73993 Economy Profile: Nicaragua Doing Business 2013 Nicaragua 2 © 2013 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Doing Business 2013 Nicaragua 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 36 Registering property .................................................................................................................. 44 Getting credit .............................................................................................................................. 54 Protecting investors ................................................................................................................... 61 Paying taxes ................................................................................................................................ 70 Trading across borders .............................................................................................................. 78 Enforcing contracts .................................................................................................................... 87 Resolving insolvency .................................................................................................................. 97 Employing workers .................................................................................................................. 103 Data notes ................................................................................................................................. 110 Resources on the Doing Business website ............................................................................ 115 Doing Business 2013 Nicaragua 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2011). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 185 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 19 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2013 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Nicaragua. To allow useful comparison, it business regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2013, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2012 (except for http://www.doingbusiness.org. Doing Business 2013 Nicaragua 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: Latin America & Caribbean business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 185 by the ease of Population: 5,869,859 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 1,170 percentile rankings on each of the 10 topics included in the index in Doing Business 2013: starting a business, DB2013 rank: 119 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2012 rank: 120* investors, paying taxes, trading across borders, Change in rank: 1 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see * DB2012 ranking shown is not last year’s published the data notes for more details). The employing workers ranking but a comparable ranking for DB2012 that indicators are not included in this year’s aggregate ease captures the effects of such factors as data of doing business ranking, but the data are presented corrections and the addition of 2 economies in this year’s economy profile. (Barbados and Malta) to the sample this year. See the data notes for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2013 Nicaragua 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2013 Nicaragua 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Nicaragua and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2013 Nicaragua 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Nicaragua ranks on Doing Business topics Source: Doing Business database. Doing Business 2013 Nicaragua 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business year Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far each economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy since of changes in an economy’s regulatory environment for 2005 on each indicator in 9 Doing Business indicator sets. firms, but they are always relative. An economy’s ranking Comparing the measure for an economy at 2 points in might change because of developments in other time allows users to assess how much the economy’s economies. An economy that implemented business regulatory environment as measured by Doing Business regulation reforms may fail to rise in the rankings (or may has changed over time—how far it has moved toward (or even drop) if it is passed by others whose business away from) the most efficient practices and strongest regulation reforms had a more significant impact as regulations in areas covered by Doing Business (figure 1.4). measured by Doing Business. The results may show that the pace of change varies widely Moreover, year-to-year changes in the overall rankings do across the areas measured. They also may show that an not reflect how the business regulatory environment in an economy is relatively close to the frontier in some areas economy has changed over time—or how it has changed and relatively far from it in others. in different areas. To aid in assessing such changes, last Figure 1.4 How far has Nicaragua come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the 9 indicator sets shown in the figure. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2013 Nicaragua 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Nicaragua Best performer globally El Salvador DB2013 Costa Rica DB2013 Nicaragua DB2013 Nicaragua DB2012 Honduras DB2013 Colombia DB2013 Panama DB2013 Mexico DB2013 Indicator DB2013 Starting a Business 131 131 61 128 139 155 36 23 New Zealand (1) (rank) Procedures (number) 8 8 8 12 8 13 6 6 New Zealand (1)* Time (days) 39 39 13 60 17 14 9 7 New Zealand (1) Cost (% of income per 100.6 107.9 7.3 11.4 46.7 45.9 10.1 8.8 Slovenia (0.0) capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 2.9 15.7 0.0 0.0 91 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 154 149 27 128 146 65 36 73 China (1) (rank) Hong Kong SAR, Procedures (number) 16 16 8 18 33 13 10 17 China (6)* Time (days) 218 218 46 160 157 94 69 101 Singapore (26) Cost (% of income per 362.0 428.7 312.0 154.7 162.5 274.3 322.7 83.7 Qatar (1.1) capita) Doing Business 2013 Nicaragua 11 Best performer globally El Salvador DB2013 Costa Rica DB2013 Nicaragua DB2013 Nicaragua DB2012 Honduras DB2013 Colombia DB2013 Panama DB2013 Mexico DB2013 Indicator DB2013 Getting Electricity 129 127 134 45 131 117 130 16 Iceland (1) (rank) Procedures (number) 6 6 5 5 7 8 7 5 Germany (3)* Time (days) 70 70 165 62 78 33 95 35 Germany (17) Cost (% of income per 1,526.6 1,653.8 995.0 256.8 554.8 997.9 382.8 13.6 Japan (0.0) capita) Registering Property 123 123 52 46 56 92 141 107 Georgia (1) (rank) Procedures (number) 8 8 7 5 5 7 7 8 Georgia (1)* Time (days) 49 49 15 20 31 23 74 28 Portugal (1) Cost (% of property 4.2 4.1 2.0 3.4 3.8 5.7 5.3 5.3 Belarus (0.0)* value) Getting Credit (rank) 104 97 70 83 53 12 40 53 United Kingdom (1)* Strength of legal rights 3 3 5 3 5 8 6 5 Malaysia (10)* index (0-10) Depth of credit 5 5 5 6 6 6 6 6 United Kingdom (6)* information index (0-6) Public registry coverage 10.8 10.5 0.0 28.3 26.5 20.7 0.0 0.0 Portugal (90.7) (% of adults) Private bureau United Kingdom 29.5 31.9 72.5 82.8 83.7 32.9 99.2 57.9 coverage (% of adults) (100.0)* Protecting Investors 100 98 6 169 169 169 49 82 New Zealand (1) (rank) Extent of disclosure 4 4 8 2 3 0 8 3 Hong Kong SAR, Doing Business 2013 Nicaragua 12 Best performer globally El Salvador DB2013 Costa Rica DB2013 Nicaragua DB2013 Nicaragua DB2012 Honduras DB2013 Colombia DB2013 Panama DB2013 Mexico DB2013 Indicator DB2013 index (0-10) China (10)* Extent of director 5 5 8 5 0 5 5 4 Singapore (9)* liability index (0-10) Ease of shareholder 6 6 9 2 6 4 5 9 New Zealand (10)* suits index (0-10) Strength of investor 5.0 5.0 8.3 3.0 3.0 3.0 6.0 5.3 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 158 156 99 125 153 139 107 172 (1) Payments (number per Hong Kong SAR, 42 42 9 23 53 47 6 60 year) China (3)* United Arab Emirates Time (hours per year) 207 207 203 226 320 224 337 431 (12) Trading Across Borders 81 86 91 51 80 90 61 9 Singapore (1) (rank) Documents to export 5 5 5 6 8 6 5 3 France (2) (number) Time to export (days) 21 24 14 13 14 12 12 9 Singapore (5)* Cost to export (US$ per 1,140 1,140 2,255 1,030 980 1,342 1,450 615 Malaysia (435) container) Documents to import 6 6 6 6 8 8 4 3 France (2) (number) Time to import (days) 20 23 13 14 10 16 12 9 Singapore (4) Cost to import (US$ per 1,245 1,220 2,830 1,020 980 1,510 1,780 965 Malaysia (420) container) Doing Business 2013 Nicaragua 13 Best performer globally El Salvador DB2013 Costa Rica DB2013 Nicaragua DB2013 Nicaragua DB2012 Honduras DB2013 Colombia DB2013 Panama DB2013 Mexico DB2013 Indicator DB2013 Enforcing Contracts 55 55 154 128 71 179 76 125 Luxembourg (1) (rank) Time (days) 409 409 1,346 852 786 920 415 686 Singapore (150) Cost (% of claim) 26.8 26.8 47.9 24.3 19.2 35.2 31.0 50.0 Bhutan (0.1) Procedures (number) 37 37 34 40 34 47 38 32 Ireland (21)* Resolving Insolvency 80 82 21 128 89 133 26 110 Japan (1) (rank) Time (years) 2.2 2.2 1.3 3.5 4.0 3.8 1.8 2.5 Ireland (0.4) Cost (% of estate) 15 15 6 15 9 15 18 25 Singapore (1)* Outcome (0 as piecemeal sale and 1 as 0 1 0 0 0 1 0 going concern) Recovery rate (cents on 36.0 35.1 76.2 22.5 32.2 19.4 67.3 27.5 Japan (92.8) the dollar) Note: DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. The ranking methodology for the paying taxes indicators changed in Doing Business 2013; see the data notes for details. For more information on “no practice� marks, see the data notes. Data for the outcome of the resolving insolvency indicator are not available for DB2012. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2013 Nicaragua 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures officially required or commonly done in received practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that the entrepreneur will  Has a turnover of at least 100 times income per pay no bribes. And it assumes that the business: capita.  Is a limited liability company, located in the  Does not qualify for any special benefits. largest business city.  Does not own real estate.  Has between 10 and 50 employees.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2013 Nicaragua 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Nicaragua? costs 100.6% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 0.0% of income per capita (figure a business there requires 8 procedures, takes 39 days, 2.1). Figure 2.1 What it takes to start a business in Nicaragua Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Nicaragua 16 STARTING A BUSINESS Globally, Nicaragua stands at 131 in the ranking of 185 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Nicaragua to start a business. Figure 2.2 How Nicaragua and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2013 Nicaragua 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in Nicaragua That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in Nicaragua over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 131 131 Procedures 11 8 8 8 8 8 8 8 8 8 (number) Time (days) 46 39 39 39 39 39 39 39 39 39 Cost (% of income per 160.3 156.2 139.7 123.6 113.7 105.1 95.0 111.9 107.9 100.6 capita) Paid-in Min. Capital (% of 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects o f such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Nicaragua 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by what is possible in making it easier to start a business. the economies that over time have had the best And changes in regional averages can show where performance regionally or globally on the procedures, Nicaragua is keeping up—and where it is falling time, cost or paid-in minimum capital required to start behind. a business (figure 2.3). These benchmarks help show Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2013 Nicaragua 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety-one economies globally have no paid-in minimum capital requirement. Source: Doing Business database. Doing Business 2013 Nicaragua 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Nicaragua (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Nicaragua made starting a business easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Nicaragua 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Nicaragua is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Managua firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Sociedad Anónima (S.A.) - professionals and the study of laws, regulations and Corporation publicly available information on business entry in Paid in Minimum Capital Requirement: None that economy. Following is a detailed summary of those procedures, along with the associated time Start-up Capital: 10 times GNI per capita and cost. These procedures are those that