Business, contract enforcement profile for more details. takes 588.0 days, costs 27.2% of the value of the claim Globally, Ecuador stands at 88 in the ranking of 189 and requires 39.0 procedures (see the summary at the economies on the ease of enforcing contracts (figure end of this chapter for details). Most indicator sets refer 10.1). The rankings for comparator economies and the to a case scenario in the largest business city of an regional average ranking provide other useful economy, except for 11 economies for which the data benchmarks for assessing the efficiency of contract are a population-weighted average of the 2 largest enforcement in Ecuador. Figure 10.1 How Ecuador and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Ecuador 76 ENFORCING CONTRACTS What are the details? The indicators reported here for Ecuador are based COURT NAME on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter on what Claim value: USD 10,735 the indicators cover). These procedures, and the time and cost of completing them, are identified through Court name: Quito Civil Court study of the codes of civil procedure and other court regulations, as well as through questionnaires City: Quito completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Table 10.2 Summary of time, cost and procedures for enforcing a contract in Ecuador Latin America & Indicator Ecuador Caribbean average Time (days) 588 737 Filing and service 38 Trial and judgment 455 Enforcement of judgment 95 Cost (% of claim) 27.2 30.6 Attorney cost (% of claim) 15.0 Court cost (% of claim) 5.0 Enforcement Cost (% of claim) 7.2 Procedures (number) 39 40 Number of procedures (without bonus points) 39 Total number of procedures (including bonus points) 39 Doing Business 2015 Ecuador 77 No. Procedures Filing and service: 1 Plaintiff hires a lawyer: Plaintiff hires a lawyer. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 2 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Judicial scrutiny of summons and complaint: Judge examines Plaintiff's summons and complaint for 3 formal requirements as a matter of law or standard practice. Judge admits summons and complaint: Judge admits summons and complaint (after verifying the formal * requirements). Plaintiff requests service of process on Defendant: Plaintiff requests in writing to the court for an order 4 that process be served on Defendant. 5 Court order for service: Upon Plaintiff’s request, judge orders process be served on Defe ndant. Delivery of summons and complaint to person authorized to perform service of process on Defendant: 6 The judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. Attempt at physical delivery: An attempt to physically deliver summons and complaint to Defendant is 7 made. Second attempt at physical delivery: If a first attempt is not ordinarily successful, a second attempt to 8 physically deliver the summons and complaint to Defendant is required by law or standard practice. (Check ‘yes’ only if a first attempt at physical delivery is not ordinarily successful) Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. Decision on pre-judgment attachment: Judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Guarantees securing attached property: Plaintiff submits guarantees or bonds to secure Defendant 9 against possible damages to attached property. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 10 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Doing Business 2015 Ecuador 78 No. Procedures Custody of assets attached prior to judgment: If physical attachment is ordered, Defendant's attached 11 assets are placed in the custody or control of an enforcement officer or private bailiff. Report on pre-judgment attachment: Court enforcement officer or private bailiff issues and delivers a 12 report on the attachment of Defendant’s property to the judge. Hearing on pre-judgment attachment: A hearing takes place as a matter of law or standard practice to 13 resolve the question of whether Defendant’s assets can be attached prior to judgment. This process may include the submission of separate summons and petitions. Trial and judgment: Defendant’s deposit of a bond or payment guarantee with the court: Defendant deposits a bond or 14 guarantee with the court, as required by law or standard practice. Defendant files preliminary objections.: Defendant presents preliminary objections to the court. * (Preliminary exemptions differ from answers on the merits. Examples of preliminary motions are motions to dismiss on the basis of the statute of limitations or jurisdictional objections, etc.) Checke Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 15 or defense on the merits of the case (see assumption 4). Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 5-b). Notification of court-appointment of independent expert: The court notifies both parties that the court is 16 appointing an independent expert (see assumption 5-b). Delivery of expert report by court-appointed expert: The independent expert, appointed by the court, * delivers his or her expert report to the court (see assumption 5-b). Setting of date for mediation hearing: The judge sets a date for a mediation hearing, sometimes also * called a 'pre-trial conference,' and notifies the parties of the hearing date. Mediation hearing: The judge, during this informal meeting with the parties, encourages them to settle 17 the case (acting as mediator). The case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judge for tr * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court (see assumption 5-a). Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 18 hearing or trial (see assumption 5-a). 19 Closing of the evidence period: The court makes the formal decision to close the evidence period. Order for submission of final arguments: The judge sets a deadline for the submission of final factual and 20 legal arguments. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 21 Writing of judgment: The judge produces a written copy of the judgment. Doing Business 2015 Ecuador 79 No. Procedures Court notification of availability of the written judgment: The court notifies the parties that the written 22 judgment is available at the courthouse. Plaintiff receives a copy of the judgment: Plaintiff receives a copy of the written judgment which is 100% 23 in favor of Plaintiff (see assumption 6). Defendant is formally notified of the judgment: Plaintiff or court formally notifies the Defendant of the 24 judgment. The appeal period starts to run from the day the Defendant is formally notified of the judgment. Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 25 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Order for reimbursement by Defendant of Plaintiff's court fees: The judgment orders Defendant to 26 reimburse Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff hires a lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented by * a lawyer during the enforcement of judgment phase. Plaintiff retains an enforcement agent to enforce the judgment.: Plaintiff retains the services of a court 27 enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff requests an enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 28 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a private bailiff. Plaintiff’s request for physical enforcement: As Plaintiff commonly fears that Defendant might physically * resist the taking into custody of its previously attached movable assets, Plaintiff requests the judge or the police authorities to obtain police assistance during the physical enforcement of the Judge's order for physical enforcement: Judge orders the police to assist with the physical enforcement of 29 the attachment of Defendant's movable assets. Check as “yes” only if the pretrial order of attachment for Defendant’s moveable assets does not ordinarily involve physical seizure of the as Identification of Defendant's assets by court official or Defendant for purposes of enforcement: The judge, 30 a court enforcement officer, a private bailiff or the Defendant himself identifies Defendant's movable assets for the purposes of enforcing the judgment through a sale of Defendant’s assets. 