42575 Hungary Doing Business 2008 Hungary A Project Benchmarking the Regulatory Cost of Doing Business in 178 Economies Doing Business Project World Bank Group © 2007 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 E-mail feedback@worldbank.org All rights reserved. 1 2 3 4 5 09 08 07 06 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 Group does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. 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Contents Introduction......................1 Economy rankings.............2 Reforms...........................3 Summary of indicators........6 Starting a business.............8 Dealing with licenses.........13 Employing workers............18 Registering property...........22 Getting credit....................27 Protecting investors............31 Paying taxes.....................35 Trading across borders.......39 Enforcing contracts............43 Closing a business.............47 Topic details......................51 Introduction Doing Business 2008 is the fifth in a series of annual reports investigating the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 178 economies-from Afghanistan to Zimbabwe-and over time. Regulations affecting 10 stages of a business's life are measured: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Data in Doing Business 2008 are current as of June 1, 2007. The indicators are used to analyze economic outcomes and identify what reforms have worked, where, and why. The Doing Business methodology has limitations. Other areas important to business -- such as a country's proximity to large markets, the quality of its infrastructure services (other than those related to trading across borders), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions, and the underlying strength of institutions -- are not studied directly by Doing Business. To make the data comparable across countries, the indicators refer to a specific type of business -- generally a limited liability company operating in the largest business city. Because standard assumptions are used in the data collection, comparisons and benchmarks are valid across economies. The data not only highlight the extent of obstacles to doing business; they also help identify the source of those obstacles, supporting policymakers in designing reform. The data set covers 178 economies: 46 in Sub-Saharan Africa, 31 in Latin America and the Caribbean, 28 in Eastern Europe and Central Asia, 24 in East Asia and Pacific, 17 in the Middle East and North Africa and 8 in South Asia-as well as 24 OECD high-income economies as benchmarks. Some of the regions have been divided into subregions to generate a total of 13 regional profiles. The following pages present the summary Doing Business indicators for Hungary along with the comparator economies selected. The data used for this country profile come from the Doing Business database and are summarized in graphs and tables. This report allows a comparison of the economies not only with one another but also with the "best practice" economy for each indicator. The best-practice economies are identified by their position in each indicator as well as their overall ranking and by their capacity to provide good examples of business regulation to other economies. These best-practice economies do not necessarily rank number 1 in the topic or indicator, but they are in the top 5. More information is available in the full report. Doing Business 2008 presents the indicators, analyzes their relationship with economic outcomes and recommends reforms. The data, along with information on ordering the report, are available on the Doing Business website . http://www.doingbusiness.org 1 Economy Rankings - Ease of Doing Business Hungary is ranked 45 out of 178 economies. Singapore is the top ranked economy in the Ease of Doing Business. Hungary - Compared to Global Best / Selected Economies: Hungary's ranking in Doing Business 2008 Rank Doing Business 2008 Ease of Doing Business 45 Starting a Business 67 Dealing with Licenses 87 Employing Workers 81 Registering Property 96 Getting Credit 26 Protecting Investors 107 Paying Taxes 127 Trading Across Borders 45 Enforcing Contracts 12 Closing a Business 53 2 Reforms - Who is reforming? This year Egypt tops the list of reformers that are making it easier to do business. Egypt's reforms went deep with reforms in 5 of the 10 areas studied by Doing Business, and it greatly improved its position in the global rankings as a result. Besides Egypt, the other top 10 reformers are, in order, Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria. 1. Egypt, the top reformer in the region and worldwide, greatly improved its position in the global rankings on the ease of doing business. Its reforms went deep. Egypt cut the minimum capital required to start a business, from 50,000 Egyptian pounds to just 1,000 and halved the time and cost of start-up. It reduced fees for registering property from 3 percent of the property value to a low, fixed amount. It eased the bureaucracy that builders face in getting construction permits. It launched new one-stop shops for traders at Egyptian ports, cutting the time to import by seven days and the time to export by five. And it established a new private credit bureau that will soon be making it easier for borrowers to get credit. 2. Croatia reformed in four of the 10 areas studied by Doing Business. Two years ago, registering property in Croatia took 956 days. Now it takes 174. Company start-up also became faster, with procedures consolidated at a "one-stop shop" and pension and health services registration now online. Credit became easier to access: a new credit bureau was launched, and a unified registry now records charges against movable property in one place. In its first two months, 1.4 billion in credit was registered. In addition, amendments to the country's insolvency law introduced professional requirements for bankruptcy trustees and shorter timelines. 3. Ghana, a top 10 reformer for the second year running, continues to increase the efficiency of its public services. It cut bottlenecks in property registration, reducing delays from six months to one. Greater efficiency at the company registry and the environment agency cut the time for business start-up to 42 days. Changes in the port authority's operations sped up imports. New civil procedure rules and mandatory arbitration and mediation reduced the time it takes to enforce contracts. 4. FYR Macedonia eliminated the minimum capital requirement for business start-up, sped up the process for getting construction permits, lowered the corporate income tax rate to 12 percent (with another cut to 10 percent planned for 2008), and simplified tax payment procedures. Its ranking on the ease of doing business rose from 96 to 75. 5. Georgia reformed in six areas. It strengthened investor protections, including through amendments to its securities law that eliminate loopholes that had allowed corporate insiders to expropriate minority investors. It adopted a new insolvency law that shortens timelines for reorganization of a distressed company or disposition of a debtor's assets. Georgia sped up approvals for construction permits and simplified procedures for registering property. It made starting a business easier by eliminating the paid-in capital requirement. In addition, the country's private credit bureau added payment information from retailers, utilities, and trade creditors to the data it collects and distributes. 6. Colombia, the region's top reformer, has made great strides in easing trade. By extending port operating hours and adopting more selective customs inspections, it reduced the time for port and terminal handling activities by three days. The country strengthened investor protections by increasing disclosure requirements for related-party transactions. It introduced an electronic tax filing system, cutting the average time businesses must spend on tax compliance each year by 188 hours, or 41 percent. And it is progressively reducing the corporate income tax rate, from 35 to 34 percent in 2007 and 33 percent in 2008. 7. Saudi Arabia, the runner-up reformer in the region, eliminated the minimum capital requirement of 1,057 percent of income per capita and reduced the days needed for company start-up from 39 to 15. It launched a commercial credit bureau whose reports include the credit exposure of companies. It also sped up trade, reducing the number of documents required for importing and cutting the time needed for handling at ports and terminals by two days for both imports and exports. 