91974 Doing Business 2015 Colombia Economy Profile 2015 Colombia Doing Business 2015 Colombia 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 Colombia 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 33 Registering property .................................................................................................................. 40 Getting credit .............................................................................................................................. 47 Protecting minority investors ................................................................................................... 54 Paying taxes ................................................................................................................................ 63 Trading across borders .............................................................................................................. 68 Enforcing contracts .................................................................................................................... 73 Resolving insolvency .................................................................................................................. 80 Labor market regulation ........................................................................................................... 85 Distance to frontier and ease of doing business ranking ...................................................... 91 Resources on the Doing Business website .............................................................................. 94 Doing Business 2015 Colombia 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 Colombia. 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 Colombia 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 Colombia 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: 48,321,405 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 7,560 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 34 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 53* distance to the best performance in each Doing Business Change in rank: 19 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 72.3 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 68 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 4.3 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 Colombia 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 Colombia 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 Colombia 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 Colombia 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Colombia (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Colombia (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 Colombia 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 Colombia 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 Colombia 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 Colombia Best performer globally United States DB2015 Argentina DB2015 Colombia DB2015 Colombia DB2014 Ecuador DB2015 Mexico DB2015 Indicator Brazil DB2015 Peru DB2015 DB2015 Starting a Business 84 79 146 167 165 67 89 46 New Zealand (1) (rank) Starting a Business (DTF 86.13 86.13 72.58 63.37 65.31 88.85 85.10 91.22 New Zealand (99.96) Score) Procedures (number) 8.0 8.0 14.0 11.6 13.0 6.0 6.0 6.0 New Zealand (1.0)* Time (days) 11.0 11.0 25.0 83.6 55.5 6.3 26.0 5.6 New Zealand (0.5) Cost (% of income per 7.5 7.5 15.2 4.3 24.0 18.6 9.2 1.2 Slovenia (0.0) capita) Paid-in min. capital (% 0.0 0.0 4.0 0.0 3.5 0.0 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 61 62 181 174 59 108 87 41 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 76.45 76.02 42.54 48.31 76.86 68.43 72.91 78.87 China (95.53) (DTF Score) Doing Business 2015 Colombia 12 Best performer globally United States DB2015 Argentina DB2015 Colombia DB2015 Colombia DB2014 Ecuador DB2015 Mexico DB2015 Indicator Brazil DB2015 Peru DB2015 DB2015 Hong Kong SAR, Procedures (number) 10.0 10.0 21.0 18.2 15.0 11.3 14.0 15.8 China (5.0) Time (days) 73.0 73.0 341.0 426.1 114.0 87.6 174.0 78.6 Singapore (26.0) Cost (% of warehouse 7.4 7.7 3.5 0.4 0.8 10.3 0.5 1.0 Qatar (0.0)* value) Getting Electricity 92 88 104 19 120 116 86 61 Korea, Rep. (1) (rank) Getting Electricity (DTF 74.20 74.05 72.42 89.20 67.03 68.47 75.67 79.52 Korea, Rep. (99.83) Score) Procedures (number) 5.0 5.0 6.0 4.0 7.0 6.8 5.0 4.8 12 Economies (3.0)* Time (days) 105.0 105.0 92.0 53.3 74.0 78.9 100.0 89.6 Korea, Rep. (18.0)* Cost (% of income per 504.4 541.6 45.4 31.6 638.5 346.1 325.5 25.5 Japan (0.0) capita) Registering Property 42 54 119 138 80 110 26 29 Georgia (1) (rank) Registering Property 79.33 76.53 60.63 56.18 70.21 62.45 83.48 82.92 Georgia (99.88) (DTF Score) Procedures (number) 6.0 7.0 7.0 13.6 8.0 6.8 4.0 4.4 4 Economies (1.0)* Time (days) 16.0 16.0 51.5 31.7 39.0 63.6 6.5 15.2 3 Economies (1.0)* Cost (% of property 2.0 2.0 6.6 2.5 1.9 5.1 3.3 2.4 4 Economies (0.0)* value) Getting Credit (rank) 2 55 71 89 89 12 12 2 New Zealand (1) Getting Credit (DTF 95.00 55.00 50.00 45.00 45.00 80.00 80.00 95.00 New Zealand (100) Score) Strength of legal rights 12 4 2 2 1 8 8 11 3 Economies (12)* index (0-12) Doing Business 2015 Colombia 13 Best performer globally United States DB2015 Argentina DB2015 Colombia DB2015 Colombia DB2014 Ecuador DB2015 Mexico DB2015 Indicator Brazil DB2015 Peru DB2015 DB2015 Depth of credit 7 7 8 7 8 8 8 8 23 Economies (8)* information index (0-8) Credit registry coverage 0.0 0.0 41.2 52.5 0.0 0.0 33.5 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 87.0 83.8 100.0 63.6 73.0 100.0 100.0 100.0 23 Economies (100.0)* (% of adults) Protecting Minority 10 9 62 35 117 62 40 25 New Zealand (1) Investors (rank) Protecting Minority 71.67 71.67 57.50 62.50 46.67 57.50 61.67 65.83 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 8.0 8.0 5.0 5.7 4.3 6.0 7.0 8.3 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 6.3 6.3 6.5 6.8 5.0 5.5 5.3 4.8 France (7.8)* 10) Strength of minority investor protection 7.2 7.2 5.8 6.3 4.7 5.8 6.2 6.6 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 146 139 170 177 138 105 57 47 (1)* Paying Taxes (DTF United Arab Emirates 59.71 61.60 44.99 41.31 62.84 71.17 79.43 80.84 Score) (99.44)* Payments (number per Hong Kong SAR, 11.0 10.0 9.0 9.0 8.0 6.0 9.0 10.6 year) China (3.0)* Time (hours per year) 239.0 203.0 405.0 2,600.0 654.0 334.0 293.0 175.0 Luxembourg (55.0) Trading Across Borders 93 95 128 123 114 44 55 16 Singapore (1) (rank) Trading Across Borders 72.69 72.34 65.11 66.11 68.23 81.26 78.81 88.25 Singapore (96.47) Doing Business 2015 Colombia 14 Best performer globally United States DB2015 Argentina DB2015 Colombia DB2015 Colombia DB2014 Ecuador DB2015 Mexico DB2015 Indicator Brazil DB2015 Peru DB2015 DB2015 (DTF Score) Documents to export 4 4 6 6 7 4 5 3 Ireland (2)* (number) Time to export (days) 14.0 14.0 12.0 13.4 19.0 12.0 12.0 6.0 5 Economies (6.0)* Cost to export (US$ per 2,355.0 2,355.0 1,770.0 2,322.8 1,535.0 1,499.3 890.0 1,224.0 Timor-Leste (410.0) container) Cost to export (deflated 2,355.0 2,407.4 1,770.0 2,322.8 1,535.0 1,499.3 890.0 1,224.0 US$ per container) Documents to import 6 6 8 8 6 4 7 5 Ireland (2)* (number) Time to import (days) 13.0 13.0 30.0 17.0 24.0 11.2 17.0 5.4 Singapore (4.0) Cost to import (US$ per 2,470.0 2,470.0 2,320.0 2,322.8 1,520.0 1,887.6 1,010.0 1,289.0 Singapore (440.0) container) Cost to import (deflated 2,470.0 2,524.9 2,320.0 2,322.8 1,520.0 1,887.6 1,010.0 1,289.0 US$ per container) Enforcing Contracts 168 167 63 118 88 57 100 41 Singapore (1) (rank) Enforcing Contracts 37.66 37.66 63.88 53.60 58.30 64.61 57.46 67.26 Singapore (89.54) (DTF Score) Time (days) 1,288.0 1,288.0 590.0 731.0 588.0 388.9 426.0 420.0 Singapore (150.0) Cost (% of claim) 47.9 47.9 20.5 16.5 27.2 30.9 35.7 30.5 Iceland (9.0) Procedures (number) 33.0 33.0 36.0 43.6 39.0 36.8 41.0 33.6 Singapore (21.0)* Resolving Insolvency 30 29 83 55 151 27 76 4 Finland (1) (rank) Resolving Insolvency 70.00 69.09 45.10 54.52 28.36 72.59 46.57 90.12 Finland (93.85) (DTF Score) Doing Business 2015 Colombia 15 Best performer globally United States DB2015 Argentina DB2015 Colombia DB2015 Colombia DB2014 Ecuador DB2015 Mexico DB2015 Indicator Brazil DB2015 Peru DB2015 DB2015 Time (years) 1.7 2.8 4.0 5.3 1.8 3.1 1.5 Ireland (0.4) Cost (% of estate) 6.0 6.0 12.0 12.0 18.0 18.0 7.0 8.2 Norway (1.0) Outcome (0 as piecemeal sale and 1 as 1 1 0 1 0 1 0 1 going concern) Recovery rate (cents on 72.0 70.3 28.6 25.8 17.9 68.1 28.5 80.4 Japan (92.9) the dollar) Strength of insolvency 10.0 10.0 9.5 13.0 6.0 11.5 10.0 15.0 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 Colombia 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 Colombia 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Colombia? 