Doing Business 2016 Romania 100828 Economy Profile 2016 Romania Doing Business 2016 Romania 2 © 2016 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 Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2016 Romania 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 36 Registering property .................................................................................................................. 45 Getting credit .............................................................................................................................. 60 Protecting minority investors ................................................................................................... 66 Paying taxes ................................................................................................................................ 72 Trading across borders .............................................................................................................. 77 Enforcing contracts .................................................................................................................... 83 Resolving insolvency .................................................................................................................. 91 Labor market regulation ........................................................................................................... 99 Distance to frontier and ease of doing business ranking .................................................... 106 Resources on the Doing Business website ............................................................................ 110 Doing Business 2016 Romania 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is also provides data for other selected economies for a local entrepreneur to open and run a small to (comparator economies) for each indicator. The data in medium-size business when complying with relevant this report are current as of June 1, 2015 (except for the regulations. It measures and tracks changes in paying taxes indicators, which cover the period January– regulations affecting 11 areas in the life cycle of a December 2014). business: starting a business, dealing with construction The Doing Business methodology has limitations. Other permits, getting electricity, registering property, getting areas important to business—such as an economy’s credit, protecting minority investors, paying taxes, proximity to large markets, the quality of its trading across borders, enforcing contracts, resolving infrastructure services (other than those related to insolvency and labor market regulation. Doing Business trading across borders and getting electricity), the 2016 presents the data for the labor market regulation security of property from theft and looting, the indicators in an annex. The report does not present transparency of government procurement, rankings of economies on labor market regulation macroeconomic conditions or the underlying strength of indicators or include the topic in the aggregate distance institutions—are not directly studied by Doing Business. to frontier score or ranking on the ease of doing The indicators refer to a specific type of business, business. generally a local limited liability company operating in In a series of annual reports Doing Business presents the largest business city. Because standard assumptions quantitative indicators on business regulations and the are used in the data collection, comparisons and protection of property rights that can be compared benchmarks are valid across economies. The data not across 189 economies, from Afghanistan to Zimbabwe, only highlight the extent of obstacles to doing business; over time. The data set covers 47 economies in Sub- they also help identify the source of those obstacles, Saharan Africa, 32 in Latin America and the Caribbean, 25 supporting policy makers in designing regulatory reform. in East Asia and the Pacific, 25 in Eastern Europe and More information is available in the full report. Doing Central Asia, 20 in the Middle East and North Africa and Business 2016 presents the indicators, analyzes their 8 in South Asia, as well as 32 OECD high-income relationship with economic outcomes and presents economies. The indicators are used to analyze economic business regulatory reforms. The data, along with outcomes and identify what reforms have worked, where information on ordering Doing Business 2016, are and why. available on the Doing Business website at This economy profile presents the Doing Business http://www.doingbusiness.org. indicators for Romania. To allow useful comparison, it Doing Business 2016 Romania 5 CHANGES IN DOING BUSINESS 2016 As part of a two-year update in methodology, Doing The case study underlying the trading across borders Business 2016 expands the focus of five indicator sets indicators has been changed to increase its relevance. (dealing with construction permits, getting electricity, For each economy the export product and partner are registering property, enforcing contracts and labor now determined on the basis of the economy’s market regulation), substantially revises the comparative advantage, the import product is auto parts, methodology for one indicator set (trading across and the import partner is selected on the basis of which borders) and implements small updates to the economy has the highest trade value in that product. The methodology for another (protecting minority investors). indicators continue to measure the time and cost to export and import. The indicators on dealing with construction permits now include an index of the quality of building regulation and Beyond these changes there is one other update in its implementation. The getting electricity indicators now methodology, for the protecting minority investors include a measure of the price of electricity consumption indicators. A few points for the extent of shareholder and an index of the reliability of electricity supply and governance index have been fine-tuned, and the index transparency of tariffs. Starting this year, the registering now also measures aspects of the regulations applicable property indicators include an index of the quality of the to limited companies rather than privately held joint land administration system in each economy in addition stock companies. to the indicators on the number of procedures and the For more details on the changes, see the “What is time and cost to transfer property. And for enforcing changing in Doing Business?” chapter starting on page contracts an index of the quality and efficiency of judicial 27 of the Doing Business 2016 report. For more details processes has been added while the indicator on the on the data and methodology, please see the “Data number of procedures to enforce a contract has been Notes” chapter starting on page 119 of the Doing dropped. Business 2016 report. For more details on the distance to The scope of the labor market regulation indicator set frontier metric, please see the “Distance to frontier and has also been expanded, to include more areas capturing ease of doing business ranking” chapter in this profile. aspects of job quality. The labor market regulation indicators continue to be excluded from the aggregate distance to frontier score and ranking on the ease of doing business. Doing Business 2016 Romania 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: Europe & Central Asia based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Upper middle income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. Population: 19,910,995 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 9,370 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2016 rank: 37 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2015 rank: 37* 0 represents the worst performance and 100 the frontier. Change in rank: 0 (See the chapter on the distance to frontier and ease of doing business). DB 2016 DTF: 73.78 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2015 DTF: 73.59 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 0.19 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2015 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2015 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 119 of the Doing Business 2016 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2016: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in the economy profile. Doing Business 2016 Romania 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 2016 Romania THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Romania and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2016 Romania 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Romania (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Romania (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Doing Business 2016 Romania 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Romania come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 119 of the Doing Business 2016 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2016 Romania 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Romania Slovak Republic DB2016 Best performer globally Czech Republic DB2016 Moldova DB2016 Romania DB2016 Romania DB2015 Hungary DB2016 Bulgaria DB2016 Poland DB2016 Indicator DB2016 Starting a Business 45 37 52 93 55 26 85 68 New Zealand (1) (rank) Starting a Business (DTF 91.94 91.93 91.1 85.23 90.56 94.17 85.94 88.54 New Zealand (99.96) Score) Procedures (number) 5.0 5.0 4.0 8.0 4.0 4.0 4.0 6.0 New Zealand (1.00)* Time (days) 8.0 8.0 18.0 15.0 5.0 4.0 30.0 11.5 New Zealand (0.50) Cost (% of income per 2.0 2.1 0.7 6.7 7.3 4.3 12.2 1.5 Slovenia (0.00) capita) Paid-in min. capital (% 0.6 0.7 0.0 0.0 47.7 0.0 11.4 18.5 105 Economies (0.00)* of income per capita) Dealing with Construction Permits 105 101 51 127 88 170 52 84 Singapore (1) (rank) Dealing with Construction Permits 67.19 67.15 74.45 62.73 69.06 51.59 74.24 69.48 Singapore (92.97) (DTF Score) Procedures (number) 15.0 15.0 16.0 21.0 23.0 27.0 16.0 10.0 5 Economies (7.00)* Doing Business 2016 Romania 12 Slovak Republic DB2016 Best performer globally Czech Republic DB2016 Moldova DB2016 Romania DB2016 Romania DB2015 Hungary DB2016 Bulgaria DB2016 Poland DB2016 Indicator DB2016 Time (days) 257.0 257.0 110.0 247.0 179.0 276.0 156.0 286.0 Singapore (26.00) Cost (% of warehouse 2.3 2.3 4.1 0.3 0.2 0.7 0.3 0.1 Qatar (0.00) value) Building quality control 13.0 13.0 13.0 12.0 14.0 10.5 12.0 11.0 New Zealand (15.00) index (0-15) Getting Electricity 133 132 100 42 117 104 49 48 Korea, Rep. (1) (rank) Getting Electricity (DTF 56.44 56.35 64.97 81.58 60.11 64.36 80.15 80.3 Korea, Rep. (99.88) Score) Procedures (number) 8.0 8.0 6.0 5.0 5.0 7.0 4.0 5.0 14 Economies (3.00)* Time (days) 182.0 182.0 130.0 110.0 252.0 113.0 133.0 121.0 Korea, Rep. (18.00)* Cost (% of income per 573.7 603.5 317.3 27.6 98.4 778.3 19.5 54.8 Japan (0.00) capita) Reliability of supply and transparency of tariff 7.0 7.0 5.0 8.0 6.0 6.0 7.0 8.0 18 Economies (8.00)* index (0-8) Registering Property 64 63 63 37 29 21 41 5 New Zealand (1) (rank) Registering Property 69.19 69.13 69.34 76.4 80.2 82.91 75.65 90.99 New Zealand (94.46) (DTF Score) Procedures (number) 8.0 8.0 8.0 4.0 4.0 5.0 6.0 3.0 4 Economies (1.00)* Time (days) 19.0 19.0 11.0 31.0 16.5 5.5 33.0 16.5 3 Economies (1.00)* Cost (% of property 1.4 1.5 2.9 4.0 5.0 0.9 0.3 0.0 Saudi Arabia (0.00) value) Quality of the land administration index (0- 16.0 16.0 18.0 21.5 26.0 22.0 18.5 26.5 3 Economies (28.50)* 30) Doing Business 2016 Romania 13 Slovak Republic DB2016 Best performer globally Czech Republic DB2016 Moldova DB2016 Romania DB2016 Romania DB2015 Hungary DB2016 Bulgaria DB2016 Poland DB2016 Indicator DB2016 Getting Credit (rank) 7 6 28 28 19 28 19 42 New Zealand (1) Getting Credit (DTF 85 85 70 70 75 70 75 65 New Zealand (100) Score) Strength of legal rights 10.0 10.0 9.0 7.0 10.0 8.0 7.0 7.0 3 Economies (12.00)* index (0-12) Depth of credit 7.0 7.0 5.0 7.0 5.0 6.0 8.0 6.0 26 Economies (8.00)* information index (0-8) Credit registry coverage 15.9 12.3 64.7 6.7 0.0 0.0 0.0 3.2 Portugal (100.00) (% of adults) Credit bureau coverage 22 Economies 50.1 46.6 0.0 78.7 88.6 10.8 91.0 67.3 (% of adults) (100.00)* Protecting Minority 57 54 14 57 81 36 49 88 Singapore (1)* Investors (rank) Protecting Minority 58.33 58.33 71.67 58.33 55 63.33 60 53.33 Singapore (83.33)* Investors (DTF Score) Strength of minority investor protection 5.8 5.8 7.2 5.8 5.5 6.3 6.0 5.3 3 Economies (8.30)* index (0-10) Extent of conflict of interest regulation 6.0 6.0 6.3 5.3 4.0 6.3 6.0 4.7 Singapore (9.30)* index (0-10) Extent of shareholder governance index (0- 5.7 5.7 8.0 6.3 7.0 6.3 6.0 6.0 4 Economies (8.00)* 10) United Arab Emirates Paying Taxes (rank) 55 53 88 122 95 78 58 73 (1)* Paying Taxes (DTF United Arab Emirates 80.69 80.09 74.19 67.09 73.06 76.28 79.63 76.79 Score) (99.44)* Payments (number per 14.0 14.0 14.0 8.0 11.0 21.0 7.0 10.0 Hong Kong SAR, Doing Business 2016 Romania 14 Slovak Republic DB2016 Best performer globally Czech Republic DB2016 Moldova DB2016 Romania DB2016 Romania DB2015 Hungary DB2016 Bulgaria DB2016 Poland DB2016 Indicator DB2016 year) China (3.00)* Time (hours per year) 159.0 159.0 423.0 405.0 277.0 186.0 271.0 188.0 Luxembourg (55.00) Total tax rate (% of 42.0 43.2 27.0 50.4 48.4 40.2 40.3 51.2 Ireland (25.90) profit) Trading Across Borders 1 1 20 1 1 33 1 1 Denmark (1)* (rank) Trading Across Borders 100 100 97.45 100 100 92.39 100 100 Denmark (100)* (DTF Score) Time to export: Border 0 0 4 0 0 3 0 0 15 Economies (0.00)* compliance (hours) Cost to export: Border 0 0 52 0 0 76 0 0 18 Economies (0.00)* compliance (USD) Time to export: Documentary 1 1 2 1 1 48 1 1 Jordan (0.00) compliance (hours) Cost to export: Documentary 0 0 52 0 0 44 0 0 20 Economies (0.00)* compliance (USD) Time to import: Border 0 0 1 0 0 3 0 0 19 Economies (0.00)* compliance (hours) Cost to import: Border 0 0 0 0 0 83 0 0 28 Economies (0.00)* compliance (USD) Time to import: Documentary 1 1 1 1 1 2 1 1 21 Economies (1.00)* compliance (hours) Cost to import: Documentary 0 0 0 0 0 41 0 0 30 Economies (0.00)* compliance (USD) Enforcing Contracts 34 33 52 72 23 67 55 63 Singapore (1) Doing Business 2016 Romania 15 Slovak Republic DB2016 Best performer globally Czech Republic DB2016 Moldova DB2016 Romania DB2016 Romania DB2015 Hungary DB2016 Bulgaria DB2016 Poland DB2016 Indicator DB2016 (rank) Enforcing Contracts 69.23 69.23 65.09 60.36 72.08 60.87 63.44 61.69 Singapore (84.91) (DTF Score) Time (days) 512.0 512.0 564.0 611.0 395.0 585.0 685.0 705.0 Singapore (150.00) Cost (% of claim) 28.9 28.9 23.8 33.0 15.0 28.6 19.4 30.0 Iceland (9.00) Quality of judicial 13.0 13.0 10.5 10.5 10.0 9.5 10.5 12.0 3 Economies (15.50)* processes index (0-18) Resolving Insolvency 46 46 48 22 65 60 32 33 Finland (1) (rank) Resolving Insolvency 59.77 58.7 58.93 77.73 50.58 53.85 70.43 70.04 Finland (93.81) (DTF Score) Recovery rate (cents on 32.7 30.7 34.0 66.0 41.7 30.4 58.3 54.7 Japan (92.90) the dollar) Time (years) 3.3 3.3 3.3 2.1 2.0 2.8 3.0 4.0 Ireland (0.40) Cost (% of estate) 10.5 10.5 9.0 17.0 14.5 15.0 15.0 18.0 Norway (1.00) Outcome (0 as piecemeal sale and 1 as 0 0 0 1 0 0 1 1 going concern) Strength of insolvency 13.5 13.5 13.0 13.5 9.0 12.0 12.5 13.0 4 Economies (15.00)* framework index (0-16) Source: Doing Business database. Note: DB2015 rankings shown are not last year’s published rankings but comparable rankings for DB2015 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2016 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Doing Business 2016 Romania 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business records all procedures officially required, or commonly done in practice, for an Each procedure starts on a separate day (2 entrepreneur to start up and formally operate an procedures cannot start on the same day). industrial or commercial business, as well as the time Procedures that can be fully completed and cost to complete these procedures and the paid- online are recorded as ½ day. in minimum capital requirement. These procedures Procedure completed once final document is include obtaining all necessary licenses and permits received and completing any required notifications, verifications or inscriptions for the company and No prior contact with officials employees with relevant authorities. The ranking of Cost required to complete each procedure economies on the ease of starting a business is (% of income per capita) determined by sorting their distance to frontier scores for starting a business. These scores are the Official costs only, no bribes simple average of the distance to frontier scores for No professional fees unless services required each of the component indicators. by law or commonly used in practice To make the data comparable across economies, Paid-in minimum capital (% of income several assumptions about the business and the per capita) procedures are used. It is assumed that any required information is readily available and that the Deposited in a bank or with a notary before entrepreneur will pay no bribes. Assumptions about registration (or within 3 months) the business:  Is a limited liability company (or its legal  Has a start-up capital of 10 times income per equivalent), located in the largest business city capita and a turnover of at least 100 times 1 and is 100% domestically owned with five income per capita. owners, none of whom is a legal entity.  Has a company deed 10 pages long.  Has at least 10 and up to 50 employees, all of  Does not qualify for any special benefits. them domestic nationals.  Leases the commercial plant or offices and is not  Performs general commercial or industrial a proprietor of real estate. activities. 1 For 11 economies the data are also collected for the second largest business city. Doing Business 2016 Romania 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Romania? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 5.00 procedures, takes 8.00 days, average of the 2 largest business cities. See the chapter costs 2.00% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 0.60% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the Figure 2.1 What it takes to start a business in Romania Paid-in minimum capital (% of income per capita): 0.60 Source: Doing Business database. 