8. Kenya, the region's other top 10 reformer, launched an ambitious licensing reform program. So far the program has eliminated 110 business licenses and simplified eight others. The changes have streamlined business start-up and cut both the time and cost of getting building permits. The program will eventually eliminate or simplify at least 900 more of the country's 1,300 licenses. Property registration is also faster now, thanks to the introduction of competition among land valuers. And the country's private credit bureau now collects a wider range of data. 3 9. In China, a new property law put private property rights on equal footing with state property rights. The law also expanded the range of assets that can be used as collateral to include inventory and accounts receivable. The new bankruptcy law gives secured creditors priority to the proceeds from their collateral. Construction also became easier, with electronic processing of building permits reducing delays by two weeks. 10. Bulgaria eased the tax burden on businesses and made it easier to pay taxes online. Bulgaria also introduced private bailiffs to improve efficiency in enforcing judgments. And it made building inspections less burdensome. Number of reforms in Doing Business 2008 Positive Reform Borders Licenses Workers Property Investors Total Negative Reform Business Contracts Business a with Credit Taxes Across a number of reforms Economy Starting Dealing Employing Registering Getting Protecting Paying Rank Trading Enforcing Closing 1 Egypt 5 2 Croatia 4 3 Ghana 5 4 Macedonia, FYR 3 5 Colombia 3 6 Georgia 6 7 Saudi Arabia 3 8 Kenya 4 9 China 3 10 Bulgaria 3 Hungary 2 Czech Republic 3 Moldova 2 Poland 2 Slovakia 0 Note: Economies are ranked on the number and impact of reforms, Doing Business selects the economies that reformed in 3 or more of the Doing Business topics. Second, it ranks these economies on the increase in rank in Ease of Doing Business from the previous year. The larger the imporvement, the higher the ranking as a reformer. 5 Summary of Indicators - Hungary Starting a Business Procedures (number) 6 Duration (days) 16 Cost (% GNI per capita) 17.7 Paid in Min. Capital (% of GNI per capita) 65.1 Dealing with Licenses Procedures (number) 31 Duration (days) 211 Cost (% of income per capita) 10.4 Employing Workers Difficulty of Hiring Index 0 Rigidity of Hours Index 80 Difficulty of Firing Index 10 Rigidity of Employment Index 30 Nonwage labor cost (% of salary) 34 Firing costs (weeks of wages) 35 Registering Property Procedures (number) 4 Duration (days) 63 Cost (% of property value) 11.0 Getting Credit Legal Rights Index 6 Credit Information Index 5 Public registry coverage (% adults) 0.0 Private bureau coverage (% adults) 6.9 Protecting Investors Disclosure Index 2 Director Liability Index 4 Shareholder Suits Index 7 Investor Protection Index 4.3 Paying Taxes Payments (number) 24 Time (hours) 340 Profit tax (%) 7.9 Labor tax and contributions (%) 39.4 Other taxes (%) 7.9 Total tax rate (% profit) 55.1 6 Trading Across Borders Documents for export (number) 5 Time for export (days) 18 Cost to export (US$ per container) 975 Documents for import (number) 7 Time for import (days) 17 Cost to import (US$ per container) 975 Enforcing Contracts Procedures (number) 33 Duration (days) 335 Cost (% of claim) 13.0 Closing a Business Time (years) 2.0 Cost (% of estate) 15 Recovery rate (cents on the dollar) 38.4 Starting a Business in Hungary: Entry Regulation When entrepreneurs draw up a business plan and try to get under way, the first hurdles they face are the procedures required to incorporate and register the new firm before they can legally operate. Economies differ greatly in how they regulate the entry of new businesses. In some the process is straightforward and affordable. In others the procedures are so burdensome that entrepreneurs may have to bribe officials to speed the process--or may decide to run their business informally. The data on starting a business are based on a survey and research investigating the procedures that a standard small to medium-size company needs to complete to start operations legally. These include obtaining all necessary permits and licenses and completing all required inscriptions, verifications and notifications with authorities to enable the company to formally operate. The time and cost required to complete each procedure under normal circumstances are calculated, as well as the minimum capital that must be paid in. It is assumed that all information is readily available to the entrepreneur, that there has been no prior contact with officials and that all government and nongovernment entities involved in the process function without corruption. To make the data comparable across economies, detailed assumptions about the type of business are used. Among these assumptions are the following: the business is a limited liability company conducting general commercial activities in the largest business city; it is 100% domestically owned, with start-up capital of 10 times income per capita, turnover of at least 100 times income per capita and between 10 and 50 employees; and it does not qualify for any special benefits, nor does it own real estate. Procedures are recorded only where interaction is required with an external party. It is assumed that the founders complete all procedures themselves unless professional services (such as by a notary or lawyer) are required by law. Voluntary procedures are not counted, nor are industry-specific requirements and utility hook-ups. Lawful shortcuts are counted. Cumbersome entry procedures are associated with more corruption, particularly in developing countries. Each procedure is a point of contact--an opportunity to extract a bribe. Analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices; and fuel corruption. 8 1. Historical data: Starting a Business in Hungary Starting a Business data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 91 67 Procedures (number) 6 6 6 Duration (days) 38 38 16 Cost (% GNI per capita) 22.4 20.9 17.7 Paid in Min. Capital (% of GNI per capita) 79.6 74.2 65.1 2. The following graph illustrates the Starting a Business indicators in Hungary over the past 3 years: 6. 79 2. 74 1. 65 38 38 4. 9. 22 20 7. 16 17 6 6 6 edures (number) s) ita) GNI (day r cap of ation pe (% .Capitalpita) Dur GNI (% ca Proc Cost Min in per 2005 2006 2007 Paid 9 3. Steps to Starting a Business in Hungary It requires 6 procedures, takes 16 days, and costs 17.69% GNI per capita to start a business in Hungary. List of Procedures: 1. Hire lawyer 2. Notarize specimen of signatures 3. Deposit capital in a bank 4. Reserve company name 5. Register at the trade registry 6. Register for social security More details are available in the appendix. 10 4. Benchmarking Starting a Business Regulations: Hungary is ranked 67 overall for Starting a Business. Australia is the top ranked economy followed by Canada, New Zealand and United States. Ranking of Hungary in Starting a Business - Compared to best practice and selected economies: 11 The following table shows Starting a Business data for Hungary compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% GNI Paid in Min. (number) (days) per capita) Capital (% of GNI per Australia* 2 2 0.0 Denmark 0.0 Selected Economy Hungary 6 16 17.7 65.1 Comparator Economies Bulgaria 9 32 8.4 56.3 Czech Republic 10 17 10.6 34.9 Moldova 9 23 11.5 14.6 Poland 10 31 21.2 196.8 Slovakia 9 25 4.2 34.1 * The following economies are also best practice economies for : Procedures (number): Canada, New Zealand Paid in Min. Capital (% of GNI per capita): Canada, Ireland, Israel, Mauritius, New Zealand, Puerto Rico, Thailand, Trinidad and Tobago, United Kingdom, United States 12 Dealing with Licenses in Hungary: Building a Warehouse Once entrepreneurs have registered a business, what regulations do they face in operating it? To measure such regulation, Doing Business focuses on the construction sector. Construction companies are under constant pressure--from government to comply with inspections and with licensing and safety regulations and from customers to be quick and cost-effective. These conflicting pressures point to the tradeoff in building regulation--the tradeoff between protecting people (construction workers, tenants, passersby) and keeping the cost of building affordable. In many countries, especially poor ones, complying with building regulations is so costly in time and money that many builders opt out. Builders may pay bribes to pass inspections or simply build illegally--leading to hazardous construction. In other countries compliance is simple, straightforward and inexpensive--yielding better results. The indicators on dealing with licenses record all procedures officially required for an entrepreneur in the construction industry to build a warehouse. These include submitting project documents (building plans, site maps) to the authorities, obtaining all necessary licenses and permits, completing all required notifications and receiving all necessary inspections. They also include procedures for obtaining utility connections, such as electricity, telephone, water and sewerage. The time and cost to complete each procedure under normal