65393 Economy Profile: Korea, Rep. © 2012 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org All rights reserved. 1 2 3 4 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. 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ISBN: 978-0-8213-8833-4 E-ISBN: 978-0-8213-8834-1 DOI: 10.1596/978-0-8213-8833-4 ISSN: 1729-2638 Printed in the United States Doing Business 2012 Korea, Rep. 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 33 Registering property .................................................................................................................. 38 Getting credit .............................................................................................................................. 49 Protecting investors ................................................................................................................... 56 Paying taxes ................................................................................................................................ 66 Trading across borders .............................................................................................................. 75 Enforcing contracts .................................................................................................................... 84 Resolving insolvency .................................................................................................................. 91 Data notes ................................................................................................................................... 97 Resources on the Doing Business website ............................................................................ 102 Doing Business 2012 Korea, Rep. 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2010). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 10 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts and transparency of government procurement, resolving insolvency. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 183 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 32 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 18 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for Korea, Rep.. To allow useful comparison, recommends regulatory reforms. The data, along with it also provides data for other selected economies information on ordering Doing Business 2012, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2011 (except for http://www.doingbusiness.org. Doing Business 2012 Korea, Rep. 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: OECD high income business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: High income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 48,875,000 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 19,890.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 8 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 15 investors, paying taxes, trading across borders, Change in rank: 7 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 Korea, Rep. 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2012 Korea, Rep. 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy’s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How Korea, Rep. and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 Korea, Rep. 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Korea, Rep. ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 Korea, Rep. 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the ―frontier,‖ a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy’s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy’s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy’s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has Korea, Rep. come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 Korea, Rep. 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Korea, Rep. Best performer globally Korea, Rep. DB2012 Korea, Rep. DB2011 Russian Federation Australia DB2012 Indicator Japan DB2012 China DB2012 Brazil DB2012 India DB2012 DB2012 DB2012 Starting a Business 24 59 2 120 151 166 107 111 New Zealand (1) (rank) Procedures (number) 5 8 2 13 14 12 8 9 Canada (1)* Time (days) 7 14 2 119 38 29 23 30 New Zealand (1) Cost (% of income per 14.6 14.7 0.7 5.4 3.5 46.8 7.5 2.0 Denmark (0.0)* capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 100.4 149.6 0.0 1.6 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 26 27 42 127 179 181 63 178 China (1) (rank) Procedures (number) 12 12 15 17 33 34 14 51 Denmark (5) Time (days) 30 30 147 469 311 227 193 423 Singapore (26)* Cost (% of income per 79.5 87.0 9.9 40.2 444.1 1631.4 27.9 183.8 Qatar (1.1) capita) Doing Business 2012 Korea, Rep. 11 Best performer globally Korea, Rep. DB2012 Korea, Rep. DB2011 Russian Federation Australia DB2012 Indicator Japan DB2012 China DB2012 Brazil DB2012 India DB2012 DB2012 DB2012 Getting Electricity (rank) 11 9 37 51 115 98 26 183 Iceland (1) Procedures (number) 4 4 5 6 5 7 3 10 Germany (3)* Time (days) 49 49 81 34 145 67 117 281 Germany (17) Cost (% of income per 38.6 42.3 9.2 130.3 640.9 216.2 0.0 1852.4 Japan (0.0) capita) Registering Property 71 74 38 114 40 97 58 45 New Zealand (3) (rank) Procedures (number) 7 7 5 13 4 5 6 5 Portugal (1)* Time (days) 11 11 5 39 29 44 14 43 Portugal (1) Cost (% of property 5.1 5.1 5.0 2.3 3.6 7.3 5.7 0.2 Slovak Republic (0.0) value) Getting Credit (rank) 8 8 8 98 67 40 24 98 United Kingdom (1)* Strength of legal rights 8 8 9 3 6 8 7 3 New Zealand (10)* index (0-10) Depth of credit 6 6 5 5 4 4 6 5 Japan (6)* information index (0-6) Public registry coverage 0.0 0.0 0.0 36.1 82.5 0.0 0.0 0.0 Portugal (86.2) (% of adults) Private bureau coverage 100.0 93.3 100.0 61.5 0.0 15.1 99.0 35.8 New Zealand (100.0)* (% of adults) Protecting Investors 79 74 65 79 97 46 17 111 New Zealand (1) (rank) Extent of disclosure 7 7 8 6 10 7 7 6 France (10)* index (0-10) Doing Business 2012 Korea, Rep. 12 Best performer globally Korea, Rep. DB2012 Korea, Rep. DB2011 Russian Federation Australia DB2012 Indicator Japan DB2012 China DB2012 Brazil DB2012 India DB2012 DB2012 DB2012 Extent of director 2 2 2 7 1 4 6 2 Singapore (9)* liability index (0-10) Ease of shareholder suits 7 7 7 3 4 7 8 6 New Zealand (10)* index (0-10) Strength of investor 5.3 5.3 5.7 5.3 5.0 6.0 7.0 4.7 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 38 40 53 150 122 147 120 105 Canada (8) Payments (number per 12 14 11 9 7 33 14 9 Norway (4) year) Time (hours per year) 225 250 109 2600 398 254 330 290 Luxembourg (59) Trading Across Borders 4 10 30 121 60 109 16 160 Singapore (1) (rank) Documents to export 3 3 6 7 8 8 3 8 France (2) (number) Hong Kong SAR, Time to export (days) 7 8 9 13 21 16 10 36 China (5)* Cost to export (US$ per 680 790 1060 2215 500 1095 880 1850 Malaysia (450) container) Documents to import 3 3 5 8 5 9 5 10 France (2) (number) Time to import (days) 7 7 8 17 24 20 11 36 Singapore (4) Cost to import (US$ per 695 790 1119 2275 545 1070 970 1800 Malaysia (435) container) Enforcing Contracts 2 4 17 118 16 182 34 13 Luxembourg (1) (rank) Doing Business 2012 Korea, Rep. 13 Best performer globally Korea, Rep. DB2012 Korea, Rep. DB2011 Russian Federation Australia DB2012 Indicator Japan DB2012 China DB2012 Brazil DB2012 India DB2012 DB2012 DB2012 Time (days) 230 230 395 731 406 1420 360 281 Singapore (150) Cost (% of claim) 10.3 10.3 21.8 16.5 11.1 39.6 32.2 13.4 Bhutan (0.1) Procedures (number) 33 35 28 45 34 46 30 36 Ireland (21)* Resolving Insolvency 13 13 17 136 75 128 1 60 Japan (1) (rank) Time (years) 1.5 1.5 1.0 4.0 1.7 7.0 0.6 2.0 Ireland (0.4) Cost (% of estate) 4 4 8 12 22 9 4 9 Singapore (1)* Recovery rate (cents on 82.3 81.7 80.8 17.9 36.1 20.1 92.7 41.5 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practice� marks, see the data notes for details. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2012 Korea, Rep. 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that all government and nongovernment entities involved in the process  Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business:  Does not qualify for any special benefits.  