Doing Business 2016 Turkey 100867 Economy Profile 2016 Turkey Doing Business 2016 Turkey 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. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. This work is available under the Creative Commons Attribution 33.0 IGO license (CC BY 3.0 IGO). http://creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: World Bank. 2016. Doing Business 2016: Measuring Regulatory Quality and Efficiency. Washington, DC: World Bank Group. DOI: 10.1596/978-1-4648-0667-4. License: Creative Commons Attribution CC BY 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party- owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures or images. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. ISBN (paper): 978-1-4648-0667-4 ISBN (electronic): 978-1-4648-0668-1 DOI: 10.1596/978-1-4648-0667-4 ISSN: 1729-2638 Cover design: Corporate Visions, Inc. Doing Business 2016 Turkey 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 39 Registering property .................................................................................................................. 49 Getting credit .............................................................................................................................. 61 Protecting minority investors ................................................................................................... 66 Paying taxes ................................................................................................................................ 73 Trading across borders .............................................................................................................. 78 Enforcing contracts .................................................................................................................... 84 Resolving insolvency .................................................................................................................. 92 Labor market regulation ........................................................................................................... 99 Distance to frontier and ease of doing business ranking .................................................... 105 Resources on the Doing Business website ............................................................................ 109 Doing Business 2016 Turkey 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is provides data for other selected economies (comparator for a local entrepreneur to open and run a small to economies) for each indicator. The data in this report are medium-size business when complying with relevant current as of June 1, 2015 (except for the paying taxes regulations. It measures and tracks changes in indicators, which cover the period January–December regulations affecting 11 areas in the life cycle of a 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 Turkey. To allow useful comparison, it also Doing Business 2016 Turkey 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 Turkey 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: 75,837,020 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 10,850 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2016 rank: 55 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2015 rank: 51* 0 represents the worst performance and 100 the frontier. Change in rank: -4 (See the chapter on the distance to frontier and ease of doing business). DB 2016 DTF: 69.16 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2015 DTF: 69.93 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: -0.77 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 Turkey 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 Turkey 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 Turkey 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 Turkey 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Turkey (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Turkey (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 Turkey 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 Turkey 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 Turkey 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 Turkey Best performer globally Russian Federation Romania DB2016 Bulgaria DB2016 Georgia DB2016 Ukraine DB2016 Turkey DB2016 Turkey DB2015 Indicator India DB2016 DB2016 DB2016 Starting a Business 94 88 52 6 155 45 41 30 New Zealand (1) (rank) Starting a Business (DTF 85.18 85.13 91.1 97.76 73.59 91.94 92.35 93.88 New Zealand (99.96) Score) Procedures (number) 8.0 8.0 4.0 2.0 12.9 5.0 4.4 4.0 New Zealand (1.00)* Time (days) 7.5 7.5 18.0 2.0 29.0 8.0 10.5 7.0 New Zealand (0.50) Cost (% of income per 16.6 16.4 0.7 3.1 13.5 2.0 1.1 0.6 Slovenia (0.00) capita) Paid-in min. capital (% 11.0 12.1 0.0 0.0 0.0 0.6 0.0 0.0 105 Economies (0.00)* of income per capita) Dealing with Construction Permits 98 108 51 11 183 105 119 140 Singapore (1) (rank) Dealing with Construction Permits 67.82 66.26 74.45 82.77 32.47 67.19 65.23 61.36 Singapore (92.97) (DTF Score) Procedures (number) 18.0 19.0 16.0 7.0 33.6 15.0 19.0 10.0 5 Economies (7.00)* Doing Business 2016 Turkey 12 Best performer globally Russian Federation Romania DB2016 Bulgaria DB2016 Georgia DB2016 Ukraine DB2016 Turkey DB2016 Turkey DB2015 Indicator India DB2016 DB2016 DB2016 Time (days) 103.0 104.0 110.0 48.0 191.5 257.0 263.5 67.0 Singapore (26.00) Cost (% of warehouse 3.6 4.0 4.1 0.2 26.0 2.3 1.6 15.2 Qatar (0.00) value) Building quality control 9.5 9.5 13.0 7.0 11.0 13.0 14.0 8.0 New Zealand (15.00) index (0-15) Getting Electricity 36 35 100 62 70 133 29 137 Korea, Rep. (1) (rank) Getting Electricity (DTF 82.84 82.59 64.97 76.15 74.56 56.44 84.22 54.84 Korea, Rep. (99.88) Score) Procedures (number) 4.0 4.0 6.0 4.0 5.0 8.0 3.0 5.0 14 Economies (3.00)* Time (days) 63.0 70.0 130.0 71.0 90.1 182.0 160.5 263.0 Korea, Rep. (18.00)* Cost (% of income per 599.6 433.3 317.3 461.8 442.3 573.7 93.1 795.3 Japan (0.00) capita) Reliability of supply and transparency of tariff 6.0 6.0 5.0 4.0 5.5 7.0 8.0 5.0 18 Economies (8.00)* index (0-8) Registering Property 52 51 63 3 138 64 8 61 New Zealand (1) (rank) Registering Property 73.01 73 69.34 91.16 50.29 69.19 90.51 69.44 New Zealand (94.46) (DTF Score) Procedures (number) 7.0 7.0 8.0 1.0 7.0 8.0 3.0 7.0 4 Economies (1.00)* Time (days) 7.0 7.0 11.0 1.0 47.0 19.0 15.0 23.0 3 Economies (1.00)* Cost (% of property 4.0 4.0 2.9 0.1 7.5 1.4 0.2 2.0 Saudi Arabia (0.00) value) Quality of the land administration index (0- 21.5 21.5 18.0 19.5 7.0 16.0 26.0 15.5 3 Economies (28.50)* 30) Doing Business 2016 Turkey 13 Best performer globally Russian Federation Romania DB2016 Bulgaria DB2016 Georgia DB2016 Ukraine DB2016 Turkey DB2016 Turkey DB2015 Indicator India DB2016 DB2016 DB2016 Getting Credit (rank) 79 71 28 7 42 7 42 19 New Zealand (1) Getting Credit (DTF 50 50 70 85 65 85 65 75 New Zealand (100) Score) Strength of legal rights 3.0 3.0 9.0 9.0 6.0 10.0 6.0 8.0 3 Economies (12.00)* index (0-12) Depth of credit 7.0 7.0 5.0 8.0 7.0 7.0 7.0 7.0 26 Economies (8.00)* information index (0-8) Credit registry coverage 74.9 63.6 64.7 0.0 0.0 15.9 0.0 0.0 Portugal (100.00) (% of adults) Credit bureau coverage 22 Economies 0.0 0.0 0.0 74.5 22.0 50.1 70.2 36.7 (% of adults) (100.00)* Protecting Minority 20 20 14 20 8 57 66 88 Singapore (1)* Investors (rank) Protecting Minority 68.33 68.33 71.67 68.33 73.33 58.33 56.67 53.33 Singapore (83.33)* Investors (DTF Score) Strength of minority investor protection 6.8 6.8 7.2 6.8 7.3 5.8 5.7 5.3 3 Economies (8.30)* index (0-10) Extent of conflict of interest regulation 6.7 6.7 6.3 7.7 6.7 6.0 5.0 4.0 Singapore (9.30)* index (0-10) Extent of shareholder governance index (0- 7.0 7.0 8.0 6.0 8.0 5.7 6.3 6.7 4 Economies (8.00)* 10) United Arab Emirates Paying Taxes (rank) 61 56 88 40 157 55 47 107 (1)* Paying Taxes (DTF United Arab Emirates 79.44 79.74 74.19 82.76 56.14 80.69 81.6 70.69 Score) (99.44)* Payments (number per 11.0 11.0 14.0 5.0 33.0 14.0 7.0 5.0 Hong Kong SAR, Doing Business 2016 Turkey 14 Best performer globally Russian Federation Romania DB2016 Bulgaria DB2016 Georgia DB2016 Ukraine DB2016 Turkey DB2016 Turkey DB2015 Indicator India DB2016 DB2016 DB2016 year) China (3.00)* Time (hours per year) 226.0 226.0 423.0 362.0 243.0 159.0 168.0 350.0 Luxembourg (55.00) Total tax rate (% of 40.9 40.3 27.0 16.4 60.6 42.0 47.0 52.2 Ireland (25.90) profit) Trading Across Borders 62 61 20 78 133 1 170 109 Denmark (1)* (rank) Trading Across Borders 81 81 97.45 75.31 56.45 100 37.39 63.72 Denmark (100)* (DTF Score) Time to export: Border 8 8 4 14 109 0 96 26 15 Economies (0.00)* compliance (hours) Cost to export: Border 356 356 52 383 413 0 1,125 75 18 Economies (0.00)* compliance (USD) Time to export: Documentary 2 2 2 48 41 1 43 96 Jordan (0.00) compliance (hours) Cost to export: Documentary 87 87 52 200 102 0 500 292 20 Economies (0.00)* compliance (USD) Time to import: Border 36 36 1 14 287 0 96 52 19 Economies (0.00)* compliance (hours) Cost to import: Border 655 655 0 396 574 0 1,125 100 28 Economies (0.00)* compliance (USD) Time to import: Documentary 11 11 1 24 63 1 43 168 21 Economies (1.00)* compliance (hours) Cost to import: Documentary 142 142 0 200 145 0 500 292 30 Economies (0.00)* compliance (USD) Enforcing Contracts 36 17 52 13 178 34 5 98 Singapore (1) Doing Business 2016 Turkey 15 Best performer globally Russian Federation Romania DB2016 Bulgaria DB2016 Georgia DB2016 Ukraine DB2016 Turkey DB2016 Turkey DB2015 Indicator India DB2016 DB2016 DB2016 (rank) Enforcing Contracts 68.87 73.25 65.09 75.06 32.41 69.23 78.56 57.11 Singapore (84.91) (DTF Score) Time (days) 580.0 420.0 564.0 285.0 1,420.0 512.0 307.0 378.0 Singapore (150.00) Cost (% of claim) 24.9 24.9 23.8 29.9 39.6 28.9 16.5 46.3 Iceland (9.00) Quality of judicial 13.0 13.0 10.5 13.0 7.5 13.0 12.5 8.0 3 Economies (15.50)* processes index (0-18) Resolving Insolvency 124 102 48 101 136 46 51 141 Finland (1) (rank) Resolving Insolvency 35.09 40 58.93 40.24 32.59 59.77 58.39 31.05 Finland (93.81) (DTF Score) Recovery rate (cents on 18.7 27.9 34.0 39.9 25.7 32.7 41.7 8.3 Japan (92.90) the dollar) Time (years) 4.5 3.3 3.3 2.0 4.3 3.3 2.0 2.9 Ireland (0.40) Cost (% of estate) 14.5 14.5 9.0 10.0 9.0 10.5 9.0 42.0 Norway (1.00) Outcome (0 as piecemeal sale and 1 as 0 0 0 0 0 0 0 0 going concern) Strength of insolvency 8.0 8.0 13.0 6.0 6.0 13.5 11.5 8.5 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 Turkey 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 Turkey 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Turkey? