82945 Economy Profile: Russian Federation Doing Business 2014 Russian Federation 2 © 2013 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 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Cover design: The Word Express Doing Business 2014 Russian Federation 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 37 Registering property .................................................................................................................. 44 Getting credit .............................................................................................................................. 52 Protecting investors ................................................................................................................... 59 Paying taxes ................................................................................................................................ 68 Trading across borders .............................................................................................................. 75 Enforcing contracts .................................................................................................................... 83 Resolving insolvency .................................................................................................................. 93 Employing workers .................................................................................................................... 98 Data notes ................................................................................................................................. 105 Resources on the Doing Business website ............................................................................ 111 Doing Business 2014 Russian Federation 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is (except for the paying taxes indicators, which cover the for a local entrepreneur to open and run a small to period January–December 2012). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, 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, resolving transparency of government procurement, insolvency and employing workers. 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 189 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 47 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 25 in East Asia and the Pacific, 25 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 20 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 2014 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Russian Federation. To allow useful business regulatory reforms. The data, along with comparison, it also provides data for other selected information on ordering Doing Business 2014, are economies (comparator economies) for each indicator. available on the Doing Business website at The data in this report are current as of June 1, 2013 http://www.doingbusiness.org. Doing Business 2014 Russian Federation 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: Europe & Central Asia 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 189 by the ease of Population: 143,533,000 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 12,700 percentile rankings on each of the 10 topics included in the index in Doing Business 2014: starting a business, DB2014 rank: 92 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2013 rank: 111* investors, paying taxes, trading across borders, Change in rank: 19 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the DB 2014 DTF: 61.95 percentile rankings on its component indicators (see the data notes for more details). The employing workers DB 2013 DTF: 56.58 indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented Change in DTF: 5.35 in this year’s economy profile. The aggregate ranking on the ease of doing business * DB2013 ranking shown is not last year’s published benchmarks each economy’s performance on the ranking but a comparable ranking for DB2013 that indicators against that of all other economies in the captures the effects of such factors as data Doing Business sample (figure 1.1). While this ranking corrections and the addition of 4 economies (Libya, tells much about the business environment in an Myanmar, San Marino and South Sudan) to the economy, it does not tell the whole story. The ranking on sample this year. See the data notes for sources and the ease of doing business, and the underlying definitions. indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2014 Russian Federation 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 2014 Russian Federation 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Russian Federation and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2014 Russian Federation 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Russian Federation ranks on Doing Business topics Source: Doing Business database. Doing Business 2014 Russian Federation 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far on average an Yearly movements in rankings can provide some indication economy is from the best performance achieved by any of changes in an economy’s regulatory environment for economy on each Doing Business indicator since 2005, firms, but they are always relative. except for the getting electricity indicators, which were introduced in 2009. Moreover, year-to-year changes in the overall rankings do not reflect how the business regulatory environment in an Comparing the measure for an economy at 2 points in economy has changed over time—or how it has changed time allows users to assess how much the economy’s in different areas. To aid in assessing such changes, regulatory environment as measured by Doing Business has changed over time—how far it has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.4). Figure 1.4 How far has Russian Federation come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 Russian Federation 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 Russian Federation Best performer globally Kazakhstan DB2014 Russian Federation Russian Federation Mexico DB2014 Indicator Japan DB2014 China DB2014 Brazil DB2014 India DB2014 DB2014 DB2013 DB2014 Starting a Business 88 100 123 158 179 120 30 48 New Zealand (1) (rank) Procedures (number) 7 8 13 13 12 8 6 6 New Zealand (1)* Time (days) 15.0 18.0 107.5 33.0 27.0 22.0 12.0 6.0 New Zealand (0.5) Cost (% of income per 1.3 2.0 4.6 2.0 47.3 7.5 0.6 19.7 Slovenia (0.0) capita) Paid-in Min. Capital (% 1.2 1.4 0.0 78.2 124.4 0.0 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 178 180 130 185 182 91 145 40 China (1) (rank) Hong Kong SAR, Procedures (number) 36 40 15 25 35 14 29 11 China (6) Time (days) 297.0 313.0 400.0 270.0 168.0 193.0 157.0 82.0 Singapore (26.0) Doing Business 2014 Russian Federation 11 Best performer globally Kazakhstan DB2014 Russian Federation Russian Federation Mexico DB2014 Indicator Japan DB2014 China DB2014 Brazil DB2014 India DB2014 DB2014 DB2013 DB2014 Cost (% of income per 89.0 125.5 34.8 344.7 2,640.4 28.1 87.3 353.1 Qatar (1.1) capita) Getting Electricity 117 188 14 119 111 26 87 133 Iceland (1) (rank) Procedures (number) 5 10 4 5 7 3 6 7 10 Economies (3)* Time (days) 162 281 58 145 67 105 88 85 Germany (17) Cost (% of income per 293.8 1,573.7 34.4 499.2 230.7 0.0 65.3 369.1 Japan (0.0) capita) Registering Property 17 46 107 48 92 66 18 150 Georgia (1) (rank) Procedures (number) 4 5 14 4 5 6 4 7 4 Economies (1)* Time (days) 22.0 44.0 30.0 29.0 44.0 13.0 23.0 74.0 New Zealand (1.0)* Cost (% of property 0.1 0.2 2.6 3.6 7.0 5.8 0.1 5.3 5 Economies (0.0)* value) Getting Credit (rank) 109 105 109 73 28 28 86 42 Malaysia (1)* Strength of legal rights 3 3 3 5 8 7 4 6 10 Economies (10)* index (0-10) Depth of credit 5 5 5 5 5 6 5 6 31 Economies (6)* information index (0-6) Public registry coverage 0.0 0.0 50.4 30.2 0.0 0.0 0.0 0.0 Portugal (100.0)* (% of adults) Private bureau 59.2 45.4 63.4 0.0 19.8 100.0 45.6 100.0 22 Economies (100.0)* coverage (% of adults) Protecting Investors 115 113 80 98 34 16 22 68 New Zealand (1) (rank) Extent of disclosure 6 6 5 10 7 7 7 8 10 Economies (10)* Doing Business 2014 Russian Federation 12 Best performer globally Kazakhstan DB2014 Russian Federation Russian Federation Mexico DB2014 Indicator Japan DB2014 China DB2014 Brazil DB2014 India DB2014 DB2014 DB2013 DB2014 index (0-10) Extent of director 2 2 8 1 4 6 6 5 Cambodia (10) liability index (0-10) Ease of shareholder 6 6 3 4 8 8 7 4 3 Economies (10)* suits index (0-10) Strength of investor 4.7 4.7 5.3 5.0 6.3 7.0 6.7 5.7 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 56 63 159 120 158 140 18 118 (1) Payments (number per Hong Kong SAR, 7 7 9 7 33 14 7 6 year) China (3)* United Arab Emirates Time (hours per year) 177 177 2,600 318 243 330 188 334 (12) Trading Across Borders 157 162 124 74 132 23 186 59 Singapore (1) (rank) Documents to export 9 9 6 8 9 3 10 4 Ireland (2)* (number) Time to export (days) 22 24 13 21 16 11 81 11 5 Economies (6)* Cost to export (US$ per 2,615 2,595 2,215 620 1,170 890 4,885 1,450 Malaysia (450) container) Documents to import 10 11 8 5 11 5 12 4 Ireland (2)* (number) Time to import (days) 21 23 17 24 20 11 69 11 Singapore (4) Cost to import (US$ per 2,810 2,780 2,275 615 1,250 970 4,865 1,740 Singapore (440) container) Enforcing Contracts 10 10 121 19 186 36 27 71 Luxembourg (1) (rank) Doing Business 2014 Russian Federation 13 Best performer globally Kazakhstan DB2014 Russian Federation Russian Federation Mexico DB2014 Indicator Japan DB2014 China DB2014 Brazil DB2014 India DB2014 DB2014 DB2013 DB2014 Time (days) 270 270 731 406 1,420 360 370 400 Singapore (150) Cost (% of claim) 13.4 13.4 16.5 11.1 39.6 32.2 22.0 31.0 Bhutan (0.1) Procedures (number) 36 36 44 37 46 31 37 38 Singapore (21)* Resolving Insolvency 55 53 135 78 121 1 54 26 Japan (1) (rank) Time (years) 2.0 2.0 4.0 1.7 4.3 0.6 1.5 1.8 Ireland (0.4) Cost (% of estate) 9 9 12 22 9 4 15 18 Norway (1) Outcome (0 as piecemeal sale and 1 as 0 0 1 0 0 1 0 1 going concern) Recovery rate (cents on 42.8 43.4 19.5 36.0 25.6 92.8 43.2 67.6 Japan (92.8) the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. * 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 2014 Russian Federation 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 (2 business in an economy by recording all procedures cannot start on the same day). procedures officially required or commonly done in Procedures that can be fully completed practice by an entrepreneur to start up and online are an exception to this rule. formally operate an industrial or commercial Procedure completed once final document is business—as well as the time and cost required to received complete these procedures. It also records the paid-in minimum capital that companies must No prior contact with officials deposit before registration (or within 3 months). Cost required to complete each procedure The ranking on the ease of starting a business is (% of income per capita) the simple average of the percentile rankings on the 4 component indicators: procedures, time, cost Official costs only, no bribes and paid-in minimum capital requirement. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Has a start-up capital of 10 times income per  Is a limited liability company, located in the capita. largest business city and is 100% domestically  Has a turnover of at least 100 times income per owned. capita.  Has between 10 and 50 employees.  Does not qualify for any special benefits.  Conducts general commercial or industrial  Does not own real estate. activities. Doing Business 2014 Russian Federation 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Russian procedures, takes 15.0 days, costs 1.3% of income per Federation? According to data collected by Doing capita and requires paid-in minimum capital of 1.2% of Business, starting a business there requires 7 income per capita (figure 2.1). Figure 2.1 What it takes to start a business in Russian Federation Paid-in minimum capital (% of income per capita): 1.2 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Russian Federation 16 STARTING A BUSINESS Globally, Russian Federation stands at 88 in the other useful information for assessing how easy it is for ranking of 189 economies on the ease of starting a an entrepreneur in Russian Federation to start a business (figure 2.2). The rankings for comparator business. economies and the regional average ranking provide Figure 2.2 How Russian Federation and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 Russian Federation 17 STARTING A BUSINESS What are the changes over time? The benchmarks provided by the economies that over 2.3) can help show what is possible in making it easier time have had the best performance regionally or to start a business. And changes in regional averages globally on the procedures, time, cost or paid-in can show where Russian Federation is keeping up— minimum capital required to start a business (figure and where it is falling behind. Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2014 Russian Federation 18 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety economies globally have no paid-in minimum capital requirement. DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Russian Federation 19 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 Russian Federation (table 2.1)? 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 2.1 How has Russian Federation made starting a business easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Russia made starting a business easier by abolishing the DB2014 requirement to have the bank signature card notarized before opening a company bank account. 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 2014 Russian Federation 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Russian Federation is a set of specific procedures— the bureaucratic and legal steps that an entrepreneur must complete to incorporate and City: Moscow register a new firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Liability Company professionals and the study of laws, regulations and (OOO) publicly available information on business entry in Paid in Minimum Capital Requirement: RUB 5,000 that economy. Following is a detailed summary of those procedures, along with the associated time Start-up Capital: 10 times GNI per capita 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 Russian Federation—and the time and cost Time to No. Procedure Cost to complete complete Notarize the signature made in the registration application Filled out and signed registration application must be notarized. A standard registration application form exists and it must be notarized. There is a stamp duty of RUB200 per copy. This cost does not include fees for technical work charged by notaries or lawyers if this application form is completed by them – the cost of RUB 200 assumes that the application form is filled out by the entrepreneur themselves. Fees of 1 day RUB 200 per copy 1 technical work by lawyer/notaries are only applicable in cases where there is a need to draft a charter, and thus are not applicable to our case study. This process cannot be done online. Deposit capital in the bank At least 50% of the charter capital shall be paid before company incorporation. The balance must be paid in the first year of operation. In order to open a bank account the following documents are required: (i) application form, notarized copy of the charter; (ii) notarized copy of the decision of establishment of the limited liability company; and (iii) 1 day no charge 2 notarized copy of the foundation agreement. The deposit of the capital requires opening an accumulative bank account for the name of the entity which is not created yet. Depending on the bank, opening an account may take more than 1 day mostly because of bank's client acceptance procedures. A bank account with the new company name is also opened at this Doing Business 2014 Russian Federation 21 Time to No. Procedure Cost to complete complete stage, but this is not an operating account, it is only a “temporary” account, and is only used to deposit the chartered minimum capital. Once the business registration process is completed, and the new bank account for transaction purposes is opened (Procedure 6), this account will be merged into the new account. Pay registration fee Payments must be made at Sberbank offices throughout Moscow, or at payment terminals at the Moscow Tax Service Office #46, where business registration is done. 3 1 day no charge Business registration fee of RUR4,000 must be paid and a payment receipt will be issued through this machine, and must be presented for Procedure 4. It is a process that takes only a few minutes, but it must be done physically, and is not available online. Make a seal in a private company in order to open a bank account The company needs to make a company seal before opening a bank account. The cost of acquiring a company seal at the average market 1 day RUB 350 4 price is RUB 350 Register with the unified register at the Federal Tax Service on the local level, to obtain the single number of state registration and the number of tax registration (identification number of taxpayer,INN) Documents required for registration: • Decision of the founders meeting; • Charter (2 originals required, one is stamped by the Federal Tax Services and returned to applicants); • Registration Application, notarized; • Payment receipt. • Document Certifying the Physical Address of the New Company 5 It could be a lease agreement or a letter by the property owner of the 7 days RUB 4,000 leased property, certified with signature and building company’s stamp. If the leasing office space is from an individual owner, this document would need notarization. The tax authorities sometimes implement a number of requirements, and failure to comply may lead to the rejection of the application. - After registration application fee is paid (procedure 3), (1) the payment receipt (from procedure 3), along with the (2) Decision of the founders meeting, (3) 2 originals of the company charter, (4) the notarized registration application (from procedure 1) and (5) certificate that proofs the address of the new company are submitted for business Doing Business 2014 Russian Federation 22 Time to No. Procedure Cost to complete complete registration. - At the time of application, the applicant receives a confirmation slip, which specifies the date that the registration will be complete, and the necessary documents can be picked up. This is always 5 working days (not counting the day of the application) after application. - On the day of pick up, the applicant will receive a package of documents, including Abstract of the registration, one of the original company charters (that the applicant submitted) stamped by the government; Tax Identification Number (TIN), etc. - If the applicant does not pick the registration documents from the office, it is sent by mail. - The registration fee is RUR4,000, and it always takes 5 business days – thus 7 calendar days. Open the company bank account; certify and register the owner's signature Banks require business registration and may require documents related to the founder's history and its financial status. Requirements in terms of client acceptance procedure vary depending on the bank. The bank finally provides the entrepreneur with a confirmation letter that contains details about the bank account. The entrepreneur needs this information to inform the Federal Tax Service about the opening of a bank account through the required notification. To open bank account following documents are required according to unified list of necessary documents: a) certificate of state registration of the legal entity; b) founding documents of the legal entity. free if done at the c) the license (permit) issued for a legal entity if such licenses (permits) are directly related to the capacity of the legal entity; bank; RUB 200 d) bank signature card; (signatures and e) documents, confirming authorities of the persons defined in bank bank card) + RUR 6 3 days signature card; 1000 (notary fees) f) documents, confirming authorities of the sole executive body of the approximately if legal entity. done with the notary Bank also may request additional documents that are not defined in the list above. 1) List of necessary documents for opening bank account defined in Instructions of the Bank of Russia N 28-I dated 14.09.2006. Because of a big number of different banks in Russian Federation, there is no common procedure for opening bank accounts and necessary documents. 2) Actual term of opening bank account depends on quantity of founders, country of their incorporation, quantity of documents that were submitted in bank in order to open bank account. In accordance with Article 22.1.10 of the Basic Principles of Russian Doing Business 2014 Russian Federation 23 Time to No. Procedure Cost to complete complete Legislation on Notaries Public, the notary's fee for certification of signatures and bank cards is equal to RUB 200. The notary's total fee for such certification, including technical work, is approximately RUB 800 - 1200. • The signature of the entrepreneur must be certified and registered by a bank. There is a special form (provided by the government) that must be completed for this procedure. In this form, there is a section where the company seal must be stamped. • Entrepreneurs have two options. They can either (a) have its signature form notarized and then it can be brought to the bank when opening the bank account, or (b) they can certify the signature of the entrepreneur at the bank, when opening a bank account. Cost: stamp-duty of RUR200 + if the document is filled out by lawyers or notaries, there will also be fees for technical fees. At the bank, Bank of Moscow and Sperbank both charge RUR500 to certify (for transaction fees) per signature (if there are more than 1 owner, one signature per company owner). Inform Federal Tax Service of the company bank account number The representative of the newly founded company has to submit a notification (a standard form) in person or by mail to the Federal Tax Service giving notice of the opening of the bank account. Banks may sometimes notify the Pension Fund and the Social Insurance Fund of the opening of the bank account of a new legal entity. 7 1 day no charge The letter from the bank can be sent to Federal Tax Services by post. However, since the legislation says that Tax Services should be notified within 7 days after opening of a bank account, most entrepreneurs go in person to get a stamped receipt with the date from the Tax office. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Russian Federation 24 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Submitting 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 land telephone line cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a completion (if required for use as collateral or warehouse in the economy’s largest business city, for transfer of the warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another 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 that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final Doing Business uses several assumptions about the document is received business and the warehouse, including the utility connections. No prior contact with officials The business: Cost required to complete each procedure (% of income per capita)  Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city.  Will be connected to water, sewerage (sewage system, septic tank or their  Is domestically owned and operated. equivalent) and a fixed telephone line. The  Has 60 builders and other employees. connection to each utility network will be 10 The warehouse: meters (32 feet, 10 inches) long.  Is a new construction (there was no  Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions).  