65313 Economy Profile: Honduras © 2012 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 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. 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ISBN: 978-0-8213-8833-4 E-ISBN: 978-0-8213-8834-1 DOI: 10.1596/978-0-8213-8833-4 ISSN: 1729-2638 Printed in the United States Doing Business 2012 Honduras 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 ................................................................................................................................ 68 Trading across borders .............................................................................................................. 76 Enforcing contracts .................................................................................................................... 85 Resolving insolvency .................................................................................................................. 92 Data notes ................................................................................................................................... 98 Resources on the Doing Business website ............................................................................ 103 Doing Business 2012 Honduras 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2010). 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 10 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 and transparency of government procurement, resolving insolvency. 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 183 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, 32 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, 18 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 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for Honduras. To allow useful comparison, it recommends regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2012, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2011 (except for http://www.doingbusiness.org. Doing Business 2012 Honduras 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: Latin America & Caribbean business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 7,615,584 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 1,880.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 128 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 130 investors, paying taxes, trading across borders, Change in rank: 2 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 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. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 Honduras 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 2012 Honduras 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy’s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How Honduras and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 Honduras 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Honduras ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 Honduras 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the ―frontier,‖ a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy’s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy’s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy’s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has Honduras come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 Honduras 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 Honduras Best performer globally El Salvador DB2012 Guatemala DB2012 Costa Rica DB2012 Honduras DB2012 Honduras DB2011 Colombia DB2012 Panama DB2012 Mexico DB2012 Indicator DB2012 Starting a Business 150 146 65 122 136 165 75 29 New Zealand (1) (rank) Procedures (number) 13 13 9 12 8 12 6 6 Canada (1)* Time (days) 14 14 14 60 17 37 9 8 New Zealand (1) Cost (% of income per 46.7 47.2 8.0 11.1 45.1 52.5 11.2 9.9 Denmark (0.0)* capita) Paid-in Min. Capital (% 17.0 17.5 0.0 0.0 3.0 22.3 8.4 0.0 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 70 66 29 141 144 151 43 71 China (1) (rank) Procedures (number) 14 14 8 20 33 19 10 17 Denmark (5) Time (days) 94 94 46 188 157 165 81 113 Singapore (26)* Cost (% of income per 309.8 317.8 338.9 164.5 168.3 541.7 333.1 95.5 Qatar (1.1) capita) Doing Business 2012 Honduras 11 Best performer globally El Salvador DB2012 Guatemala DB2012 Costa Rica DB2012 Honduras DB2012 Honduras DB2011 Colombia DB2012 Panama DB2012 Mexico DB2012 Indicator DB2012 Getting Electricity (rank) 114 113 134 43 130 30 142 15 Iceland (1) Procedures (number) 8 8 5 5 7 4 7 5 Germany (3)* Time (days) 33 33 165 62 78 39 114 35 Germany (17) Cost (% of income per 1082.2 1110.2 1081.3 299.5 533.3 624.9 395.5 15.4 Japan (0.0) capita) Registering Property 94 92 51 46 54 23 140 120 New Zealand (3) (rank) Procedures (number) 7 7 7 5 5 4 7 8 Portugal (1)* Time (days) 23 23 15 20 31 23 74 32 Portugal (1) Cost (% of property 5.7 5.5 2.0 3.4 3.7 0.9 5.3 5.3 Slovak Republic (0.0) value) Getting Credit (rank) 8 37 67 98 48 8 40 48 United Kingdom (1)* Strength of legal rights 8 6 5 3 5 8 6 5 New Zealand (10)* index (0-10) Depth of credit 6 6 5 5 6 6 6 6 Japan (6)* information index (0-6) Public registry coverage 16.3 22.7 0.0 25.5 23.9 17.3 0.0 0.0 Portugal (86.2) (% of adults) Private bureau coverage 31.2 100.0 71.2 78.9 81.1 8.9 98.1 53.8 New Zealand (100.0)* (% of adults) Protecting Investors 166 166 5 166 166 133 46 111 New Zealand (1) (rank) Extent of disclosure 0 0 8 2 3 3 8 1 France (10)* index (0-10) Doing Business 2012 Honduras 12 Best performer globally El Salvador DB2012 Guatemala DB2012 Costa Rica DB2012 Honduras DB2012 Honduras DB2011 Colombia DB2012 Panama DB2012 Mexico DB2012 Indicator DB2012 Extent of director 5 5 8 5 0 3 5 4 Singapore (9)* liability index (0-10) Ease of shareholder suits 4 4 9 2 6 6 5 9 New Zealand (10)* index (0-10) Strength of investor 3.0 3.0 8.3 3.0 3.0 4.0 6.0 4.7 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 140 136 95 138 146 124 109 169 Canada (8) Payments (number per 47 47 9 31 53 24 6 53 Norway (4) year) Time (hours per year) 224 224 193 246 320 344 347 482 Luxembourg (59) Trading Across Borders 103 92 87 73 69 119 59 11 Singapore (1) (rank) Documents to export 6 6 5 6 8 10 5 3 France (2) (number) Hong Kong SAR, Time to export (days) 18 19 14 13 14 17 12 9 China (5)* Cost to export (US$ per 1242 1193 2270 1190 845 1127 1450 615 Malaysia (450) container) Documents to import 8 8 6 7 8 9 4 4 France (2) (number) Time to import (days) 22 22 13 15 10 17 12 9 Singapore (4) Cost to import (US$ per 1420 1205 2830 1190 845 1302 1780 965 Malaysia (435) container) Enforcing Contracts 177 175 149 129 66 97 81 119 Luxembourg (1) (rank) Doing Business 2012 Honduras 13 Best performer globally El Salvador DB2012 Guatemala DB2012 Costa Rica DB2012 Honduras DB2012 Honduras DB2011 Colombia DB2012 Panama DB2012 Mexico DB2012 Indicator DB2012 Time (days) 920 900 1346 852 786 1459 415 686 Singapore (150) Cost (% of claim) 35.2 35.2 47.9 24.3 19.2 26.5 32.0 50.0 Bhutan (0.1) Procedures (number) 47 45 34 40 34 31 38 31 Ireland (21)* Resolving Insolvency 131 126 12 121 88 101 24 83 Japan (1) (rank) Time (years) 3.8 3.8 1.3 3.5 4.0 3.0 1.8 2.5 Ireland (0.4) Cost (% of estate) 15 15 1 15 9 15 18 18 Singapore (1)* Recovery rate (cents on 19.2 19.9 82.8 22.2 31.5 27.9 67.1 33.3 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practice� marks, see the data notes for details. * 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 2012 Honduras 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 that are officially required or commonly received done in 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 all government and nongovernment entities involved in the process  Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business:  Does not qualify for any special benefits.  Is a limited liability company, located in the  Does not own real estate. largest business city.