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 8.00 procedures, takes 7.50 days, average of the 2 largest business cities. See the chapter costs 16.60% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 11.00% 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 Turkey Paid-in minimum capital (% of income per capita): 11.00 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 Turkey 18 STARTING A BUSINESS Globally, Turkey stands at 94 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 Turkey to The rankings for comparator economies and the regional start a business. Figure 2.2 How Turkey and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2016 Turkey 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 Turkey (table 2.1)? Table 2.1 How has Turkey made starting a business easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Turkey made starting a business less costly by eliminating DB2012 notarization fees for the articles of association and other documents. Turkey made starting a business more difficult by increasing DB2014 the minimum capital requirement. Turkey made starting a business more difficult by increasing DB2015 the notary and company registration fees. 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 Turkey 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Turkey is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Limited Sirket (LS) firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid-in minimum capital requirement: TRY the study of laws, regulations and publicly available 2,500 information on business entry in that economy. City: Istanbul 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 Turkey Time to No. Procedure Cost to complete complete Submit the memorandum and articles of association online at MERSIS According to the Article 13 of the Regulation of Trade Registry published on the Official Gazette dated 27 January 2013 and numbered Less than one day 1 28541, trade registration transactions shall be fulfilled through MERSİS no charge (online procedure) (Central Registration Recording System). Agency: MERSIS Execute and notarize company documents According to Article 586 of the Turkish Commercial Code numbered 6102 and Article 90 of the Trade Registry Regulation, the following documents are required for the application of registration: Paper cost: TL 140 - Notarized articles of association (4 copies and 1 original). Notarization of the - Notarized signature declarations (2 copies). - Notarized copy of the founders declaration (1 original copy). Articles of - Notarized copy of acceptance letters of the managers (who are not Association (for 10 shareholders), (1 copy). pages): TL 1,400 2 1 day - Notarized copy of a power of attorney authorizing the attorneys who Notarization of the will follow-up the application before the competent Trade Registry and signature other official authorities in order to proceed with the application (where declaration of the applicable). manager: TL 65 per - Notarized copy of the identity cards of the managers and manager shareholders (1 copy). The incorporation documents are exempt from the stamp tax: there are no fees to be paid for the articles of association and the signature declarations. However, fees are still applicable for notary services and Doing Business 2016 Turkey 21 Time to No. Procedure Cost to complete complete for the valuable papers. Agency: Notary Obtain a potential tax identification number The Company shall apply for a potential tax identity number before the incorporation with the notarized articles of association and the power of attorney to the relevant tax authority. This potential tax identity 3 number is necessary for opening a bank account in order to deposit the 1 day no charge capital of the Company to be incorporated. Agency: Tax Office Deposit a percentage of capital to the account of the Competition Authority To register with the Commercial Registry, founders must obtain the original receipt from Halk Bankas. This receipt shows that 0.04% of the 4 company’s capital has been paid to the Competition Authority at the 1 day 0.04% of capital central bank or a public bank. Agency: Halk Bankası (Ankara corporate branch) Deposit at least 25% of the startup capital in a bank and Obtain proof thereof According to Articles 585 and 344 of the new Turkish Commercial Code, 25% of the share capital must be paid in prior to the new company registration. The remaining 75% of the subscribed share capital must be 1 day no charge 5 paid within 2 years. Alternatively, the capital can be fully paid prior to registration. Agency: Bank Apply for registration at the Trade Registry Office The formation of a limited liability company does not require a court application. Thus, upon gathering the following documents, founders may apply for registration: - Petition requesting registration see procedure 6 - 3 copies of an incorporation notification form (kurulus bildirim formu). 2 days details - 4 copies of the notarized articles of association (1 original). - Bank deposit receipt with respect to the payment made to the bank account of the Competition Authority (0.04% of the company's share capital). - An undertaking (taahhutname) signed by the authorized company representatives. Signature declaration of the directors. Doing Business 2016 Turkey 22 Time to No. Procedure Cost to complete complete - For each person authorized to represent the founders of the limited liability company, 2 copies of the signature declarations. - Notarized copy of the founders' declaration (1 original). - Bank certificate of the paid-in minimum capital deposit (at least 25% of the subscribed capital). - Chamber of Commerce registration form. - 1 passport-sized photo of the founders. - Acceptance declaration of the managers who are not shareholders (1 notarized copy). Following the completion of the registration phase before the Commercial Registry, the Commercial Registry notifies the relevant tax office and the Social Security Administration ex-officio regarding the incorporation of the company. The Commercial Registry arranges for an announcement in the Commercial Registry Gazette within approximately 10 days as of the company registration. A tax registration certificate must be obtained from the local tax office soon after the Commercial Registry Office notifies the local tax office. A social security number for the company must be obtained from the relevant Social Security Administration. For the employees, a separate application has to be made following the registration of the company with the Social Security Administration. According to the official fees of 2015 published in the Official Gazette No. 29221 published on 30 December 2014, the following fees are applicable for the incorporation of limited liability companies as of January 1, 2015: - The registration fee for a limited liability company is: TL 615 - Initial registration fee of Chamber of Commerce is: TL 195 - Publication or announcement fee is: TL 0.35 per word - Startup notice is: TL 60 - Commercial Registry Gazette fee is: TL 2 - Registration fee for manager's signature - First manager's signature is: TL 485 - Each additional manager's signature is: TL 323.90 Fee schedule for annual membership in the Istanbul Chamber of Commerce (based on capital): - TL 1 - 999 (capital): TL 135 - TL 1,000 - 24,999 (capital): TL 145 - TL 25,000 - 249,999 (capital): TL 195 - TL 250,000 - 999,999 (capital): TL 255 - TL 1,000,000 and up (capital): TL 290 Agency: Commercial Registry Doing Business 2016 Turkey 23 Time to No. Procedure Cost to complete complete * Certify the legal books by a Notary Public The founders must certify the legal books (6 documents: share ledger, manager's meeting minutes book, general assembly meeting minutes book, journal, general ledger and inventory book) the day they register the company with the trade registry. The notary public must notify the Tax Office about the commercial book certification. Approximate fee schedule for legal book certification: - Certification up to 100 pages: 68 - Certification up to 200 pages: 90 1 day see procedure (simultaneous with 7 details Fees include: previous - TL 402 (6 books) procedure) - Yevmiye Defteri (100 sheets) : TL 68 - Defter-i Kebir (100 sheets) : TL 68 - Envanter Defteri (100 sheets) : TL 68 - Ortaklar Pay Defteri (100 sheets) : TL 68 - Karar Defteri (78 sheets): TL 65 - Genel Kurul Toplantı Ve Müzakere Defteri: (78 sheets): TL 65 Agency: Notary Follow up with the tax office on the Commercial Registry’s company establishment notification The Trade Registry Office notifies the Tax Office and the Social Security Administration of the company’s incorporation. In practice, to expedite the registration process, company representatives follow up on whether the notification has been received. A tax officer comes to the company 8 headquarters to prepare a determination report. There must be at least 1 day no charge one authorized signature in the determination report. Trade Registry Officers send company establishment form which includes tax number notification to Tax Office. Agency: Tax Office * 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 Turkey 24 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records 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 Turkey 25 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 Turkey 26 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 Turkey? 