circumstances are calculated. All official fees associated with legally completing the procedures are included. Time is recorded in calendar days. The survey assumes that the entrepreneur is aware of all existing regulations and does not use an intermediary to complete the procedures unless required to do so by law. To make the data comparable across economies, several assumptions about the business and its operations are used. The business is a small to medium-size limited liability company, located in the most populous city, domestically owned and operated, in the construction business, with 20 qualified employees. The warehouse to be built: · Is a new construction (there was no previous construction on the land). · Has complete architectural and technical plans prepared by a licensed architect. · Will be connected to electricity, water, sewerage (sewage system, septic tank or their equivalent) and one land phone line. The connection to each utility network will be 32 feet, 10 inches (10 meters) long. · Will be used for general storage, such as of books or stationery. The warehouse will not be used for any goods requiring special conditions, such as food, chemicals or pharmaceuticals. · Will take 30 weeks to construct (excluding all delays due to administrative and regulatory requirements). Where the regulatory burden is large, entrepreneurs move their activity into the informal economy. There they operate with less concern for safety, leaving everyone worse off. 13 1. Historical data: Dealing with Licenses in Hungary Dealing with Licenses data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 88 87 Procedures (number) 31 31 31 Duration (days) 217 217 211 Cost (% of income per capita) 13.2 12.4 10.4 2. The following graph illustrates the Dealing with Licenses indicators in Hungary over the past 3 years: 217 217 211 31 31 31 2. 4. 4. 13 12 10 edures (number) s) per (day ation income ) of Dur (% capita Proc Cost 2005 2006 2007 14 3. Steps to Building a Warehouse in Hungary It requires 31 procedures, takes 211 days, and costs 10.42% GNI per capita to build a warehouse in Hungary. List of Procedures: 1. Request and obtain a certificate of site ownership and a site map from the local construction authority (Földhivatal) 2. Request and obtain a building permit 3. Receive an on-site inspection 4. Request and obtain the construction authority's approval of the architectural and technical plans and the technical description 5. Receive an on-site inspection by the construction authority 6. Request an authorization from the water authority 7. Receive an inspection by the water authority 8. Obtain an authorization from the water authority 9. Request an authorization from the electricity utility 10. Receive inspection by electricity utility 11. Obtain an authorization from the electricity utility 12. Request an authorization the from sewerage authority 15 13. Receive an inspection the from sewerage authority 14. Obtain an authorization from sewerage authority 15. Request and obtain fire protection authorization 16. Obtain a statement from the Municipal Planning Committee 17. Provide evidence of the availability of a licensed site manager and provide notification that construction has started 18. Request and obtain a letter from the Tax Authority 19. Request and receive connection to the sewerage system 20. Contact a registered technician to set up sewerage system 21. Request and receive telephone connection 22. Request water connection 23. Contact a registered technician to set up water connection 24. Receive an on-site inspection to check the quality of the water connection 25. Receive water connection 26. Receive electricity connection 27. Contact a registered technician to set up electricity connection 28. Notify authorities of the completion of construction 29. Receive final inspection of the completed building 30. Obtain an occupancy permit 31. Register the building with the Land Registry Office More details are available in the appendix. 16 4. Benchmarking Dealing with Licenses Regulations: Hungary is ranked 87 overall for Dealing with Licenses. St. Vincent and the Grenadines is the top ranked economy followed by New Zealand, Belize and Marshall Islands. Ranking of Hungary in Dealing with Licenses - Compared to best practice and selected economies: * The following economies are also best practice economies for Building a Warehouse: St. Vincent and the Grenadines 17 The following table shows Dealing with Licenses data for Hungary compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) income per capita) Denmark 6 Korea 34 United Arab Emirates 1.5 Selected Economy Hungary 31 211 10.4 Comparator Economies Bulgaria 22 131 499.9 Czech Republic 36 180 18.5 Moldova 30 292 154.2 Poland 30 308 159.8 Slovakia 13 287 14.9 18 Employing Workers in Hungary: Labor Regulations Every economy has established a complex system of laws and institutions intended to protect workers and guarantee a minimum standard of living for its population. This system encompasses four bodies of law: employment, industrial relations, social security and occupational health and safety laws. Doing Business examines government regulation in the area of employment and social security laws. Three measures are presented: a rigidity of employment index, a nonwage labor cost measure and a firing cost measure. The rigidity of employment index is the average of three subindices: difficulty of hiring, rigidity of hours and difficulty of firing. Each index takes values between 0 and 100, with higher values indicating more rigid regulation. The difficulty of hiring index measures the flexibility of contracts and the ratio of the minimum wage to the value added per worker. The rigidity of hours index covers restrictions on weekend and night work, requirements relating to working time and the workweek, and mandated days of annual leave with pay. The difficulty of firing index covers workers' legal protections against dismissal, including the grounds permitted for dismissal and procedures for dismissal (individual and collective). The nonwage labor cost covers all social security payments and payroll taxes associated with hiring an employee, expressed as a percentage of the worker's salary. The firing cost indicator measures the cost of advance notice requirements, severance payments and penalties due when terminating a redundant worker, expressed in weeks of salary. The indicators on employment regulations are based on a detailed study of employment laws. Data are also gathered on the specific constitutional provisions governing the two areas studied. To ensure accuracy, both the actual laws and the applicable collective bargaining agreements are used. Finally, all data are verified and completed by local law firms through a detailed survey of employment regulations. To make the data comparable across economies, a range of assumptions about the worker and the company are used. Assumptions about the worker include that he is a nonexecutive, full-time male employee who has worked in the same company for 20 years and is not a member of the labor union (unless membership is mandatory). The company is assumed to be a limited liability manufacturing corporation that operates in the country's most populous city, is 100% domestically owned and has 201 employees. The company is also assumed to be subject to collective bargaining agreements in countries where such agreements cover more than half the manufacturing sector and apply even to firms not party to them. Most employment regulations are enacted in response to market failures. But that does not mean that today's regulations are optimal. Analysis across countries shows that while employment regulation generally increases the tenure and wages of incumbent workers, rigid regulations have many undesirable side effects. These include less job creation, smaller company size, less investment in research and development, and longer spells of unemployment and thus the obsolescence of skills--all of which may reduce productivity growth. Many countries err on the side of excessive rigidity, to the detriment of businesses and workers alike. 