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2012 Honduras 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Honduras? costs 46.7% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 17.0% of income per capita (figure a business there requires 13 procedures, takes 14 days, 2.1). Figure 2.1 What it takes to start a business in Honduras Paid-in minimum capital (% of income per capita): 17.0 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Honduras 16 STARTING A BUSINESS Globally, Honduras stands at 150 in the ranking of 183 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Honduras to start a business. Figure 2.2 How Honduras and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 Honduras 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 Honduras 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 Honduras over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 146 150 Procedures (number) 13 13 13 13 13 13 13 13 13 Time (days) 62 62 62 44 21 20 14 14 14 Cost (% of income per 77.0 72.9 65.6 60.6 59.9 52.6 47.3 47.2 46.7 capita) Paid-in Min. Capital (% 39.9 37.0 34.1 28.6 27.4 20.0 17.3 17.5 17.0 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Honduras 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by Honduras on ways to improve the ease of starting a the economies that today have the best performance business. And changes in regional averages can show regionally or globally on the procedures, time, cost or where Honduras is keeping up—and where it is falling paid-in minimum capital required to start a business behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 Honduras 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 21 economies in Latin America & Caribbean have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 Honduras 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 Honduras (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 Honduras made starting a business easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. Business start-up was eased by creating a one-stop shop to make registration more efficient, improving the process of DB2010 registering for taxes, and eliminating the need for lawyer services to obtain a municipal license. DB2009 No reform. 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 2012 Honduras 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Honduras is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Tegucigalpa firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Company professionals and the study of laws, regulations and Start-up capital: 10 times GNI per capita publicly available information on business entry in that economy. Following is a detailed summary of Paid-in minimum capital (% of income per those procedures, along with the associated time capita): 17.0 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 Honduras—and the time and cost Time to No. Procedure Cost to complete complete Procure a certificate of deposit at a local bank; pay the registry fee 1 1 day no charge Constitute the company before a notary public, who is to draw up the instrument of organization A company may be formed by public subscription or simultaneous notary fees of 5% foundation. The procedures described here are for simultaneous until HNL 25,000 and 2 foundation (fundación simultánea). 2 days 3% over HNL 25,000 of the capital. The constitution instrument should be written on stamped paper (papel sellado), which costs HNL 10. The notary uses this paper for the protocol (the original signed document in the notary’s custody) and for the first copy (testimonio) of the instrument of organization. Publish the registration notice in “La Gaceta�, the official journal or USD 35 for one an ordinary newspaper advertisement in ―La 3 1 day Gaceta‖; USD 15 in a newspaper Purchase the bar stamps from the Banco Atlántida S.A and Banco de Occidente. included in procedure 4 1 day Official bar stamps (timbres del Colegio de Abogados), which vary in 5 design and value, can be purchased only from Banco Atlántida S.A. and Banco de Occidente. File the articles of incorporation with the Mercantile Registry at the 2 days HNL 1.5 for each HNL 5 Chamber of Commerce 1,000 of corporation Doing Business 2012 Honduras 22 Time to No. Procedure Cost to complete complete capital (Derechos de According to Decree 253-2005, company registration in Tegucigalpa registro/registration was transferred from the Property Registry (Instituto de Propiedad) to fees) + HNL 30 up to the Chamber of Commerce. HNL 300,000 of the capital and HNL 10 for each HNL 100,000 after HNL 300,000 (Bar stamps/Timbres del Colegio de Abogados). * Apply for the tax identification code (Registro Tributario Nacional, RTN) at the Dirección Ejecutiva de Ingresos (DEI), Ministry of Finance 1 day (simultaneous 6 with previous no charge All natural or juridical persons must apply for the tax identification code procedure) (Registro Tributario Nacional, RTN). To obtain it, the notary public who authorizes an incorporation deed must notify the administrative authority of the incorporation. Acquire legal accounting and minutes books 7 1 day USD 180 The minute books can now be authorized as separate bound sheets and not necessarily as books. Register with local and national chambers of commerce 8 1 day nominal Apply for an operational permit (Permiso de Operación) from the municipal authorities To obtain the operational permit, some or all of the following documents must be filed, depending on the type of industrial or commercial activity: - Personal identity card and municipality tax solvency of the general manager (copies). - Tax identification code (RTN) (copy). - Cadastral code (clave cadastral) corresponding to the corporation’s place of business. - Constitution instrument (escritura de constitución de la compañía) 1 day HNL 1,250 9 (copy). - Zoning constancy. - Tenancy agreement and constancy of income tax solvency corresponding to the owner of the premises in which the company will do business. - Environmental impact statement. - Cadastral inspection of the premises in which the corporation will do business. In addition, the company must pay the following taxes, which vary based on the company’s income: nomenclature tax, zoning tax, inspection tax, code tax, environmental tax, and taxes for fire fighting Doing Business 2012 Honduras 23 Time to No. Procedure Cost to complete complete and waste management services (paid annually to the municipality). The applicable municipal taxes for obtaining the permit have changed in Tegucigalpa under the 2003 city tax regulation. Taxes now total HNL 1,250 for the various taxes. A company can proceed to the following procedures with an official receipt issued upon submission of the operational permit application. * Register for Sales tax and acquire the authorization of the company books 2 days, simultaneous 10 According to the Tributary Code (Código Tributario), the company is nominal with procedure 9 obliged to record the constitution instrument and the operation permit before the Minister of Finance, in order to pay sales tax on the sale of goods or services. * Register at Social Security Institute (Instituto Hondureño de Seguridad Social, IHSS) Social Security Institute (Instituto Hondureño de Seguridad Social, IHSS) 3 days, simultaneous 11 is the national social security hospital and outpatient care institution for no charge with procedure 9 workers and their dependants. The company is obliged to contribute 5% of each employee’s salary for illness and maternity (enfermedad y maternidad, EM), plus 2% for disability, old age, and death (invalidez, vejez y muerte, IVM)—a total of 7% up to a maximum of HNL 4,800. * Register at the Hand Labor Training Institute (Instituto Nacional de Formación Profesional, INFOP) 1 day, simultaneous 12 no charge Employers are obliged to contribute 1% of the company’s total payroll with procedure 9 to the Hand Labor Training Institute (Instituto Nacional de Formación Profesional, INFOP) * Register at Social Fund for Housing (Régimen de Aportación, (RAP) al Fondo Social de la Vivienda (FOSOVI)) 1 day, simultaneous 13 If the company has more than 10 employees, it is obliged to contribute no charge with procedure 9 1.5% of each employee’s salary to the Social Fund for Housing (Régimen de Aportación, RAP, and Fondo Social de la Vivienda, FOSOVI). * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Honduras 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 2012 Honduras 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 14 procedures, takes 94 days build a warehouse in Honduras? According to data and costs 