Has complete architectural and technical plans prepared by a licensed architect or  Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 Russian Federation 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to construction permits there requires 36 procedures, build a warehouse in Russian Federation? According to takes 297.0 days and costs 89.0% of income per capita data collected by Doing Business, dealing with (figure 3.1). Figure 3.1 What it takes to comply with formalities to build a warehouse in Russian Federation Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Russian Federation 26 DEALING WITH CONSTRUCTION PERMITS Globally, Russian Federation stands at 178 in the ranking provide other useful information for assessing ranking of 189 economies on the ease of dealing with how easy it is for an entrepreneur in Russian construction permits (figure 3.2). The rankings for Federation to legally build a warehouse. comparator economies and the regional average Figure 3.2 How Russian Federation and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 Russian Federation 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to deal with time have had the best performance regionally or construction permits. And changes in regional globally on the procedures, time or cost required to averages can show where Russian Federation is deal with construction permits (figure 3.3) help show keeping up—and where it is falling behind. Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2014 Russian Federation 28 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Russian Federation 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 Russian Federation (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How has Russian Federation made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. Russia eased construction permitting by implementing a single DB2011 window for all procedures related to land use. DB2012 No reform as measured by Doing Business. Russia made obtaining a construction permit simpler by DB2013 eliminating requirements for several preconstruction approvals. Russia made dealing with construction permits easier by eliminating several requirements for project approvals from DB2014 government agencies and by reducing the time required to register a new building. 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 2014 Russian Federation 30 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Russian BUILDING A WAREHOUSE Federation are based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified City : Moscow by Doing Business through information collected from experts in construction licensing, including Estimated architects, civil engineers, construction lawyers, RUB 26,120,000 Warehouse Value : construction firms, utility service providers and public officials who deal with building regulations. The procedures, along with the associated time and These procedures are those that apply to a cost, are summarized below. company and structure matching the standard 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 Russian Federation —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain the development plan of land plot at the Moscow Architecture and City Planning Committee The Moscow Architecture and City Planning Committee ( MoskomArchitektura) A one stop shop has been implemented in order to deal with all procedures related to the Land. The applicant does not have to go to each agency in order to obtain documents. The applicant 1 applies for the copy development plan of the land plot at 120 days no charge Moskomarchitecture which will deal with all the steps. The legal time limit is 1 month but in practice this takes on average 6 months according to private sector contributors. * Request and obtain Act of Moscow Geological - Geodesic Department The applicant obtains a geodesic map of the plot with all communication lines indicated and analyzed. 2 As of January 1, 2009, the fee for obtaining a geodesic map of the plot 45 days RUB 39,000 from the Moscow Geological -- Geodesic Department has increased from RUB 36,700.00 to RUB 39,000.00. Doing Business 2014 Russian Federation 31 Time to No. Procedure Cost to complete complete * Request and obtain an engineering ecological survey - Mosgorgeotrest or any other licensed entity This is one of the pieces of information needed for project design -- information about conditions of your land plot -- geological, geodesic and ecological. There are 5 types of mandatory engineering surveys. All or a few of 3 them are requested depending on the land plot and surrounding 45 days RUB 100,000 territory conditions. In our case there could be 2 -- 3 types of surveys. Mosgorgeotrest does these surveys. Private licensed companies also can do these surveys but they are requested to get the results ‘stamped’ by Mosgorgeotrest. * Request and obtain sanitary and epidemiological certificate - Rospotrebnadzor 4 30 days no charge * Request and obtain technical conditions from water services and sewage The technical conditions are defined by the Moscow water and the sewage company. Under Government Regulation No. 83 dated February 13, 2006, • A list of technical conditions must be prepared by the local government when preparing the city development plan of the land plot • If the city development plan of the land plot does not contain this 5 information, the technical conditions as well as the information on 30 days RUB 21,300 payment for connection to such services must be provided by the respective agency within 14 business days after receiving the request, however in practice it takes longer. According to the fee schedule of Moscow State Unitary Enterprise “Vodokanal” for 2009, the fee for obtaining the technical conditions has been increased from RUB 17,673.00 to RUB 21,300.00 * Request and obtain technical conditions to connect to telephone line from Moscow City Telephone Service (MGTS) Technical conditions are set by the district telephone network services, 30 days RUB 5,000 6 which are either branches of the Moscow City Telephone Service (MGTS) or private operators. Doing Business 2014 Russian Federation 32 Time to No. Procedure Cost to complete complete * Request and obtain technical conditions for heavy shower sewage 7 30 days RUB 10,000 These technical conditions are also required for the project design. * Request and obtain technical conditions to install radio from the Moscow Broadcasting Network These technical conditions are also required for the project design and 30 days RUB 4,500 8 needed by law for civil security. It is supposed to be used for public announcements (like in case of force majeure). * Request and obtain Extract from Minutes of Meeting and Decision of the ‘Reglament’ Commission by the Chief Architect of Moscow on approval of architectural design (facades, profiles, color) and the certificate of Approval of architectural design The following documents must be submitted to obtain Regulation No. 2 at the MoskomArchitektura: 9 • Architecture and construction designs and drawings 30 days no charge • Approved (by all instances) designs and drawings of the general plan (as mentioned in previous procedures) • Approved design conditions • Decision on construction Request and obtain Disposition of Prefect on Inception of Construction Designing (Decision on Construction) The decision on construction is a prerequisite for beginning to collect 10 all design documents. By law, obtaining the decision should not take 30 days no charge more than 30 days. However, the deadline is never respected, and this procedure takes 60 days on average. * Request and obtain the approval of conditions for designs by Department of Preparation of Project Approvals 11 The seal of the Department of Preparation of Project Approvals of 14 days RUB 12,100 MoskomArchitektura is placed on the cover page of the conditions list. * Request and obtain approval of conditions for designs by the Ministry of Civil Defense, Emergencies and Natural Disaster Management (MChS) 12 14 days RUB 14,728 MChS specifies whether a shelter for civil defense must be constructed on the site. Doing Business 2014 Russian Federation 33 Time to No. Procedure Cost to complete complete * Request and obtain approval of conditions for designs by Local Government (uprava) 13 The seal of the local government is placed on the cover page of the 7 days no charge conditions list. * Request and obtain approval of conditions for designs by Prefect’s Office 14 The seal of the local government is placed on the cover page of the 14 days no charge conditions list. Request and obtain Permission for construction To obtain the building permit, BuildCo must submit the following documents to the Moscow State Committee of Construction Supervision: • An application form • Documents confirming title to the land 15 • Town (planning) plan of land 10 days no charge • Relevant project documentation After reforms in 2006, the statutory time line of issuing the permit fell from 30 days to 10. This is free of charge. Request and obtain an opening order of production of works from the Union of Administrative Technical Inspections (UATI) 16 1 day RUB 30,000 Inform the Moscow District Municipality about the work schedule, get a stamp and leave a copy of the work schedule 17 1 day no charge Inform the Department of Nature Management about the work schedule, get a stamp and leave a copy of the work schedule 18 1 day no charge Inform the Traffic Police about the work schedule, get a stamp and leave a copy of the work schedule 19 1 day no charge Doing Business 2014 Russian Federation 34 Time to No. Procedure Cost to complete complete Inform the Fire Department about the work schedule, get a stamp and leave a copy of the work schedule 20 1 day no charge Inform the Rospotrebnadzor about the work schedule, get a stamp and leave a copy of the work schedule 21 1 day no charge * Order and receive results of laboratory tests of foundation pits from Mosgorgeotrest for the acceptance commission During the construction phase of an approved project, the building 1 day RUB 10,000 22 company has to obtain results of laboratory tests which are then required by the acceptance commission. * Receive an inspection from the Mosgorgeotrest to make sure that the building has been built where it was planned to be 23 1 day RUB 50,000 * Receive inspection by the Union of Administrative Technical Inspections (UATI) - I Construction activities are not interrupted during inspections. These inspections need not be requested and take place at least once a 1 day no charge 24 month during the construction cycle. The Union of Administrative Technical Inspections (UATI) inspects whether the construction boundaries have remained the same. * Receive inspection by the Union of Administrative Technical Inspections (UATI) - II Construction activities are not interrupted during inspections. These 25 inspections need not be requested and take place at least once a 1 day no charge month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. * Receive inspection by the Union of Administrative Technical Inspections (UATI) - III Construction activities are not interrupted during inspections. These 26 inspections need not be requested and take place at least once a 1 day no charge month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. Doing Business 2014 Russian Federation 35 Time to No. Procedure Cost to complete complete * Receive inspection by the Union of Administrative Technical Inspections (UATI) - IV Construction activities are not interrupted during inspections. These 27 inspections need not be requested and take place at least once a 1 day no charge month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. * Receive inspection by the Union of Administrative Technical Inspections (UATI) - V Construction activities are not interrupted during inspections. These 28 inspections need not be requested and take place at least once a 1 day no charge month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. * Receive inspection by the Union of Administrative Technical Inspections (UATI) - VI Construction activities are not interrupted during inspections. These 29 inspections need not be requested and take place at least once a 1 day no charge month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. * Receive inspection by the Union of Administrative Technical Inspections (UATI) - VII Construction activities are not interrupted during inspections. These 30 inspections need not be requested and take place at least once a 1 day no charge month during the construction cycle. The UATI inspects whether the construction boundaries have remained the