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. Doing Business 2016 Romania 18 STARTING A BUSINESS Globally, Romania stands at 45 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Romania The rankings for comparator economies and the regional to start a business. Figure 2.2 How Romania and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2016 Romania 19 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Romania (table 2.1)? Table 2.1 How has Romania made starting a business easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Romania made starting a business more difficult by requiring a DB2012 tax clearance certificate for a new company’s headquarters before company registration. Romania made starting a business easier by reducing the time DB2013 required to obtain a clearance certificate from the fiscal administration agency. Romania made starting a business easier by transferring DB2014 responsibility for issuing the headquarters clearance certificate from the Fiscal Administration Office to the Trade Registry. Source: Doing Business database. 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. Doing Business 2016 Romania 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Romania is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Societate cu rãspundere limitatã - firm. These are identified by Doing Business through Limited Liability Company collaboration with relevant local professionals and the study of laws, regulations and publicly available Paid-in minimum capital requirement: RON 200 information on business entry in that economy. City: Bucharest Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Romania Time to No. Procedure Cost to complete complete Evidence of verification of company name availability and reservation thereof According to the Methodological Norms on keeping the trade register, making reservations and release of information: - The reservation of a company name is requested at the trade register office by application and is checked and made at national level so that company names are protected at national level as well. A company name shall not include words like: ”științific”, ”academie”, ”academic”, ”universitate”, ”universitar”, ”școală”, ”școlar” or their Less than one day 1 RON 72 derivatives. (online procedure) - A company name including words like ”național”, ”român”, ”institut” or their derivatives or words or phrases characteristic of the central or local public institutions or authorities may be used only with the approval of the General Secretariat of the Government or the Prefect. Such certificate is valid for a period of 3 months. Agency: Trade Registry Office Deposit funds in a bank and obtain a document confirming bank deposit of sufficient funds The company's administrator or an authorized person must deliver certified copies of: (i) the name availability certificate, (ii) Articles of 2 Incorporation, (iii) proof of the registered offices and (iv) the power of 1 day no charge attorney (if applicable). After the documents are being reviewed by a bank's representative, the deposit is granted and the administrator/authorized person will receive a document confirming the deposit of sufficient funds. Doing Business 2016 Romania 21 Time to No. Procedure Cost to complete complete The bank may charge the solicitants a commission, which may range from zero to 0.5% of the capital, in accordance to the internal regulations of each bank. Agency: Bank Company registration at the Trade Register Office In order to register at the Trade Register, the founders of the company shall have to prepare the articles of incorporation. Within 15 days from the establishment of the articles of incorporation, the founders or their mandates shall be under the obligation to register the company at the trade register in the area of the company's registered office. The articles of incorporation shall include, inter alia, the amount of the capital, which shall be fully subscribed by the founders. The trade register office also obtains electronically the fiscal record certificates. Registration at the trade register office is finalized by issuance of the certificate of incorporation ensures the following: - company incorporation - fiscal registration (for profit, wages, health, pensions, unemployment taxes) by obtaining the unique registration code from the Ministry of Public Finance - authorization, based on statements of own responsibility, in the field of food safety and sanitary-veterinary protection, environment protection and labor protection see procedure 3 3 days - publication in the Official Gazette of Romania as legal publicity. details Registration for VAT purposes is made at the Fiscal Administration Authority directly. Based on Government Emergency Ordinance no. 116/2009 instituting certain measures regarding the activity of registration in the trade register, in order to simplify the registration procedures, the final approval for incorporation is no longer given by a delegated judge, but by the director or the appointed person of the territorial trade register office in the county where the company is incorporated, Bucharest in our case study. Cost details: RON 585.5 = (RON 250 registration fee + 50% liquidation fund fee and 10% insolvency bulletin fee) + RON 31.50 fee for publication in the Official Gazette of Romania + (RON 100 fiscal record certificates (RON 20 per partner) + 50% liquidation fund fee) + RON 4 (fiscal stamp fee) Agency: Trade Registry Office Register for VAT Starting with February 1, 2015 a new procedure for VAT registration 3 days no charge 4 purposes was introduced. If a company requests the VAT registration at the moment of incorporation, Form 098 must be submitted to the Tax Authorities on the same day when the documents for incorporation at Doing Business 2016 Romania 22 Time to No. Procedure Cost to complete complete the Registry of Commerce are submitted. If the company is already incorporated but decides to opt for VAT registration, then Form 010 must be submitted to the Tax Authorities. In addition, the applicant must submit Form 088, based on which the Tax Authorities assess the capacity and the intention of the applicant to perform operations which are subject to VAT. Currently, there are no specific legal instructions for such assessment to be performed by the tax officers. A score-based methodology of such assessment is expected to be regulated in the future. The VAT certificates are issued by the relevant fiscal administration departments. Agency: National Agency of Tax Administration Register the employees contracts with the Territorial Labor Inspectorate (TLI) online Each employer shall be under the obligation to settle an internal general register record of all of his employees, in electronic format, which shall be transmitted to the Territorial Labour Inspectorate in the jurisdiction the employer has its registered office or domicile. Less than one day 5 The registration of the employees' labor contract can be done online, no charge (online procedure) after a representative of the employer obtains a password for operating the online registry from the Territorial Labour inspectorate. This is based on the Government Decision 500/2011 on the general register of employees record, applicable starting with May 27, 2011. Agency: Territorial labor inspectorate * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2016 Romania 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, this year Doing Business completion introduces a new measure, the building quality Time required to complete each procedure control index, evaluating the quality of building (calendar days) regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and Does not include time spent gathering professional certification requirements. information The ranking of economies on the ease of dealing with Each procedure starts on a separate day. Procedures that can be fully completed online construction permits is determined by sorting their are recorded as ½ day distance to frontier scores for dealing with construction permits. These scores are the simple Procedure considered completed once final average of the distance to frontier scores for each of document is received the component indicators. No prior contact with officials To make the data comparable across economies, Cost required to complete each procedure (% several assumptions about the construction of warehouse value) company, the warehouse project and the utility Official costs only, no bribes connections are used. Building quality control index (0-15) Assumptions about the construction company Sum of the scores of six component indices: The construction company (BuildCo): Quality of building regulations (0-2)  Is a limited liability company (or its legal equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business Quality control during construction (0-3) city. For 11 economies the data are also Quality control after construction (0-3) collected for the second largest business Liability and insurance regimes (0-2) city. Professional certifications (0-4)  Is 100% domestically and privately owned.  Has five owners, none of whom is a legal entity.  Is fully licensed and insured to carry out construction projects, such as building warehouses. Doing Business 2016 Romania 24 The construction company (BuildCo) (continued):  Will be a new construction (there was no previous construction on the land), with no  Has 60 builders and other employees, all of trees, natural water sources, natural reserves them nationals with the technical expertise or historical monuments of any kind on the and professional experience necessary to plot. obtain construction permits and approvals.  Will have complete architectural and  Has at least one employee who is a technical plans prepared by a licensed licensed architect or engineer and architect. If preparation of the plans requires registered with the local association of such steps as obtaining further architects or engineers. BuildCo is not documentation or getting prior approvals assumed to have any other employees who from external agencies, these are counted as are technical or licensed experts, such as procedures. geological or topographical experts.  Will include all technical equipment required  Has paid all taxes and taken out all to be fully operational. necessary insurance applicable to its general business activity (for example,  Will take 30 weeks to construct (excluding all accidental insurance for construction delays due to administrative and regulatory workers and third-person liability). requirements).  Owns the land on which the warehouse will be built and will sell the warehouse upon Assumptions about the utility connections its completion. The water and sewerage connections:  Is valued at 50 times income per capita.  Will be 150 meters (492 feet) from the Assumptions about the warehouse existing water source and sewer tap. If there The warehouse: is no water delivery infrastructure in the economy, a borehole will be dug. If there is  Will be used for general storage activities, no sewerage infrastructure, a septic tank in such as storage of books or stationery. The the smallest size available will be installed or warehouse will not be used for any goods built. requiring special conditions, such as food, chemicals or pharmaceuticals.  Will not require water for fire protection reasons; a fire extinguishing system (dry  Will have two stories, both above ground, system) will be used instead. If a wet fire with a total constructed area of protection system is required by law, it is approximately 1,300.6 square meters assumed that the water demand specified (14,000 square feet). Each floor will be 3 below also covers the water needed for fire meters (9 feet, 10 inches) high. protection.  Will have road access and be located in the  Will have an average water use of 662 liters periurban area of the economy’s largest (175 gallons) a day and an average business city (that is, on the fringes of the wastewater flow of 568 liters (150 gallons) a city but still within its official limits). For 11 day. Will have a peak water use of 1,325 liters economies the data are also collected for (350 gallons) a day and a peak wastewater the second largest business city. flow of 1,136 liters (300 gallons) a day.  Will not be located in a special economic  Will have a constant level of water demand or industrial zone. Will be located on a land and wastewater flow throughout the year. plot of approximately 929 square meters (10,000 square feet) that is 100% owned by  Will be 1 inch in diameter for the water BuildCo and is accurately registered in the connection and 4 inches in diameter for the cadastre and land registry. sewerage connection. Doing Business 2016 Romania 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build business city of an economy, except for 11 economies for a warehouse in Romania? According to data collected by which the data are a population-weighted average of the Doing Business, dealing with construction permits there 2 largest business cities. See the chapter on distance to requires 15.00 procedures, takes 257.00 days and costs frontier and ease of doing business ranking at the end of 2.30% of the warehouse value (figure 3.1). Most this profile for more details. indicator sets refer to a case scenario in the largest Figure 3.1 What it takes to comply with formalities to build a warehouse in Romania Source: Doing Business database. 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. . Doing Business 2016 Romania 26 DEALING WITH CONSTRUCTION PERMITS Globally, Romania stands at 105 in the ranking of 189 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Romania to legally build a warehouse. Figure 3.2 How Romania and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2016 Romania 27 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Romania (table 3.1)? Table 3.1 How has Romania made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Romania amended regulations related to construction DB2011 permitting to reduce fees and expedite the process. Source: Doing Business database. 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. Doing Business 2016 Romania 28 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Romania are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction RON 1,641,366 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Bucharest service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Romania Time to No. Procedure Cost to complete complete Obtain urban planning certificate Pursuant to Order No. 839/2009 issued by the Ministry of Regional Development and Housing (“Order 839”), approving the Methodological Norms to the Construction Law, the following urban planning documents are required: • The general urban plan (PUG) and the related local regulation • The (zone) urban plan (PUZ) and the related local regulation • The detailed urban plan (PUD) The urban planning certificate provides information on the ownership, the public utility service availability, the location within (intravilan) and outside (extravilan) the city limits, the urban planning requirements, the land use at the time, the allowed uses, and so forth. From a technical point of view, the certificate shows the percentage of land occupation, the coefficient of land use, the 30 days RON 17 1 minimum and maximum dimensions of the plots, the allowed built-up area, utilities, and access, necessary parking, alignment of the land and buildings with the adjacent streets, and the maximum and minimum construction height allowed. This certificate does not grant the right to build. Its validity period varies but cannot exceed 12 months. Construction must start during that 12-month period. The urban planning certificate enumerates all the necessary project clearances applicable to the warehouse case considered here. The municipality has the right to decide which project clearances are needed. Agency: Department of Urbanism of the local City Hall Doing Business 2016 Romania 29 Time to No. Procedure Cost to complete complete Obtain project clearance from Bucharest Regional Environmental Protection Agency According to the Order of the Ministry of the Environment and the Climacteric Changes no. 865 / 2014 regarding the amendment of certain regulations in the environment protection field, the cost in case the application requires no assessment (the project can be built without environmental permit) is of Ron 100. In this case, the application will be responded in 10 days; 21 days RON 500 2 If a preliminary assessment of the project is found necessary by the Environmental Protection Agency (highly probable for our case study) the tax is of Ron 500 and the application will be responded in 21 days. Agency: Bucharest Regional Environmental Protection Agency * Obtain project clearance from water supply and sewerage authority (Apa Nova SA) By law, the project clearance from the water supply and sewerage authority (Apa Nova S.A.) must be issued within 15 18 days RON 72 3 days. Agency: Apa Nova SA * Obtain project clearance from General Inspectorate for Emergency Situations The relevant legal provisions in force are Methodological Norms for the Endorsement and Permitting regarding Fire Security and Civil Protection, approved by Order no. 3/2011 of the Ministry of Administration and Interior. 