309.8% 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 Honduras Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Honduras 26 DEALING WITH CONSTRUCTION PERMITS Globally, Honduras stands at 70 in the ranking of 183 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Honduras to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Honduras and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 Honduras 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to deal with construction permits (table 3.1). That can help identify where the potential in Honduras today, data over time show which aspects for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Honduras over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 66 70 Procedures (number) 14 14 14 14 14 14 14 Time (days) 166 166 107 107 94 94 94 Cost (% of income per 494.4 414.4 396.7 291.0 315.0 317.8 309.8 capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Honduras 28 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by on ways to improve the ease of dealing with the economies that today have the best performance construction permits. And changes in regional regionally or globally on the procedures, time or cost averages can show where Honduras is keeping up— required to deal with construction permits (figure 3.3). and where it is falling behind. These economies may provide a model for Honduras Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 Honduras 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Honduras 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 Honduras (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Honduras made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. The construction permit process was eased through various DB2010 administrative reforms that shortened the process by 19 days. DB2009 No reform. 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 2012 Honduras 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Honduras 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 : Tegucigalpa information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers HNL 6,248,623 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 Honduras —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain design guidelines and approval of drawings and designs from Urban Planning Office Every company planning to construct a new building must request 1 day HNL 900 1 design guidelines from the Urban Planning Office in the vicinity of the future construction site. As of January 2009, the procedure of obtaining the design guidelines and approval of drawings now takes on average 1 hour and costs HNL 900. * Request and obtain environmental approval from Office of Municipal Environmental Development and Management (GMDAM) BuildCo's case would be considered by the Office of Municipal Environmental Development and Management . Under a major government initiative, the National Competitiveness Program (Programa Nacional de Competitividad) the municipality (GMDAM) entered into an agreement with SERNA in 2007. Under the agreement, both entities have computerized all the offices responsible for processing the relevant documents and have also trained most of the 45 days HNL 31,243 2 staff. This has increased the number of licenses issued from 30 per month in 2006 to 140 in 2007. However, more efficient service has also boosted the demand from the private sector. The government is considering ways to increase resources to meet the increased demand. As of 4 September, 2008, Article 78 of the Law on Environment an inter-ministerial agreement (No. 635-2003) was approved, as well as other implementing regulations, on criterias for different categories of environmental approvals depending on project risks. Commercial warehouses that fit into Category 1 (Art. 5) are only subject to environmental control, not full scale study, at the local level by Office of Doing Business 2012 Honduras 32 Time to No. Procedure Cost to complete complete Municipal Environmental Development and Management ('UGA' or 'UMA'). The time required for such approval has reduced from 45 days to 1 week. It is planned that this requirement which is a precondition for obtaining building permit now will be moved as precondition for operation of the building, and to be complied after the building is completed and all permits are obtained. The fee for environmental approval, previously calculated as a function of 0,5% of overall project value, is now a fixed rate of HNL 350 ( HNL150 for environmental approval and HNL 200 for inspection). * Request and obtain document attesting that the company has no unpaid fines 3 1 day no charge Certification that BuildCo has no outstanding debts is required for projects financed by loans. BuildCo requests certification from the Registrar of Property.. * Request and obtain approval for delivery of utility services - electric power from ENEE BuildCo applies for an electricity connection at the National Electrical Power Company (Empresa Nacional de Energía Eléctrica, ENEE) 15 days HNL 4,500 4 indicating the capacity required for the warehouse. All other required documents confirming the ownership of the land must be presented. In addition, BuildCo must present a separate study: electric design or prime line extension. A certificate of no debts owed must also be presented. * Request and obtain approval for delivery of utility services - water and sewage from SANAA 5 15 days HNL 750 The committee responsible for approving conditions of water and sewerage connections meets once a week. * Request and obtain rainwater drainage feasibility analysis 6 7 days no charge The cost is included in the fee paid to the water company (SANAA) as part of Procedure 7. * Request and obtain approval of fixed line from HONDUTEL 7 7 days HNL 150 There are several telephone companies in Honduras, and the competition between them has resulted in faster services. * Request and obtain approval (constancia) from Public Works Secretary (SOPTRAVI) 8 7 days HNL 500 Approval from the Public Works Secretary (SOPTRAVI) is required for location clearance. A fee of HNL 300 is charged for approval and a fee of HNL 200 for inspection. Request and obtain location clearances (Uso de suelo y factibilidad vial) from the Municipal Authority 9 The following documents must be presented to obtain a certificate of 2 days HNL 150 occupancy (Uso de Suelo y Factibilidad Vial) from the municipality: - Application. - Proof of property registration. Doing Business 2012 Honduras 33 Time to No. Procedure Cost to complete complete - Designs and drawings. - Approvals from the SANAA and the ENEE, and others. - Environmental license. The new city zoning plan that was introduced in early 2008 is currently being operationalized. One of the main features of the plan is the change of zoning from residential to commercial and its further digitization based on maps from Cadastre and Management Engineering (Engenieria Gerencial). Further the land use regulations were amended in April 2008, introducing categories based on risk factors. This led to improvement of the process of obtaining the location clearance and time reduction from 15 days to 2 days. The application is checked in back office whether the new land use is compatible with land use regulations. Request and obtain Building Permit The permit application documents are reviewed by the Legal Department, the Technical Department, the Professional College, the Environmental Section, and the Chief of Construction Permits. After having submitted the permit application and all other required documents, the applicant pays the application fee at TASA Municipal. The cost of a building permit is calculated using official formula. For 10 projects valued at more than HNL 3 million (in the case considered 10 days HNL 39,018 here, HNL 6,428,622.55), the cost would be HNL 20,897.00 + 0.005% for each million (HNL 150 = HNL 3,000,000). As of May 27, 2007, the municipality stopped issuing building permits for multistory buildings with commercial/industrial uses, unless the land and all proper zoning were secured prior to this date. This moratorium is to remain in effect for 6 months. Before starting construction, the company must notify the authority. * Receive