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 18.00 procedures, takes 103.00 days and costs frontier and ease of doing business ranking at the end of 3.60% 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 Turkey 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 Turkey 27 DEALING WITH CONSTRUCTION PERMITS Globally, Turkey stands at 98 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 Turkey to legally build a warehouse. Figure 3.2 How Turkey and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2016 Turkey 28 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 Turkey (table 3.1)? Table 3.1 How has Turkey made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Turkey made dealing with construction permits easier by DB2013 eliminating the requirement to build a shelter in nonresidential buildings with a total area of less than 1,500 square meters. Turkey reduced the time required for dealing with construction permits by setting strict time limits for granting a lot plan and DB2014 by reducing the documentation requirements for an occupancy permit. Turkey made dealing with construction permits easier by DB2016 streamlining the process to obtain the fire clearance. 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 Turkey 29 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Turkey are based on BUILDING A WAREHOUSE 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 TRY 1,140,651 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Istanbul 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 Turkey Time to No. Procedure Cost to complete complete Obtain zoning plan (Imar Durumu) BuildCo applies to the District Municipality - Planning Department for a 1:1000 scaled zoning plan which is already prepared and approved by the greater municipality. The plan shows the construction conditions of land such as the gross floor 1 area ratio, footprint area ratio, and the function (e.g. commercial, 4 days TRY 200 residential, office, etc.) Agency: Zoning and Planning Department Obtain cadastral plan (Aplikasyon Krokisi) BuildCo submits an application to the Cadastral Plan Branch of the relevant municipality, along with the lot plan, and obtains the Cadastral Plan Document. The cadastral plan states the corner coordinations of the plot, the status of adjacent plots, and the surface area of the plot. The fee schedule based on the land area: 1 - 1000 sqm : 123,00 TRY 2 1001 - 3000 sqm : 185,00 TRY 3 days TRY 123 3001 - 5000 sqm: 370,00 TRY 5001 - 10000 sqm: 493,00 TRY 10001 - 20000 sqm: 678,00 TRY 20001 - 50000 sqm: 885,00 TRY 50001 - 100000 sqm: 1.076,00 TRY 100001 - 200000 sqm: 1.233,00 TRY 200001 - 500000 sqm: 1.479,00 TRY In this case, 123,00 TRY will be charged by District Cadastral Office as the effective capital fee and on top, till 1000 sqm 255 TRY and over 1001 sqm, 3.2 TRY will be added to 255 TRY for Doing Business 2016 Turkey 30 Time to No. Procedure Cost to complete complete each sqm increase. Agency: District Cadastral Office Obtain construction direction plan (Insaat Istikamet Rolevesi) and elevation of cross section (Kot Kesit Belgesi) BuildCo must apply for a construction direction plan and elevation of cross section at the planning and zoning department of district municipality which is in charge to provide the construction direction plan, as well as the elevation of cross section plans. The documents obtained in the previous procedures must be submitted at this time. The technicians set all the necessary levels -- road, entrance, plot, building corners, etc. -- to be the basis for the design process of the works that will follow, and issue a construction direction plan and elevation of cross section. The construction direction plan includes stated directions on the land, distances from neighboring plots, and the 3 building corners. The elevation of cross section identifies stated 5 days TRY 557 elevations of the corners of the plot, the necessary levels and elevations of the current land and elevations of the road. The fee for these plans is as follows: 1 -- 100 sq. m.: 1 TRY / sq. m. 101 -- 500 sq. m.: 0.9 TRY / sq. m. Over 501 sq. m.: 0.6 TRY / sq. m. Agency: The planning and zoning department of district municipality * Hire an independent building inspector The company must select an independent building inspector and sign a service contract with this inspector. The inspector must check and approve all the project’s plans before they are submitted to the municipality. The list of project plans is extensive and includes the architectural design of the building done by design consultants; the reinforced concrete and insulation project plans prepared by a civil engineer; the fire safety project plans prepared jointly by an architect and the mechanical engineer for utilities; the project plans and 4 days TRY 16,452 4 documents for hot water, and those of central heating facilities prepared by a mechanical engineer; the electrical wiring project plans prepared by an electrical engineer; the telecommunications system project plans prepared by an electrical engineer; and the landscape project plans prepared by a landscape engineer. Selecting an independent building consultant takes only a day. However, practitioners agree that it takes at least 3 days for the building inspector to review and approve all the documents before they are submitted to the municipality. Hence, for the case considered here, it is assumed that 4 days are needed to Doing Business 2016 Turkey 31 Time to No. Procedure Cost to complete complete complete this procedure. The building inspector charges a fee representing a percentage of the total cost of construction, according to the amendment of Article 5 of the Law on Building Inspection No. 4708 of August 17, 2011. This fee is paid in six installments. The inspector receives the following payments at the following stages: • 20% when the building permit is obtained • 40% when the foundation is completed • 20% when the shell & core structure is initiated • 15% when the installation is initiated • 5% when the construction is completed Agency: Private Building Inspection Agency * Obtain approval of architectural drawings from the municipality The company must submit the documents listed below along with the architectural drawings to the project branch of the municipality: • The authorization document of the architect • The plan for the application • The cadastral plan document • The road datum document • The title deed registration document • The plot share distribution table, if there is more than one independent section on the land (for instance, an apartment building) • Built-up area breakdown table in square meters • Ratified geological study • Three sets of the elevator preliminary report (not applicable in 30 days TRY 470 5 the warehouse case) The municipality must approve the project’s proposed designs. The fire safety project should also be submitted to the municipality for approval and can be included in this procedure. If the municipality asks for changes to be made to the architectural designs during the approval process, these changes should be reflected in the engineering and landscaping projects as well. For final approval, these project plans are submitted to the municipal project branch, for static, sanitation facility, heating and heat insulation, and landscaping project plans to the Turkish Electricity Distribution Corporation (TEDAS), for the electricity project plans; and to the telephone company, for the telecommunication project plans. Fire-electricity and fire- mechanical project plans must be approved by the Fire Department. Article 22 of the Land Development Law establishes a 30-day Doing Business 2016 Turkey 32 Time to No. Procedure Cost to complete complete statutory time limit for this procedure. Although in some cases the approval may be granted within 7 days, practitioners agree that most cases require the full 30 days allowed by law. The cost estimated for this procedure ranges from TRY 3,000.00 to TRY 3,500.00. The fees found on one district municipality’s Web site show the cost breakdown to include fees for examination, approval, and various other taxes (e.g., sign posts, trees). Agency: District Municipality * Obtain proof of payment and clearance of water and sewerage infrastructure BuildCo will contact the Istanbul Water Supply and Sewerage General Directorate (ISKI) to obtain permission to discharge sewage and rainwater. At the same time, BuildCo must pay all outstanding debts to ISKI arising from the existing utility subscriptions and obtain a clearance letter stating that all existing connections/subscriptions are terminated. There is also a participation share in the cost the cost of the 6 water and sewerage infrastructure. A clearance document is 7 days TRY 5,208 obtained, that shows that complete payment was made. Once this clearance is obtained, then BuildCo can move forward in laying out all pipes and excavation for sewage. All this work is done directly by the plumber of BuildCo; therefore there is no need for ISKI to be involved a second time. However, ISKI will inspect the work after it has been completed. Agency: Water and Sewerage Department (Istanbul Municipality) * Register with Social Security Institute before the commencement of construction works The company must register the staff that will be working at the construction site with the Social Security Institution. Under Turkish law, the construction site is considered as a “separate and independent workplace” where construction workers are employed to perform the permanent and temporary works 1 day no charge 7 forming the project/building. Consequently, this “separate workplace” must be registered with SSI and a workplace opening and operating permit must be obtained from the Ministry of Labour and Social Security. Agency: Social Security Institution Doing Business 2016 Turkey 33 Time to No. Procedure Cost to complete complete Obtain building permit The company requests a building permit from the licensing branch of the municipality. The approved design, engineering drawings, and other necessary documents (described in the previous procedures) must be attached to this request. The company must pay the fees before receiving the building permit and starting foundation work. The fee schedule is as follows: 1-25 sq. m.: 3.00 TRY / sq. m 26-50 sq. m.: 4.50 TRY / sq. m 51-100 sq. m.: 6.00 TRY / sq. m 8 over 100 sq. m.: 7.90 TRY / sq. m 30 days TRY 10,275 Building permits are usually issued 1 -- 2 months after submission of the application. The law provides for a statutory time limit of 30 days for the municipality issuing the permit. There are frequent complaints from applicants about not receiving the building permit within the specified time. Following the building permit issuance, the municipal building