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 8.0 procedures, takes 11.0 days, average of the 2 largest business cities. See the chapter costs 7.5% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 0.0% 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 Colombia - Paid-in minimum capital (% of income per capita): 0.0 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 Colombia 18 STARTING A BUSINESS Globally, Colombia stands at 84 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 Colombia The rankings for comparator economies and the regional to start a business. Figure 2.2 How Colombia and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2015 Colombia 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 Colombia (table 2.1)? Table 2.1 How has Colombia made starting a business easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Colombia made starting a business easier by establishing a new public-private health provider (Nueva EPS) that enables DB2010 faster enrollment of employees and by introducing online preenrollment with the Social Security Institute (Instituto de Seguro Social). Colombia eased the process of Starting a Business by reducing DB2011 the number of days to register with the Social Security System. Colombia reduced the costs associated with starting a DB2012 business, by no longer requiring upfront payment of the commercial license fee. Colombia made starting a business easier by eliminating the DB2013 requirement to purchase and register accounting books at the time of incorporation. 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 Colombia 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Colombia is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Sociedad por Acciones Simplificada firm. These are identified by Doing Business through (SAS) collaboration with relevant local professionals and the study of laws, regulations and publicly available Paid in minimum capital requirement: COP 0 information on business entry in that economy. City: Bogota Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita 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 Colombia - Time to No. Procedure Cost to complete complete Register with the Registry of Commerce and obtain a "pre- taxpayer ID" (pre RUT) The new Law 1429 of 2010 and decree 545 of 2011 introduced a new progressive fee schedule in which new companies are exempted from paying certain fees during their first years in operation. For example, the "matricula comercial" is no longer payable at registration. Law 1258 of 2009 introduced a new type of company - the SAS (Sociedad por Acciones Simplificada ). An SAS is incorporated by the parties through a private document (or by attorney, if that is the case) that is submitted to the Chamber of Commerce. There is no need for a public deed. As an exception for this rule, if the procedure supposes the transference of real property, it is mandatory to set up the company by 1 public deed (Notary Public). 3 days see comment Since May 2008, applicants can go online to register all of the above at portal www.dian.gov.co. The portal provides access to information and speeds up the process of starting a business. The cost are the following: 0.7% of capital registration tax + COP 30.000 fix fee + COP 4.000 for the registration form + 4000 for the certificate of existence and legal representative (required to open a bank account) + COL 5,500 per book (Libro de Actas de Asamblea and Libro de Registro de Accionistas) + COP 20,600 (COP 10,300 cost of registration per book). Agency: Chamber of Commerce Doing Business 2015 Colombia 21 Time to No. Procedure Cost to complete complete Open a bank account with a "pre-taxpayer ID" (pre RUT) and deposit the nominal capital To open an account at a branch of a commercial bank, the owner encloses the certificate of existence and legal representation, the TIN document, and a photocopy of the certificate of citizenship of the legal representative. A savings account may be opened in minutes, but a checking account could take 3 or more business days for the bank to 1 day no charge 2 verify the company information, due to the compliance and revision requirements stemming from money-laundering prevention laws and regulations. Depending on the bank, a minimum initial deposit of about COP 500,000 is required. Agency: Bank Obtain a final tax payer ID number In order to obtain the final ID number (RUT) from the tax agency (DIAN), the "pre-tax ID" (pre RUT) and the bank account certificate are required. The tax authority will then electronically inform the 3 formalized RUT to the Registry for the issuance of the Certificate of 1 day no charge Registration and the final ID number. Agency: Tax authority (DIAN) Register company with the Family Compensation Fund (Caja de Compensación Familiar), the Governmental Learning Service (Servicio Nacional de Aprendizaje, SENA) and the Colombian Family Institute (Instituto Colombiano de Bienestar Familiar, ICBF) Decree 3667 of 2004 created a unified form to self-assess and pay social security and payroll contribution. And be advised that the unified form can be submitted electronically but not in person to the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), the Colombian Family Institute (Instituto Colombiano de 5 days no charge 4 Bienestar Familiar, or ICBF) and the Family Compensation Fund (Caja de Compensación Familiar). This unified form must be submitted electronically or in person. The term for payment of the monthly contributions to the Family Compensation Fund expires within the first thirteen business days of each month depending on the last number of the Tax Identification Number (NIT) of the company. Agency: Family Compensation Fund (Caja de Compensación Familiar), the Governmental Learning Service (Servicio Nacional de Aprendizaje, Doing Business 2015 Colombia 22 Time to No. Procedure Cost to complete complete SENA) and the Colombian Family Institute (Instituto Colombiano de Bienestar Familiar, ICBF) * Register employees for health coverage (public) To register employees for health coverage, the company must submit a form that indicates the affiliation of its employees to the national health system (Plan Obligatorio de Salud, POS), be it through the public entity) or through a private ""promoter of health"" (EPS). Each employee has the right to choose a provider, and the company is obliged to submit the respective form to the provider designated by the employee. Normally, each company must make its submissions to at least one 6 days, provider. simultaneous with 5 no charge previous In practice, it usually takes longer than assumed here, because the procedure providers normally do not accept affiliations immediately. The employer is obligated to complete and present different forms, enclosing the documents requested by each entity (which may vary), including the administrator of professional risks. Agency: EPS * Register employer and employees for pension with Colpensiones or one of the private funds The company must affiliate itself with the pension system. The company must then submit a form that indicates employee affiliation to the pension system (affiliation either to the public pension fund through 1 day, Colpensiones or to a private pension and compensation fund). The simultaneous with 6 no charge employer cannot choose the pension fund on behalf of the employee. previous Each employee has the right to choose between the public or private procedure pension fund, and the company must complete the respective submissions to the pension funds. Agency: Social Security Institute * Register company with the Administrator of Professional Risks (ARL) The company must submit a form listing its affiliation and its employees 1 day, to an administrator of professional risks (ARP), private or public simultaneous with 7 (Instituto de Seguros Sociales, ISS), which covers workplace injury and no charge previous professional illness. The employer chooses the ARP to which it affiliates procedure all employees and pays the monthly contributions. Coverage begins 24 hours after submitting the form. Before affiliating employees, some administrators of professional risks request that they attend a short course. Doing Business 2015 Colombia 23 Time to No. Procedure Cost to complete complete " Agency: Administrator of Professional Risks (ARP) * Register employees with a severance fund The company is required to present a form that indicates employee affiliation to the severance fund. Each employee has the right to freely choose the severance fund. Consequently, the company is obliged to complete the respective submission to the severance fund requested by 1 day, the employee. Although 1 day is typically required to affiliate an simultaneous with 8 employee to a severance fund, the time frame may vary depending on no charge previous the number of entities chosen by the employees. The employer must procedure deposit the employee’s severance payment annually before February 15th. Agency: Severance fund * 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 Colombia 24 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid 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 Colombia 25 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 Colombia? According to data collected are a population-weighted average of the 2 largest by Doing Business, dealing with construction permits business cities. See the chapter on distance to frontier there requires 10.0 procedures, takes 73.0 days and costs and ease of doing business ranking at the end of this 7.4% 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 Colombia - 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 Colombia 26 DEALING WITH CONSTRUCTION PERMITS Globally, Colombia stands at 61 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Colombia to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Colombia and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 Colombia 27 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Colombia (table 3.1)? Table 3.1 How has Colombia made dealing with construction permits easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Colombia made dealing with construction permits easier by introducing regulations that categorize building projects on DB2010 the basis of risk and allow electronic verification for certain documents. Colombia eased construction permitting by improving the DB2011 electronic verification of prebuilding certificates. 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 Colombia 28 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Colombia 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 COP 703,285,539 construction : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Bogota 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 Colombia - Time to No. Procedure Cost to complete complete Pay variable charges and tax on urban delineation (impuesto de delineación urbana) at the bank The fees and taxes must be deposited at a designated account held by the district authorities at any bank in Bogotá. Urban delimitation and occupation tax for the warehouse is calculated at a rate of 2.6% over the minimum building direct completion costs. Minimum building direct completion costs (MBDCC)* - estimated by DANE (National Statistics Department): COP 804,212.00 per sq. m. (only direct costs) x 1300.6 sq. m. = COP 828,482,200.00 x 2.6% = COP 27,194,911.31 * MBDCC in 2009 was COP 637,000.00 but it was updated by DANE in 1 January 2011 to COP 804,212.00 (details in Resolucion 0087 January 31, 1 day COP 27,194,911 2011) This is a one-time payment. The fees and taxes must be deposited at a designated account held by the district authorities at any bank in Bogotá. This tax is payable once the license has been approved, and it is a precondition for the issuance of the approved license. If at the end of the construction the actual costs surpass the estimated ones, BuildCo must pay an additional 3% of the difference. Agency: Commercial Bank File for and obtain construction license (licencia de construcción) Decree 1600 (2005) was revoked and replaced by Decree 564 (2006) and further updated with Decree 1272 (2009). All these regulations 42 days COP 10,483,748 2 were compiled into Decree 1469 of 2010. According to the regulations, any license application must be accompanied by the following documents: • Certificate of free transferability (copy). The certificate’s date of Doing Business 2015 Colombia 29 Time to No. Procedure Cost to complete complete issuance cannot be older than one month before the date of application. • Unique national format of application for a license (completed). This format was adopted by Resolution 0984 2005 of the Ministry of Environment, Housing, and Territorial Development • When the applicant for a license is a corporation, the existence and representation must be certified through the proper legal document. The certificate’s date of issuance cannot be older than one month before the date of application. • Power of attorney, when needed • Payment receipt for real property tax of the plot for the past 5 years, stating the plot’s alphanumeric nomenclature or its identification. Whenever there is a payment agreement, the interested party will have to bring a certificate of fulfillment, issued by the Secretariat of Finance. • Plot location and identification plan • List of the adjoining plots (the real property contiguous to the project) • Manifestation whether the project under consideration will be assigned as a social interest dwelling. Such evidence must be recorded within the act that resolves the license. Article 21 of Decree 564 also establishes these additional documents for construction license applications: • Copy of (a) the report of the structural calculations and the structural designs; and (b) the reports of other nonstructural designs and of geotechnical and soil studies that determine the stability of the work, elaborated according to the norms in force at the moment of application, duly signed and labeled by professionals authorized for such purpose. These persons will be legally responsible for the designs and the information in them. • Heliographic and magnetic copy of the architectural project, elaborated according to the architectural and urban planning norms in force at the moment of application, duly signed and labeled by a registered architect who will be legally responsible for the design and the information contained therein. • If the application is presented to a different authority than the one that issued the original license, the interested party will present the previous licenses. Decree 1272 (2009) introduces risk-based categories to determined the time to complete this process. The case study analyzed by Doing Business will be Category III (Medium complex between 500 sq. m. and 2,000 sq. m.) and should be approved by the Curator within 30 business days ( 42 calendar days). However, if it requests additional documentation, such requests suspend the 42-day term until the requesting party presents the additional documents. In addition to the suspension of the terms explained above, the urban curator may extend the original 42-day term -- only if correctly justified by written resolution -- up to 90 calendar days. If process has no delays, the "silent is consent" rule will apply and the license will be issued within 42 calendar days. The license cost is calculated by the formula below, defined in Article 118 of Decree 1469, 2010: E = (Cf*i*m) (Cv*i*j*m) Where Doing Business 2015 Colombia 30 Time to No. Procedure Cost to complete complete Cf = fixed charge: COP 246,400.00 (40% of minimum salary) Cv = variable charge, according to the use and area: COP 492,800.00 (80% of minimum salary). i = use and socioeconomic stratification index, 4 (defined by Article 118). m = town factor, according to market, 0.938 (for Bogotá, according to Article 119). j = Ratio between expenses and square meters, given by the formula assigned in Paragraph 3, Article 118. The variable j is calculated