73977 Economy Profile: Montenegro Doing Business 2013 Montenegro 2 © 2013 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Doing Business 2013 Montenegro 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 35 Registering property .................................................................................................................. 42 Getting credit .............................................................................................................................. 51 Protecting investors ................................................................................................................... 58 Paying taxes ................................................................................................................................ 67 Trading across borders .............................................................................................................. 75 Enforcing contracts .................................................................................................................... 84 Resolving insolvency .................................................................................................................. 95 Employing workers .................................................................................................................. 101 Data notes ................................................................................................................................. 108 Resources on the Doing Business website ............................................................................ 113 Doing Business 2013 Montenegro 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is (except for the paying taxes indicators, which cover the for a local entrepreneur to open and run a small to period January–December 2011). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy‘s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 185 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 19 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2013 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Montenegro. To allow useful business regulatory reforms. The data, along with comparison, it also provides data for other selected information on ordering Doing Business 2013, are economies (comparator economies) for each indicator. available on the Doing Business website at The data in this report are current as of June 1, 2012 http://www.doingbusiness.org. Doing Business 2013 Montenegro 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy‘s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: Eastern Europe & Central Asia business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Upper middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 185 by the ease of Population: 632,261 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 7,060 percentile rankings on each of the 10 topics included in the index in Doing Business 2013: starting a business, DB2013 rank: 51 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2012 rank: 57* investors, paying taxes, trading across borders, Change in rank: 6 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see * DB2012 ranking shown is not last year‘s published the data notes for more details). The employing workers ranking but a comparable ranking for DB2012 that indicators are not included in this year‘s aggregate ease captures the effects of such factors as data of doing business ranking, but the data are presented corrections and the addition of 2 economies in this year‘s economy profile. (Barbados and Malta) to the sample this year. See the data notes for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy‘s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2013 Montenegro 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2013 Montenegro 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy‘s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Montenegro and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2013 Montenegro 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Montenegro ranks on Doing Business topics Source: Doing Business database. Doing Business 2013 Montenegro 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business year Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far each economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy since of changes in an economy‘s regulatory environment for 2005 on each indicator in 9 Doing Business indicator sets. firms, but they are always relative. An economy‘s ranking Comparing the measure for an economy at 2 points in might change because of developments in other time allows users to assess how much the economy‘s economies. An economy that implemented business regulatory environment as measured by Doing Business regulation reforms may fail to rise in the rankings (or may has changed over time—how far it has moved toward (or even drop) if it is passed by others whose business away from) the most efficient practices and strongest regulation reforms had a more significant impact as regulations in areas covered by Doing Business (figure 1.4). measured by Doing Business. The results may show that the pace of change varies widely Moreover, year-to-year changes in the overall rankings do across the areas measured. They also may show that an not reflect how the business regulatory environment in an economy is relatively close to the frontier in some areas economy has changed over time—or how it has changed and relatively far from it in others. in different areas. To aid in assessing such changes, last Figure 1.4 How far has Montenegro come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the 9 indicator sets shown in the figure. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2013 Montenegro 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy‘s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Montenegro Macedonia, FYR DB2013 Bosnia and Herzegovina Best performer globally Montenegro DB2013 Montenegro DB2012 Hungary DB2013 Bulgaria DB2013 Croatia DB2013 Indicator Serbia DB2013 DB2013 DB2013 Starting a Business 58 45 162 57 80 52 5 42 New Zealand (1) (rank) Procedures (number) 6 6 11 4 6 4 2 6 New Zealand (1)* Time (days) 10 10 37 18 9 5 2 12 New Zealand (1) Cost (% of income per 1.6 1.8 14.9 1.1 7.3 8.9 1.9 7.7 Slovenia (0.0) capita) Paid-in Min. Capital (% 0.0 0.0 29.1 0.0 13.4 9.4 0.0 0.0 91 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 176 175 163 123 143 55 65 179 China (1) (rank) Hong Kong SAR, Procedures (number) 16 16 17 21 12 26 10 18 China (6)* Time (days) 267 267 180 107 317 102 117 269 Singapore (26) Cost (% of income per 1,169.6 1,469.9 1,102.1 293.5 573.3 5.7 517.8 1,427.2 Qatar (1.1) capita) Doing Business 2013 Montenegro 11 Macedonia, FYR DB2013 Bosnia and Herzegovina Best performer globally Montenegro DB2013 Montenegro DB2012 Hungary DB2013 Bulgaria DB2013 Croatia DB2013 Indicator Serbia DB2013 DB2013 DB2013 Getting Electricity 69 69 158 128 56 109 101 76 Iceland (1) (rank) Procedures (number) 5 5 8 6 5 5 5 4 Germany (3)* Time (days) 71 71 125 130 70 252 151 131 Germany (17) Cost (% of income per 490.3 533.4 493.3 340.7 318.7 116.9 296.1 502.6 Japan (0.0) capita) Registering Property 117 112 93 68 104 43 50 41 Georgia (1) (rank) Procedures (number) 7 7 7 8 5 4 4 6 Georgia (1)* Time (days) 71 71 25 15 104 17 40 11 Portugal (1) Cost (% of property 3.1 3.1 5.3 2.9 5.0 5.0 3.2 2.8 Belarus (0.0)* value) Getting Credit (rank) 4 9 70 40 40 53 23 40 United Kingdom (1)* Strength of legal rights 10 10 5 8 7 7 7 7 Malaysia (10)* index (0-10) Depth of credit 5 4 5 4 5 4 6 5 United Kingdom (6)* information index (0-6) Public registry coverage 25.2 26.4 36.2 56.3 0.0 0.0 34.8 0.0 Portugal (90.7) (% of adults) Private bureau United Kingdom 0.0 0.0 4.8 0.0 100.0 15.8 72.2 100.0 coverage (% of adults) (100.0)* Protecting Investors 32 29 100 49 139 128 19 82 New Zealand (1) (rank) Extent of disclosure 5 5 3 10 1 2 9 7 Hong Kong SAR, Doing Business 2013 Montenegro 12 Macedonia, FYR DB2013 Bosnia and Herzegovina Best performer globally Montenegro DB2013 Montenegro DB2012 Hungary DB2013 Bulgaria DB2013 Croatia DB2013 Indicator Serbia DB2013 DB2013 DB2013 index (0-10) China (10)* Extent of director 8 8 6 1 5 4 7 6 Singapore (9)* liability index (0-10) Ease of shareholder 6 6 6 7 6 7 5 3 New Zealand (10)* suits index (0-10) Strength of investor 6.3 6.3 5.0 6.0 4.0 4.3 7.0 5.3 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 81 119 128 91 42 118 24 149 (1) Payments (number per Hong Kong SAR, 29 42 44 15 18 12 29 66 year) China (3)* United Arab Emirates Time (hours per year) 320 372 407 454 196 277 119 279 (12) Trading Across Borders 42 37 103 93 105 73 76 94 Singapore (1) (rank) Documents to export 6 6 8 5 7 6 6 7 France (2) (number) Time to export (days) 14 14 15 21 20 17 12 12 Singapore (5)* Cost to export (US$ per 855 805 1,240 1,551 1,300 885 1,376 1,455 Malaysia (435) container) Documents to import 6 6 9 6 8 7 6 7 France (2) (number) Time to import (days) 14 14 13 17 16 19 11 14 Singapore (4) Cost to import (US$ per 915 915 1,200 1,626 1,180 875 1,380 1,660 Malaysia (420) container) Doing Business 2013 Montenegro 13 Macedonia, FYR DB2013 Bosnia and Herzegovina Best performer globally Montenegro DB2013 Montenegro DB2012 Hungary DB2013 Bulgaria DB2013 Croatia DB2013 Indicator Serbia DB2013 DB2013 DB2013 Enforcing Contracts 135 137 120 86 52 16 59 103 Luxembourg (1) (rank) Time (days) 545 545 595 564 572 395 370 635 Singapore (150) Cost (% of claim) 25.7 25.7 34.0 23.8 13.8 15.0 31.1 31.3 Bhutan (0.1) Procedures (number) 49 49 37 39 38 35 37 36 Ireland (21)* Resolving Insolvency 44 53 83 93 97 70 60 103 Japan (1) (rank) Time (years) 1.4 2.0 3.3 3.3 3.1 2.0 2.0 2.0 Ireland (0.4) Cost (% of estate) 8 8 9 9 15 15 10 20 Singapore (1)* Outcome (0 as piecemeal sale and 1 as 0 0 0 0 0 0 0 going concern) Recovery rate (cents on 48.3 43.3 35.4 31.7 30.1 38.8 42.2 29.1 Japan (92.8) the dollar) Note: DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. The ranking methodology for the paying taxes indicators changed in Doing Business 2013; see the data notes for details. For more information on “no practice� marks, see the data notes. Data for the outcome of the resolving insolvency indicator are not available for DB2012. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy‘s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2013 Montenegro 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy‘s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures officially required or commonly done in received practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that the entrepreneur will  Has a turnover of at least 100 times income per pay no bribes. And it assumes that the business: capita.  Is a limited liability company, located in the  Does not qualify for any special benefits. largest business city.  Does not own real estate.  Has between 10 and 50 employees.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2013 Montenegro 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Montenegro? costs 1.6% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 0.0% of income per capita (figure a business there requires 6 procedures, takes 10 days, 2.1). Figure 2.1 What it takes to start a business in Montenegro Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Montenegro 16 STARTING A BUSINESS Globally, Montenegro stands at 58 in the ranking of and the regional average ranking provide other useful 185 economies on the ease of starting a business information for assessing how easy it is for an (figure 2.2). The rankings for comparator economies entrepreneur in Montenegro to start a business. Figure 2.2 How Montenegro and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2013 Montenegro 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in Montenegro That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in Montenegro over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 45 58 Procedures n.a. n.a. n.a. 13 13 13 11 7 6 6 (number) Time (days) n.a. n.a. n.a. 24 24 21 12 10 10 10 Cost (% of income per n.a. n.a. n.a. 6.7 6.2 4.4 2.6 1.9 1.8 1.6 capita) Paid-in Min. Capital (% of n.a. n.a. n.a. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Montenegro 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by what is possible in making it easier to start a business. the economies that over time have had the best And changes in regional averages can show where performance regionally or globally on the procedures, Montenegro is keeping up—and where it is falling time, cost or paid-in minimum capital required to start behind. a business (figure 2.3). These benchmarks help show Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2013 Montenegro 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety-one economies globally have no paid-in minimum capital requirement. Source: Doing Business database. Doing Business 2013 Montenegro 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Montenegro (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Montenegro made starting a business easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. Montenegro eased business start up by simplifying the post- registration process including the registration for taxes, social DB2010 security and employment, as well as the process to obtain the municipal license. Montenegro eliminated several procedures for business start- DB2011 up by introducing a single registration form for submission to the tax administration. Montenegro made starting a business easier by implementing DB2012 a one-stop shop. