Doing Business 2020 Honduras Economy Profile Honduras Page 1 Doing Business 2020 Honduras Economy Profile of Honduras Doing Business 2020 Indicators (in order of appearance in the document) Starting a business Procedures, time, cost and paid-in minimum capital to start a limited liability company Dealing with construction permits Procedures, time and cost to complete all formalities to build a warehouse and the quality control and safety mechanisms in the construction permitting system Getting electricity Procedures, time and cost to get connected to the electrical grid, and the reliability of the electricity supply and the transparency of tariffs Registering property Procedures, time and cost to transfer a property and the quality of the land administration system Getting credit Movable collateral laws and credit information systems Protecting minority investors Minority shareholders’ rights in related-party transactions and in corporate governance Paying taxes Payments, time, total tax and contribution rate for a firm to comply with all tax regulations as well as postfiling processes Trading across borders Time and cost to export the product of comparative advantage and import auto parts Enforcing contracts Time and cost to resolve a commercial dispute and the quality of judicial processes Resolving insolvency Time, cost, outcome and recovery rate for a commercial insolvency and the strength of the legal framework for insolvency Employing workers Flexibility in employment regulation and redundancy cost Page 2 Doing Business 2020 Honduras About Doing Business The Doing Business project provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level. The Doing Business project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle. Doing Business captures several important dimensions of the regulatory environment as it applies to local firms. It provides quantitative indicators on regulation for starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Doing Business also measures features of employing workers. Although Doing Business does not present rankings of economies on the employing workers indicators or include the topic in the aggregate ease of doing business score or ranking on the ease of doing business, it does present the data for these indicators. By gathering and analyzing comprehensive quantitative data to compare business regulation environments across economies and over time, Doing Business encourages economies to compete towards more efficient regulation; offers measurable benchmarks for reform; and serves as a resource for academics, journalists, private sector researchers and others interested in the business climate of each economy. In addition, Doing Business offers detailed subnational studies, which exhaustively cover business regulation and reform in different cities and regions within a nation. These studies provide data on the ease of doing business, rank each location, and recommend reforms to improve performance in each of the indicator areas. Selected cities can compare their business regulations with other cities in the economy or region and with the 190 economies that Doing Business has ranked. The first Doing Business study, published in 2003, covered 5 indicator sets and 133 economies. This year’s study covers 11 indicator sets and 190 economies. Most indicator sets refer to a case scenario in the largest business city of each economy, except for 11 economies that have a population of more than 100 million as of 2013 (Bangladesh, Brazil, China, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian Federation and the United States) where Doing Business also collected data for the second largest business city. The data for these 11 economies are a population-weighted average for the 2 largest business cities. The project has benefited from feedback from governments, academics, practitioners and reviewers. The initial goal remains: to provide an objective basis for understanding and improving the regulatory environment for business around the world. To learn more about Doing Business please visit doingbusiness.org Page 3 Doing Business 2020 Honduras Ease of Doing Business in Region Latin America & Caribbean DB RANK DB SCORE Honduras Income Category Lower middle income Population 9,587,522 133 56.3 City Covered Tegucigalpa Rankings on Doing Business topics - Honduras 25 101 120 130 138 143 158 154 170 167 Starting Dealing Getting Registering Getting Protecting Paying Trading Enforcing Resolving a with Electricity Property Credit Minority Taxes across Contracts Insolvency Business Construction Investors Borders Permits Topic Scores 71.4 56.2 59.9 62.3 80.0 42.0 49.9 64.3 44.2 32.6 Starting a Business (rank) 170 Getting Credit (rank) 25 Trading across Borders (rank) 130 Score of starting a business (0-100) 71.4 Score of getting credit (0-100) 80.0 Score of trading across borders (0-100) 64.3 Procedures (number) 11 Strength of legal rights index (0-12) 8 Time to export Time (days) 42 Depth of credit information index (0-8) 8 Documentary compliance (hours) 48 Cost (number) 28.1 Credit registry coverage (% of adults) 17.3 Border compliance (hours) 108 Paid-in min. capital (% of income per capita) 0.0 Credit bureau coverage (% of adults) 48.9 Cost to export Documentary compliance (USD) 80 Dealing with Construction Permits (rank) 158 Protecting Minority Investors (rank) 120 Border compliance (USD) 601 Score of dealing with construction permits (0-100) 56.2 Score of protecting minority investors (0-100) 42.0 Time to export Procedures (number) 17 Extent of disclosure index (0-10) 3.0 Documentary compliance (hours) 72 Time (days) 132 Extent of director liability index (0-10) 8.0 Border compliance (hours) 96 Cost (% of warehouse value) 11.4 Ease of shareholder suits index (0-10) 6.0 Cost to export Building quality control index (0-15) 9.0 Extent of shareholder rights index (0-6) 3.0 Documentary compliance (USD) 70 Extent of ownership and control index (0-7) 1.0 Border compliance (USD) 483 Getting Electricity (rank) 138 Extent of corporate transparency index (0-7) 0.0 Score of getting electricity (0-100) 59.9 Enforcing Contracts (rank) 154 Procedures (number) 7 Paying Taxes (rank) 167 Score of enforcing contracts (0-100) 44.2 Time (days) 39 Score of paying taxes (0-100) 49.9 Time (days) 920 Cost (% of income per capita) 766.7 Payments (number per year) 59 Cost (% of claim value) 38.8 Reliability of supply and transparency of tariff index (0-8) 2 Time (hours per year) 203 Quality of judicial processes index (0-18) 7.5 Total tax and contribution rate (% of profit) 39.1 Registering Property (rank) 101 Postfiling index (0-100) 35.1 Resolving Insolvency (rank) 143 Score of registering property (0-100) 62.3 Score of resolving insolvency (0-100) 32.6 Procedures (number) 6 Recovery rate (cents on the dollar) 19.9 Time (days) 28.5 Time (years) 3.8 Cost (% of property value) 5.7 Cost (% of estate) 14.5 Quality of the land administration index (0-30) 12.5 Outcome (0 as piecemeal sale and 1 as going 0 concern) Strength of insolvency framework index (0-16) 7.0 Page 4 Doing Business 2020 Honduras Starting a Business This topic measures the number of procedures, time, cost and paid-in minimum capital requirement for a small- to medium-sized limited liability company to start up and formally operate in each economy’s largest business city. To make the data comparable across 190 economies, Doing Business uses a standardized business that is 100% domestically owned, has start-up capital equivalent to 10 times the income per capita, engages in general industrial or commercial activities and employs between 10 and 50 people one month after the commencement of operations, all of whom are domestic nationals. Starting a Business considers two types of local limited liability companies that are identical in all aspects, except that one company is owned by 5 married women and the other by 5 married men. The ranking of economies on the ease of starting a business is determined by sorting their scores for starting a business. These scores are the simple average of the scores for each of the component indicators. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Procedures to legally start and formally operate a company To make the data comparable across economies, several assumptions about the business and the (number) procedures are used. It is assumed that any required information is readily available and that the entrepreneur will pay no bribes. • Preregistration (for example, name verification or reservation, notarization) The business: • Registration in the economy’s largest business city -Is a limited liability company (or its legal equivalent). If there is more than one type of limited • Postregistration (for example, social security registration, liability company in the economy, the limited liability form most common among domestic firms is company seal) chosen. Information on the most common form is obtained from incorporation lawyers or the statistical office. • Obtaining approval from spouse to start a business or to leave -Operates in the economy’s largest business city. For 11 economies the data are also collected for the home to register the company the second largest business city. • Obtaining any gender specific document for company -Performs general industrial or commercial activities such as the production or sale to the public of registration and operation or national identification card goods or services. The business does not perform foreign trade activities and does not handle products subject to a special tax regime, for example, liquor or tobacco. It is not using heavily Time required to complete each procedure (calendar days) polluting production processes. • Does not include time spent gathering information -Does not qualify for investment incentives or any special benefits. -Is 100% domestically owned. • Each procedure starts on a separate day (2 procedures cannot -Has five business owners, none of whom is a legal entity. One business owner holds 30% of the start on the same day) company shares, two owners have 20% of shares each, and two owners have 15% of shares • Procedures fully completed online are recorded as ½ day each. • Procedure is considered completed once final document is -Is managed by one local director. received -Has between 10 and 50 employees one month after the commencement of operations, all of them domestic nationals. • No prior contact with officials -Has start-up capital of 10 times income per capita. -Has an estimated turnover of at least 100 times income per capita. Cost required to complete each procedure (% of income per -Leases the commercial plant or offices and is not a proprietor of real estate. capita) -Has an annual lease for the office space equivalent to one income per capita. • Official costs only, no bribes -Is in an office space of approximately 929 square meters (10,000 square feet). -Has a company deed that is 10 pages long. • No professional fees unless services required by law or commonly used in practice The owners: Paid-in minimum capital (% of income per capita) -Have reached the legal age of majority and are capable of making decisions as an adult. If there • Funds deposited in a bank or with third party before registration is no legal age of majority, they are assumed to be 30 years old. or up to 3 months after incorporation -Are in good health and have no criminal record. -Are married, the marriage is monogamous and registered with the authorities. -Where the answer differs according to the legal system applicable to the woman or man in question (as may be the case in economies where there is legal plurality), the answer used will be the one that applies to the majority of the population. Page 5 Doing Business 2020 Honduras Starting a Business - Honduras Standardized Company Legal form Private Limited Company Paid-in minimum capital requirement No minimum City Covered Tegucigalpa Indicator Honduras Latin America & OECD high Best Regulatory Caribbean income Performance Procedure – Men (number) 11 8.1 4.9 1 (2 Economies) Time – Men (days) 42 28.8 9.2 0.5 (New Zealand) Cost – Men (% of income per capita) 28.1 31.4 3.0 0.0 (2 Economies) Procedure – Women (number) 11 8.1 4.9 1 (2 Economies) Time – Women (days) 42 28.8 9.2 0.5 (New Zealand) Cost – Women (% of income per capita) 28.1 31.4 3.0 0.0 (2 Economies) Paid-in min. capital (% of income per capita) 0.0 0.4 7.6 0.0 (120 Economies) Figure – Starting a Business in Honduras – Score 41.2 58.3 86.0 100.0 Procedures Time Cost Paid-in min. capital Figure – Starting a Business in Honduras and comparator economies – Ranking and Score DB 2020 Starting a Business Score 0 100 87.0: Colombia (Rank: 95) 86.8: Guatemala (Rank: 99) 79.9: Costa Rica (Rank: 144) 79.6: Regional Average (Latin America & Caribbean) 78.6: El Salvador (Rank: 148) 71.4: Honduras (Rank: 170) Note: The ranking of economies on the ease of starting a business is determined by sorting their scores for starting a business. These scores are the simple average of the scores for each of the component indicators. Page 6 Doing Business 2020 Honduras Figure – Starting a Business in Honduras – Procedure, Time and Cost Time (days) Cost (% of income per capita) 25 40 Cost (% of income per capita) 35 20 30 Time (days) 25 15 20 10 15 10 5 5 0 0 1 2 3 4 5 6 7 8 *9 * 10 * 11 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures reflected here, see the summary below. Page 7 Doing Business 2020 Honduras Details – Starting a Business in Honduras – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Pay the initial capital and obtain the certificate of the deposit at a local bank 1 day L. 150 Agency : Bank The article 5 of the Decree No. 284-2013 removes the minimum capital required to constitute a company. However, the majority of notaries and the Mercantile Registry typically require at least 5,000 lempiras of startup capital in practice. The entrepreneurs need to pay the initial capital in a local bank and obtain the certificate of the deposit. 2 Establish the company before a notary public, who will draw up the articles of 2 days notary fees of 2% for incorporation companies with share Agency : Notary capital from L. 500,000 to A company may be set up by public subscription or simultaneous foundation. The procedures L. 1,000,000 described here are for simultaneous foundation (fundación simultánea). The constitution instrument should be written on stamped paper (papel sellado). The notary uses this paper for the protocol (the original signed document in the notary’s custody) and for the first copy (testimonio) of the instrument of organization. The cost to register depends on the company's share capital: The new fees schedule is the following according to the value of share capital: i) until L. 100,000, it will apply the 5% of the share capital; ii) from L. 100,001 to L. 500,000, it will apply the 3%; iii) from L. 500,001 to L. 5,000,000, it will apply the 2%; iv) more than L. 5,000,001, it will apply the 1%. Since 2014, the Decree 284-2013 introduces the possibility to constitute the company without the participation of the notary. Through the online system "Mi empresa en linea', the company can be constituted by a private corporate contract (contrato societario). This form can be file directly at the Chamber of Commerce with a reduced cost of L.525. Nevertheless, the majority of entrepreneurs still visit the notary office to constitute the company. 3 File the articles of incorporation with the Mercantile Registry at the Chamber of Commerce 2 days L. 200 for the first L.1,000 Agency : Mercantil Registry at the Chamber of Commerce of capital + L.1.5 per It is necessary to register the Public Deed with the Mercantile Registry at the Chamber of L.1,000 of capital or Commerce. fraction thereof. 