as 3.8/[0.12 (800/Q)], where Q is the total area in sq. m. Applying this formula, the "j" ratio is equal to 5.17. Then, applying the formula to the aforementioned values, the cost of the license (E) would be the following: E = ( 246,400.00 x 4 x 0.938) + (492,800.00 x 4 x 5.17 x 0.938) - No VAT included. E = 924,492.8 + 9,559,255.5 = 10,483,748.35 Article 118 of Decree No. 1469 (2010) specifies that licenses may not be granted by the urban curator without the previous payment of any taxes caused by the license procedure. BuildCo must also pay the urban delimitation and occupation tax (impuesto de delineación urbana y ocupación) at the local bank. The fees and taxes must be deposited at a designated account held by the district authorities at any bank in Bogotá. Direct costs are those related to materials, labor, and ancillary elements such as tools and so forth. Indirect costs relate to fees charged by the architects and the engineers and to ancillary payments related to such honoraria. It does not include costs for taxes, land acquisition, project financing, or utility surcharges. According to Decrees 1272 of 2009 and 1469 of 2010, in cities with more than 500,000 inhabitants, the presentation of documents by a license applicant which contain information available through virtual or remote inquiry is no longer necessary. Urban curators must check by these means the information at the time of filing of the application. This is why the following documents are no longer required to be obtained by the entreperneur: • Legal representation certificate (Certificado de Exsitencia y Representación Legal) • Certificate of free transferability (Certificado de libertad y tradición) • Proof of municipal tax payment (Paz y salvo de impuesto predial) Agency: Curaduría Urbana (Urban Curator) Receive random inspection 3 1 day no charge Agency: Municipality Doing Business 2015 Colombia 31 Time to No. Procedure Cost to complete complete Request water connection approval from EAAB and receive water inspection EAAB undertakes supervision, control, and evaluation of construction according to regulations. It takes place during the whole construction process. The water connection approval from EAAB only happens after the 4 inspection is conducted, which usually takes 3 to 4 business days. From 4 days no charge the time the inspection takes place, it takes another 6 days for the approval to be processed. Agency: Empresa de Acueducto y Alcantarillado de Bogotá (EAAB) Receive water connection approval from EAAB The owner of the plot (or a representative) must request a water connection by providing Bogotá’s public water utility (Empresa de Acueducto y Alcantarillado de Bogotá, EAAB) with copies of the following documents: • Nomenclature certificate (boletín de nomenclatura) of the plot where the warehouse will be located • Certificate of free transferability of the plot • Authorization of the plot owner for the installation service request, if the owner is not requesting the service directly • Description of the warehouse purpose (whether commercial or 6 days COP 1,845,300 5 industrial) According to Resolution 1281 from August 2008 the cost is: COP 1,123,520.00 for connection fee, COP 699,120.00 to install the meters and COP 22,660.00 for meter verification. EAAB has 21 points of service at the different service centers that the local government has established throughout Bogotá. Agency: Empresa de Acueducto y Alcantarillado de Bogotá (EAAB) Obtain water connection from EAAB 6 10 days no charge Agency: Empresa de Acueducto y Alcantarillado de Bogotá (EAAB) * Receive inspection from authorized contractor No later than 20 days after requesting the connection, Codensa must send a service agent that will review the construction. 1 day no charge 7 Agency: Codensa S.A. ESP Doing Business 2015 Colombia 32 Time to No. Procedure Cost to complete complete Receive final inspection by Mayor’s Office Through its agents, the Mayor’s Office (Alcaldía Distrital) is the entity in charge of monitoring and controlling construction projects in Bogotá. The inspections are carried out to confirm that the construction has 1 day no charge 8 been completed according to the construction license. Agency: Mayor’s Office (Alcaldía Distrital) Obtain occupancy permit According to Decree 1469 of 2010, BuildCo must obtain an occupancy permit. Once the approved project has been completed, the owner or builder who is responsible for the works requests the occupancy permit from 9 the authority responsible for executing the urban control and 1 day no charge subsequent works. Agency: Mayor’s Office (Alcaldía Distrital) Register building at Real Estate Registry Registration of the building is required for it to be registered as collateral. Once the building is completed, it is necessary to formalize the public deeds of “Declaration of the Building” at a Public Notary. The public deeds must be registered at the Public Office of Registration after having been updated by a notary. The fees for the public deeds and registration are as follows: 1. Public notary: 3 x 1000% of the value of the building + 16% VAT (VAT is not included in the Doing Business case study) 10 2. Public Office of Registration: 10 x 1000% of the value of the building 7 days COP 12,659,140 (registration tax) + 5 x 1000% of the value of the building (registration fees) Time for registration at the Registry can vary from 1 to 2 weeks, depending on the location in the city. The registry where the warehouse is located takes on average one week. Agency: Public Office of Registration * 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 Colombia 33 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 Colombia 34 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 Colombia? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 5.0 procedures, which the data are a population-weighted average of the takes 105.0 days and costs 504.4% 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 Colombia - 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 Colombia 35 GETTING ELECTRICITY Globally, Colombia stands at 92 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 Colombia to The rankings for comparator economies and the regional connect a warehouse to electricity. Figure 4.2 How Colombia and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2015 Colombia 36 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 Colombia (table 4.1)? Table 4.1 How has Colombia made getting electricity easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Colombia made getting electricity easier by opening a one- DB2014 stop shop for electricity connections and improving the efficiency of the utility’s internal processes. Source: Doing Business database. Doing Business 2015 Colombia 37 GETTING ELECTRICITY What are the details? The indicators reported here for Colombia are based on OBTAINING AN ELECTRICITY CONNECTION a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility: CODENSA identified by Doing Business. Data are collected from the distribution utility, then completed and verified by City: Bogota 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 Colombia - Time to No. Procedure Cost to complete complete The customer submits a service application to Codensa and awaits the preparation of a feasibility study and cost estimate The customer submits his service application in person in one of the offices of Codensa. The application has to indicate the electricity load required and include a number of supporting documents. Codensa will conduct an internal study to assess whether the new connection is feasible or not. In simple cases, Codensa will just authorize the connection. In more complicated cases, the utility will request a design of the works necessary to do the connection first. This second case is more 15 calendar days COP 0 1 likely for a load of 140kVA. The client will receive a letter summarizing the availability of electricity in the area in question and the works that will be required for the connection. The approved application has a validity of one year, which means that the customer has one year from the moment of approval to finalize the relevant procedures needed to obtain an electricity connection from Codensa. Agency: Codensa The customer