19 1. Historical data: Employing Workers in Hungary Employing Workers data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 94 81 Rigidity of Employment Index 34 34 30 Nonwage labor cost (% of salary) 34 34 34 Firing costs (weeks of wages) 35 35 35 2. The following graph illustrates the Employing Workers indicators in Hungary over the past 3 years: 34 34 34 34 34 35 35 35 30 of oyment (% ks of cost of Emplx costs(wee) wages idity Inde wage labor salary) Firing Rig 2005 Non 2006 2007 20 3. Benchmarking Employing Workers Regulations: Hungary is ranked 81 overall for Employing Workers. Marshall Islands is the top ranked economy followed by Brunei, Georgia and Tonga. Ranking of Hungary in Employing Workers - Compared to best practice and selected economies: * The following economies are also best practice economies for Employing Workers: Marshall Islands, Singapore 21 The following table shows Employing Workers data for Hungary compared to best practice and comparator economies: Best Practice Economies Rigidity of Nonwage Firing costs Employment labor cost (% (weeks of Index of salary) wages) Bangladesh* 0 Denmark* 0 Hong Kong, China* 0 Selected Economy Hungary 30 34 35 Comparator Economies Bulgaria 29 23 9 Czech Republic 31 35 22 Moldova 38 28 37 Poland 37 21 13 Slovakia 36 35 13 * The following economies are also best practice economies for : Rigidity of Employment Index: Singapore, United States Nonwage labor cost (% of salary): Botswana, Ethiopia, Maldives Firing costs (weeks of wages): New Zealand, United States 22 Registering Property in Hungary: Regulation of Property Transfer Property registries were first developed to help raise tax revenue. Defining and publicizing property rights through registries has also proved to be good for entrepreneurs. Land and buildings account for between half and three-quarters of the wealth in most economies. Securing rights to this property strengthens incentives to invest and facilitates commerce. And with formal property titles, entrepreneurs can obtain mortgages on their home or land and start businesses. Doing Business measures the ease of registering property based on a standard case of an entrepreneur who wants to purchase land and a building in the largest business city. It is assumed that the property is already registered and free of title dispute. The data cover the full sequence of procedures necessary to transfer the property title from the seller to the buyer. Every required procedure is included, whether it is the responsibility of the seller or the buyer or must be completed by a third party on their behalf. Local property lawyers and officials in property registries provide information on required procedures as well as the time and cost to complete each one. For most countries the data are based on responses from both. Based on the responses, three indicators are constructed: · Number of procedures to register property. · Time to register property (in calendar days). · Official costs to register property (as a percentage of the property value). A large share of the property in developing countries is not formally registered, limiting financing opportunities for businesses. Recognizing this constraint, some developing country governments have embarked on extensive property titling programs. Yet bringing assets into the formal sector is of little value unless they stay there. Many titling programs in Africa were futile because people bought and sold property informally--neglecting to update the title records in the property registry. Why? Doing Business shows that completing a simple formal property transfer in the largest business city of an African country costs 12% of the value of the property and takes more than 100 days on average. Worse, the property registries are so poorly organized that they provide little security of ownership. For both reasons, formalized titles quickly go informal again. Efficient property registration reduces transaction costs and helps keep formal titles from slipping into informal status. Simple procedures to register property are also associated with greater perceived security of property rights and less corruption. That benefits all entrepreneurs, especially women, the young and the poor. The rich have few problems protecting their property rights. They can afford to invest in security systems and other measures to defend their property. But small entrepreneurs cannot. Reform can change this. 23 1. Historical data: Registering Property in Hungary Registering Property data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 101 96 Procedures (number) 4 4 4 Duration (days) 78 78 63 Cost (% of property value) 11.0 11.0 11.0 2. The following graph illustrates the Registering Property indicators in Hungary over the past 3 years: 78 78 63 11 11 11 4 4 4 edures (number) s) y (day propert ation of ) (% Dur value Cost Proc 2005 2006 2007 24 3. Steps to Registering Property in Hungary It requires 4 procedures, takes 63 days, and costs 11.01% GNI per capita to register the property in Hungary. List of Procedures: 1. Obtain a certified title record at the Land Registry Office 2. The sale and purchase agreement is signed by a lawyer 3. Obtain the extract of the purchaser from the Court of Registry 4. Register the title at the Land Registry Office More details are available in the appendix. 25 4. Benchmarking Registering Property Regulations: Hungary is ranked 96 overall for Registering Property. New Zealand is the top ranked economy followed by Armenia, Saudi Arabia and Lithuania. Ranking of Hungary in Registering Property - Compared to best practice and selected economies: 26 The following table shows Registering Property data for Hungary compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) property value) New Zealand* 2 Norway* 1 Saudi Arabia* 0.0 Selected Economy Hungary 4 63 11.0 Comparator Economies Bulgaria 9 19 2.3 Czech Republic 4 123 3.0 Moldova 6 48 0.9 Poland 6 197 0.5 Slovakia 3 17 0.1 * The following economies are also best practice economies for : Procedures (number): Sweden Duration (days): Sweden, Thailand Cost (% of property value): Bhutan 27 Getting Credit in Hungary: Legal Rights and Credit Information Firms consistently rate access to credit as among the greatest barriers to their operation and growth. Doing Business constructs two sets of indicators of how well credit markets function--one on credit registries and the other on legal rights of borrowers and lenders. Credit registries--institutions that collect and distribute credit information on borrowers--can greatly expand access to credit. By sharing credit information, they help lenders assess risk and allocate credit more efficiently. And they free entrepreneurs from having to rely on personal connections alone when trying to obtain credit. Three indicators are constructed to measure the sharing of credit information: · Public registry coverage, which reports the number of individuals and firms covered by a public credit registry as a percentage of the adult population. · Private bureau coverage, which reports the number of individuals and firms covered by a private credit bureau as a percentage of the adult population. · Depth of credit information index, which measures the extent to which the rules of a credit information system facilitate lending based on the scope of information distributed, the ease of access to information and the quality of information. The data are from surveys of public registries and the largest private credit bureau in the country. Effective regulation of secured lending--through collateral and bankruptcy laws--can also ease credit constraints. By giving a lender the right to seize and sell a borrower's secured assets upon default, collateral limits the lender's potential losses and acts as a screening device for borrowers. The strength of legal rights index measures 10 aspects of the rights of borrowers and creditors in collateral and bankruptcy laws, including whether: · General rather than specific description of assets and debt is permitted in collateral agreements (expanding the scope of assets and debt covered). · Any legal or natural person may grant or take security in assets. · A unified registry operates that includes charges over movable property. · Secured creditors have priority both within bankruptcy and outside it. · Parties may agree on out-of-court enforcement of collateral by contract. · Creditors may both seize and sell collateral out of court, no automatic stay or "asset freeze" applies upon bankruptcy, and the bankrupt debtor does not retain control of the firm. The index ranges from 0 (weak legal rights) to 10 (strong legal rights). The data were obtained by examining collateral and bankruptcy laws and legal summaries and verified through a survey of financial lawyers. Where good-quality credit information is available and legal rights are stronger, more credit is extended. Benefits flow beyond those gaining access to credit. With better-functioning credit markets, unemployment is lower, and women and low-income people benefit the most. 28 1. Historical data: Getting Credit in Hungary Getting Credit data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 21 26 Legal Rights Index 6 6 6 Public registry coverage (% adults) 0.0 0.0 0.0 Private bureau coverage (% adults) 4.0 5.9 6.9 2. The following graph illustrates the Getting Credit indicators in Hungary over the past 3 years: 9.6 6 6 6 9.5 4 0 0 0 Index erage(% age (% Rights y covs) bureauadu cover) lt lts Legal registradu blic ate Pu Priv 2005 2006 2007 29 3. Benchmarking Getting Credit Regulations: Hungary is ranked 26 overall for Getting Credit. United Kingdom is the top ranked economy followed by Hong