control authority will randomly conduct inspections during the construction on site, in addition to private inspection. Agency: District Municipality, Licensing Branch Obtain excavation (Harfiyat) permit from the Department of Environment of the Municipality After applying for the construction permit, BuildCo must obtain an excavation permit and inform the Department of Environment about how it will dispose of the extra soil from the area of 9 excavation for the foundation, water, electricity etc. and get an 1 day TRY 1,609 approval from the department. The fee is listed on the web page of the municipality. Agency: Department of Environment of the Municipality Obtain proof of "no outstanding taxes" clearance certificate from the Tax Authority The company must pay all taxes owed, and obtain a tax clearance document from the appropriate tax departments. This 1 day no charge 10 document states that all taxes owed have been paid. Agency: Tax Department Doing Business 2016 Turkey 34 Time to No. Procedure Cost to complete complete Request and obtain a “no outstanding social security premium” clearance upon completion of construction works As far as construction works are concerned, once they are completed, the site (i.e., the workplace) will be closed. Upon completion date, there must not be any outstanding social security premium debt arising from the employment of the construction workers on site. Therefore, the contractor must 11 obtain a document from the Social Security Institute evidencing 1 day no charge that there is no outstanding social security debt. The local Municipality also requires this certificate before issuing the occupancy permit. Agency: Social Security Institute Receive final inspection from the Fire Department The updated fee schedule for the final inspection from the fire department is as follows: • Group 1 buildings: exempted • Group 2 buildings: TRY 0.58 per sq. m. • Group 3 buildings: TRY 0.95 per sq. m. • Group 4 buildings: TRY 1.81 per sq. m. • Group 5 buildings: TRY 2.20 per sq. m. 1 day TRY 2,861 12 • Group 6 buildings: TRY 5.06 per sq. m. According to the 2014 Fire Service Fees Schedule, BuildCo's warehouse would now fall into group 5 (factory buildings, hospitals, hotels, warehouses). Therefore, the applicable fee would be: 1,300.6 X 2.20 = TRY 2,861.32 Agency: Fire Department, Istanbul Municipality Submit final inspection report and receive final inspection from the municipality Upon completion of construction, the private inspector must submit his final inspection report to the municipality before the 13 municipality conducts its final inspection. The municipality will 5 days no charge come to inspect the building after 5 days on average. Agency: District Municipality Obtain occupancy permit Land Development Law No. 3194 requires an occupancy permit for all new constructions. The company applies for the 15 days no charge 14 occupancy permit by submitting the following documents: • The invoice for the building • The building permit Doing Business 2016 Turkey 35 Time to No. Procedure Cost to complete complete • The built-up area breakdown table in square meters • The original copy of the plot title deed • The real estate tax declaration • The real estate tax receipt An authorized commission from the municipality inspects the building and verifies that it complies with the project. This commission then issues the occupancy permit. The law specifies a statutory time limit of 30 days for the municipality to issue an occupancy permit. Practitioners observe that this statutory time limit is not frequently observed, and so, this process can take on average 2 months. Agency: District Municipality * Change the title deed from a land title deed to a building title deed The company must submit the following documents to the title deed department in order to register the building: • The title deed • The plot share distribution table • The occupancy permit • The cadastral survey pages Registering the warehouse takes some time due to backlogs and long waiting times at the Land Registry. However, with 15 connections at the Land Registry, the process may take as little 10 days TRY 286 as 3 days. The fee is based on the area of the immovable property: 1-1,000 sq. m.: 202.00 TRY / sq. m. 1,001-3,000 sq. m.: 286.00 TRY / sq. m. Greater than 3,001 sq. m.: 28.00 TRY for every additional 1,000 sq. m. Agency: Title Deed Department * Obtain operation permit from the Municipality By law (Article 2 of the Operation Permit Regulation), BuildCo must obtain an operating permit from the Municipality before 16 using this warehouse as a storage facility. 15 days TRY 2,500 Agency: District Municipality Doing Business 2016 Turkey 36 Time to No. Procedure Cost to complete complete * Receive inspection from the water and sewerage department Upon request of permission from the water and sewage department to discharge sewage and rainwater, the technicians from this department perform their inspections at the site and grant permission for connection of wastewater and rainwater to the system. The technicians from the same department also 1 day no charge 17 check that the canal connections comply with the approved design, upon request for a water connection. The technicians then issue a letter of approval for connection. Agency: Istanbul Water Supply and Sewerage General Directorate (ISKI) Obtain water and sewage connection 18 8 days TRY 250 Agency: Istanbul Water Supply and Sewerage General Directorate (ISKI) * 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 Turkey 37 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 Turkey Answer Score Building quality control index (0-15) 9.50 Quality of building regulations index (0-2) 1.00 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) Which requirements for obtaining a building permit are clearly List of required specified by the building regulations or by any accessible website, 0.0 documents. brochure or pamphlet? (0-1) Quality control before construction index (0-1) 1.00 Who is part of the committee or team that reviews and approves Licensed architect; building permit applications in the relevant permit-issuing 1.0 Licensed engineer. 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 by external 1.0 carried out during construction? (0-2) engineer or firm. 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 Yes, final inspection is done by government Is there a final inspection required by law to verify that the agency; Yes, external building was built in accordance with the approved plans and 2.0 engineer submits regulations? (0-2) report for final inspection. 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) 0.50 Which parties (if any) are held liable by law for structural flaws or Construction company. 0.5 problems in the building once it is in use? (0-1) 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 Turkey 38 Answer Score building once it is in use? (0-1) . Professional certifications index (0-4) 2.00 University degree in What are the qualification requirements for the professional architecture or responsible for verifying that the architectural plans or drawings engineering; Being a 1.0 are in compliance with existing building regulations? (0-2) registered architect or engineer. University degree in engineering, construction or What are the qualification requirements for the professional who construction 1.0 supervises the construction on the ground? (0-2) management; Being a registered architect or engineer. Source: Doing Business database. Doing Business 2016 Turkey 39 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 Turkey 40 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 Turkey 41 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 Turkey? According to data collected by Doing Business, business city of an economy, except for 11 economies for getting electricity there requires 4.00 procedures, takes which the data are a population-weighted average of the 63.00 days and costs 599.60% of income per capita 2 largest business cities. See the chapter on distance to (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Turkey 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 Turkey 42 GETTING ELECTRICITY Globally, Turkey stands at 36 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 Turkey to connect a The rankings for comparator economies and the regional warehouse to electricity. Figure 4.2 How Turkey and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2016 Turkey 43 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in Turkey practices and internal wiring installations. In an effort to (table 4.1)? Table 4.1 How has Turkey made getting electricity easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Turkey made getting electricity easier by eliminating external DB2014 inspections and reducing some administrative costs. Source: Doing Business database. Doing Business 2016 Turkey 44 GETTING ELECTRICITY What are the details? The indicators reported here for Turkey 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— Boğaziçi Elektrik Dağıtım Name of utility: identified by Doing Business. Data are collected from the A.Ş. (BEDAŞ) 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): 14 contractors and construction companies. The electricity distribution utility surveyed is the one serving the area City: Istanbul (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 Turkey Time to No. Procedure Cost to complete complete Hire electrical engineer, apply for connection, await estimate and sign connection agreement The customer hires one or many electrical engineers registered with the Chamber of Electrical Engineers (EMO) or an engineering company (with an engineer on the payroll who is registered with the Chamber of Electrical Engineers). The Engineer prepares the electrical project based on the facility’s architectural project. Part of the electricity project, the engineer prepares a connection scheme (for both internal and external installations). For 1 connection applications, this project is obligatory. The engineer will be in 30 calendar days TRY 4,202.35 charge of the external works, and most of the time also carries out the internal installation. BOĞAZİÇİ ELEKTRİK DAĞITIM A.