4 15 days no charge According to the amendments to the Construction Law, if the 15- day term provided by the law for issuing the clearance is not observed by the General Inspectorate for Emergency Situations, the legal provisions referring to tacit approval shall be applied. Agency: General Inspectorate for Emergency Situations * Obtain project clearance from Health Department The maximum term to respond to the application for project clearance from the Heath Department is 20 working days by the Order no. 251/2012 issued by the Ministry of Health, published in the Official Gazette Part I, no. 196/2012. In practice, the term 15 days RON 200 5 to obtain the clearance is normally 15 days. To apply for approval at the Bucharest Health Department, several documents must be submitted: - urbanism certificate with annexed plans - technical memorandum drafted by the architect Doing Business 2016 Romania 30 Time to No. Procedure Cost to complete complete - ownership title - incorporation certificate Agency: Bucharest Health Department * Sign contract with the solid waste authority (REBU SA) Through the certificate of urbanization the municipality requests that a contract be signed with a waste disposal company to clear construction debris from the construction site. There are two companies that provide services in this area: ROSAL S.A. and REBU S.A. The latter is a larger player with a wider network. The fees are RON 93 (RON 75.00 + 24% VAT) per cubic meter of 6 waste (although VAT is not taken into account in the Doing 1 day RON 5,292 Business case study). Additionally, for the surface of the land in question, a tax of RON 42.00 would also be applicable. The minimum of 35 cubic meters must be contracted according to the requirements of company. Agency: REBU SA * Notarize statement about nonexistence of land disputes The company must notarize a statement (in this case, BuildCo is both the company and the applicant) stating that there are no disputes related to the land. This procedure is not a standard requirement by law but is often requested in practice. 7 Each notary charges a different fee, but the fee cannot exceed 1 day RON 15 RON 30.00 (equivalent to USD 10.00), the maximum notary fee established by the National Notaries Union. Agency: Notary Obtain building permit BuildCo must apply for a building permit by submitting the following documents: • City-planning certificate • Property title on the land (there are no requirements as to how recent the title must be) • Technical documentation which replaced former plans for the authorization of construction 30 days RON 16,414 8 • Necessary approvals, as required by the city-planning certificate • Environmental approval • Proof of payment of the legally required taxes (receipts from the tax authorities) • Legalized copy of the title to the real estate or the updated cadastral plan and land registry extract for informative purposes The building permit is issued by the City Hall. For Bucharest, the Doing Business 2016 Romania 31 Time to No. Procedure Cost to complete complete construction permit is issued by the General Mayor of Bucharest if the construction is outside the buildable area or if it exceeds a district area; or by the relevant district mayor if the construction is located in one of the six districts of Bucharest. The cost of the building permit is 1% of the value of the construction work. Agency: City Hall Receive foundations work inspection The schedule of inspections is described in the building permit. By law, BuildCo must pay 0.1% of the authorized value to the competent territorial inspectorate for construction. In addition, the investors or owners must pay the State Inspectorate for 9 Construction a monthly payment equivalent to 0.70% of the 1 day RON 13,131 value of the expenses incurred in that month for the execution of the construction work. Agency: Bucharest Construction Inspectorate Receive frame inspection The examination of the building is performed in all cases through inspection of the building and by analyzing the 10 documents contained in the technical book of the construction. 1 day no charge Agency: Bucharest Construction Inspectorate Request final assessment of the construction from the Acceptance Commission BuildCo notifies the local public administration and other relevant authorities of the date of completion of construction so 11 that the Acceptance Commission may be convened and a final 1 day no charge assessment can be carried out. Agency: Acceptance Commission Receive final inspection from the Acceptance Commission The final acceptance commission will analyse: (i) the protocol(s) signed upon completion of the works, (ii) the manner the remaining works [mentioned by the initial protocol(s)] were 12 performed and (iii) the report on the construction performance 1 day RON 150 in time. Although prescribed by the law, in practice, the final inspection hardly ever takes place (especially in cases where the investor is also the construction company). Doing Business 2016 Romania 32 Time to No. Procedure Cost to complete complete Agency: Acceptance Commission Obtain final assessment of the construction from the Acceptance Commission BuildCo notifies the local public administration and other relevant authorities of the date of completion of construction so that the Acceptance Commission may be convened. The Acceptance Commission is a body made up of the construction beneficiary (BuildCo), officials from local public administration, and technical experts. It is legally required to meet and determine that the construction meets all applicable legal requirements. The Commission must be convened within 15 days from the date 13 of completion of works. The utility connections would have been 90 days RON 350 made at this stage. The final assessment can take several days and includes an on-site inspection. Within 3 working days from the end of the assessment, the Acceptance Commission must submit the notes and conclusions to the beneficiary of construction and recommend approval (with or without reservations), postponement, or rejection of the construction. In the event that the reception is accepted with objections, considering that some corrections/additional works are necessary, the procedure may last 90 days. Agency: Acceptance Commission Obtain water and sewage connection (Apa Nova SA) According to the water and sewage authority (Apa Nova S.A.), this procedure takes approximately 2 -- 3 months due to a significant increase in demand and backlog. The associated costs were increased to RON 520.00 for connection fee, RON 62.00 for 14 application fee and 64.18% VAT (VAT is not taken into account in 75 days RON 582 the Doing Business case study). Inspections for utilities occur at the same time as the connection. Agency: Apa Nova SA Register the building with the Real Estate Registry The building can be registered once it has been completed and approved. There are two stages of approval, and for that reason, the building can be registered twice. The first stage is after the 15 Acceptance Commission, and the second is when the warranty 7 days RON 480 period has expired, after the approval by the Acceptance Commission. The second approval applies only when the owner and the builder are different entities. Therefore, in the case considered here, it is assumed that only one registration is done. Doing Business 2016 Romania 33 Time to No. Procedure Cost to complete complete Pursuant to Order no. 700/2014 for the approval of the regulation regarding the endorsement, the reception and the registration with the Real Estate Registry, the standard registration time is 15 days but, if the applicant pays an additional fee, the registration time will be reduced to 5 business days. According to Order No. 39/2009 on the approval of fees for performing services by the National Agency for Cadastre and Land Registration ("Order 39"), the standard registration fee is RON 120 and the fast-track fee is 4-times the standard fee. Agency: Real Estate Registry * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2016 Romania 34 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Table 3.3 Summary of quality control and safety mechanisms in Romania Answer Score Building quality control index (0-15) 13.00 Quality of building regulations index (0-2) 2.00 In what way are the building regulations (including the building code) or any regulations dealing with construction permits made Available online. 1.0 available? (0-1) List of required Which requirements for obtaining a building permit are clearly documents; Fees to be specified by the building regulations or by any accessible website, 1.0 paid; Required brochure or pamphlet? (0-1) preapprovals. Quality control before construction index (0-1) 1.00 Who is part of the committee or team that reviews and approves building permit applications in the relevant permit-issuing Licensed architect. 1.0 agency? (0-1) Quality control during construction index (0-3) 2.00 What types of inspections (if any) are required by law to be Inspections at various 1.0 carried out during construction? (0-2) phases. Mandatory inspections Do legally mandated inspections occur in practice during are always done in 1.0 construction? (0-1) practice. Quality control after construction index (0-3) 3.00 Is there a final inspection required by law to verify that the Yes, final inspection is building was built in accordance with the approved plans and done by government 2.0 regulations? (0-2) agency. Final inspection always Do legally mandated final inspections occur in practice? (0-1) 1.0 occurs in practice. Liability and insurance regimes index (0-2) 1.00 Architect or engineer; Which parties (if any) are held liable by law for structural flaws or Professional in charge 1.0 problems in the building once it is in use? (0-1) of the supervision; Construction company. Which parties (if any) are required by law to obtain an insurance No party is required by 0.0 policy to cover possible structural flaws or problems in the law to obtain insurance Doing Business 2016 Romania 35 Answer Score building once it is in use? (0-1) . Professional certifications index (0-4) 4.00 Minimum number of years of experience; What are the qualification requirements for the professional University degree in responsible for verifying that the architectural plans or drawings 2.0 architecture or are in compliance with existing building regulations? (0-2) engineering; Passing a certification exam. Minimum number of years of experience; University degree in What are the qualification requirements for the professional who engineering, 2.0 supervises the construction on the ground? (0-2) construction or construction management; Passing a certification exam. Source: Doing Business database. Doing Business 2016 Romania 36 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity connection a customer is always to gain access by obtaining a (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. In obtaining final supply addition, this year Doing Business adds two new measures: the reliability of supply and transparency Time required to complete each procedure of tariffs index (included in the aggregate distance to (calendar days) frontier score and ranking on the ease of doing Is at least 1 calendar day business) and the price of electricity (omitted from these aggregate measures). The ranking of Each procedure starts on a separate day economies on the ease of getting electricity is Does not include time spent gathering determined by sorting their distance to frontier information scores for getting electricity. These scores are the Reflects the time spent in practice, with little simple average of the distance to frontier scores for follow-up and no prior contact with officials each of the component indicators. To make the data comparable across economies, several assumptions Cost required to complete each procedure (% are used. of income per capita) Assumptions about the warehouse Official costs only, no bribes The warehouse: Excludes value added tax  Is owned by a local entrepreneur. The reliability of supply and transparency of tariffs index  Is located in the economy’s largest business city. For 11 economies the data Sum of the scores of six component indices: are also collected for the second largest Duration and frequency of outages business city. Tools to monitor power outages  Is located in an area where similar warehouses are typically located. In this Tools to restore power supply area a new electricity connection is not Regulatory monitoring of utilities’ performance eligible for a special investment promotion Financial deterrents aimed at limiting outages regime (offering special subsidization or faster service, for example). Transparency and accessibility of tariffs  Is located in an area with no physical Price of electricity (cents per kilowatt-hour)* constraints. For example, the property is Price based on monthly bill for commercial not near a railway. warehouse in case study  Is a new construction and is being *Price of electricity is not included in the calculation of connected to electricity for the first time. distance to frontier nor ease of doing business ranking Doing Business 2016 Romania 37 Assumptions about the monthly consumption The warehouse (continued):  It is assumed that the warehouse operates 8 hours a day for 30 days a month, with  Has two stories, both above ground, with a equipment utilized at 80% of capacity on total surface area of approximately 1,300.6 average, and that there are no electricity cuts square meters (14,000 square feet). The (assumed for simplicity). The subscribed plot of land on which it is built is 929 capacity of the warehouse is 140 kVA, with a square meters (10,000 square feet). power factor of 1 (1 kVA = 1 kW). The  Is used for storage of goods. monthly energy consumption is therefore 26,880 kWh, and the hourly consumption 112 kWh (26,880 kWh/30 days/8 hours). Assumptions about the electricity connection  If multiple electricity suppliers exist, the The electricity connection: warehouse is served by the cheapest supplier.  Is a permanent one.  Tariffs effective in March of the current year  Is a three-phase, four-wire Y, 140-kilovolt- are used for calculation of the price of ampere (kVA) (subscribed capacity) electricity for the warehouse. connection (where the voltage is 120/208 V, the current would be 400 amperes; where it is 230/400 B, the current would be nearly 200 amperes).  Is 150 meters long. The connection is to either the low-voltage or the medium- voltage distribution network and either overhead or underground, whichever is more common in the area where the warehouse is located.  Requires works that involve the crossing of a 10-meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Will supply monthly electricity consumption of 26,880 kilowatt-hours (kWh).  Does not involve work to install the internal electrical wiring. This has already been completed, up to and including the customer’s service panel or switchboard and installation of the meter base. Doing Business 2016 Romania 38 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Romania? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 8.00 which the data are a population-weighted average of the procedures, takes 182.00 days and costs 573.70% of 2 largest business cities. See the chapter on distance to income per capita (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Romania Source: Doing Business database. 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. Doing Business 2016 Romania 39 GETTING ELECTRICITY Globally, Romania stands at 133 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Romania to connect The rankings for comparator economies and the regional a warehouse to electricity. Figure 4.2 How Romania and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2016 Romania 40 GETTING ELECTRICITY What are the details? The indicators reported here for Romania are based on a OBTAINING AN ELECTRICITY CONNECTION* set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— ENEL Distributie Name of utility: identified by Doing Business. Data are collected from the Muntenia distribution utility, then completed and verified by electricity regulatory agencies and independent Price of electricity professionals such as electrical engineers, electrical (US cents per kWh): 9 contractors and construction companies. The electricity distribution utility surveyed is the one serving the area City: Bucharest (or areas) in which warehouses are located. If there is a *Price is calculated as a monthly consumption of 26,880 kWh choice of distribution utilities, the one serving the largest for business customers, based on a standardized case study number of customers is selected. adopted by the getting electricity methodology. Doing Business measures the price of electricity but does not include these The procedures are those that apply to a warehouse and data when calculating the distance to frontier score for getting electricity connection matching the standard electricity or the ranking on the ease of getting electricity. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Romania Time to No. Procedure Cost to complete complete Submit application with ENEL, await a proposal study, a study solution and technical connection approval The customer submits the application with ENEL for technical conditions. In the answer, ENEL writes if the connection is confirmed or not and recommends doing a technical study. The technical study is done by 1 ENEL. The study will give the different technical options for the 40 calendar days RON 7,564.5 connection works. ENEL approves the best option and informs the customer about their choice. Agency: ENEL Distributie Muntenia * Receive site inspection by utility Utility visits the site to visualise possible solutions for connection and also confirms the technical information provided by customers at the 2 time of application. 1 calendar day Agency: ENEL Distributie Muntenia Doing Business 2016 Romania 41 Time to No. Procedure Cost to complete complete Submit documents for connection contract and receive contract Once ENEL has approved the study, the customer gets the technical connection approval together with the proposal of connection contract. After the conclusion of the connection contract, the customer gets the estimate for the connection cost including the component related to the 3 cost of the connection installation (material and labor force), signs the 10 calendar days RON 0 use of land contract, as well as prepares the component corresponding to the work inspection and activation of the installations for use. Agency: ENEL Distributie Muntenia Obtain design of works and get design approved by utility The customer hires an electrical contractor to make the design of the connection. The design needs to be approved by ENEL. 30 calendar days USD 3,194.82 4 Agency: Electrical Contractor Obtain construction permit for connection works After the design has been approved by ENEL, the customer goes to the municipality to pay 1% of the utility's invoice to the municipality, 0.1% plus 0.7% to the State Inspectorate in Construction. This is the fee to obtain the construction permit that the customer has to submit for the connection works. The construction permit can be obtained by the electrical contractor on behalf of the customer. Depending on the 5 municipality, 5-20 permits need to be obtained before at other 60 calendar days RON 2,812.74 agencies/stakeholders and then submitted to the municipality in order to obtain the construction permit for the connection works. At some municipalities, a geodesic assessment has to be submitted as part of the application package. Agency: Municipality Conclude execution contract with ENEL and await connection works After the construction permit has been obtained, ENEL concludes a contract (execution contract) with the private firm (that was hired by the client) and the works start. At the same time, the private firm makes a file about the internal wiring that confirms that the internal wiring was done 6 accordingly to safety standards. 