contracts a construction firm or an approved design engineer to prepare a design of the external connection works and to carry out the connection works If the customer choose a private company to do the external connection 60 calendar days COP 67,000,000 2 work the firm will have to prepare a design of the planned works. Codensa's engineers will then review the design that was prepared. During this period, Codensa also obtains the relevant right of ways/excavation permits from the Instituto de Desarollo Urbano (IDU). Once the design is approved, the sub-contractor can carry out the need Doing Business 2015 Colombia 38 Time to No. Procedure Cost to complete complete connection works. According to the regulations, only an electrical engineer (ingeniero electricista) is allowed to prepare the design for the external connection works. The actual works can be later carried out by an electrician with just a technical formation (un técnico con matricula). In the majority of the cases, the construction firm that constructed the building will also do the connection works of installing a dedicated distribution transformer or a small sub-station. The actual works take only a few days. Agency: Ingeniero eléctricista con matricula profesional o empresa de construccion * The customer's electrical contractor obtains the necessary permit to construct the new connection 3 45 calendar days COP 300,000 Agency: IDU and Secretaria de Transito * The customer has to obtain a certification of the internal wiring installations from a firm registered with the Superintendencia de Industria y Comercio (SIC) Once the internal wiring installations have been finalized, the customer has to request an inspection from a firm registered with the ONAC (Organismo Nacional De Acreditación) or the Superintendencia de Industria y Comercio (SIC). The firm will assess whether the internal wiring installations comply with the standards of the RETIE (Reglamento Técnico de Instalaciones Eléctricas) and issue an inspection certificate to 4 the customer. The inspection certificate has to be submitted to Codensa 7 calendar days COP 1,600,000 before the electricity supply is turned on. A list of firms accredited to conduce inspection can be found at http://www.sic.gov.co/Informacion_Interes/Entidades%20acreditadas/Dir ectorio%20-%20Area2.php. Agency: Firm accredited with ONAC (Organismo Nacional De Acreditación) or the Superintendencia de Industria y Comercio (SIC) After the customer signs the supply contract, Codensa inspects the external works, installs the meter and energizes the project 5 The supply contract is signed after the external connection works have 30 calendar days COP 2,049,835 been inspected by Codensa. Codensa will then energize the project. In order to energize the new connection Codensa has to inform other customers that are connected in the same area that their electricity will Doing Business 2015 Colombia 39 Time to No. Procedure Cost to complete complete be cut to connect a new client. Codensa does this usually through the press and the last bill before the disconnection is made. This means they have to give their clients at least two weeks of advance notice. In most of the cases, this time frame is enough to connect the new customer. The meter is installed and the electricity is flowing from that point in time. Codensa provides the meter. The customer also has to pay a security deposit equivalent to one month of consumption. The deposit is returned to the client without interest at the end of the contract. Agency: Codensa * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Colombia 40 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 Colombia 41 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 Colombia? According to data collected by Doing business city of an economy, except for 11 economies for Business, registering property there requires 6.0 which the data are a population-weighted average of the procedures, takes 16.0 days and costs 2.0% of the 2 largest business cities. See the chapter on distance to property value (figure 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 Colombia - 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 Colombia 42 REGISTERING PROPERTY Globally, Colombia stands at 42 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 Colombia to transfer property. Figure 5.2 How Colombia and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2015 Colombia 43 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 Colombia (table 5.1)? Table 5.1 How has Colombia made registering property easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Colombia made transferring property easier by making certificates required for the process available online and DB2010 providing a standard preliminary sale agreement free of charge, online and in notary offices. Colombia made transferring property easier by eliminating the DB2015 need for a provisional registration. 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 Colombia 44 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: COP 703,285,539 notaries and property registries. These procedures are those that apply to a transaction matching the City: Bogota 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 Colombia Time to No. Procedure Cost to complete complete A certificate of good standing ("Existencia y Representacion legal") of the company must be obtained at the Chamber of Commerce When the parties are companies, a certificate of good standing (“Certificado de Existencia y Representación legal de la Compañia”) of the company must be requested at the Chamber of Commerce. This certificate does not have an expiration date for its validity, but some entities, such banks or authorities, request for certificates issued with less than three months in order to obtain updated information. Electronic Certificates of Existence and Legal Representation can also be Less than a day 1 obtained online since 2010. The certificate can be requested, paid and (online COP 4,100 obtained online. Payment can be paid by credit card. The certificate procedure) provides real time information of the company (Bogota Chamber of Commerce: http://serviciosenlinea.ccb.org.co/cerple/index.aspx).The value of the Certificate of Exitance and Legal Representation is updated once a year according to the increase of the minimum monthly legal wage. The amount to pay is 0.70% of the minimum monthly legal wage. Agency: Chamber of Commerce (http://serviciosenlinea.ccb.org.co/cerple/index.aspx) A study of the titles of the property is done by a lawyer A lawyer, usually external to the company, will make a study of the past titles of the property and about the history of the owners to carry out the transaction. The study of the titles is not mandatory, but it takes place 5 days COP 1,113,000 2 almost always for property transactions. The lawyer must be provided with the certificates obtained in Procedures 1 and 2 and with a copy of the company’s shareholders act authorizing its representative to act on their behalf in order to complete this Procedure. Doing Business 2015 Colombia 45 Time to No. Procedure Cost to complete complete Agency: Lawyer's office Obtain tax certificates ("predial" and "valorizacion") From the VUR website, it is now possible to see and obtain online the "certificado de paz y salvo predial" (stating municipal property taxes have been paid from Secretaría de Hacienda del Distrito. ) and the "certificado de paz y salvo de valorización" (taxes related to increases in the value of the property due to constructions, roads, etc- Instituto de Desarrollo Urbano -IDU). Less than a day 3 For properties with no liens, the certificates obtained and printed out (online no cost from the internet at the notary's offices can now be submitted to the procedure) Land Registry. Notaries have a special login to access these certificates. This certificate has no cost if requested online and can be obtained by submitting the "chip catastral". The VUR website is: http://www.registratupropiedad.com/ Agency: Ventanilla Unica de Registro (or CADE) The notary prepares the public deed COP 16,100 on the first COP 135,500 The notary public will prepare the final public deed with all the + 0.3% of the documentation previously obtained by the parties. The notary will also property value check the Board of directors minutes authorizing the sale and purchase above 135,500 + of each property respectively for each limited liability company. COP 12,000 for the The participation of a notary in the preparation of the public deed is mandatory by law, and his/her fees are also established by law (0.27% of escritura (COP property value + other indicated fees). 