Kong, China, Germany and Australia. Ranking of Hungary in Getting Credit - Compared to best practice and selected economies: 30 The following table shows Getting Credit data for Hungary compared to best practice and comparator economies: Best Practice Economies Legal Rights Public Private Index registry bureau coverage (% coverage (% Argentina* 100.0 Hong Kong, China* 10 Portugal 67.1 Selected Economy Hungary 6 0.0 6.9 Comparator Economies Bulgaria 6 25.4 3.0 Czech Republic 6 4.2 53.0 Moldova 6 0.0 0.0 Poland 4 0.0 51.5 Slovakia 9 1.2 56.0 * The following economies are also best practice economies for : Legal Rights Index: United Kingdom Private bureau coverage (% adults): Australia, Canada, Iceland, Ireland, New Zealand, Nicaragua, Norway, Sweden, United States 31 Protecting Investors in Hungary Officials at Elf Aquitaine, France's largest oil company, awarded business deals in return for large side payments. Along with the extra cash, they got seven years in jail and a 2 million fine for abuse of power. Russian oil firm Gazprom purchased materials for new pipelines through intermediaries owned by company officers. The high cost raised eyebrows, but not court battles. Big cases make headlines. But looting by corporate insiders occurs every day on a smaller scale, and often goes unnoticed. To document the protections investors have, Doing Business measures how countries regulate a standard case of self-dealing--use of corporate assets for personal gain. The case facts are simple. Mr. James, a director and the majority shareholder of a public company, proposes that the company purchase used trucks from another company he owns. The price is higher than the going price for used trucks. The transaction goes forward. All required approvals are obtained, and all required disclosures made, though the transaction is unfair to the purchasing company. Shareholders sue the interested parties and the members of the board of directors. Several questions arise. Who approves the transaction? What information must be disclosed? What company documents can investors access? What do minority shareholders have to prove to get the transaction stopped or to receive compensation from Mr. James? Three indices of investor protection are constructed based on the answers to these and other questions. All indices range from 0 to 10, with higher values indicating more protections or greater disclosure. The extent of disclosure index covers approval procedures, requirements for immediate disclosure to the public and shareholders of proposed transactions, requirements for disclosure in periodic filings and reports and the availability of external review of transactions before they take place. The extent of director liability index covers the ability of investors to hold Mr. James and the board of directors liable for damages, the ability to rescind the transaction, the availability of fines and jail time associated with self-dealing, the availability of direct or derivative suits and the ability to require Mr. James to pay back his personal profits from the transaction. The ease of shareholder suits index covers the availability of documents that can be used during trial, the ability of the investor to examine the defendant and other witnesses, shareholders' access to internal documents of the company, the appointment of an inspector to investigate the transaction and the standard of proof applicable to a civil suit against the directors. These three indices are averaged to create the strength of investor protection index. This index ranges from 0 to 10, with higher values indicating better investor protection. If the rights of investors are not protected, majority ownership in a business is the only way to eliminate expropriation. But then investors must devote more oversight attention to fewer investments. The result: entrepreneurship is suppressed, and fewer profitable investment projects are undertaken. Where self-dealing is curbed, equity investment is higher, ownership concentration lower and trust in the business sector deeper. Investors gain portfolio diversification, and entrepreneurs gain access to cash. 32 1. Historical data: Protecting Investors in Hungary Protecting Investors data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 105 107 Investor Protection Index 4.3 4.3 4.3 2. The following graph illustrates the Protecting Investors index in Hungary compared to best practice and selected Economies: 7.9 0.6 0.6 3.4 7.4 7.4 0.5 gary Hun Slovakia ldova ublic land Mo Rep garia Po Bul Zealand ech Cz New Note: The higher the score, the greater the investor protection. 33 3. Benchmarking Protecting Investors Regulations: Hungary is ranked 107 overall for Protecting Investors. New Zealand is the top ranked economy followed by Singapore, Hong Kong, China and Malaysia. Ranking of Hungary in Protecting Investors - Compared to best practice and selected economies: 34 The following table shows Protecting Investors data for Hungary compared to best practice and comparator economies: Best Practice Economies Investor Protection Index New Zealand 9.7 Selected Economy Hungary 4.3 Comparator Economies Bulgaria 6.0 Czech Republic 5.0 Moldova 4.7 Poland 6.0 Slovakia 4.7 35 Paying Taxes: Tax Payable and Compliance in Hungary Taxes are essential. Without them there would be no money to fund schools, hospitals, courts, roads, water, waste collection and other public services that help businesses to be more productive. Still, there are good ways and bad ways to collect taxes. The Doing Business tax survey records the effective tax that a company must pay and the administrative costs of doing so. Imagine a medium-size business, TaxpayerCo, that started operations last year. Doing Business asked accountants in 178 economies to review TaxpayerCo's financial statements and a standard list of transactions the company completed during the year. Respondents were asked how much tax the business must pay and what the process is for doing so. The business starts from the same financial position in each country. All the taxes and contributions paid during the second year of operation are recorded. Taxes and contributions are measured at all levels of government and include corporate income tax, turnover tax, all labor contributions paid by the company (including mandatory contributions paid to private pension or insurance funds), property tax, property transfer tax, dividend tax, capital gains tax, financial transactions tax, vehicle tax and other small taxes (such as fuel tax, stamp duty and local taxes). A range of standard deductions and exemptions are also recorded. Three indicators are constructed: · Number of tax payments, which takes into account the method of payment or withholding, the frequency of payment or withholding and the number of agencies involved for the standard case. · Time, which measures the hours per year necessary to prepare, file and pay the corporate income tax, value added or sales tax and labor taxes. · Total tax rate, which measures the amount of taxes payable by the company during the second year of operation. This amount, expressed as a percentage of commercial profit, is the sum of all the different taxes payable after accounting for various deductions and exemptions. Businesses care about what they get for their taxes and contributions, such as the quality of infrastructure and social services. Poor countries tend to use businesses as a collection point for taxes. Rich countries tend to have lower tax rates and less complex tax systems. And rich countries get more from their taxes. Simple, moderate taxes and fast, cheap administration mean less hassle for businesses--and also more revenue collected and better public services. More burdensome tax regimes create an incentive to evade taxes. 36 1. Historical data: Paying Taxes in Hungary Paying Taxes data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 124 127 Time (hours) 340 340 340 Total tax rate (% profit) 55.5 55.5 55.1 Payments (number) 24 24 24 2. The following graph illustrates the Paying Taxes indicators in Hungary over the past 3 years: 340 340 340 5. 5. 1. 