30 calendar days USD 47,596.24 The client pays the cost for the connection works directly to ENEL and not to the private firm. Agency: Electrical contractor Doing Business 2016 Romania 42 Time to No. Procedure Cost to complete complete Receive final inspection by ENEL, submit internal wiring file and receive connection certificate The electrical contractor has to call ENEL towards the end of the works for them to inspect the works. The time plan for the construction of the connection work, for inspection, commissioning and tests is mentioned 7 in the connection contract. The internal file is presented to ENEL at this 10 calendar days RON 0 time. Agency: ENEL Distributie Muntenia Sign supply contract and receive meter installation by ENEL The customer concludes the supply contract with ENEL. 48 hours after the signature of the contract, ENEL comes to the warehouse to install the meter and electricity starts flowing. When the connection to the network 8 is done, the overall grid in the neighborhood needs to be interrupted. 2 calendar days RON 0 This is announced in the newspaper. There is no waiting time. Agency: ENEL Distributie Muntenia * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2016 Romania 43 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in Romania Answer Score Reliability of supply and transparency of tariff index (0-8) 7.00 Total duration and frequency of outages per customer a year (0-3) 2.00 System average interruption duration index (SAIDI) 3.7 System average interruption frequency index (SAIFI) 3.8 Mechanisms for monitoring outages (0-1) 1.0 Does the distribution utility use automated tools to monitor outages? Yes Mechanisms for restoring service (0-1) 1.0 Does the distribution utility use automated tools to restore service? Yes Regulatory monitoring (0-1) 1.00 Does a regulator—that is, an entity separate from the utility—monitor Yes the utility’s performance on reliability of supply? Financial deterrents aimed at limiting outages (0-1) 1.00 Does the utility either pay compensation to customers or face fines by Yes the regulator (or both) if outages exceed a certain cap? Communication of tariffs and tariff changes (0-1) 1.00 Are effective tariffs available online? Yes Link to the website, if available online https://www.enel. Doing Business 2016 Romania 44 Answer Score ro/crosweb/calcul ator/factura_agen t_edit?p_id=1976 15199&p_loccons .id= Are customers notified of a change in tariff ahead of the billing cycle? Yes Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March. As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of-use tariff is available. Doing Business 2016 Romania 45 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. In (calendar days) addition, this year Doing Business adds a new Does not include time spent gathering measure to the set of registering property information indicators, an index of the quality of the land administration system in each economy. The Each procedure starts on a separate day. ranking of economies on the ease of registering Procedures that can be fully completed online are recorded as ½ day. property is determined by sorting their distance to frontier scores for registering property. These scores Procedure considered completed once final are the simple average of the distance to frontier document is received scores for each of the component indicators. To No prior contact with officials make the data comparable across economies, several assumptions about the parties to the Cost required to complete each procedure transaction, the property and the procedures are (% of property value) used. Official costs only, no bribes The parties (buyer and seller): No value added or capital gains taxes included  Are limited liability companies, 100% Quality of land administration index (0-30) domestically and privately owned and  Is located in a periurban commercial zone, and perform general commercial activities and no rezoning is required. are located in the economy’s largest business city .  Has no mortgages attached, has been under 2 the same ownership for the past 10 years.  Have 50 employees each, all of whom are nationals.  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value and entire condition and complies with all safety property will be transferred. standards, building codes and legal  Is registered in the land registry or cada- requirements. There is no heating system. stre, or both, and is free of title disputes. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 Romania 46 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Romania? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 8.00 procedures, which the data are a population-weighted average of the takes 19.00 days and costs 1.40% of the property value 2 largest business cities. See the chapter on distance to (figure 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Romania Source: Doing Business database. 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. Doing Business 2016 Romania 47 REGISTERING PROPERTY Globally, Romania stands at 64 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Romania to transfer property. Figure 5.2 How Romania and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2016 Romania 48 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: RON 1,641,366 notaries and property registries. These procedures are those that apply to a transaction matching the City: Bucharest standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Romania Time to No. Procedure Cost to complete complete Obtain information from the Cadastre Time Cost: (simultaneous 1. Consultation of The seller obtains information drafted by an authorized expert from the with procedure 2 archives on the Cadastre and Real Estate Publicity Office. This information includes: and 3):1. spot - cost: 10 technical memorials, coordination inventory, analytical calculation of the Consultation of RON for 15 land, topographical description, area plan on a scale of 1:500; and on the archives: on the minutes. scale of 1:2000, description of property, the plan of the real estate, and a spot. 2. Obtaining 2. Land Book property statement regarding the identification of the limits of the a Land Book information measured real estate. information excerpt - cost: 20 excerpt: 2 days RON per property. The documentation shall include: (regular 3. Certified copies Procedure) and 1 of documents • Application form day (expedited from the Procedure). 3. document files • A copy of the property title Obtaining and land books - 1 certified copies of cost: 5 RON per • A copy of the identification documents of the owner Order no. documents from page (3 pages). 700/2014 provides the deadlines for obtaining technical information the files and land 4. Certificate for from the Cadastre which differ by taking into account the relevant books: 2 days the identification requested document and vary between two (2) days and three (3) days in (regular of the the normal Procedure and one (1) day in the expedited Procedure. Procedure) and 1 topographic/cadas Order no. 700/2014 provides the relevant taxes to be paid which also vary from RON 15/hour to RON 30/sheet or even RON 150 for certain day (expedited tre number and technical data. Order no. 39/2009 was repealed and replaced by Order Procedure). 4. land book number no. 700/2014 since August 30, 2014. In addition, any document having a Obtaining the according to the public character (e.g., location layouts, cadastral data) can be obtained certificate for the name of the owner by any person and not only by the owner of the property. identification of - cost: 100 RON the per owner/land topographic/cada book office. Cost: stral number and 5. Cadastre plan land book excerpts - cost: 15 Doing Business 2016 Romania 49 Time to No. Procedure Cost to complete complete 1. Consultation of archives on the spot - cost: 10 RON for 15 minutes. number RON per property according to the 2. Land Book information excerpt - cost: 20 RON per property. name of the owner: 3 days 3. Certified copies of documents from the document files and land books (regular - cost: 5 RON per page. Procedure) and 1 4. Certificate for the identification of the topographic/cadastre number days (expedited and land book number according to the name of the owner - cost: 100 Procedure). 5. RON per owner/land book office. 5. Cadastre plan excerpts - cost: 15 Obtaining RON per property cadastral plan excerpts: 3 days (regular Time: Procedure) and 1 day (expedited 1. Consultation of archives on the spot - time: on the spot. Procedure). 2. Land Book information excerpt - ordinary Procedure: 2 days; emergency Procedure: 1 day. 3. Certified copies of documents from the document files and land books - ordinary Procedure: 2 days; emergency Procedure: 1 day. 4. Certificate for the identification of the topographic/cadastres number and land book number according to the name of the owner - ordinary Procedure: 3 days; emergency Procedure: 1 day. 5. Cadastre plan excerpts - ordinary Procedure: 3 days; emergency Procedure: 1 day. Agency: Cadastre and Real Estate Publicity Office * Obtain the fiscal certificate from the direction for public taxes of the Municipality The Seller obtains a clearance certificate from the direction for public taxes of the Municipality from the district were the real estate is located attesting that the property is not owned by someone else and that there are no unpaid taxes. This fiscal certificate is required for completion of a transfer of ownership. The fiscal certificate is valid for up to 30 days for 4 days legal entities (90 days for individuals). According to the provisions of art. (simultaneous RON 4 (fiscal 2 113 of the Romanian Fiscal Procedure Code, the validity of a fiscal with Procedures 1 stamp) certificate lasts until the end of the month within which the certificate is and 3) issued. The documentation shall include: • An application from the owner Doing Business 2016 Romania 50 Time to No. Procedure Cost to complete complete • A copy of the last receipt with which it is demonstrated that there are no unpaid taxes • A copy of the identification documents of the owner • The last accounting records of the company • The power of attorney for the company's representative • Confirmation of payment of fiscal stamp (2*RON 2) Agency: Municipality * Obtain the fiscal certificate from the Local fiscal authority The fiscal certificate obtained by the Seller represents a clearance attesting that there are no unpaid taxes and fees related to the real estate. The fiscal certificate requirement is mandatory for the valid transfer of the ownership rights over a real estate. The fiscal certificate is 3 days valid for up to 30 days. In order to obtain the certificate the following (simultaneous RON 4 (fiscal 3 documents are required: 1. An application from the owner 2. with Procedures 1 stamp) Confirmation of payment of the fiscal stamp 3. A copy of the and 2) identification documents of the owner Agency: Local fiscal authority Obtain the Land Registry extract (non-encumbrance certificate) from the Land Registry office For the excerpt (requested by the For the notarization of the transfer deed of an immovable, the notary notary public) the public requests an authentication excerpt from the Land Registry office duration is of 2 where the immovable is registered. In this respect, the notary public business days Authentication submits to the relevant Land Registry office the application form signed (regular excerpt - 40 RON and stamped by it and the owner of the immovable, along with the Procedure) and in regular payment proof of the issuance fee. The authentication excerpt may only Procedure, 200 1 business day be obtained by a notary public. The validity of the authentication excerpt RON in expedited (expedited is of 10 business days, starting with the day when the request application Procedure; Procedure) and 4 form was registered. During the 10-business days validity period, the for the Information Land Registry office clerk is not entitled to register any other operation information excerpt - 20 RON in the relevant Land Registry, save for the one for which the excerpt was excerpt the in regular required; the Land Registry is blocked during the aforementioned period, in order to ensure the security of the real estate transactions. However, if duration is of 2 Procedure, 100 during the validity term, the notarial deed for which the excerpt was business days RON in expedited requested is submitted to the Cadastre and Real Estate Publicity Office (regular Procedure for registration or if the notary public made an express request in this Procedure) and 1 sense, the validity of the excerpt expires. The authentication excerpt can business day be obtained in 2 business days (regular Procedure, cost RON 40) or in 1 (expedited business day (expedited Procedure, cost RON 200). The information Procedure). excerpt can be obtained in 2 business days (regular Procedure, cost RON Doing Business 2016 Romania 51 Time to No. Procedure Cost to complete complete 20) or in 1 day (expedited Procedure, cost RON 100). Agency: Cadastre and Real Estate Publicity Office RON 5,080 + 0,44%, of the transaction value exceeding RON The notary authenticates the transfer deed 600,001 (notary fees) The notary public verifies the fiscal certificate and the Land Registry For transactions excerpt and notarizes the sale purchase agreement. Without these with the value of documents, the notary public may not notarize the agreement. the transaction (in According to the actual legal provision, the sale purchase agreement shall be drafted only by the notary public.The costs related to the RON): procedure could be paid either directly to the notary public, or via bank • Below RON transfer. Though it is not mandatory, a lawyer may conduct a due 15,000 - the fee is diligence before this procedure, by perusing the previous successive 2,2% but no les transfers and owners of the property. The notary public is obliged to than RON 150 verify all encumbrances and relief measures instituted over the • From RON immovable to be sold in the public records and it is liable for the failure 15,001 to RON to specify in the notarial deed the encumbrances and the relief measures 30,000 - the fee is over the immovable - see also 2.1.3., above. The documentation for the RON 330 + 1,6% notarization of the transfer deed includes, among others, the following: for the amount exceeding RON (i) the property title in original, 2 days 15,001 5 (ii) the cadastral documents of the property (obtained in Procedure 1), • From RON 30,001 to RON (iii) the Fiscal certificate from the local taxes office (obtained in 60,000 - the fee is Procedure 3), RON 580 + 1,3% for the amount (iv) identification certificates/documents for the signatory parties exceeding RON (identity cards, passports, registration certificates, etc), 30,001 • From RON (v) documents attesting the capacity of the signatories to sign the sale 60,001 to RON purchase agreement (power of attorney, shareholders' decision, articles 300,000 - the fee is of incorporation, etc.). RON 970 + 0,9% for the amount The Seller - legal entity has to pay an income tax of 16% applied on the profit resulted in the company's balance sheet, including this transaction. exceeding RON 60,001 Agency: Notary Public • From RON 300,001 to RON 600,000 - the fee is RON 3,130 + 0,65% for the amount exceeding RON 300,001 Doing Business 2016 Romania 52 Time to No. Procedure Cost to complete complete • Over RON 600,001 - the fee is RON 5,080 + 0,44% for the amount exceeding RON 600,001 Register the title with the Land Registry Office The same public notary applies for registration of the property title at the Land Book Office, by sending the application and the original notary deed, directly or by fax, to the district Land Book Office where the real estate is placed. Therefore, the registration is performed ex officio by the notary, based on the authenticated sale purchase act. An expedited option is available given that an extra fee of 4 times the normal fee will be added. The extra fee can not be more than RON 5,000. Registration fees are 0.5% of property value with a minimum of RON 60 according to Order no 39/06.04.2009, for a Procedure that takes 9 days. An expedited Procedure is available (3 days) for an additional fee of 2% of property 0.5% of the value. According to the article 1 paragraph 6 of Order no 39/2009, this property value additional fee cannot exceed RON 5000. Only when the real estate is without VAT registered in the Land Book for the first time a tax of RON 120 should be (regular paid for this registration. In case the owner registers his/her property Procedure); Regular for the first time (i.e. following the reconstitution of the ownership for 2% of the property which the cadastre is made for the first time) the terms for registration procedure -9 value without VAT are 21 days (regular Procedure) or 7 days (expedited Procedure). business days (9- (expedited 11 calendar days) Procedure). 