Is a limited liability company, located in the  Does not own real estate. largest business city.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2012 Korea, Rep. 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Korea, Rep.? costs 14.6% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 0.0% of income per capita (figure a business there requires 5 procedures, takes 7 days, 2.1). Figure 2.1 What it takes to start a business in Korea, Rep. Paid-in minimum capital (% of income per capita): 0.0 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Korea, Rep. 16 STARTING A BUSINESS Globally, Korea, Rep. stands at 24 in the ranking of 183 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Korea, Rep. to start a business. Figure 2.2 How Korea, Rep. and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 Korea, Rep. 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in Korea, Rep. That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in Korea, Rep. over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 59 24 Procedures (number) 10 10 10 10 10 10 8 8 5 Time (days) 17 17 17 17 17 17 14 14 7 Cost (% of income per 18.4 15.7 15.7 18.2 17.1 16.9 14.7 14.7 14.6 capita) Paid-in Min. Capital (% 347.7 332.0 308.8 299.7 296.0 268.9 0.0 0.0 0.0 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Korea, Rep. 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by Korea, Rep. on ways to improve the ease of starting a the economies that today have the best performance business. And changes in regional averages can show regionally or globally on the procedures, time, cost or where Korea, Rep. is keeping up—and where it is paid-in minimum capital required to start a business falling behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 Korea, Rep. 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 7 economies in OECD high income have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 Korea, Rep. 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Korea, Rep. (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Korea, Rep. made starting a business easier—or not? By Doing Business report year DB Year Reform Korea made starting a business easier by introducing a new DB2012 online one-stop shop, Start-Biz. DB2011 No reform. The business start-up process was simplified by eliminating the minimum capital requirement, removing the notary role, DB2010 cutting taxes, putting time limits on value added tax registration, and making it possible to pay registration taxes online. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Korea, Rep. 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Korea, Rep. is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Seoul firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Jusik Hoesa professionals and the study of laws, regulations and Start-up capital: 10 times GNI per capita publicly available information on business entry in that economy. Following is a detailed summary of Paid-in minimum capital (% of income per those procedures, along with the associated time capita): 0.0 and cost. These procedures are those that apply to a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Korea, Rep.—and the time and cost Time to No. Procedure Cost to complete complete Using "StartBiz", check the availability of trade name and obtain a certificate of name availability, open a bank statement from a bank, file the application package for incorporation and obtain a corporate registration tax bill, register the company and obtain a certificate of seal impression of corporation, register and get a tax identification number (TIN), submit the rules of employment, and register electronically for the Public Health Insurance Program, the National Pension Fund, Employment Insurance, and Industrial Accident Compensation Insurance. Start-Biz (www.startbiz.go.kr), a simplified system that offers an opportunity to start a business via its website was launched in Feb. 3 days KRW 2,000 1 2010. The online incorporation system, ―Start Biz Online‖ simplifies the incorporation process to help the creation of an easy and fast business start-up environment. Start Biz Online has combined the Internet Register Office, the Local Tax Payment System, the Electronic Notarization System, the National Tax Information System, the Financial Common Network, and the Social Insurance Information System which are independently run, for the purpose of incorporation. Start Biz Online allows its users to process the entire incorporation process online. During the application procedures, applicants just need to follow the instructions of Start-Biz Online. They will be re-directed to relevant systems which are combined with Single-Sign-On (SSO) system in the frame of Start-Biz. * Make company seal 1 day (simulteneous KRW 30,000 2 The promoters may use their personal seal and thus there is no need to with previous Doing Business 2012 Korea, Rep. 22 Time to No. Procedure Cost to complete complete make a new one procedure) * Pay the corporate registration tax bill. Applicants need to follow the instructions of Start-Biz Online and they 1 day (simulteneous will be re-directed to the relevant system which is combined with with previous no charge 3 Single-Sign-On (SSO) system in the frame of Start-Biz. Therefore, the procedure) applicant will pay the fees for the registration tax bill on the website of the Ministry of Government Administration and Home Affairs at www.wetax.go.kr. * Pay the fees for the certificate of seal impression of 1.2% capital incorporation. registration tax + education tax ( 20% Applicants need to follow the instructions of Start-Biz Online and they 1 day (simulteneous of the registration 4 will be re-directed to the relevant system which is combined with with previous tax)+ KRW 10,000 (e- Single-Sign-On (SSO) system in the frame of Start-Biz. Therefore, the procedure) registration form) of applicant, to obtain the certificate of seal of incorporation, will be re- Supreme Court directed from Start Biz to the Supreme Court Registry website www.iros.go.kr to pay the fee. stamps * Pay the fees for the Public Health Insurance Program, the National Pension Fund, Employment Insurance, and Industrial Accident Compensation Insurance Applicants need to follow the instructions of Start-Biz Online and they 1 day (simulteneous 5 will be re-directed to the relevant system which is combined with with previous no charge Single-Sign-On (SSO) system in the frame of Start-Biz. Therefore, the procedure) applicant, to pay the fees for the Public Health Insurance Program, the National Pension Fund, Employment Insurance, and Industrial Accident Cmompensation Insurance, will be re-directed to www.4insurance.or.kr website * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Korea, Rep. 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2012 Korea, Rep. 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 12 procedures, takes 30 days build a warehouse in Korea, Rep.? According to data and costs 79.5% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Korea, Rep. Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Korea, Rep. 25 DEALING WITH CONSTRUCTION PERMITS Globally, Korea, Rep. stands at 26 in the ranking of 183 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Korea, Rep. to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Korea, Rep. and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 Korea, Rep. 26 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed—and which have easy (or difficult) it is to deal with construction permits not (table 3.1). That can help identify where the in Korea, Rep. today, data over time show which potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Korea, Rep. over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 27 26 Procedures (number) 12 12 12 12 12 12 12 Time (days) 55 30 30 30 30 30 30 Cost (% of income per 108.8 114.3 112.9 102.5 89.9 87.0 79.5 capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Korea, Rep. 27 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by on ways to improve the ease of dealing with the economies that today have the best performance construction permits. And changes in regional regionally or globally on the procedures, time or cost averages can show where Korea, Rep. is keeping up— required to deal with construction permits (figure 3.3). and where it is falling behind. These economies may provide a model for Korea, Rep. Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 Korea, Rep. 28 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Korea, Rep. 29 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Korea, Rep. (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Korea, Rep. made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Korea, Rep. 30 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Korea, Rep. are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Seoul information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers KRW 702,324,000 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Korea, Rep. —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain proof of ownership of land 1 1 day KRW 800 Purchase and sale of National Housing Bonds (NHB) To qualify for a building permit, BuildCo must purchase National Housing Bonds (NHBs) at any commercial bank. The NHB is calculated at a rate ranging from KRW 600 to KRW 1,300 per square meter, depending upon the structure of the warehouse. If the warehouse is constructed in steel frame, the rate of KRW 1,300 per square meter is 1 day KRW 169,078 2 applied. The company can either receive the money paid for the NHBs upon maturity or sell them at a discount (the discount is 10%). Upon purchase, the bank issues a receipt, which must then be presented to the Building Authorities. The cost is calculated as follows: KRW 1,300 x 1300.6 sq.m = KRW 1,690,780. However, many sell the NHBs immediately at a discount of 10%, which brings the actual cost incurred by the company to KRW 169,078. Request and obtain building permit BuildCo must submit an application for a building permit to the County (Ku) Office of Construction. The application must include (a) the size of construction lot; (b) documentation showing BuildCo's ownership or the right to use the construction lot; and (c) basic design drawings, 3 which must specify the approximate location of the water pipes, 9 days KRW 245,000 sewage, septic tank, electrical facilities, and telephone lines. Once the application for the building permit with the relevant documents is filed with the licensing authority, this authority forwards the design drawings to the relevant regulatory agencies (such as the sewerage department and the fire department). Thus, it is not necessary for the company to obtain separate project clearances from these departments. Doing Business 2012 Korea, Rep. 31 Time to No. Procedure Cost to complete complete Under the Article 10 of the new Building Code, anyone who intends to construct a building may opt for a fast-track procedure and apply for an "advance decision regarding building permit" before applying for a building permit. If an advance decision is obtained for the construction, the builder must separately apply for and obtain a building permit for the construction. However, when the advance decision is obtained, the relevant approval for the development or re-characterization of land (such approval is needed in certain zoning areas under several relevant laws) is deemed to be obtained. This effect of the advance decision is valid for 2 years from the date of issuance, before the builder applies for building permit itself. In addition, it is possible to submit simultaneous applications for an advance decision and for the traffic and environment impact assessment procedures, and the like, if those procedures are necessary. Accordingly, if the builder obtains an advance decision before applying for the building permit, the time before the construction may be reduced more or less. However, this has not worked well in practice and many companies follow the traditional way. According to the Standard for Civil Petitions Treatment published by the Korean Government on December 30, 2005, the duration for obtaining a building permit for a two-story, 1,300-square-meter building is estimated to be 3–14 days, subject to certain circumstances, including whether the work is performed by an agent (a certified architect). The duration can take a few days longer, as the case may be. Before construction work begins, the company informs the authority thereof. BuildCo must present a notification application, including (a) a copy of all relevant contract(s) between the relevant parties (owner, construction company, architect, building inspector, etc.); and (b) the design drawings, which must specify the location of the water pipes, sewage, septic tank, electrical facilities, and telephone lines. Hire a certified inspector A certified inspector conducts inspections throughout the period of construction. If the company does not hire a certified inspector during construction, there is a penalty of up to 2 years’ imprisonment or a fine of up to KRW 10 million. The inspector is independent of the company. The frequency of inspections varies depending on the size and cost of construction. Generally, an inspection takes place if the inspector and the company deem it necessary. However, in some instances, the 1 day KRW 9,059,980 4 contract between the company and the inspector contains a clause specifying the frequency of inspection. There must be at least two inspections throughout the construction, during which the construction work does not stop. The cost of KRW 9,059,980 is calculated by multiplying the value of the project, KRW 702,324,000, with the relevant rate of 1.29%, in accordance with the Regulation for Scope of Architect Services and Fee Standard. * Request and obtain electricity inspection certificate 1 day KRW 142,500 5 Doing Business 2012 Korea, Rep. 32 Time to No. Procedure Cost to complete complete The Electricity Business Act requires that anyone who installs electrical facilities apply for an inspection by the relevant authority before using the facilities. According to the relevant authority, the inspection should be completed in a day. The cost of inspection is calculated as follows: KRW 90,000 + Additional fee of KRW 52,500 (140 kilowatts x KRW 375/Kilowatts). * Request and obtain telephone inspection certificate The Information Telecommunication Construction Business Act requires that an inspection certificate be obtained from the relevant authority 6 for information or technology facilities before the facilities are used. 1 day KRW 40,000 According to the act’s enforcement provision, the time to complete the inspection should be 14 days, and the cost is KRW 40,000. There is no penalty for the authorities if the time line is missed, but they generally meet the deadline. * Request and obtain fire inspection certificate When the company applies for an occupancy permit, the approval 1 day no charge 7 authority will ask the Fire Department to inspect the building. The Fire Department will issue an inspection certificate after inspection of the premises. The average waiting time is a week. Request and obtain occupancy permit and request final inspection 8 The company must apply for an occupancy permit within 7 days of the 7 days no charge completion of construction. The occupancy permit is issued after the inspections mentioned in the next procedures. * Receive on-site inspection from local government Acquisition tax must be paid within 30 days of receiving the occupancy permit. The acquisition tax is 2% of the value of the project (in this case, 1 day no charge 9 KRW 702,324,000), amounting KRW 14,046,480. The farming and fishing village special tax of 10% of the acquisition tax (in this case, KRW 1,404,648) should also be imposed. The total tax is KRW 15,451,128. Register the building with the court registry BuildCo must register the warehouse within 60 days from the inspection completion date. The cost of registration is composed of 4 days KRW 6,756,310 10 three parts: (a) registration tax for title preservation, which is 0.8% of official price of the building (in this case, the value of the project amounting KRW 702,324,000); (b) education tax, which is 20% of the registration tax; and (c) stamp tax, which is KRW 14,000 per land parcel. * Request and receive connection to water and sewage services 11 7 days KRW 2,600,000 * Request and receive connection to telephone services 12 1 day KRW 60,000 * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Korea, Rep. 33 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 Korea, Rep. 34 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 49 days and costs 38.6% of income connection in Korea, Rep.? According to data collected per capita (figure 4.1). by Doing Business, getting electricity there requires 4 Figure 4.1 What it takes to obtain an electricity connection in Korea, Rep. Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Korea, Rep. 35 GETTING ELECTRICITY Globally, Korea, Rep. stands at 11 in the ranking of 183 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Korea, Rep. to connect a warehouse to electricity. Figure 4.2 How Korea, Rep. and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 Korea, Rep. 36 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for Korea, Rep. on ways to improve the ease of 4.1). If obtaining a new electricity connection requires getting electricity. Regional and global averages on fewer procedures, less time or less cost in other these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in Korea, Rep. and comparator economies income average Global average Korea, Rep. Federation OECD high Australia Russian Japan China Brazil India Indicator Rank 11 37 51 115 98 26 183 53 .. Procedures (number) 4 5 6 5 7 3 10 5 5 Time (days) 49 81 34 145 67 117 281 103 111 Cost (% of income per capita) 38.6 9.2 130.3 640.9 216.2 0.0 1852.4 92.8 1,942.3 Source: Doing Business database. Doing Business 2012 Korea, Rep. 37 GETTING ELECTRICITY What are the details? The indicators reported here for Korea, Rep. are based OBTAINING AN ELECTRICITY CONNECTION on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Seoul utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Korea Electric Power Corp verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Korea, Rep.—and the time and cost Time to No. Procedure Cost to complete complete Request and receive internal wiring inspection by KEPCO The request for inspection can be requested after the internal wiring is 1 finished and before external connection works start. The engineer’s 29 calendar days KRW 469,000.0 certification stamp and supervisor posting confirmation has to be attached to the request. The customer electrical contractor also obtains electrical sanction clearance from Korea Electrical Safety Corporation. * The customer submits application to KEPCO and awaits estimate After the cables have been laid underground and the road has been closed again, the customer goes to the local department of the utility to 12 calendar days KRW 8,804,000.0 2 sign a contract for meter installation. Meters are prepaid. The distribution utility sends engineers to carry out an internal inspection and the final connection and to install the meter. The engineers are from a different department than those that did the external connection. KEPCO hired private electrical contractor conducts external service line works 3 17 calendar days no charge The client hires an electrical contractor to design the external connection and to carry out the external connection works. KEPCO installs meter and electricity starts flowing 4 3 calendar days no charge Utility comes to the site to install meter and turns on electricity * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Korea, Rep. 38 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy’s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2012 Korea, Rep. 39 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 11 days and costs 5.1% of the Korea, Rep.? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 7 Figure 5.1 What it takes to register property in Korea, Rep. Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Korea, Rep. 40 REGISTERING PROPERTY Globally, Korea, Rep. stands at 71 in the ranking of 183 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Korea, Rep. to transfer property. Figure 5.2 How Korea, Rep. and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 Korea, Rep. 41 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in Korea, That can help identify where the potential for Rep. today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in Korea, Rep. over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 74 71 Procedures (number) 7 7 7 7 7 7 7 7 Time (days) 11 11 11 11 11 11 11 11 Cost (% of property value) 6.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Korea, Rep. 42 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by on ways to improve the ease of registering property. the economies that today have the best performance And changes in regional averages can show where regionally or globally on the procedures, time or cost Korea, Rep. is keeping up—and where it is falling required to complete a property transfer (figure 5.3). behind. These economies may provide a model for Korea, Rep. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 Korea, Rep. 43 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Korea, Rep. 44 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Korea, Rep. (table 5.2)? Table 5.2 How has Korea, Rep. made registering property easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Korea, Rep. 45 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business City: Seoul through information collected from local property Property Value: 1,200,126,240.4 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Korea, Rep.—and the time and cost Time to No. Procedure Cost to complete complete Obtain their commercial registry extracts from the commercial registry The buyer obtains a certificate of its registered corporate seal issued by the commercial registry office (KW 1200). The buyer obtains its commercial registry from the commercial registry office. Both buyer and KW 800 each x 2 1 1 day seller obtain a commercial registry extract from the commercial registry (online) office. There is more than one way (in person, via website -KW 800, through an unattended machine -KW 1000) to obtain the certificates. Most people obtain the extract through an unattended machine placed in a governmental district office or from the website (www.iros.go.kr ) of the Supreme Court. Obtain a copy of the Land Cadastre Certificate and the Building Management Certificate and the registry extract of the concerned land and building The seller obtains from the jurisdictional district office an official copy of the extract from the land registry, or the Land Cadastre Certificate and an official copy of the extract from the building registry or the Building Management Certificate. The actual sale price is currently used as the standard real property price. Both buyer and seller should obtain the No cost jurisdictional district office’s stamp of the original copy of the contract 1 day 2 executed by both parties. Prices for certificates can be found on the website www.onnara.go.kr. The land and building registry extracts are obtained at the Land and Building registry office and the land cadastre certificate and building management certificate are obtained at governmental offices of various levels (Governmental office at city (Si), district (Gun), or borough (Gu) level). Also, the extracts can be obtained online at www.iros.go.kr and the certificates at www.egov.go.kr. Doing Business 2012 Korea, Rep. 46 Time to No. Procedure Cost to complete complete Obtain a statement of taxes to be paid from the tax department of the jurisdictional district office The parties need to obtain a statement of taxes due from the tax department of jurisdictional district office after calculating the taxes payable: - Registration Tax: 2% of the sale price - Education Tax: 20% of the registration tax - Acquisition Tax: 2% of the purchase price - Agricultural and Fisheries Tax: 10% of the acquisition tax - Stamp Duties: KW 150,000 for KW 500 millions; KW 350,000 if above KW 1 