3000 per page) + COP 36,000 for 3 4 The minuta establishes the terms of the sale between the parties. It is 3 days copies of the not mandatory, but it is normally prepared by a lawyer. If parties escritura (COP prepare the minuta, the notary will review it while preparing the public 3000 per page) + deed. The standard preliminary deed ("minuta") that can be prepared by COP 22,100 for the the parties can obtained for free in the notaries offices or online at Superintendency http://www.registratupropiedad.com/index.php?option=com_content&vi of Notary and ew=article&id=71&Itemid=76 Registry + COP 22,100 for the Agency: Notary National Notary Fund. Doing Business 2015 Colombia 46 Time to No. Procedure Cost to complete complete * The notary pays transfer tax and registration fee online The “registry tax” or “Impuesto de Registro” can be paid at the registry office in the city of Bogotá and other large cities, where the commercial bank in charge of collection of this tax has installed a branch for this 1% of property purpose. The payment can also be made online at the website Less than a day value (Registry http://190.255.46.84/pagos/usuarios/ingreso.aspx. (online procedure 5 Tax) + 0.5% of Despite its name, the “Impuesto de Registro” is a tax that goes to finance and simultaneous property value state-level programs on public health. It is not a fee for a service but a with Procedure 5) (Registration Fee) tax. Agency: Registry Office (Oficina de Registro de Instrumentos Públicos) The public deed must be registered at the Registry Office After the “registry tax” is paid, the public deed prepared by the notary must be registered at the Registry Office for its validity. After registration, the new public deed is automatically sent (internal procedure) to the already paid in 6 7 days Office of the Cadastre to register the change of ownership. Procedure 6 Agency: Registry Office (Oficina de Registro de Instrumentos Públicos) * 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 Colombia 47 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 Colombia 48 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Colombia stands at 2 in the ranking of 189 and bankruptcy laws in Colombia facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 7 on the depth of rankings for comparator economies and the regional credit information index and a score of 12 on the average ranking provide other useful information for strength of legal rights index (see the summary of assessing how well regulations and institutions in scoring at the end of this chapter for details). Higher Colombia support lending and borrowing. scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Colombia and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2015 Colombia 49 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Colombia 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 Colombia 50 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 Colombia (table 6.1)? Table 6.1 How has Colombia made getting credit easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Colombia improved access to credit information by guaranteeing borrowers’ right to inspect their own data and by DB2010 making it mandatory for credit providers to consult and share information with credit bureaus. Colombia improved access to credit by adopting a new secured transactions law that establishes a functional secured transactions system and a centralized, notice-based collateral registry. The law broadens the range of assets that can be used DB2015 as collateral, allows a general description of assets granted as collateral, establishes clear priority rules inside bankruptcy for secured creditors, sets out grounds for relief from a stay of enforcement actions by secured creditors during reorganization procedures and allows out-of-court enforcement of collateral. 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 Colombia 51 GETTING CREDIT What are the details? The getting credit indicators reported here for Colombia 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: 12 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 Yes assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically Yes 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 Yes name? Does a notice-based collateral registry exist in which all functional equivalents can be Yes registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and Yes 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 Yes defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is Yes 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 Yes providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2015 Colombia 52 Strength of legal rights index (0–12) Index score: 12 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 Yes 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: 7 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 No No 0 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? 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? 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 1,240,367 0 Number of individuals 26,584,144 0 Percent of total 87.0 0.0 Doing Business 2015 Colombia 53 Source: Doing Business database. Doing Business 2015 Colombia 54 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 Colombia 55 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 Colombia? The economy has a score of not measure all aspects related to the protection of 7.2 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, Colombia stands at 10 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Colombia and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 Colombia 56 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Colombia 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 Colombia 57 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 Colombia 58 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 Colombia 59 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 Colombia 60 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 Colombia (table 7.1)? Table 7.1 How has Colombia strengthened minority investor protections—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Colombia strengthened investor protections by making it DB2010 easier to sue directors when a related-party transaction harms the company. 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 Colombia 61 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Colombia 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 Colombia. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Colombia Answer Score Extent of disclosure index (0-10) 9.0 Which corporate body can provide legally sufficient Shareholders excluding interested 3 approval for the Buyer-Seller transaction? (0-3) parties Is disclosure by the interested director to the board of Full disclosure of all material facts 2 directors required? (0-2) Is disclosure of the transaction in published periodic filings Disclosure on the transaction and 2 (annual reports) required? (0-2) on the conflict of interest Is immediate disclosure of the transaction to the public Disclosure on the transaction and 2 and/or shareholders required? (0-2) on the conflict of interest 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) 7.0 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 unfair or prejudicial 2 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 Yes 1 plaintiff? (0-1) Can both fines and imprisonment be applied against the No 0 interested indrector? (0-1) Can a court void the transaction upon a successful claim by Voidable if negligently concluded 1 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 8.0 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 Any relevant document 3 Doing Business 2015 Colombia 62 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 Yes 2 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1 