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Montenegro 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Montenegro is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Podgorica firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Društvo sa ograni?enom professionals and the study of laws, regulations and odgovornoš?u (DOO) - Limited Liability Company publicly available information on business entry in Paid in Minimum Capital Requirement: EUR 1 that economy. Following is a detailed summary of those procedures, along with the associated time Start-up Capital: 10 times GNI per capita and cost. These procedures are those that apply to a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Montenegro—and the time and cost Time to No. Procedure Cost to complete complete Certify the company’s founding agreements The Republic of Montenegro still has no public notaries, but the profession is expected to develop soon. Lawyers are no longer authorised to do the certification of corporate documents. the applicant EUR 13 for court + 1 1-2 days certify company documents at the basic court and certify copies at EUR 2 per document municipalities . Certification fees vary depending on the number of pages, documents, and so forth. the total cost is: 21 Euro (13 Euro for the court + copies of documents such as passport - each copy 2 Euro). Submit the request together with the necessary documents and obtain the registration certificate, TIN (tax identification number), VAT tax number and customs authorization The applicant checks the company name online and then comes to the registry located at the commercial court with completed documents and register the name and company. At the registry one counter exist for LLC registration and payment of relevant fees can be done at the EUR 10 (registration 2 same place. (Name can be checked online at no charge at 5 days fee) + EUR 12 (www.crps.cg.yu) and name reservation can be done online but (publication fee) payment is done in person. Company Forms can be obtained online. The Company Registry prepares text for the announcement of company formation. The Registry also estimates the publication fee (based on notice length) and sends all notices to the Official Gazette, which are published in the upcoming issue. Publication lead time is 10–15 days. Even so, subsequent procedures do not depend on the announcement, Doing Business 2013 Montenegro 22 Time to No. Procedure Cost to complete complete so the client can continue to form the company regardless of the publication date. Required documents for registration are: 1. act on foundation; 2. the Statute; 3. list of founders, members of a company, managers and members of the board of directors, if they are appointed: a) the first and surnames and any former names; (b) their personal identification number (c) their residential addresses; (d) their citizenship; (e) details of any other directorships, memberships in limited liability companies or partnerships, or other management positions held in Montenegro or elsewhere and the place of registration of such companies if not in Montenegro; 4. name of an executive director; 5. name of the company, address of the seat of the company and address for receiving official correspondence, if they are different; 6. persons authorized to represent the company and information if the representation is collective or individual; 7. written consent of the members of board of director for their appointment, if they have been appointed; 8. a document which would confirm payment of registration fee Register employees for Health and Pension at Tax Administration counter 1 day no charge 3 This registration happens at a different desk. Obtain company's seal The company seal or stamp is a core instrument in company legal 1 day EUR 30-40 4 transactions. The company orders a seal or stamp upon registering with the Company Registry because it is essential for subsequent company transactions. The seal is made on the day it is ordered. Open a bank account The certificate of bank account set-up is required to register for taxes. The bank account is opened once the company is registered with the Company Registry and tax office and the Statistical Office. Request for opening of the bank account is submitted on the form ZZOUR of the bank, by post or personally, and it has to have the 5 following information: 1 day no charge • name of the requesting party • address of the seat of the company and the telephone • name of the account Beside the form ZZOUR a company has to submit the following as well: • A confirmation of the Central Registry of the Commercial Court in Doing Business 2013 Montenegro 23 Time to No. Procedure Cost to complete complete Podgorica on registration • 2 (validated copy) • a contract on opening of the account and keeping the account (is closed in a bank) • notification of MONSTAT on classification of the activities (original document) • a card of the deposited signatures (is received in the bank) • OP (validation of the signature) a form validated in the Basic Court • a document on tax identification number (PIB) by the Tax Authority of Montenegro • act of foundation (a copy) Notify the competent inspection authority and the municipal authority in charge of economic affairs 6 New reforms abolished the license and made it sufficient to have a 1-2 days EUR 3 notification. If the Company is engaged in trade, it pays the administrative fee in the amount of 3 € within the municipal authority in charge of economic affairs for the notification. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Montenegro 24 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy‘s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2013 Montenegro 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 16 procedures, takes 267 days build a warehouse in Montenegro? According to data and costs 1169.6% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Montenegro Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Montenegro 26 DEALING WITH CONSTRUCTION PERMITS Globally, Montenegro stands at 176 in the ranking of ranking provide other useful information for assessing 185 economies on the ease of dealing with how easy it is for an entrepreneur in Montenegro to construction permits (figure 3.2). The rankings for legally build a warehouse. comparator economies and the regional average Figure 3.2 How Montenegro and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2013 Montenegro 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed—and which have easy (or difficult) it is to deal with construction permits not (table 3.1). That can help identify where the in Montenegro today, data over time show which potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Montenegro over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 175 176 Procedures (number) n.a. 17 17 17 16 16 16 16 Time (days) n.a. 186 186 217 202 252 267 267 Cost (% of income n.a. 1,721.0 1,597.8 1,311.7 1,076.5 1,491.4 1,469.9 1,169.6 per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see th e data notes. Source: Doing Business database. Doing Business 2013 Montenegro 28 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by possible in making it easier to deal with construction the economies that over time have had the best permits. And changes in regional averages can show performance regionally or globally on the procedures, where Montenegro is keeping up—and where it is time or cost required to deal with construction permits falling behind. (figure 3.3). These benchmarks help show what is Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2013 Montenegro 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Source: Doing Business database. Doing Business 2013 Montenegro 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Montenegro (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Montenegro made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. To follow the best practices set by the European Union, the Ministry of Economy and the Ministry of Tourism and DB2009 Environmental Protection introduced stricter compliance requirements. However, it led to an administrative backlog, increasing both time and cost. Montenegro improved the process of dealing with construction permits with a new construction law implemented, reducing procedures, providing for new DB2010 mechanisms of construction permit approval and building control process in general, and introducing a risk-based system of approval, where small scale projects are controlled by local municipalities. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. Montenegro made construction permitting less costly by DB2013 reducing the cost of pre-construction and post-construction procedures Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Montenegro 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Montenegro are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Podgorica information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers EUR 715,000 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Montenegro —and the time and cost Time to No. Procedure Cost to complete complete Obtain proof of ownership from the Real Estate Administration 1 1 day EUR 5 Obtain a copy of the site map from the Real Estate Administration It takes 2 days, as graphical database is not digital and analogue plans 2 days EUR 8 2 need drafting for each separate project. Obtain urban development and technical requirements from the municipality The new Construction Law (2008) provides for companies not to enter into time-consuming procedure of obtaining the decision on location as a precondition for entering the design phase. This process is done at the stage of issuance of building permit. At the pre-design stage it is sufficient to follow the urban-technical conditions for that particular area contained in the general or local spatial plan. However, Podgorica does not have a completely updated set of technical conditions, detailed spatial plans and maps yet. According to the implementation 60 days EUR 150 3 regulations there is a one year period for each local government to adopt its local detailed maps and plans. Thereafter, spatial plans, urban technical conditions, requests for issuance of construction permits, construction permits and commencement of construction works notices are to be published on the governmental web sites. The implementation period for all local authorities to introduce web-based platforms is also one year and has not expired yet. The responsible authority for projects less than 3,000 sq. m. is the Municipality of Podgorica. This procedure takes on average 60 days. Doing Business 2013 Montenegro 32 Time to No. Procedure Cost to complete complete According to the new Construction Law (2008) Article 88, the process of review of conceptual project and main project may be conducted by a business organization which is licensed and which meets the conditions referred to in Articles 83, 84 and 85 of this Law. The review of the conceptual project and the main project must not be performed by a person who participated in producing such projects. Previously this function was performed by the Ministry of Economic Development. Obtain main project study 4 BuildCo must hire a licensed design and engineering company to 60 days EUR 13,006 create the main project study. The cost is between EUR 6.00 to EUR 10.00 per sq. m. Obtain fire protection study BuildCo must hire a private licensed company to create a fire protection study and sprinkler installation project. The study is later submitted to 5 the Ministry of Interior for clearance. The sprinkler installation system is 15 days EUR 1,410 required for buildings over 400 square meters and industrial buildings. The creation of the study costs between EUR 300.00 and EUR 600.00 while the creation of the sprinkler installation project costs between EUR 0.60 and EUR 0.80 per sq. m. Obtain clearance to connect to the water and sewerage network Article 62 of the new Construction Law (2008) stipulates that the utility companies are required to issue any preliminary clearance to provide connection to their services before the design stage. It is assumed that 16 days EUR 234 6 the urban development plans and technical requirement plans bear all relevant information and are publicly available. However, in practice due to early stages of reform and lack of capacity of utility companies, builders still have to visit each authority separately. * Obtain clearance to connect to the telecommunications network According to municipal tariffs and fees the cost is calculated based on the total area of warehouse. Anything between 1,000 -- 3,000 square meters is EUR 340.00. Article 62 of the new Construction Law (2008) stipulates that the utility 7 companies are required to issue any preliminary clearance to provide 15 days EUR 340 connection to their services before the design stage. It is assumed that the urban development plans and technical requirement plans bear all relevant information and are publicly available. However, in practice due to early stages of reform and lack of capacity of utility companies, builders still have to visit each