apply to a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Nicaragua—and the time and cost Time to No. Procedure Cost to complete complete Sign the incorporation papers before a notary public The documents of incorporation and the company bylaws must be drafted by a notary public. It is customary to include the company 3 days USD 875 1 bylaws in the document of incorporation. Most notaries will also perform the remaining steps (explained in the following steps) in the incorporation process, for a fee of USD 200 (average). The notary cost is USD 750–1,000. Buy company accounting books and corporate books 2 All companies must keep four corporate books: two accounting books 1 day NIO 800 (diary and ledger) and two corporate books (minutes book and shares book). The cost of the books may vary from one bookstore to another. File incorporation statutes (acta constitutiva) with the Commercial Registry (Registro Comercial) at the one-stop shop (Ventanilla Unica) In January 2004, the government created in the Ministry of Commerce (Ministerio de Fomento, Industria y Comercio) a one-stop shop, the Unique Office for Investment (Ventanilla Unica de Inversiones), in which included in procedure 3 2 weeks companies can file commercial and tax registrations. The one-stop shop 4 cannot process any registrations but forwards the documentation daily to the relevant agencies. The one-stop shop provides information on four procedures and rationalizes them: (a) company registration; (b) tax registration at the Dirección General de Ingresos (DGI); (c) municipal registration; and (d) for foreign companies, the Foreign Secretary (Secretario Exterior). Doing Business 2013 Nicaragua 22 Time to No. Procedure Cost to complete complete The cost for commercial registration is 1% of capital (with a minimum of NIO 1,000, maximum of NIO 30,000) and the following fees: • Inscription of constitution of internal books: NIO 100 • Registration fee for books (diario, mayor, actas y acciones) NIO 350.00 • Application (inscripcion como comerciante): NIO 350 • Form for municipal license (matricula): NIO 5 • Municipal license: for social capital lower than NIO 50,000 is NIO 500; higher than NIO 50,000 is 1% of capital • Municipal license document (constancia de matricula): 1% of license fee The payment must be made in Banpro or Banco de Finanzas, and the payment receipt must be presented at the one-stop shop. Regardless whether the company has income, it must declare before the Nicaraguan Tax Authority (Dirección General de Impuestos) each month. If the company has no sales, it will not pay any taxes. However, it will have to pay the fees for the services performed by their representative in Nicaragua before the DGI. 1% of capital (Commercial * Pay the inscription fees Registration) within a 1 day (simultaneous minimum of NIO 4 Fees must be paid into any bank and the receipt presented to the one- with previous 1,000 and a maximum stop shop (see Procedure 5). There is a commercial bank within the procedure) of NIO 30,000 + NIO Commercial Registry where the payment can be made. 100 (inscription of internal books) Register accounting books (sellado de libros) and register as a NIO 350 (registration trader (inscripcion como comerciante) with the Commerical of accounting books) 5 Registry at the one-stop shop (Ventanilla Unica) 16 days + NIO 300 (application as a trader) Register for general sales tax (Impuesto al Valor Agregado, IVA) Companies with an annual income higher than NIO 240,000 will be 2 days no charge 6 levied general sales tax (impuesto al valor agregado, IVA). The company obtains a unique tax identification number (RUC, Registro Unico del Contribuyente). Obtain a municipal licence (matrícula) 1% of capital (municipal license fee) The entrepreneur must go to the the delegation of the Municipality 1 day + 1% of municipal 7 (Alcaldía) at the one-stop shop to request and obtain the licence license fee (municipal (matricula). The municipal licence is issued on the same day and the license document)+ fees can be paid at the municipality. NIO 5 (form for Doing Business 2013 Nicaragua 23 Time to No. Procedure Cost to complete complete municipal license) Register for social security and public health with Instituto Nicaragüense de Seguridad Social (INSS) 2 days no charge 8 * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Nicaragua 24 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2013 Nicaragua 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 16 procedures, takes 218 days build a warehouse in Nicaragua? According to data and costs 362.0% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Nicaragua Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Nicaragua 26 DEALING WITH CONSTRUCTION PERMITS Globally, Nicaragua stands at 154 in the ranking of 185 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Nicaragua to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Nicaragua and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2013 Nicaragua 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to deal with construction permits (table 3.1). That can help identify where the potential in Nicaragua today, data over time show which aspects for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Nicaragua over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 149 154 Procedures (number) 16 16 16 16 16 16 16 16 Time (days) 218 218 218 218 218 218 218 218 Cost (% of income 812.8 654.9 557.1 536.8 445.9 475.5 428.7 362.0 per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see the data notes. Source: Doing Business database. Doing Business 2013 Nicaragua 28 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by possible in making it easier to deal with construction the economies that over time have had the best permits. And changes in regional averages can show performance regionally or globally on the procedures, where Nicaragua is keeping up—and where it is falling time or cost required to deal with construction permits behind. (figure 3.3). These benchmarks help show what is Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2013 Nicaragua 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Source: Doing Business database. Doing Business 2013 Nicaragua 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Nicaragua (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Nicaragua made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Nicaragua 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Nicaragua are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Managua information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers NIO 9,034,518 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Nicaragua —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain consultations with Municipality of Managua (Alcaldía de Managua - ALMA) over the Urban Plans 1 7 days no charge It is common practice to have an initial consultation with the Technical Urban Planning Committee (Comité Técnico Urbanístico) to verify all conditions before submitting any document. Request and obtain the land use certificate (constancia de uso de suelo) from the Municipality of Managua (Alcaldía de Managua – ALMA)) After the certificate is received, a record number is created (to be used for the following procedures until the project is approved). The 2 documents to be submitted at this stage are an application form, a 40 days NIO 500 copy of the location map, a site map, and the cadastral number of the property. If the applicant does not agree with the decision, an appeal may be filed with the Technical Urban Planning Committee (Comité Técnico Urbanístico). Request feasibility analysis from ENACAL and UNION FENOSA, at ALMA (One-Stop Shop) A feasibility analysis from the Union FENOSA is required to determine whether the site can be connected to the electrical network. The following documents are needed: the (original) location map, a 15 days NIO 2,800 3 specification of the electrical capacity to be installed, and the estimated starting date of construction work. The feasibility analysis is done at no charge, while the pressure measurement costs NIO 500.00 and other costs come to NIO 2,800.00. Doing Business 2013 Nicaragua 32 Time to No. Procedure Cost to complete complete A feasibility analysis (ENACAL) is required to determine whether the site can be connected to water and sewerage services. If no sewage system exists, an alternative would be a treatment system approved by the MARENA (Environmental Impact Assessment, Ministry of the Environment and Natural Resources). The documents to be submitted are an application form, the land use certificate, a project description (physical modulation and activities), a plot plan on a scale of 1:10,000, the water demand and use statement, and specifications of the inflow rate and the sewage characteristics. Request and obtain preliminary design approval from ALMA The company must obtain an approval stating that the proposed preliminary designs conform to the Regulating Plan of the Municipality of Managua and to the land-use certificate. The required documents are the land-use certificate; a notarized deed 4 certifying ownership of the land; the feasibility analyses by the 25 days NIO 1,000 Nicaraguan Institute of Energy (INE) and the Nicaraguan Company of Water and Sewage (ENACAL); a local fault study endorsed by the Nicaraguan Institute of Territorial Studies INETER , if required by the land use certificate; and two sets of maps, each consisting of a location map on a scale of 1:10,000; a site map on a scale of 1:10,000, 1:500, or 1:200; a contour map; an architectural layout; exterior work drawings; and area frames. Request and obtain project approval ENACAL approval (water and sewage), all at ALMA (One-Stop Shop) A project approval is a decision stating that the project conforms to the Regulating Plan of the Municipality of Managua. The fee for obtaining the approval is NIO 3.00 per sq. m., and payment can be made either in cash or in two equal installments. The required documents are three sets of plans and the approved preliminary designs. Union FENOSA provides a review, design approval, and authorization, and issues a decision stating that the proposed project conforms with the Manual of Norms of Construction of Distribution (Manual de Normas de Construcción de Distribución) of the Unión FENOSA, the 5 electrical power supply company. The following documents are 30 days NIO 9,212 required: • Design license • Electrical specifications • Stack-out sheet • List of materials • Project drawings • Photocopy of the electrical power and light contract • Photocopy of the feasibility certificate The INE approves projects that involve heating system or the use of hydrocarbon materials for this purpose. Doing Business 2013 Nicaragua 33 Time to No. Procedure Cost to complete complete The ENACAL approval certificate covers the project conceptualization and indicates that the project is compliant with the standards and regulations. The required documents are a project identification title page, topographic maps, an urban development plan, an existing infrastructure plan, design drawings, detail drawings, and a descriptive report. Request and obtain approval from DGB (Dirección General de Bomberos) Indoor electrical layout drawings must be reviewed and be found to conform to all fire protection standards. For construction projects with commercial and service purposes, the fee is NIO 3.00 per sq. m. 6 15 days NIO 3,902 The required documents are electrical installation layouts, fire protection system plans, safety measures, or plans provided for the construction work. Because the national firefighting system (SINACOI) no longer exists, the institution in charge of this procedure is now DGB (Dirección General de Bomberos). Request and obtain building permit from ALMA The building permit authorizes the start of construction. The cost of a building permit includes a tax of 1.1 % of the total market value of the construction (NIO 70,620.20, in this case). This tax must be paid in full at the start of construction work. Buildings are also subject to an inspection fee, as follows: • NIO 2.00 per sq. m. for areas between 100 and 200 sq. m. • NIO 3.00 per sq. m. for areas between 201 and 1,000 sq. m. (in the care considered here, NIO 3.00 x 1,300.6 = NIO 3,901.80). 