Ş. (BEDAŞ) will check the network to see if at the point of connection a transformer is needed. If so, the client is required to install a transformer. Along with the application, the engineer submits the electricity project. The client submits the following in addition to the electricity project to BEDAŞ: Doing Business 2016 Turkey 45 Time to No. Procedure Cost to complete complete • Letter of application • Copy of ID card of Company Representative • Company seal • Rental contract / ownership documentation (land deed, certificate of occupancy) • Technical Production Form (Description of the business) • Consent License ( from shareholders for the tenants ) • Trade Registry Gazette • Tax Registration Certificate • List of authorized signatories • Letter of authorization from public notary for the people managing the process, but not listed in the company's list of authorized signatories • Requested capacity • Invoice of payment of connection fees The application for connection is evaluated by BEDAŞ, taking into consideration the requirements for expansion investment or new investment within the framework of the existing circumstances of the distribution system. BOĞAZİÇİ ELEKTRİK DAĞITIM A.Ş. (BEDAŞ) comes and inspects the site. Accordingly: • If the existing circumstances of the distribution system are suitable for connection, the connection scheme is approved and a connection agreement is signed between the utility and the client upon submission of required documents; • If the existing circumstances of the distribution system are not suitable for connection (as in our case where a substation is needed), the client is advised about a reasonable period to complete the connection. Agency: Boğaziçi Elektrik Dağıtım A.Ş. (BEDAŞ) Obtain excavation permit from municipality The customer needs to obtain an excavation permit from Istanbul Municipality in order to carry out the works. The permit can be applied for after the electricity project has been approved. The customer needs to submit the approved electricity project, the occupancy permit, and 8 calendar days TRY 1,000 2 state their address (no official document is needed). Agency: Istanbul Municipality/ Zeytinburnu Municipality (depending on whether land is on main arterial road or not) Doing Business 2016 Turkey 46 Time to No. Procedure Cost to complete complete Obtain external works from private firm or registered electrical engineer In the assumed area connections are generally made underground. Physical implementation of both internal and external wiring is outsourced to the same Engineer or any other similar Engineers. 3 18 calendar days TRY 128,891.67 The external works consist of the construction of private substation and underground connection to a central substation. The Engineer(s) will need to purchase the material for the external connection. Agency: Private firm/ Electrical engineer(s) Submit Electricity Structural Project and await meter installation and final connection Following the wiring and completion of implementation, the client is required to submit a post-implementation electricity project called “Electricity Structural Project.” This is followed by BOĞAZİÇİ ELEKTRİK DAĞITIM A.Ş. (BEDAŞ) inspection of the internal wiring. Connection is made by the utility following its checking of the wiring (no inspection of entire internal wiring is done 7 calendar days TRY 2,687.91 4 during the process, just of the interface). The compatibility of the metering devices and the circuits of the client are tested, and the relevant parts of the meters and measurement circuits are sealed and first index read on the meter. Connection to the system is then recorded by the distribution licensee. Agency: Boğaziçi Elektrik Dağıtım A.Ş. (BEDAŞ) * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2016 Turkey 47 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 Turkey Answer Score Reliability of supply and transparency of tariff index (0-8) 6.00 Total duration and frequency of outages per customer a year (0-3) 1.00 System average interruption duration index (SAIDI) 10.0 System average interruption frequency index (SAIFI) 5.0 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 http://lisans.epdk. Doing Business 2016 Turkey 48 Answer Score org.tr/epvys- tarife/faces/pages /tarife.xhtml http://enerjienstit usu.com/elektrik- fiyatlari/ 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 Turkey 49 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 Turkey 50 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 Turkey? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 7.00 procedures, which the data are a population-weighted average of the takes 7.00 days and costs 4.00% 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 Turkey 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 Turkey 51 REGISTERING PROPERTY Globally, Turkey stands at 52 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 Turkey to transfer property. Figure 5.2 How Turkey and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2016 Turkey 52 REGISTERING PROPERTY Economies worldwide have been making it easier for the time required substantially—enabling buyers to use entrepreneurs to register and transfer property—such as or mortgage their property earlier. What property by computerizing land registries, introducing time limits registration reforms has Doing Business recorded in for procedures and setting low fixed fees. Many have cut Turkey (table 5.1)? Table 5.1 How has Turkey made registering property easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Turkey made transferring property more costly by increasing DB2014 the registration and several other fees. 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 Turkey 53 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: TRY 1,140,651 notaries and property registries. These procedures are those that apply to a transaction matching the City: Istanbul 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 Turkey Time to No. Procedure Cost to complete complete The buyer conducts a non-encumbrance check on the property Although not mandated by law, non-encumbrance check is a must Procedure without which buyers do not proceed with the transfer process. The buyer almost always checks whether or not the property is free of liens and encumbrances. For this, the seller would need to obtain the document showing that the property is free of disputes. By law, title deeds are open to anyone who legitimizes their interest. However, in practice the records are not accessible to the public: the buyer can obtain this document only with a power attorney of the seller. Therefore, this document is typically obtained by the seller who is often 1 day no cost 1 accompanied by the buyer. For transactions that are undertaken by lawyers, this procedure is taken care of by lawyers (who have the power of attorney from the seller and have a legal right to search titles). The information is computerized; it takes minutes to check and is free of charge. If the buyer or seller wish to obtain a copy of the records displaying the status of the property, a fee of TL 7.20 per page applies. Agency: Land Registry office Managers obtain an authorization certificate of their authority to conduct transactions on companies’ behalf If the sale transaction will be made in person by the company signatories, the managers should obtain a separate document from the 1 day TL 34 2 trade registry, showing that they have the authority to conduct transactions before land registry on their companies’ behalf. If the sale transaction will be made in proxy given by the company signatories, the representatives should be given special proxies, which will be issued before the notary and inclusive of the authorized managers’ statement as Doing Business 2016 Turkey 54 Time to No. Procedure Cost to complete complete well as the photographs. The notary might ask the manager to show the above mentioned authorization document or a signature circular of the company. The notary will charge a fee of approximately TL 200 for issuing the power of attorney Agency: Company Registrar Obtain an earthquake insurance policy, or amend the existing one If a “compulsory earthquake insurance policy” had not been issued for the building, one must be prepared since in practice, when selling the building or asking for a loan on it, it is usually required. The cost of this insurance policy depends on the features such as the area of the building and the place thereof, and the insurance brokers automatically calculate it. If there is an existing "compulsory earthquake insurance policy" which no cost (unless a is still valid at the date of the sale (i.e. if the term of the insurance policy 1 day new insurance is 3 has not yet expired), then there is no need to issue another one just as a needed) result of the change of ownership. However, the new owner of the property shall have the insurance policy amended to indicate his own name under the policy, which will be arranged between the insurance company and the new owner. Agency: Insurance Company Obtain the real estate value statement from the Municipality The parties need to obtain a document showing the current value of the property from the local municipality. This value statement is used by the 4 land registry officer to determine the mortar dues. 1 day no cost Agency: Municipality Parties apply for registration and obtain tax payment assessment It is possible for parties to make an online appointment from the general IT system of the Land Registry in order to pick a date/time when to submit an application to the registration. The seller and the purchaser (or their representatives) meet at the registry office and fill in an application form. Once the required documents are presented, the parties declare the consideration to be paid by the purchaser. The officer calculates the 1 day no cost 5 mortar dues, and gives the account details of the registry office for the payment, and makes an appointment on the very day or on the consecutive day for the parties to pay the dues and come back again for signature. The documentation shall include: Annual property tax declaration of the seller company The Authorization Certificate of the manager obtained from trade registry, if transactions are carried out