same. Connect to water services An agreement must be concluded between BuildCo and the Water and 30 days no charge 31 Sewerage Services. The connection to water service is then installed. * Request and connect to telephone services According to Decree # 312, as of February 27, 2009 by Moscow City 32 Telephone Network Company the cost of connection works is now RUB 10 days RUB 8,640 8,640.00 and done in 10 days. * Request and convene Acceptance Commission BuildCo files application forms with the Moscow State Committee of 60 days no charge 33 Construction Supervision in order to convene the Approval Commission. The commission includes representatives from different backgrounds, such as ecology, the prefecture, the local government, Doing Business 2014 Russian Federation 36 Time to No. Procedure Cost to complete complete the sanitary services, the company, and the designer. After the commission has convened, BuildCo collects the signatures of all its members. The time line established by Government of Moscow Resolution No. 530, dated November 7, 2001, for the relevant authorities to appoint representatives to the Approval Commission is 10 days. The time required for approval of the building depends on the state of the building (whether it is ready to be occupied or not) and on the inspection results. In practice, this takes on average 60 days. The most difficult part is to convene the commission members and gather their signatures for approval. Request and receive the Disposition on operation of building (Occupancy Permit) 34 10 days no charge Obtaining an occupancy permit takes 10 days. Request and receive Plans from Bureau of Technical Inventory (BTI) 35 30 days RUB 55,000 Register the building after completion in Rosreestr According to the Russian Federation Civil Code, the right to own and "create" immovable things, including buildings, is subject to state registration at the Unified State Register of rights to immovable assets and associated transactions. To complete the registration, BuildCo must submit an application, the real property plan, and approval of the building, confirming the fact that real property has been created. Based on the order of the Federal 20 days RUB 15,000 36 Service for State Registration, Cadastre and Cartography (Rosreestr) on Moscow dated 08.15.2012, the time limit for completing the registration is 20 calendar days from the application date. Payment of a duty is required for registration. The state duty for building registration is RUB 15,000.00 (for legal entities). * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Russian Federation 37 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 to either the low-voltage or the medium-  Is a new construction being connected to voltage distribution network and either overhead electricity for the first time. or underground, whichever is more common in the economy and area where the warehouse is  Has 2 stories, both above ground, with a located. The length of any connection in the total surface of about 1,300.6 square customer’s private domain is negligible. meters (14,000 square feet), and is built on a plot of 929 square meters (10,000 square  Requires crossing of a 10-meter road but all the feet). works are carried out in a public land, so there is no crossing into other people's private property. The electricity connection:  Involves installing one electricity meter. The  Is 150 meters long and is a 3-phase, 4-wire Y, monthly electricity consumption will be 0.07 140-kilovolt-ampere (kVA) (subscribed gigawatt-hour (GWh). The internal electrical capacity) connection. wiring has been completed. Doing Business 2014 Russian Federation 38 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity requires 5 procedures, takes 162 days and costs connection in Russian Federation? According to data 293.8% of income per capita (figure 4.1). collected by Doing Business, getting electricity there Figure 4.1 What it takes to obtain an electricity connection in Russian Federation Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Russian Federation 39 GETTING ELECTRICITY Globally, Russian Federation stands at 117 in the another perspective in assessing how easy it is for an ranking of 189 economies on the ease of getting entrepreneur in Russian Federation to connect a electricity (figure 4.2). The rankings for comparator warehouse to electricity. economies and the regional average ranking provide Figure 4.2 How Russian Federation and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 Russian Federation 40 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Russian Federation Best performer in Russian Federation Russian Federation Best performer Indicator Europe & Central DB2014 DB2013 globally DB2014 Asia DB2014 Rank 117 188 San Marino (10) Iceland (1) Procedures (number) 5 10 San Marino (3) 10 Economies* (3) Time (days) 162 281 San Marino (45) Germany (17) Cost (% of income per capita) 293.8 1,573.7 Lithuania (48.1) Japan (0.0) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for D B2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Russian Federation 41 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and Russian Federation (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Russian Federation made getting electricity easier—or not? By Doing Business report year DB year Reform Russian Federation made getting electricity less costly by DB2012 revising the tariffs for connection. DB2013 No reform as measured by Doing Business. Russia made getting electricity simpler and less costly by DB2014 setting standard connection tariffs and eliminating many procedures previously required. Source: Doing Business database. Doing Business 2014 Russian Federation 42 GETTING ELECTRICITY What are the details? The indicators reported here for Russian Federation OBTAINING AN ELECTRICITY CONNECTION are based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local City: Moscow distribution utility—identified by Doing Business. Data are collected from the distribution utility, then Name of Utility: MOESK completed and verified by electricity regulatory agencies and independent professionals such as The procedures are those that apply to a warehouse electrical engineers, electrical contractors and and electricity connection matching the standard construction companies. The electricity distribution assumptions used by Doing Business in collecting the utility surveyed is the one serving the area (or areas) in data (see the section in this chapter on what the which warehouses are located. If there is a choice of indicators cover). The procedures, along with the distribution utilities, the one serving the largest associated time and cost, are summarized below. number of customers is selected. Summary of procedures for getting electricity in Russian Federation—and the time and cost Time to No. Procedure Cost to complete complete Submit an application for an electricity connection to the local office of MOESK, await technical conditions, and sign contract If the required load is less than 750 KW an application for an electricity connection is submitted to a local office of MOESK. Above 750 KW an application is submitted to the central office of MOESK. The following documents are attached to the application: 1) Plan of the location of electrical equipment 2) Plan of electrical cables with the justification of the required load 3) a copy of the license of the firm which prepared the plan. 1 15 calendar days no charge Furthermore the following documents are required for the conclusion of a connection contract with MOESK 1) Documents certifying the legal status of the customer or his representative: certificate from the Business Registry, certificate from tax authorities, document certifying the head of the organization. Once technical conditions are ready MOESK notifies the customer and a connection contract is signed. There is not external inspection for the preparation of the technical conditions. Doing Business 2014 Russian Federation 43 Time to No. Procedure Cost to complete complete Customer obtains external connection works and meter installation by MOESK 2 After the electrical design is ready the installation of the substation is 100 calendar days RUB 1,228,559.6 completed by MOESK. Customer obtains inspection and final supply by MOESK The utility completes the physical/actual connection of the customer without turning on the power yet. The customer visits the regional office of MOESK, concludes a contract dividing responsibilities for maintenance 14 calendar days no charge 3 and ownership of electrical equipment, signs a document on the completion of the technical connection and a document that the service was accepted. Customer obtains inspection of the meter by Mosenergosbyt After the external connection works and installation of the meter by the 12 calendar days RUB 10,000.0 4 electrical contractor the meter is checked by Mosenergosbyt. Customer signs a supply contract with Mosenergosbyt (supply company) After the issuance of the operation permit a supply contract is signed at 21 calendar days no charge 5 Mosenergosupply. Once the contract is signed the supply company sends a request to MOESK to turn on power. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2014 Russian Federation 44 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. Procedures that can be fully completed online are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure (% of property value)  Are limited liability companies, 100% domestically and privately owned. Official costs only, no bribes  Are located in the economy’s largest No value added or capital gains taxes included business city. and no rezoning is required.  Have 50 employees each, all of whom are  Has no mortgages attached and has been nationals. under the same ownership for the past 10  Perform general commercial activities. years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story  Has a value of 50 times income per capita. warehouse of 929 square meters (10,000 The sale price equals the value. square feet). The warehouse is in good  Is registered in the land registry or cada- condition and complies with all safety stre, or both, and is free of title disputes. standards, building codes and legal requirements. There is no heating system. The  Is located in a periurban commercial zone, property will be transferred in its entirety. Doing Business 2014 Russian Federation 45 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 22.0 days and costs 0.1% of the Russian Federation? According to data collected by property value (figure 5.1). Doing Business, registering property there requires 4 Figure 5.1 What it takes to register property in Russian Federation Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Russian Federation 46 REGISTERING PROPERTY Globally, Russian Federation stands at 17 in the other useful information for assessing how easy it is for ranking of 189 economies on the ease of registering an entrepreneur in Russian Federation to transfer property (figure 5.2). The rankings for comparator property. economies and the regional average ranking provide Figure 5.2 How Russian Federation and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2014 Russian Federation 47 REGISTERING PROPERTY What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to register time have had the best performance regionally or property. And changes in regional averages can show globally on the procedures, time or cost required to where Russian Federation is keeping up—and where it complete a property transfer (figure 5.3) help show is falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2014 Russian Federation 48 REGISTERING PROPERTY Cost (% of property value) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Russian Federation 49 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 Russian Federation (table 5.1)? Table 5.1 How has Russian Federation made registering property easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. The Russian Federation sped up the process of registering property by introducing new documentation requirements DB2010 such as cadastral passports in lieu of inventory documents and cadastral maps. DB2011 No reform as measured by Doing Business. Russia made registering property transfers easier by DB2012 eliminating the requirement to obtain cadastral passports on land plots. DB2013 No reform as measured by Doing Business. Russia made transferring property easier by streamlining DB2014 procedures and implementing effective time limits for processing transfer applications. 