7 The required documents are a project approval, an annual real estate 20 days NIO 74,522 tax (solvencia de bienes inmuebles), the registration number with ALMA (the business registration), a tax clearance certificate (solvencia municipal) for the project owner and builder, a builder’s license granted by the Ministry of Transportation and Infrastructure (Ministerio de Transporte e Infraestructura, MTI), the builder's signature on the construction plans, bank guarantees, and official payment receipts. The building permit carries the same weight as a public deed. Inspections may occur during construction. However, these are rare due to a shortage of inspectors. Even if an inspection is carried out, the inspector would simply verify that the building permit is valid. Request fire inspection 8 The cost of a fire and electricity inspection is included in the inspection 1 day no charge fee, which is paid at the Dirección General de Bomberos (DGB). A site visit may be scheduled, but it is not a rigid procedure. * Receive fire inspection 1 day no charge 9 Doing Business 2013 Nicaragua 34 Time to No. Procedure Cost to complete complete * Request and connect to water and sewage services 10 45 days NIO 3,000 This cost covers the installation and can be higher or lower depending on a possible rupture of pipelines. * Request and connect to a fixed telephone line For telephone service connection, the following steps must be taken: • Apply for a new telephone line at ENITEL (cell phone provider) • Submit an identity card • Complete a form • Pay USD 45 for the procedure, which may take up to a month If no telephone line is available, the money is refunded. Otherwise, the 22 days NIO 2,920 11 remainder of the installation fee must be paid, which in this case would be USD 135.00. Thus, the total cost amounts to USD 180.00. Another option would be to buy a cellular phone or a cellular telephone plan, with either a post-payment plan (12 to 50 minutes, free equipment, pre-paid cards) or a pre-payment plan (coded cards costing between USD 5.00 and USD 50.00 and equipment costing from USD 99.00 to USD 300.00). Receive inspection from Municipality Municipal inspection is a random inspection that may occur at least 12 once during the 30-week construction period. Thus, no request is 1 day no charge needed. An inspection report is drafted and provided to the company. The construction work is not stopped during the inspection, and no costs are associated with this procedure. Receive inspection from Ministry of Labor Inspection by the Ministry of Labor is a random inspection that may 13 occur at least once during the 30-week construction period. Thus, no 1 day no charge request is needed. An inspection report is drafted and provided to the company. The construction work is not stopped during the inspection, and no costs are associated with this procedure. Receive inspection from National Commission of Hygiene and Occupational Security Inspection by the National Commission of Hygiene and Occupational 14 Safety is a random inspection that may occur at least once during the 1 day no charge 30-week construction period. Thus, no request is needed. An inspection report is drafted and provided to the company. The construction is not stopped during the inspection, and no costs are associated with this procedure. Receive inspection from National Social Security Institute Inspection by the National Social Security Institute is a random 1 day no charge 15 inspection that may occur at least once during the 30-week construction period. Thus, no request is needed. An inspection report is drafted and provided to the company. The construction work is not Doing Business 2013 Nicaragua 35 Time to No. Procedure Cost to complete complete stopped during the inspection, and no costs are associated with this procedure. Register the building with the Real Estate Appraisal Office (Avalúo de Bienes Inmuebles, ALMA) 15 days no charge 16 * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Nicaragua 36 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2013 Nicaragua 37 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 70 days and costs 1526.6% of connection in Nicaragua? According to data collected income per capita (figure 4.1). by Doing Business, getting electricity there requires 6 Figure 4.1 What it takes to obtain an electricity connection in Nicaragua Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Nicaragua 38 GETTING ELECTRICITY Globally, Nicaragua stands at 129 in the ranking of 185 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Nicaragua to connect a warehouse to electricity. Figure 4.2 How Nicaragua and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2013 Nicaragua 39 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Nicaragua Best performer in Best performer Indicator Nicaragua DB2013 Nicaragua DB2012 Latin America & globally DB2013 Caribbean DB2013 Rank Trinidad and Tobago 129 127 Iceland (1) (11) Procedures St. Vincent and the (number) 6 6 Germany (3)* Grenadines (3) Time (days) 70 70 St. Kitts and Nevis (18) Germany (17) Cost (% of income Trinidad and Tobago per capita) 1,526.6 1,653.8 Japan (0.0) (6.6) Note: DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2013 Nicaragua 40 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and Nicaragua (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Nicaragua made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2013 Nicaragua 41 GETTING ELECTRICITY What are the details? The indicators reported here for Nicaragua are based OBTAINING AN ELECTRICITY CONNECTION on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Managua utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: DISNORTE - DISSUR verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Nicaragua—and the time and cost Time to No. Procedure Cost to complete complete The customer submits an informal application with DISNORTE- DISSUR to establish the feasibility of the project The customer submits a first informal application to DISNORTE-DISSUR indicating the required electricity load and the location of the business 7 calendar days no charge 1 that is to be connected. The Planning Department of the utility will prepare a feasibility study based on its own plans for the primary distribution lines in Managua and the existing demand in the system. No inspection of the site is necessary if the connection point is within 150 meters. * The client obtains a compliance certificate regarding the internal wiring from the official or the voluntary Fire Department (Dirección General de Bomberos and Benemérito Cuerpo de Bomberos, respectively) The customer has to obtain a certification of the internal wiring installations from the Fire Department. The Fire Department (Dirección 2 General de Bomberos ) certifies that the internal wiring has been done in 7 calendar days USD 86.3 accordance with the relevant standards for buildings as specified by the ""Norma CIEN"" (Código de instalaciones Eléctricas de Nicaragua). This certification has to be obtained before applying for a new electricity connection with the utility. In order to prepare the certification of the internal wiring the Fire Department (Dirección General de Bomberos ) will visit the site. The customer submits in person the design and the service 3 application at DISNORTE-DISSUR and awaits that the utility 30 calendar days no charge approves the design plans Doing Business 2013 Nicaragua 42 Time to No. Procedure Cost to complete complete The customer submits the service application together with the designs in person. The following documents have to accompany the application: • Name, address and telephone number of the applicant • Photocopy of national identity card or power of attorney • Photocopy of the property title or rental contract • Inspection certificate from the Fire Department indicating that the internal wiring installation complies with the norms established by the CIEN (Código de instalaciones Eléctricas de Nicaragua). • Photocopy of the social security number or business registration number of the customer (RUC - Registro único del contribuyente) • Photocopy of the company registration of the firm (used to assess which electricity tariff is applicable). DISNORTE-DISSUR has a list of approved firms that will realize the design of the actual connection works. In order to be part of the list, firms have to be approved every year by the utility. In most cases the design is done by the same firm that also will later do the works. The utility will also approve the designs that have been prepared by the approved firm and work hand in hand with the executing firm. * Dissnorte-Dissur inspects the site to validate the design of the works 1 calendar day no charge 4 The utility inspects the site to approve the design The private firm hired by the customer to prepare the design for the connection works carries out the actual works’ 5 The works are done according to the relevant standards. They can be 18 calendar days USD 17,025.0 done either by a construction firm or an approved electrical design firm. The customer can decide who he wants to delegate the works to. The works are supervised by the technical department of the utility. The customer signs the supply contract and DISNORTE-DISSUR installs the meter and energizes the project Once the works are finalized, the meter and metering accessories are installed by the distribution utility and remain property of the utility. The meter is installed in a location that can be accessed from outside the premise of the customer for inspections and meter reading. Otherwise 14 calendar days NIO 17,329.6 6 the customer has to given a written consent that the distribution utility can enter the premise. The customer has to deposit a security that is calculated on the basis of one month of the future consumption of the customer. The security deposit is returned with interest (average deposit rate in the country) after 18 months if the customer had no late payment in this period. * Takes place simultaneously with another procedure. Doing Business 2013 Nicaragua 43 Source: Doing Business database. Doing Business 2013 Nicaragua 44 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy’s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2013 Nicaragua 45 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 49 days and costs 4.2% of the Nicaragua? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 8 Figure 5.1 What it takes to register property in Nicaragua Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Nicaragua 46 REGISTERING PROPERTY Globally, Nicaragua stands at 123 in the ranking of 185 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 Nicaragua to transfer property. Figure 5.2 How Nicaragua and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2013 Nicaragua 47 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in Nicaragua That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in Nicaragua over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. 123 123 Procedures (number) 8 8 8 8 8 8 8 8 8 Time (days) 124 124 124 124 124 124 124 49 49 Cost (% of property value) 6.6 6.6 3.5 3.5 3.5 3.8 3.9 4.1 4.2 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 t hat capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see the data notes. Source: Doing Business database. Doing Business 2013 Nicaragua 48 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by possible in making it easier to register property. And the economies that over time have had the best changes in regional averages can show where performance regionally or globally on the procedures, Nicaragua is keeping up—and where it is falling time or cost required to complete a property transfer behind. (figure 5.3). These benchmarks help show what is Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2013 Nicaragua 49 REGISTERING PROPERTY Cost (% of property value) Source: Doing Business database. Doing Business 2013 Nicaragua 50 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Nicaragua (table 5.2)? Table 5.2 How has Nicaragua made registering property easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Nicaragua made transferring property more efficient by DB2012 introducing a fast-track procedure for registration. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Nicaragua 51 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business City: Managua through information collected from local property Property Value: NIO 1,351,712 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Nicaragua—and the time and cost Time to No. Procedure Cost to complete complete * Obtain a non-encumbrance certificate ("Libertad de gravamen") from Land registry The non-encumbrance certificate (libertad de gravamen) is an official document that shows all the encumbrances that the real property currently has and the owners of the real property since its first 5 days annotation or since the time that the interested person wants to know. (simultaneous with NIO 100 1 The certificate must be obtained by the seller before starting the Procedure 2) transaction formally. The "certificado a manera de titulo" (cost of NIO 100) can also be obtained from the registry, if the original title has been lost. The "certificado de historia registral" (cost NIO 100 + NIO 50 for every additional past transaction) that list all previous transactions related to the property can also be obtained. * Obtain tax clearance from the Municipality (Solvencia Municipal) A tax clearance certificate (Municipal Solvency) must be obtained by the seller from the municipality. The timing of 1 day assumes that the seller 1 day (simultaneous NIO 20 2 is up-to-date with tax payments on the property, and that he pays a fee with Procedure 1) of NIO 20. If he were to wait till the next business day to obtain it, it would be free of charge. A notary prepares and signs the public deed A notary public prepares and notarizes the public deed of purchase and sell between seller and buyer. The preparation of the deed is an 1.5 – 2.0% of exclusive act of the notary. The notary will review all past transactions 2 days property value 3 from the record book on the Land Registry with the documents obtained (notary’s fees) above, to verify the ownership of the property. In practice, the notaries estimate their fees for this type of contract based on a percent, which varies between 1.5 and 2% of the property value according to agreement between the parties and notary. Doing Business 2013 Nicaragua 52 Time to No. Procedure Cost to complete complete Obtain the Cadastre Certificate and valuation at the Cadastre Parties must obtain the Cadastre Certificate and request a valuation from an inspector. In practice, the Cadastre requires a special power granted to notaries or any other person when the interested parties cannot Cadastre Certificate realize this Procedure. The parties can go to the Cadastre directly, in NIO 300 + Cadastral 4 14 – 21 days which case they do not need to present a special power. The Cadastre valuation constancy requests to see original property title (of the Seller). NIO 100 In case a special power is needed, the costs rise about C$ 2,000 as the fees for the person who will go to the Cadastre, and C$ 1,000 for the notary who will previously authorize and issue the special power. Inspector visits property to assess value NIO 20 (but must After the cadastral certificate is obtained, an inspector visits the property provide 5 to assess the value. In practice, one picks up the inspector and drives 7 days transportation to him/her to the property. It will take the inspector about one week to inspector) write the report on the value. Payment of Income/Transfer Tax Payment of Income/Transfer Tax at the Tax Administration Office, an agency of the Treasury Ministry. This percent is established depending on the Cadastre Value. The Cadastre value generally is not the same as the market price. For the sliding scale: 1% for payment of the transfer taxes, the fiscal authority takes as a base of properties with a calculation the highest value between the sale price in the public deed of value between purchase and Cadastral value. USD1.00 and USD Fees of NIO 4 + 2 stamps of NIO 10 need to be paid to make the 50,000.00, 2% for 6 payment. 1 day values between USD The transfer tax rate of 1% was established by an injunction ("amparo") 50,000.01 and USD declaring the increase of the 2003 Ley de Queda Fiscal unconstitutional. 100,000.00 and 3% An amendment to the Nicaraguan fiscal law entered into force on January 1st, 2010 (Law 712 published in the official Gazette No. 241 of for values above December 21st 2009), changing the tax according to the following USD 100,000.01 sliding scale, from 1% of the value of the property to the following percentages: 1% for properties with a value between US$1.00 and US$50,000.00, 2% for values between US$50,000.01 and US$100,000.00 and 3% for values above US$100,000.01. The documents obtained from the Office of Cadastre are inserted in the public deed NIO 200 (Notary’s 7 1 day A notary will insert the documents obtained from the Offices of Cadastre fees) in the public deed. Apply for registration of the public deed at the Land Registry 15 days (expedited 1% of cadastral value 8 (registration fee) + Procedure) Parties file the public deed at the Land Registry for its proper NIO 500 (Notary’s Doing Business 2013 Nicaragua 53 Time to No. Procedure Cost to complete complete registration. The amount is calculated based on 1% of the cadastral fees) + 20% of the value, with a maximum fee of NIO 30,000. This payment is made directly registration fee for in the branch of a commercial bank that is located inside the Land the expedited Registry Office. The notary applying for registration will charge C$500 as Procedure fees. At submission, the request for transfer is recorded, signaling priority rights over the property. The registration of property transfers is very slow and can take longer than 90 days. When finalized, the Land registry will write in the original deed, the book and page where the transfer was recorded. This document is then returned to the notary with all the other certificates provided. The Land registry operates with paper documents. However, the sale deeds are scanned and almost all past records are digitalized in Managua. In the rest of the departments in the country, records are not always accessible digitally. Newer transactions (less than 1 year) are not always digitalized. Any person can access past deeds with computers at the Land registry at no cost. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Nicaragua 54 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, limited liability company. the strength of legal rights index.  Has its headquarters and only base of operations in the largest business city. Doing Business 2013 Nicaragua 55 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Nicaragua stands at 104 in the ranking of 185 collateral and bankruptcy laws in Nicaragua facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 5 on the The rankings for comparator economies and the depth of credit information index and a score of 3 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Nicaragua support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How Nicaragua and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2013 Nicaragua 56 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened — well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Nicaragua support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Nicaragua over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. 97 104 Strength of legal rights 3 3 3 3 3 3 3 3 3 index (0-10) Depth of credit 3 4 5 5 5 5 5 5 5 information index (0-6) Public registry 6.2 8.1 12.5 14.8 13.4 16.0 14.0 10.5 10.8 coverage (% of adults) Private bureau 0.0 0.0 3.4 100.0 27.9 28.4 21.4 31.9 29.5 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Nicaragua 57 GETTING CREDIT One way to put an economy’s score on the getting and shows the number of economies with this score in credit indicators into context is to see where the 2012 as well as the regional average score. Figure 6.3 economy stands in the distribution of scores across shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for Nicaragua in 2012 Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2012 information index (0–6), 2012 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 public credit registry or a private Source: Doing Business database. credit bureau, to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no public registry or private bureau. Source: Doing Business database. Doing Business 2013 Nicaragua 58 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Nicaragua (table 6.2)? Table 6.2 How has Nicaragua made getting credit easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Nicaragua 59 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders Nicaragua are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a public well as public sources of information on collateral and credit registry or private credit bureau (if one exists). bankruptcy laws. For the strength of legal rights index, To construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Nicaragua Latin America & OECD high income Indicator Nicaragua Caribbean average average Strength of legal rights index (0-10) 3 6 7 Depth of credit information index (0-6) 5 5 5 Public registry coverage (% of adults) 10.8 26.1 31.5 Private bureau coverage (% of adults) 29.5 55.7 74.6 Note: In cases where an economy’s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no public registry or private bureau. Regional averages for the public registry coverage exclude economies with no public registry. Regional averages for the private bureau coverage exclude economies with no private bureau. Strength of legal rights index (0–10) Index score: 3 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category No of movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of No its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend No automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement No include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an No electronic database indexed by debtor's names? Doing Business 2013 Nicaragua 60 Strength of legal rights index (0–10) Index score: 3 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its No security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 5 bureau registry Are data on both firms and individuals distributed? Yes Yes 1 Are both positive and negative data distributed? Yes Yes 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well Yes No 1 as financial institutions? Are more than 2 years of historical credit information No No 0 distributed? Is data on all loans below 1% of income per capita Yes Yes 1 distributed? Is it guaranteed by law that borrowers can inspect Yes Yes 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 2,642 2,711 Number of individuals 1,062,529 388,787 Source: Doing Business database. Doing Business 2013 Nicaragua 61 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2013 Nicaragua 62 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Nicaragua? The index (figure 7.1). While the indicator does not economy has a score of 5.0 on the strength of investor measure all aspects related to the protection of protection index, with a higher score indicating minority investors, a higher ranking does indicate that stronger protections (see the summary of scoring at an economy’s regulations offer stronger investor the end of this chapter for details). protections against self-dealing in the areas measured. Globally, Nicaragua stands at 100 in the ranking of 185 economies on the strength of investor protection Figure 7.1 How Nicaragua and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2013 Nicaragua 63 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in Nicaragua protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in Nicaragua over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 98 100 Extent of disclosure 4 4 4 4 4 4 4 4 index (0-10) Extent of director liability index (0- 5 5 5 5 5 5 5 5 10) Ease of shareholder 6 6 6 6 6 6 6 6 suits index (0-10) Strength of investor protection 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Nicaragua 64 PROTECTING INVESTORS One way to put an economy’s scores on the protecting shows the number of economies with this score in investors indicators into context is to see where the 2012 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across shows the same thing for the extent of director liability economies. Figure 7.2 highlights the score on the index, and figure 7.4 for the ease of shareholder suits extent of disclosure index for Nicaragua in 2012 and index. Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on extent of Number of economies with each score on extent of director liability index (0–10), 2012 disclosure index (0–10), 2012 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. No economy receives a score of 10 on the extent of Source: Doing Business database. director liability index. Source: Doing Business database. Doing Business 2013 Nicaragua 65 PROTECTING INVESTORS Figure 7.4 How easy is access to internal corporate documents? Number of economies with each score on ease of shareholder suits index (0–10), 2012 Note: Higher scores indicate greater powers of shareholders to challenge the transaction. Source: Doing Business database. Doing Business 2013 Nicaragua 66 PROTECTING INVESTORS The scores recorded over time for Nicaragua on the changes over time in the regional average score on strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the investor protections. Source: Doing Business database. Doing Business 2013 Nicaragua 67 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Nicaragua (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Nicaragua strengthened investor protections—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Nicaragua 68 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for shareholder suits indices, a score is assigned for each Nicaragua are based on detailed information collected of a range of conditions relating to disclosure, director through a survey of corporate and securities lawyers as liability and shareholder suits in a standard case study well as on securities regulations, company laws and transaction (see the notes at the end of this chapter). court rules of evidence. To construct the extent of The summary below shows the details underlying the disclosure, extent of director liability and ease of scores for Nicaragua. Summary of scoring for the protecting investors indicators in Nicaragua Latin America & OECD high income Indicator Nicaragua Caribbean average average Extent of disclosure index (0-10) 4 4 6 Extent of director liability index (0-10) 5 5 5 Ease of shareholder suits index (0-10) 6 6 7 Strength of investor protection index (0-10) 5.0 5.0 6.1 Note: In cases where an economy’s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 4 What corporate body provides legally sufficient Board of directors and Mr. James is 2 approval for the transaction? not allowed to vote Whether disclosure of the conflict of interest by Mr. 0 No disclosure obligation James to the board of directors is required? Whether immediate disclosure of the transaction to 0 No disclosure obligation the public and/or shareholders is required? Whether disclosure of the transaction in published Disclosure on the transaction and Mr. 2 periodic filings (annual reports) is required? James' conflict of interest Whether an external body must review the terms of 0 No the transaction before it takes place? Extent of director liability index (0-10) 5 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Doing Business 2013 Nicaragua 69 Score Score description Whether shareholders can hold Mr. James liable for Liable for negligence or influencing the damage that the Buyer-Seller transaction causes 1 the approval of the transaction to the company? Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 1 Liable for negligence Seller transaction causes to the company? Possible when the transaction is Whether a court can void the transaction upon a 1 oppressive or prejudicial to minority successful claim by a shareholder plaintiff? shareholders Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 1 Yes the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 No shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 6 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 1 Yes filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 1 Yes transaction? Whether the plaintiff can obtain any documents from Any information that is relevant to the 3 the defendant and witnesses during trial? subject matter of the claim Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 0 No defendant and witnesses during trial? Whether the level of proof required for civil suits is 1 Yes lower than that of criminal cases? Strength of investor protection index (0-10) 5.0 Source: Doing Business database. Doing Business 2013 Nicaragua 70 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2011 (number per year adjusted for Doing Business data, in economies where it is more electronic or joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2010. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an ―optimal tax rate‖ that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.7%. Doing Business 2013 Nicaragua 71 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Nicaragua stands at 158 in the ranking of 185 taxes in Nicaragua—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 42 tax payments a year, rankings for comparator economies and the regional spend 207 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 65.0% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Nicaragua. details). Figure 8.1 How Nicaragua and comparator economies rank on the ease of paying taxes Note: DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 Nicaragua 72 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how the process have changed — and which have not easy (or difficult) it is to comply with tax rules in (table 8.1). That can help identify where the potential Nicaragua today, data over time show which aspects of for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Nicaragua over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 156 158 Payments (number per 64 64 64 64 64 64 42 42 year) Time (hours per year) 240 240 240 240 240 222 207 207 Total tax rate (% profit) 63.5 63.5 63.5 63.2 63.2 63.2 66.8 65.0 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 Nicaragua 73 PAYING TAXES Equally helpful may be the benchmarks provided by possible in easing the administrative burden of tax the economies that over time have had the best compliance. And changes in regional averages can performance regionally or globally on the number of show where Nicaragua is keeping up—and where it is payments or the time required to prepare and file falling behind. taxes (figure 8.2). These benchmarks help show what is Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2013 Nicaragua 74 PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2013 Nicaragua 75 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Nicaragua (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Nicaragua made paying taxes easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. Nicaragua increased taxes on firms by raising social security contribution rates and introducing a 10% withholding tax on DB2011 the gross interest accrued from deposits. It also improved electronic payment of taxes through bank transfer. Nicaragua made paying taxes easier for companies by DB2012 promoting electronic filing and payment of the major taxes, an option now used by the majority of taxpayers. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Nicaragua 76 PAYING TAXES What are the details? The indicators reported here for Nicaragua are LOCATION OF STANDARDIZED COMPANY based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the data (see City: Managua the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company completed The taxes and contributions paid are listed in the during the year. Respondents are asked how much summary below, along with the associated number of in taxes and mandatory contributions the business payments, time and tax rate. must pay and what the process is for doing so. Summary of tax rates and administrative burden in Nicaragua Latin America & OECD high income Indicator Nicaragua Caribbean average average Payments (number per year) 42 30 12 Time (hours per year) 207 367 176 Profit tax (%) 22.9 21.5 15.2 Labor tax and contributions (%) 20.3 14.4 23.8 Other taxes (%) 21.8 11.3 3.7 Total tax rate (% profit) 65.0 47.2 42.7 Note: In cases where an economy’s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Total tax Tax or mandatory Payments Notes on Time Statutory Notes on Tax base rate (% of contribution (number) payments (hours) tax rate total tax rate profit) taxable Corporate income tax 1 online filing 67 30% 22.9 profit Employer paid - Social security gross 12 76 16% 18 contributions salaries sales Turnover tax 12 0 1% (purchase 17.7 cost) Doing Business 2013 Nicaragua 77 Total tax Tax or mandatory Payments Notes on Time Statutory Notes on Tax base rate (% of contribution (number) payments (hours) tax rate total tax rate profit) assessed included in Assets tax 1 0 1% total asset 4.7 other taxes value distributed Profit tax 1 0 10% 2.7 profits gross Employer paid - Training tax 12 0 2% 2.3 salaries property Real estate tax 1 0 1% 1.2 value fuel Fuel tax 1 0 1% consumptio 0.2 n Value added tax (VAT) 1 online filing 64 15% value added 0 not included Totals 42 207 65.0 Source: Doing Business database. Doing Business 2013 Nicaragua 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 business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include military items. Doing Business 2013 Nicaragua 79 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Nicaragua? Globally, Nicaragua stands at 81 in the ranking of 185 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 5 (figure 9.1). The rankings for comparator economies documents, takes 21 days and costs $1140. Importing and the regional average ranking provide other useful the same container of goods requires 6 documents, information for assessing how easy it is for a business takes 20 days and costs $1245 (see the summary of in Nicaragua to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Nicaragua and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2013 Nicaragua 80 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in Nicaragua That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in Nicaragua over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 86 81 Documents to export 6 5 5 5 5 5 5 5 (number) Time to export (days) 38 36 36 29 29 26 24 21 Cost to export (US$ per 1,020 1,021 1,021 1,300 1,340 1,140 1,140 1,140 container) Documents to import 8 6 6 6 6 6 6 6 (number) Time to import (days) 37 37 37 28 28 25 23 20 Cost to import (US$ per 1,020 1,054 1,054 1,420 1,420 1,220 1,220 1,245 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Nicaragua 81 TRADING ACROSS BORDERS Equally helpful may be the benchmarks provided by These benchmarks help show what is possible in the economies that over time have had the best making it easier to trade across borders. And changes performance regionally or globally on the documents, in regional averages can show where Nicaragua is time or cost required to export or import (figure 9.2). keeping up—and where it is falling behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2013 Nicaragua 82 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2013 Nicaragua 83 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Source: Doing Business database. Doing Business 2013 Nicaragua 84 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Nicaragua (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Nicaragua made trading across borders easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. Nicaragua expedited trade by migrating to a new electronic data interchange system for customs, setting up a physical DB2011 one-stop shop for exports and investing in new equipment at the port of Corinto. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Nicaragua 85 TRADING ACROSS BORDERS What are the details? The indicators reported here for Nicaragua are LOCATION OF STANDARDIZED COMPANY based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this chapter on what City: Managua the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each procedure is The procedural requirements, and the associated time collected from local freight forwarders, shipping and cost, for exporting and importing a standard lines, customs brokers, port officials and banks. shipment of goods are listed in the summary below, along with the required documents. Summary of procedures and documents for trading across borders in Nicaragua Latin America & OECD high income Indicator Nicaragua Caribbean average average Documents to export (number) 5 6 4 Time to export (days) 21 17 10 Cost to export (US$ per container) 1,140 1,268 1,028 Documents to import (number) 6 7 5 Time to import (days) 20 19 10 Cost to import (US$ per container) 1,245 1,612 1,080 Note: In cases where an economy’s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 10 310 Customs clearance and technical control 3 110 Ports and terminal handling 3 120 Inland transportation and handling 5 600 Totals 21 1,140 Procedures to import Time (days) Cost (US$) Documents preparation 11 325 Doing Business 2013 Nicaragua 86 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 4 200 Ports and terminal handling 3 120 Inland transportation and handling 2 600 Totals 20 1,245 Documents to export Documents to import Bill of lading Bill of lading Certificate of origin Certificate of origin Commercial invoice Commercial invoice Customs export declaration (FUE) Customs import declaration Quality Certificate Fiscal Solvency Source: Doing Business database. Packing list Doing Business 2013 Nicaragua 87 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects Time required to complete procedures data relating to the time, cost and procedural (calendar days) complexity of resolving a commercial lawsuit. The ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs assumptions about the case: Enforcement costs  The seller and buyer are located in the economy’s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2013 Nicaragua 88 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Nicaragua stands at 55 in the ranking of 185 dispute through the courts in Nicaragua? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, enforcing a contract 10.1). The rankings for comparator economies and the takes 409 days, costs 26.8% of the value of the claim regional average ranking provide other useful and requires 37 procedures (see the summary at the benchmarks for assessing the efficiency of contract end of this chapter for details). enforcement in Nicaragua. Figure 10.1 How Nicaragua and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2013 Nicaragua 89 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how over time help identify which areas have changed and easy (or difficult) it is to enforce a contract in where the potential for improvement is greatest (table Nicaragua today, data on the underlying indicators 10.1). Table 10.1 The ease of enforcing contracts in Nicaragua over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 55 55 Time (days) 590 540 540 540 540 540 540 540 409 409 Cost (% of claim) 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 Procedures (number) 37 37 37 37 37 37 37 37 37 37 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Nicaragua 90 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by help show what is possible in improving the efficiency the economies that over time have had the best of contract enforcement. And changes in regional performance regionally or globally on the number of averages can show where Nicaragua is keeping up— steps, time or cost required to enforce a contract and where it is falling behind. through the courts (figure 10.2). These benchmarks Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2013 Nicaragua 91 ENFORCING CONTRACTS Procedures (number) Source: Doing Business database. Doing Business 2013 Nicaragua 92 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Nicaragua (table 10.2)? Table 10.2 How has Nicaragua made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Nicaragua raised the monetary threshold for commercial claims that can be brought to the Managua local civil court, DB2012 leaving lower-value claims in the local courts, where proceedings are simpler and faster. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Nicaragua 93 ENFORCING CONTRACTS What are the details? The indicators reported here for Nicaragua are COMPETENT COURT based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this City: Managua chapter on what the indicators cover). These procedures, and the time and cost of completing The procedures for resolving a commercial lawsuit, and them, are identified through study of the codes of the associated time and cost, are listed in the summary civil procedure and other court regulations, as well below. as through surveys completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Summary of procedures for enforcing a contract in Nicaragua—and the time and cost Latin America & OECD high income Indicator Nicaragua Caribbean average average Time (days) 409 727 510 Filing and service 89 Trial and judgment 230 Enforcement of judgment 90 Cost (% of claim) 26.8 30.8 20.1 Attorney cost (% of claim) 16.3 Court cost (% of claim) 5.5 Enforcement Cost (% of claim) 5.0 Procedures (number) 37 40 31 Note: In cases where an economy’s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Doing Business 2013 Nicaragua 94 ENFORCING CONTRACTS No. Procedure Filing and service: A third person formally notifies Defendant: A person other than the Plaintiff or his lawyer, such as a notary public, 1 formally notifies Defendant of Plaintiff’s request for payment. 2 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally or in * writing. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other type of court fee. Registration of court case: The court administration registers the lawsuit or court case. This includes assigning a 3 reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random procedure, * automated system, ruling of an administrative judge, court officer, etc. Judge admits summons and complaint: After verifying the formal requirements, the judge decides to admit * Plaintiff’s summons and complaint. Delivery of summons and complaint to person authorized to perform service of process on Defendant: The 4 judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. First attempt at physical delivery: A first attempt to physically deliver summons and complaint to Defendant is 5 successful in the majority of cases. Second attempt at physical delivery: If a first attempt was not successful, a second attempt to physically deliver 6 the summons and complaint to Defendant is required by law or standard practice. Application for substituted service: Because physical delivery is not successful in the majority of cases, Plaintiff 7 applies for substituted service. Substituted service can include, but is not limited to, service by publication in newspapers or affixing of a notice in court or on public bul Court order regarding substituted service: The judge in a court order defines acceptable means for substituted 8 service. Substituted service: Substituted service is accomplished by publication in newspapers, by affixing a notice in court 9 or on public bulletin boards, etc. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff’s request for pre-judgment * attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. This step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either physical or 10 achieved by registering, marking, debiting or separating assets. (see assumption 5) Doing Business 2013 Nicaragua 95 No. Procedure Trial and judgment: Defendant’s filing of preliminary exemptions: Defendant presents preliminary exemptions to the court. * Preliminary exemptions differ from answers on the merits of the claim. Examples of preliminary exemptions are statute of limitations, jurisdictions, etc. Plaintiff’s answer to preliminary exemptions: Plaintiff responds to the preliminary exemptions raised by * Defendant. Judge’s resolution on preliminary exemptions: Judge decides on preliminary exemptions separately from the 11 merits of the case. Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his 12 defense or answer on the merits of the case. Defendant's written answer may or may not include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Court appointment of independent expert: Judge appoints, either at the parties' request or at his own initiative, * an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 6-b of this case) Notification of court-appointment of independent expert: The court notifies both parties that the court is 13 appointing an independent expert. (see assumption 6-b of this case) Delivery of expert report by court-appointed expert: The independent expert appointed by the court delivers his * or her expert report to the court. (see assumption 6-b of this case) Setting of date for mediation hearing: The judge sets a date for a mediation hearing, sometimes also called a * 'pre-trial conference,' and notifies the parties of the hearing date. Mediation hearing: The judge during this informal meeting with the parties encourages them to settle the case. The 14 judge acts as mediator. If the case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judg * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court. (see assumption 6-a) Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral hearing 15 or trial. (see assumption 6-a) Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the judge. 16 Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. 17 Judgment date: The judge sets a date for delivery of the judgment. 18 Writing of judgment: The judge produces a written copy of the judgment. 19 Registration of judgment: The court office registers the judgment after receiving a written copy of the judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 20 judgment is available at the courthouse. Notification of Defendant of judgment: Plaintiff or court formally notifies the Defendant of the judgment. The 21 appeal period starts to run the day the Defendant is formally notified of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in the law. 22 Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Doing Business 2013 Nicaragua 96 No. Procedure Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse Plaintiff for 23 the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented by a * lawyer during the enforcement of judgment phase. 24 Plaintiff’s advancement of enforcement fees: Plaintiff pays the fees related to the enforcement of the judgment. Plaintiff’s request for physical enforcement: As Plaintiff fears that Defendant might physically resist the * attachment of its movable goods, Plaintiff addresses a request to the judge or to the police authorities to obtain police assistance during the attachment of Defendant's movable goods. Judge's order for physical enforcement: The judge orders the police to assist with the physical enforcement of the 25 attachment of Defendant's movable goods. Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court enforcement 26 officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Plaintiff’s identification of Defendant's assets for attachment: Plaintiff identifies Defendant's assets for 27 attachment. 28 Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating assets). Report on execution of attachment: A court enforcement officer or private process server delivers a report on the 29 attachment of Defendant's movable goods to the judge. Valuation or appraisal of attached movable goods: The court or court appointed valuation expert evaluates the 30 attached goods. Enforcement disputes before court: The enforcement of the judgment is delayed because Defendant opposes 31 aspects of the enforcement process before the judge. Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 32 newspapers. 33 Sale through public auction: The Defendant’s movable property is sold at public auction. 34 Judge's decision on bids: The judge determines the adequacy of the bids presented at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to various creditors (including 35 Plaintiff), according to the rules of priority. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which Plaintiff 36 had advanced previously. 37 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Nicaragua 97 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement Official costs of the insolvency proceedings (foreclosure) proceedings. The recovery rate is a are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be recovered business and the case. It assumes that the company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy’s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2013 Nicaragua 98 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses piecemeal sale. The average recovery rate is 36.0 cents characterize the top-performing economies. How on the dollar. efficient are insolvency proceedings in Nicaragua? Globally, Nicaragua stands at 80 in the ranking of 185 According to data collected by Doing Business, economies on the ease of resolving insolvency (figure resolving insolvency takes 2.2 years on average and 11.1). The rankings for comparator economies and the costs 15% of the debtor’s estate, with the most likely regional average ranking provide other useful outcome being that the company will be sold as benchmarks for assessing the efficiency of insolvency proceedings in Nicaragua. Figure 11.1 How Nicaragua and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2013 Nicaragua 99 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in Nicaragua help identify where the potential for improvement is today, data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in Nicaragua over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 82 80 Time (years) 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 Cost (% of estate) 15 15 15 15 15 15 15 15 15 15 Recovery rate (cents on the 31.5 33.4 34.0 34.5 34.6 34.3 34.3 33.7 35.1 36.0 dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2013 Nicaragua 100 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by possible in improving the efficiency of insolvency the economies that over time have had the best proceedings. And changes in regional averages can performance regionally or globally on the time or cost show where Nicaragua is keeping up—and where it is of insolvency proceedings or on the recovery rate falling behind. (figure 11.2). These benchmarks help show what is Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2013 Nicaragua 101 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: Regional averages on time and cost exclude economies with a “no practice� mark. Source: Doing Business database. Doing Business 2013 Nicaragua 102 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Nicaragua (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Nicaragua made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Nicaragua 103 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of Particular data for Nicaragua are presented here employment, specifically as it affects the hiring and without scoring. redundancy of workers and the rigidity of working hours. From 2007 to 2011 improvements were made to To make the data on employing workers comparable align the methodology for the employing workers across economies, several assumptions about the indicators with the letter and spirit of the International worker and the business are used. Labour Organization (ILO) conventions. Only 4 of the 188 ILO conventions cover areas measured by Doing The worker: Business: employee termination, weekend work, holiday with pay and night work. The Doing Business  Earns a salary plus benefits equal to the methodology is fully consistent with these 4 economy’s average wage during the entire conventions. The ILO conventions covering areas period of his employment. related to the employing workers indicators do not  Has a pay period that is the most common for include the ILO core labor standards—8 conventions workers in the economy. covering the right to collective bargaining, the  Is a lawful citizen who belongs to the same elimination of forced labor, the abolition of child labor race and religion as the majority of the and equitable treatment in employment practices. economy’s population.  