6 Expedited Minimum cost The documentation shall include: procedure - 3 RON 60. business days (3- • Sale-purchase contract (notarized in Procedure 4) 4 calendar days) The extra fee paid • Fiscal certificate (obtained in Procedure 2) for the expedited Procedure cannot • Cadastre certificate (obtained in Procedure 1) exceed RON 5,000. • ID of the buyer • A registration application • The property title, all the originals, plus a legalized copy from a public notary • Proof of total payment Agency: Land Registry office Doing Business 2016 Romania 53 Time to No. Procedure Cost to complete complete File the fiscal declaration confirming the acquisiton of the property The fiscal declaration concerning the immovable acquisition should be filled in by the purchaser at the Local Tax Department within a 30-day term since the notarization of the transfer deed. The documentation shall include: tax statement for the immovable, the property title, in original 7 and a copy, accounting documents (invoice, analytical balance, balance 1 day RON 10 sheet, etc.), cadastral documents, copy of the registration certificate of the company. Agency: Local Tax Department Registration of work place with the Trade Register Office The buyer should apply for registration with the Trade Register Office of the work place located at the newly acquired property. If the property is a working unit of the company, it has to be registered, as it is mentioned in the Commercial Registration Law (Law Number 26 1990). The registration includes, among others, environment, sanitary, fire protection, labor approvals from various relevant authorities, all located in a one-stop shop. The registration is not necessary for the transfer of title, but only for making it opposable to third parties and for registration as a place of business. The concrete use of the property as a work place is not required but the evidences necessary for using it as such are needed for obtaining the authorizations within the corporate registration process. Stamp tax and registration fees are lump-sum taxes and do not depend on the property value. The Trade Register tax and fees could be paid either directly to the Trade Register or through special bank accounts organized for such purposes. In summary, the total amount to be paid for the registration of a working place is made up of several RON 350 - RON 8 taxes. When the application is filed only for the establishment of the 5 days 420 working place, the taxes are: • Ascertaining certificate: 30 lei • Registration of secondary business place: 30 lei • Registration of the standard-form (regarding the fulfillment of the conditions to perform activities): 30 lei • Liquidation fund (50% of points 1-3): 6 lei • Bulletin fund (10% of points 1-3): 1.5 lei • Judicial stamp duty: 39 lei • Commission for the judge’s mention: 60 lei • Transmission of documents to be published in the Official Gazette: 20 lei • Official Gazette commission (depends on the number of documents, for this example we have counted 5): 50 lei • Publication in the Official Gazette (depends on the number of rows in the document; only the resolution deciding the establishment of the working place is published): 80-150 lei •TOTAL: 350-420 lei. For online registration of the work place with the Trade Register Office (http://portal.onrc.ro), the buyer needs to have a paid account and a valid digital signature in order to sign online forms. Agency: Trade Register Office * Takes place simultaneously with another procedure. Doing Business 2016 Romania 54 Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2016 Romania 55 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2014 and June transparency of information, geographic coverage 2015, the economy receives a “no practice” mark on the and land dispute resolution indices. procedures, time and cost indicators. A “no practice” economy receives a score of 0 on the quality of land The index ranges from 0 to 30, with higher values administration index even if its legal framework includes indicating better quality of the land administration provisions related to land administration. system. Table 5.3 Summary of quality of land administration in Romania Answer Score Quality of the land administration index (0-30) 16.00 Reliability of infrastructure index (0-8) 4.00 Bucharest Cadastre and Land Registration Office ("Oficiul De What is the institution in charge of immovable property registration? Cadastru Si Publicitate Imobiliara Bucuresti") In what format are the majority of title or deed records kept in the Computer/Scann largest business city—in a paper format or in a computerized format 1.0 ed (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, No 0.0 mortgages, restrictions and the like)? Bucharest Cadastre and Land Registration Institution in charge of the plans showing legal boundaries in the Office ("Oficiul De largest business city: Cadastru Si Publicitate Imobiliara Bucuresti") In what format are the majority of maps of land plots kept in the largest business city—in a paper format or in a computerized format Paper 0.0 (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral information (geographic information Yes 1.0 system)? Doing Business 2016 Romania 56 Answer Score Is the information recorded by the immovable property registration agency and the cadastral or mapping agency kept in a single database, Single database 1.0 in different but linked databases or in separate databases? Do the immovable property registration agency and cadastral or Yes 1.0 mapping agency use the same identification number for properties? Transparency of information index (0–6) 6.00 Who is able to obtain information on land ownership at the agency in Anyone who pays 1.0 charge of immovable property registration in the largest business city? the official fee Is the list of documents that are required to complete any type of Yes, online 0.5 property transaction made publicly available–and if so, how? http://www.uniun eanotarilor.ro/?p =4.1.2; Link for online access: http://www.ocpib. ro/acte_necesare. htm/ Is the applicable fee schedule for any property transaction at the agency in charge of immovable property registration in the largest Yes, online 0.5 business city made publicly available–and if so, how? http://www.ocpib. Link for online access: ro/fisiere/tarife_M of_253_o39.pdf Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property Yes, online 0.5 ownership within a specific time frame–and if so, how does it communicate the service standard? http://www.ancpi. ro/pages/wiki.ph p?lang=ro&pnu= legislatie; http://www.ocpib. ro/fisiere/termen Link for online access: e.xls. Also available at the local district Cadaster and Land Registration Offices. Is there a specific and separate mechanism for filing complaints about a problem that occurred at the agency in charge of immovable property Yes 1.0 registration? Doing Business 2016 Romania 57 Answer Score http://ancpi.ro/pa Contact information: ges/legea544.php ?lang=ro Are there publicly available official statistics tracking the number of Yes 0.5 transactions at the immovable property registration agency? 67,500 transactions (not all property transfers; for Number of property transfers in the largest business city in 2014: example some are transfers of dismemberment rights) Anyone who pays Who is able to consult maps of land plots in the largest business city? 0.5 the official fee Is the applicable fee schedule for accessing maps of land plots made Yes, online 0.5 publicly available—and if so, how? http://www.ocpib. Link for online access: ro/fisiere/tarife_M of_253_o39.pdf Does the cadastral or mapping agency commit to delivering an updated map within a specific time frame—and if so, how does it Yes, online 0.5 communicate the service standard? http://www.ocpib. Link for online access: ro/fisiere/termen e.xls Is there a specific and separate mechanism for filing complaints about Yes 0.5 a problem that occurred at the cadastral or mapping agency? http://www.ancpi. ro/pages/wiki.ph p?lang=ro&pnu= legislatie; http://www.ocpib. ro/fisiere/termen Contact information: e.xls. Also available at the local district Cadaster and Land Registration Offices. Geographic coverage index (0–8) 0.00 Doing Business 2016 Romania 58 Answer Score Are all privately held land plots in the economy formally registered at No 0.0 the immovable property registry? Are all privately held land plots in the largest business city formally No 0.0 registered at the immovable property registry? Are all privately held land plots in the economy mapped? No 0.0 Are all privately held land plots in the largest business city mapped? No 0.0 Land dispute resolution index (0–8) 6.00 Does the law require that all property sale transactions be registered at the immovable property registry to make them opposable to third Yes 1.5 parties? Is the system of immovable property registration subject to a state or Yes 0.5 private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction No 0.0 based on erroneous information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction (e.g., checking the compliance of Yes 0.5 contracts with requirements of the law)? Registrar; Notary; If yes, who is responsible for checking the legality of the documents? Interested parties. Does the legal system require verification of the identity of the parties Yes 0.5 to a property transaction? Registrar; Notary; If yes, who is responsible for verifying the identity of the parties? Interested parties. Is there a national database to verify the accuracy of identity Yes 1.0 documents? For a standard land dispute between two local businesses over tenure rights of a property worth 50 times gross national income (GNI) per The Bucharest capita and located in the largest business city, what court would be in Tribunal charge of the case in the first instance? How long does it take on average to obtain a decision from the first- Between 1 and 2 2.0 instance court for such a case (without appeal)? years Are there any statistics on the number of land disputes in the first No 0.0 instance? Number of land disputes in the largest business city in 2014: Source: Doing Business database. Doing Business 2016 Romania 59 Doing Business 2016 Romania 60 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 financial Strength of legal rights index (0–12) history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially movable property, as security to generate capital— Depth of credit information index (0–8) while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2016 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 Romania 61 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Romania stands at 7 in the ranking of 189 and bankruptcy laws in Romania facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 7.00 on the depth of rankings for comparator economies provide other useful credit information index and a score of 10.00 on the information for assessing how well regulations and strength of legal rights index (see the summary of institutions in Romania support lending and borrowing. scoring at the end of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Romania and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2016 Romania 62 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Romania and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Source: Doing Business database. Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2016 Romania 63 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Romania (table 6.1)? Table 6.1 How has Romania made getting credit easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Romania strengthened its legal framework for secured transactions by allowing the automatic extension of security DB2013 interests to the products, proceeds and replacement of collateral. Source: Doing Business database. 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. Doing Business 2016 Romania 64 GETTING CREDIT What are the details? The getting credit indicators reported here for Romania The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 10.00 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable Yes assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its Yes assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to Yes 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 include a Yes maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is Yes unified geographically and by asset type, with an electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional equivalents can be registered? Yes Does a modern collateral registry exist in which registrations, amendments, cancellations and No searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor Yes defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is Yes liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by Yes providing clear grounds for relief from the stay and/or sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through public auction and No private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Doing Business 2016 Romania 65 Depth of credit information index (0–8) Credit bureau Credit registry Index score: 7.00 Are data on both firms and individuals distributed? No Yes 1 Are both positive and negative credit data distributed? Yes Yes 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years Yes Yes 1 of negative data or erase data on defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their data Yes Yes 1 in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an online Yes Yes 1 platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions Yes No 1 assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Coverage Credit bureau Credit registry Number of firms 0 315,521 Number of individuals 6,950,000 1,882,445 Total 6,950,000 2,197,966 Total percentage of adult population 50.10 15.90 Source: Doing Business database. Doing Business 2016 Romania 66 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions; Disclosure requirements for related- What do the indicators cover? party transactions Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold indicators and shareholders’ rights in corporate interested directors liable for prejudicial related-party governance through another. The ranking of economies transactions; Available legal remedies (damages, on the strength of minority investor protections is disgorgement of profits, fines, imprisonment, determined by sorting their distance to frontier scores rescission of the transaction) for protecting minority investors. These scores are the Ease of shareholder suits index (0–10) simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Access to internal corporate documents; Evidence extent of shareholder governance index. To make the obtainable during trial and allocation of legal data comparable across economies, a case study uses expenses several assumptions about the business and the Extent of conflict of interest regulation index transaction. (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of shareholder indices  Is a publicly traded corporation listed on the economy’s most important stock exchange Extent of shareholder rights index (0-10) (or at least a large private company with Shareholders’ rights and role in major corporate multiple shareholders). decisions  Has a board of directors and a chief executive Extent of ownership and control index (0-10) officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Governance safeguards protecting shareholders from undue board control and entrenchment specifically required by law. Extent of corporate transparency index (0-10) The transaction involves the following details: Corporate transparency on ownership stakes,  Mr. James, a director and the majority compensation, audits and financial prospects shareholder of the company, proposes that the company purchase used trucks from Extent of shareholder governance index (0– another company he owns. 10)  The price is higher than the going price for Simple average of the extent of shareholders rights, used trucks, but the transaction goes forward. extent of ownership and control and extent of corporate transparency indices  All required approvals are obtained, and all required disclosures made, though the Strength of investor protection index (0–10) transaction is prejudicial to Buyer. Simple average of the extent of conflict of interest regulation and extent of shareholder governance  Shareholders sue the interested parties and indices the members of the board of directors. Doing Business 2016 Romania 67 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Romania? The economy has a score of not measure all aspects related to the protection of 5.80 on the strength of minority investor protection minority investors, a higher ranking does indicate that an index, with a higher score indicating stronger economy’s regulations offer stronger minority investor protections. protections against self-dealing in the areas measured. Globally, Romania stands at 57 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Romania and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2016 Romania 68 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for Romania. Figure 7.2 Summary of the various minority investor protection indices for Romania and comparator economies. Source: Doing Business database. Doing Business 2016 Romania 69 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Romania are based on detailed information shareholder rights, ownership and control and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2016 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Romania. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Romania Answer Score Strength of minority investor protection index (0-10) 5.80 Extent of conflict of interest regulation index (0-10) 6.00 Extent of disclosure index (0-10) 9.00 Which corporate body can provide legally sufficient Shareholders excluding interested 3.0 approval for the Buyer-Seller transaction? (0-3) parties Is disclosure by the interested director to the board of Full disclosure of all material facts 2.0 directors required? (0-2) Is disclosure of the transaction in published periodic filings Disclosure on the transaction and 2.0 (annual reports) required? (0-2) on the conflict of interest Is immediate disclosure of the transaction to the public Disclosure on the transaction and 2.0 and/or shareholders required? (0-2) on the conflict of interest Must an external body review the terms of the transaction No 0.0 before it takes place? (0-1) Extent of director liability index (0-10) 4.00 Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0- Yes 1.0 1) Can shareholders hold the interested director liable for the Liable if negligent 1.0 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Liable if negligent 1.0 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1.0 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder No 0.0 plaintiff? (0-1) Is the interested director fined and imprisoned or disqualified upon a successful claim by the shareholder No 0.0 plaintiff? (0-1) Can a court void the transaction upon a successful claim by Only in case of fraud or bad faith 0.0 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 5.00 Before filing suit, can shareholders owning 10% of the Yes 1.0 Doing Business 2016 Romania 70 company’s share capital inspect the transaction documents? (0-1) Can the plaintiff obtain any documents from the defendant Any relevant document 3.0 and witnesses during trial? (0-3) Can the plaintiff request categories of documents from the No 0.0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and No 0.0 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of No 0.0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if successful 1.0 the company? (0-2) Extent of shareholder governance index (0-10) 5.70 Extent of shareholder rights index (0-10) 6.00 Does the sale of 51% of Buyer’s assets require shareholder Yes 1.0 approval? Can shareholders representing 10% of Buyer’s share capital Yes 1.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it No 0.0 issues new shares? Do shareholders automatically receive preemption rights Yes 1.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the Yes 1.0 external auditor? Must changes to the voting rights of a class of shares be Yes 1.0 approved only by the holders of the affected shares? Assuming that Buyer is a limited company, does the sale of No 0.0 51% of Buyer’s assets requires shareholder approval? Assuming that Buyer is a limited company, can shareholders representing 10% of Buyer’s share capital call for an No 0.0 extraordinary meeting of shareholders? Assuming that Buyer is a limited company, must Buyer obtain its shareholders’ approval every time it issues new Yes 1.0 shares? Assuming that Buyer is a limited company, do shareholders automatically receive preemption rights every time Buyer No 0.0 issues new shares? Extent of ownership and control index (0-10) 5.00 Is the CEO prohibited from also being chair of the board of No 0.0 directors? Must the board of directors include independent and No 0.0 nonexecutive board members? Can shareholders remove members of Buyer’s board of Yes 1.0 directors without cause before the end of their term? Must Buyer’s board of directors include a separate audit No 0.0 committee? Must a potential acquirer make a tender offer to all Yes 1.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by Yes 1.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its No 0.0 parent company? Doing Business 2016 Romania 71 Assuming that Buyer is a limited company, can shareholders remove members of Buyer’s board of directors without Yes 1.0 cause before the end of their term? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer pay dividends within a maximum period set by law after the Yes 1.0 declaration date? Extent of corporate transparency index (0-10) 6.00 Must Buyer disclose direct and indirect beneficial ownership Yes 1.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their No 0.0 primary employment? Must Buyer disclose the compensation of individual No 0.0 managers? Must a detailed notice of general meeting be sent 30 days Yes 1.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital Yes 1.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public. Yes 1.0 Assuming that Buyer is a limited company, must a detailed notice of general meeting be sent 30 days before the No 0.0 meeting? Assuming that Buyer is a limited company, can shareholders representing 5% of Buyer’s share capital put items on the No 0.0 agenda for the general meeting? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external Yes 1.0 auditor? Source: Doing Business database. Doing Business 2016 Romania 72 PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2014 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, Using a case scenario, Doing Business records the sales tax or goods and service tax) taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax transactions made over the year. Information is also payable compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if the simple average of the distance to frontier scores required for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to one of the component indicators, the total tax rate . 3 Profit or corporate income tax All financial statement variables are proportional to Social contributions and labor taxes paid by 2012 income per capita. To make the data the employer comparable across economies, several assumptions Property and property transfer taxes are used. Dividend, capital gains and financial  TaxpayerCo is a medium-size business that transactions taxes started operations on January 1, 2013. Waste collection, vehicle, road and other taxes  The business starts from the same financial  Taxes and mandatory contributions include position in each economy. All the taxes corporate income tax, turnover tax and all and mandatory contributions paid during labor taxes and contributions paid by the the second year of operation are recorded. company.  Taxes and mandatory contributions are  A range of standard deductions and measured at all levels of government. exemptions are also recorded. The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. 3 The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. Doing Business 2016 Romania 73 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Romania—and how much do firms pay in taxes? frontier and ease of doing business ranking at the end of On average, firms make 14.00 tax payments a year, this profile for more details. spend 159.00 hours a year filing, preparing and paying Globally, Romania stands at 55 in the ranking of 189 taxes and pay total taxes amounting to 42.00% of profit economies on the ease of paying taxes (figure 8.1). The (see the summary at the end of this chapter for details). rankings for comparator economies and the regional Most indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Romania. Figure 8.1 How Romania and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2016 Romania 74 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses—such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in Romania (table 8.1)? Table 8.1 How has Romania made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Romania introduced tax changes, including a new minimum tax DB2011 on profit, that made paying taxes more costly for companies. Romania made paying taxes easier for companies by introducing an electronic payment system and a unified return DB2012 for social security contributions. It also abolished the annual minimum tax. Romania made paying taxes easier and less costly for companies by reducing the payment frequency for the firm tax DB2014 from quarterly to twice a year and by reducing the vehicle tax rate. Romania made paying taxes easier for companies, with the DB2015 majority now using the electronic system for filing and paying taxes. Romania made paying taxes less costly for companies by DB2016 reducing the rate for social security contributions and the rate for accident risk fund contributions paid by employers. Source: Doing Business database. 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. Doing Business 2016 Romania 75 PAYING TAXES What are the details? The indicators reported here for Romania are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Bucharest chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 15.8% starting Employer paid - Social security gross 1 online 80 from 1 22.05 contributions salaries October 2014 taxable Corporate income tax 1 online 25 0.16 10.92 profit online and gross Health insurance contributions 0 0.052 5.87 jointly salaries building Building tax 2 0.01 0.98 value online and gross Medical leave 0 0.0085 0.96 jointly salaries online and gross Unemployment contribution 0 0.005 0.56 jointly salaries online and gross Accident risk fund 0 0.15-0.85% 0.29 jointly salaries online and gross Guarantee fund 0 0.0025 0.28 jointly salaries Doing Business 2016 Romania 76 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 fixed fee depending Vehicle tax 2 varies 0.03 on type of vehicle various Land tax 2 land area 0.02 rates A fixed The amount per surface of square Firm tax 2 the 0 meter of lighting lighting panel panel Urbanism tax 1 surface 0 RON 2 per weight of small Environmental taxes 1 kilo of 0 packaging amount packaging included in small Fuel tax 1 0 fuel price amount various type of small Stamp duty on contracts 0 0 rates contract amount Employee paid - Social security online and gross 0 0.165 0 withheld contributions jointly salaries value not Value added tax (VAT) 1 online 54 0.24 0 added included Totals 14.00 159.00 42.00 Source: Doing Business database. Doing Business 2016 Romania 77 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE FOR IMPORT & EXPORT business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance – cost (US$) & time to extra costs and delays for exporters and (hours) importers, stifling trade potential. Obtain, prepare and submit documents: What do the indicators cover? -During transport, clearance, inspections and port or border handling in origin economy Doing Business records the time and cost associated with the logistical process of exporting -Required by origin, transit and destination and importing goods. Under the new methodology economies introduced this year, Doing Business measures the Covers all documents by law and in practice time and cost (excluding tariffs) associated with Border compliance – cost (US$) & time (hours) three sets of procedures—documentary compliance, border compliance and domestic Customs clearance and inspections transport—within the overall process of exporting Inspections by other agencies or importing a shipment of goods. The ranking of Port or border handling economies on the ease of trading across borders is determined by sorting their distance to frontier Obtaining, preparing and submitting documents scores for trading across borders. These scores are during clearance, inspections and port or border the simple average of the distance to frontier handling scores for the time and cost for documentary Domestic transport* compliance and border compliance to export and Loading and unloading of shipment import. Transport between warehouse and terminal/port To make the data comparable across economies, a Transport between terminal/port and border few assumptions are made about the traded goods Obtaining, preparing and submitting documents and the transactions: during domestic transport Time Traffic delays and road police checks while shipment is en route  Time is measured in hours, and 1 day is 24 hours (for example, 22 days are * Although Doing Business collects and publishes data on the recorded as 22 × 24 = 528 hours). If time and cost for domestic transport, it does not use these customs clearance takes 7.5 hours, the data in calculating the distance to frontier score for trading data are recorded as is. Alternatively, across borders or the ranking on the ease of trading across suppose that documents are submitted borders. to a customs agency at 8:00 a.m., are Cost processed overnight and can be picked up at 8:00 a.m. the next day. In this case  Insurance cost and informal payments for which the time for customs clearance would be no receipt is issued are excluded from the costs recorded as 24 hours because the actual recorded. Costs are reported in U.S. dollars. procedure took 24 hours. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. Doing Business 2016 Romania 78 Assumptions of the case study  For each of the 189 economies covered by  Shipping cost based on weight is assumed to be Doing Business, it is assumed that a shipment greater than shipping cost based on volume. travels from a warehouse in the largest  If government fees are determined by the value business city of the exporting economy to a of the shipment, the value is assumed to be warehouse in the largest business city of the $50,000. importing economy. For 11 economies the data are also collected, under the same case  The product is new, not secondhand or used study assumptions, for the second largest merchandise. business city.  The exporting firm is responsible for hiring and  The import and export case studies assume paying for a freight forwarder or customs different traded products. It is assumed that broker (or both) and pays for all costs related to each economy imports a standardized international shipping, domestic transport, shipment of 15 metric tons of containerized clearance and mandatory inspections by auto parts (HS 8708) from its natural import customs and other government agencies, port partner—the economy from which it imports or border handling, documentary compliance the largest value (price times quantity) of auto fees and the like for exports. The importing firm parts. It is assumed that each economy is responsible for the above costs for imports. exports the product of its comparative  The mode of transport is the one most widely advantage (defined by the largest export used for the chosen export or import product value) to its natural export partner—the and the trading partner, as is the seaport, economy that is the largest purchaser of this airport or land border crossing. product. Precious metal and gems, live animals and pharmaceuticals are excluded  All electronic submissions of information from the list of possible export products, requested by any government agency in however, and the second largest product connection with the shipment are considered to category is considered as needed. be documents obtained, prepared and submitted during the export or import process.  To identify the trading partners and export product for each economy, Doing Business  A port or border is defined as a place (seaport, collected data on trade flows for the most airport or land border crossing) where recent four-year period from international merchandise can enter or leave an economy. databases such as the United Nations  Government agencies considered relevant are Commodity Trade Statistics Database (UN agencies such as customs, port authorities, road Comtrade). For economies for which trade police, border guards, standardization agencies, flow data were not available, data from ministries or departments of agriculture or ancillary government sources (various industry, national security agencies and any ministries and departments) and World Bank other government authorities. Group country offices were used to identify the export product and natural trading partners.  A shipment is a unit of trade. Export shipments do not necessarily need to be containerized, while import shipments of auto parts are assumed to be containerized. Doing Business 2016 Romania 79 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Border indicator refers to a case Globally, Romania stands at 1 in the ranking of 189 study scenario of a warehouse in the largest business city economies on the ease of trading across borders (figure of an economy (except for 11 economies for which the 9.1). data are a population-weighted average of the 2 largest While not included in the distance to frontier or ease of business cities) trading with the main import and export doing business ranking, data on domestic transportation partner through the economy’s main border crossing. is also recorded for all economies and provided in Table 9.3. Figure 9.1 How Romania and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2016 Romania 80 TRADING ACROSS BORDERS What are the details? The indicators reported here for Romania are based LOCATION OF STANDARDIZED COMPANY on a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea, land, air or some City: Bucharest combination of these). The information on the time and cost to complete export and import is collected The details on the predefined set of procedures, and the from local freight forwarders, customs brokers and associated time and cost, for exporting and importing a traders. shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in Romania Romania Europe & Central Asia Time to export: Border compliance (hours) 0 28 Cost to export: Border compliance (USD) 0 219 Time to export: Documentary compliance (hours) 1 31 Cost to export: Documentary compliance (USD) 0 144 Time to import: Border compliance (hours) 0 23 Cost to import: Border compliance (USD) 0 202 Time to import: Documentary compliance (hours) 1 27 Cost to import: Documentary compliance (USD) 0 108 Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Romania Export Import HS 85 : Electrical machinery and equipment and parts thereof; sound recorders and HS 8708: Parts and accessories Product reproducers, television image of motor vehicles and sound recorders and reproducers, and parts and accessories of such articles Trade partner Germany Germany Romania- Hungary border Romania- Hungary border Border crossing crossing Distance (km) 610 610 Domestic transport time (hours) 9 9 Doing Business 2016 Romania 81 Export Import Domestic transport cost (USD) 650 650 Domestic transport speed (km/hour) 67.8 67.8 Domestic transport cost per distance (USD/km) 1.1 1.1 Source: Doing Business database. Note: Although Doing Business collects and publishes data on the time and cost for domestic transport, it does not use these data in calculating the distance to frontier score for trading across borders or the ranking on the ease of trading across borders. Documents to export CMR waybill Commercial invoice Intrastat Packing list Documents to import CMR waybill Commercial invoice Intrastat Packing list Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2016 Romania 82 Figure 9.2 Summary of Romania on the ease of trading across borders Export Import Source: Doing Business database. Doing Business 2016 Romania 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 courts encourage new business relationships because Time required to enforce a contract through businesses know they can rely on the courts if a new the courts (calendar days) customer fails to pay. Speedy trials are essential for Time to file and serve the case small enterprises, which may lack the resources to Time for trial and to obtain the judgment stay in business while awaiting the outcome of a long court dispute. Time to enforce the judgment What do the indicators cover? Cost required to enforce a contract through the courts (% of claim) Doing Business measures the time and cost for resolving a standardized commercial dispute through Attorney fees a local first-instance court. In addition, this year it Court fees introduces a new measure, the quality of judicial Enforcement fees processes index, evaluating whether each economy has adopted a series of good practices that promote Quality of judicial processes index (0-18) quality and efficiency in the court system. This new Court structure and proceedings (0-5) index replaces the indicator on procedures, which was eliminated this year. The ranking of economies Case management (0-6) on the ease of enforcing contracts is determined by Court automation (0-4) sorting their distance to frontier scores. These scores Alternative dispute resolution (0-3) are the simple average of the distance to frontier scores for each of the component indicators. The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The  The value of the dispute is 200% of the case study assumes that the court hears an expert on income per capita or the equivalent in local the quality of the goods in dispute. This distinguishes currency of USD 5,000, whichever is greater. the case from simple debt enforcement. To make the  The seller sues the buyer before the court data comparable across economies, Doing Business with jurisdiction over commercial cases worth uses several assumptions about the case: 200% of income per capita or $5,000.  