authority separately. * Pay compensation for utilities provision on construction land 8 The fees are determined according to the following schedule (in EUR 1 day EUR 42,452 per sq. m.): Doing Business 2013 Montenegro 33 Time to No. Procedure Cost to complete complete • ZONE I: ZONE A 152, ZONE B 132, ZONE C 112 • ZONE II 82 • ZONE III 50 • ZONE IV 25 • ZONE V 50 (where most likely the warehouse would be located) For warehouses, only 50% of the fee is applied. As of March 2009, the Municipality of Podgorica issued the Decision on Compensation for utilities provision on construction land. The agency to which the amount of EUR 65.28 per sq. m. is paid is: the Agency for Building and Development of Podgorica. The amount is paid in total before submitting the request for occupancy permit. If the payment is made 15 days from the day of the issuance of the building permit, the amount is decreased by 10%. If the investor pays the total amount immediately after signing the agreement with the agency, the amount is decreased by another 10%. There is also the possibility to defer payments for a period of 5 years but interest will be accrued. * Obtain ecological approval from the Ministry for Tourism and Environmental Protection 30 days EUR 20 9 * Obtain traffic approval from the municipality 10 10 days EUR 3 Obtain fire prevention approval 11 15 days EUR 300 Under the Construction Law (2008) the Fire Authority must issue the approval within 6 days. However, in practice it still takes two weeks. Obtain a building permit from the Ministry of Economic Development Under the new Construction Law (2008) the deadline for issuance of construction (building) permit is now set at 15 days. However, in practice due to lack of adequate manpower and technology it still takes 30 days, as before. Ministry of Economic Development is conducting a constant monitoring of the progress and helps applicants whose requests are not replied within time-limit. Applicants can only file a complaint with the local government first, and then if no reaction appeal to the local courts. In practice most companies prefer to wait 30 days no charge 12 rather than challenge the authorities. The procedure for issuance of construction (building) permit is simplified. Various approvals and opinions from ministries and utilities companies that were, under the former law, required to be submitted before the issuance of the construction permit are now no longer required. Moreover, the construction permit may be issued based on the preliminary design, whereas the main design and its audit are required before the commencement of construction. This part also includes the review of location permit aspects. However, in practice most of the approvals and opinions are still required before the final Doing Business 2013 Montenegro 34 Time to No. Procedure Cost to complete complete decision on construction permit. Building control process during construction has been amended as well. Under the Article 105, companies following the issuance of the building permit must notify the Construction Inspection within 7 days before the actual works begins. The notification can be done via email, provided there is a scanned copy of the building permit. Thereafter the Construction Inspection, which is a national entity, must publish the information on its website, including the schedule of inspections. It is most likely the inspections will take place at the foundation, structural and final stages of construction works. Inspections will not be requested and happen on risk-based approach. Each time the inspector will register the construction site ledger. The Construction Inspection consists of only lawyers which made the process of supervision purely a legal matter. * Obtain water and sewerage connection 13 10 days EUR 200 * Obtain telephone connection 14 7 days EUR 80 Request and receive technical inspection for building control from the Ministry of Economic Development The Ministry of Economic Development nominates the members of the inspection panel, which includes experts from architecture, sewage/water, technical standards, electricity, etc. 1 day EUR 2,861 15 Additionally, the architects which designed the project must be part of the technical inspection. This came as a result of multiple copyright violations by various builders. The cost is paid for inspection services. Obtain building use permit from the Ministry of Economic Development All buildings must have a building use permit in order to be able to register with the respective agency. Before, however, buildings could be registered with only a building permit and without a building use 50 days no charge 16 permit. The building use permit must be issued within 7 days following the final report by the inspection. However, prior to that, the competent authority has 7 days to decide on the performance of the technical inspection. Thereafter, the inspector has another 7 days to submit the final report. In practice, it still takes around 45 -- 50 days due to various implementation issues. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Montenegro 35 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy‘s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer‘s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2013 Montenegro 36 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity requires 5 procedures, takes 71 days and costs 490.3% connection in Montenegro? According to data of income per capita (figure 4.1). collected by Doing Business, getting electricity there Figure 4.1 What it takes to obtain an electricity connection in Montenegro Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Montenegro 37 GETTING ELECTRICITY Globally, Montenegro stands at 69 in the ranking of perspective in assessing how easy it is for an 185 economies on the ease of getting electricity entrepreneur in Montenegro to connect a warehouse (figure 4.2). The rankings for comparator economies to electricity. and the regional average ranking provide another Figure 4.2 How Montenegro and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2013 Montenegro 38 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Montenegro Best performer in Montenegro Montenegro Best performer Indicator Eastern Europe & DB2013 DB2012 globally DB2013 Central Asia DB2013 Rank 69 69 Georgia (50) Iceland (1) Procedures (number) 5 5 Georgia (4) Germany (3)* Time (days) 71 71 Kosovo (48) Germany (17) Cost (% of income per capita) 490.3 533.4 Lithuania (55.4) Japan (0.0) Note: DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2013 Montenegro 39 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and Montenegro (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Montenegro made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2013 Montenegro 40 GETTING ELECTRICITY What are the details? The indicators reported here for Montenegro are OBTAINING AN ELECTRICITY CONNECTION based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Podgorica utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Elektroprivreda Crne Gore verified by electricity regulatory agencies and (EPCG) independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Montenegro—and the time and cost Time to No. Procedure Cost to complete complete Hire electrical contractor and build external connection The process of applying for an electricity connection starts already before the actual construction of the warehouse. The customer has to apply for technical conditions with the electricity distribution utility, receive an external site inspection by the utility and hire an electrical design firm to do the design of the external connection and submit an application for an electrical and energetic approval at the electricity utility. After the customer has received the electrical and energetic 25 calendar days EUR 21,150.0 1 approval, he/she can apply for a building permit at the municipality. The duration for the aforementioned described procedures is a few months. Once the building permit is obtained, the customer will construct the warehouse and the external connection, including the transformer station. The meter is to be installed within the metering cabinet on the border between customer and public land or outside the customer building. Since June 2009, the cabinet with the meter is to be provided by the electricity distribution utility. However, this has not yet been fully implemented. * Electrical contractor obtains excavation permit 2 The electrical contractor obtains the excavation permit from the 4 calendar days EUR 4,000.0 municipality and police department after the construction of the warehouse and during the external connection works. Submit request for testing committee at the municipality and await technical acceptance test 3 9 calendar days EUR 450.0 Once the external connection is installed, the customer submits an application at the municipality to set up a testing committee. The committee is comprised of representatives of the municipality and the Doing Business 2013 Montenegro 41 Time to No. Procedure Cost to complete complete electricity utility. The committee comes to the warehouse location and makes a technical acceptance test/control of the transformer station. The municipality is forming the team and informing the customer of the date of the control. The Chief Republic Electrical inspector is also attending the technical acceptance test and has the main role for this procedure. The customer must present all technical documentation and certificates during the test. Submit application for connection contract with EPCG and await contract (license for connection) 4 30 calendar days no charge The customer has to submit all testing documents, the certificate of the electrical authorized firm that did the internal wiring, proof of ownership, tax identification number and building permit at the utility. Sign supply contract and await final connection After the customer has signed the connection contract, he/she has to conclude a supply contract. The supply company (part of EPCG joint 5 stock company) is automatically notifying the distribution utility about 7 calendar days no charge the supply contract. The distribution company is coming to the warehouse to do the final connection and to install and open the meter. It also occurs that the customer purchases the meter and installs it and the utility checks and opens the meter. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Montenegro 42 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy‘s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer‘s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy‘s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2013 Montenegro 43 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 71 days and costs 3.1% of the Montenegro? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 7 Figure 5.1 What it takes to register property in Montenegro Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Montenegro 44 REGISTERING PROPERTY Globally, Montenegro stands at 117 in the ranking of and the regional average ranking provide other useful 185 economies on the ease of registering property information for assessing how easy it is for an (figure 5.2). The rankings for comparator economies entrepreneur in Montenegro to transfer property. Figure 5.2 How Montenegro and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2013 Montenegro 45 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to register property in (table 5.1). That can help identify where the potential Montenegro today, data over time show which aspects for improvement is greatest. Table 5.1 The ease of registering property in Montenegro over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. 112 117 Procedures (number) n.a. n.a. 7 7 8 7 7 7 7 Time (days) n.a. n.a. 71 71 86 71 71 71 71 Cost (% of property value) n.a. n.a. 2.5 2.4 3.3 1.0 3.3 3.1 3.1 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see the data notes. Source: Doing Business database. Doing Business 2013 Montenegro 46 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by possible in making it easier to register property. And the economies that over time have had the best changes in regional averages can show where performance regionally or globally on the procedures, Montenegro is keeping up—and where it is falling time or cost required to complete a property transfer behind. (figure 5.3). These benchmarks help show what is Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2013 Montenegro 47 REGISTERING PROPERTY Cost (% of property value) Source: Doing Business database. Doing Business 2013 Montenegro 48 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Montenegro (table 5.2)? Table 5.2 How has Montenegro made registering property easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Montenegro 49 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer‘s name—identified by Doing Business City: Podgorica through information collected from local property Property Value: EUR 261,077 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Montenegro—and the time and cost Time to No. Procedure Cost to complete complete * Obtain property excerpt from Agency for Real Estate EUR 5 (Republic 1 day (simultaneous Administrative Tax) 1 The buyer goes to the local branch of the Agency for Real Estate to with Procedure 2) + EUR 3 (to Agency obtain an excerpt on the property, proving the seller‘s ownership. for Real Estate) * Check powers of signatories for each of the companies Public notaries verify who can sign documents for a company according 1 day (simultaneous included in 2 to the Certificate from the Central registry or via data from the web site with Procedure 1) Procedure 3 of this body: www.crps.me Lawyer or notary drafts sale-purchase agreement It is standard practice for parties to hire a lawyer or a notary to draft the sale-purchase agreement. A new standardized form for the sale- 3 purchase agreement is available online at www.uzn.me and 1 day EUR 200-300 ww.geoportaluzn.me. Notary on behalf of parties submis documents for registartion of property to the Real Estate Agency (Cadastres on local levels). Sign and authenticate signatures in the sale-purchase agreement at the Municipal Court It is mandatory that the sale-purchase agreement be notarized. 