55 55 55 24 24 24 (number) Time (hours) it) prof (% yments Pa Totaltax rate 2005 2006 2007 37 3. Benchmarking Paying Taxes Regulations: Hungary is ranked 127 overall for Paying Taxes. Maldives is the top ranked economy followed by Singapore, Hong Kong, China and United Arab Emirates. Ranking of Hungary in Paying Taxes - Compared to best practice and selected economies: * The following economies are also best practice economies for Paying Taxes: Maldives 38 The following table shows Paying Taxes data for Hungary compared to best practice and comparator economies: Best Practice Economies Payments Time (hours) Total tax (number) rate (% profit) Sweden* 2 United Arab Emirates* 12 Vanuatu 8.4 Selected Economy Hungary 24 340 55.1 Comparator Economies Bulgaria 17 616 36.7 Czech Republic 12 930 48.6 Moldova 49 218 44.0 Poland 41 418 38.4 Slovakia 31 344 50.5 * The following economies are also best practice economies for : Payments (number): Maldives Time (hours): Maldives 39 Trading Across Borders: Importing and Exporting from Hungary The benefits of trade are well documented--as are the obstacles to trade. Tariffs, quotas and distance from large markets greatly increase the cost of goods or prevent trading altogether. But with faster ships and bigger planes, the world is shrinking. Global and regional agreements have brought down trade barriers. Yet Africa's share of global trade is smaller today than it was 25 years ago. So is the Middle East's, excluding oil exports. The reason is simple: many entrepreneurs face numerous hurdles to exporting or importing goods. They often give up. Others never try. Doing Business compiles procedural requirements for trading a standard shipment of goods by ocean transport. Every official procedure--and the associated documents, time and cost--for importing and exporting the goods is recorded, starting with the contractual agreement between the two parties and ending with delivery of the goods. For importing the goods, the procedures measured range from the vessel's arrival at the port of entry to the shipment's delivery at the factory warehouse. For exporting the goods, the procedures measured range from the packing of the goods at the factory to their departure from the port of exit. To make the data comparable across countries, several assumptions about the business and the traded goods are used. The business is of medium size, with 100 or more employees, and is located in the periurban area of the country's most populous city. It is a private, limited liability company, domestically owned, formally registered and operating under commercial laws and regulations of the country. The traded goods are ordinary, legally manufactured products, and they travel in a dry-cargo, 20-foot FCL (full container load) container. Documents recorded include port filing documents, customs declaration and clearance documents, and official documents exchanged between the concerned parties. Time is recorded in calendar days, from start to finish of each procedure. Cost measures the fees levied on a 20-foot container in U.S. dollars. All the fees associated with completing the procedures to export or import the goods are included, such as costs for documents, administrative fees for customs clearance and technical control, terminal handling charges and inland transport. The cost measure does not include tariffs or trade taxes. Countries that have efficient customs, good transport networks and fewer document requirements--making compliance with export and import procedures faster and cheaper--are more competitive globally. That leads to more exports--and exports are associated with faster growth and more jobs. Conversely, a need to file many documents is associated with more corruption in customs. Faced with long delays and frequent demands for bribes, many traders avoid customs altogether. Instead, they smuggle goods across the border. That defeats the very purpose in having border control of trade--to levy taxes and ensure high quality of goods. 40 1. Historical data: Trading Across Borders in Hungary Trading Across Borders data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 42 45 Documents for export (number) 5 5 5 Time for export (days) 18 18 18 Cost to export (US$ per container) 975 975 975 Documents for import (number) 7 7 7 Time for import (days) 17 17 17 Cost to import (US$ per container) 975 975 975 2. The following graph illustrates the Trading Across Borders indicators in Hungary over the past 3 years: 975 975 975 975 975 975 5 5 5 18 18 18 7 7 7 17 17 17 r export s) ort s) r (US imp (day $ pe entsumber) for ort (day $ pe ort (US exp ner) ents forber) ner) (n import Docum Time for exp to contai (num Cost Docum Time for import to contai Cost 2005 2006 2007 41 3. Benchmarking Trading Across Borders Regulations: Hungary is ranked 45 overall for Trading Across Borders. Singapore is the top ranked economy followed by Denmark, Hong Kong, China and Norway. Ranking of Hungary in Trading Across Borders - Compared to best practice and selected economies: 42 The following table shows Trading Across Borders data for Hungary compared to best practice and comparator economies: Best Practice Economies Documents Time for Cost to Documents Time for Cost to for export export (days) export (US$ for import import (days) import (US$ (number) per (number) per Canada* 3 China 390 Denmark* 5 3 Singapore 3 367 Selected Economy Hungary 5 18 975 7 17 975 Comparator Economies Bulgaria 5 23 1329 7 21 1377 Czech Republic 5 16 775 7 18 860 Moldova 6 32 1425 7 35 1545 Poland 5 17 834 5 27 834 Slovakia 6 25 1015 8 25 1050 * The following economies are also best practice economies for : Documents for export (number): Estonia, Micronesia, Panama Time for export (days): Estonia, Singapore Documents for import (number): Sweden 43 Enforcing Contracts: Court Efficiency in Hungary Where contract enforcement is efficient, businesses are more likely to engage with new borrowers or customers. Doing Business tracks the efficiency of the judicial system in resolving a commercial dispute, following the step-by-step evolution of a commercial sale dispute before local courts. The data are collected through study of the codes of civil procedure and other court regulations as well as surveys completed by local litigation lawyers (and, in a quarter of the countries, by judges as well). The dispute, between two businesses (the Seller and the Buyer) located in the country's most populous city, concerns a contract for the sale of goods. The Seller agrees to deliver the goods, worth 200% of the country's income per capita, to the Buyer. After receiving and inspecting the goods, the Buyer concludes that their quality is inadequate. The Buyer sends the goods back without paying for them. The Seller disagrees and argues that their quality is adequate. The Seller seeks full payment from the Buyer, arguing that the goods cannot be sold to a third party because they were custom-made for the Buyer. The Seller sues the Buyer before the court in the most populous city to recover the amount due under the sales agreement (200% of the country's income per capita). Three indicators of the efficiency of commercial contract enforcement are developed: · Number of procedures, which includes all those that demand interaction between the parties or between them and the judge or court officer. · Time, which counts the number of days from the moment the plaintiff files the lawsuit in court until the moment of payment. This measure includes both the days on which actions take place and the waiting periods between actions. · Cost, which measures the official cost of going through court procedures, expressed as a percentage of the claim (assumed to be equivalent to 200% of income per capita). The cost includes court costs, enforcement costs and attorney fees where the use of attorneys is mandatory or common. Businesses that have little or no access to efficient courts must rely on other mechanisms, both formal and informal--such as trade associations, social networks, credit bureaus or private information channels--to decide whom to do business with and under what conditions. Or they might adopt a conservative approach to business, dealing only with a small group of people linked through kinship, ethnic origin or previous dealings and structuring transactions to forestall disputes. In either case economic and social value may be lost. The main reason to regulate procedures in commercial dispute resolution is that informal justice is vulnerable to subversion by the rich and powerful. But heavy regulation of dispute resolution backfires. Across countries, the more procedures it takes to enforce a contract, the longer the delays and the higher the cost. The result: less wealth is created. 