4 Apply for the tax identification code (Registro Tributario Nacional, RTN) 1 day no charge Agency : Revenues Administration Service (Servicio de Administración de Rentas, SAR) All natural or legal persons must apply for a tax identification code (Registro Tributario Nacional, RTN) at the at the Ministry of Finance's Revenues Administration Service (Servicio de Administración de Rentas, SAR). To obtain the RTN of a company, the entrepreneur needs to present the IDs of the partners and a copy of each, the personal RTN of each of the partners plus the copy and a copy of the public deed. In addition, the RTN is requested by the 410B form. 5 Register with local and national Chambers of Commerce 1 day L. 1,850 Agency : Chamber of Commerce The company needs to register with the local and national chambers of commerce. The cost to register depends on the company's share capital: - Share capital from L. 1 to L. 200,000: L. 590 - Share capital from L. 200,001 to L. 400,000: L. 850 - Share capital from L. 400,001 to L. 700,000: L. 1,850 - Share capital L. 700,001 and above: L. 3,000 6 Apply for a zoning certificate (constancia de compatibilidad) at the Municipal Authority 30 days L. 200 Agency : Municipality - Gerencia de control de la construccion The zoning certificate (constancia de compatibilidad) is a requirement for apply to the operational permit. This certificate verifies the place where the new company will be located. It has to be in an allowed area to create a company. The entrepreneur needs to apply at the Municipality (Citizen services counter) and they will transfer the documents to the counter of construction management. The required documents are the following: i) identification of the economic activity of the company; ii) ID copy of the legal representative; iii) copy of the RTN of the company and the legal representative; iv) power of attorney; v) sketch of the property; vi) and proof of the municipal solvency (impuesto de bienes inmuebles). Once submitted all the documents, an inspection board will visit the business premises in order to verify the area where the company is established. Page 8 Doing Business 2020 Honduras 7 Apply for an operational permit (Permiso de Operación) at the Municipality 1 day L. 150 for the certificate + Agency : Municipality - Gerencia atencion al ciudadano L. 1,100 according to sales To obtain the operational permit, some or all of the following documents must be filed, depending expectations on the type of industrial or commercial activity: - Personal identity card and municipality tax solvency of the general manager (copies); - Zoning certificate (previous procedure); - Tax identification code (RTN) (copy); - Cadastral code (clave cadastral) corresponding to the corporation’s place of business; - Constitution instrument (escritura de constitución de la compañía) (copy); - Zoning constancy; - Tenancy agreement and constancy of income tax solvency corresponding to the owner of the premises in which the company will do business; - Environmental impact statement; - Cadastral inspection of the premises in which the corporation will do business. Once obtained the operating license, the company is required to pay annually (every January) the following taxes to the Municipality, which vary based on the company’s expected income: nomenclature tax, zoning tax, inspection tax, code tax, environmental tax, and taxes for firefighting and waste management services (paid annually to the municipality). For these taxes, the entrepreneur needs to file at the Municipality a forecast of the expective sales and income that the company will obtain during the upcoming year. 8 Register for Sales tax 2 days no charge Agency : Revenues Administration Service (Servicio de Administración de Rentas, SAR) According to the Tax Code (Código Tributario), the company is obliged to record the constitution instrument and the operation permit before the Minister of Finance's Revenues Administration Service (Servicio de Administración de Rentas, SAR), in order to pay sales tax on the sale of goods or services. 9 Register at Social Security Institute (Instituto Hondureño de Seguridad Social, IHSS) 3 days (simultaneous no charge Agency : Social Security Institute with previous procedure) The Social Security Institute (Instituto Hondureño de Seguridad Social, IHSS) is the national social security hospital and outpatient care institution for workers and their dependents. The company is obliged to contribute 5% of each employee’s salary for illness and maternity (enfermedad y maternidad, EM), plus 2% for disability, old age, and death (invalidez, vejez y muerte, IVM)—a total of 7% up to a maximum of L.7,000. Register at the Professional Training Institute (Instituto Nacional de Formación Profesional, 1 day (simultaneous with no charge 10 INFOP) previous procedure) Agency : Hand Labor Training Institute Employers are obliged to contribute 1% of the company’s total payroll to the Professional Training Institute (Instituto Nacional de Formación Profesional, INFOP). 11 Register at Social Housing Fund (Régimen de Aportación, RAP, del Fondo Social de la 1 day (simultaneous with no charge Vivienda, FOSOVI) previous procedure) Agency : Social Housing Fund (FOSOVI) If the company has more than 10 employees, it is obliged to contribute 1.5% of each employee’s salary to the Social Fund for Housing (Régimen de Aportación, RAP, and Fondo Social de la Vivienda, FOSOVI). Takes place simultaneously with previous procedure. Page 9 Doing Business 2020 Honduras Dealing with Construction Permits This topic tracks the procedures, time and cost to build a warehouse—including obtaining necessary the licenses and permits, submitting all required notifications, requesting and receiving all necessary inspections and obtaining utility connections. In addition, the Dealing with Construction Permits indicator measures the building quality control index, evaluating the quality of building regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and professional certification requirements. The most recent round of data collection was completed in May 2019. See the methodology for more information What the indicators measure Case study assumptions Procedures to legally build a warehouse (number) To make the data comparable across economies, several assumptions about the construction company, the warehouse project and the utility connections are used. • Submitting all relevant documents and obtaining all necessary clearances, licenses, permits and certificates The construction company (BuildCo): • Submitting all required notifications and receiving all necessary - Is a limited liability company (or its legal equivalent) and operates in the economy’s largest inspections business city. For 11 economies the data are also collected for the second largest business city. • Obtaining utility connections for water and sewerage - Is 100% domestically and privately owned; has five owners, none of whom is a legal entity. Has a licensed architect and a licensed engineer, both registered with the local association of architects • Registering and selling the warehouse after its completion or engineers. BuildCo is not assumed to have any other employees who are technical or licensed Time required to complete each procedure (calendar days) experts, such as geological or topographical experts. - Owns the land on which the warehouse will be built and will sell the warehouse upon its • Does not include time spent gathering information completion. • Each procedure starts on a separate day—though procedures that can be fully completed online are an exception to this rule The warehouse: • Procedure is considered completed once final document is - Will be used for general storage activities, such as storage of books or stationery. received - Will have two stories, both above ground, with a total constructed area of approximately 1,300.6 square meters (14,000 square feet). Each floor will be 3 meters (9 feet, 10 inches) high and will be • No prior contact with officials located on a land plot of approximately 929 square meters (10,000 square feet) that is 100% owned by BuildCo, and the warehouse is valued at 50 times income per capita. Cost required to complete each procedure (% of income per - Will have complete architectural and technical plans prepared by a licensed architect. If capita) preparation of the plans requires such steps as obtaining further documentation or getting prior • Official costs only, no bribes approvals from external agencies, these are counted as procedures. - Will take 30 weeks to construct (excluding all delays due to administrative and regulatory Building quality control index (0-15) requirements). • Quality of building regulations (0-2) The water and sewerage connections: • Quality control before construction (0-1) - Will be 150 meters (492 feet) from the existing water source and sewer tap. If there is no water • Quality control during construction (0-3) delivery infrastructure in the economy, a borehole will be dug. If there is no sewerage • Quality control after construction (0-3) infrastructure, a septic tank in the smallest size available will be installed or built. - Will have an average water use of 662 liters (175 gallons) a day and an average wastewater flow • Liability and insurance regimes (0-2) of 568 liters (150 gallons) a day. Will have a peak water use of 1,325 liters (350 gallons) a day and • Professional certifications (0-4) a peak wastewater flow of 1,136 liters (300 gallons) a day. - Will have a constant level of water demand and wastewater flow throughout the year; will be 1 inch in diameter for the water connection and 4 inches in diameter for the sewerage connection. Page 10 Doing Business 2020 Honduras Dealing with Construction Permits - Honduras Standardized Warehouse Estimated value of warehouse HNL 2,783,046.50 City Covered Tegucigalpa Indicator Honduras Latin America & OECD high Best Regulatory Caribbean income Performance Procedures (number) 17 15.5 12.7 None in 2018/19 Time (days) 132 191.2 152.3 None in 2018/19 Cost (% of warehouse value) 11.4 3.6 1.5 None in 2018/19 Building quality control index (0-15) 9.0 9.0 11.6 15.0 (6 Economies) Figure – Dealing with Construction Permits in Honduras – Score 52.0 69.5 43.2 60.0 Procedures Time Cost Building quality control index Figure – Dealing with Construction Permits in Honduras and comparator economies – Ranking and Score DB 2020 Dealing with Construction Permits Score 0 100 70.8: Costa Rica (Rank: 78) 69.1: Colombia (Rank: 89) 65.3: Guatemala (Rank: 118) 63.2: Regional Average (Latin America & Caribbean) 56.2: Honduras (Rank: 158) 52.3: El Salvador (Rank: 168) Note: The ranking of economies on the ease of dealing with construction permits is determined by sorting their scores for dealing with construction permits. These scores are the simple average of the scores for each of the component indicators. Page 11 Doing Business 2020 Honduras Figure – Dealing with Construction Permits in Honduras – Procedure, Time and Cost Time (days) Cost (% of warehouse value) 4.5 120 4 Cost (% of warehouse value) 3.5 100 3 Time (days) 80 2.5 60 2 1.5 40 1 20 0.5 0 0 1 *2 *3 *4 *5 *6 7 8 *9 10 11 12 13 14 15 * 16 17 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures reflected here, see the summary below. Page 12 Doing Business 2020 Honduras Figure – Dealing with Construction Permits in Honduras and comparator economies – Measure of Quality 11.5 11.0 11.0 11.0 11 Index score 10.5 10.0 10 9.5 9.0 9.0 9 8.5 8 Honduras Colombia Costa El Guatemala Latin Rica Salvador America & Caribbean Details – Dealing with Construction Permits in Honduras – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Request and obtain approval for connection to water and sewage and rainwater drainage 40 days HNL 42,735 feasibility from SANAA Agency : SANAA The committee responsible for approving conditions of water and sewerage connections (utility company) meets once a week. 2 Obtain results of geotechnical study / soil test 26 days HNL 100,000 Agency : Private licensed company BuildCo will request a soil test for the structural calculations for the foundation. Contractors ask for a soil test to ensure that the foundation of the building is solid. The engineer must understand the suitability of the soil for the proposed construction work. It allows to build a solid foundation and avoid structures to be damaged or collapsed or leaned. Although a soil test is not required by law, it is consistently conducted in practice. 3 Request and obtain environmental approval from Office of Municipal Environmental 21 days HNL 6,892 Development and Management (GMDAM) Agency : Office of Municipal Environmental Development and Management of Municipality of Tegucigalpa (UMA) First, BuildCo's case would be considered by the Office of Municipal Environmental Development and Management. Under a major government initiative, the National Competitiveness Program (Programa Nacional de Competitividad) and the municipality (GMDAM) entered into an agreement with SERNA in 2007. As of September 4, 2008, the Law on Environment was approved, as well as other implementing regulations. Article 78 of the law introduced criteria for different categories of environmental approvals depending on project risks. Commercial warehouses that fit into Category 1 (Article 5) are only subject to environmental control rather than a full scale study at the local level by the Office of Municipal Environmental Development and Management ('UGA' or 'UMA'). The cost according to Article 70 of Plan de Arbitrios is 1% of the construction cost of the value up to HNL 200,000 + 0.50% of the construction cost of the value between HNL 200,001 - 1,000,000 + 0.05% of the construction cost of the value that exceeds HNL 1,000,000. 4 Obtain results of topographical study 11 days HNL 13,000 Agency : Private licensed company A topographical study is conducted prior to construction to measure the levels on the specific terrain. It is a general technical requirement when building a structure of this class. 5 Request and obtain approval (constancia) from Public Works Secretary (SOPTRAVI) 7 days HNL 500 Agency : Public Works Secretary (SOPTRAVI) As part of the Building Permit requisites, BuildCo. also needs to process the public works authorization. In parallel with the water and sewage request, BuildCo. can ask for the approval from the Public Works Secretary (SOPTRAVI). A fee of HNL 300.00 is charged for the approval and a fee of HNL 200.00 for the inspection. 6 Request and obtain design guidelines and approval of drawings and designs from Urban 3 days HNL 900 Planning Office Agency : Urban Planning Office While asking for the public works authorization, Buildco. must request design guidelines from the Urban Planning Office near the future construction site. Page 13 Doing Business 2020 Honduras 7 Request and obtain location clearances (uso de suelo y factibilidad vial) from the Municipal 2 days HNL 150 Authority Agency : Municipal Authority (Alcaldía Municipal) The following documents must be presented to obtain a certificate of occupancy (Uso de Suelo y Factibilidad Vial) from the Municipality: • Application • Proof of property registration • Designs and drawings • Approvals from the SANAA and the ENEE, and others • Environmental license The new city zoning plan that was introduced in early 2008 is currently being operationalized. One of the main features of the plan is the change of zoning from residential to commercial and its further digitization based on maps from Cadastre and Management Engineering (Engenieria Gerencial). Furthermore, the land use regulations were amended in April 2008, introducing categories based on risk factors. This led to an improvement in the process of obtaining the location clearance, including a time reduction. The application is checked in the back office to verify whether the new land use is compatible with land use regulations. 