connection to water and sewage from SANAA 11 15 days HNL 30,888 * Request telephone connection from HONDUTEL 12 1 day HNL 1,192 * Receive inspection and connection to fixed telephone line from HONDUTEL 5 days no charge 13 Register building in real estate registry Reforms and optimization of electronic processing have significantly decreased the time to register property. However, in 2009 due to 14 administrative backlog and delays with registration process the 30 days HNL 4,478 procedure for registration of building is now taking on average 30 days, compared to previous 16 days. Additionally, the website of Institute of Property (Instituto de Propiedad) has been shutdown. Doing Business 2012 Honduras 34 Time to No. Procedure Cost to complete complete * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Honduras 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 2012 Honduras 36 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 33 days and costs 1082.2% of connection in Honduras? According to data collected income per capita (figure 4.1). by Doing Business, getting electricity there requires 8 Figure 4.1 What it takes to obtain an electricity connection in Honduras Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Honduras 37 GETTING ELECTRICITY Globally, Honduras stands at 114 in the ranking of 183 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Honduras to connect a warehouse to electricity. Figure 4.2 How Honduras and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 Honduras 38 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for Honduras on ways to improve the ease of 4.1). If obtaining a new electricity connection requires getting electricity. Regional and global averages on fewer procedures, less time or less cost in other these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in Honduras and comparator economies Latin America & Global average El Salvador Guatemala Costa Rica Caribbean Honduras Colombia Panama average Mexico Indicator Rank 114 134 43 130 30 142 15 72 .. Procedures (number) 8 5 5 7 4 7 5 5 5 Time (days) 33 165 62 78 39 114 35 65 111 Cost (% of income per capita) 1082.2 1081.3 299.5 533.3 624.9 395.5 15.4 593.7 1,942.3 Source: Doing Business database. Doing Business 2012 Honduras 39 GETTING ELECTRICITY What are the details? The indicators reported here for Honduras are based OBTAINING AN ELECTRICITY CONNECTION on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Tegucigalpa utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Empresa Nacional de verified by electricity regulatory agencies and Energia Electrica (ENEE) 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 Honduras—and the time and cost Time to No. Procedure Cost to complete complete The customer hires an electrical engineer certified by the College for Mechanical, Electrical and Chemical Engineers of Honduras (CIMEQH) to design the external connection according to the standards set by the College An electrical engineer employed by CIMEQH estimates the power needed for the project and designs the external connection. For loads greater than 1,000 kVA, the engineer should go first to Empresa Nacional de Energia Electrica (ENEE) to request a feasibility study. In a case where the load is 140kVA, this procedure is not necessary. The design and the process of obtaining ENEE's review can only be made by an electrical engineer authorized by the CIMEQH. The implementation 1 of the design can be done by an electrician. The electrical engineer must 7 calendar days HNL 5,750.0 obtain a certificate by the College for each design that he files with ENEE. The certificate states that the engineer is a member of the College and has paid his contributions. It is recommended that the internal wiring installation be also done by a CIMEQH's electrical engineer. Although the internal installation plans are reviewed by the Municipality and the Firefighters, in the context of the process to obtain a building permit, the final internal installation is not reviewed. One way to ensure the quality of the internal installation is to hire an engineer authorized by CIMEQH for the installation. In the case of a fire due to a malfunctioning installation, it is easier to obtain legal satisfaction if it was performed by a member of CIMEQH. 2 * The electrical engineer authorized by the College for Mechanical, 1 calendar day HNL 360.0 Doing Business 2012 Honduras 40 Time to No. Procedure Cost to complete complete Electrical and Chemical Engineers of Honduras (CIMEQH) obtains a certificate of approval ("solvency") from the college The electrical engineer must obtain a certificate by the College for each design that he presents to the Empresa Nacional de Energia Electrica (ENEE). The certificate states that the engineer is a member of the College and has paid his contributions. The electrical engineer authorized by the College for Mechanical, Electrical and Chemical Engineers of Honduras (CIMEQH) sends the design and the certificate to Empresa Nacional de Energia Electrica (ENEE) for its approval 3 11 calendar days HNL 150.0 After having prepared the design, the engineer has to file the certificate with the Empresa Nacional de Energia Electrica (ENEE). ENEE reviews the certificate issued by the College to determine whether it meets ENEE's standards. ENEE also inspects the site. Finally, ENEE approves the design. * Empresa Nacional de Energia Electrica (ENEE) inspects the terrain to inform the approval of the design 1 calendar day no charge 4 To prepare the design a site visit is conducted. The electrical engineer authorized by College for Mechanical, Electrical and Chemical Engineers of Honduras (CIMEQH) performs the external connection according to the design approved by ENEE 5 7 calendar days HNL 359,625.0 Three transformers 50kVA or one transformer of 150kVA must be installed. The electrical engineer responsible for the design delivers the project to Empresa Nacional de Energia Electrica (ENEE) and seeks acceptance of the work 6 1 calendar day HNL 15,861.8 Empresa Nacional de Energia Electrica conducts an inspection of the external connection to ensure that the implementation is according to the approved design. If the reviewer disagrees with the implementation, the responsible electrician has to make the corrections. The client sends its application in person with Empresa Nacional de Energia Electrica (ENEE), pays the security deposit and requests the execution of the last step (the installation of the meter) The following documents are required with the application (no 7 notarization of the documents is needed): 1 calendar day no charge • A copy of the company's by-laws; • photocopy of the ID of the person authorized by the by-laws; • Sketch / map of where is the warehouse (address). It is necessary to pay a deposit of guarantee or consumption (Article 32 of the Act that rules the electrical sector): Lps.845.96 per KVA. It may be in cash or bank guarantee. Reason: to ensure the payment of Doing Business 2012 Honduras 41 Time to No. Procedure Cost to complete complete consumption ENEE charges after providing the service). The deposit is made via a certified check payable to ENEE and / or bank guarantee in the name of ENEE and it is paid in ENEE's commercial division. The division issues a memorandum to the customer care unit for them to fill in the client's appropriate data to install the meter. At this time if the person authorized to submit the application has to submit the following additional information • To whose name the bills will be sent • The firm's company registration number • Copy of the property title or the lease agreement certified by the municipality. • Copy of the ID of the person that will sign the documents. • Document specifying that the person who will sign the documents is duly authorized by the board of directors. • The security deposit Empresa Nacional de Energia Electrica (ENEE) conducts a last inspection and installs the meter 8 7 calendar days HNL 15,700.0 Once the application goes to the "Department of High Consumption", the Department sends an engineer to the site to install the transformer and the meter. Once the meter is installed, the energy flows. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Honduras 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 2012 Honduras 43 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 23 days and costs 5.7% of the Honduras? 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 Honduras Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Honduras 44 REGISTERING PROPERTY Globally, Honduras stands at 94 in the ranking of 183 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Honduras to transfer property. Figure 5.2 How Honduras and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 Honduras 45 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in Honduras That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in Honduras over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 92 94 Procedures (number) 7 7 7 7 7 7 7 7 Time (days) 36 36 36 23 23 23 23 23 Cost (% of property value) 8.7 6.8 5.8 5.6 5.6 5.5 5.5 5.7 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Honduras 46 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by on ways to improve the ease of registering property. the economies that today have the best performance And changes in regional averages can show where regionally or globally on the procedures, time or cost Honduras is keeping up—and where it is falling required to complete a property transfer (figure 5.3). behind. These economies may provide a model for Honduras Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 Honduras 47 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Honduras 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 Honduras (table 5.2)? Table 5.2 How has Honduras made registering property easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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 2012 Honduras 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: Tegucigalpa through information collected from local property Property Value: 1,836,314.6 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 Honduras—and the time and cost Time to No. Procedure Cost to complete complete HNL 550 (HNL 300 for full certificate Verification of property background ―certificación It is necessary to have the previous registration numbers to see who are integra‖ + HNL 250 the owners and if there have been any mortgages or the property has for non- 1 1 day been sold. The buyer can verify the property background at the on-line encumbrance Unified Registry System (SURE): www.ip.hn. certificate However, in pratice there are many problems with the SURE, so users ―certificado de tend to go to the registry. libertad de gravamen‖) Verification that the municipal taxes have been paid 2 2 days No cost The municipal tax number of the property is needed to check who is the registered owner of the land in the cadastre. The notary issues the deed (preliminary) After getting the legal documentation from the parties, the notary issues the preliminary deed (―escritura matriz‖). Notary’s fees are usually 3-5% of transaction 3 calculated based on the market value of the property according to 2 days price (Notary’s fees) regulations setting minimum tariffs. For properties with a value below HNL 25,000, the rate cannot be below HNL 1000 while for properties with a higher value, the fee cannot be below 3% of the property value. Fees are negotiated between the notary and parties. Payment at the bank of taxes and fees The transfer tax (1.5% of value of property, for urban property with 1.5% of property 4 improvements) must be paid at a bank. The taxes are calculated based 1 day price (Transfer Tax) on either the official value of the property (determined by the Cadastre for tax purposes) or the insured value, whichever is higher. With the introduction of the Property Law in 2004, the transfer tax was Doing Business 2012 Honduras 50 Time to No. Procedure Cost to complete complete cut from 3 to 1.5%, the registration rights and the stamps have been eliminated. Notary issues the final copy of the deed (“Testimonio�) 5 After receiving the receipts of the payment of the taxes and fees in the 1 day no additional cost previous step, the notary issues the final copy of the deed ("testimonio"), which should be presented later at the Property Office. Registration at the Property registry HNL 200 for the first HNL 1,000 of the 6 The new deed must be registered in the Property Office by the notary. 14 days property value, and However, the notary might waive this right and leave to the responsibility HNL 1.50 for each to the applicants. additional HNL 1,000 Register the change of ownership in the Cadastre office The change of ownership must be registered in the Cadastre office 2 days HNL 250 7 ("Dirección General de Catastro y Geografía") by the notary or the buyer. The deed duly registered in Procedure 6 must be presented at the cadastre. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Honduras 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 the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine  Has 100 employees. the scope of the secured transactions system,  Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index  Is a private, limited liability company. (weighted at 62.5%).  Has its headquarters and only base of operations in the largest business city. Doing Business 2012 Honduras 52 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Honduras stands at 8 in the ranking of 183 collateral and bankruptcy laws in Honduras facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 6 on the The rankings for comparator economies and the depth of credit information index and a score of 8 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 Honduras support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How Honduras and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 Honduras 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 Honduras 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 Honduras over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 37 8 Strength of legal rights 6 6 6 6 6 6 6 8 index (0-10) Depth of credit 3 4 5 6 6 6 6 6 information index (0-6) Public registry coverage 6.1 11.2 8.3 12.7 11.3 21.7 22.7 16.3 (% of adults) Private bureau 0.0 18.7 18.7 58.0 60.5 58.7 100.0 31.2 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Honduras 54 GETTING CREDIT One way to put an economy’s getting credit indicators index for Honduras in 2011 and shows the number of into context is to see where the economy stands in the other economies having the same score in 2011. distribution of scores across other economies. Figure Figure 6.3 shows the same thing for the depth of credit 6.2 highlights the score on the strength of legal rights information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 Honduras 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 Honduras (table 6.2)? Table 6.2 How has Honduras made getting credit easier—or not? By Doing Business report year DB Year Reform Honduras strengthened its secured transactions system through a new decree establishing a centralized and DB2012 computerized collateral registry and providing for out-of- court enforcement of collateral upon default. DB2011 No reform. A resolution was passed that enhances the operations of the DB2010 public credit bureau; it classifies debtors into several groups and is designed to help banks manage risk. DB2009 No reform. 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 2012 Honduras 56 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders Honduras are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a public well as public sources of information on collateral and credit registry or private credit bureau (if one exists). bankruptcy laws. For the strength of legal rights index, To construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Honduras Latin America & Indicator Honduras OECD high income Caribbean Strength of legal rights index (0-10) 8 6 7 Depth of credit information index (0-6) 6 3 5 Public registry coverage (% of adults) 16.3 10.1 9.5 Private bureau coverage (% of adults) 31.2 34.2 63.9 Strength of legal rights index (0–10) Index score: 8 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 of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of 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? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No debtor defaults outside an insolvency procedure? Doing Business 2012 Honduras 57 Strength of legal rights index (0–10) Index score: 8 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its 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: 6 bureau registry Are data on both firms and individuals distributed? Yes Yes 1 Are both positive and negative data distributed? Yes Yes 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as Yes No 1 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes Yes 1 distributed? Is it guaranteed by law that borrowers can inspect Yes Yes 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 38,484 34,052 Number of individuals 1,361,687 697,075 Source: Doing Business database. Doing Business 2012 Honduras 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 2012 Honduras 59 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Honduras? The index (figure 7.1). While the indicator does not economy has a score of 3.0 on the strength of investor measure all aspects related to the protection of protection index, with a higher score indicating minority investors, a higher ranking does indicate that stronger protections (see the summary of scoring at an economy’s regulations offer stronger investor the end of this chapter for details). protections against self-dealing in the areas measured. Globally, Honduras stands at 166 in the ranking of 183 economies on the strength of investor protection Figure 7.1 How Honduras and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 Honduras 60 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how ranking on the strength of investor protection index well regulations in Honduras protect minority investors over time shows whether the economy is slipping today, data over time show whether the protections behind other economies in investor protections—or have been strengthened (table 7.1). And the global surpassing them. Table 7.1 The strength of investor protections in Honduras over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 166 166 Extent of disclosure 0 0 0 0 0 0 0 index (0-10) Extent of director 5 5 5 5 5 5 5 liability index (0-10) Ease of shareholder 4 4 4 4 4 4 4 suits index (0-10) Strength of investor 3.0 3.0 3.0 3.0 3.0 3.0 3.0 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Honduras 61 PROTECTING INVESTORS But the overall ranking on the strength of investor and ease of shareholder suits indices may also be protection index tells only part of the story. Economies revealing (figure 7.2). Equally interesting may be the may offer strong protections in some areas but not changes over time in the regional average scores for others. So the scores recorded over time for Honduras those indices. on the extent of disclosure, extent of director liability Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 Honduras 62 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Honduras 63 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 Honduras (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Honduras strengthened investor protections—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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 2012 Honduras 64 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for shareholder suits indices, a score is assigned for each Honduras are based on detailed information collected of a range of conditions relating to disclosure, director through a survey of corporate and securities lawyers liability and shareholder suits in a standard case study and are based on securities regulations, company laws transaction (see the notes at the end of this chapter). and court rules of evidence. To construct the extent of The summary below shows the details underlying the disclosure, extent of director liability and ease of scores for Honduras. Summary of scoring for the protecting investors indicators in Honduras Latin America & Indicator Honduras OECD high income Caribbean Extent of disclosure index (0-10) 0 4 6 Extent of director liability index (0-10) 5 5 5 Ease of shareholder suits index (0-10) 4 6 7 Strength of investor protection index (0-10) 3.0 5.1 6.0 Score Extent of disclosure index (0-10) 0 What corporate body provides legally sufficient approval for the transaction? 0 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 0 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 0 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 0 required? Whether an external body must review the terms of the transaction before it takes place? 0 Extent of director liability index (0-10) 5 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 0 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 1 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 0 Doing Business 2012 Honduras 65 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 1 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 1 Ease of shareholder suits index (0-10) 4 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 0 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 0 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 3 trial? Whether the plaintiff can request categories of documents from the defendant without 0 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 1 Whether the level of proof required for civil suits is lower than that of criminal cases? 0 Strength of investor protection index (0-10) 3.0 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide legally sufficient approval for the transaction 0 = CEO or managing director alone; 1 = shareholders or board of directors vote and Mr. James can vote; 2 = board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Doing Business 2012 Honduras 66 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company’s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is liable only if he acted fraudulently or in bad faith; 1 = Mr. James is liable if he influenced the approval or was negligent; 2 = Mr. James is liable if the transaction is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes to the company 0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1 = liable for negligence in the approval of the transaction; 2 = liable if the transaction is unfair or prejudicial to the other shareholders. Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 = rescission is unavailable or available only in case of Seller’s fraud or bad faith; 1 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff’s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 Honduras 67 Whether the plaintiff can directly examine the defendant and witnesses during trial 0 = no; 1 = yes, with prior approval by the court of the questions posed; 2 = yes, without prior approval. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 Honduras 68 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 complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) 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 the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) 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 payments as well as time taken to comply with tax Arranging payment or withholding 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 2 being applied to the total tax rate. To make the Profit or corporate income tax 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, 2009. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded.  Taxes and mandatory contributions include  Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company.  