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 2014 Russian Federation 50 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property City: Moscow lawyers, notaries and property registries. These procedures are those that apply to a transaction Property Value: RUB 21,081,447 matching the standard assumptions used by Doing Business in collecting the data (see the section in The procedures, along with the associated time and this chapter on what the indicators cover). cost, are summarized below. Summary of procedures for registering property in Russian Federation—and the time and cost Time to No. Procedure Cost to complete complete * Notarization of corporate documents by the seller and the buyer Even though not mandatory by law, in practice the buyer and the seller 2 days obtain the notarized copies of a company's charter. Notarization cost is (simultaneous 1 RUB 500 equal to about 500 RUB for each document (RUB 10 per page) with the with procedures 2 state notary. Alternative rates established by a private notary may apply. & 3) RUB 600 (for a hard copy) and * Check for encumbrances on a property RUB 300 (as an electronic Even though not mandatory by law, in practice most buyers perform the document); check for non-encumbrances on a property to prove the validity of a Less than a day RUB 900 (for an seller's title. Checking and verification of the ownership rights of the (online extraterritorial seller can be performed on-line on the main web page of the Federal procedure; 2 request of a hard Service for State Registration, Cadastre and Cartography simultaneous copy document (in (www.rosreestr.ru). with procedure 1 another region)); & 3) RUB 400 (for an extraterritorial request of an electronic document ). * Check the legal status and current conditions of the parties RUB 600 (for a Less than a day hard copy) and (online Even though not mandatory by law, in practice most buyers and sellers RUB 300 (as an 3 procedure; perform the check the legal status of the other party. Since January 1, electronic 2013 (Law on "State Cadastar of Immovable Property", # 221-FZ dated simultaneous document); 24 of July, 2007, as amanded since January 1, 2013) this extract can be with procedure 1 RUB 900 (for an Doing Business 2014 Russian Federation 51 Time to No. Procedure Cost to complete complete obtained online from the official web page of the Federal Service for & 2) extraterritorial State Registration, Cadastre and Cartography request of a hard (http://www.nalog.ru/el_usl/egrip/). copy document (in another region)); RUB 400 (for an extraterritorial request of an electronic document ). Apply for the state registration of a title transfer at the Unified State Register of Rights to Real Estate The Russian Federation adopted amendments to the Federal Law #122- FZ. New provisions of the Law came into effect on January 1, 2013 and RUB 30,000: RUB shortened effective time limits for the title registration from a maximum 20 days 15,000 (building) + 4 of 30 calendar days to 20 calendar days. As a result of the RUR 15,000 (land implementation of the time limits in practice, entrepreneur can now plot transfer) transfer property at the State Cadastre of Immovable Property within 20 calendar days. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Russian Federation 52 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s Strength of legal rights index (0–10) financial history (positive or negative)—valuable Rights of borrowers and lenders through information to consider when assessing risk. And collateral laws they permit borrowers to establish a good credit Protection of secured creditors’ rights through history that will allow easier access to credit. Sound bankruptcy laws collateral laws enable businesses to use their assets, especially movable property, as security to generate Depth of credit information index (0–6) capital—while strong creditors’ rights have been Scope and accessibility of credit information associated with higher ratios of private sector credit distributed by public credit registries and 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 whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has up to 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, incorporated, limited liability the strength of legal rights index. company.  Has its headquarters and only base of operations in the largest business city. Doing Business 2014 Russian Federation 53 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Russian Federation stands at 109 in the collateral and bankruptcy laws in Russian Federation ranking of 189 economies on the ease of getting credit facilitate access to credit? The economy has a score of (figure 6.1). The rankings for comparator economies 5 on the depth of credit information index and a score and the regional average ranking provide other useful of 3 on the strength of legal rights index (see the information for assessing how well regulations and summary of scoring at the end of this chapter for institutions in Russian Federation support lending and details). Higher scores indicate more credit information borrowing. and stronger legal rights for borrowers and lenders. Figure 6.1 How Russian Federation and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 Russian Federation 54 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how where institutions and regulations have been well the credit information system and collateral and strengthened—and where they have not (table 6.1). bankruptcy laws in Russian Federation support lending That can help identify where the potential for and borrowing today, data over time can help show improvement is greatest. Table 6.1 The ease of getting credit in Russian Federation over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. .. 105 109 Strength of legal rights 3 3 3 3 3 3 3 3 3 3 index (0-10) Depth of credit 0 0 0 4 4 5 5 5 5 5 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau 0.0 0.0 0.0 4.4 10.0 14.3 14.4 35.8 45.4 59.2 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Russian Federation 55 GETTING CREDIT One way to put an economy’s score on the getting 2013 and shows the number of economies with this credit indicators into context is to see where the score in 2013 as well as the regional average score. economy stands in the distribution of scores across Figure 6.3 shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for Russian Federation in Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2013 information index (0–6), 2013 Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Source: Doing Business database. Doing Business 2014 Russian Federation 56 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 Russian Federation (table 6.2)? Table 6.2 How has Russian Federation made getting credit easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Russian Federation 57 GETTING CREDIT What are the details? The getting credit indicators reported here for Russian The data on the legal rights of borrowers and lenders Federation are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a credit well as public sources of information on collateral and registry and/or 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 credit registry or credit bureau (see summary of bankruptcy law. scoring below). Summary of scoring for the getting credit indicators in Russian Federation Europe & Central OECD high income Indicator Russian Federation Asia average average Strength of legal rights index (0-10) 3 7 7 Depth of credit information index (0-6) 5 5 5 Public registry coverage (% of adults) 0.0 33.9 42.9 Private bureau coverage (% of adults) 59.2 48.2 73.9 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Regional averages for the credit registry coverage exclude economies with no credit registry. Regional averages for the credit bureau coverage exclude economies with no credit bureau. Strength of legal rights index (0–10) Index score: 3 Can any business use movable assets as collateral while keeping possession of the assets; and Yes 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 No movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of No its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically No to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an No electronic database indexed by debtor's names? Doing Business 2014 Russian Federation 58 Strength of legal rights index (0–10) Index score: 3 Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor No defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is No liquidated? Are secured creditors either not subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure, or does the law provide secured No creditors with grounds for relief from an automatic stay or/and sets a time limit to it? 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? Depth of credit information index (0–6) Credit bureau Credit registry Index score: 5 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 No No 0 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 800,000 0 Number of individuals 60,000,000 0 Source: Doing Business database. Doing Business 2014 Russian Federation 59 PROTECTING INVESTORS Protecting investors matters 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 protect minority shareholders, investors may be reluctant to provide funding to companies through Extent of disclosure index (0–10) the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor protections: transparency of related-party Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission transactions (extent of disclosure index), liability for of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to evidence before and Ease of shareholder suits index (0–10) during trial (ease of shareholder suits index). The Access to internal corporate documents ranking on the strength of investor protection index is (directly or through a government inspector) the simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of  Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). the company purchase used trucks from another company he owns.  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of  The price is higher than the going price for used Buyer where permitted, even if this is not trucks, but the transaction goes forward. specifically required by law.  All required approvals are obtained, and all The transaction involves the following details: required disclosures made, though the transaction is prejudicial to Buyer.  Mr. James, a director and the majority shareholder of the company, proposes that  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2014 Russian Federation 60 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections against self- protection index (figure 7.1). While the indicator does dealing in Russian Federation? The economy has a not measure all aspects related to the protection of score of 4.7 on the strength of investor protection minority investors, a higher ranking does indicate that index, with a higher score indicating stronger an economy’s regulations offer stronger investor protections (see the summary of scoring at the end of protections against self-dealing in the areas measured. this chapter for details). Globally, Russian Federation stands at 115 in the ranking of 189 economies on the strength of investor Figure 7.1 How Russian Federation and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 Russian Federation 61 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 Russian Federation 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 Russian Federation over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. 