31 Plaintiff identifies Defendant's assets for attachment: Plaintiff identifies Defendant's assets for attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 32 assets). Valuation or appraisal of attached movable goods: The court or court-appointed valuation expert 33 evaluates the attached goods. Doing Business 2015 Ecuador 80 No. Procedures Enforcement disputes before court: The enforcement of the judgment is delayed because Defendant 34 opposes aspects of the enforcement process before the judge. Call for public auction: Judge calls a public auction by, for example, advertising or publication in the 35 newspapers. 36 Sale through public auction: The Defendant’s movable property is sold at public auction. 37 Judge's decision on bids: Judge determines the adequacy of the bids presented at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to Plaintiff (and, where 38 applicable, to other creditors, according to the rules of priority). 39 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2015 Ecuador 81 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 Ecuador 82 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, Ecuador characterize the top-performing economies. How scores 2.0 out of 3 points on the commencement of efficient are insolvency proceedings in Ecuador? proceedings index, 2.0 out of 6 points on the According to data collected by Doing Business, resolving management of debtor’s assets index, 0.0 out of 3 points insolvency takes 5.3 years on average and costs 18.0% of on the reorganization proceedings index, and 2.0 out of the debtor’s estate, with the most likely outcome being 4 points on the creditor participation index. Ecuador’s that the company will be sold as piecemeal sale. The total score on the strength of insolvency framework average recovery rate is 17.9 cents on the dollar. Most index is 6.0 out of 16. indicator sets refer to a case scenario in the largest Globally, Ecuador stands at 151 in the ranking of 189 business city of an economy, except for 11 economies for economies on the ease of resolving insolvency (figure which the data are a population-weighted average of the 11.1). The rankings for comparator economies and the 2 largest business cities. See the chapter on distance to regional average ranking provide other useful frontier and ease of doing business ranking at the end of benchmarks for assessing the efficiency of insolvency this profile for more details. proceedings in Ecuador. Figure 11.1 How Ecuador and comparator economies rank on the ease of resolving insolvency Doing Business 2015 Ecuador 83 Source: Doing Business database. Doing Business 2015 Ecuador 84 Figure 11.2 Recovery Rate (0-100) - Ecuador Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - Ecuador Source: Doing Business database. Doing Business 2015 Ecuador 85 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers  Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International  Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188  Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment  Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6  Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of  Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked  Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 Ecuador LABOR MARKET REGULATION What are the details? The data reported here for Ecuador are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) 24 Maximum length of fixed-term contracts, including renewals (months) 24 Minimum wage applicable to the worker assumed in the case study 388.02 (US$/month) Ratio of minimum wage to value added per worker 0.54 Source: Doing Business database. Doing Business 2015 Ecuador 87 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. Rigidity of hours index Data 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in workload? Maximum working days per week 5.0 Premium for night work (% of hourly pay) 25% Premium for work on weekly rest day (% of hourly pay) 100% Major restrictions on night work? No Major restrictions on weekly holiday? No Paid annual leave for a worker with 1 year of tenure (in working days) 11.0 Paid annual leave for a worker with 5 years of tenure (in working days) 11.0 Paid annual leave for a worker with 10 years of tenure (in working days) 14.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 12.0 working days) Source: Doing Business database. Doing Business 2015 Ecuador 88 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 redundant workers; (v) priority rules apply for reemployment. Difficulty of redundancy index Data Maximum length of probationary period (months) 3.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? Yes Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? Yes Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2015 Ecuador 89 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 and 1/3 weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 0.0 Notice period for redundancy dismissal for a worker with 5 years of tenure 0.0 Notice period for redundancy dismissal for a worker with 10 years of tenure 0.0 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 0.0 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 14.1 Severance pay for redundancy dismissal for a worker with 5 years of tenure 27.1 Severance pay for redundancy dismissal for a worker with 10 years of tenure 54.2 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 31.8 of tenure) Source: Doing Business database. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of Doing Business also assesses the mechanisms available unemployment protection schemes as well as data on to resolve labor disputes. More specifically, it collects whether employers are legally required to provide data on what courts would be competent to hear labor health insurance for employees with permanent disputes and whether the competent court is contracts. specialized in resolving labor disputes. Social protection schemes and benefits & Labor disputes indicator Data Availability of unemployment protection scheme? No Health insurance existing for permanent employees? Yes Availability of courts or court sections specializing in labor disputes? Yes Source: Doing Business database. Doing Business 2015 Ecuador 90 Doing Business 2015 Ecuador 91 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components—yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in Doing Business . Thus Doing Business uses the simplest 6 calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 Ecuador 92 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the components . threshold reduces the bias in the indicator toward 7 economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 Tokyo 65 2015 report). Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 Russian Federation correlations among indicators do not differ much. An alternative to the St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. Source: United Nations, Department of Economic and Social 7 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 Ecuador 93 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 Ecuador 94 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 10,700 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 Ecuador 95