8 Request and obtain the Risk Assessment Report from the Risk Evaluation Office 10 days HNL 400 Agency : Risk Evaluation Office (Gerencia de la evaluación de Riesgo) BuildCo must request and obtain a Risk Assessment Report from the Risk Evaluation Office the Municipality. The following documentation is required: Filled Application form Copy of the identity document of the applicant Copy of the current Municipal Solvency of the applicant, Photocopy of the Public Deed duly registered in the Property Institute State of real estate account solvent, Location sketch, The original version and 4 copies of receipt of report payment. Plans: Polygon of the terrain, Topographic map before making the design. 9 Request and obtain approval of Fire Safety and Evacuation Plan from Fire Department. 10 days HNL 5,566 Agency : Fire Department BuildCo must request and obtain approval of fire Safety and Evacuation Plan from Fire Department. The project of the warehouse must comply with the security standards prescribed by the law. Once the Fire Department approves the Plan, BuildCo can apply for building permit. 10 Request and obtain building permit 30 days HNL 110,551 Agency : Municipal Authority (Alcaldía Municipal) The permit application documents are reviewed by the Legal Department, the Technical Department, the Professional College, the Environmental Section, and the Chief of Construction Permits. After submitting the permit application and all other required documents, BuildCo pays the application fee at TASA Municipal. Prior to starting construction, BuildCo must notify the authority. 11 Receive footings and foundations inspection (“inspección de zapatas y fundaciones”) 1 day no charge Agency : Municipal Authority (Alcaldía Municipal) According to the 2010 Building Code of Honduras " Código de Construcción de Honduras" under Section 109, BuildCo is obliged to receive footing and foundations inspection. This inspection should be made after excavations for footings are complete and all reinforcing steel are in place. "Las inspecciones de zapatas y fundaciones deben realizarse luego de que las excavaciones para zapatas estén completas y todos los aceros de refuerzo estén colocados." 12 Receive inspection upon pouring of concrete slabs (“inspección de losas y contrapisos de 1 day no charge concreto”) Agency : Municipal Authority (Alcaldía Municipal) According to the 2010 Building Code of Honduras " Código de Construcción de Honduras" under Section 109, BuildCo is obliged to receive inspection upon pouring of concrete slabs. This inspection must be performed after the steel reinforcement of the slab or subfloor and building service equipment, conduit, piping accessories and other ancillary equipment items are in place, but before any concrete is placed or the stage floor is installed, including the primary flooring. "Las inspecciones de losas y contrapisos de concreto deben realizarse despues de que el acero de refuerzo de las losa o contrapiso y los equipos de servicio del edificio, conductos, accesorios de tuberias y otros elementos de equipos auxiliares esten en su lugar, pero antes de que cualquier concreto sea colocado o se instale el tablado del piso, incluyendo el entarimado primario." Page 14 Doing Business 2020 Honduras 13 Receive structure inspection (“inspección de estructuras”) 1 day no charge Agency : Municipal Authority (Alcaldía Municipal) According to the 2010 Building Code of Honduras " Código de Construcción de Honduras" under Section 109, BuildCo is obliged to receive structure inspection. This inspection must be made after the roof deck or sheathing, all structure, fire fighting locked and braces are in place and pipes, chimneys and vents that need to be concealed are complete and the rough work of the cables , plumbing and electrical, hydraulic and sanitary and heating ducts are approved. "Las inspecciones de estructuras deben realizarse después que la cubierta o entablado del techo, toda la estructura, los bloqueados antifuegos y los arriostramientos estén en su lugar y las tuberías, chimeneas y ventilaciones que deban ser ocultados estén completos y la obra gruesa de los cables, tuberías y conductos eléctricos, hidráulicos y sanitarios y de calefacción estén aprobados." 14 Receive on-site inspection from Fire Department after construction 1 day no charge Agency : Fire Department According to the 2010 Building Code of Honduras " Código de Construcción de Honduras" under Section 109, BuildCo is obliged to receive Fire Department inspection. 15 Receive connection to water and sewage from SANAA 15 days HNL 30,888 Agency : SANAA After all the required inspection have been conducted, BuildCo. can receive the utilities connections. Receive final inspection 1 day no charge 16 Agency : Municipal Authority (Alcaldía Municipal) According to the 2010 Building Code of Honduras " Código de Construcción de Honduras" under Section 109, BuildCo is obliged to receive a final inspection. The final inspection must be made after all work required by the building permit is finished. 17 Register building at Real Estate Registry 30 days HNL 4,478 Agency : Real Estate Registry (Registro de Bienes Raíces) The last step that BuildCo. has to do is the registration of the warehouse. Reforms and optimization of electronic processing have significantly decreased the time to register property. However, in 2009 due to an administrative backlog and delays with the registration process, the procedure for registration of a building is now taking on average 30 days. Takes place simultaneously with previous procedure. Page 15 Doing Business 2020 Honduras Details – Dealing with Construction Permits in Honduras – Measure of Quality Answer Score Building quality control index (0-15) 9.0 Quality of building regulations index (0-2) 1.0 How accessible are building laws and regulations in your economy? (0-1) They must be 0.0 purchased; Not easily accessible. Which requirements for obtaining a building permit are clearly specified in the building regulations or on any List of required 1.0 accessible website, brochure or pamphlet? (0-1) documents; Fees to be paid; Required preapprovals. Quality control before construction index (0-1) 1.0 Which third-party entities are required by law to verify that the building plans are in compliance with existing Licensed architect; 1.0 building regulations? (0-1) Licensed engineer. Quality control during construction index (0-3) 1.0 What types of inspections (if any) are required by law to be carried out during construction? (0-2) Inspections by in- 1.0 house engineer; Inspections at various phases. Do legally mandated inspections occur in practice during construction? (0-1) Mandatory 0.0 inspections are not always done in practice during construction. Quality control after construction index (0-3) 3.0 Is there a final inspection required by law to verify that the building was built in accordance with the approved Yes, final inspection 2.0 plans and regulations? (0-2) is done by government agency; Yes, in-house engineer submits report for final inspection. Do legally mandated final inspections occur in practice? (0-1) Final inspection 1.0 always occurs in practice. Liability and insurance regimes index (0-2) 1.0 Which parties (if any) are held liable by law for structural flaws or problems in the building once it is in use Architect or engineer; 1.0 (Latent Defect Liability or Decennial Liability)? (0-1) Professional in charge of the supervision; Construction company; Owner or investor. Which parties (if any) are required by law to obtain an insurance policy to cover possible structural flaws or No party is required 0.0 problems in the building once it is in use (Latent Defect Liability Insurance or Decennial Insurance)? (0-1) by law to obtain insurance . Professional certifications index (0-4) 2.0 What are the qualification requirements for the professional responsible for verifying that the architectural plans University degree in 1.0 or drawings are in compliance with existing building regulations? (0-2) architecture or engineering; Being a registered architect or engineer. What are the qualification requirements for the professional who supervises the construction on the ground? (0- University degree in 1.0 2) engineering, construction or construction management; Being a registered architect or engineer. Page 16 Doing Business 2020 Honduras Getting Electricity This topic measures the procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse. Additionally, the reliability of supply and transparency of tariffs index measures reliability of supply, transparency of tariffs and the price of electricity. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Procedures to obtain an electricity connection (number) To make the data comparable across economies, several assumptions about the warehouse, the electricity connection and the monthly consumption are used. • Submitting all relevant documents and obtaining all necessary clearances and permits The warehouse: • Completing all required notifications and receiving all necessary - Is owned by a local entrepreneur and is used for storage of goods. inspections - Is located in the economy’s largest business city. For 11 economies the data are also collected for • Obtaining external installation works and possibly purchasing the second largest business city. material for these works - Is located in an area where similar warehouses are typically located and is in an area with no physical constraints. For example, the property is not near a railway. • Concluding any necessary supply contract and obtaining final - Is a new construction and is being connected to electricity for the first time. supply - Has two stories with a total surface area of approximately 1,300.6 square meters (14,000 square Time required to complete each procedure (calendar days) feet). The plot of land on which it is built is 929 square meters (10,000 square feet). • Is at least 1 calendar day The electricity connection: • Each procedure starts on a separate day - Is a permanent one with a three-phase, four-wire Y connection with a subscribed capacity of 140- • Does not include time spent gathering information kilo-volt-ampere (kVA) with a power factor of 1, when 1 kVA = 1 kilowatt (kW). - Has a length of 150 meters. The connection is to either the low- or medium-voltage distribution • Reflects the time spent in practice, with little follow-up and no network and is either overhead or underground, whichever is more common in the area where the prior contact with officials warehouse is located and requires works that involve the crossing of a 10-meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other Cost required to complete each procedure (% of income per owners’ private property because the warehouse has access to a road. capita) - Does not require work to install the internal wiring of the warehouse. This has already been • Official costs only, no bribes completed up to and including the customer’s service panel or switchboard and the meter base. • Value added tax excluded The monthly consumption: The reliability of supply and transparency of tariffs index (0-8) - It is assumed that the warehouse operates 30 days a month from 9:00 a.m. to 5:00 p.m. (8 hours • Duration and frequency of power outages (0–3) a day), with equipment utilized at 80% of capacity on average and that there are no electricity cuts • Tools to monitor power outages (0–1) (assumed for simplicity reasons) and the monthly energy consumption is 26,880 kilowatt-hours (kWh); hourly consumption is 112 kWh. • Tools to restore power supply (0–1) - If multiple electricity suppliers exist, the warehouse is served by the cheapest supplier. • Regulatory monitoring of utilities’ performance (0–1) - Tariffs effective in January of the current year are used for calculation of the price of electricity for the warehouse. Although January has 31 days, for calculation purposes only 30 days are used. • Financial deterrents limiting outages (0–1) • Transparency and accessibility of tariffs (0–1) Price of electricity (cents per kilowatt-hour)* • Price based on monthly bill for commercial warehouse in case study *Note: Doing Business measures the price of electricity, but it is not included in the ease of doing business score nor in the ranking on the ease of getting electricity. Page 17 Doing Business 2020 Honduras Getting Electricity - Honduras Standardized Connection Name of utility Empresa de Energía de Honduras (EEH) Price of electricity (US cents per kWh) 20.8 City Covered Tegucigalpa Indicator Honduras Latin America & OECD high Best Regulatory Caribbean income Performance Procedures (number) 7 5.5 4.4 3 (28 Economies) Time (days) 39 66.8 74.8 18 (3 Economies) Cost (% of income per capita) 766.7 407.2 61.0 0.0 (3 Economies) Reliability of supply and transparency of tariff index (0-8) 2 4.4 7.4 8 (26 Economies) Figure – Getting Electricity in Honduras – Score 33.3 90.9 90.5 25.0 Procedures Time Cost Reliability of supply and transparency of tariff index Figure – Getting Electricity in Honduras and comparator economies – Ranking and Score DB 2020 Getting Electricity Score 0 100 88.9: Costa Rica (Rank: 25) 84.2: Guatemala (Rank: 46) 76.3: Colombia (Rank: 82) 74.5: El Salvador (Rank: 87) 71.7: Regional Average (Latin America & Caribbean) 59.9: Honduras (Rank: 138) Note: The ranking of economies on the ease of getting electricity is determined by sorting their scores for getting electricity. These scores are the simple average of the scores for all the component indicators except the price of electricity. Figure – Getting Electricity in Honduras – Procedure, Time and Cost Time (days) Cost (% of income per capita) 700 35 600 Cost (% of income per capita) 30 500 25 Time (days) 400 20 300 15 200 10 5 100 0 0 1 *2 *3 4 5 6 7 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures Page 18 Doing Business 2020 Honduras reflected here, see the summary below. Figure – Getting Electricity in Honduras and comparator economies – Measure of Quality 9 8 8 7 7 Index score 6 6 6 5 4.4 4 3 2 2 1 0 Honduras Colombia Costa El Guatemala Latin Rica Salvador America & Caribbean Page 19 Doing Business 2020 Honduras Details – Getting Electricity in Honduras – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Hire certified electrical engineer to design external connection and submit design for 17 calendar days HNL 30,000 approval Agency : Electrical Engineer member of the Colegio de Ingenieros Mecánicos, Electricistas y Químicos de Honduras (CIMEQH) An electrical engineer employed by CIMEQH estimates the power needed for the project and designs the external connection. For loads greater than 1,000 kVA, the engineer should go first to Empresa Nacional de Energia Electrica (ENEE) to request a feasibility study. In a case where the load is 140kVA, this procedure is not necessary. The design and the process of obtaining ENEE's review can only be made by an electrical engineer authorized by the CIMEQH. The electrical engineer must obtain a certificate by the College for each design that he files with ENEE. The certificate states that the engineer is a member of the College and has paid his contributions. It is recommended that the internal wiring installation be also done by a CIMEQH's electrical engineer. Although the internal installation plans are reviewed by the Municipality and the Firefighters, in the context of the process to obtain a building permit, the final internal installation is not reviewed. One way to ensure the quality of the internal installation is to hire an engineer authorized by CIMEQH for the installation. In the case of a fire due to a malfunctioning installation, it is easier to obtain legal satisfaction if it was performed by a member of CIMEQH. After having prepared the design, the engineer has to file the certificate with the Empresa Nacional de Energia Electrica (ENEE). ENEE reviews the certificate issued by the College to determine whether it meets ENEE's standards. ENEE also inspects the site. Finally, ENEE approves the design. 