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) 7.2 Extent of conflict of interest regulation index (0-10) 8.0 Extent of shareholder rights index (0-10.5) 9.0 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 Yes 1.5 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 5.5 Is the CEO barred from also serving as chair of the board of No 0 directors? Must the board of directors include independent board Yes for listed companies 1 members? Must a company have a separate audit committee? Yes for listed companies 1 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 for listed companies 1 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) 4.5 Must ownership stakes representing 10% be disclosed? Yes for listed companies 1 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 for listed companies 1 and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Doing Business 2015 Colombia 63 auditor? Must audit reports be disclosed to the public? Yes for listed companies 1 Extent of shareholder governance index (0-10) 6.3 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 Colombia 64 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 Colombia—and how much do firms pay in taxes? frontier and ease of doing business ranking at the end of On average, firms make 11.0 tax payments a year, spend this profile for more details. 239.0 hours a year filing, preparing and paying taxes and Globally, Colombia stands at 146 in the ranking of 189 pay total taxes amounting to 75.4% 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 Colombia. Figure 8.1 How Colombia and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 Colombia 65 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue rise. consolidating filings, reducing the frequency of What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Colombia (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Colombia made paying taxes easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Colombia made paying taxes easier and less costly for DB2010 companies by introducing electronic filing and payment and reducing some payments. Colombia eased the administrative burden of paying taxes for DB2012 firms by establishing mandatory electronic filing and payment for some of the major taxes. Colombia made paying taxes more complicated for companies DB2015 by introducing a new profit tax (CREE), though it also reduced the corporate income tax rate and payroll taxes. 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 Colombia 66 PAYING TAXES What are the details? The indicators reported here for Colombia 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: Bogota 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 gross Social security contributions 1 online filing 87 12% 23.7 salaries Municipal tax 1 online filing 0 1.104% turnover 19.5 taxable Corporate income tax 1 online filing 86 34% 14.3 profit withdrawal s from Financial transactions tax 1 0 0.4% 6.5 bank account taxable Income Tax for Equity - CREE 1 online filing 0 9% 5.6 profit gross Payroll tax 0 paid jointly 0 4.5% 3.2 salaries assessed Real estate tax 1 0 1% real estate 1.5 value Project Urban Boundary Tax 1 0 2.6% 0.8 budget Vehicle tax 1 0 2.5% 0.3 Doing Business 2015 Colombia 67 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 small Stamp duty 1 0 0 amount consumpti small Fuel tax 1 0 6% 0 on value amount not Employee contributions 0 0 8% - 10% 0 included value not Value added tax (VAT) 1 online filing 66 16% 0 added included gross included in Welfare security system 0 paid jointly 0 8.5% 0 salaries other taxes gross included in Labor risk insurance 0 paid jointly 0 0.522% 0 salaries other taxes Totals 11.0 239.0 75.4 Source: Doing Business database. Doing Business 2015 Colombia 68 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 Colombia 69 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Colombia? 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 4 documents, doing business ranking at the end of this profile for more takes 14.0 days and costs $2355.0. Importing the same details. container of goods requires 6 documents, takes 13.0 Globally, Colombia stands at 93 in the ranking of 189 days and costs $2470.0 (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 Colombia to export and import goods. Figure 9.1 How Colombia and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Colombia 70 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 Colombia (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Colombia made trading across borders easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Colombia speeded up the customs clearance process by DB2010 implementing the electronic data interchange system MUISCA. 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 Colombia 71 TRADING ACROSS BORDERS What are the details? The indicators reported here for Colombia 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: Cartagena SPRC cover). Information on the required documents and the time and cost to complete export and import is City: Bogota 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 Colombia Stages to export Time (days) Cost (US$) Customs clearance and inspections 2 350 Documents preparation 5 300 Inland transportation and handling 4 1,535 Ports and terminal handling 3 170 Totals 14 2,355 Stages to import Time (days) Cost (US$) Customs clearance and inspections 2 170 Documents preparation 6 250 Inland transportation and handling 3 1,900 Ports and terminal handling 2 150 Totals 13 2,470 Doing Business 2015 Colombia 72 Documents to export Bill of lading Commercial invoice Customs export declaration Inspection report 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 Colombia 73 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 Colombia 74 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 Colombia? 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 1288.0 days, costs 47.9% of the value of the claim Globally, Colombia stands at 168 in the ranking of 189 and requires 33.0 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 Colombia. Figure 10.1 How Colombia and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Colombia 75 ENFORCING CONTRACTS Economies in all regions have improved contract reducing backlogs by introducing periodic reviews to enforcement in recent years. A judiciary can be improved clear inactive cases from the docket and by making in different ways. Higher-income economies tend to look procedures faster. What reforms making it easier (or for ways to enhance efficiency by introducing new more difficult) to enforce contracts has Doing Business technology. Lower-income economies often work on recorded in Colombia (table 10.1)? Table 10.1 How has Colombia made enforcing contracts easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Colombia made enforcing contracts easier by simplifying and DB2014 speeding up the proceedings for commercial disputes. 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 Colombia 76 ENFORCING CONTRACTS What are the details? The indicators reported here for Colombia 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: COP 26,589,577 the indicators cover). These procedures, and the time and cost of completing them, are identified through Bogota Civil Municipal study of the codes of civil procedure and other court Court name: Court regulations, as well as through questionnaires completed by local litigation lawyers (and, in a City: Bogota 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 Colombia Latin America & Indicator Colombia Caribbean average Time (days) 1,288 737 Filing and service 68 Trial and judgment 855 Enforcement of judgment 365 Cost (% of claim) 47.9 30.6 Attorney cost (% of claim) 23.2 Court cost (% of claim) 12.6 Enforcement Cost (% of claim) 12.1 Procedures (number) 33 40 Number of procedures (without bonus points) 33 Total number of procedures (including bonus points) 33 Doing Business 2015 Colombia 77 No. Procedures Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. Mandatory conciliation or mediation: Plaintiff and Defendant attempt to settle the dispute prior to 2 initiating the lawsuit. Conciliation or mediation is unsuccessful. Attempts at settlement are recorded and the judge is informed of same. 3 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). Registration of court case: Registration of court case by the court administration (this can include 4 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 5 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). 