Resides in the economy’s largest business city. Between 2009 and 2011 the World Bank Group worked  Is not a member of a labor union, unless with a consultative group—including labor lawyers, membership is mandatory. employer and employee representatives, and experts from the ILO, the Organisation for Economic Co- The business: operation and Development, civil society and the private sector—to review the employing workers  Is a limited liability company. methodology and explore future areas of research.  Operates in the economy’s largest business city. A full report with the conclusions of the consultative  Is 100% domestically owned. group is available at http://www.doingbusiness.org/  Operates in the manufacturing sector. methodology/employing-workers.  Has 60 employees.  Is subject to collective bargaining agreements Doing Business 2013 does not present rankings of in economies where such agreements cover economies on the employing workers indicators or more than half the manufacturing sector and include the topic in the aggregate ranking on the ease apply even to firms not party to them. of doing business. The report does present the data on  Abides by every law and regulation but does the employing workers indicators in an annex. Detailed not grant workers more benefits than data collected on labor regulations are available on the mandated by law, regulation or (if applicable) Doing Business website (http://www.doing business.org). collective bargaining agreement. Doing Business 2013 Nicaragua 104 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Nicaragua other things, the minimum wage for a 19-year-old (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2013 Nicaragua 105 EMPLOYING WORKERS Employment laws are needed to protect workers from past 4 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Nicaragua adopt that contracting between employers and workers. Many affected the Doing Business indicators on employing economies that changed their labor regulations in the workers (table 12.1)? Table 12.1 What changes did Nicaragua make in employing workers in 2012? Reform No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2013 Nicaragua 106 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and Nicaragua are based on a detailed survey of regulations as well as secondary sources are reviewed employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage for a 19-year old worker or an apprentice (US$/month) 137.2 Ratio of minimum wage to value added per worker 0.86 Source: Doing Business database. Doing Business 2013 Nicaragua 107 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data 8 hours (jornada ordinaria de trabajo Standard workday in manufacturing (hours) efectivo diurno) -- Art. 51 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 0% operations Premium for work on weekly rest day (% of hourly pay) in case of 100% continuous operations Major restrictions on night work in case of continuous operations? Yes Major restrictions on weekly holiday in case of continuous operations? Yes Paid annual leave for a worker with 1 year of tenure (in working days) 30.0 Paid annual leave for a worker with 5 years of tenure (in working days) 30.0 Paid annual leave for a worker with 10 years of tenure (in working days) 30.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 30.0 working days) Source: Doing Business database. Doing Business 2013 Nicaragua 108 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? No Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2013 Nicaragua 109 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 0.0 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 0.0 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 0.0 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 0.0 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 4.3 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 18.8 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 21.7 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 14.9 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2013 Nicaragua 110 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2013 reports 2011 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2012. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2011 gross contract, go through bankruptcy or trade across national income (GNI) in U.S. dollars is used as the borders. Third, they measure the extent of legal denominator. GNI data were not available from the protections of property, for example, the protections World Bank for Afghanistan; Australia; The Bahamas; of investors against looting by company directors or Bahrain; Barbados; Brunei Darussalam; Cyprus; the range of assets that can be used as collateral Djibouti; Guyana; the Islamic Republic of Iran; according to secured transactions laws. Fourth, a set of Kuwait; Malta; New Zealand; Oman; Puerto Rico indicators documents the tax burden on businesses. (territory of the United States); Sudan; Suriname; the Finally, a set of data covers different aspects of Syrian Arab Republic; Timor-Leste; West Bank and employment regulation. Gaza; and the Republic of Yemen. In these cases GDP or GNP per capita data and growth rates from The data for all sets of indicators in Doing Business the International Monetary Fund’s World Economic 2 2013 are for June 2012. Outlook database and the Economist Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and The Doing Business data are collected in a income group classifications, available at standardized way. To start, the Doing Business team, http://data.worldbank.org/about/country- with academic advisers, designs a questionnaire. The classifications. The World Bank does not assign questionnaire uses a simple business case to ensure regional classifications to high-income economies. comparability across economies and over time—with For the purpose of the Doing Business report, high- assumptions about the legal form of the business, its income OECD economies are assigned the ―regional‖ size, its location and the nature of its operations. classification OECD high income. Figures and tables Questionnaires are administered through more than presenting regional averages include economies 9,600 local experts, including lawyers, business from all income groups (low, lower middle, upper consultants, accountants, freight forwarders, middle and high income). government officials and other professionals routinely Population administering or advising on legal and regulatory Doing Business 2013 reports midyear 2011 requirements. These experts have several rounds of population statistics as published in World interaction with the Doing Business team, involving Development Indicators 2012. conference calls, written correspondence and visits by the team. For Doing Business 2013 team members visited 24 economies to verify data and recruit The Doing Business methodology offers several respondents. The data from questionnaires are advantages. It is transparent, using factual information subjected to numerous rounds of verification, leading about what laws and regulations say and allowing to revisions or expansions of the information collected. multiple interactions with local respondents to clarify potential misinterpretations of questions. Having 2 The data for paying taxes refer to January – December 2011. Doing Business 2013 Nicaragua 111 representative samples of respondents is not an issue; 2013 would differ from the recollection of Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business completed subnational comparisons and benchmarks are valid across studies for Indonesia, Kenya, Mexico, the Russian economies. Finally, the data not only highlight the Federation and the United Arab Emirates. Each of extent of specific regulatory obstacles to business but these countries had already asked to have subnational also identify their source and point to what might be data in the past, and this year Doing Business updated reformed. the indicators, measured improvements over time and Information on the methodology for each Doing expanded geographic coverage to additional cities or Business topic can be found on the Doing Business added additional indicators. Doing Business also website at http://www.doingbusiness.org/methodology/. published regional studies for the Arab world, the East African Community and member states of the Organization for the Harmonization of Business Law in Limits to what is measured Africa (OHADA). The Doing Business methodology has 5 limitations that The subnational studies point to differences in should be considered when interpreting the data. First, business regulation and its implementation —as well as the collected data refer to businesses in the economy’s in the pace of regulatory reform—across cities in the largest business city (which in some economies differs same economy. For several economies subnational from the capital) and may not be representative of studies are now periodically updated to measure regulation in other parts of the economy. To address change over time or to expand geographic coverage this limitation, subnational Doing Business indicators to additional cities. This year that is the case for all the were created (see the section on subnational Doing subnational studies published. Business indicators). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified size — Changes in what is measured and may not be representative of the regulation on The ranking methodology for paying taxes was other businesses, for example, sole proprietorships. updated this year. The threshold for the total tax rate Third, transactions described in a standardized case introduced last year for the purpose of calculating the scenario refer to a specific set of issues and may not ranking on the ease of paying taxes was updated. All represent the full set of issues a business encounters. economies with a total tax rate below the threshold Fourth, the measures of time involve an element of (which is calculated and adjusted on a yearly basis) judgment by the expert respondents. When sources receive the same ranking on the total tax rate indicate different estimates, the time indicators indicator. The threshold is not based on any economic reported in Doing Business represent the median theory of an ―optimal tax rate‖ that minimizes values of several responses given under the distortions or maximizes efficiency in the tax system of assumptions of the standardized case. an economy overall. Instead, it is mainly empirical in Finally, the methodology assumes that a business has nature, set at the lower end of the distribution of tax full information on what is required and does not rates levied on medium-size enterprises in the waste time when completing procedures. In practice, manufacturing sector as observed through the paying completing a procedure may take longer if the taxes indicators. This reduces the bias in the indicators business lacks information or is unable to follow up toward economies that do not need to levy significant promptly. Alternatively, the business may choose to taxes on companies like the Doing Business disregard some burdensome procedures. For both standardized case study company because they raise reasons the time delays reported in Doing Business public revenue in other ways—for example, through Doing Business 2013 Nicaragua 112 taxes on foreign companies, through taxes on sectors investors, paying taxes, trading across borders, other than manufacturing or from natural resources enforcing contracts, and resolving insolvency. The (all of which are outside the scope of the employing workers indicators are not included in this methodology). Giving the same ranking to all year’s aggregate ease of doing business ranking. In economies whose total tax rate is below the threshold addition to this year’s ranking, Doing Business presents avoids awarding economies in the scoring for having a comparable ranking for the previous year, adjusted an unusually low total tax rate, often for reasons for any changes in methodology as well as additions of 3 unrelated to government policies toward enterprises. economies or topics. For example, economies that are very small or that are Construction of the ease of doing business index rich in natural resources do not need to levy broad- based taxes. Here is one example of how the ease of doing business index is constructed. In Finland it takes 3 procedures, 14 days and 4% of annual income per capita in fees to Data challenges and revisions register a property. On these 3 indicators Finland ranks in the 6th, 16th and 39th percentiles. So on average Most laws and regulations underlying the Doing Finland ranks in the 20th percentile on the ease of Business data are available on the Doing Business registering property. It ranks in the 30th percentile on website at http://www.doingbusiness.org. All the th starting a business, 28 percentile on getting credit, sample questionnaires and the details underlying the 24th percentile on paying taxes, 13th percentile on indicators are also published on the website. Questions enforcing contracts, 5th percentile on trading across on the methodology and challenges to data can be borders and so on. Higher rankings indicate simpler submitted through the website’s ―Ask a Question‖ regulation and stronger protection of property rights. function at http://www.doingbusiness.org. The simple average of Finland’s percentile rankings on all topics is 21st. When all economies are ordered by Ease of doing business and distance to their average percentile rankings, Finland stands at 11 frontier in the aggregate ranking on the ease of doing business. Doing Business 2013 presents results for 2 aggregate measures: the aggregate ranking on the ease of doing More complex aggregation methods—such as business and the distance to frontier measure. The principal components and unobserved components— ease of doing business ranking compares economies yield a ranking nearly identical to the simple average 4 with one another, while the distance to frontier used by Doing Business. Thus, Doing Business uses measure benchmarks economies to the frontier in the simplest method: weighting all topics equally and, regulatory practice, measuring the absolute distance to the best performance on each indicator. Both measures can be used for comparisons over time. 3 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a When compared across years, the distance to frontier comparable time series since the year the relevant economy or topic measure shows how much the regulatory environment was first included in the data set. The time series is available on the for local entrepreneurs in each economy has changed Doing Business website (http://www.doingbusiness.org). Six topics over time in absolute terms, while the ease of doing and more than 50 economies have been added since the inception business ranking can show only relative change. of the project. Earlier rankings on the ease of doing business are therefore not comparable. Ease of doing business 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to The ease of doing business index ranks economies Do It‖ (World Bank, Washington, DC, 2005). Principal components from 1 to 185. For each economy the ranking is and unobserved components methods yield a ranking nearly calculated as the simple average of the percentile identical to that from the simple average method because both rankings on each of the 10 topics included in the index these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An in Doing Business 2013: starting a business, dealing alternative to the simple average method is to give different weights with construction permits, getting electricity, to the topics, depending on which are considered of more or less registering property, getting credit, protecting importance in the context of a specific economy. Doing Business 2013 Nicaragua 113 within each topic, giving equal weight to each of the ability of different government agencies to deliver 5 topic components. tangible results in their area of responsibility. If an economy has no laws or regulations covering a Economies that improved the most across 3 or more specific area—for example, insolvency—it receives a Doing Business topics in 2011/12 ―no practice‖ mark. Similarly, an economy receives a Doing Business 2013 uses a simple method to calculate ―no practice‖ or ―not possible‖ mark if regulation exists which economies improved the most in the ease of but is never used in practice or if a competing doing business. First, it selects the economies that in regulation prohibits such practice. Either way, a ―no 2011/12 implemented regulatory reforms making it practice‖ mark puts the economy at the bottom of the easier to do business in 3 or more of the 10 topics ranking on the relevant indicator. 6 included in this year’s ease of doing business ranking. The ease of doing business index is limited in scope. It Twenty-three economies meet this criterion: Benin, does not account for an economy’s proximity to large Burundi, Costa Rica, the Czech Republic, Georgia, markets, the quality of its infrastructure services (other Greece, Guinea, Kazakhstan, Korea, the Lao People’s than services related to trading across borders and Democratic Republic, Liberia, Mongolia, the getting electricity), the strength of its financial system, Netherlands, Panama, Poland, Portugal, Serbia, the the security of property from theft and looting, Slovak Republic, Slovenia, Sri Lanka, Ukraine, the macroeconomic conditions or the strength of United Arab Emirates and Uzbekistan. Second, Doing underlying institutions. Business ranks these economies on the increase in their ranking on the ease of doing business from the Variability of economies’ rankings across topics previous year using comparable rankings. Each indicator set measures a different aspect of the Selecting the economies that implemented regulatory business regulatory environment. The rankings of an reforms in at least 3 topics and improved the most in economy can vary, sometimes significantly, across the aggregate ranking is intended to highlight indicator sets. The average correlation coefficient economies with ongoing, broad-based reform between the 10 indicator sets included in the programs. aggregate ranking is 0.37, and the coefficients between any 2 sets of indicators range from 0.19 Distance to frontier measure (between dealing with construction permits and A drawback of the ease of doing business ranking is getting credit) to 0.60 (between starting a business that it can measure the regulatory performance of and protecting investors). These correlations suggest economies only relative to the performance of others. that economies rarely score universally well or It does not provide information on how the absolute universally badly on the indicators. quality of the regulatory environment is improving Consider the example of Canada. It stands at 17 in the over time. Nor does it provide information on how aggregate ranking on the ease of doing business. Its large the gaps are between economies at a single ranking is 3 on starting a business, and 4 on both point in time. resolving insolvency and protecting investors. But its The distance to frontier measure is designed to ranking is only 62 on enforcing contracts, 69 on address both shortcomings, complementing the ease dealing with construction permits and 152 on getting of doing business ranking. This measure illustrates the electricity. distance of an economy to the ―frontier,‖ and the Variation in performance across the indicator sets is change in the measure over time shows the extent to not at all unusual. It reflects differences in the degree which the economy has closed this gap. The frontier is of priority that government authorities give to a score derived from the most efficient practice or particular areas of business regulation reform and the highest score achieved on each of the component indicators in 9 Doing Business indicator sets (excluding 5 6 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2013 Nicaragua 114 the employing workers and getting electricity The maximum (max) and minimum (min) observed indicators) by any economy since 2005. In starting a values are computed for the 174 economies included business, for example, New Zealand has achieved the in the Doing Business sample since 2005 and for all highest performance on the time (1 day), Canada and years (from 2005 to 2012). The year 2005 was chosen New Zealand on the number of procedures required as the baseline for the economy sample because it was (1), Slovenia on the cost (0% of income per capita) and the first year in which data were available for the Australia and 90 other economies on the paid-in majority of economies (a total of 174) and for all 9 minimum capital requirement (0% of income per indicator sets included in the measure. To mitigate the capita). Calculating the distance to frontier for each effects of extreme outliers in the distributions of the economy involves 2 main steps. First, individual rescaled data (very few economies need 694 days to indicator scores are normalized to a common unit: complete the procedures to start a business, but many th except for the total tax rate. To do so, each of the 28 need 9 days), the maximum (max) is defined as the 95 component indicators y is rescaled to (max − y)/(max percentile of the pooled data for all economies and all − min), with the minimum value (min) representing the years for each indicator. The exceptions are the getting frontier—the highest performance on that indicator credit, protecting investors and resolving insolvency across all economies since 2005. For the total tax rate, indicators, whose construction precludes outliers. consistent with the calculation of the rankings, the Take Ghana, which has a score of 67 on the distance to frontier is defined as the total tax rate corresponding th frontier measure for 2012. This score indicates that the to the 15 percentile based on the overall distribution economy is 33 percentage points away from the of total tax rates for all years. Second, for each frontier constructed from the best performances economy the scores obtained for individual indicators across all economies and all years. Ghana was further are aggregated through simple averaging into one from the frontier in 2005, with a score of 54. The distance to frontier score. An economy’s distance to difference between the scores shows an improvement frontier is indicated on a scale from 0 to 100, where 0 over time. represents the lowest performance and 100 the frontier. The distance to frontier measure can also be used for comparisons across economies in the same year, The difference between an economy’s distance to complementing the ease of doing business ranking. frontier score in 2005 and its score in 2012 illustrates For example, Ghana stands at 64 this year in the ease the extent to which the economy has closed the gap to of doing business ranking, while Peru, which is 29 the frontier over time. And in any given year the score percentage points from the frontier, stands at 43. measures how far an economy is from the highest performance at that time. Doing Business 2013 Nicaragua 115 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2013 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 185 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 185 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 9,600 specialists in 185 economies who profiles participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers NEW! Entrepreneurship data underlying Doing Business Data on business density for 130 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and More to come related policy issues Coming soon—information on good practices and http://www.doingbusiness.org/research/ data on transparency and on the distance to frontier Doing Business 2013 Nicaragua 116