2 Request certificate of good standing for electrical engineer 1 calendar day HNL 360 Agency : Colegio de Ingenieros Mecánicos, Electricistas y Químicos de Honduras (CIMEQH) The electrical engineer must obtain a certificate by the College for each design that he presents to the Empresa Nacional de Energia Electrica (ENEE). The certificate states that the engineer is a member of the College and has paid his contributions. 3 Receive site inspection by utility 1 calendar day HNL 0 Agency : Empresa Nacional de Energia Electrica (ENEE) To prepare the design a site visit is conducted. 4 Obtain permit from municipality to cross cables in public property 7 calendar days HNL 15 Agency : Municipality of Tegucigalpa Before to request this permit, the customer has to have the approval of the plans by the utility (ENEE). The costs are calculated assuming that the wires are crossed over public roads. If the connection is underground, a permit to break tracks is needed and the cost will depend on the material used (asphalt, cement, sand, etc.) 5 Await completion of external works by electrical engineer 7 calendar days HNL 359,625 Agency : Electrical Engineer member of the Colegio de Ingenieros Mecánicos, Electricistas y Químicos de Honduras (CIMEQH) Three transformers 50kVA or one transformer of 150kVA must be installed. Empresa Nacional de Energia Electrica conducts an inspection of the external connection to ensure that the implementation is according to the approved design. If the reviewer disagrees with the implementation, the responsible electrician has to make the corrections. 6 Submit application for final connection and pay security deposit 1 calendar day HNL 21,066.68 Agency : Empresa Nacional de Energia Electrica (ENEE) The following documents are required with the application (no notarization of the documents is needed): • A copy of the company's by-laws; • photocopy of the ID of the person authorized by the by-laws; • Sketch / map of where is the warehouse (address). It is necessary to pay a deposit of guarantee or consumption (Article 32 of the Act that rules the electrical sector): Lps.845.96 per KVA. It may be in cash or bank guarantee. Reason: to ensure the payment of consumption ENEE charges after providing the service). The deposit is made via a certified check payable to ENEE and / or bank guarantee in the name of ENEE and it is paid in ENEE's commercial division. The division issues a memorandum to the customer care unit for them to fill in the client's appropriate data to install the meter. At this time if the person authorized to submit the application has to submit the following additional information • To whose name the bills will be sent • The firm's company registration number • Copy of the property title or the lease agreement certified by the Municipality. • Copy of the ID of the person that will sign the documents. • Document specifying that the person who will sign the documents is duly authorized by the board of directors. • The security deposit Page 20 Doing Business 2020 Honduras 7 Receive final inspection and meter installation by Empresa Energia Honduras (EEH) 7 calendar days HNL 15,700 Agency : Empresa de Energia de Honduras (EEH) Once the application goes to the "Department of High Consumption", the Department sends an engineer to the site to install the meter. Once the meter is installed, the energy flows. Takes place simultaneously with previous procedure. Page 21 Doing Business 2020 Honduras Details – Getting Electricity in Honduras – Measure of Quality Answer Reliability of supply and transparency of tariff index (0-8) 2 Total duration and frequency of outages per customer a year (0-3) 0 System average interruption duration index (SAIDI) 32.5 System average interruption frequency index (SAIFI) 23.4 What is the minimum outage time (in minutes) that the utility considers for the calculation of SAIDI/SAIFI 3.0 Mechanisms for monitoring outages (0-1) 1 Does the distribution utility use automated tools to monitor outages? Yes Mechanisms for restoring service (0-1) 0 Does the distribution utility use automated tools to restore service? No Regulatory monitoring (0-1) 0 Does a regulator—that is, an entity separate from the utility—monitor the utility’s performance on reliability of supply? No Financial deterrents aimed at limiting outages (0-1) 0 Does the utility either pay compensation to customers or face fines by the regulator (or both) if outages exceed a certain cap? No Communication of tariffs and tariff changes (0-1) 1 Are effective tariffs available online? Yes Link to the website, if available online https://www.eeh.hn/es/tari fasvigentes Are customers notified of a change in tariff ahead of the billing cycle? Yes Note: If the duration and frequency of outages is 100 or less, the economy is eligible to score on the Reliability of supply and transparency of tariff index. If the duration and frequency of outages is not available, or is over 100, the economy is not eligible to score on the index. If the minimum outage time considered for SAIDI/SAIFI is over 5 minutes, the economy is not eligible to score on the index. Page 22 Doing Business 2020 Honduras Registering Property This topic examines the steps, time and cost involved in registering property, assuming a standardized case of an entrepreneur who wants to purchase land and a building that is already registered and free of title dispute. In addition, the topic also measures the quality of the land administration system in each economy. The quality of land administration index has five dimensions: reliability of infrastructure, transparency of information, geographic coverage, land dispute resolution, and equal access to property rights. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Procedures to legally transfer title on immovable property To make the data comparable across economies, several assumptions about the parties to the (number) transaction, the property and the procedures are used. • Preregistration procedures (for example, checking for liens, The parties (buyer and seller): notarizing sales agreement, paying property transfer taxes) - Are limited liability companies (or the legal equivalent). • Registration procedures in the economy's largest business city. - Are located in the periurban (that is, on the outskirts of the city but still within its official limits) • Postregistration procedures (for example, filling title with area of the economy’s largest business city. For 11 economies the data are also collected for the municipality) second largest business city. - Are 100% domestically and privately owned. Time required to complete each procedure (calendar days) - Perform general commercial activities. • Does not include time spent gathering information The property (fully owned by the seller): • Each procedure starts on a separate day - though procedures - Has a value of 50 times income per capita, which equals the sale price. that can be fully completed online are an exception to this rule - Is fully owned by the seller. • Procedure is considered completed once final document is - Has no mortgages attached and has been under the same ownership for the past 10 years. received - Is registered in the land registry or cadastre, or both, and is free of title disputes. • No prior contact with officials - Is located in a periurban commercial zone (that is, on the outskirts of the city but still within its official limits), and no rezoning is required. Cost required to complete each procedure (% of property - Consists of land and a building. The land area is 557.4 square meters (6,000 square feet). A two- value) story warehouse of 929 square meters (10,000 square feet) is located on the land. The warehouse is 10 years old, is in good condition, has no heating system and complies with all safety standards, • Official costs only (such as administrative fees, duties and building codes and legal requirements. The property, consisting of land and building, will be taxes). transferred in its entirety. • Value Added Tax, Capital Gains Tax and illicit payments are - Will not be subject to renovations or additional construction following the purchase. excluded - Has no trees, natural water sources, natural reserves or historical monuments of any kind. - Will not be used for special purposes, and no special permits, such as for residential use, Quality of land administration index (0-30) industrial plants, waste storage or certain types of agricultural activities, are required. • Reliability of infrastructure index (0-8) - Has no occupants, and no other party holds a legal interest in it. • Transparency of information index (0–6) • Geographic coverage index (0–8) • Land dispute resolution index (0–8) • Equal access to property rights index (-2–0) Page 23 Doing Business 2020 Honduras Registering Property - Honduras Indicator Honduras Latin America & OECD high Best Regulatory Caribbean income Performance Procedures (number) 6 7.4 4.7 1 (5 Economies) Time (days) 28.5 63.7 23.6 1 (2 Economies) Cost (% of property value) 5.7 5.9 4.2 0.0 (Saudi Arabia) Quality of the land administration index (0-30) 12.5 12.0 23.2 None in 2018/19 Figure – Registering Property in Honduras – Score 58.3 86.8 62.2 41.7 Procedures Time Cost Quality of the land administration index Figure – Registering Property in Honduras and comparator economies – Ranking and Score DB 2020 Registering Property Score 0 100 74.4: Costa Rica (Rank: 49) 71.2: Colombia (Rank: 62) 66.3: El Salvador (Rank: 79) 64.9: Guatemala (Rank: 89) 62.3: Honduras (Rank: 101) 54.9: Regional Average (Latin America & Caribbean) Note: The ranking of economies on the ease of registering property is determined by sorting their scores for registering property. These scores are the simple average of the scores for each of the component indicators. Page 24 Doing Business 2020 Honduras Figure – Registering Property in Honduras – Procedure, Time and Cost Time (days) Cost (% of property value) 4.5 25 4 Cost (% of property value) 3.5 20 3 Time (days) 2.5 15 2 10 1.5 1 5 0.5 0 0 1 2 3 4 5 6 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures reflected here, see the summary below. Page 25 Doing Business 2020 Honduras Figure – Registering Property in Honduras and comparator economies – Measure of Quality 20 17.5 18 16.5 16 14.0 Index score 13.5 14 12.5 12.0 12 10 8 6 4 2 0 Honduras Colombia Costa El Guatemala Latin Rica Salvador America & Caribbean Details – Registering Property in Honduras – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Verify the property background at the Property Registry Less than one day, no charge Agency : Property Registry (Instituto de la Propiedad) online The buyer can verify the property background on the SURE online site (Unified Registry System) http://sure.sinap.hn/compartido/ at no cost. SURE provides all information required before drafting the public deed, including the legal provisions of the property as well as the current and previous owners. Users also have the option of obtaining a paper copy of the property background at the Instituto de la Propiedad in 24 hours. The integral certification (certificacion integral) and the non- encumbrances certificate (certificado de libertad de gravamenes) cost HNL 300 and HNL 200 respectively. 2 Obtain a taxes clearance from the Municipal Cadaster 2 days no charge Agency : Municipal Cadaster (Dirección General de Catastro y Geografía - Alcaldia Municipal) Even if it's not required by law, it's a common practice to verify at the Municipal Cadaster if the seller is the registered owner and if all municipal taxes have been paid. The parties would need to provide the municipal tax number of the property for performing this verification at no cost. It's also possible to request a cadastral location certificate (constancia catastral de ubicacion) for HLN 200 (which is optional). 3 The notary drafts the public deed 2 days HNL 111,321.86; (between Agency : Notary 3% and 5% of property After obtaining all the due diligence documents, the notary drafts the deed (“escritura matriz”). value (Notary’s fees)) Notary’s fees are established by mutual negotiation between the parties and are calculated according to the market value of the property. Regulation No. 001-2018 sets the minimum tariffs for general notarial services in HNL 3.000, and art. 15 of the same regulation establishes that for agreements with a value between HNL 500.000 and HNL 5.000.000, the rate cannot be below 2% of the property value. In practice, notaries charge between 3% and 5% of the property value. 4 Pay the transfer tax at the Commercial Bank 1 day HNL 41,745.7; (1.5% of Agency : Commercial Bank property value (Transfer The transfer tax (1.5% of the property value, for an urban property with improvements) must be Tax)) paid at a bank. The taxes are calculated based on either the official value of the property (determined by the Cadastre for tax purposes) or the market value, whichever is higher. With the introduction of the Property Law in 2004, the transfer tax was cut from 3% to 1.5%, the registration rights and the stamps were eliminated. 5 Register the public deed at the Property Registry 21 days HNL 4,374.5; (HNL 200 for Agency : Property registry (Instituto de la Propiedad) the first HNL 1,000 of the The new deed must be registered in the Property Registry (Instituto de la Propiedad) by the property value, and HNL notary. However, the notary might waive this right and leave to the responsibility of the applicants. 1.50 for each additional Registration fees are HNL 200 for the first HNL 1,000 of the property value, and HNL 1.50 for each HNL 1,000) additional HNL 1,000 according to Art. 1 of Diario la Gaceta published in October 2010. The following documents should be presented at the moment of registration: -Public deed - Proof of payment of the registration fees - Proof of payment of the transfer tax - Proof of payment of the capital gain tax 6 Notify the change of ownership at the Municipal Cadaster 2 days HNL 250 Agency : Municipal Cadaster (Dirección General de Catastro y Geografía - Alcaldia Municipal) The change of ownership must be registered at the Municipal Cadaster (Dirección General de Catastro y Geografía) by the notary or the buyer presenting the deed duly recorded in Procedure 5. This procedure is commonly done in practice since the cadaster at the property registry, and the cadaster at the municipality are not linked, and the municipality requires the update of ownership for taxes purposes. Takes place simultaneously with previous procedure. Page 26 Doing Business 2020 Honduras Details – Registering Property in Honduras – Measure of Quality Answer Score Quality of the land administration index (0-30) 12.5 Reliability of infrastructure index (0-8) 4.0 Type of land registration system in the economy: Deed Registration System What is the institution in charge of immovable property registration? Immovable Property Registry ("Registro de la Propiedad Inmueble") In what format are past and newly issued land records kept at the immovable property registry of the largest Computer/Scanned 1.0 business city of the economy —in a paper format or in a computerized format (scanned or fully digital)? Is there a comprehensive and functional electronic database for checking for encumbrances (liens, mortgages, Yes 1.0 restrictions and the like)? Institution in charge of the plans showing legal boundaries in the largest business city: Cadastre ("Dirección General de Catastro y Geografía en el Instituto de la Propiedad") In what format are past and newly issued cadastral plans kept at the mapping agency of the largest business Computer/Scanned 1.0 city of the economy—in a paper format or in a computerized format (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral information No 0.0 (geographic information system)? Is the information recorded by the immovable property registration agency and the cadastral or mapping agency Different databases 1.0 kept in a single database, in different but linked databases or in separate databases? but linked Do the