billion 3 1 day no cost The Local Tax Law was amended effective January 5, 2005. According to the newly amended Local Tax Law, registration tax for sale and purchase of property between legal entities is 2% (1% for transfers between individuals for residential properties). Under Korean law, the parties to an agreement for sale of real property must, within 60 days of signing such agreement, report to the relevant government office prescribed information regarding the real property transaction such as the transaction price (may be reported online at http://rtms.mltm.go.kr). This is to prevent tax evasion. Once this real property transaction report is made and cleared, a certificate is issued by the government office (also needed for the title transfer registration). Buyer buys and affixes a National Revenue stamp & prepare sale agreement The buyer buys and affixes a National Revenue stamp to obtain an approval for the sale agreement from the district government office. Fee for real estate The lawyer or real estate agent had previously prepared the sale agent (broker fees agreement. The seller was responsible for gathering all the documents to between 0.2-0.9% of be presented to the lawyer or real estate agent. sale price, agreed by For small operations, the real estate agent will connect the parties and the parties) + prepare the sale agreement. For more important operations such as the National Revenue one analyzed here, both a lawyer and the real estate agent will be used. Stamp, according to The real estate agent will help connect the parties and the lawyer will the following 4 prepare the sale agreement. 1-2 days schedule: Official rate of 0.2-0.8% of the sale price for the real estate agent. In most cases the real estate agent fee is more than the official rate. Property value (in Lawyer fees will be between KW 100,000 and KW 250,000 per hour of work. It is estimated that on average a lawyer will charge between 5 and KW) 10 hours to prepare the sale agreement. NRS From 10 to 30 The documentation shall include: millions For the preparation of the sale agreement, the following documentation K is needed: • The Certificate of Registration that is in the possession of the seller • A copy of Property Register to show the owner and encumbrances (obtained in Step 1) Doing Business 2012 Korea, Rep. 47 Time to No. Procedure Cost to complete complete • Land Cadastre Certificate and Building Management Certificate (obtained in Step 2) • Seller ID (a copy of Corporate Commercial Register) • Official Chop/Seal of the seller company • Property tax clearance 4 % of sale price for the Acquisition tax (transfer tax) 20% of registration tax (0.4% of sale Buyer pays taxes online price) for the 5 1 day Education tax The buyer pays the Acquisition tax, Registration tax, Education tax, and 10% of Acquisition the Agricultural and Fisheries Tax online at wetax.go.kr tax (0.2% of sale price) for the Agricultural and Fisheries Tax The buyer buys Housing Bonds The bonds have a maturity of 5 years, after which they are redeemed with interest. Typically the buyer sells the bonds at a discount immediately after purchasing them, usually at 10% (but this may change depending on market circumstances. The rate as of Apr. 21, 2010 was 9.2%). Value of bonds that need to be purchased by the buyer: For land located in Seoul with: 1) Standard market price of KRW 5M or more ~ less than KRW 50M: 2.5% of sale price 5% of sale price (not 2) KRW 50M or more ~ less than KRW 100M: 4% included in 6 3) KRW 100M or more: 5% 1-3 days calculation of total cost) For a warehouse located in Seoul with: 1) Standard market price of KRW 10M or more ~ less than KRW 130M: 1% of sale price 2) KRW 130M or more ~ less than KRW 250M: 1.6% 3) KRW 250M or more: 2% The base used for determining the value of bonds to be purchased is not the actual transaction price but the "standard market price," which can be obtained from the tax department at the relevant government office. (Procedure 6 is not included in the calculation of total cost.) Buyer applies for the registration of the titles Cost per real 7 3 days property (land + The buyer prepares an application form and applies for the registration building) for court Doing Business 2012 Korea, Rep. 48 Time to No. Procedure Cost to complete complete of the title to a competent court registry under the buyer’s name. Parties registry stamp: In must purchase the required revenue stamp and attach it to the title person: KRW14,000; transfer registration application. Land and building are registered Electronic standard separately. form application: KRW10,000; The documentation shall include: Electronic • Certificate of buyer’s registered corporate seal (obtained in Procedure 1) application: KRW • Buyer and seller’s commercial registry extracts (obtained in Procedure 6,000 1) • Seller’s registry extract of the concerned land and building (obtained in Procedure 1) • Land Cadastre Certificate (obtained in Procedure 2) • Building Management Certificate (obtained in Procedure 2) • Sale agreement with the National Revenue Stamp affixed (obtained in Procedure 4) • Tax payments’ receipts (paid in Procedure 5) • Receipt of purchase of Housing Bonds (bought in Procedure 6) • Report of real property transaction Certificate (obtained in Procedure 3) Fees for title transfer registration for 1 real property have been changed as follows: - KRW 14,000 if applied in person - KRW 10,000 if applied in person using a standard form that is available online (need to fill it out online, print it, and submit it to the registry) - KRW 6,000 via online * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Korea, Rep. 49 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine  Has 100 employees. the scope of the secured transactions system,  Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index  Is a private, limited liability company. (weighted at 62.5%).  Has its headquarters and only base of operations in the largest business city. Doing Business 2012 Korea, Rep. 50 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Korea, Rep. stands at 8 in the ranking of 183 collateral and bankruptcy laws in Korea, Rep. facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 6 on the The rankings for comparator economies and the depth of credit information index and a score of 8 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Korea, Rep. support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How Korea, Rep. and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 Korea, Rep. 51 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Korea, Rep. support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Korea, Rep. over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 8 8 Strength of legal rights 8 8 8 8 8 8 8 8 index (0-10) Depth of credit 5 5 5 5 6 6 6 6 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau n.a. 80.7 76.6 74.2 90.4 93.8 93.3 100.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Korea, Rep. 52 GETTING CREDIT One way to put an economy’s getting credit indicators index for Korea, Rep. in 2011 and shows the number of into context is to see where the economy stands in the other economies having the same score in 2011. distribution of scores across other economies. Figure Figure 6.3 shows the same thing for the depth of credit 6.2 highlights the score on the strength of legal rights information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 Korea, Rep. 53 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Korea, Rep. (table 6.2)? Table 6.2 How has Korea, Rep. made getting credit easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Korea, Rep. 54 GETTING CREDIT What are the details? The getting credit indicators reported here for Korea, The data on the legal rights of borrowers and lenders Rep. are based on detailed information collected in are gathered through a survey of financial lawyers and that economy. The data on credit information sharing verified through analysis of laws and regulations as are collected through a survey of a public credit well as public sources of information on collateral and registry or private credit bureau (if one exists). To bankruptcy laws. For the strength of legal rights index, construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Korea, Rep. OECD high Indicator Korea, Rep. OECD high income income Strength of legal rights index (0-10) 8 7 Depth of credit information index (0-6) 6 5 Public registry coverage (% of adults) 0.0 9.5 Private bureau coverage (% of adults) 100.0 63.9 Strength of legal rights index (0–10) Index score: 8 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of No its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend Yes automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an No electronic database indexed by debtor's names? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Doing Business 2012 Korea, Rep. 55 Strength of legal rights index (0–10) Index score: 8 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 6 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as Yes No 1 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms .. 0 Number of individuals .. 0 Source: Doing Business database. Doing Business 2012 Korea, Rep. 56 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2012 Korea, Rep. 57 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Korea, Rep.? index (figure 7.1). While the indicator does not The economy has a score of 5.3 on the strength of measure all aspects related to the protection of investor protection index, with a higher score minority investors, a higher ranking does indicate that indicating stronger protections (see the summary of an economy’s regulations offer stronger investor scoring at the end of this chapter for details). protections against self-dealing in the areas measured. Globally, Korea, Rep. stands at 79 in the ranking of 183 economies on the strength of investor protection Figure 7.1 How Korea, Rep. and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 Korea, Rep. 58 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in Korea, Rep. protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in Korea, Rep. over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 74 79 Extent of disclosure 7 7 7 7 7 7 7 index (0-10) Extent of director 2 2 2 2 2 2 2 liability index (0-10) Ease of shareholder 7 7 7 7 7 7 7 suits index (0-10) Strength of investor 5.3 5.3 5.3 5.3 5.3 5.3 5.3 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Korea, Rep. 59 PROTECTING INVESTORS But the overall ranking on the strength of investor liability and ease of shareholder suits indices may also protection index tells only part of the story. Economies be revealing (figure 7.2). Equally interesting may be the may offer strong protections in some areas but not changes over time in the regional average scores for others. So the scores recorded over time for Korea, those indices. Rep. on the extent of disclosure, extent of director Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 Korea, Rep. 60 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Korea, Rep. 61 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Korea, Rep. (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Korea, Rep. strengthened investor protections—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Korea, Rep. 62 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for liability and ease of shareholder suits indices, a score is Korea, Rep. are based on detailed information assigned for each of a range of conditions relating to collected through a survey of corporate and securities disclosure, director liability and shareholder suits in a lawyers and are based on securities regulations, standard case study transaction (see the notes at the company laws and court rules of evidence. To end of this chapter). The summary below shows the construct the extent of disclosure, extent of director details underlying the scores for Korea, Rep.. Summary of scoring for the protecting investors indicators in Korea, Rep. OECD high Indicator Korea, Rep. OECD high income income Extent of disclosure index (0-10) 7 6 Extent of director liability index (0-10) 2 5 Ease of shareholder suits index (0-10) 7 7 Strength of investor protection index (0-10) 5.3 6.0 Score Extent of disclosure index (0-10) 7 What corporate body provides legally sufficient approval for the transaction? 2 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 1 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 2 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 2 required? Whether an external body must review the terms of the transaction before it takes place? 0 Extent of director liability index (0-10) 2 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 0 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 1 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 0 Doing Business 2012 Korea, Rep. 63 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 0 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 0 Ease of shareholder suits index (0-10) 7 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 0 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 1 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 3 trial? Whether the plaintiff can request categories of documents from the defendant without 1 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 1 Whether the level of proof required for civil suits is lower than that of criminal cases? 1 Strength of investor protection index (0-10) 5.3 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide legally sufficient approval for the transaction 0 = CEO or managing director alone; 1 = shareholders or board of directors vote and Mr. James can vote; 2 = board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Doing Business 2012 Korea, Rep. 64 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company’s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is liable only if he acted fraudulently or in bad faith; 1 = Mr. James is liable if he influenced the approval or was negligent; 2 = Mr. James is liable if the transaction is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes to the company 0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1 = liable for negligence in the approval of the transaction; 2 = liable if the transaction is unfair or prejudicial to the other shareholders. Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 = rescission is unavailable or available only in case of Seller’s fraud or bad faith; 1 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff’s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 Korea, Rep. 65 Whether the plaintiff can directly examine the defendant and witnesses during trial 0 = no; 1 = yes, with prior approval by the court of the questions posed; 2 = yes, without prior approval. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 Korea, Rep. 66 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 2 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2009. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded.  Taxes and mandatory contributions include  Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company.  A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 Korea, Rep. 67 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Korea, Rep. stands at 38 in the ranking of 183 taxes in Korea, Rep.—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 12 tax payments a year, rankings for comparator economies and the regional spend 225 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 15.1% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Korea, Rep.. details). Figure 8.1 How Korea, Rep. and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Korea, Rep. 68 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how process have changed — and which have not (table easy (or difficult) it is to comply with tax rules in Korea, 8.1). That can help identify where the potential for Rep. today, data over time show which aspects of the easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Korea, Rep. over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 40 38 Payments (number per 14 14 14 14 14 14 12 year) Time (hours per year) 290 290 290 250 250 250 225 Total tax rate (% profit) 36.4 32.3 31.2 33.5 31.9 29.8 29.7 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Korea, Rep. 69 PAYING TAXES Equally helpful may be the benchmarks provided by on ways to ease the administrative burden of tax the economies that today have the best performance compliance. And changes in regional averages can regionally or globally on the number of payments or show where Korea, Rep. is keeping up—and where it is the time required to prepare and file taxes (figure 8.2). falling behind. These economies may provide a model for Korea, Rep. Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 Korea, Rep. 70 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Korea, Rep. 71 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Korea, Rep. (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Korea, Rep. made paying taxes easier—or not? By Doing Business report year DB Year Reform Korea eased the administrative burden of paying taxes for firms by merging several taxes, allowing 4 labor taxes and DB2012 contributions to be paid jointly and continuing to increase the use of the online tax payment system. DB2011 No reform. The tax burden was reduced on business by accelerating its corporate income tax reduction program from a five-year to DB2010 a three-year program. The top rate will be cut from 25 percent to 20 percent by 2010. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Korea, Rep. 72 PAYING TAXES What are the details? The indicators reported here for Korea, Rep. are based that the company completed during the year. on a standard set of taxes and contributions that Respondents are asked how much in taxes and would be paid by the case study company used by mandatory contributions the business must pay and Doing Business in collecting the data (see the section in what the process is for doing so. The taxes and this chapter on what the indicators cover). Tax contributions paid are listed in the summary below, practitioners are asked to review standard financial along with the associated number of payments, time statements as well as a standard list of transactions and tax rate. Summary of tax rates and administrative burden in Korea, Rep. OECD high Indicator Korea, Rep. OECD high income income Payments (number per year) 12 13 Time (hours per year) 225 186 Profit tax (%) 15.1 15.4 Labor tax and contributions (%) 13.0 24.0 Other taxes (%) 1.5 3.2 Total tax rate (% profit) 29.7 42.7 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 10% for income up to 200,000,000 earnings Corporate income tax 1 online filing 100 15.1 and 22% before tax after that + 10% surcharge monthly Employer paid - National salaries 1 online filing 80 4.50% 5.1 pension paid to employees Doing Business 2012 Korea, Rep. 73 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 monthly Employer paid - Accident salaries 1 online filing 0 3.20% 3.6 compensation insurance paid to employees monthly Employer paid - National salaries 1 online filing 0 5.330% 3 health insurance paid to employees included in various Fuel tax 1 0 the price of 1.2 rates fuel monthly Employer paid - salaries 0 paid jointly 0 0.70% 0.8 Unemployment insurance paid to employees monthly salaries Local income tax 1 online filing 0 0.50% 0.6 paid to employees 0.3% (building), Statutory 0.24%~4.8 Property tax 1 0 standard 0.2 % (land), price 0.14% (city planning) Statutory 0.04%~0.12 standard Community facility tax 1 0 0.1 % price of building 62,500 per entity + KRW 250 Per capita resident tax 1 0 per entity 0 per ㎡ of business place 46,800 per Automobile tax 1 0 per vehicle 0 truck Value added tax (VAT) 1 online filing 45 10.0% net sales 0 not included various contract Stamp duty 1 0 0 small amount rates value Doing Business 2012 Korea, Rep. 74 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 Totals 12 225 29.7 Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Korea, Rep. 75 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other  Is located in the periurban area of the special environment. economy’s largest business city.  Do not require any special phytosanitary or  Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy.  Are one of the economy’s leading export or import products. The traded goods:  Are transported in a dry-cargo, 20-foot full  Are not hazardous nor do they include container load. military items. Doing Business 2012 Korea, Rep. 76 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Korea, Rep.? Globally, Korea, Rep. stands at 4 in the ranking of 183 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 3 (figure 9.1). The rankings for comparator economies documents, takes 7 days and costs $680. Importing the and the regional average ranking provide other useful same container of goods requires 3 documents, takes information for assessing how easy it is for a business 7 days and costs $695 (see the summary of procedures in Korea, Rep. to export and import goods. and documents at the end of this chapter for details). Figure 9.1 How Korea, Rep. and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 Korea, Rep. 77 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in Korea, Rep. That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in Korea, Rep. over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 10 4 Documents to export 5 5 4 4 3 3 3 (number) Time to export (days) 12 12 11 8 8 8 7 Cost to export (US$ per 780 780 745 767 742 790 680 container) Documents to import 8 8 6 6 3 3 3 (number) Time to import (days) 12 12 10 8 8 7 7 Cost to import (US$ per 1,040 1,040 745 747 742 790 695 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by ways to improve the ease of trading across borders. the economies that today have the best performance And changes in regional averages can show where regionally or globally on the documents, time or cost Korea, Rep. is keeping up—and where it is falling required to export or import (figure 9.2). These behind. economies may provide a model for Korea, Rep. on Doing Business 2012 Korea, Rep. 78 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 Korea, Rep. 79 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 Korea, Rep. 80 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Korea, Rep. 81 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Korea, Rep. (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Korea, Rep. made trading across borders easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. A U-customs system is being implemented that is an internet DB2009 based system customs portal, which provides for an International Single Window. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Korea, Rep. 82 TRADING ACROSS BORDERS What are the details? The indicators reported here for Korea, Rep. are based freight forwarders, shipping lines, customs brokers, on a set of specific procedural requirements for port officials and banks. The procedural requirements, trading a standard shipment of goods by ocean and the associated time and cost, for exporting and transport (see the section in this chapter on what the importing a standard shipment of goods are listed in indicators cover). Information on the procedures as the summary below, along with the required well as the required documents and the time and cost documents. to complete each procedure is collected from local Summary of procedures and documents for trading across borders in Korea, Rep. OECD high Indicator Korea, Rep. OECD high income income Documents to export (number) 3 4 Time to export (days) 7 10 Cost to export (US$ per container) 680 1,032 Documents to import (number) 3 5 Time to import (days) 7 11 Cost to import (US$ per container) 695 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 2 50 Customs clearance and technical control 1 30 Ports and terminal handling 2 100 Inland transportation and handling 2 500 Totals 7 680 Procedures to import Time (days) Cost (US$) Documents preparation 2 65 Customs clearance and technical control 1 30 Ports and terminal handling 2 100 Inland transportation and handling 2 500 Totals 7 695 Doing Business 2012 Korea, Rep. 83 TRADING ACROSS BORDERS Documents