113 115 Extent of disclosure 6 6 6 6 6 6 6 6 6 index (0-10) Extent of director 2 2 2 2 2 2 2 2 2 liability index (0-10) Ease of shareholder 6 6 6 6 6 6 6 6 6 suits index (0-10) Strength of investor protection index (0- 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Russian Federation 62 PROTECTING INVESTORS One way to put an economy’s scores on the protecting 2013 and shows the number of economies with this investors indicators into context is to see where the score in 2013 as well as the regional average score. economy stands in the distribution of scores across Figure 7.3 applies to the extent of director liability economies. Figure 7.2 highlights the score on the index, and figure 7.4 to the ease of shareholder suits extent of disclosure index for Russian Federation in index. Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on the extent of Number of economies with each score on the extent of director liability index (0–10), 2013 disclosure index (0–10), 2013 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 Russian Federation 63 PROTECTING INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Number of economies with each score on the ease of shareholder suits index (0–10), 2013 Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2014 Russian Federation 64 PROTECTING INVESTORS The scores recorded over time for Russian Federation changes over time in the regional average score on on the strength of investor protection index may also this index. be revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the protections. Source: Doing Business database. Doing Business 2014 Russian Federation 65 PROTECTING INVESTORS Economies with the strongest protections of minority reasonable time. As a result, reforms to strengthen investors from self-dealing require detailed disclosure investor protections may move ahead on different and define clear duties for directors. They also have fronts—such as through new or amended company well-functioning courts and up-to-date procedural laws, securities regulations or civil procedure rules. rules that give minority shareholders the means to What investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in Russian Federation (table 7.2)? Table 7.2 How has Russian Federation strengthened investor protections—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Russian Federation 66 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for are assigned to each based on a range of conditions Russian Federation are based on detailed information relating to disclosure, director liability and shareholder collected through a survey of corporate and securities suits in a standard case study transaction (see the data lawyers about securities regulations, company laws notes at the end of this chapter). The summary below and court rules of evidence and procedure. To shows the details underlying the scores for Russian construct the extent of disclosure, extent of director Federation. liability and ease of shareholder suits indices, scores Summary of scoring for the protecting investors indicators in Russian Federation Russian Europe & Central OECD high income Indicator Federation Asia average average Extent of disclosure index (0-10) 6 6 7 Extent of director liability index (0-10) 2 5 5 Ease of shareholder suits index (0-10) 6 6 7 Strength of investor protection index (0-10) 4.7 5.7 6.2 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only display ed once. Score Score description Extent of disclosure index (0-10) 6 What corporate body provides legally sufficient Shareholders meeting and Mr. James 3 approval for the transaction? is not allowed to vote Whether disclosure of the conflict of interest by Mr. Existence of a conflict without any 1 James to the board of directors is required? specifics Whether immediate disclosure of the transaction to 1 Disclosure on the transaction only the public and/or shareholders is required? Whether disclosure of the transaction in published 1 Disclosure on the transaction only periodic filings (annual reports) is required? Whether an external body must review the terms of 0 No the transaction before it takes place? Extent of director liability index (0-10) 2 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller transaction causes 0 Not liable to the company? Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 1 Liable for negligence Seller transaction causes to the company? Doing Business 2014 Russian Federation 67 Score Score description Whether a court can void the transaction upon a Not possible or only in case of Seller's 0 successful claim by a shareholder plaintiff? fraud or bad faith Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 0 No the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 No shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 6 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 0 No filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 0 No transaction? Whether the plaintiff can obtain any documents from Any information that is relevant to the 3 the defendant and witnesses during trial? subject matter of the claim Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 2 Yes, without approval from the judge defendant and witnesses during trial? Whether the level of proof required for civil suits is 1 Yes lower than that of criminal cases? Strength of investor protection index (0-10) 4.7 Source: Doing Business database. Doing Business 2014 Russian Federation 68 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 Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic and joint filing and payment) difficult and costly to pay taxes, larger shares of 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 Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as 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 Arranging payment or withholding payments as well as time taken to comply with tax 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 1 Profit or corporate income tax being applied to the total tax rate. To make the 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, 2011. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.5%. Doing Business 2014 Russian Federation 69 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Russian Federation stands at 56 in the taxes in Russian Federation—and how much do firms ranking of 189 economies on the ease of paying taxes pay in taxes? On average, firms make 7 tax payments a (figure 8.1). The rankings for comparator economies year, spend 177 hours a year filing, preparing and and the regional average ranking provide other useful paying taxes and pay total taxes amounting to 50.7% information for assessing the tax compliance burden of profit (see the summary at the end of this chapter for businesses in Russian Federation. for details). Figure 8.1 How Russian Federation and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2014 Russian Federation 70 PAYING TAXES What are the changes over time? The benchmarks provided by the economies that over show what is possible in easing the administrative time have had the best performance regionally or burden of tax compliance. And changes in regional globally on the number of payments or the time averages can show where Russian Federation is required to prepare and file taxes (figure 8.2) help keeping up—and where it is falling behind. Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2014 Russian Federation 71 PAYING TAXES Total tax rate (% of profit) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 Russian Federation 72 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. Russian Federation (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Russian Federation made paying taxes easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Russia eased the tax burden on companies by reducing the DB2010 corporate income tax rate from 24% to 20%. DB2011 No reform as measured by Doing Business. Russia increased the social security contribution rate for DB2012 employers. Russia eased the administrative burden of taxes for firms by simplifying compliance procedures for value added tax and by DB2013 promoting the use of tax accounting software and electronic services. DB2014 No reform as measured by Doing Business. 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 2014 Russian Federation 73 PAYING TAXES What are the details? The indicators reported here for Russian Federation LOCATION OF STANDARDIZED COMPANY are based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the City: Moscow data (see the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company The taxes and contributions paid are listed in the completed during the year. Respondents are asked summary below, along with the associated number of how much in taxes and mandatory contributions payments, time and tax rate. the business must pay and what the process is for doing so. Summary of tax rates and administrative burden in Russian Federation Europe & Central OECD high income Indicator Russian Federation Asia average average Payments (number per year) 7 26 12 Time (hours per year) 177 246 175 Profit tax (%) 8.0 9.0 16.1 Labor tax and contributions (%) 36.7 22.6 23.1 Other taxes (%) 6.1 7.0 2.0 Total tax rate (% profit) 50.7 38.7 41.3 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate gross Pension fund contribution 1 online filing 0 22% 24.8 salaries taxable Corporate income tax 1 online filing 60 20% 8 profits Federal obligatory medical gross insurance fund 0 paid jointly 0 5.1% 5.8 salaries contributions Doing Business 2014 Russian Federation 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 book Property tax 1 online filing 0 2.2% value of 4.7 property gross Social security insurance 1 online filing 76 2.9% 3.3 salaries gross Accidents tax 0 paid jointly 0 2.5% 2.8 salaries cadastral value of Land tax 1 online filing 0 0.3%-1.5% 1.3 the land plot engine various Transport tax 1 online filing 0 capacity of 0.1 rates vehicles value not Value Added Tax 1 online filing 41 18% 0 added included Totals 7 177 50.7 Source: Doing Business database. Doing Business 2014 Russian Federation 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, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other 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: military items.  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include Doing Business 2014 Russian Federation 76 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Russian Globally, Russian Federation stands at 157 in the Federation? According to data collected by Doing ranking of 189 economies on the ease of trading Business, exporting a standard container of goods across borders (figure 9.1). The rankings for requires 9 documents, takes 22 days and costs $2615. comparator economies and the regional average Importing the same container of goods requires 10 ranking provide other useful information for assessing documents, takes 21 days and costs $2810 (see the how easy it is for a business in Russian Federation to summary of procedures and documents at the end of export and import goods. this chapter for details). Figure 9.1 How Russian Federation and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 Russian Federation 77 TRADING ACROSS BORDERS What are the changes over time? The benchmarks provided by the economies that over possible in making it easier to trade across borders. time have had the best performance regionally or And changes in regional averages can show where globally on the documents, time or cost required to Russian Federation is keeping up—and where it is export or import (figure 9.2) help show what is falling behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2014 Russian Federation 78 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2014 Russian Federation 79 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Russian Federation 80 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 Russian Federation (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How has Russian Federation made trading across borders easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Russia made trading across borders easier by reducing the DB2012 number of documents needed for each export or import transaction and lowering the associated cost. DB2013 No reform as measured by Doing Business. Russia made trading across borders easier by implementing an DB2014 electronic system for submitting export and import documents and by reducing the number of physical inspections. 