immovable property registration agency and cadastral or mapping agency use the same identification No 0.0 number for properties? Transparency of information index (0–6) 2.5 Who is able to obtain information on land ownership at the agency in charge of immovable property registration Freely accessible by 1.0 in the largest business city? anyone Is the list of documents that are required to complete any type of property transaction made publicly available– Yes, online 0.5 and if so, how? Link for online access: http://www.ip.gob.hn/ content/tramites- registro-inmueble Is the applicable fee schedule for any type of property transaction at the agency in charge of immovable property Yes, online 0.5 registration in the largest business city made publicly available–and if so, how? Link for online access: http://www.ip.gob.hn/t asas_pago Does the agency in charge of immovable property registration agency formally commit to deliver a legally No 0.0 binding document that proves property ownership within a specific timeframe –and if so, how does it communicate the service standard? Link for online access: Is there a specific and independent mechanism for filing complaints about a problem that occurred at the agency No 0.0 in charge of immovable property registration? Contact information: Are there publicly available official statistics tracking the number of transactions at the immovable property No 0.0 registration agency? Number of property transfers in the largest business city in 2018: Who is able to consult maps of land plots in the largest business city? Anyone who pays the 0.5 official fee Is the applicable fee schedule for accessing maps of land plots made publicly available—and if so, how? Yes, in person 0.0 Page 27 Doing Business 2020 Honduras Link for online access: Does the cadastral/mapping agency formally specifies the timeframe to deliver an updated cadastral plan—and No 0.0 if so, how does it communicate the service standard? Link for online access: Is there a specific and independent mechanism for filing complaints about a problem that occurred at the No 0.0 cadastral or mapping agency? Contact information: Geographic coverage index (0–8) 0.0 Are all privately held land plots in the largest business city formally registered at the immovable property No 0.0 registry? Are all privately held land plots in the economy formally registered at the immovable property registry? No 0.0 Are all privately held land plots in the largest business city mapped? No 0.0 Are all privately held land plots in the economy mapped? No 0.0 Land dispute resolution index (0–8) 6.0 Does the law require that all property sale transactions be registered at the immovable property registry to make Yes 1.5 them opposable to third parties? Legal basis: Ley de propriedad 2004, Art. 26 (El registro es público y obligatorio para todos los actos o contratos que mande la ley y rogatorio para los actos o contratos en que conforme al interés de las partes se solicite su inscripción) and Art. 27 (Toda constitución, cancelación, gravamen, transmisión o transferencia de dominio de bienes inmuebles y demás derechos reales constituidos sobre los mismos deberá inscribirse. Mientras ésta no se verifica el acto o contrato únicamente produce obligaciones y derechos entre las partes, excepto en el caso de la hipoteca que siempre deberá registrarse para que surta efectos para asegurar y publicitar sus derechos frente a terceros). Is the system of immovable property registration subject to a state or private guarantee? Yes 0.5 Type of guarantee: State guarantee Page 28 Doing Business 2020 Honduras Legal basis: Ley de Propiedad 2004, Art. 25 (El registro tiene por objeto y finalidad garantizar a los usuarios y terceros que las inscripciones y servicios registrales se efectúen bajo los principios de organización, eficacia registral, legalidad, prioridad, rogación, obligatoriedad, publicidad, trato sucesivo, especialidad, celeridad, universalidad y fe pública registral Is there a is a specific, out-of-court compensation mechanism to cover for losses incurred by parties who No 0.0 engaged in good faith in a property transaction based on erroneous information certified by the immovable property registry? Legal basis: Does the legal system require a control of legality of the documents necessary for a property transaction (e.g., Yes 0.5 checking the compliance of contracts with requirements of the law)? If yes, who is responsible for checking the legality of the documents? Registrar; Notary; Does the legal system require verification of the identity of the parties to a property transaction? Yes 0.5 If yes, who is responsible for verifying the identity of the parties? Notary; Is there a national database to verify the accuracy of government issued identity documents? Yes 1.0 What is the Court of first instance in charge of a case involving a standard land dispute between two local El juzgado de Letras businesses over tenure rights for a property worth 50 times gross national income (GNI) per capita and located de lo Civil in the largest business city? How long does it take on average to obtain a decision from the first-instance court for such a case (without Between 1 and 2 2.0 appeal)? years Are there publicly available statistics on the number of land disputes at the economy level in the first instance No 0.0 court? Number of land disputes in the economy in 2018: Equal access to property rights index (-2–0) 0.0 Do unmarried men and unmarried women have equal ownership rights to property? Yes Do married men and married women have equal ownership rights to property? Yes 0.0 Page 29 Doing Business 2020 Honduras Getting Credit This topic explores two sets of issues—the strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Strength of legal rights index (0–12) Doing Business assesses the sharing of credit information and the legal rights of borrowers and lenders with respect to secured transactions through 2 sets of indicators. The depth of credit • Rights of borrowers and lenders through collateral laws (0-10) information index measures rules and practices affecting the coverage, scope and accessibility of • Protection of secured creditors’ rights through bankruptcy laws credit information available through a credit registry or a credit bureau. The strength of legal rights (0-2) index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. For each economy it is first determined whether a unitary Depth of credit information index (0–8) secured transactions system exists. Then two case scenarios, case A and case B, are used to • Scope and accessibility of credit information distributed by determine how a nonpossessory security interest is created, publicized and enforced according to credit bureaus and credit registries (0-8) the law. Special emphasis is given to how the collateral registry operates (if registration of security interests is possible). The case scenarios involve a secured borrower, company ABC, and a Credit bureau coverage (% of adults) secured lender, BizBank. • Number of individuals and firms listed in largest credit bureau In some economies the legal framework for secured transactions will allow only case A or case B as a percentage of adult population (not both) to apply. Both cases examine the same set of legal provisions relating to the use of Credit registry coverage (% of adults) movable collateral. • Number of individuals and firms listed in credit registry as a Several assumptions about the secured borrower (ABC) and lender (BizBank) are used: percentage of adult population - ABC is a domestic limited liability company (or its legal equivalent). - ABC has up to 50 employees. - ABC has its headquarters and only base of operations in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city. - Both ABC and BizBank are 100% domestically owned. The case scenarios also involve assumptions. In case A, as collateral for the loan, ABC grants BizBank a nonpossessory security interest in one category of movable assets, for example, its machinery or its inventory. ABC wants to keep both possession and ownership of the collateral. In economies where the law does not allow nonpossessory security interests in movable property, ABC and BizBank use a fiduciary transfer-of-title arrangement (or a similar substitute for nonpossessory security interests). In case B, ABC grants BizBank a business charge, enterprise charge, floating charge or any charge that gives BizBank a security interest over ABC’s combined movable assets (or as much of ABC’s movable assets as possible). ABC keeps ownership and possession of the assets. Page 30 Doing Business 2020 Honduras Getting Credit - Honduras Indicator Honduras Latin America & OECD high Best Regulatory Caribbean income Performance Strength of legal rights index (0-12) 8 5.3 6.1 12 (5 Economies) Depth of credit information index (0-8) 8 5.1 6.8 8 (53 Economies) Credit registry coverage (% of adults) 17.3 14.6 24.4 100.0 (2 Economies) Credit bureau coverage (% of adults) 48.9 47.6 66.7 100.0 (14 Economies) Figure – Getting Credit in Honduras – Score 80.0 Score - Getting Credit Figure – Getting Credit in Honduras and comparator economies – Ranking and Score DB 2020 Getting Credit Score 0 100 90.0: Colombia (Rank: 11) 85.0: Costa Rica (Rank: 15) 85.0: Guatemala (Rank: 15) 80.0: Honduras (Rank: 25) 80.0: El Salvador (Rank: 25) 52.0: Regional Average (Latin America & Caribbean) Note: The ranking of economies on the ease of getting credit is determined by sorting their scores for getting credit. These scores are the sum of the scores for the strength of legal rights index and the depth of credit information index. Page 31 Doing Business 2020 Honduras Figure – Legal Rights in Honduras and comparator economies 12 11 10 10 9 9 Index Score 8 8 6 5.3 4 2 0 Honduras Colombia Costa El Guatemala Latin Rica Salvador America & Caribbean Page 32 Doing Business 2020 Honduras Details – Legal Rights in Honduras Strength of legal rights index (0-12) 8 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents Yes to security interests in movable assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description Yes of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of Yes collateral? May a security right extend to future or after-acquired assets, and does it extend automatically to the products, proceeds and replacements of the Yes 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; Yes and can the collateral agreement include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional equivalents can be registered? Yes Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed online by any interested third No party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor defaults outside an insolvency procedure? No Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is liquidated? No Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law No protect secured creditors’ rights by providing clear grounds for relief from the stay and sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell Yes the collateral through public auction or private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Figure – Credit Information in Honduras and comparator economies 9 8 8 8 7 7 7 7 Index Score 6 5.1 5 4 3 2 1 0 Honduras Colombia Costa El Guatemala Latin Rica Salvador America & Caribbean Page 33 Doing Business 2020 Honduras Details – Credit Information in Honduras Depth of credit information index (0-8) Credit bureau Credit registry Score Are data on both firms and individuals distributed? Yes Yes 1 Are both positive and negative credit data distributed? Yes Yes 1 Are data from retailers or utility companies - in addition to data from banks and Yes No 1 financial institutions - distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries Yes Yes 1 that distribute more than 10 years of negative data or erase data on defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per capita distributed? Yes Yes 1 By law, do borrowers have the right to access their data in the credit bureau or Yes Yes 1 credit registry? Can banks and financial institutions access borrowers’ credit information online Yes Yes 1 (for example, through an online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value-added service to help Yes No 1 banks and financial institutions assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Coverage Credit bureau Credit registry Number of individuals 2,981,776 1,049,006 Number of firms 26,419 14,586 Total 3,008,195 1,063,592 Percentage of adult population 48.9 17.3 Page 34 Doing Business 2020 Honduras Protecting Minority Investors This topic measures the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain as well as shareholder rights, governance safeguards and corporate transparency requirements that reduce the risk of abuse. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions • Extent of disclosure index (0–10): Disclosure, review, and To make the data comparable across economies, a case study uses several assumptions about approval requirements for related-party transactions the business and the transaction. • Extent of director liability index (0–10): Ability of minority shareholders to sue and hold interested directors liable for The business (Buyer): prejudicial related-party transactions; Available legal - Is a publicly traded corporation listed on the economy’s most important stock exchange. remedies (damages, disgorgement of profits, disqualification - Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of from managerial position(s) for one year or more, rescission of Buyer where permitted, even if this is not specifically required by law. the transaction) - Has a supervisory board in economies with a two-tier board system on which Mr. James • Ease of shareholder suits index (0–10): Access to internal appointed 60% of the shareholder-elected members. corporate documents; Evidence obtainable during trial and - Has not adopted bylaws or articles of association that go beyond the minimum requirements. allocation of legal expenses Does not follow codes, principles, recommendations or guidelines that are not mandatory. - Is a manufacturing company with its own distribution network. • Extent of conflict of interest regulation index (0-30): Sum of the extent of disclosure, extent of director liability and ease of The transaction involves the following details: shareholder suits indices - Mr. James owns 60% of Buyer, sits on Buyer’s board of directors and elected two directors to • Extent of shareholder rights index (0-6): Shareholders’ rights Buyer’s five-member board. and role in major corporate decisions - Mr. James also owns 90% of Seller, a company that operates a chain of retail hardware stores. Seller recently closed a large number of its stores. • Extent of ownership and control index (0-7): Governance - Mr. James proposes that Buyer purchase Seller’s unused fleet of trucks to expand Buyer’s safeguards protecting shareholders from undue board control distribution of its food products, a proposal to which Buyer agrees. The price is equal to 10% of and entrenchment Buyer’s assets and is higher than the market value. • Extent of corporate transparency index (0-7): Corporate - The proposed transaction is part of the company’s principal activity and is not outside the transparency on ownership stakes, compensation, audits and authority of the company. financial prospects - Buyer enters into the transaction. All required approvals are obtained, and all required disclosures • Extent of shareholder governance index (0–20): Sum of the made—that is, the transaction was not entered into fraudulently. extent of shareholders rights, extent of ownership and control - The transaction causes damages to Buyer. Shareholders sue Mr. James and the executives and and extent of corporate transparency indices directors that approved the transaction. • Strength of minority investor protection index (0–50): Sum of the extent of conflict of interest