1 day Euro 10 4 Authentication of contractual parties' signatures on the sale agreement is done by the jurisdiction of basic courts. They act only as a witness (checking the signatures of the seller and buyer). Tax Authorities assess the amount of transfer tax to be paid by the buyer 10 - 30 days no cost 5 The Municipal (basic) court delivers the sales agreement with the Doing Business 2013 Montenegro 50 Time to No. Procedure Cost to complete complete authenticated signatures to the tax administration. During this period the tax authorities will compare their valuation of the property with the sale-purchase agreement price. They will assess how much the buyer should pay as transfer tax (3% of the property value) and assign a bank at which to pay. The buyer must then go to the tax administration office to get a copy of the agreement with the stamp (clearance). Buyer pays transfer tax at a commercial bank The buyer will take the amount assessed by the tax authorities to pay as 1 day 3% property value 6 transfer tax, to deposit at a bank assigned by the tax authorities in their account. Request inscription of the new owner at the Agency for Real Estate Parties fill in a standard form or make a simple written request at the local branch of the Agency for Real Estate in order for the name on the property to be changed to the buyer‘s. The Resolution on change of property ownership is made within 8 working days. The Head of the Unit signs on the Resolution and it is delivered to the parties. Once the resolution is made, parties have the right to appeal against the resolution within 8 days at the Ministry of Finance (cost is 5 Euros). If there are no complaints within the deadline of 8 working days, then a EUR 5 (request) + 8 Request for issuance of cadastre excerpt is submitted to the Real Estate Euros (Real Estate 7 46 days Agency. This costs 8 Euros and is issued on the same day. Agency) + 5 Euros The law precisely states that the property ownership change has to be (Administrative fee) executed within 20 days. Registering in real estate cadastre is defined by Law on state survey and real estate cadastre ("Official Gazzette of Montenegro" No. 29/07) Deadlines for issuing decisions are defined in Law on public administration Procedure ("Official Gazette of Montenegro" No. 21 from 28.10.2003) * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Montenegro 51 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower‘s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors‘ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors‘ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, limited liability company. the strength of legal rights index.  Has its headquarters and only base of operations in the largest business city. Doing Business 2013 Montenegro 52 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Montenegro stands at 4 in the ranking of 185 collateral and bankruptcy laws in Montenegro facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 5 on the The rankings for comparator economies and the depth of credit information index and a score of 10 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Montenegro support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How Montenegro and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2013 Montenegro 53 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Montenegro support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Montenegro over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. 9 4 Strength of legal rights n.a. n.a. 10 10 10 10 10 10 10 index (0-10) Depth of credit n.a. 0 0 0 4 4 4 4 5 information index (0-6) Public registry n.a. n.a. 0.0 0.0 26.3 27.6 26.7 26.4 25.2 coverage (% of adults) Private bureau n.a. n.a. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Montenegro 54 GETTING CREDIT One way to put an economy‘s score on the getting and shows the number of economies with this score in credit indicators into context is to see where the 2012 as well as the regional average score. Figure 6.3 economy stands in the distribution of scores across shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for Montenegro in 2012 Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2012 information index (0–6), 2012 Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a public credit registry or a private Source: Doing Business database. credit bureau, to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no public registry or private bureau. Source: Doing Business database. Doing Business 2013 Montenegro 55 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs‘ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Montenegro (table 6.2)? Table 6.2 How has Montenegro made getting credit easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. Montenegro created a new public credit registry, increasing coverage of borrowers from 0 to 30%. The new public credit DB2009 registry will facilitate access to credit by providing credit information on borrowers to lenders. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. Montenegro improved access to credit information by DB2013 guaranteeing borrowers‘ right to inspect their personal data. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Montenegro 56 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders Montenegro are based on detailed information are gathered through a survey of financial lawyers and collected in that economy. The data on credit verified through analysis of laws and regulations as information sharing are collected through a survey of a well as public sources of information on collateral and public credit registry or private credit bureau (if one bankruptcy laws. For the strength of legal rights index, exists). To construct the depth of credit information a score of 1 is assigned for each of 8 aspects related to index, a score of 1 is assigned for each of 6 features of legal rights in collateral law and 2 aspects in the public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Montenegro Eastern Europe & OECD high income Indicator Montenegro Central Asia average average Strength of legal rights index (0-10) 10 7 7 Depth of credit information index (0-6) 5 5 5 Public registry coverage (% of adults) 25.2 31.9 31.5 Private bureau coverage (% of adults) 0.0 44.8 74.6 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no public registry or private bureau. Regional averages for the public registry coverage exclude economies with no public registry. Regional averages for the private bureau coverage exclude economies with no private bureau. Strength of legal rights index (0–10) Index score: 10 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category Yes of movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend Yes automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Doing Business 2013 Montenegro 57 Strength of legal rights index (0–10) Index score: 10 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 5 bureau registry Are data on both firms and individuals distributed? No Yes 1 Are both positive and negative data distributed? No Yes 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well No No 0 as financial institutions? Are more than 2 years of historical credit information No Yes 1 distributed? Is data on all loans below 1% of income per capita No Yes 1 distributed? Is it guaranteed by law that borrowers can inspect No Yes 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 0 4,830 Number of individuals 0 104,158 Source: Doing Business database. Doing Business 2013 Montenegro 58 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors‘ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders‘ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy‘s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2013 Montenegro 59 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Montenegro? index (figure 7.1). While the indicator does not The economy has a score of 6.3 on the strength of measure all aspects related to the protection of investor protection index, with a higher score minority investors, a higher ranking does indicate that indicating stronger protections (see the summary of an economy‘s regulations offer stronger investor scoring at the end of this chapter for details). protections against self-dealing in the areas measured. Globally, Montenegro stands at 32 in the ranking of 185 economies on the strength of investor protection Figure 7.1 How Montenegro and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2013 Montenegro 60 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in Montenegro protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in Montenegro over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 29 32 Extent of disclosure n.a. 5 5 5 5 5 5 5 index (0-10) Extent of director liability index (0- n.a. 8 8 8 8 8 8 8 10) Ease of shareholder n.a. 6 6 6 6 6 6 6 suits index (0-10) Strength of investor protection n.a. 6.3 6.3 6.3 6.3 6.3 6.3 6.3 index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Montenegro 61 PROTECTING INVESTORS One way to put an economy‘s scores on the protecting shows the number of economies with this score in investors indicators into context is to see where the 2012 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across shows the same thing for the extent of director liability economies. Figure 7.2 highlights the score on the index, and figure 7.4 for the ease of shareholder suits extent of disclosure index for Montenegro in 2012 and index. Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on extent of Number of economies with each score on extent of director liability index (0–10), 2012 disclosure index (0–10), 2012 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. No economy receives a score of 10 on the extent of Source: Doing Business database. director liability index. Source: Doing Business database. Doing Business 2013 Montenegro 62 PROTECTING INVESTORS Figure 7.4 How easy is access to internal corporate documents? Number of economies with each score on ease of shareholder suits index (0–10), 2012 Note: Higher scores indicate greater powers of shareholders to challenge the transaction. Source: Doing Business database. Doing Business 2013 Montenegro 63 PROTECTING INVESTORS The scores recorded over time for Montenegro on the changes over time in the regional average score on strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the investor protections. Source: Doing Business database. Doing Business 2013 Montenegro 64 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Montenegro (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Montenegro strengthened investor protections—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Montenegro 65 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for ease of shareholder suits indices, a score is assigned Montenegro are based on detailed information for each of a range of conditions relating to disclosure, collected through a survey of corporate and securities director liability and shareholder suits in a standard lawyers as well as on securities regulations, company case study transaction (see the notes at the end of this laws and court rules of evidence. To construct the chapter). The summary below shows the details extent of disclosure, extent of director liability and underlying the scores for Montenegro. Summary of scoring for the protecting investors indicators in Montenegro Eastern Europe & OECD high income Indicator Montenegro Central Asia average average Extent of disclosure index (0-10) 5 7 6 Extent of director liability index (0-10) 8 5 5 Ease of shareholder suits index (0-10) 6 6 7 Strength of investor protection index (0-10) 6.3 5.9 6.1 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 5 What corporate body provides legally sufficient Board of directors and Mr. James is 2 approval for the transaction? not allowed to vote Whether disclosure of the conflict of interest by Mr. Existence of a conflict without any 1 James to the board of directors is required? specifics Whether immediate disclosure of the transaction to 1 Disclosure on the transaction only the public and/or shareholders is required? Whether disclosure of the transaction in published 1 Disclosure on the transaction only periodic filings (annual reports) is required? Whether an external body must review the terms of 0 No the transaction before it takes place? Extent of director liability index (0-10) 8 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Doing Business 2013 Montenegro 66 Score Score description Whether shareholders can hold Mr. James liable for Liable for unfair/oppressive the damage that the Buyer-Seller transaction causes 2 transaction or prejudicial to minority to the company? shareholders Whether shareholders can hold members of the Liable for unfair/oppressive approving body liable for the damage that the Buyer- 2 transaction or prejudicial to minority Seller transaction causes to the company? shareholders Possible when the transaction is Whether a court can void the transaction upon a 1 oppressive or prejudicial to minority successful claim by a shareholder plaintiff? shareholders Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 1 Yes the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 Yes shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 6 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 1 Yes filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 1 Yes transaction? Whether the plaintiff can obtain any documents from Any information that is relevant to the 3 the defendant and witnesses during trial? subject matter of the claim Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 1 Yes defendant and witnesses during trial? Whether the level of proof required for civil suits is 0 No lower than that of criminal cases? Strength of investor protection index (0-10) 6.3 Source: Doing Business database. Doing Business 2013 Montenegro 67 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2011 (number per year adjusted for Doing Business data, in economies where it is more electronic or joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2010. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an ―optimal tax rate‖ that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year‘s threshold is 25.7%. Doing Business 2013 Montenegro 68 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Montenegro stands at 81 in the ranking of taxes in Montenegro—and how much do firms pay in 185 economies on the ease of paying taxes (figure 8.1). taxes? On average, firms make 29 tax payments a year, The rankings for comparator economies and the spend 320 hours a year filing, preparing and paying regional average ranking provide other useful taxes and pay total taxes amounting to 22.3% of profit information for assessing the tax compliance burden (see the summary at the end of this chapter for for businesses in Montenegro. details). Figure 8.1 How Montenegro and comparator economies rank on the ease of paying taxes Note: DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 Montenegro 69 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how of the process have changed — and which have not easy (or difficult) it is to comply with tax rules in (table 8.1). That can help identify where the potential Montenegro today, data over time show which aspects for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Montenegro over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 119 81 Payments (number per n.a. 89 89 89 89 77 42 29 year) Time (hours per year) n.a. 372 372 372 372 372 372 320 Total tax rate (% profit) n.a. 31.6 31.6 31.8 28.9 26.6 22.3 22.3 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 Montenegro 70 PAYING TAXES Equally helpful may be the benchmarks provided by possible in easing the administrative burden of tax the economies that over time have had the best compliance. And changes in regional averages can performance regionally or globally on the number of show where Montenegro is keeping up—and where it payments or the time required to prepare and file is falling behind. taxes (figure 8.2). These benchmarks help show what is Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2013 Montenegro 71 PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2013 Montenegro 72 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Montenegro (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Montenegro made paying taxes easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. Montenegro has reduced the tax burden on business and DB2010 employment by cutting corporate income tax by almost half to 9%, and social security rates to 12% for 2009 and 9% for 2010. An amendment to Montenegro‘s corporate income tax law DB2011 removed the obligation for advance payments and abolished the construction land charge. Montenegro made paying taxes easier and less costly for firms DB2012 by abolishing a tax, reducing the social security contribution rate and merging several returns into a single unified one. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Montenegro 73 PAYING TAXES What are the details? The indicators reported here for Montenegro are LOCATION OF STANDARDIZED COMPANY based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the data (see City: Podgorica the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company completed The taxes and contributions paid are listed in the during the year. Respondents are asked how much summary below, along with the associated number of in taxes and mandatory contributions the business payments, time and tax rate. must pay and what the process is for doing so. Summary of tax rates and administrative burden in Montenegro Eastern Europe & OECD high income Indicator Montenegro Central Asia average average Payments (number per year) 29 28 12 Time (hours per year) 320 260 176 Profit tax (%) 7.1 9.1 15.2 Labor tax and contributions (%) 12.8 22.1 23.8 Other taxes (%) 2.5 9.3 3.7 Total tax rate (% profit) 22.3 40.5 42.7 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Total tax Tax or mandatory Payments Notes on Time Statutory Notes on Tax base rate (% of contribution (number) payments (hours) tax rate total tax rate profit) taxable Corporate income tax 1 43 9% 7.1 profit gross Pension insurance 0 paid jointly 98 6% 6.2 salaries gross Health insurance 12 0 4% 4.3 salaries Fuel tax 1 0 0% per liter 1.5 Doing Business 2013 Montenegro 74 Total tax Tax or mandatory Payments Notes on Time Statutory Notes on Tax base rate (% of contribution (number) payments (hours) tax rate total tax rate profit) personal Payroll tax 0 paid jointly 0 15% 1.5 income tax net book Property tax 2 0 0.1-1% value of 0.7 property gross Unemployment insurance 0 paid jointly 0 1% 0.6 salaries ton of Environmental tax 1 0 EUR 227 0.3 waste gross Work fund contribution 0 paid jointly 0 0.2% 0.2 salaries Value added tax (VAT) 12 179 17% value added 0 not included Totals 29 320 22.3 Source: Doing Business database. Doing Business 2013 Montenegro 75 TRADING ACROSS BORDERS In today‘s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy‘s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy‘s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include military items. Doing Business 2013 Montenegro 76 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Montenegro? Globally, Montenegro stands at 42 in the ranking of According to data collected by Doing Business, 185 economies on the ease of trading across borders exporting a standard container of goods requires 6 (figure 9.1). The rankings for comparator economies documents, takes 14 days and costs $855. Importing and the regional average ranking provide other useful the same container of goods requires 6 documents, information for assessing how easy it is for a business takes 14 days and costs $915 (see the summary of in Montenegro to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Montenegro and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2013 Montenegro 77 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to export or import in (table 9.1). That can help identify where the potential Montenegro today, data over time show which aspects for improvement is greatest. Table 9.1 The ease of trading across borders in Montenegro over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 37 42 Documents to export n.a. 7 7 7 7 6 6 6 (number) Time to export (days) n.a. 14 14 14 14 14 14 14 Cost to export (US$ per n.a. 645 645 775 775 775 805 855 container) Documents to import n.a. 7 7 7 7 6 6 6 (number) Time to import (days) n.a. 14 14 14 14 14 14 14 Cost to import (US$ per n.a. 760 760 890 890 890 915 915 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Montenegro 78 TRADING ACROSS BORDERS Equally helpful may be the benchmarks provided by These benchmarks help show what is possible in the economies that over time have had the best making it easier to trade across borders. And changes performance regionally or globally on the documents, in regional averages can show where Montenegro is time or cost required to export or import (figure 9.2). keeping up—and where it is falling behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2013 Montenegro 79 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2013 Montenegro 80 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Source: Doing Business database. Doing Business 2013 Montenegro 81 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms‘ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Montenegro (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Montenegro made trading across borders easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. Montenegro‘s customs administration simplified trade by DB2011 eliminating the requirement to present a terminal handling receipt for exporting and importing. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Montenegro 82 TRADING ACROSS BORDERS What are the details? The indicators reported here for Montenegro are LOCATION OF STANDARDIZED COMPANY based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this chapter on what City: Podgorica the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each procedure is The procedural requirements, and the associated time collected from local freight forwarders, shipping and cost, for exporting and importing a standard lines, customs brokers, port officials and banks. shipment of goods are listed in the summary below, along with the required documents. Summary of procedures and documents for trading across borders in Montenegro Eastern Europe & OECD high income Indicator Montenegro Central Asia average average Documents to export (number) 6 7 4 Time to export (days) 14 26 10 Cost to export (US$ per container) 855 2,134 1,028 Documents to import (number) 6 8 5 Time to import (days) 14 29 10 Cost to import (US$ per container) 915 2,349 1,080 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 4 190 Customs clearance and technical control 3 65 Ports and terminal handling 5 300 Inland transportation and handling 2 300 Totals 14 855 Procedures to import Time (days) Cost (US$) Documents preparation 6 250 Doing Business 2013 Montenegro 83 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 3 65 Ports and terminal handling 3 300 Inland transportation and handling 2 300 Totals 14 915 Documents to export Documents to import Bill of lading Bill of lading Certificate of origin Certificate of origin Commercial invoice Commercial invoice Customs export declaration Custom import declaration Packing list Health certificate Technical standard/health certificate Packing list Source: Doing Business database. Doing Business 2013 Montenegro 84 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects Time required to complete procedures data relating to the time, cost and procedural (calendar days) complexity of resolving a commercial lawsuit. The ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs assumptions about the case: Enforcement costs  The seller and buyer are located in the economy‘s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer‘s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2013 Montenegro 85 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Montenegro stands at 135 in the ranking of dispute through the courts in Montenegro? According 185 economies on the ease of enforcing contracts to data collected by Doing Business, enforcing a (figure 10.1). The rankings for comparator economies contract takes 545 days, costs 25.7% of the value of and the regional average ranking provide other useful the claim and requires 49 procedures (see the benchmarks for assessing the efficiency of contract summary at the end of this chapter for details). enforcement in Montenegro. Figure 10.1 How Montenegro and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2013 Montenegro 86 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how over time help identify which areas have changed and easy (or difficult) it is to enforce a contract in where the potential for improvement is greatest (table Montenegro today, data on the underlying indicators 10.1). Table 10.1 The ease of enforcing contracts in Montenegro over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 137 135 Time (days) n.a. n.a. n.a. 545 545 545 545 545 545 545 Cost (% of claim) n.a. n.a. n.a. 25.7 25.7 25.7 25.7 25.7 25.7 25.7 Procedures (number) n.a. n.a. n.a. 49 49 49 49 49 49 49 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Montenegro 87 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by help show what is possible in improving the efficiency the economies that over time have had the best of contract enforcement. And changes in regional performance regionally or globally on the number of averages can show where Montenegro is keeping up— steps, time or cost required to enforce a contract and where it is falling behind. through the courts (figure 10.2). These benchmarks Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2013 Montenegro 88 ENFORCING CONTRACTS Procedures (number) Source: Doing Business database. Doing Business 2013 Montenegro 89 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in Montenegro (table introducing new technology. Lower-income economies 10.2)? often work on reducing backlogs by introducing Table 10.2 How has Montenegro made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Montenegro 90 ENFORCING CONTRACTS What are the details? The indicators reported here for Montenegro are COMPETENT COURT based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this City: Podgorica chapter on what the indicators cover). These procedures, and the time and cost of completing The procedures for resolving a commercial lawsuit, and them, are identified through study of the codes of the associated time and cost, are listed in the summary civil procedure and other court regulations, as well below. as through surveys completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Summary of procedures for enforcing a contract in Montenegro—and the time and cost Eastern Europe & OECD high income Indicator Montenegro Central Asia average average Time (days) 545 414 510 Filing and service 60 Trial and judgment 365 Enforcement of judgment 120 Cost (% of claim) 25.7 25.8 20.1 Attorney cost (% of claim) 11.3 Court cost (% of claim) 6.9 Enforcement Cost (% of claim) 7.5 Procedures (number) 49 37 31 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Doing Business 2013 Montenegro 91 ENFORCING CONTRACTS No. Procedure Filing and service: 1 Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the contract. 