by the company signatories. The notarized proxies of the representatives (if they will perform the transaction) The identity cards of signatories Doing Business 2016 Turkey 55 Time to No. Procedure Cost to complete complete (passport for foreigners) Two photographs of each person who would actually sign the registry documents Signature Circular Title deed copy or information regarding the title deed of the property A document showing the current value of the property, issued by the Municipality An earthquake insurance policy Signatories shall keep the seal of the company during the Procedure. The Land Registry Office accepts application when all of the above listed documents are submitted and informs interested parties (with a text message generated through the general IT system of the Land Registry) giving them the application number and notifying that the application is being processed. Agency: Land Registry office Registration fee is paid at a commercial bank Mortar dues are paid to the bank account of the land registry, and the bank will give a receipt of the payment. The mortar due is equal to 4% of the declared amount in Turkish Lira, collected 2% each from the parties, but in practice usually the purchaser pays all. The parties also TL 93.5 pay a registration fee to cover overall expenses of Land Registries in (registration fee) + Turkey. This is usually paid by the purchaser to the bank account of the 4% of declared Land Registry. General IT system informs the concerned parties with a transaction price text message when the registration fee and mortar dues should be paid 1 day (mortar dues) or 6 at the commercial bank. This message is being sent to the parties after 4% of the taxable the evaluation process is completed by the Land Registry officers. The value of the real commercial bank to which the registration fees and mortar dues are deposited is a bank designated by the Land title registry. In other words, estate (whichever the parties have to deposit the concerned amounts to the bank account is higher) of Land Registry at a bank determined by the Registry itself. Agency: Commercial Bank Transaction is completed at the registry office Once all the above Procedures are fulfilled, a text message sent from general IT office of land title registry that the parties should be present at the land registry office at the appointment hour decided previously by the Land Registry for the finalization of the transaction. The parties meet at registry office before the registry manager or his deputy at the appointment hour decided previously. The purchaser pays the Already paid in 7 consideration at that time. If it is already paid, the seller declares that it is 1 day Procedure 5 fully paid. Then the parties both sign the land record sheet as well as the photographs of each other are attached to the document. Each person witnesses that he/she had made the transaction mutually with the person in the picture, the transfer of the title is then completed. The documentation shall include: payment receipts, ID cards Agency: Land Registry office Doing Business 2016 Turkey 56 Time to No. Procedure Cost to complete complete * 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 Turkey 57 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 Turkey Answer Score Quality of the land administration index (0-30) 21.50 Reliability of infrastructure index (0-8) 8.00 Land Registry What is the institution in charge of immovable property registration? Office (Tapu) In what format are the majority of title or deed records kept in the Computer/Fully largest business city—in a paper format or in a computerized format 2.0 digital (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, Yes 1.0 mortgages, restrictions and the like)? Cadastral Institution in charge of the plans showing legal boundaries in the Directorate of largest business city: Istanbul In what format are the majority of maps of land plots kept in the Computer/Fully largest business city—in a paper format or in a computerized format 2.0 digital (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral information (geographic information Yes 1.0 system)? 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) 2.50 Who is able to obtain information on land ownership at the agency in Only intermediaries 0.0 charge of immovable property registration in the largest business city? and interested Doing Business 2016 Turkey 58 Answer Score parties 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.tkgm. gov.tr/sites/defau Link for online access: lt/files/icerik/ekler i/tapu_islem_rehb er_.pdf 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.tkgm. gov.tr/sites/defau Link for online access: lt/files/icerik/ekler i/4_sayili_tarife_- _2015_yili.pdf Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property No 0.0 ownership within a specific time frame–and if so, how does it communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about a problem that occurred at the agency in charge of immovable property No 0.0 registration? Contact information: Are there publicly available official statistics tracking the number of Yes 0.5 transactions at the immovable property registration agency? Number of property transfers in the largest business city in 2014: 485,185 Freely accessible Who is able to consult maps of land plots in the largest business city? 0.5 by anyone Is the applicable fee schedule for accessing maps of land plots made Yes, online 0.5 publicly available—and if so, how? http://www.tkgm. gov.tr/sites/defau Link for online access: lt/files/icerik/ekler i/2015fiyatcizelge si.pdf Does the cadastral or mapping agency commit to delivering an No 0.0 updated map within a specific time frame—and if so, how does it Doing Business 2016 Turkey 59 Answer Score communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about No 0.0 a problem that occurred at the cadastral or mapping agency? Contact information: Geographic coverage index (0–8) 4.00 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 Yes 2.0 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? Yes 2.0 Land dispute resolution index (0–8) 7.00 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 Yes 0.5 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)? If yes, who is responsible for checking the legality of the documents? Registrar. Does the legal system require verification of the identity of the parties Yes 0.5 to a property transaction? If yes, who is responsible for verifying the identity of the parties? Registrar. 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 Civil Court of capita and located in the largest business city, what court would be in First İnstance 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 Doing Business 2016 Turkey 60 Answer Score instance court for such a case (without appeal)? years Are there any statistics on the number of land disputes in the first Yes 0.5 instance? Number of land disputes that were closed in 2014: 23,656 Number of land disputes in the largest business city in 2014: Number of land disputes that were taken to court in 2014: 24,670 Source: Doing Business database. Doing Business 2016 Turkey 61 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 Turkey 62 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Turkey stands at 79 in the ranking of 189 and bankruptcy laws in Turkey facilitate access to credit? economies on the ease of getting credit (figure 6.1). The The economy has a score of 7.00 on the depth of credit rankings for comparator economies provide other useful information index and a score of 3.00 on the strength of information for assessing how well regulations and legal rights index (see the summary of scoring at the end institutions in Turkey support lending and borrowing. of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Turkey and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2016 Turkey 63 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Turkey 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 Turkey 64 GETTING CREDIT What are the details? The getting credit indicators reported here for Turkey are The data on the legal rights of borrowers and lenders are based on detailed information collected in that economy. gathered through a survey of financial lawyers and The data on credit information sharing are collected verified through analysis of laws and regulations as well through a survey of a credit registry and/or credit bureau as public sources of information on collateral and (if one exists). To construct the depth of credit bankruptcy laws. For the strength of legal rights index, a information index, a score of 1 is assigned for each of 8 score of 1 is assigned for each of 10 aspects related to 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: 3.00 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 No assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of No movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of 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 No 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 No 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? No 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 No liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by No providing clear grounds for relief from the stay and/or sets a time limit for it? 