A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 Honduras 69 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Honduras stands at 140 in the ranking of 183 taxes in Honduras—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 47 tax payments a year, rankings for comparator economies and the regional spend 224 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 24.7% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Honduras. details). Figure 8.1 How Honduras and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Honduras 70 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how the process have changed — and which have not easy (or difficult) it is to comply with tax rules in (table 8.1). That can help identify where the potential Honduras today, data over time show which aspects of for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Honduras over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 136 140 Payments (number per 47 47 47 47 47 47 47 year) Time (hours per year) 424 424 424 224 224 224 224 Total tax rate (% profit) 44.5 44.5 44.5 44.4 44.4 44.4 44.0 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Honduras 71 PAYING TAXES Equally helpful may be the benchmarks provided by on ways to ease the administrative burden of tax the economies that today have the best performance compliance. And changes in regional averages can regionally or globally on the number of payments or show where Honduras is keeping up—and where it is the time required to prepare and file taxes (figure 8.2). falling behind. These economies may provide a model for Honduras Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 Honduras 72 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Honduras 73 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. Honduras (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Honduras made paying taxes easier—or not? By Doing Business report year DB Year Reform Honduras made paying taxes costlier for firms by raising the DB2012 solidarity tax rate. DB2011 No reform. DB2010 No reform. The efficiency of its tax system was improved by introducing DB2009 electronic filing and payment. 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 2012 Honduras 74 PAYING TAXES What are the details? The indicators reported here for Honduras are based that the company completed during the year. on a standard set of taxes and contributions that Respondents are asked how much in taxes and would be paid by the case study company used by mandatory contributions the business must pay and Doing Business in collecting the data (see the section in what the process is for doing so. The taxes and this chapter on what the indicators cover). Tax contributions paid are listed in the summary below, practitioners are asked to review standard financial along with the associated number of payments, time statements as well as a standard list of transactions and tax rate. Summary of tax rates and administrative burden in Honduras Latin America & Indicator Honduras OECD high income Caribbean Payments (number per year) 47 32 13 Time (hours per year) 224 382 186 Profit tax (%) 24.7 19.9 15.4 Labor tax and contributions (%) 10.7 14.6 24.0 Other taxes (%) 8.6 13.2 3.2 Total tax rate (% profit) 44.0 47.7 42.7 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 4 35 25.0% 22.4 profits gross Social security tax 12 93 7.2% 7.9 salaries Municipal tax on industry 1 0 0.4% sales 7.1 and commerce gross Pension contribution -RAP 0 0 1.5% 1.7 salaries taxable profits over Solidarity tax 0 paid jointly 0 10.0% 1.3 one million lempiras Professional training tax - gross 1 0 1.0% 1.1 INFOP salaries Doing Business 2012 Honduras 75 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate capital Capital gains tax 1 0 10.0% 1 gains fuel USD 0.6106 Fuel tax 1 0 consumptio 0.6 per gallon n HNL 3.5 per property Municipal property tax 12 0 0.5 1,000 value 1% over Fixed assets tax 1 0 HNL assets value 0.2 3,000,000 fixed fee Vehicle tax 1 0 0.2 (HNL 2,200) Value added tax (VAT) 12 96 12.0% value added 0 not included HNL 200, for contracts with a value less than transaction Stamp duty 1 0 0 small amount 1,000; HNL value 1.5 per 1,000 of value of transaction Totals 47 224 44.0 Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Honduras 76 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 all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time 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  Is located in the periurban area of the special environment. economy’s largest business city.  Do not require any special phytosanitary or  Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy.  Are one of the economy’s leading export or import products. The traded goods:  Are transported in a dry-cargo, 20-foot full  Are not hazardous nor do they include container load. military items. Doing Business 2012 Honduras 77 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Honduras? Globally, Honduras stands at 103 in the ranking of 183 According to data collected by Doing Business, 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 18 days and costs $1242. Importing and the regional average ranking provide other useful the same container of goods requires 8 documents, information for assessing how easy it is for a business takes 22 days and costs $1420 (see the summary of in Honduras to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Honduras and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 Honduras 78 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in Honduras That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in Honduras over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 92 103 Documents to export 6 6 6 6 6 6 6 (number) Time to export (days) 19 19 19 19 19 19 18 Cost to export (US$ per 1,065 1,065 1,065 1,163 1,163 1,193 1,242 container) Documents to import 9 9 9 8 8 8 8 (number) Time to import (days) 22 22 22 22 22 22 22 Cost to import (US$ per 975 975 975 1,190 1,190 1,205 1,420 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by ways to improve the ease of trading across borders. the economies that today have the best performance And changes in regional averages can show where regionally or globally on the documents, time or cost Honduras is keeping up—and where it is falling required to export or import (figure 9.2). These behind. economies may provide a model for Honduras on Doing Business 2012 Honduras 79 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 Honduras 80 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 Honduras 81 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Honduras 82 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 Honduras (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Honduras made trading across borders easier—or not? By Doing Business report year DB Year Reform Honduras made trading across borders faster by DB2012 implementing a web-based electronic data interchange system and X-ray machines at the port of Puerto Cortes. DB2011 No reform. DB2010 No reform. Importing was made easier by abolishing a requirement for DB2009 consular legalization of trade documents. 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 2012 Honduras 83 TRADING ACROSS BORDERS What are the details? The indicators reported here for Honduras are based freight forwarders, shipping lines, customs brokers, on a set of specific procedural requirements for port officials and banks. The procedural requirements, trading a standard shipment of goods by ocean and the associated time and cost, for exporting and transport (see the section in this chapter on what the importing a standard shipment of goods are listed in indicators cover). Information on the procedures as the summary below, along with the required well as the required documents and the time and cost documents. to complete each procedure is collected from local Summary of procedures and documents for trading across borders in Honduras Latin America & Indicator Honduras OECD high income Caribbean Documents to export (number) 6 6 4 Time to export (days) 18 18 10 Cost to export (US$ per container) 1242 1,257 1,032 Documents to import (number) 8 7 5 Time to import (days) 22 20 11 Cost to import (US$ per container) 1420 1,546 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 14 257 Customs clearance and technical control 2 135 Ports and terminal handling 1 50 Inland transportation and handling 1 800 Totals 18 1242 Procedures to import Time (days) Cost (US$) Documents preparation 14 265 Customs clearance and technical control 4 130 Ports and terminal handling 2 215 Inland transportation and handling 2 810 Totals 22 1420 Doing Business 2012 Honduras 84 TRADING ACROSS BORDERS Documents to export Documents to import Bill of lading Bill of lading Customs export declaration Certificate of origin Commercial Invoice Commercial invoice Certificate of origin Customs import declaration Foreign exchange authorization Packing list Packing List Tax certificate Cargo release order Terminal handling receipts Doing Business 2012 Honduras 85 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 data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) 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, including expert fees 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 2012 Honduras 86 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Honduras stands at 177 in the ranking of 183 dispute through the courts in Honduras? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, enforcing a contract 10.1). The rankings for comparator economies and the requires 47 procedures, takes 920 days and costs regional average ranking provide other useful 35.2% of the value of the claim (see the summary at benchmarks for assessing the efficiency of contract the end of this chapter for details). enforcement in Honduras. Figure 10.1 How Honduras and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 Honduras 87 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how identify which areas have changed and where the easy (or difficult) it is to enforce a contract in Honduras potential for improvement is greatest (table 10.1). today, data on the underlying indicators over time help Table 10.1 The ease of enforcing contracts in Honduras over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 175 177 Time (days) 940 900 900 900 900 900 900 900 920 Cost (% of claim) 35.2 35.2 35.2 35.2 35.2 35.2 35.2 35.2 35.2 Procedures (number) 45 45 45 45 45 45 45 45 47 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Honduras 88 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for Honduras on ways to improve the efficiency of the economies that today have the best performance contract enforcement. And changes in regional regionally or globally on the number of steps, time or averages can show where Honduras is keeping up— cost required to enforce a contract through the courts and where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 Honduras 89 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Honduras 90 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Honduras (table 10.2)? Table 10.2 How has Honduras made enforcing contracts easier—or not? By Doing Business report year DB Year Reform Honduras adopted a new civil procedure code that modified DB2012 litigation procedures for enforcing a contract. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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 2012 Honduras 91 ENFORCING CONTRACTS What are the details? The indicators reported here for Honduras are based regulations, as well as through surveys completed by on a set of specific procedural steps required to local litigation lawyers (and, in a quarter of the resolve a standardized commercial dispute through economies covered by Doing Business, by judges as the courts (see the section in this chapter on what the well). The procedures for resolving a commercial indicators cover). These procedures, and the time and lawsuit, and the associated time and cost, are listed in cost of completing them, are identified through study the summary below. of the codes of civil procedure and other court Summary of procedures for enforcing a contract in Honduras—and the time and cost Latin America & Indicator Honduras OECD high income Caribbean Time (days) 920 707.78 518.03 Filing and service 60 Trial and judgment 680 Enforcement of judgment 180 Cost (% of claim) 35.2 31.21 19.71 Attorney cost (% of claim) 25 Court cost (% of claim) 2.1 Enforcement Cost (% of claim) 8.1 Procedures (number) 47 40.03 31.42 Source: Doing Business database. Doing Business 2012 Honduras 92 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of 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 (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings 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 business and the case. It assumes that the recovered 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 2012 Honduras 93 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, Honduras stands at 131 in the ranking of 183 characterize the top-performing economies. How economies on the ease of resolving insolvency (figure efficient are insolvency proceedings in Honduras? 11.1). The rankings for comparator economies and the According to data collected by Doing Business, regional average ranking provide other useful resolving insolvency takes 3.8 years on average and benchmarks for assessing the efficiency of insolvency costs 15% of the debtor’s estate. The average recovery proceedings in Honduras. rate is 19.2 cents on the dollar. Figure 11.1 How Honduras and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 Honduras 94 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 Honduras 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 Honduras over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 126 131 Time (years) 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 Cost (% of estate) 15 15 15 15 15 15 15 15 15 Recovery rate (cents on 17.5 18.1 18.6 19.5 20.3 20.8 20.8 19.9 19.2 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. ―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 2012 Honduras 95 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by on ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where Honduras is keeping up—and where it is proceedings or on the recovery rate (figure 11.2). falling behind. These economies may provide a model for Honduras Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 Honduras 96 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Honduras 97 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 Honduras (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Honduras made resolving insolvency easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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 2012 Honduras 98 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 (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 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 2011. 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, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund’s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the ―regional‖ classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 Honduras 99 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 published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy’s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 Honduras 100 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year’s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year’s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea’s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website’s ―Ask a Question‖ on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year’s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the ―distance to frontier.‖ Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 Honduras 101 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is ―no practice‖ mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree ―no practice‖ or ―not possible‖ mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a ―no ability of different government agencies to deliver practice‖ mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy’s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year’s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It‖ (World Bank, Washington, DC, 2005). Principal components This year’s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the ―frontier‖ and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 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 2012 Honduras 102 the extent to which the economy has closed this gap The difference between an economy’s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many th are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95 the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy’s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 Honduras 103 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 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 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 Honduras 104