2 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally or in * writing. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other type of court fee. Registration of court case: The court administration registers the lawsuit or court case. This includes assigning a 3 reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random procedure, * automated system, ruling of an administrative judge, court officer, etc. Court scrutiny of summons and complaint: A judge examines Plaintiff's summons and complaint for formal 4 requirements. Judge admits summons and complaint: After verifying the formal requirements, the judge decides to admit * Plaintiff‘s summons and complaint. Delivery of summons and complaint to person authorized to perform service of process on Defendant: The 5 judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons and * complaint to Defendant. First attempt at physical delivery: A first attempt to physically deliver summons and complaint to Defendant is 6 successful in the majority of cases. * Proof of service: Plaintiff submits proof of service to court. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff‘s request for pre-judgment * attachment of Defendant‘s property and notifies Plaintiff and Defendant of the decision. This step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Guarantees securing attached property: Plaintiff typically submits guarantees or bonds to secure Defendant 7 against possible damages to attached property. (see assumption 5) Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either physical or 8 achieved by registering, marking, debiting or separating assets. (see assumption 5) Custody of assets attached prior to judgment: Defendant's attached assets are put under enforcement officer's or 9 (private) bailiff's care. (see assumption 5) Doing Business 2013 Montenegro 92 No. Procedure Report on pre-judgment attachment: Court enforcement officer or (private) bailiff issues and delivers a report on 10 the attachment of Defendant‘s property to the judge. (see assumption 5) Hearing on pre-judgment attachment: A hearing takes place to resolve the question of whether Defendant‘s 11 assets can be attached prior to judgment. This process may include the submission of separate summons and petitions. (see assumption 5) Trial and judgment: Defendant’s deposit of a bond or payment guarantee with the court: Defendant deposits a bond or guarantee 12 with the court. Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his 13 defense or answer on the merits of the case. Defendant's written answer may or may not include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Deadline for Plaintiff to answer Defendant's defense or answer: Judge sets the deadline by which Plaintiff will be 14 allowed to answer Defendant's defense or answer. Plaintiff’s written response to Defendant's defense or answer: Plaintiff responds to Defendant‘s defense or 15 answer with a written pleading. Plaintiff's answer may or may not include a witness statements or expert (witness) statements. Filing of pleadings: Plaintiff and Defendant file written pleadings and submissions with the court and transmit 16 copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. 17 Framing of issues: Plaintiff and Defendant assist the court in framing issues on which evidence is to be presented. Court appointment of independent expert: Judge appoints, either at the parties' request or at his own initiative, * an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 6-b of this case) Notification of court-appointment of independent expert: The court notifies both parties that the court is 18 appointing an independent expert. (see assumption 6-b of this case) Delivery of expert report by court-appointed expert: The independent expert appointed by the court delivers his * or her expert report to the court. (see assumption 6-b of this case) Pre-trial conference on procedure: The judge meets with the parties to discuss procedural issues (for example 19 which applications and motions parties intend to file, which documents parties intend to rely on, what will be presented as evidence the oral hearing or trial, etc.) Setting of date for mediation hearing: The judge sets a date for a mediation hearing, sometimes also called a * 'pre-trial conference,' and notifies the parties of the hearing date. Mediation hearing: The judge during this informal meeting with the parties encourages them to settle the case. The 20 judge acts as mediator. If the case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judg * Setting of date(s) for oral hearing or trial: The judge sets the date(s) for the oral hearing or trial. * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court. (see assumption 6-a) Doing Business 2013 Montenegro 93 No. Procedure Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral hearing 21 or trial. (see assumption 6-a) Adjournments: Court proceedings are delayed because one or both parties request and obtain an adjournment to 22 prepare for the oral hearing or trial. Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the judge. 23 Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Adjournments: Court proceedings are delayed because one or both parties request and obtain an adjournment 24 during the oral hearing or trial, resulting in an additional or later trial or hearing date. * Request for closing of the evidence period: Plaintiff or Defendant requests the judge to close the evidence period. 25 Closing of the evidence period: The court makes the formal decision to close the evidence period. Order for submission of final arguments: The judge sets the deadline for the submission of final factual and legal 26 arguments. Final arguments: The parties present their final factual and legal arguments to the court either by oral presentation * or by a written submission. 27 Judgment date: The judge sets a date for delivery of the judgment. 28 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 29 Writing of judgment: The judge produces a written copy of the judgment. 30 Registration of judgment: The court office registers the judgment after receiving a written copy of the judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 31 judgment is available at the courthouse. 32 Plaintiff's receipt of a copy of written judgment: Plaintiff receives a copy of the written judgment. Notification of Defendant of judgment: Plaintiff or court formally notifies the Defendant of the judgment. The 33 appeal period starts to run the day the Defendant is formally notified of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in the law. 34 Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse Plaintiff for 35 the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented by a * lawyer during the enforcement of judgment phase. Plaintiff’s request for enforcement order: Plaintiff applies to the court to obtain the enforcement order ('seal' on * judgment). 36 Plaintiff’s advancement of enforcement fees: Plaintiff pays the fees related to the enforcement of the judgment. Attachment of enforcement order to judgment: The judge attaches the enforcement order (‗seal‘) to the 37 judgment. Doing Business 2013 Montenegro 94 No. Procedure Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer or a * (private) bailiff. Plaintiff’s request for physical enforcement: As Plaintiff fears that Defendant might physically resist the * attachment of its movable goods, Plaintiff addresses a request to the judge or to the police authorities to obtain police assistance during the attachment of Defendant's movable goods. Judge's order for physical enforcement: The judge orders the police to assist with the physical enforcement of the 38 attachment of Defendant's movable goods. Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court enforcement 39 officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Contestation of selection of assets identified for attachment: The party, Plaintiff or Defendant, who was not 40 involved in the designation of the assets to be attached, contests the selection of assets for attachment. Notification of intent to attach: A court enforcement officer or (private) bailiff notifies other creditors of the intent 41 to attach Defendant's goods. 42 Attachment: Defendant‘s movable goods are attached (physically or by registering, marking or separating assets). Report on execution of attachment: A court enforcement officer or private process server delivers a report on the 43 attachment of Defendant's movable goods to the judge. Valuation or appraisal of attached movable goods: The court or court appointed valuation expert evaluates the 44 attached goods. Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 45 newspapers. 46 Sale through public auction: The Defendant‘s movable property is sold at public auction. * Direct sale: Defendant's property is sold but not through a public auction. (assumption 9 is disregarded here) 47 Judge's decision on bids: The judge determines the adequacy of the bids presented at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to various creditors (including 48 Plaintiff), according to the rules of priority. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which Plaintiff 49 had advanced previously. 50 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Montenegro 95 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers‘ fees proceedings of individuals and financial Assessors‘ and auctioneers‘ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement Official costs of the insolvency proceedings (foreclosure) proceedings. The recovery rate is a are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be recovered business and the case. It assumes that the company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy‘s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2013 Montenegro 96 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses piecemeal sale. The average recovery rate is 48.3 cents characterize the top-performing economies. How on the dollar. efficient are insolvency proceedings in Montenegro? Globally, Montenegro stands at 44 in the ranking of According to data collected by Doing Business, 185 economies on the ease of resolving insolvency resolving insolvency takes 1.4 years on average and (figure 11.1). The rankings for comparator economies costs 8% of the debtor‘s estate, with the most likely and the regional average ranking provide other useful outcome being that the company will be sold as benchmarks for assessing the efficiency of insolvency proceedings in Montenegro. Figure 11.1 How Montenegro and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2013 Montenegro 97 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in Montenegro help identify where the potential for improvement is today, data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in Montenegro over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 53 44 Time (years) n.a. n.a. n.a. 2.0 2.0 2.0 2.0 2.0 2.0 1.4 Cost (% of estate) n.a. n.a. n.a. 8 8 8 8 8 8 8 Recovery rate (cents on the n.a. n.a. n.a. 41.8 42.8 43.7 43.7 43.4 43.3 48.3 dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2013 Montenegro 98 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by possible in improving the efficiency of insolvency the economies that over time have had the best proceedings. And changes in regional averages can performance regionally or globally on the time or cost show where Montenegro is keeping up—and where it of insolvency proceedings or on the recovery rate is falling behind. (figure 11.2). These benchmarks help show what is Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2013 Montenegro 99 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: Regional averages on time and cost exclude economies with a “no practice� mark. Source: Doing Business database. Doing Business 2013 Montenegro 100 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Montenegro (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Montenegro made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Montenegro passed a new bankruptcy law that introduces reorganization and liquidation proceedings, introduces time DB2012 limits for these proceedings and provides for the possibility of recovery of secured creditors‘ claims and settlement before completion of the entire bankruptcy procedure. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Montenegro 101 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of Particular data for Montenegro are presented here employment, specifically as it affects the hiring and without scoring. redundancy of workers and the rigidity of working hours. From 2007 to 2011 improvements were made to To make the data on employing workers comparable align the methodology for the employing workers across economies, several assumptions about the indicators with the letter and spirit of the International worker and the business are used. Labour Organization (ILO) conventions. Only 4 of the 188 ILO conventions cover areas measured by Doing The worker: Business: employee termination, weekend work, holiday with pay and night work. The Doing Business  Earns a salary plus benefits equal to the methodology is fully consistent with these 4 economy‘s average wage during the entire conventions. The ILO conventions covering areas period of his employment. related to the employing workers indicators do not  Has a pay period that is the most common for include the ILO core labor standards—8 conventions workers in the economy. covering the right to collective bargaining, the  Is a lawful citizen who belongs to the same elimination of forced labor, the abolition of child labor race and religion as the majority of the and equitable treatment in employment practices. economy‘s population.  Resides in the economy‘s largest business city. Between 2009 and 2011 the World Bank Group worked  Is not a member of a labor union, unless with a consultative group—including labor lawyers, membership is mandatory. employer and employee representatives, and experts from the ILO, the Organisation for Economic Co- The business: operation and Development, civil society and the private sector—to review the employing workers  Is a limited liability company. methodology and explore future areas of research.  Operates in the economy‘s largest business city. A full report with the conclusions of the consultative  Is 100% domestically owned. group is available at http://www.doingbusiness.org/  Operates in the manufacturing sector. methodology/employing-workers.  Has 60 employees.  Is subject to collective bargaining agreements Doing Business 2013 does not present rankings of in economies where such agreements cover economies on the employing workers indicators or more than half the manufacturing sector and include the topic in the aggregate ranking on the ease apply even to firms not party to them. of doing business. The report does present the data on  Abides by every law and regulation but does the employing workers indicators in an annex. Detailed not grant workers more benefits than data collected on labor regulations are available on the mandated by law, regulation or (if applicable) Doing Business website (http://www.doing business.org). collective bargaining agreement. Doing Business 2013 Montenegro 102 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by other things, the minimum wage for a 19-year-old Montenegro (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2013 Montenegro 103 EMPLOYING WORKERS Employment laws are needed to protect workers from past 4 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Montenegro adopt that contracting between employers and workers. Many affected the Doing Business indicators on employing economies that changed their labor regulations in the workers (table 12.1)? Table 12.1 What changes did Montenegro make in employing workers in 2012? Reform Montenegro lowered redundancy costs—though it also reduced the maximum duration of fixed-term contracts and increased paid annual leave. Source: Doing Business database. Doing Business 2013 Montenegro 104 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and Montenegro are based on a detailed survey of regulations as well as secondary sources are reviewed employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy‘s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Article 24 of the Labor Code states that an employer cannot conclude one or Maximum length of a single fixed-term contract (months) more fixed term contracts with the same employee if their duration, continuously or intermittently, is more than 24 months. Maximum length of fixed-term contracts, including renewals (months) 24 Minimum wage for a 19-year old worker or an apprentice (US$/month) 294.8 Ratio of minimum wage to value added per worker 0.34 Source: Doing Business database. Doing Business 2013 Montenegro 105 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data 8 hours (Art. 44 of the Labour Law, Standard workday in manufacturing (hours) 2008) 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 40% operations Premium for work on weekly rest day (% of hourly pay) in case of 0% continuous operations Major restrictions on night work in case of continuous operations? No Major restrictions on weekly holiday in case of continuous operations? No Paid annual leave for a worker with 1 year of tenure (in working days) 21.0 Paid annual leave for a worker with 5 years of tenure (in working days) 21.0 Paid annual leave for a worker with 10 years of tenure (in working days) 21.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 21.0 working days) Source: Doing Business database. Doing Business 2013 Montenegro 106 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? No Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? Yes Priority rules for redundancies? Yes Priority rules for reemployment? No Source: Doing Business database. Doing Business 2013 Montenegro 107 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 4.3 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 4.3 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 4.3 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 1.3 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 6.5 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 13.0 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 6.9 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2013 Montenegro 108 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2013 reports 2011 income per capita property. Second, they gauge the time and cost of as published in the World Bank‘s World Development achieving a regulatory goal or complying with Indicators 2012. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2011 gross contract, go through bankruptcy or trade across national income (GNI) in U.S. dollars is used as the borders. Third, they measure the extent of legal denominator. GNI data were not available from the protections of property, for example, the protections World Bank for Afghanistan; Australia; The Bahamas; of investors against looting by company directors or Bahrain; Barbados; Brunei Darussalam; Cyprus; the range of assets that can be used as collateral Djibouti; Guyana; the Islamic Republic of Iran; according to secured transactions laws. Fourth, a set of Kuwait; Malta; New Zealand; Oman; Puerto Rico indicators documents the tax burden on businesses. (territory of the United States); Sudan; Suriname; the Finally, a set of data covers different aspects of Syrian Arab Republic; Timor-Leste; West Bank and employment regulation. Gaza; and the Republic of Yemen. In these cases GDP or GNP per capita data and growth rates from The data for all sets of indicators in Doing Business the International Monetary Fund‘s World Economic 2 2013 are for June 2012. Outlook database and the Economist Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and The Doing Business data are collected in a income group classifications, available at standardized way. To start, the Doing Business team, http://data.worldbank.org/about/country- with academic advisers, designs a questionnaire. The classifications. The World Bank does not assign questionnaire uses a simple business case to ensure regional classifications to high-income economies. comparability across economies and over time —with For the purpose of the Doing Business report, high- assumptions about the legal form of the business, its income OECD economies are assigned the ―regional‖ size, its location and the nature of its operations. classification OECD high income. Figures and tables Questionnaires are administered through more than presenting regional averages include economies 9,600 local experts, including lawyers, business from all income groups (low, lower middle, upper consultants, accountants, freight forwarders, middle and high income). government officials and other professionals routinely Population administering or advising on legal and regulatory Doing Business 2013 reports midyear 2011 requirements. These experts have several rounds of population statistics as published in World interaction with the Doing Business team, involving Development Indicators 2012. conference calls, written correspondence and visits by the team. For Doing Business 2013 team members visited 24 economies to verify data and recruit The Doing Business methodology offers several respondents. The data from questionnaires are advantages. It is transparent, using factual information subjected to numerous rounds of verification, leading about what laws and regulations say and allowing to revisions or expansions of the information collected. multiple interactions with local respondents to clarify potential misinterpretations of questions. Having 2 The data for paying taxes refer to January – December 2011. Doing Business 2013 Montenegro 109 representative samples of respondents is not an issue; 2013 would differ from the recollection of Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business completed subnational comparisons and benchmarks are valid across studies for Indonesia, Kenya, Mexico, the Russian economies. Finally, the data not only highlight the Federation and the United Arab Emirates. Each of extent of specific regulatory obstacles to business but these countries had already asked to have subnational also identify their source and point to what might be data in the past, and this year Doing Business updated reformed. the indicators, measured improvements over time and Information on the methodology for each Doing expanded geographic coverage to additional cities or Business topic can be found on the Doing Business added additional indicators. Doing Business also website at http://www.doingbusiness.org/methodology/. published regional studies for the Arab world, the East African Community and member states of the Organization for the Harmonization of Business Law in Limits to what is measured Africa (OHADA). The Doing Business methodology has 5 limitations that The subnational studies point to differences in should be considered when interpreting the data. First, business regulation and its implementation —as well as the collected data refer to businesses in the economy‘s in the pace of regulatory reform—across cities in the largest business city (which in some economies differs same economy. For several economies subnational from the capital) and may not be representative of studies are now periodically updated to measure regulation in other parts of the economy. To address change over time or to expand geographic coverage this limitation, subnational Doing Business indicators to additional cities. This year that is the case for all the were created (see the section on subnational Doing subnational studies published. Business indicators). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified size — Changes in what is measured and may not be representative of the regulation on The ranking methodology for paying taxes was other businesses, for example, sole proprietorships. updated this year. The threshold for the total tax rate Third, transactions described in a standardized case introduced last year for the purpose of calculating the scenario refer to a specific set of issues and may not ranking on the ease of paying taxes was updated. All represent the full set of issues a business encounters. economies with a total tax rate below the threshold Fourth, the measures of time involve an element of (which is calculated and adjusted on a yearly basis) judgment by the expert respondents. When sources receive the same ranking on the total tax rate indicate different estimates, the time indicators indicator. The threshold is not based on any economic reported in Doing Business represent the median theory of an ―optimal tax rate‖ that minimizes values of several responses given under the distortions or maximizes efficiency in the tax system of assumptions of the standardized case. an economy overall. Instead, it is mainly empirical in Finally, the methodology assumes that a business has nature, set at the lower end of the distribution of tax full information on what is required and does not rates levied on medium-size enterprises in the waste time when completing procedures. In practice, manufacturing sector as observed through the paying completing a procedure may take longer if the taxes indicators. This reduces the bias in the indicators business lacks information or is unable to follow up toward economies that do not need to levy significant promptly. Alternatively, the business may choose to taxes on companies like the Doing Business disregard some burdensome procedures. For both standardized case study company because they raise reasons the time delays reported in Doing Business public revenue in other ways—for example, through Doing Business 2013 Montenegro 110 taxes on foreign companies, through taxes on sectors investors, paying taxes, trading across borders, other than manufacturing or from natural resources enforcing contracts, and resolving insolvency. The (all of which are outside the scope of the employing workers indicators are not included in this methodology). Giving the same ranking to all year‘s aggregate ease of doing business ranking. In economies whose total tax rate is below the threshold addition to this year‘s ranking, Doing Business presents avoids awarding economies in the scoring for having a comparable ranking for the previous year, adjusted an unusually low total tax rate, often for reasons for any changes in methodology as well as additions of 3 unrelated to government policies toward enterprises. economies or topics. For example, economies that are very small or that are Construction of the ease of doing business index rich in natural resources do not need to levy broad- based taxes. Here is one example of how the ease of doing business index is constructed. In Finland it takes 3 procedures, 14 days and 4% of annual income per capita in fees to Data challenges and revisions register a property. On these 3 indicators Finland ranks in the 6th, 16th and 39th percentiles. So on average Most laws and regulations underlying the Doing Finland ranks in the 20th percentile on the ease of Business data are available on the Doing Business registering property. It ranks in the 30th percentile on website at http://www.doingbusiness.org. All the th starting a business, 28 percentile on getting credit, sample questionnaires and the details underlying the 24th percentile on paying taxes, 13th percentile on indicators are also published on the website. Questions enforcing contracts, 5th percentile on trading across on the methodology and challenges to data can be borders and so on. Higher rankings indicate simpler submitted through the website‘s ―Ask a Question‖ regulation and stronger protection of property rights. function at http://www.doingbusiness.org. The simple average of Finland‘s percentile rankings on all topics is 21st. When all economies are ordered by Ease of doing business and distance to their average percentile rankings, Finland stands at 11 frontier in the aggregate ranking on the ease of doing business. Doing Business 2013 presents results for 2 aggregate measures: the aggregate ranking on the ease of doing More complex aggregation methods—such as business and the distance to frontier measure. The principal components and unobserved components— ease of doing business ranking compares economies yield a ranking nearly identical to the simple average 4 with one another, while the distance to frontier used by Doing Business. Thus, Doing Business uses measure benchmarks economies to the frontier in the simplest method: weighting all topics equally and, regulatory practice, measuring the absolute distance to the best performance on each indicator. Both measures can be used for comparisons over time. 3 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a When compared across years, the distance to frontier comparable time series since the year the relevant economy or topic measure shows how much the regulatory environment was first included in the data set. The time series is available on the for local entrepreneurs in each economy has changed Doing Business website (http://www.doingbusiness.org). Six topics over time in absolute terms, while the ease of doing and more than 50 economies have been added since the inception business ranking can show only relative change. of the project. Earlier rankings on the ease of doing business are therefore not comparable. Ease of doing business 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to The ease of doing business index ranks economies Do It‖ (World Bank, Washington, DC, 2005). Principal components from 1 to 185. For each economy the ranking is and unobserved components methods yield a ranking nearly calculated as the simple average of the percentile identical to that from the simple average method because both rankings on each of the 10 topics included in the index these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An in Doing Business 2013: starting a business, dealing alternative to the simple average method is to give different weights with construction permits, getting electricity, to the topics, depending on which are considered of more or less registering property, getting credit, protecting importance in the context of a specific economy. Doing Business 2013 Montenegro 111 within each topic, giving equal weight to each of the ability of different government agencies to deliver 5 topic components. tangible results in their area of responsibility. If an economy has no laws or regulations covering a Economies that improved the most across 3 or more specific area—for example, insolvency—it receives a Doing Business topics in 2011/12 ―no practice‖ mark. Similarly, an economy receives a Doing Business 2013 uses a simple method to calculate ―no practice‖ or ―not possible‖ mark if regulation exists which economies improved the most in the ease of but is never used in practice or if a competing doing business. First, it selects the economies that in regulation prohibits such practice. Either way, a ―no 2011/12 implemented regulatory reforms making it practice‖ mark puts the economy at the bottom of the easier to do business in 3 or more of the 10 topics ranking on the relevant indicator. 6 included in this year‘s ease of doing business ranking. The ease of doing business index is limited in scope. It Twenty-three economies meet this criterion: Benin, does not account for an economy‘s proximity to large Burundi, Costa Rica, the Czech Republic, Georgia, markets, the quality of its infrastructure services (other Greece, Guinea, Kazakhstan, Korea, the Lao People‘s than services related to trading across borders and Democratic Republic, Liberia, Mongolia, the getting electricity), the strength of its financial system, Netherlands, Panama, Poland, Portugal, Serbia, the the security of property from theft and looting, Slovak Republic, Slovenia, Sri Lanka, Ukraine, the macroeconomic conditions or the strength of United Arab Emirates and Uzbekistan. Second, Doing underlying institutions. Business ranks these economies on the increase in their ranking on the ease of doing business from the Variability of economies‘ rankings across topics previous year using comparable rankings. Each indicator set measures a different aspect of the Selecting the economies that implemented regulatory business regulatory environment. The rankings of an reforms in at least 3 topics and improved the most in economy can vary, sometimes significantly, across the aggregate ranking is intended to highlight indicator sets. The average correlation coefficient economies with ongoing, broad-based reform between the 10 indicator sets included in the programs. aggregate ranking is 0.37, and the coefficients between any 2 sets of indicators range from 0.19 Distance to frontier measure (between dealing with construction permits and A drawback of the ease of doing business ranking is getting credit) to 0.60 (between starting a business that it can measure the regulatory performance of and protecting investors). These correlations suggest economies only relative to the performance of others. that economies rarely score universally well or It does not provide information on how the absolute universally badly on the indicators. quality of the regulatory environment is improving Consider the example of Canada. It stands at 17 in the over time. Nor does it provide information on how aggregate ranking on the ease of doing business. Its large the gaps are between economies at a single ranking is 3 on starting a business, and 4 on both point in time. resolving insolvency and protecting investors. But its The distance to frontier measure is designed to ranking is only 62 on enforcing contracts, 69 on address both shortcomings, complementing the ease dealing with construction permits and 152 on getting of doing business ranking. This measure illustrates the electricity. distance of an economy to the ―frontier,‖ and the Variation in performance across the indicator sets is change in the measure over time shows the extent to not at all unusual. It reflects differences in the degree which the economy has closed this gap. The frontier is of priority that government authorities give to a score derived from the most efficient practice or particular areas of business regulation reform and the highest score achieved on each of the component indicators in 9 Doing Business indicator sets (excluding 5 6 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2013 Montenegro 112 the employing workers and getting electricity The maximum (max) and minimum (min) observed indicators) by any economy since 2005. In starting a values are computed for the 174 economies included business, for example, New Zealand has achieved the in the Doing Business sample since 2005 and for all highest performance on the time (1 day), Canada and years (from 2005 to 2012). The year 2005 was chosen New Zealand on the number of procedures required as the baseline for the economy sample because it was (1), Slovenia on the cost (0% of income per capita) and the first year in which data were available for the Australia and 90 other economies on the paid-in majority of economies (a total of 174) and for all 9 minimum capital requirement (0% of income per indicator sets included in the measure. To mitigate the capita). Calculating the distance to frontier for each effects of extreme outliers in the distributions of the economy involves 2 main steps. First, individual rescaled data (very few economies need 694 days to indicator scores are normalized to a common unit: complete the procedures to start a business, but many th except for the total tax rate. To do so, each of the 28 need 9 days), the maximum (max) is defined as the 95 component indicators y is rescaled to (max − y)/(max percentile of the pooled data for all economies and all − min), with the minimum value (min) representing the years for each indicator. The exceptions are the getting frontier—the highest performance on that indicator credit, protecting investors and resolving insolvency across all economies since 2005. For the total tax rate, indicators, whose construction precludes outliers. consistent with the calculation of the rankings, the Take Ghana, which has a score of 67 on the distance to frontier is defined as the total tax rate corresponding th frontier measure for 2012. This score indicates that the to the 15 percentile based on the overall distribution economy is 33 percentage points away from the of total tax rates for all years. Second, for each frontier constructed from the best performances economy the scores obtained for individual indicators across all economies and all years. Ghana was further are aggregated through simple averaging into one from the frontier in 2005, with a score of 54. The distance to frontier score. An economy‘s distance to difference between the scores shows an improvement frontier is indicated on a scale from 0 to 100, where 0 over time. represents the lowest performance and 100 the frontier. The distance to frontier measure can also be used for comparisons across economies in the same year, The difference between an economy‘s distance to complementing the ease of doing business ranking. frontier score in 2005 and its score in 2012 illustrates For example, Ghana stands at 64 this year in the ease the extent to which the economy has closed the gap to of doing business ranking, while Peru, which is 29 the frontier over time. And in any given year the score percentage points from the frontier, stands at 43. measures how far an economy is from the highest performance at that time. Doing Business 2013 Montenegro 113 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2013 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 185 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 185 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 9,600 specialists in 185 economies who profiles participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers NEW! Entrepreneurship data underlying Doing Business Data on business density for 130 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and More to come related policy issues Coming soon—information on good practices and http://www.doingbusiness.org/research/ data on transparency and on the distance to frontier Doing Business 2013 Montenegro 114