regulation and extent of shareholder governance indices Page 35 Doing Business 2020 Honduras Protecting Minority Investors - Honduras Stock exchange information Stock exchange Bolsa Centroamericana de Valores Stock exchange URL http://www.bcv.hn Listed firms with equity securities 12 City Covered Tegucigalpa Indicator Honduras Latin America & OECD high Best Regulatory Caribbean income Performance Extent of disclosure index (0-10) 3.0 4.1 6.5 10 (13 Economies) Extent of director liability index (0-10) 8.0 5.2 5.3 10 (3 Economies) Ease of shareholder suits index (0-10) 6.0 6.7 7.3 10 (Djibouti) Extent of shareholder rights index (0-6) 3.0 3.0 4.7 6 (19 Economies) Extent of ownership and control index (0-7) 1.0 2.3 4.5 7 (9 Economies) Extent of corporate transparency index (0-7) 0.0 2.3 5.7 7 (13 Economies) Figure – Protecting Minority in Honduras – Score 42.0 Score - Protecting Minority Investors Figure – Protecting Minority Investors in Honduras and comparator economies – Ranking and Score DB 2020 Protecting Minority Investors Score 0 100 80.0: Colombia (Rank: 13) 48.0: Costa Rica (Rank: 110) 47.3: Regional Average (Latin America & Caribbean) 42.0: Honduras (Rank: 120) 36.0: El Salvador (Rank: 140) 30.0: Guatemala (Rank: 153) Note: The ranking of economies on the strength of minority investor protections is determined by sorting their scores for protecting minority investors. These scores are the simple average of the scores for the extent of conflict of interest regulation index and the extent of shareholder governance index. Page 36 Doing Business 2020 Honduras Figure – Protecting Minority Investors in Honduras and comparator economies – Measure of Quality Honduras 0 8 3 1 3 6 Colombia 5 7 9 7 4 8 Costa Rica 1 5 5 3 2 8 El Salvador 3 0 3 1 4 7 Guatemala 1 2 3 1 3 5 OECD high income 5.6 5.6 6.6 4.3 4.5 7.4 Latin America & Caribbean 2.5 5.4 4.4 2.5 3.2 6.5 0 5 10 15 20 25 30 35 40 45 Sub-Indicator Score Extent of corporate transparency index (0-7) Extent of director liability index (0-10) Extent of disclosure index (0-10) Extent of ownership and control index (0-7) Extent of shareholder rights index (0-6) Ease of shareholder suits index (0-10) Page 37 Doing Business 2020 Honduras Details – Protecting Minority Investors in Honduras – Measure of Quality Answer Score Extent of conflict of interest regulation index (0-30) Extent of disclosure index (0-10) 3.0 Whose decision is sufficient to approve the Buyer-Seller transaction? (0-3) Shareholders 3.0 excluding interested parties Must an external body review the terms of the transaction before it takes place? (0-1) No 0.0 Must Mr. James disclose his conflict of interest to the board of directors? (0-2) No disclosure 0.0 obligation Must Buyer disclose the transaction in periodic filings (e.g. annual reports)? (0-2) No disclosure 0.0 obligation Must Buyer immediately disclose the transaction to the public? (0-2) No disclosure 0.0 obligation Extent of director liability index (0-10) 8.0 Can shareholders representing 10% of Buyer's share capital sue for the damage the transaction caused to Yes 1.0 Buyer? (0-1) Can shareholders hold Mr. James liable for the damage the transaction caused to Buyer? (0-2) Liable if negligent 1.0 Can shareholders hold the other directors liable for the damage the transaction caused to Buyer? (0-2) Liable if negligent 1.0 Must Mr. James pay damages for the harm caused to Buyer upon a successful claim by shareholders? (0-1) Yes 1.0 Must Mr. James repay profits made from the transaction upon a successful claim by shareholders? (0-1) Yes 1.0 Is Mr. James disqualified upon a successful claim by shareholders? (0-1) Yes 1.0 Can a court void the transaction upon a successful claim by shareholders? (0-2) Voidable if unfair or 2.0 prejudicial Ease of shareholder suits index (0-10) 6.0 Before suing, can shareholders representing 10% of Buyer's share capital inspect the transaction documents? Yes 1.0 (0-1) Can the plaintiff obtain any documents from the defendant and witnesses at trial? (0-3) Any relevant 3.0 document Can the plaintiff request categories of documents from the defendant without identifying specific ones? (0-1) No 0.0 Can the plaintiff directly question the defendant and witnesses at trial? (0-2) Preapproved 1.0 questions only Is the level of proof required for civil suits lower than that of criminal cases? (0-1) No 0.0 Can shareholder plaintiffs recover their legal expenses from the company? (0-2) Yes if successful 1.0 Extent of shareholder governance index (0-20) Extent of shareholder rights index (0-6) 3.0 Does the sale of 51% of Buyer's assets require shareholder approval? No 0.0 Can shareholders representing 10% of Buyer's share capital call for a meeting of shareholders? No 0.0 Must Buyer obtain its shareholders’ approval every time it issues new shares? Yes 1.0 Do shareholders automatically receive preemption rights every time Buyer issues new shares? Yes 1.0 Do shareholders elect and dismiss the external auditor? No 0.0 Are changes to the rights of a class of shares only possible if the holders of the affected shares approve? Yes 1.0 Extent of ownership and control index (0-7) 1.0 Is it forbidden to appoint the same individual as CEO and chairperson of the board of directors? No 0.0 Page 38 Doing Business 2020 Honduras Must the board of directors include independent and nonexecutive board members? No 0.0 Can shareholders remove members of the board of directors without cause before the end of their term? Yes 1.0 Must the board of directors include a separate audit committee exclusively comprising board members? No 0.0 Must a potential acquirer make a tender offer to all shareholders upon acquiring 50% of Buyer? No 0.0 Must Buyer pay declared dividends within a maximum period set by law? No 0.0 Is a subsidiary prohibited from acquiring shares issued by its parent company? No 0.0 Extent of corporate transparency index (0-7) 0.0 Must Buyer disclose direct and indirect beneficial ownership stakes representing 5%? No 0.0 Must Buyer disclose information about board members’ primary employment and directorships in other No 0.0 companies? Must Buyer disclose the compensation of individual managers? No 0.0 Must a detailed notice of general meeting be sent 21 days before the meeting? No 0.0 Can shareholders representing 5% of Buyer’s share capital put items on the general meeting agenda? No 0.0 Must Buyer's annual financial statements be audited by an external auditor? No 0.0 Must Buyer disclose its audit reports to the public? No 0.0 Page 39 Doing Business 2020 Honduras Paying Taxes This topic records the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as the administrative burden of paying taxes and contributions and complying with postfiling procedures (VAT refund and tax audit). The most recent round of data collection for the project was completed in May 2019 covering for the Paying Taxes indicator calendar year 2018 (January 1, 2018 – December 31, 2018). See the methodology for more information. What the indicators measure Case study assumptions Tax payments for a manufacturing company in 2018 (number Using a case scenario, Doing Business records taxes and mandatory contributions a medium size per year adjusted for electronic and joint filing and payment) company must pay in a year, and measures the administrative burden of paying taxes, contributions and dealing with postfiling processes. Information is also compiled on frequency of • Total number of taxes and contributions paid or withheld, filing and payments, time taken to comply with tax laws, time taken to comply with the including consumption taxes (value added tax, sales tax or requirements of postfiling processes and time waiting. goods and service tax) • Method and frequency of filing and payment To make data comparable across economies, several assumptions are used: - TaxpayerCo is a medium-size business that started operations on January 1, 2017. It produces Time required to comply with 3 major taxes (hours per year) ceramic flowerpots and sells them at retail. All taxes and contributions recorded are paid in the • Collecting information, computing tax payable second year of operation (calendar year 2018). Taxes and mandatory contributions are measured at all levels of government. • Preparing separate tax accounting books, if required • Completing tax return, filing with agencies The VAT refund process: - In June 2018, TaxpayerCo. makes a large capital purchase: the value of the machine is 65 times • Arranging payment or withholding income per capita of the economy. Sales are equally spread per month (1,050 times income per capita divided by 12) and cost of goods sold are equally expensed per month (875 times income Total tax and contribution rate (% of commercial profits) per capita divided by 12). The machinery seller is registered for VAT and excess input VAT incurred • Profit or corporate income tax in June will be fully recovered after four consecutive months if the VAT rate is the same for inputs, sales and the machine and the tax reporting period is every month. Input VAT will exceed Output • Social contributions, labor taxes paid by employer VAT in June 2018. • Property and property transfer taxes The corporate income tax audit process: • Dividend, capital gains, financial transactions taxes - An error in calculation of income tax liability (for example, use of incorrect tax depreciation rates, • Waste collection, vehicle, road and other taxes or incorrectly treating an expense as tax deductible) leads to an incorrect income tax return and a corporate income tax underpayment. TaxpayerCo. discovered the error and voluntarily notified the Postfiling Index tax authority. The value of the underpaid income tax liability is 5% of the corporate income tax • Time to comply with VAT refund (hours) liability due. TaxpayerCo. submits corrected information after the deadline for submitting the annual tax return, but within the tax assessment period. • Time to obtain VAT refund (weeks) • Time to comply with a corporate income tax correction (hours) • Time to complete a corporate income tax correction (weeks) Page 40 Doing Business 2020 Honduras Paying Taxes - Honduras Indicator Honduras Latin America & OECD high Best Regulatory Caribbean income Performance Payments (number per year) 59 28.2 10.3 3 (2 Economies) Time (hours per year) 203 317.1 158.8 49 (3 Economies) Total tax and contribution rate (% of profit) 39.1 47.0 39.9 26.1 (33 Economies) Postfiling index (0-100) 35.1 47.5 86.7 None in 2018/19 Figure – Paying Taxes in Honduras – Score 6.7 76.2 81.7 35.1 Payments Time Total tax and contribution rate Postfiling index Figure – Paying Taxes in Honduras and comparator economies – Ranking and Score DB 2020 Paying Taxes Score 0 100 78.0: Costa Rica (Rank: 66) 77.5: El Salvador (Rank: 70) 70.3: Guatemala (Rank: 104) 60.5: Regional Average (Latin America & Caribbean) 58.6: Colombia (Rank: 148) 49.9: Honduras (Rank: 167) Note: The ranking of economies on the ease of paying taxes is determined by sorting their scores for paying taxes. These scores are the simple average of the scores for each of the component indicators, with a threshold and a nonlinear transformation applied to one of the component indicators, the total tax and contribution rate. The threshold is defined as the total tax and contribution rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax and contribution rate below this threshold receive the same score as the economy at the threshold. Page 41 Doing Business 2020 Honduras Figure – Paying Taxes in Honduras and comparator economies – Measure of Quality 100 87.2 90 80 Index score 70 60 48.2 49.5 47.5 50 40 35.1 33.0 30 20 10 0 Honduras Colombia Costa El Guatemala Latin Rica Salvador America & Caribbean Page 42 Doing Business 2020 Honduras Details – Paying Taxes in Honduras Tax or Payments Notes on Time (hours) Statutory tax Tax base Total tax and Notes on TTCR mandatory (number) Payments rate contribution contribution rate (% of profit) Corporate 4.0 35.0 25% or 1.5% of taxable profit 24.47 income tax total income if more than 300 mil or 1% of net asset Employer paid - 12.0 72.0 8.7% gross salaries 7.29 Social security contributions Solidarity tax 0.0 paid jointly 5% taxable profit 4.21 over Lps 1,000,000 Employer paid - 12.0 1% gross salaries 1.13 Professional training tax - INFOP Municipal 1.0 Lps 3.5 per 1,000 property value 0.53 property tax Capital gains tax 1.0 10% capital gains 0.51 Employer paid - 12.0 1.5% excess of 0.38 Pension 8882.30 contribution - RAP Municipal tax on 1.0 progressive rate sales 0.33 industry and commerce Tax on interest 1.0 10% if above interest 0.19 50,000 Vehicle tax 1.0 Lps 2,200 fixed fee 0.03 Value added tax 12.0 96.0 15% value added 0.00 not included (VAT) Stamp duty 1.0 Lps 200 for transaction value 0.00 small amount contracts with a value less than 1,000 and Lps 1.5 per 1,000 of value of transaction Fuel tax 1.0 $0.6106 per fuel consumption 0.00 gallon Employee paid - 0.0 paid jointly 5% gross salaries 0.00 withheld Social security contributions Totals 59 203 39.1 Page 43 Doing Business 2020 Honduras Details – Paying Taxes in Honduras – Tax by Type Taxes by type Answer Profit tax (% of profit) 29.2 Labor tax and contributions (% of profit) 8.8 Other taxes (% of profit) 1.1 Page 44 Doing Business 2020 Honduras Details – Paying Taxes in Honduras – Measure of Quality Answer Score Postfiling index (0-100) 35.1 VAT refunds Does VAT exist? Yes Does a VAT refund process exist per the case study? Yes Restrictions on VAT refund process none Percentage of cases exposed to a VAT audit (%) 50% - 74% Is there a mandatory carry forward period? No Time to comply with VAT refund (hours) 33.0 34.0 Time to obtain VAT refund (weeks) 54.0 1.1 Corporate income tax audits Does corporate income tax exist? Yes Percentage of cases exposed to a corporate income tax audit (%) 25% - 49% Time to comply with a corporate income tax correction (hours) 17.0 71.6 Time to complete a corporate income tax correction (weeks) 21.1 33.9 Notes: Names of taxes have been standardized. For instance income tax, profit tax, tax on company's income are all named corporate income tax in this table. The hours for VAT include all the VAT and sales taxes applicable. The hours for Social Security include all the hours for labor taxes and mandatory contributions in general. The postfiling index is the average of the scores on time to comply with VAT refund, time to obtain a VAT refund, time to comply with a corporate income tax correction and time to complete a corporate income tax correction. N/A = Not applicable. Page 45 Doing Business 2020 Honduras Trading across Borders Doing Business records the time and cost associated with the logistical process of exporting and importing goods. Doing Business measures the time and cost (excluding tariffs) associated with three sets of procedures—documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a shipment of goods. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Documentary compliance To make the data comparable across economies, a few assumptions are made about the traded goods and the transactions: • Obtaining, preparing and submitting documents during transport, clearance, inspections and port or border handling in Time: Time is measured in hours, and 1 day is 24 hours (for example, 22 days are recorded as origin economy 22×24=528 hours). If customs clearance takes 7.5 hours, the data are recorded as is. Alternatively, • Obtaining, preparing and submitting documents required by suppose documents are submitted to a customs agency at 8:00a.m., are processed overnight and destination economy and any transit economies can be picked up at 8:00a.m. the next day. The time for customs clearance would be recorded as 24 hours because the actual procedure took 24 hours. • Covers all documents required by law and in practice, including electronic submissions of information Cost: Insurance cost and informal payments for which no receipt is issued are excluded from the Border compliance costs recorded. Costs are reported in U.S. dollars. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. • Customs clearance and inspections Contributors are private sector experts in international trade logistics and are informed about • Inspections by other agencies (if applied to more than 20% of exchange rates. shipments) Assumptions of the case study: • Handling and inspections that take place at the economy’s port - For all 190 economies covered by Doing Business, it is assumed a shipment is in a warehouse in or border the largest business city of the exporting economy and travels to a warehouse in the largest business city of the importing economy. Domestic transport - It is assumed each economy imports 15 metric tons of containerized auto parts (HS 8708) from • Loading or unloading of the shipment at the warehouse or its natural import partner—the economy from which it imports the largest value (price times port/border quantity) of auto parts. It is assumed each economy exports the product of its comparative advantage (defined by the largest export value) to its natural export partner—the economy that is • Transport between warehouse and port/border the largest purchaser of this product. Shipment value is assumed to be $50,000. • Traffic delays and road police checks while shipment is en - The mode of transport is the one most widely used for the chosen export or import product and route the trading partner, as is the seaport or land border crossing. - All electronic information submissions requested by any government agency in connection with the shipment are considered to be documents obtained, prepared and submitted during the export or import process. - A port or border is a place (seaport or land border crossing) where merchandise can enter or leave an economy. - Relevant government agencies include customs, port authorities, road police, border guards, standardization agencies, ministries or departments of agriculture or industry, national security agencies and any other government authorities. Page 46 Doing Business 2020 Honduras Trading across Borders - Honduras Indicator Honduras Latin America & OECD high Best Regulatory Caribbean income Performance Time to export: Border compliance (hours) 108 55.3 12.7 1 (19 Economies) Cost to export: Border compliance (USD) 601 516.3 136.8 0 (19 Economies) Time to export: Documentary compliance (hours) 48 35.7 2.3 1 (26 Economies) Cost to export: Documentary compliance (USD) 80 100.3 33.4 0 (20 Economies) Time to import: Border compliance (hours) 96 55.6 8.5 1 (25 Economies) Cost to import: Border compliance (USD) 483 628.4 98.1 0 (28 Economies) Time to import: Documentary compliance (hours) 72 43.2 3.4 1 (30 Economies) Cost to import: Documentary compliance (USD) 70 107.3 23.5 0 (30 Economies) Figure – Trading across Borders in Honduras – Score 32.7 43.3 72.2 80.0 65.9 59.8 70.3 90.0 Time Cost Time Cost Time Cost Time Cost to to to to to to to to export: export: export: export: import: import: import: import: Border Border Documentary Documentary Border Border Documentary Documentary compliance compliance compliance compliance compliance compliance compliance compliance Figure – Trading across Borders in Honduras and comparator economies – Ranking and Score DB 2020 Trading Across Borders Score 0 100 89.8: El Salvador (Rank: 46) 77.6: Costa Rica (Rank: 80) 77.2: Guatemala (Rank: 82) 69.1: Regional Average (Latin America & Caribbean) 64.3: Honduras (Rank: 130) 62.7: Colombia (Rank: 133) Note: The ranking of economies on the ease of trading across borders is determined by sorting their scores for trading across borders. These scores are the simple average of the scores for the time and cost for documentary compliance and border compliance to export and import. Page 47 Doing Business 2020 Honduras Figure – Trading across Borders in Honduras – Time and Cost Time (hours) Cost (USD) 120 108 700 601 100 96 600 483 Time (hours) 500 Cost (USD) 80 72 400 60 48 300 40 200 20 80 70 100 0 0 Export Export Import Import - - - - Border Documentary Border Documentary Compliance Compliance Compliance Compliance Page 48 Doing Business 2020 Honduras Details – Trading across Borders in Honduras Characteristics Export Import Product HS 09 : Coffee, tea, matï and spices HS 8708: Parts and accessories of motor vehicles Trade partner Germany United States Border Puerto Cortés port Puerto Cortés port Distance (km) 172 172 Domestic transport time (hours) 6 6 Domestic transport cost (USD) 1250 1250 Details – Trading across Borders in Honduras – Components of Border Compliance Time to Complete (hours) Associated Costs (USD) Export: Clearance and inspections required by 15.0 190.0 customs authorities Export: Clearance and inspections required by 72.0 265.0 agencies other than customs Export: Port or border handling 36.0 146.3 Import: Clearance and inspections required by 96.0 215.0 customs authorities Import: Clearance and inspections required by 0.0 0.0 agencies other than customs Import: Port or border handling 96.0 267.8 Page 49 Doing Business 2020 Honduras Details – Trading across Borders in Honduras – Trade Documents Export Import Customs Export Declaration Customs Import Declaration Phytosanitary Certificate Commercial Invoice IHCAFE (Hondutas Coffee Institute) CO Packing List IHCAFE Export Certificate Cargo Release Order OIC (Organizacion Internacional del Cafe/Coffee International Ass.) Export Terminal Handling Receipts Certificate Foreign Exchange Authorization Certificate of Origin Commercial Invoice Bill of Lading Packing List SOLAS certificate Bill of Lading SOLAS certificate Page 50 Doing Business 2020 Honduras Enforcing Contracts The enforcing contracts indicator measures the time and cost for resolving a commercial dispute through a local first-instance court, and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system. The most recent round of data collection was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Time required to enforce a contract through the courts The dispute in the case study involves the breach of a sales contract between two domestic (calendar days) businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. • Time to file and serve the case • Time for trial and to obtain the judgment To make the data on the time and comparable across economies, several assumptions about the case are used: • Time to enforce the judgment - The dispute concerns a lawful transaction between two businesses (Seller and Buyer), both Cost required to enforce a contract through the courts (% of located in the economy’s largest business city. For 11 economies the data are also collected for the claim value) second largest business city. - The Buyer orders custom-made furniture, then fails to pay alleging that the goods are not of • Average attorney fees adequate quality. • Court costs - The value of the dispute is 200% of the income per capita or the equivalent in local currency of USD 5,000, whichever is greater. • Enforcement costs - The Seller sues the Buyer before the court with jurisdiction over commercial cases worth 200% of income per capita or $5,000 whichever is greater. Quality of judicial processes index (0-18) - The Seller requests the pretrial attachment of the defendant’s movable assets to secure the • Court structure and proceedings (-1-5) claim. - The claim is disputed on the merits because of Buyer’s allegation that the quality of the goods • Case management (0-6) was not adequate. • Court automation (0-4) - The judge decides in favor of the seller; there is no appeal. • Alternative dispute resolution (0-3) - The Seller enforces the judgment through a public sale of the Buyer’s movable assets. Page 51 Doing Business 2020 Honduras Enforcing Contracts - Honduras Standardized Case Claim value HNL 120,173 Court name Unified Civil District Court of Francisco Morazán City Covered Tegucigalpa Indicator Honduras Latin America & OECD high Best Regulatory Caribbean income Performance Time (days) 920 774.2 589.6 120 (Singapore) Cost (% of claim value) 38.8 32.0 21.5 0.1 (Bhutan) Quality of judicial processes index (0-18) 7.5 8.8 11.7 None in 2018/19 Figure – Enforcing Contracts in Honduras – Score 34.4 56.5 41.7 Time Cost Quality of judicial processes index Figure – Enforcing Contracts in Honduras and comparator economies – Ranking and Score DB 2020 Enforcing Contracts Score 0 100 55.2: Costa Rica (Rank: 111) 53.5: Regional Average (Latin America & Caribbean) 51.9: El Salvador (Rank: 126) 44.2: Honduras (Rank: 154) 34.5: Guatemala (Rank: 176) 34.3: Colombia (Rank: 177) Note: The ranking of economies on the ease of enforcing contracts is determined by sorting their scores for enforcing contracts. These scores are the simple average of the scores for each of the component indicators. Page 52 Doing Business 2020 Honduras Figure – Enforcing Contracts in Honduras – Time and Cost Time (days) Cost (% of claim value) 1600 45.8 50 Cost (% of claim value) 1402 1400 1288 38.8 40 1200 Time (days) 32.0 1000 28.4 920 852 816 26.5 30 24.3 774.2 800 21.5 589.6 20 600 400 10 200 0 0 Colombia Costa El Guatemala Honduras Latin OECD Rica Salvador America high & income Caribbean Page 53 Doing Business 2020 Honduras Figure – Enforcing Contracts in Honduras and comparator economies – Measure of Quality Honduras 2.5 2 0 3 Colombia 2.5 1.5 1.5 3.5 Costa Rica 2.5 3.5 0.5 3 El Salvador 2.5 2 0.5 3 Guatemala 2 0.5 0.5 3 OECD high income 2.5 3.2 2.4 3.6 Latin America & Caribbean 2.4 2.2 1 3.6 0 2 4 6 8 10 12 14 Sub-Indicator Score Alternative dispute resolution (0-3) Case management (0-6) Court automation (0-4) Court structure and proceedings (-1-5) Details – Enforcing Contracts in Honduras Indicator Time (days) 920 Filing and service 60 Trial and judgment 680 Enforcement of judgment 180 Cost (% of claim value) 38.8 Attorney fees 25 Court fees 5.7 Enforcement fees 8.1 Quality of judicial processes index (0-18) 7.5 Court structure and proceedings (-1-5) 3.0 Case management (0-6) 2.0 Court automation (0-4) 0.0 Alternative dispute resolution (0-3) 2.5 Page 54 Doing Business 2020 Honduras Details – Enforcing Contracts in Honduras – Measure of Quality Answer Score Quality of judicial processes index (0-18) 7.5 Court structure and proceedings (-1-5) 3.0 1. Is there a court or division of a court dedicated solely to hearing commercial cases? No 0.0 2. Small claims court 1.5 2.a. Is there a small claims court or a fast-track procedure for small claims? Yes 2.b. If yes, is self-representation allowed? Yes 3. Is pretrial attachment available? Yes 1.0 4. Are new cases assigned randomly to judges? Yes, but manual 0.5 5. Does a woman's testimony carry the same evidentiary weight in court as a man's? Yes 0.0 Case management (0-6) 2.0 1. Time standards 1.0 1.a. Are there laws setting overall time standards for key court events in a civil case? Yes 1.b. If yes, are the time standards set for at least three court events? Yes 1.c. Are these time standards respected in more than 50% of cases? Yes 2. Adjournments 0.0 2.a. Does the law regulate the maximum number of adjournments that can be granted? No 2.b. Are adjournments limited to unforeseen and exceptional circumstances? No 2.c. If rules on adjournments exist, are they respected in more than 50% of cases? n.a. 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) No 0.0 clearance rate report; (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques used before the competent court? Yes 1.0 5. Are there any electronic case management tools in place within the competent court for use by judges? No 0.0 6. Are there any electronic case management tools in place within the competent court for use by lawyers? No 0.0 Court automation (0-4) 0.0 1. Can the initial complaint be filed electronically through a dedicated platform within the competent court? No 0.0 2. Is it possible to carry out service of process electronically for claims filed before the competent court? No 0.0 3. Can court fees be paid electronically within the competent court? No 0.0 4. Publication of judgments 0.0 4.a Are judgments rendered in commercial cases at all levels made available to the general public No through publication in official gazettes, in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made No available to the general public through publication in official gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 1. Arbitration 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or Yes section of the applicable code of civil procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy— No that cannot be submitted to arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the courts? Yes Page 55 Doing Business 2020 Honduras 2. Mediation/Conciliation 1.0 2.a. Is voluntary mediation or conciliation available? Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or Yes section of the applicable code of civil procedure encompassing substantially all their aspects (for example, definition, aim and scope of application, desig 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or No conciliation is successful, a refund of court filing fees, income tax credits or the like)? Page 56 Doing Business 2020 Honduras Resolving Insolvency Doing Business studies the time, cost and outcome of insolvency proceedings involving domestic legal entities. These variables are used to calculate the recovery rate, which is recorded as cents on the dollar recovered by secured creditors through reorganization, liquidation or debt enforcement (foreclosure or receivership) proceedings. To determine the present value of the amount recovered by creditors, Doing Business uses the lending rates from the International Monetary Fund, supplemented with data from central banks and the Economist Intelligence Unit. The most recent round of data collection was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Time required to recover debt (years) To make the data on the time, cost and outcome comparable across economies, several assumptions about the business and the case are used: • Measured in calendar years • Appeals and requests for extension are included - A hotel located in the largest city (or cities) has 201 employees and 50 suppliers. The hotel experiences financial difficulties. Cost required to recover debt (% of debtor’s estate) - The value of the hotel is 100% of the income per capita or the equivalent in local currency of USD 200,000, whichever is greater. • Measured as percentage of estate value - The hotel has a loan from a domestic bank, secured by a mortgage over the hotel’s real estate. • Court fees The hotel cannot pay back the loan, but makes enough money to operate otherwise. • Fees of insolvency administrators In addition, Doing Business evaluates the quality of legal framework applicable to judicial • Lawyers’ fees liquidation and reorganization proceedings and the extent to which best insolvency practices have • Assessors’ and auctioneers’ fees been implemented in each economy covered. • Other related fees Outcome • Whether business continues operating as a going concern or business assets are sold piecemeal Recovery rate for creditors • Measures the cents on the dollar recovered by secured creditors • Outcome for the business (survival or not) determines the maximum value that can be recovered • Official costs of the insolvency proceedings are deducted • Depreciation of furniture is taken into account • Present value of debt recovered Strength of insolvency framework index (0- 16) • Sum of the scores of four component indices: • Commencement of proceedings index (0-3) • Management of debtor’s assets index (0-6) • Reorganization proceedings index (0-3) • Creditor participation index (0-4) Page 57 Doing Business 2020 Honduras Resolving Insolvency - Honduras Indicator Honduras Latin America & OECD high Best Regulatory Caribbean income Performance Recovery rate (cents on the dollar) 19.9 31.2 70.2 92.9 (Norway) Time (years) 3.8 2.9 1.7 0.4 (Ireland) Cost (% of estate) 14.5 16.8 9.3 1.0 (Norway) Outcome (0 as piecemeal sale and 1 as going concern) 0 .. .. .. Strength of insolvency framework index (0-16) 7.0 7.2 11.9 None in 2018/19 Figure – Resolving Insolvency in Honduras – Score 21.4 43.8 Recovery rate Strength of insolvency framework index Figure – Resolving Insolvency in Honduras and comparator economies – Ranking and Score DB 2020 Resolving Insolvency Score 0 100 71.4: Colombia (Rank: 32) 45.6: El Salvador (Rank: 92) 39.2: Regional Average (Latin America & Caribbean) 34.6: Costa Rica (Rank: 137) 32.6: Honduras (Rank: 143) 27.6: Guatemala (Rank: 157) Note: The ranking of economies on the ease of resolving insolvency is determined by sorting their scores for resolving insolvency. These scores are the simple average of the scores for the recovery rate and the strength of insolvency framework index. Page 58 Doing Business 2020 Honduras Figure – Resolving Insolvency in Honduras – Time and Cost Time (years) Cost (% of estate) 4 3.8 16.8 18 3.5 3.5 14.5 14.5 14.5 16 Cost (% of estate) 3.0 3.0 2.9 14 3 Time (years) 12.0 12 2.5 9.3 10 2 8.5 1.7 1.7 8 1.5 6 1 4 0.5 2 0 0 Colombia Costa El Guatemala Honduras Latin OECD Rica Salvador America high & income Caribbean Page 59 Doing Business 2020 Honduras Figure – Resolving Insolvency in Honduras and comparator economies – Measure of Quality Honduras 4 2 1 0 Colombia 5.5 3 2 0.5 Costa Rica 2 3 1 0 El Salvador 4 2 3 0 Guatemala 0 2 2 0 OECD high income 5.3 2.8 2.1 1.9 Latin America & Caribbean 3.7 2.4 1.9 0.8 0 2 4 6 8 10 12 14 Sub-Indicator Score Management of debtor's assets index (0-6) Commencement of proceedings index (0-3) Creditor participation index (0-4) Reorganization proceedings index (0-3) Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice.” Figure – Resolving Insolvency in Honduras and comparator economies – Recovery Rate Recovery rate(cents on the dollar) 80 68.7 70 60 50 40 32.4 31.2 29.5 28.1 30 19.9 20 10 0 Honduras Colombia Costa Rica El Salvador Guatemala Latin America & Caribbean Page 60 Doing Business 2020 Honduras Details – Resolving Insolvency in Honduras Indicator Answer Score Proceeding foreclosure BizBank will commence a foreclosure proceeding requesting the sale of the estate used as a collateral in satisfaction of the debt. Mirage won’t be able to request any type of suspension of the enforcement actions to avoid foreclosure because the acquiescence of all creditors is required. Debt rescheduling as part of a reorganization plan is not possible because there is no judicial reorganization procedure in Honduras. Outcome piecemeal sale It is not possible in Honduras for an insolvent company to start reorganization procedures so that the business may continue operating. If the secured creditor requires the sale of the assets used as collateral in satisfaction of the secure lending by means of a foreclosure, there is no legal instrument that will allow the business to continue operating. Therefore, its assets will be sold piecemeal. Time (in years) 3.8 The foreclosure proceeding will take approximately 3.75 years in Honduras from the moment of Mirage’s default until the debt is repaid to the secured creditor. It will take 1 year until the approval to initiate foreclosure is handed down by the Court including all required notifications and the debtor’s counter-claim. Henceforward, it will take 2 years for the auction to take place (including the necessary time to appoint an auctioneer, the scheduling of the auction and the sale of the real estate). It will take additional 9 months for the judge to approve the sale and have it registered. Cost (% of estate) 14.5 The cost for a foreclosure proceeding as described above would amount to approximately 14.5% of the value of Mirage’s estate. The main component of this expenditure would be the attorney’s fees, which would amount 10% of the value of Mirage’s estate. The rest of the cost would be judicial and notification expenses and expenses related to the auction (2%). The Auctioneer’s fees will amount 3% of the value of the debtor’s estate. Recovery rate 19.9 (cents on the dollar) Page 61 Doing Business 2020 Honduras Details – Resolving Insolvency in Honduras – Measure of Quality Answer Score Strength of insolvency framework index (0-16) 7.0 Commencement of proceedings index (0-3) 2.0 What procedures are available to a DEBTOR when commencing insolvency proceedings? (b) Debtor may file for 0.5 liquidation only Does the insolvency framework allow a CREDITOR to file for insolvency of the debtor? (b) Yes, but a creditor 0.5 may file for liquidation only What basis for commencement of the insolvency proceedings is allowed under the insolvency framework? (a) (a) Debtor is 1.0 Debtor is generally unable to pay its debts as they mature (b) The value of debtor's liabilities exceeds the value generally unable to of its assets pay its debts as they mature Management of debtor's assets index (0-6) 4.0 Does the insolvency framework allow the continuation of contracts supplying essential goods and services to the Yes 1.0 debtor? Does the insolvency framework allow the rejection by the debtor of overly burdensome contracts? Yes 1.0 Does the insolvency framework allow avoidance of preferential transactions? Yes 1.0 Does the insolvency framework allow avoidance of undervalued transactions? Yes 1.0 Does the insolvency framework provide for the possibility of the debtor obtaining credit after commencement of No 0.0 insolvency proceedings? Does the insolvency framework assign priority to post-commencement credit? (c) No priority is 0.0 assigned to post- commencement creditors Reorganization proceedings index (0-3) 0.0 Which creditors vote on the proposed reorganization plan? N/A 0.0 Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as No 0.0 what they would obtain in a liquidation? Are the creditors divided into classes for the purposes of voting on the reorganization plan, does each class vote No 0.0 separately and are creditors in the same class treated equally? Creditor participation index (0-4) 1.0 Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency No 0.0 representative? Does the insolvency framework require approval by the creditors for sale of substantial assets of the debtor? No 0.0 Does the insolvency framework provide that a creditor has the right to request information from the insolvency No 0.0 representative? Does the insolvency framework provide that a creditor has the right to object to decisions accepting or rejecting Yes 1.0 creditors' claims? Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice.” Page 62 Doing Business 2020 Honduras Employing Workers Doing Business presents detailed data for the employing workers indicators on the Doing Business website (http://www.doingbusiness.org). The study does not present rankings of economies on these indicators or include the topic in the aggregate ease of doing business score or ranking on the ease of doing business. The most recent round of data collection was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Hiring To make the data comparable across economies, several assumptions about the worker and the (i) whether fixed-term contracts are prohibited for permanent business are used. tasks; (ii) maximum cumulative duration of fixed-term contracts; (iii) length of the maximum probationary period; (iv) minimum The worker: wage;(v) ratio of minimum wage to the average value added per - Is a cashier in a supermarket or grocery store, age 19, with one year of work experience. worker. - Is a full-time employee. - Is not a member of the labor union, unless membership is mandatory. Working hours (i) maximum number of working days allowed per week; (ii) The business: premiums for work: at night, on a weekly rest day and overtime; - Is a limited liability company (or the equivalent in the economy). (iii) whether there are restrictions on work at night, work on a - Operates a supermarket or grocery store in the economy’s largest business city. For 11 weekly rest day and for overtime work; (iv) length of paid annual economies the data are also collected for the second largest business city. leave. - Has 60 employees. - Is subject to collective bargaining agreements if such agreements cover more than 50% of the Redundancy rules food retail sector and they apply even to firms that are not party to them. (i) whether redundancy can be basis for terminating workers; (ii) - Abides by every law and regulation but does not grant workers more benefits than those whether employer needs to notify and/or get approval from third mandated by law, regulation or (if applicable) collective bargaining agreements. party to terminate 1 redundant worker and a group of 9 redundant workers; (iii) whether the law requires employer to reassign or retrain a worker before making worker redundant; (iv) whether priority rules apply for redundancies and reemployment. Redundancy cost (i) notice period for redundancy dismissal; (ii) severance payments, and (iii) penalties due when terminating a redundant worker. Data on the availability of unemployment protection for a worker with one year of employment is also collected. Page 63 Doing Business 2020 Honduras Employing Workers - Honduras Details – Employing Workers in Honduras Answer Hiring Fixed-term contracts prohibited for permanent tasks? Yes Maximum length of a single fixed-term contract (months) 12.0 Maximum length of fixed-term contracts, including renewals (months) 24.0 Minimum wage applicable to the worker assumed in the case study (US$/month) 505.7 Ratio of minimum wage to value added per worker 1.7 Maximum length of probationary period (months) 2.0 Working hours Standard workday 8.0 Maximum number of working days per week 6.0 Premium for night work (% of hourly pay) 25.0 Premium for work on weekly rest day (% of hourly pay) 100.0 Premium for overtime work (% of hourly pay) 37.5 Restrictions on night work? Yes Restrictions on weekly holiday? No Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 10.0 Paid annual leave for a worker with 5 years of tenure (working days) 20.0 Paid annual leave for a worker with 10 years of tenure (working days) 20.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in working days) 16.7 Redundancy rules Dismissal due to redundancy allowed by law? Yes Third-party notification if one worker is dismissed? Yes Third-party approval if one worker is dismissed? Yes Third-party notification if nine workers are dismissed? Yes Third-party approval if nine workers are dismissed? Yes Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? Yes Priority rules for reemployment? No Redundancy cost Notice period for redundancy dismissal for a worker with 1 year of tenure (weeks of salary) 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure (weeks of salary) 8.7 Notice period for redundancy dismissal for a worker with 10 years of tenure (weeks of salary) 8.7 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure, in weeks of salary) 7.2 Severance pay for redundancy dismissal for a worker with 1 year of tenure (weeks of salary) 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure (weeks of salary) 21.7 Page 64 Doing Business 2020 Honduras Severance pay for redundancy dismissal for a worker with 10 years of tenure (weeks of salary) 43.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure, in weeks of salary) 23.1 Unemployment protection after one year of employment? No Page 65 Doing Business 2020 Honduras Business Reforms in Honduras From May 2, 2018 to May 1, 2019, 115 economies implemented 294 business regulatory reforms across the 10 areas measured by Doing Business. Reforms inspired by Doing Business have been implemented by economies in all regions. The following are reforms implemented since Doing Business 2008. =Doing Business reform making it easier to do business. = Change making it more difficult to do business. DB2020 Starting a Business: Honduras made starting a business less expensive by reducing the notary fees for the preparation of the articles of incorporation. DB2018 Getting Electricity: Honduras increased the reliability of power supply by rolling out a Supervisory Control and Data Acquisition (SCADA) system for monitoring and restoring power outages in Tegucigalpa. Registering Property: Honduras made registration of property more difficult by reducing the number of employees at the land registry. DB2017 Trading across Borders: Honduras made trading across borders more difficult by increasing the number of intrusive inspections for importing, which increased the border compliance time. DB2016 Protecting Minority Investors: Honduras strengthened minority investor protections by introducing provisions requiring greater disclosure of related-party transactions, prohibiting interested parties from voting on a related-party transaction, allowing shareholders representing at least 5% of a company’s share capital to bring a direct action for damages against its directors and giving any shareholder the right to inspect company documents. Paying Taxes: Honduras made paying taxes more costly for companies by introducing an alternative minimum income tax. DB2015 Starting a Business: Honduras made starting a business easier by eliminating the paid-in minimum capital requirement. Dealing with Construction Permits: Honduras made dealing with construction permits more costly by increasing the building permit fees. DB2012 Getting Credit: Honduras strengthened its secured transactions system through a new decree establishing a centralized collateral registry and providing for out-of- court enforcement of collateral upon default. Paying Taxes: Honduras made paying taxes costlier for firms by raising the solidarity tax rate. Trading across Borders: Honduras made trading across borders faster by implementing a web-based electronic data interchange system and X-ray machines at the port of Puerto Cortes. Enforcing Contracts: Honduras adopted a new civil procedure code that modified litigation procedures for enforcing a contract. DB2010 Starting a Business: Honduras simplified business start-up by improving the efficiency of business registration at the one-stop shop, improving the tax registration process and eliminating the need for a lawyer’s services to obtain a municipal license. Dealing with Construction Permits: Honduras reduced the time required for dealing with construction permits by streamlining administrative processes in the Construction Control Department. Getting Credit: Honduras improved its credit information system through a resolution that enhances the operations of the public credit bureau and introduces several categories for classifying debtors on the basis of their credit history. Employing Workers: Honduras increased the severance payments applicable in redundancy dismissals. DB2009 Paying Taxes: Honduras made paying taxes easier for companies by encouraging electronic filing and payment. Trading across Borders: Honduras made importing easier by eliminating the requirement for consular legalization of trade documents. Page 66 Doing Business 2020 Honduras DB2008 Starting a Business: Honduras reduced the time required to start a business by simplifying municipal licensing procedures. Dealing with Construction Permits: Honduras made dealing with construction permits easier through administrative changes reducing the time required to obtain an environmental license from the Ministry of Natural Resources and to obtain approval for a telephone line. Registering Property: Honduras made registering property easier by setting time limits for the completion of certain procedures. Getting Credit: Honduras improved access to credit information by guaranteeing borrowers’ right to inspect their own data. In addition, the country strengthened its secured transactions system by allowing parties to a security agreement to agree to out-of-court enforcement of the security interest through the use of a notary. Page 67 Doing Business 2020 Honduras Page 68