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 Turkey 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? No 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 No 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 No Yes 1 capita distributed? By law, do borrowers have the right to access their data No Yes 1 in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an online No 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 No Yes 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 7,677,085 Number of individuals 0 30,495,848 Total 0 38,172,933 Total percentage of adult population 0.00 74.90 Source: Doing Business database. Doing Business 2016 Turkey 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 Turkey 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 Turkey? The economy has a score of 6.80 not measure all aspects related to the protection of on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Turkey stands at 20 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Turkey and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2016 Turkey 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 Turkey. Figure 7.2 Summary of the various minority investor protection indices for Turkey and comparator economies. Source: Doing Business database. Doing Business 2016 Turkey 69 PROTECTING MINORITY INVESTORS Economies with the strongest protections of minority result, reforms to strengthen minority investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have well- as through new or amended company laws, securities functioning courts and up-to-date procedural rules that regulations or civil procedure rules. What minority give minority shareholders the means to prove their case investor protection reforms has Doing Business recorded and obtain a judgment within a reasonable time. As a in Turkey (table 7.1)? Table 7.1 How has Turkey strengthened minority investor protections—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Turkey strengthened investor protections through a new commercial code that requires directors found liable in abusive DB2014 related-party transactions to disgorge their profits and that allows shareholders to request the appointment of an auditor to investigate alleged prejudicial conflicts of interest. 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 Turkey 70 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Turkey 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 Turkey. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Turkey Answer Score Strength of minority investor protection index (0-10) 6.80 Extent of conflict of interest regulation index (0-10) 6.70 Extent of disclosure index (0-10) 9.00 Which corporate body can provide legally sufficient Board of directors excluding 2.0 approval for the Buyer-Seller transaction? (0-3) interested members 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 Yes 1.0 before it takes place? (0-1) Extent of director liability index (0-10) 5.00 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 Yes 1.0 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) 6.00 Before filing suit, can shareholders owning 10% of the Yes 1.0 Doing Business 2016 Turkey 71 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 1.0 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) 7.00 Extent of shareholder rights index (0-10) 8.00 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 Yes 1.0 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 Yes 1.0 extraordinary meeting of shareholders? Assuming that Buyer is a limited company, must Buyer obtain its shareholders’ approval every time it issues new No 0.0 shares? Assuming that Buyer is a limited company, do shareholders automatically receive preemption rights every time Buyer Yes 1.0 issues new shares? Extent of ownership and control index (0-10) 7.00 Is the CEO prohibited from also being chair of the board of No 0.0 directors? Must the board of directors include independent and Yes 1.0 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 Yes 1.0 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 Yes 1.0 parent company? Doing Business 2016 Turkey 72 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 No 0.0 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 Yes 1.0 primary employment? Must Buyer disclose the compensation of individual No 0.0 managers? Must a detailed notice of general meeting be sent 30 days No 0.0 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 Turkey 73 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 Turkey 74 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 Turkey—and how much do firms pay in taxes? frontier and ease of doing business ranking at the end of On average, firms make 11.00 tax payments a year, this profile for more details. spend 226.00 hours a year filing, preparing and paying Globally, Turkey stands at 61 in the ranking of 189 taxes and pay total taxes amounting to 40.90% 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 Turkey. Figure 8.1 How Turkey and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2016 Turkey 75 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 Turkey (table 8.1)? Table 8.1 How has Turkey made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Turkey lowered the social security contribution rate for DB2012 companies by offering them a 5% rebate Turkey made paying taxes more costly for companies by DB2015 increasing employers’ social security contribution rate. 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 Turkey 76 PAYING TAXES What are the details? The indicators reported here for Turkey are based on LOCATION OF STANDARDIZED COMPANY 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: Istanbul chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online 49 0.2 17.94 profit Employer paid - Social security gross 1 online 80 0.155 17.66 contributions salaries Employer paid - gross Unemployment insurance 0 jointly 0.02 2.28 salaries contributions Property transfer fee 1 0.02 sale price 1.21 value of 0.1% and building 0.3% and land Property tax 1 0.88 (doubled in (reevaluate Istanbul) d each year) Stamp duty on property sale 1 0.00948 sale price 0.57 10%-12%- interest included in Tax on interest 0 withheld 13%-15%- 0.38 income other taxes 18% Vehicle tax 1 TRY 2,338 fixed fee 0.21 TRY 4.75 number of Transaction tax on checks 1 0.1 per check checks Doing Business 2016 Turkey 77 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 varies between Environment tax 1 0.02 TRY 3,125 to TRY 25 General rate is 18% value not Value added tax (VAT) 1 online 97 but varies 0 added included between 1%-18% various advertising small Advertising tax 1 0 rates expense amount included in small Fuel tax 1 0 fuel price amount Employee paid - Social security gross 0 jointly 0.14 0 withheld contributions salaries gross Employee paid - Payroll tax 0 jointly 0.0066 0 withheld salaries Employee paid - gross Unemployment insurance 0 jointly 0.01 0 withheld salaries contributions Totals 11.00 226.00 40.90 Source: Doing Business database. Doing Business 2016 Turkey 78 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 Turkey 79 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 Turkey 80 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Border indicator refers to a case Globally, Turkey stands at 62 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 Turkey and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2016 Turkey 81 TRADING ACROSS BORDERS What are the details? The indicators reported here for Turkey are based on LOCATION OF STANDARDIZED COMPANY 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 combination City: Istanbul of these). The information on the time and cost to complete export and import is collected from local The details on the predefined set of procedures, and the freight forwarders, customs brokers and traders. associated time and cost, for exporting and importing a 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 Turkey Turkey Europe & Central Asia Time to export: Border compliance (hours) 8 28 Cost to export: Border compliance (USD) 356 219 Time to export: Documentary compliance (hours) 2 31 Cost to export: Documentary compliance (USD) 87 144 Time to import: Border compliance (hours) 36 23 Cost to import: Border compliance (USD) 655 202 Time to import: Documentary compliance (hours) 11 27 Cost to import: Documentary compliance (USD) 142 108 Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Turkey Export Import HS 87 : Vehicles other than railway or tramway rolling- HS 8708: Parts and accessories Product stock, and parts and of motor vehicles accessories thereof Trade partner France Germany Border Derince port Ambarli port Distance (km) 90 38 Domestic transport time (hours) 3 3 Domestic transport cost (USD) 550 263 Domestic transport speed (km/hour) 30.0 12.7 Domestic transport cost per distance (USD/km) 6.1 6.9 Doing Business 2016 Turkey 82 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 ATR Bill of lading Certificate of origin CMR waybill Commercial invoice Customs declaration Packing list Documents to import ATR Bill of lading Cargo release order Carnet TIR Certificate of origin CMR waybill Commercial invoice Customs declaration Freight invoice Insurance policy Packing list Tareks Reference number Warehouse declaration 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 Turkey 83 Figure 9.2 Summary of Turkey on the ease of trading across borders Export Import Source: Doing Business database. Doing Business 2016 Turkey 84 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 Turkey 85 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial and ease of doing business ranking at the end of this dispute through the courts in Turkey? According to data profile for more details. collected by Doing Business, contract enforcement takes Globally, Turkey stands at 36 in the ranking of 189 580.00 days and costs 24.90% of the value of the claim. economies on the ease of enforcing contracts (figure Most indicator sets refer to the largest business city of an 10.1). The rankings for comparator economies and the economy, except for 11 economies for which the data regional average ranking provide other useful are a population-weighted average of the 2 largest benchmarks for assessing the efficiency of contract business cities. See the chapter on distance to frontier enforcement in Turkey. Figure 10.1 How Turkey and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2016 Turkey 86 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 Turkey (table 10.1)? Table 10.1 How has Turkey made enforcing contracts easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Turkey made enforcing contracts easier by introducing a new DB2013 civil procedure law. Turkey made enforcing contracts easier by introducing an DB2015 electronic filing system for court users. 