to export Documents to import Bill of Lading Bill of Lading Customs export declaration Customs import declaration Packing list Terminal handling receipts Doing Business 2012 Korea, Rep. 84 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs, including expert fees assumptions about the case: Enforcement costs  The seller and buyer are located in the economy’s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2012 Korea, Rep. 85 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Korea, Rep. stands at 2 in the ranking of 183 dispute through the courts in Korea, Rep.? According economies on the ease of enforcing contracts (figure to data collected by Doing Business, enforcing a 10.1). The rankings for comparator economies and the contract requires 33 procedures, takes 230 days and regional average ranking provide other useful costs 10.3% of the value of the claim (see the summary benchmarks for assessing the efficiency of contract at the end of this chapter for details). enforcement in Korea, Rep.. Figure 10.1 How Korea, Rep. and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 Korea, Rep. 86 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how help identify which areas have changed and where the easy (or difficult) it is to enforce a contract in Korea, potential for improvement is greatest (table 10.1). Rep. today, data on the underlying indicators over time Table 10.1 The ease of enforcing contracts in Korea, Rep. over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 4 2 Time (days) 230 230 230 230 230 230 230 230 230 Cost (% of claim) 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 Procedures (number) 35 35 35 35 35 35 35 35 33 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Korea, Rep. 87 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for Korea, Rep. on ways to improve the efficiency of the economies that today have the best performance contract enforcement. And changes in regional regionally or globally on the number of steps, time or averages can show where Korea, Rep. is keeping up— cost required to enforce a contract through the courts and where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 Korea, Rep. 88 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Korea, Rep. 89 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in Korea, Rep. (table introducing new technology. Lower-income economies 10.2)? often work on reducing backlogs by introducing Table 10.2 How has Korea, Rep. made enforcing contracts easier—or not? By Doing Business report year DB Year Reform Korea made filing a commercial case easier by introducing DB2012 an electronic case filing system. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Korea, Rep. 90 ENFORCING CONTRACTS What are the details? The indicators reported here for Korea, Rep. are based regulations, as well as through surveys completed by on a set of specific procedural steps required to local litigation lawyers (and, in a quarter of the resolve a standardized commercial dispute through economies covered by Doing Business, by judges as the courts (see the section in this chapter on what the well). The procedures for resolving a commercial indicators cover). These procedures, and the time and lawsuit, and the associated time and cost, are listed in cost of completing them, are identified through study the summary below. of the codes of civil procedure and other court Summary of procedures for enforcing a contract in Korea, Rep.—and the time and cost OECD high Indicator Korea, Rep. OECD high income income Time (days) 230 518.03 518.03 Filing and service 20 Trial and judgment 90 Enforcement of judgment 120 Cost (% of claim) 10.3 19.71 19.71 Attorney cost (% of claim) 9 Court cost (% of claim) 0.6 Enforcement Cost (% of claim) 0.7 Procedures (number) 33 31.42 31.42 Source: Doing Business database. Doing Business 2012 Korea, Rep. 91 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be business and the case. It assumes that the recovered company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy’s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 Korea, Rep. 92 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, Korea, Rep. stands at 13 in the ranking of 183 characterize the top-performing economies. How economies on the ease of resolving insolvency (figure efficient are insolvency proceedings in Korea, Rep.? 11.1). The rankings for comparator economies and the According to data collected by Doing Business, regional average ranking provide other useful resolving insolvency takes 1.5 years on average and benchmarks for assessing the efficiency of insolvency costs 4% of the debtor’s estate. The average recovery proceedings in Korea, Rep.. rate is 82.3 cents on the dollar. Figure 11.1 How Korea, Rep. and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 Korea, Rep. 93 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in Korea, Rep. help identify where the potential for improvement is today, data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in Korea, Rep. over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 13 13 Time (years) 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 Cost (% of estate) 4 4 4 4 4 4 4 4 4 Recovery rate (cents on 81.0 81.3 81.7 81.8 81.2 80.5 80.5 81.7 82.3 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2012 Korea, Rep. 94 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by on ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where Korea, Rep. is keeping up—and where it is proceedings or on the recovery rate (figure 11.2). falling behind. These economies may provide a model for Korea, Rep. Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 Korea, Rep. 95 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Korea, Rep. 96 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 Korea, Rep. (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Korea, Rep. made resolving insolvency easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. Korea made it easier to deal with insolvency by introducing post filing financing, granting super priority to the DB2011 repayment of loans given to companies undergoing reorganization. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Korea, Rep. 97 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2011. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund’s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the ―regional‖ classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 Korea, Rep. 98 Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy’s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 Korea, Rep. 99 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year’s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year’s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea’s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website’s ―Ask a Question‖ on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year’s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the ―distance to frontier.‖ Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 Korea, Rep. 100 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is ―no practice‖ mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree ―no practice‖ or ―not possible‖ mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a ―no ability of different government agencies to deliver practice‖ mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy’s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year’s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It‖ (World Bank, Washington, DC, 2005). Principal components This year’s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the ―frontier‖ and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 Korea, Rep. 101 the extent to which the economy has closed this gap The difference between an economy’s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many th are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95 the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy’s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 Korea, Rep. 102 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 Korea, Rep. 103