44 1. Historical data: Enforcing Contracts in Hungary Enforcing Contracts data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 12 12 Procedures (number) 33 33 33 Duration (days) 335 335 335 Cost (% of claim) 13.0 13.0 13.0 2. The following graph illustrates the Enforcing Contracts indicators in Hungary over the past 3 years: 335 335 335 33 33 33 13 13 13 edures (number) s) (day claim) of ation (% Dur Cost Proc 2005 2006 2007 45 3. Benchmarking Enforcing Contracts Regulations: Hungary is ranked 12 overall for Enforcing Contracts. Hong Kong, China is the top ranked economy followed by Luxembourg, Latvia and Singapore. Ranking of Hungary in Enforcing Contracts - Compared to best practice and selected economies: 46 The following table shows Enforcing Contracts data for Hungary compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) claim) Bhutan 0.1 Ireland 20 Singapore 120 Selected Economy Hungary 33 335 13.0 Comparator Economies Bulgaria 40 564 22.2 Czech Republic 27 820 33.0 Moldova 31 365 16.6 Poland 38 830 10.0 Slovakia 30 565 25.7 47 Closing Business in Hungary: Bankruptcy The economic crises of the 1990s in emerging markets--from East Asia to Latin America, from Russia to Mexico--raised concerns about the design of bankruptcy systems and the ability of such systems to help reorganize viable companies and close down unviable ones. In countries where bankruptcy is inefficient, unviable businesses linger for years, keeping assets and human capital from being reallocated to more productive uses. The Doing Business indicators identify weaknesses in the bankruptcy law as well as the main procedural and administrative bottlenecks in the bankruptcy process. In many developing countries bankruptcy is so inefficient that creditors hardly ever use it. In countries such as these, reform would best focus on improving contract enforcement outside bankruptcy. The data on closing a business are developed using a standard set of case assumptions to track a company going through the step-by-step procedures of the bankruptcy process. It is assumed that the company is a domestically owned, limited liability corporation operating a hotel in the country's most populous city. The company has 201 employees, 1 main secured creditor and 50 unsecured creditors. Assumptions are also made about the debt structure and future cash flows. The case is designed so that the company has a higher value as a going concern--that is, the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. The data are derived from questionnaires answered by attorneys at private law firms. Three measures are constructed from the survey responses: the time to go through the insolvency process, the cost to go through the process and the recovery rate--how much of the insolvency estate is recovered by stakeholders, taking into account the time, cost, depreciation of assets and the outcome of the insolvency proceeding. Bottlenecks in bankruptcy cut into the amount claimants can recover. In countries where bankruptcy is used, this is a strong deterrent to investment. Access to credit shrinks, and nonperforming loans and financial risk grow because creditors cannot recover overdue loans. Conversely, efficient bankruptcy laws can encourage entrepreneurs. The freedom to fail, and to do so through an efficient process, puts people and capital to their most effective use. The result is more productive businesses and more jobs. 48 1. Historical data: Closing Business in Hungary Closing a Business data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 52 53 Time (years) 2.0 2.0 2.0 Cost (% of estate) 15 15 15 Recovery rate (cents on the dollar) 36 40 38.4 2. The following graph illustrates the Closing Business indicators in Hungary over the past 3 years: 40 4. 38 36 15 15 15 2 2 2 the (cent) s on Time (years) e) estat of (% ry ratedollar Cost Recove 2005 2006 2007 49 3. Benchmarking Closing Business Regulations: Hungary is ranked 53 overall for Closing a Business. Japan is the top ranked economy followed by Singapore, Norway and Canada. Ranking of Hungary in Closing Business - Compared to best practice and selected economies: 50 The following table shows Closing Business data for Hungary compared to best practice and comparator economies: Best Practice Economies Recovery Time (years) Cost (% of rate (cents estate) on the Colombia 1 Ireland* 0.4 Japan 92.6 Selected Economy Hungary 38.4 2.0 15 Comparator Economies Bulgaria 32.4 3.3 9 Czech Republic 21.3 6.5 15 Moldova 28.8 2.8 9 Poland 27.8 3.0 22 Slovakia 45.2 4.0 18 * The following economies are also best practice economies for : Time (years): Cape Verde 51 APPENDICES Starting a Business in Hungary This table summarizes the procedures and costs associated with setting up a business in Hungary. STANDARDIZED COMPANY Legal Form: Korlatolt Felelossegu Tarsasag (KFT) - Limited Liability Company Minimum Capital Requirement: HUF 1,500,000 City: Budapest Registration Requirements: No: Procedure Time to complete Cost to complete 1 Hire lawyer who represents the company, creates company 3 days HUF 260,000 ; varies deeds, and prepares other legal documents. according to the complexity 2 Notarize specimen signatures and documents 2 days HUF 37,500 3 Pay at least 50% of subscription amount (at least HUF 1.5 1 day no charge million) into the bank account designated at the time of subscription. 4 Submit company name request to the court 1 day no charge 5 Apply for registration at the Registration Court (simplified 8 days HUF 100,000 (fixed electronic registration) procedural stamp duty) + HUF 5,000 (publication fee for electronic filing) + HUF 5,000 (registration of name registration fee) 6 Register for social security 1 day no charge 52 Procedure 1 Hire lawyer who represents the company, creates company deeds, and prepares other legal documents. Time to complete: 3 days Cost to complete: HUF 260,000 ; varies according to the complexity Comment: The company must be represented by an attorney at law in the registration process. The lawyer's fee is subject to free agreement, so it varies significantly according to the services provided and company size. Attorneys charge at least HUF 100,000 for registering a simple limited liability company (KFT), with the official cost of HUF 260,000 paid by the client. Procedure 2 Notarize specimen signatures and documents Time to complete: 2 days Cost to complete: HUF 37,500 Comment: The fee to notarize specimen signatures of persons with signature authority depends on the number of documents requiring notarization. These notarial documents can be obtained within 2 days and cost about HUF 2,000­3,000 each. Procedure 3 Pay at least 50% of subscription amount (at least HUF 1.5 million) into the bank account designated at the time of subscription. Time to complete: 1 day Cost to complete: no charge Comment: Half the cash contribution must be paid in at the time of company establishment. The remainder must be paid in according to the provisions of the articles of association, but no later than a year from establishment. Procedure 4 Submit company name request to the court Time to complete: 1 day Cost to complete: no charge Comment: To use the simplified electronic company establishment system, the company must obtain a "reservation of company name," which ensures that another company is not registered by the same name. The company founder must submit a name request by email to the court and will receive an answer within a day. This email must be included with the forms at the time of filing. Otherwise, the Registration Court will not accept the request. If the paper-based or the electronic (not simplified) system is used, the founder must submit a declaration of the name being approved with the rest of the documents. Procedure 5 Apply for registration at the Registration Court (simplified electronic registration) Time to complete: 8 days Cost to complete: HUF 100,000 (fixed procedural stamp duty) + HUF 5,000 (publication fee for electronic filing) + HUF 5,000 (registration of name registration fee) Comment: Upon receiving the application and the attachments (cited in Procedure 5), the Registration Court records the company's name and address, issues the company's registration number, and obtains and enters into the register the company's tax number and statistical number. Within 2 days after the court receives the application, all company data must be entered into the register, with the remark that the company is under registration. From the date of the submission of the application, the company may start to operate as a pre-incorporated company. 53 Currently, companies can register through three application methods: 1) Paper-based method. Time: 30 business days. Registration duty: HUF 100,000. Publication cost: HUF 25,000. 2) Electronic method (the memorandum and articles of association are scanned and submitted electronically). - Time: 30 business days. - Registration duty: HUF 100,000. - Publication cost: HUF 25,000. 