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 Turkey 87 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for Turkey ECONOMY DETAILS are built by following the step-by-step evolution of a commercial sale dispute within the court, under the assumptions about the case described above (figure Istanbul Commercial 10.2). The time and cost of resolving the Court name: Court of First Instance standardized dispute are identified through study of the codes of civil procedure and other court City: Istanbul 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 Turkey and comparator economies Source: Doing Business database. Doing Business 2016 Turkey 88 Table 10.2 Details on time and cost for enforcing contracts in Turkey Europe & Central Indicator Turkey Asia average Time (days) 580 481 Filing and service 30 Trial and judgment 450 Enforcement of judgment 100 Cost (% of claim) 24.9 26.2 Attorney fees (% of claim) 12.0 Court fees (% of claim) 3.0 Enforcement fees (% of claim) 9.9 Source: Doing Business database. Doing Business 2016 Turkey 89 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 Turkey. 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 Turkey and comparator economies Source: Doing Business database. Doing Business 2016 Turkey 90 Table 10.3 Details of the quality of judicial processes index in Turkey Answer Score Quality of judicial processes index (0-18) 13.00 Court structure and proceedings (0-5) 3.5 1. Is there a court or division of a court dedicated solely to hearing Yes 1.5 commercial cases? 2. Small claims court 0.0 2.a. Is there a small claims court or a fast-track procedure for small No claims? 2.b. If yes, is self-representation allowed? n.a. 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; No 0.0 (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques Yes 1.0 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) 3.5 Doing Business 2016 Turkey 91 Answer Score 1. Can the initial complaint be filed electronically through a dedicated Yes 1.0 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? Yes 1.0 4. Publication of judgments 0.5 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 Yes publication in official gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.0 1. Arbitration 1.0 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 Yes arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the Yes courts? 2. Mediation/Conciliation 1.0 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 No court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2016 Turkey 92 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 Turkey 93 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 4.50 years on average and costs 14.50% 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 18.70 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, Turkey stands at 124 in the ranking of 189 economy. economies on the ease of resolving insolvency (figure 11.1). Figure 11.1 How Turkey and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2016 Turkey 94 Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Turkey 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 Turkey 95 Table 11.1 Details of data on efficiency of insolvency proceedings in Turkey Indicator Answer Explanation The most common and practical way for the hotel to proceed is the postponement of bankruptcy procedure. Article 377 of Turkish Commercial Code and Article 179 of the Turkish Enforcement and Bankruptcy Code regulate this procedure. The debtor must propose a rehabilitation plan. The court may decide to grant up to one year for the debtor to attempt rehabilitation based on the liquidation proposed plan. This period can be extended up to 4 years in total. Upon the (after an decision on postponement of bankruptcy, no legal proceeding (including the Proceedin attempt at proceedings for the collection of the public receivables) can be initiated against g reorganization) the debtor and the pending proceedings will be deferred. If the court agrees to postpone the bankruptcy, it will also appoint an administrator in the same decision. The maximum postponement period is one year, during which time the administrator will supervise the business. In most cases, similar to the case study, the debtor does not achieve the projections of the rehabilitation plan and the court will commence liquidation proceedings. If the debtor fails to achieve its goals shown in the rehabilitation report, then the Outcome piecemeal sale court will rule for opening its bankruptcy. Therefore in that case it would not be possible for the debtor to continue operating as a going concern. After several months of procedural matters and hearings, the court will grant a one-year postponement of bankruptcy period to Mirage. This period can be extended up to four years depending on the achievement of the rehabilitation plan. In the case of Mirage, the postponement period will last 3 years in total. After the third year, Mirage can request an extension of the postponement period (another year), however, the court will likely deny this this request, because Mirage is not likely to comply with the financial projections of the proposed rehabilitation plan. The court will declare Mirage bankrupt and notify Time (in 4.5 the bankruptcy office. Bankruptcy administrators will be appointed and will carry years) out the liquidation procedure. Bankruptcy administrators will examine the inventory and financials of the company, review creditors' claims, prepare creditors' list, organize creditors' meetings and facilitate the sale of the hotel's assets. The bankruptcy procedure will last 18 months. Given the recent restructuring of its commercial courts, pending cases are experiencing significant delays while case files are being reassigned to new courts. It is however expected that this reform will speed up proceedings in the longer term. The largest part of the expenses is government levies (4.55% for bankruptcy) and other case-related costs (court fees, publication costs, stamp duty, etc.). Attorney Cost (% of fees comprise about 5% of the total expenses, as per the fee schedule for 14.5 estate) Monetary Claims and related proceedings before Execution and Bankruptcy Offices. Fees of administrators, auctioneers, accountants and other professionals involved in the insolvency proceedings make up the rest of the expenses. Recovery rate: 18.70 Source: Doing Business database. Doing Business 2016 Turkey 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. Turkey’s score on the strength index, reorganization proceedings index and creditor of insolvency framework index is 8.00 out of 16. participation index. The index ranges from 0 to 16, Figure 11.3 Strength of insolvency framework index (0-16) in Turkey 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 Turkey 97 Table 11.3 Summary of data for the strength of insolvency framework index in Turkey Answer Score Strength of insolvency framework index (0-16) 8.00 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 (c) Both (a) and (b) options are What basis for commencement of the insolvency proceedings is allowed available, but 1.0 under the insolvency framework? only one of them needs to be complied with Management of debtor's assets index (0-6) 2.00 Does the insolvency framework allow the continuation of contracts No 0.0 supplying essential goods and services to the debtor? Does the insolvency framework allow the rejection by the debtor of overly No 0.0 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 No 0.0 obtaining credit after commencement of insolvency proceedings? (c) No priority is Does the insolvency framework assign priority to post-commencement assigned to post- 0.0 credit? commencement creditors Reorganization proceedings index (0-3) 1.00 (c) Other, please Which creditors vote on the proposed reorganization plan? 0.0 specify 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 No 0.0 reorganization plan, does each class vote separately and are creditors in Doing Business 2016 Turkey 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 Turkey 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 Turkey 100 LABOR MARKET REGULATION What are the details? The data reported here for Turkey 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 No limit - Art. 11, Labor Law No. 4857, Maximum length of a single fixed-term contract (months) 2003 Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 571.4 (US$/month) Ratio of minimum wage to value added per worker 0.4 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 Turkey 101 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 6.0 Premium for night work (% of hourly pay) 0.0 Premium for work on weekly rest day (% of hourly pay) 100.0 Premium for overtime work (% of hourly pay) 50.0 Restrictions on night work? 1.0 Whether nonpregnant and nonnursing women can work the same night No hours as men Restrictions on weekly holiday? 0.0 Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 14.0 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 18.0 working days) Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 Turkey 102 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) 2.0 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? No Priority rules for redundancies? No Priority rules for reemployment? Yes Source: Doing Business database. Doing Business 2016 Turkey 103 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 8.0 Notice period for redundancy dismissal for a worker with 10 years of tenure 8.0 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 6.7 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure 21.7 Severance pay for redundancy dismissal for a worker with 10 years of tenure 43.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 23.1 of tenure) Source: Doing Business database. Doing Business 2016 Turkey 104 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? No Paid or unpaid maternity leave mandated by law? Yes Minimum length of maternity leave (calendar days)? 112.0 Receive 100% of wages on maternity leave? No Five fully paid days of sick leave a year? Yes On-the-job training? No Unemployment protection after one year of employment? Yes Minimum contribution period for unemployment protection (months)? 6.0 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 Turkey 105 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 Turkey 106 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 Turkey 107 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 Turkey 108 Doing Business 2016 Turkey 109 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 Turkey 110