The dispute concerns a lawful transaction  The seller requests a pretrial attachment to between two businesses (Seller and Buyer), secure the claim. both located in the economy’s largest  The dispute on the quality of the goods business city. For 11 economies the data requires an expert opinion. are also collected for the second largest business city.  The judge decides in favor of the seller; there is no appeal.  The buyer orders custom-made goods, then fails to pay.  The seller enforces the judgment through a public sale of the buyer’s movable assets. Doing Business 2016 Romania 84 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial frontier and ease of doing business ranking at the end of dispute through the courts in Romania? According to this profile for more details. data collected by Doing Business, contract enforcement Globally, Romania stands at 34 in the ranking of 189 takes 512.00 days and costs 28.90% of the value of the economies on the ease of enforcing contracts (figure claim. Most indicator sets refer to the largest business 10.1). The rankings for comparator economies and the city of an economy, except for 11 economies for which regional average ranking provide other useful the data are a population-weighted average of the 2 benchmarks for assessing the efficiency of contract largest business cities. See the chapter on distance to enforcement in Romania. Figure 10.1 How Romania and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2016 Romania 85 ENFORCING CONTRACTS Economies in all regions have improved contract reducing backlogs by introducing periodic reviews to enforcement in recent years. A judiciary can be improved clear inactive cases from the docket and by making in different ways. Higher-income economies tend to look procedures faster. What reforms making it easier (or for ways to enhance efficiency by introducing new more difficult) to enforce contracts has Doing Business technology. Lower-income economies often work on recorded in Romania (table 10.1)? Table 10.1 How has Romania made enforcing contracts easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Romania made enforcing contracts easier by adopting a new DB2014 civil procedure code that streamlines and speeds up all court proceedings. Romania made enforcing contracts easier by transferring some enforcement responsibilities from the court to the bailiff, by DB2016 making it easier for the bailiff to obtain information from third parties and by making use of the electronic auction registry mandatory. Source: Doing Business database. 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. Doing Business 2016 Romania 86 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for ECONOMY DETAILS Romania are built by following the step-by-step evolution of a commercial sale dispute within the court, under the assumptions about the case Bucharest Court of First described above (figure 10.2). The time and cost of Court name: Instance resolving the standardized dispute are identified through study of the codes of civil procedure and City: Bucharest other court regulations, as well as through questionnaires completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Figure 10.2 Time and cost of contract enforcement in Romania and comparator economies Source: Doing Business database. Doing Business 2016 Romania 87 Table 10.2 Details on time and cost for enforcing contracts in Romania Europe & Central Indicator Romania Asia average Time (days) 512 481 Filing and service 52 Trial and judgment 365 Enforcement of judgment 95 Cost (% of claim) 28.9 26.2 Attorney fees (% of claim) 7.7 Court fees (% of claim) 11.2 Enforcement fees (% of claim) 10.0 Source: Doing Business database. Doing Business 2016 Romania 88 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in Romania. practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating more efficient judicial processes. Figure 10.3 Quality of judicial processes index in Romania and comparator economies Source: Doing Business database. Doing Business 2016 Romania 89 Table 10.3 Details of the quality of judicial processes index in Romania Answer Score Quality of judicial processes index (0-18) 13.00 Court structure and proceedings (0-5) 5.0 1. Is there a court or division of a court dedicated solely to hearing Yes 1.5 commercial cases? 2. Small claims court 1.5 2.a. Is there a small claims court or a fast-track procedure for small Yes claims? 2.b. If yes, is self-representation allowed? Yes 3. Is pretrial attachment available? Yes 1.0 4. Are new cases assigned randomly to judges? Yes 1 Case management (0-6) 4.0 1. Time standards 1.0 1.a. Are there laws setting overall time standards for key court events in Yes a civil case? 1.b. If yes, are the time standards set for at least three court events? Yes 1.c. Are these time standards respected in more than 50% of cases? Yes 2. Adjournments 0.0 2.a. Does the law regulate the maximum number of adjournments that No can be granted? 2.b. Are adjournments limited to unforeseen and exceptional No circumstances? 2.c. If rules on adjournments exist, are they respected in more than 50% n.a. of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; Yes 1.0 (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques No 0.0 used before the competent court? 5. Are there any electronic case management tools in place within the Yes 1.0 competent court for use by judges? 6. Are there any electronic case management tools in place within the Yes 1.0 competent court for use by lawyers? Court automation (0-4) 1.0 Doing Business 2016 Romania 90 Answer Score 1. Can the initial complaint be filed electronically through a dedicated No 0.0 platform within the competent court? 2. Is it possible to carry out service of process electronically for claims Yes 1.0 filed before the competent court? 3. Can court fees be paid electronically within the competent court? No 0.0 4. Publication of judgments 0.0 4.a Are judgments rendered in commercial cases at all levels made available to the general public through publication in official gazettes, No in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through No publication in official gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 3.0 1. Arbitration 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy—that cannot be submitted to No arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the Yes courts? 2. Mediation/Conciliation 1.5 2.a. Is voluntary mediation or conciliation available? Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or conciliation is successful, a refund of Yes court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2016 Romania 91 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Lawyers’ fees dollar recovered by secured creditors through Assessors’ and auctioneers’ fees reorganization, liquidation or debt enforcement Other related fees (foreclosure or receivership) proceedings. To determine the present value of the amount Outcome recovered by creditors, Doing Business uses the Whether business continues operating as a lending rates from the International Monetary Fund, going concern or business assets are sold supplemented with data from central banks and the piecemeal Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) framework index. The index tests whether economies determines the maximum value that can be adopted internationally accepted good practices in recovered four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of economies on the ease of resolving account insolvency is determined by sorting their distance to Present value of debt recovered frontier scores for resolving insolvency. These scores are the simple average of the distance to frontier Strength of insolvency framework index (0- scores for the recovery rate and the strength of 16) insolvency framework index. The Resolving Sum of the scores of four component indices: Insolvency indicators do not measure insolvency Commencement of proceedings index (0-3) proceedings of individuals and financial institutions. The data are derived from questionnaire responses Management of debtor’s assets index (0-6) by local insolvency practitioners and verified through Reorganization proceedings index (0-3) a study of laws and regulations as well as public information on bankruptcy systems. Creditor participation index (0-4) Doing Business 2016 Romania 92 RESOLVING INSOLVENCY Where does the economy stand today? According to data collected by Doing Business, resolving The resolving insolvency indicators are based on detailed insolvency takes 3.30 years on average and costs 10.50% information collected through questionnaires completed of the debtor’s estate, with the most likely outcome by insolvency experts, including lawyers, practitioners being that the company will be sold as piecemeal sale. (administrators, trustees), accountants and judges. Data The average recovery rate is 32.70 cents on the dollar. on the time, cost and outcome refer to the most likely in- Most indicator sets refer to a case scenario in the largest court insolvency procedure applicable under specific business city of an economy, except for 11 economies for case study assumptions. Data on provisions applicable to which the data are a population-weighted average of the judicial liquidation and reorganization is based on the 2 largest business cities. current law governing insolvency proceedings in each Globally, Romania stands at 46 in the ranking of 189 economy. economies on the ease of resolving insolvency (figure 11.1). Figure 11.1 How Romania and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2016 Romania 93 Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Romania and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2014 lending rates. Doing Business 2016 Romania 94 Table 11.1 Details of data on efficiency of insolvency proceedings in Romania Indicator Answer Explanation According to Article 66 para. (1) of Law no. 85/2014, the Insolvency Code, Mirage management is obliged to file for insolvency within 30 days of the occurrence of the insolvency state. Mirage management will file for insolvency in order to liquidation benefit from the moratorium of all ongoing judicial proceedings involving its (after an creditors and to renegotiate payment with creditors. However, reorganizations in Proceedin attempt at Romania are rare and banks prefer liquidation. Under Article 143 para. (1) of the g reorganization) Insolvency Code, if the debtor fails to comply with the reorganization plan or its activity bring losses, the judicial receiver or any of the creditors may request the syndic-judge to approve the commencement of the bankruptcy and liquidation procedure against the debtor. The hotel will continue its current activity only during the observation period (art. 87 of Law 85/2014) and in the reorganization procedure according to the reorganization plan (art 141 (1) of Law 85/2014). If Mirage enters the Outcome piecemeal sale bankruptcy/liquidation procedure, then the hotel will stop operating, as it is unlikely that a buyer can be found willing to purchase the hotel as a going concern and continue operating it. Insolvency proceedings last on average 3-5 years due to a large number of cases filed and delaying tactics used by the debtors to avoid liquidation of the company. Most statutory deadlines cannot be complied with in practice. The main procedural steps for the completion of the insolvency process for Mirage are: (i) the observation period (as of the opening of the insolvency proceedings and until the reorganization plan is approved or the bankruptcy proceedings are Time (in 3.3 initiated) may take a maximum of 12 months (art. 112(3) of the Insolvency Code); years) (ii) reorganization may take 4 years after the confirmation of the plan, but this period may be extended (art. 139(5), Insolvency Code). After one year to one year and a half, the course of proceedings becomes apparent: either successful completion of reorganization (in very few cases), or the bankruptcy proceedings are initiated, (iii) liquidation may take 9 months to 2.5 years, depending on the nature and quantity of the debtor’s assets to be capitalized on. The majority of the expenses will go to the fees of the insolvency representative - Cost (% of 10.5 up to 10% of the value of the estate, attorney's fees can be up to 5% of the estate) value. Other expenses are minimal. Recovery rate: 32.70 Source: Doing Business database. Doing Business 2016 Romania 95 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 Romania (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Romania made resolving insolvency easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Substantial amendments to Romania’s bankruptcy laws— DB2011 introducing, among other things, a procedure for out-of-court workouts—made dealing with insolvency easier. Romania amended its insolvency law to shorten the duration DB2012 of insolvency proceedings. Romania improved its insolvency system by introducing time limits for the observation period (during which a reorganization plan must be confirmed or a declaration of bankruptcy made) and for the implementation of the DB2016 reorganization plan; by introducing additional minimum voting requirements for the approval of the reorganization plan; and by clarifying rules on voidable transactions and on payment priority for claims of post-commencement creditors. Source: Doing Business database. 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. Doing Business 2016 Romania 96 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the with higher values indicating insolvency legislation that is sum of the scores on the commencement of better designed for rehabilitating viable firms and proceedings index, management of debtor’s assets liquidating nonviable ones. Romania’s score on the index, reorganization proceedings index and creditor strength of insolvency framework index is 13.50 out of 16. participation index. The index ranges from 0 to 16, Figure 11.3 Strength of insolvency framework index (0-16) in Romania and comparator economies Source: Doing Business database. Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice”. Doing Business 2016 Romania 97 Table 11.3 Summary of data for the strength of insolvency framework index in Romania Answer Score Strength of insolvency framework index (0-16) 13.50 Commencement of proceedings index (0-3) 3.00 (a) Debtor may What procedures are available to a DEBTOR when commencing insolvency file for both 1.0 proceedings? liquidation and reorganization (a) Yes, a creditor Does the insolvency framework allow a CREDITOR to file for insolvency of may file for both 1.0 the debtor? liquidation and reorganization (a) Debtor is What basis for commencement of the insolvency proceedings is allowed generally unable 1.0 under the insolvency framework? to pay its debts as they mature Management of debtor's assets index (0-6) 6.00 Does the insolvency framework allow the continuation of contracts Yes 1.0 supplying essential goods and services to the debtor? Does the insolvency framework allow the rejection by the debtor of overly Yes 1.0 burdensome contracts? Does the insolvency framework allow avoidance of preferential Yes 1.0 transactions? Does the insolvency framework allow avoidance of undervalued Yes 1.0 transactions? Does the insolvency framework provide for the possibility of the debtor Yes 1.0 obtaining credit after commencement of insolvency proceedings? (b) Yes over ordinary Does the insolvency framework assign priority to post-commencement unsecured 1.0 credit? creditors but not over secured creditors Reorganization proceedings index (0-3) 2.50 Which creditors vote on the proposed reorganization plan? (a) All creditors 0.5 Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as what they would obtain in a Yes 1.0 liquidation? Are the creditors divided into classes for the purposes of voting on the Yes 1.0 reorganization plan, does each class vote separately and are creditors in Doing Business 2016 Romania 98 Answer Score the same class treated equally? Creditor participation index (0-4) 2.00 Does the insolvency framework require approval by the creditors for Yes 1.0 selection or appointment of the insolvency representative? Does the insolvency framework require approval by the creditors for sale No 0.0 of substantial assets of the debtor? Does the insolvency framework provide that a creditor has the right to No 0.0 request information from the insolvency representative? Does the insolvency framework provide that a creditor has the right to Yes 1.0 object to decisions accepting or rejecting creditors' claims? Source: Doing Business database. Doing Business 2016 Romania 99 LABOR MARKET REGULATION Doing Business has historically studied the flexibility of regulations as well as secondary sources are reviewed to regulation of employment, specifically as it relates to the ensure accuracy. areas of hiring, working hours and redundancy. This year Doing Business has expanded the scope of the labor To make the data comparable across economies, several market regulation indicators by adding 16 new assumptions about the worker and the business are questions, most of which focus on measuring job quality. used. Over the period from 2007 to 2011 improvements were The worker: made to align the methodology for the labor market  Is a cashier in a supermarket or grocery store, regulation indicators (formerly the employing workers age 19, with one year of work experience. indicators) with the letter and spirit of the International  Is a full-time employee. Labour Organization (ILO) conventions. Ten of the 189  Is not a member of the labor union, unless ILO conventions cover areas now measured by Doing membership is mandatory. Business (up from four previously): employee The business: termination, weekend work, holiday with pay, night work,  Is a limited liability company (or the equivalent protection against unemployment, sickness benefits, in the economy). maternity protection, working hours, equal remuneration  Operates a supermarket or grocery store in the and labor inspections. economy’s largest business city. For 11 economies the data are also collected for the Between 2009 and 2011 the World Bank Group worked second largest business city. with a consultative group—including labor lawyers,  Has 60 employees. employer and employee representatives, and experts  Is subject to collective bargaining agreements if from the ILO, the Organisation for Economic Co- such agreements cover more than 50% of the operation and Development (OECD), civil society and the food retail sector and they apply even to firms private sector—to review the methodology for the labor that are not party to them. market regulation indicators and explore future areas of  Abides by every law and regulation but does not research. grant workers more benefits than those mandated by law, regulation or (if applicable) A full report with the conclusions of the consultative collective bargaining agreements. group, along with the methodology it proposed, is available on the Doing Business website at: http://www.doingbusiness.org/methodology/labor- market-regulation. Doing Business 2016 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and Doing Business 2016 Romania 100 LABOR MARKET REGULATION Employment laws are needed to protect workers from the past 5 years did so in ways that increased labor arbitrary or unfair treatment and to ensure efficient market flexibility. What changes did Romania adopt that contracting between employers and workers. Many affected the Doing Business indicators on labor market economies that changed their labor market regulation in regulation (table 12.1)? Table 12.1 What changes did Romania make in terms of labor market regulation? DB year Reform Romania increased the maximum duration of fixed-term DB2012 contracts and also decreased the severance pay applicable in case of redundancy dismissal of employees. Source: Doing Business database. Doing Business 2016 Romania 101 LABOR MARKET REGULATION What are the details? The data reported here for Romania are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Hiring Data on hiring cover five areas: (i) whether fixed-term wage to the average value added per worker (the ratio of contracts are prohibited for permanent tasks; (ii) the an economy’s GNI per capita to the working-age maximum cumulative duration of fixed-term contracts; population as a percentage of the total population), and (iii) the minimum wage for a cashier, age 19, with one (v) the availability of incentives for employers to hire year of work experience; (iv) the ratio of the minimum employees under the age of 25*. Hiring Data Fixed-term contracts prohibited for permanent tasks? Yes Maximum length of a single fixed-term contract (months) 36 months Maximum length of fixed-term contracts, including renewals (months) 60.0 Minimum wage applicable to the worker assumed in the case study 278.3 (US$/month) Ratio of minimum wage to value added per worker 0.2 Incentives for employing workers under age 25? Yes Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 Romania 102 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men*; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work*; and (ix) the average paid annual leave percentage of hourly pay); (iv) the premium for overtime for workers with 1 year of tenure, 5 years of tenure, and work (as a percentage of hourly pay)*; (v) whether there 10 years of tenure. are restrictions on night work; (vi) whether nonpregnant Working Hours Data Maximum number of working days per week 5.0 Premium for night work (% of hourly pay) 25.0 Premium for work on weekly rest day (% of hourly pay) 100.0 Premium for overtime work (% of hourly pay) 75.0 Restrictions on night work? 0.0 Whether nonpregnant and nonnursing women can work the same night Yes hours as men Restrictions on weekly holiday? 2.0 Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 20.0 Paid annual leave for a worker with 5 years of tenure (working days) 20.0 Paid annual leave for a worker with 10 years of tenure (working days) 20.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 20.0 working days) Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 Romania 103 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Redundancy rules Data Maximum length of probationary period (months) 3.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if one worker is dismissed? No Third-party approval if one worker is dismissed? No Third-party notification if nine workers are dismissed? No Third-party approval if nine workers are dismissed? No Retraining or reassignment obligation before redundancy? Yes Priority rules for redundancies? Yes Priority rules for reemployment? Yes Source: Doing Business database. Doing Business 2016 Romania 104 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year of requirements and severance payments due when tenure, a worker with 5 years and a worker with 10 years terminating a redundant worker, expressed in weeks of is considered. One month is recorded as 4 and 1/3 salary. The average value of notice requirements and weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 4.0 Notice period for redundancy dismissal for a worker with 5 years of tenure 4.0 Notice period for redundancy dismissal for a worker with 10 years of tenure 4.0 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.0 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 0.0 Severance pay for redundancy dismissal for a worker with 5 years of tenure 0.0 Severance pay for redundancy dismissal for a worker with 10 years of tenure 0.0 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 0.0 of tenure) Source: Doing Business database. Doing Business 2016 Romania 105 LABOR MARKET REGULATION Job quality Doing Business 2016 report presents, for the first time, on-the-job training at no cost to the employee; (viii) data on 12 job quality areas: (i) whether the law whether a worker is eligible for an unemployment mandates equal remuneration for work of equal value; protection scheme after one year of service; (ix) the (ii) whether the law mandates nondiscrimination based minimum duration of the contribution period (in months) on gender in hiring, (iii) whether the law mandates paid required for unemployment protection; (x) whether an or unpaid maternity leave; (iv) the minimum length of employee can create or join a union; (xi) the availability maternity leave in calendar days (minimum number of of administrative or judicial relief in case of infringement days that legally have to be paid by the government, the of employees’ rights; and (xii) the availability of a labor employer or both); (v) whether employees on maternity inspection system. If no maternity leave is mandated by leave receive 100 % of wages; (vi) the availability of five law, parental leave is measured if applicable. fully paid days of sick leave a year; (vii) the availability of Job Quality Data Equal remuneration for work of equal value? Yes Gender nondiscrimination in hiring? Yes Paid or unpaid maternity leave mandated by law? Yes Minimum length of maternity leave (calendar days)? 126.0 Receive 100% of wages on maternity leave? No Five fully paid days of sick leave a year? Yes On-the-job training? Yes Unemployment protection after one year of employment? Yes Minimum contribution period for unemployment protection (months)? 12.0 Can employee create or join union? Yes Administrative or judicial relief for infringement of employees' rights? Yes Labor inspection system? Yes Source: Doing Business database. Doing Business 2016 Romania 106 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate even though it is no longer at the frontier in a measures: the distance to frontier score and the ease of subsequent year. doing business ranking, which is based on the distance For scores such as those on the strength of legal rights to frontier score. The ease of doing business ranking index or the quality of land administration index, the compares economies with one another; the distance to frontier is set at the highest possible value. For the total frontier score benchmarks economies with respect to tax rate, consistent with the use of a threshold in regulatory best practice, showing the absolute distance calculating the rankings on this indicator, the frontier is to the best performance on each Doing Business defined as the total tax rate at the 15th percentile of the indicator. When compared across years, the distance to overall distribution for all years included in the analysis frontier score shows how much the regulatory up to and including Doing Business 2015. For the time to environment for local entrepreneurs in an economy has pay taxes the frontier is defined as the lowest time changed over time in absolute terms, while the ease of recorded among all economies that levy the three major doing business ranking can show only how much the taxes: profit tax, labor taxes and mandatory regulatory environment has changed relative to that in contributions, and value added tax (VAT) or sales tax. For other economies. the different times to trade across borders, the frontier is Distance to Frontier defined as 1 hour even though in many economies the time is less than that. The distance to frontier score captures the gap between an economy’s performance and a measure of best In the same formulation, to mitigate the effects of practice across the entire sample of 36 indicators for 10 extreme outliers in the distributions of the rescaled data Doing Business topics (the labor market regulation for most component indicators (very few economies indicators are excluded). For starting a business, for need 700 days to complete the procedures to start a example, the former Yugoslav Republic of Macedonia business, but many need 9 days), the worst performance and New Zealand have the smallest number of is calculated after the removal of outliers. The definition procedures required (1), and New Zealand the shortest of outliers is based on the distribution for each time to fulfill them (0.5 days). Slovenia has the lowest component indicator. To simplify the process two rules cost (0.0), and Australia, Colombia and 103 other were defined: the 95th percentile is used for the economies have no paid-in minimum capital indicators with the most dispersed distributions requirement (table 14.1 in the Doing Business 2016 (including minimum capital, number of payments to pay report). taxes, and the time and cost indicators), and the 99th percentile is used for number of procedures. No outlier is Calculation of the distance to frontier score removed for component indicators bound by definition Calculating the distance to frontier score for each or construction, including legal index scores (such as the economy involves two main steps. In the first step depth of credit information index, extent of conflict of individual component indicators are normalized to a interest regulation index and strength of insolvency common unit where each of the 36 component framework index) and the recovery rate (figure 14.1). indicators y (except for the total tax rate) is rescaled In the second step for calculating the distance to frontier using the linear transformation (worst − y)/(worst − score, the scores obtained for individual indicators for frontier). In this formulation the frontier represents the each economy are aggregated through simple averaging best performance on the indicator across all economies into one distance to frontier score, first for each topic since 2005 or the third year in which data for the and then across all 10 topics: starting a business, dealing indicator were collected. Both the best performance and with construction permits, getting electricity, registering the worst performance are established every five years property, getting credit, protecting minority investors, based on the Doing Business data for the year in which paying taxes, trading across borders, enforcing contracts they are established, and remain at that level for the five and resolving insolvency. More complex aggregation years regardless of any changes in data in interim years. methods—such as principal components and Thus an economy may set the frontier for an indicator unobserved components—yield a ranking nearly Doing Business 2016 Romania 107 identical to the simple average used by Doing Business . The nonlinear transformation is not based on any 4 Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components . overall tax system. Instead, it is mainly empirical in 5 nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2015 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 of the Doing Business 2016 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 of the Doing Business 2016 report). 4 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the 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 importance in the context of a specific economy. 5 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights Doing Business 2016 Romania 108 Table 13.1 Weights used in calculating the distance to implemented regulatory reforms making it easier to do frontier scores for economies with 2 cities covered business in 3 or more of the 10 topics included in this year’s aggregate distance to frontier score. Changes Economy City Weight (%) making it more difficult to do business are subtracted Dhaka 78 Bangladesh from the total number of those making it easier to do Chittagong 22 São Paulo 61 business. Twenty-four economies meet this criterion: Brazil Armenia; Azerbaijan; Benin; Costa Rica; Côte d’Ivoire; Rio de Janeiro 39 Shanghai 55 Cyprus; Hong Kong SAR, China; Indonesia; Jamaica; China Beijing 45 Kazakhstan; Kenya; Lithuania; Madagascar; Mauritania; Mumbai 47 Morocco; Romania; the Russian Federation; Rwanda; India Delhi 53 Senegal; Togo; Uganda; the United Arab Emirates; Jakarta 78 Uzbekistan; and Vietnam. Second, Doing Business sorts Indonesia Surabaya 22 these economies on the increase in their distance to Tokyo 65 Japan frontier score from the previous year using comparable Osaka 35 data. Mexico City 83 Mexico Monterrey 17 Selecting the economies that implemented regulatory Lagos 77 reforms in at least three topics and had the biggest Nigeria Kano 23 improvements in their distance to frontier scores is Karachi 65 intended to highlight economies with ongoing, broad- Pakistan Lahore 35 based reform programs. The improvement in the Moscow 70 Russian Federation distance to frontier score is used to identify the top St. Petersburg 30 New York 60 improvers because this allows a focus on the absolute United States improvement—in contrast with the relative improvement Los Angeles 40 Source: United Nations, Department of Economic and Social shown by a change in rankings—that economies have Affairs, Population Division, World Urbanization Prospects, made in their regulatory environment for business. 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking Economies that improved the most across 3 or more Doing Business topics in 2014/15 The ease of doing business ranking ranges from 1 to 189. The ranking of economies is determined by sorting the Doing Business 2016 uses a simple method to calculate aggregate distance to frontier scores, rounded to 2 which economies improved the ease of doing business decimals. the most. First, it selects the economies that in 2014/15 Doing Business 2016 Romania 109 Doing Business 2016 Romania 110 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 11,400 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 136 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, case studies and repreneurship customized economy and regional profiles http://www.doingbusiness.org/reports Distance to frontier Data benchmarking 189 economies to the frontier Methodology in regulatory practice and a distance to frontier The methodologies and research papers underlying calculator Doing Business http://www.doingbusiness.org/data/distance-to- http://www.doingbusiness.org/methodology frontier Research Information on good practices Abstracts of papers on Doing Business topics and Showing where the many good practices identified related policy issues by Doing Business have been adopted http://www.doingbusiness.org/research http://www.doingbusiness.org/data/good-practice Doing Business reforms Short summaries of DB2016 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2016 Romania 111