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 2014 Russian Federation 81 TRADING ACROSS BORDERS What are the details? The indicators reported here for Russian Federation LOCATION OF STANDARDIZED COMPANY are based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this City: Moscow chapter on what the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each The procedural requirements, and the associated time procedure is collected from local freight forwarders, and cost, for exporting and importing a standard shipping lines, customs brokers, port officials and shipment of goods are listed in the summary below, banks. along with the required documents. Summary of procedures and documents for trading across borders in Russian Federation Europe & Central OECD high income Indicator Russian Federation Asia average average Documents to export (number) 9 7 4 Time to export (days) 22 25 11 Cost to export (US$ per container) 2,615 2,109 1,070 Documents to import (number) 10 8 4 Time to import (days) 21 26 10 Cost to import (US$ per container) 2,810 2,339 1,090 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 13 200 Customs clearance and technical control 1 550 Ports and terminal handling 3 480 Inland transportation and handling 5 1,385 Totals 22 2,615 Procedures to import Time (days) Cost (US$) Documents preparation 12 285 Doing Business 2014 Russian Federation 82 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 2 650 Ports and terminal handling 2 490 Inland transportation and handling 5 1,385 Totals 21 2,810 Documents to export Documents to import Acceptance order (priemnii akt) Acceptance order (priemo-sdatochnii order) Bill of lading Bill of lading Commercial Invoice Certificate of conformity (sertifikat sootvetstviya) Consignment note/ CMR (tovaro-transportnaya Commercial invoice nakladnaya) Consignment note (tovaro-transportnaya nakladnaya) Customs export declaration Customs import declaration Export/loading order (eksportnoe/pogruzochnoe Document of warehouse (dokument ucheta skalda) poruchenie) Letter from the bank certifying opening of letter of Packing List credit (izveshenie/dokument banka) Sales purchase contract Packing list Statement of manufacturer (zayavlenie)/ Certificate of Sales purchase contract Origin Source: Doing Business database. Doing Business 2014 Russian Federation 83 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment Time required to complete procedures What do the indicators cover? (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city.  The dispute on the quality of the goods requires an expert opinion.  The buyer orders custom-made goods, then fails to pay.  The judge decides in favor of the seller; there is no appeal.  The seller sues the buyer before a competent court.  The seller enforces the judgment through a public sale of the buyer’s movable assets.  The value of the claim is 200% of income per capita.  The seller requests a pretrial attachment to secure the claim. Doing Business 2014 Russian Federation 84 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Russian Federation stands at 10 in the dispute through the courts in Russian Federation? ranking of 189 economies on the ease of enforcing According to data collected by Doing Business, contracts (figure 10.1). The rankings for comparator contract enforcement takes 270 days, costs 13.4% of economies and the regional average ranking provide the value of the claim and requires 36 procedures (see other useful benchmarks for assessing the efficiency of the summary at the end of this chapter for details). contract enforcement in Russian Federation. Figure 10.1 How Russian Federation and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 Russian Federation 85 ENFORCING CONTRACTS What are the changes over time? The benchmarks provided by the economies that over help show what is possible in improving the efficiency time have had the best performance regionally or of contract enforcement. And changes in regional globally on the number of steps, time or cost required averages can show where Russian Federation is to enforce a contract through the courts (figure 10.2) keeping up—and where it is falling behind. Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2014 Russian Federation 86 ENFORCING CONTRACTS Procedures (number) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Russian Federation 87 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 Russian Federation introducing new technology. Lower-income economies (table 10.1)? often work on reducing backlogs by introducing Table 10.1 How has Russian Federation made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Russia made filing a commercial case easier by introducing an DB2012 electronic case filing system. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Russian Federation 88 ENFORCING CONTRACTS What are the details? The indicators reported here for Russian COURT NAME Federation are based on a set of specific procedural steps required to resolve a standardized commercial dispute through the City: Moscow courts (see the section in this chapter on what the indicators cover). These procedures, and the time Claim Value LCU: 721956 and cost of completing them, are identified through study of the codes of civil procedure and Court Name: Moscow Arbitrazh Court other court regulations, as well as through surveys completed by local litigation lawyers (and, in a The procedures for resolving a commercial lawsuit, and quarter of the economies covered by Doing the associated time and cost, are listed in the summary Business, by judges as well). below. Summary of procedures for enforcing a contract in Russian Federation—and the time and cost Europe & Central OECD high income Indicator Russian Federation Asia average average Time (days) 270 441 529 Filing and service 30 Trial and judgment 160 Enforcement of judgment 80 Cost (% of claim) 13.4 25.3 21.0 Attorney cost (% of claim) 10.0 Court cost (% of claim) 3.4 Enforcement Cost (% of claim) 0.0 Procedures (number) 36 37 31 Number of procedures (without bonus points) 38 Electronic filing of court cases -1 Specialized commercial courts -1 Total number of procedures (including bonus 36 points) Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Doing Business 2014 Russian Federation 89 ENFORCING CONTRACTS No. Procedure Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint wi th the court, orally * or in writing. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other type of court fee. Registration of court case: The court administration registers the lawsuit or court case. This includes 3 assigning a reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random * procedure, automated system, ruling of an administrative judge, court officer, etc. Court scrutiny of summons and complaint: A judge examines Plaintiff's summons and complaint for 4 formal requirements. Judge admits summons and complaint: After verifying the formal requirements, the judge decides to * admit Plaintiff’s summons and complaint. First attempt at physical delivery: A first attempt to physically deliver summons and complaint to 5 Defendant is successful in the majority of cases. * Proof of service: Plaintiff submits proof of service to court. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. This step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either 6 physical or achieved by registering, marking, debiting or separating assets. (see assumption 5) Custody of assets attached prior to judgment: Defendant's attached assets are put under enforcement 7 officer's or (private) bailiff's care. (see assumption 5) Report on pre-judgment attachment: Court enforcement officer or (private) bailiff issues and delivers a 8 report on the attachment of Defendant’s property to the judge. (see assumption 5) Trial and judgment: Defendant’s filing of preliminary exemptions: Defendant presents preliminary exemptions to the court. * Preliminary exemptions differ from answers on the merits of the claim. Examples of preliminary exemptions are statute of limitations, jurisdictions, etc. Doing Business 2014 Russian Federation 90 No. Procedure Plaintiff’s answer to preliminary exemptions: Plaintiff responds to the preliminary exemptions raised by * Defendant. Judge’s resolution on preliminary exemptions: Judge decides on preliminary exemptions separately from 9 the merits of the case. Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his defense or answer on the merits of the case. Defendant's written answer may or may not 10 include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Plaintiff’s written response to Defendant's defense or answer: Plaintiff responds to Defendant’s defense or 11 answer with a written pleading. Plaintiff's answer may or may not include a witness statements or expert (witness) statements. Filing of pleadings: Plaintiff and Defendant file written pleadings and submissions with the court and 12 transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Adjournments: Court procedure is delayed because one or both parties request and obtain an 13 adjournment to submit written pleadings. Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 6-b of this case) Notification of court-appointment of independent expert: The court notifies both parties that the court is 14 appointing an independent expert. (see assumption 6-b of this case) Delivery of expert report by court-appointed expert: The independent expert appointed by the court * delivers his or her expert report to the court. (see assumption 6-b of this case) Setting of date for mediation hearing: The judge sets a date for a mediation hearing, sometimes also * called a 'pre-trial conference,' and notifies the parties of the hearing date. Mediation hearing: The judge during this informal meeting with the parties encourages them to settle the 15 case. The judge acts as mediator. If the case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judg 16 Request for oral hearing or trial: Plaintiff applies for the date(s) for the oral hearing or trial. * Setting of date(s) for oral hearing or trial: The judge sets the date(s) for the oral hearing or trial. Preliminary hearing aimed at preparing for the oral hearing: The judge meets the parties to make practical 17 arrangements for the oral hearing on the merits of the case. * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court. (see assumption 6-a) Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 18 hearing or trial. (see assumption 6-a) Adjournments: Court proceedings are delayed because one or both parties request and obtain an 19 adjournment to prepare for the oral hearing or trial. Doing Business 2014 Russian Federation 91 No. Procedure Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 20 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Adjournments: Court proceedings are delayed because one or both parties request and obtain an 21 adjournment during the oral hearing or trial, resulting in an additional or later trial or hearing date. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 22 Judgment date: The judge sets a date for delivery of the judgment. 23 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 24 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 25 judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 26 judgment is available at the courthouse. 27 Plaintiff's receipt of a copy of written judgment: Plaintiff receives a copy of the written judgment. Notification of Defendant of judgment: Plaintiff or court formally notifies the Defendant of the judgment. 28 The appeal period starts to run the day the Defendant is formally notified of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in 29 the law. Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse 30 Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff's approaching of court enforcement officer or (private) bailiff to enforce the judgment: To enforce 31 the judgment, Plaintiff approaches a court enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff’s request for enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 32 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a (private) bailiff. Plaintiff’s request for physical enforcement: As Plaintiff fears that Defendant might physically resist the * attachment of its movable goods, Plaintiff addresses a request to the judge or to the police authorities to obtain police assistance during the attachment of Defendant's movable goods. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 33 (private) bailiff requests Defendant to voluntarily comply with the judgment, giving Defendant a last chance to comply voluntarily with the judgment. Doing Business 2014 Russian Federation 92 No. Procedure Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court 34 enforcement officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 35 assets). Valuation or appraisal of attached movable goods: The court or court appointed valuation expert 36 evaluates the attached goods. 37 Sale through public auction: The Defendant’s movable property is sold at public auction. 38 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2014 Russian Federation 93 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 Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through Recovery rate for creditors (cents on the reorganization, liquidation or debt enforcement dollar) (foreclosure) proceedings. The recovery rate is a Measures the cents on the dollar recovered function of time, cost and other factors, such as by creditors lending rate and the likelihood of the company continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account  Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered  Operates in the economy’s largest business city.  Has 201 employees, 1 main secured  Has a higher value as a going concern—and creditor and 50 unsecured creditors. the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 Russian Federation 94 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses sold as piecemeal sale. The average recovery rate is characterize the top-performing economies. How 42.8 cents on the dollar. efficient are insolvency proceedings in Russian Globally, Russian Federation stands at 55 in the Federation? According to data collected by Doing ranking of 189 economies on the ease of resolving Business, resolving insolvency takes 2.0 years on insolvency (figure 11.1). The rankings for comparator average and costs 9% of the debtor’s estate, with the economies and the regional average ranking provide most likely outcome being that the company will be other useful benchmarks for assessing the efficiency of insolvency proceedings in Russian Federation. Figure 11.1 How Russian Federation and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 Russian Federation 95 RESOLVING INSOLVENCY What are the changes over time? The benchmarks provided by the economies that over possible in improving the efficiency of insolvency time have had the best performance regionally or proceedings. And changes in regional averages can globally on the time or cost of insolvency proceedings show where Russian Federation is keeping up—and or on the recovery rate (figure 11.2) help show what is where it is falling behind. Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2014 Russian Federation 96 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. “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. Regional averages on time and cost exclude economies with a “no practice” mark. Source: Doing Business database. Doing Business 2014 Russian Federation 97 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 Russian Federation (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Russian Federation made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. The Russian Federation introduced several changes to its DB2010 insolvency law to speed up the liquidation procedure and strengthen the legal status of secured creditors. Russia introduced a series of legislative measures in 2009 to DB2011 improve creditor rights and the insolvency system. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Russian Federation 98 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of employing workers methodology proposed by the employment, specifically as it affects the hiring and consultative group are available on the Doing Business redundancy of workers and the rigidity of working website (http://www.doingbusiness.org). The data on hours. Over the period from 2007 to 2011 employing workers are based on a detailed survey of improvements were made to align the methodology employment regulations that is completed by local for the employing workers indicators with the letter lawyers and public officials. Employment laws and and spirit of the International Labour Organization regulations as well as secondary sources are reviewed (ILO) conventions. Only 4 of the 188 ILO conventions to ensure accuracy. cover areas measured by Doing Business: employee To make the data comparable across economies, termination, weekend work, holiday with pay and night several assumptions about the worker and the work. The Doing Business methodology is fully business are used. consistent with these 4 conventions. The ILO conventions covering areas related to the Employing The worker: Workers indicators do not include the ILO core labor  Earns a salary plus benefits equal to the standards—8 conventions covering the right to economy’s average wage during the entire collective bargaining, the elimination of forced labor, period of his employment. the abolition of child labor and equitable treatment in  Has a pay period that is the most common for workers in the economy. employment practices.  Is a lawful citizen who belongs to the same race and religion as the majority of the Between 2009 and 2011 the World Bank Group worked economy’s population. with a consultative group—including labor lawyers,  Resides in the economy’s largest business city. employer and employee representatives, and experts  Is not a member of a labor union, unless from the ILO, OECD, civil society and the private membership is mandatory. sector—to review the employing workers methodology and explore future areas of research. A i The business:  Is a limited liability company. full report with the conclusions of the consultative  Operates in the economy’s largest business group is available at city. http://www.doingbusiness.org/methodology/employin  Is 100% domestically owned. g-workers.  Operates in the manufacturing sector.  Has 60 employees. This year Doing Business continued research collecting  Is subject to collective bargaining agreements additional data on regulations covering the in economies where such agreements cover probationary period for new employees. more than half the manufacturing sector and apply even to firms not party to them. Doing Business 2014 presents the data on the  Abides by every law and regulation but does not grant workers more benefits than employing workers indicators in an annex. The report mandated by law, regulation or (if applicable) does not present rankings of economies on the collective bargaining agreement. employing workers indicators nor include the topic in the aggregate ranking on the ease of doing business. Detailed data collected on labor regulations and the Doing Business 2014 Russian Federation 99 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Russian other things, the minimum wage for a 19-year-old Federation (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2014 Russian Federation 100 EMPLOYING WORKERS Employment laws are needed to protect workers from past 5 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Russian Federation adopt contracting between employers and workers. Many that affected the Doing Business indicators on economies that changed their labor regulations in the employing workers (table 12.1)? Table 12.1 What changes did Russian Federation make in employing workers in 2013? DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Russian Federation 101 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and Russian Federation are based on a detailed survey of regulations as well as secondary sources are reviewed employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? Yes Maximum length of a single fixed-term contract (months) 60 Maximum length of fixed-term contracts, including renewals (months) 60 Minimum wage for a 19-year old worker or an apprentice (US$/month) 352.4 Ratio of minimum wage to value added per worker 0.24 Source: Doing Business database. Doing Business 2014 Russian Federation 102 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data Standard workday in manufacturing (hours) 8 hours 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 20% operations Premium for work on weekly rest day (% of hourly pay) in case of 100% continuous operations Major restrictions on night work in case of continuous operations? No Major restrictions on weekly holiday in case of continuous operations? No Paid annual leave for a worker with 1 year of tenure (in working days) 22.0 Paid annual leave for a worker with 5 years of tenure (in working days) 22.0 Paid annual leave for a worker with 10 years of tenure (in working days) 22.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 22.0 working days) Source: Doing Business database. Doing Business 2014 Russian Federation 103 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? Yes Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? Yes Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? Yes Priority rules for redundancies? Yes Priority rules for reemployment? No Source: Doing Business database. Doing Business 2014 Russian Federation 104 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 8.7 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 8.7 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 8.7 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 8.7 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 8.7 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 8.7 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 8.7 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 8.7 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2014 Russian Federation 105 DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information about what laws and regulations say and allowing 2 The data for paying taxes refer to January – December 2012. multiple interactions with local respondents to clarify Doing Business 2014 Russian Federation 106 potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation —as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified Changes in what is measured size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully reasons the time delays reported in Doing Business completed online in just a few hours. This change 2014 would differ from the recollection of affects the time indicator for starting a business, Doing Business 2014 Russian Federation 107 dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business and the distance to frontier measure. The business. ease of doing business ranking compares economies More complex aggregation methods—such as 3 For getting electricity the rule that each procedure must take a principal components and unobserved components— minimum of 1 day still applies because in practice there are no yield a ranking nearly identical to the simple average cases in which procedures can be fully completed online in less than a day. For example, even though in some cases it is possible to apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 Russian Federation 108 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly since 2003 or the first year the indicator was collected. 5 identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 Russian Federation 109 the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. Doing Business 2014 Russian Federation 111 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2014 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 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/ iphone Doing Business 2014 Russian Federation 112