6 Court order for service: Upon Plaintiff’s request, judge orders process be s erved on Defendant. Arrangements for physical delivery of summons and complaint: Plaintiff takes the necessary steps to * arrange for physical service of process on Defendant (e.g. instructing a court officer or a private bailiff). Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons * and complaint to Defendant. Attempt at physical delivery: An attempt to physically deliver summons and complaint to Defendant is 7 made. * Proof of service: Plaintiff submits proof of service to court, as required by law or standard practice. Trial and judgment: 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 Plaintiff’s answer to preliminary motions: Plaintiff responds to preliminary motions raised by Defendant. * Checked as ‘yes’ if preliminary motions are commonly raised (step 30) and if Plaintiff responds to them immediately. Judge’s resolution on preliminary objections: Judge decides on preliminary objections separately from the 8 merits of the case. Checked as ‘yes’ if preliminary objections are commonly made (step 30) and if judge resolves the question before rendering his decision. Doing Business 2015 Colombia 78 No. Procedures Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 9 or defense on the merits of the case (see assumption 4). Deadline for Plaintiff to reply to Defendant's defense or answer: Judge sets a deadline for Plaintiff’s 10 submission of a reply to the Defendant's defense or answer. Plaintiff’s written reply to Defendant's answer: Plaintiff responds to Defendant’s answer with a written 11 pleading, which may or may not include witness statements or expert (witness) statements. Filing of written submissions: Plaintiff and Defendant file written pleadings and submissions with the court 12 and transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. 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 13 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). * 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 14 hearing or trial (see assumption 5-a). 15 Closing of the evidence period: The court makes the formal decision to close the evidence period. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 16 Writing of judgment: The judge produces a written copy of the judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 17 judgment is available at the courthouse. Defendant is formally notified of the judgment: Plaintiff or court formally notifies the Defendant of the 18 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. 19 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). 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 20 enforcement officer such as a court bailiff or sheriff, or a private bailiff. Doing Business 2015 Colombia 79 No. Procedures Plaintiff requests an enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). 21 Plaintiff advances enforcement fees: Plaintiff pays the fees related to the enforcement of the judgment. Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 22 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 23 the attachment of Defendant's movable assets. Check as “yes” only if the pretrial order of attachment fo r Defendant’s moveable assets does not ordinarily involve physical seizure of the as 24 Plaintiff identifies Defendant's assets for attachment: Plaintiff identifies Defendant's assets for attachment. Creditor notification of intent to attach: A court enforcement officer or private bailiff notifies other 25 creditors of the intent to attach Defendant's goods. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 26 assets). Report on execution of attachment: A court enforcement officer or private bailiff delivers a report on the 27 attachment of Defendant's movable goods to the judge. Valuation or appraisal of attached movable goods: The court or court-appointed valuation expert 28 evaluates the attached goods. Call for public auction: Judge calls a public auction by, for example, advertising or publication in the 29 newspapers. 30 Sale through public auction: The Defendant’s movable property is sold at public auction. 31 Judge's decision on bids: Judge determines the adequacy of the bids presented at public auction. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 32 Plaintiff had advanced previously. 33 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 Colombia 80 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 Colombia 81 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, Colombia characterize the top-performing economies. How scores 3.0 out of 3 points on the commencement of efficient are insolvency proceedings in Colombia? proceedings index, 5.5 out of 6 points on the According to data collected by Doing Business, resolving management of debtor’s assets index, 0.5 out of 3 points insolvency takes 1.7 years on average and costs 6.0% of on the reorganization proceedings index, and 1.0 out of the debtor’s estate, with the most likely outcome being 4 points on the creditor participation index. Colombia’s that the company will be sold as going concern. The total score on the strength of insolvency framework average recovery rate is 72.0 cents on the dollar. Most index is 10.0 out of 16. indicator sets refer to a case scenario in the largest Globally, Colombia stands at 30 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 Colombia. Figure 11.1 How Colombia and comparator economies rank on the ease of resolving insolvency Doing Business 2015 Colombia 82 Source: Doing Business database. Doing Business 2015 Colombia 83 Figure 11.2 Recovery Rate (0-100) - Colombia Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - Colombia Source: Doing Business database. Doing Business 2015 Colombia 84 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Colombia (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Colombia made resolving insolvency easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Colombia enhanced its insolvency process through several DB2010 decrees regulating the profession of insolvency administrators. Colombia amended regulations governing insolvency DB2012 proceedings to simplify the proceedings and reduce their time and cost Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Colombia 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 Colombia LABOR MARKET REGULATION What are the details? The data reported here for Colombia 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) 36 - Art. 46, CST Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 331.09 (US$/month) Ratio of minimum wage to value added per worker 0.35 Source: Doing Business database. Doing Business 2015 Colombia 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 6.0 Premium for night work (% of hourly pay) 35% Premium for work on weekly rest day (% of hourly pay) 75% 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) 15.0 Paid annual leave for a worker with 5 years of tenure (in working days) 15.0 Paid annual leave for a worker with 10 years of tenure (in working days) 15.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 15.0 working days) Source: Doing Business database. Doing Business 2015 Colombia 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) 2.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? No 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 Colombia 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 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure 15.7 Severance pay for redundancy dismissal for a worker with 10 years of tenure 30.0 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 16.7 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? Yes 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 Colombia 90 Doing Business 2015 Colombia 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 Colombia 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 Colombia 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 Colombia 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 Colombia 95