3) Simplified electronic method (companies can register by using standardized forms, which are available online, established in the Corporate Procedure Act; this procedure may be used only for a limited liability company or a limited partnership). - Time: About 7 business days--2 days for receipt of the certificate from the State Treasury on the payment of registration duty and publication fees, 3 days for the registration of the reserved company name, and 2 days for the registration of the company. - Registration duty: HUF 100,000. - Publication cost: HUF 5,000. If the court does not make a decision within the aforementioned period, the registration will occur ex lege (automatically). Publication in the Company Gazette ("Cégközlöny") is made after the registration is ordered by the court. Simultaneously with the submission of the registration application, the court registers companies with the State Taxation Office (for VAT and income tax purposes) and with the Statistical Office through an online system, . Procedure 6 Register for social security Time to complete: 1 day Cost to complete: no charge Comment: 54 Dealing with Licenses in Hungary The table below summarizes the procedures, time, and costs to build a warehouse in Hungary. BUILDING A WAREHOUSE Date as of: January 2,007 Estimated Warehouse Value: City: Budapest Registration Requirements: No: Procedure Time to complete Cost to complete 1 Request and obtain a certificate of site ownership and a site map 8 days HUF 10,000 from the local construction authority (Földhivatal) 2 Request and obtain a building permit 60 days HUF 10,000 3 * Receive an on-site inspection 1 day no charge 4 * Request and obtain the construction authority's approval of the 45 days no charge architectural and technical plans and the technical description 5 * Receive an on-site inspection by the construction authority 1 day no charge 6 * Request an authorization from the water authority 1 day no charge 7 * Receive an inspection by the water authority 1 day no charge 8 * Obtain an authorization from the water authority 29 days no charge 9 * Request an authorization from the electricity utility 1 day no charge 10 * Receive inspection by electricity utility 1 day no charge 11 * Obtain an authorization from the electricity utility 29 days no charge 12 * Request an authorization the from sewerage authority 1 day no charge 13 * Receive an inspection the from sewerage authority 1 day no charge 14 * Obtain an authorization from sewerage authority 29 days no charge 15 * Request and obtain fire protection authorization 30 days no charge 16 * Obtain a statement from the Municipal Planning Committee 30 days no charge 55 17 * Provide evidence of the availability of a licensed site manager and 5 days no charge provide notification that construction has started 18 * Request and obtain a letter from the Tax Authority 30 days no charge 19 Request and receive connection to the sewerage system 21 days no charge 20 * Contact a registered technician to set up sewerage system 1 day no charge 21 * Request and receive telephone connection 14 days HUF 30,000 22 * Request water connection 1 day HUF 100,000 23 * Contact a registered technician to set up water connection 1 day no charge 24 * Receive an on-site inspection to check the quality of the water 1 day no charge connection 25 * Receive water connection 10 days no charge 26 * Receive electricity connection 11 days HUF 90,000 27 * Contact a registered technician to set up electricity connection 1 day no charge 28 Notify authorities of the completion of construction 1 day no charge 29 Receive final inspection of the completed building 1 day no charge 30 * Obtain an occupancy permit 30 days no charge 31 Register the building with the Land Registry Office 30 days no charge * Takes place simultaneously with another procedure. 56 Procedure 1 Request and obtain a certificate of site ownership and a site map from the local construction authority (Földhivatal) Time to complete: 8 days Cost to complete: HUF 10,000 Comment: The site map is obtained by BuildCo. The site ownership certificate can be obtained either by BuildCo or by the local construction authority. Procedure 2 Request and obtain a building permit Time to complete: 60 days Cost to complete: HUF 10,000 Comment: The 60-day time frame is at the discretion of the local construction authority for its procedure only. A 30-day extension is allowed. In the worst-case scenario, the procedure could take much longer. Some changes in the National Administrative Law (Közigazgatási Törvény) went into effect on November 1, 2005. In addition, the Building Code has undergone constant revision since 2005, and the process appears to be continuing. Procedure 3 Receive an on-site inspection Time to complete: 1 day Cost to complete: no charge Comment: There is no need to request the inspection. After the permit is obtained, the local construction authority decides when it will conduct the inspection. In general, for smaller scale projects, the inspection may never even take place. Procedure 4 Request and obtain the construction authority's approval of the architectural and technical plans and the technical description Time to complete: 45 days Cost to complete: no charge Comment: The construction authority approves the plans and descriptions. Although there is a time limit of 30 days, a lack of response is not to be construed as approval. As a rule, it takes 45 days to complete the procedure. Procedure 5 Receive an on-site inspection by the construction authority Time to complete: 1 day Cost to complete: no charge Comment: The inspection may take place anytime during the construction cycle. There is no need to request it. Procedure 6 Request an authorization from the water authority Time to complete: 1 day Cost to complete: no charge 57 Comment: A written authorization from the water utility must be obtained. The authorization must be obtained before the building permit is issued, but it can be processed simultaneously with the building permit. Procedure 7 Receive an inspection by the water authority Time to complete: 1 day Cost to complete: no charge Comment: Procedure 8 Obtain an authorization from the water authority Time to complete: 29 days Cost to complete: no charge Comment: Procedure 9 Request an authorization from the electricity utility Time to complete: 1 day Cost to complete: no charge Comment: A written authorization from the electricity utility must be obtained. The authorization must be obtained before the building permit is issued, but it can be processed simultaneously with the building permit. Procedure 10 Receive inspection by electricity utility Time to complete: 1 day Cost to complete: no charge Comment: Procedure 11 Obtain an authorization from the electricity utility Time to complete: 29 days Cost to complete: no charge Comment: Procedure 12 Request an authorization the from sewerage authority Time to complete: 1 day Cost to complete: no charge Comment: A written authorization from the sewerage utility must be obtained. The authorization must be obtained before the building permit is issued, but it can be processed simultaneously with the building permit. 58 Procedure 13 Receive an inspection the from sewerage authority Time to complete: 1 day Cost to complete: no charge Comment: Procedure 14 Obtain an authorization from sewerage authority Time to complete: 29 days Cost to complete: no charge Comment: Procedure 15 Request and obtain fire protection authorization Time to complete: 30 days Cost to complete: no charge Comment: The architectural plans contain the fire protection statement, which must be approved by the Fire Department. The authorization must be obtained before the building permit is issued, but it can be processed simultaneously with the building permit. Procedure 16 Obtain a statement from the Municipal Planning Committee Time to complete: 30 days Cost to complete: no charge Comment: If the Municipal Planning Committee characterizes the location of the new building as "special" and finds other characteristics, such as size and color, to be exceptions to local regulations, a statement must be obtained from the committee. The documents to be filed are the Land Registry Office ownership title and site map. The Municipal Planning Committee now has a stronger mandate and role in handling this procedure. (In the past, its role was advisory in nature). Procedure 17 Provide evidence of the availability of a licensed site manager and provide notification that construction has started Time to complete: 5 days Cost to complete: no charge Comment: The builder is required to submit all documents 15 days prior to the start of the construction. The public works authority may require the investor to pay a regular fee to the public network (e.g., sewerage) to cover operational costs. The construction authority may conduct an inspection at any stage. If the value of any construction project exceeds HUF 30 million, BuildCo must notify the Közigazgatási Hivatal (Regional Administrative Office) of its intention to start construction. The Regional Administrative Office must either approve or disapprove the start of construction. The office has authority over the participants, their liability, the building permit, the state of the neighboring buildings (which must 59 be documented), and provides information to the tax authority (to curb unauthorized activity) and to the local authority. Procedure 18 Request and obtain a letter from the Tax Authority Time to complete: 30 days Cost to complete: no charge Comment: Beginning in 2005, data reporting to the Tax Authority is required for all construction projects valued at more than HUF 10 million. The builder submits a letter to the Tax Authority along with the application for a building permit. If the value of the construction project is above HUF 10 million, the local authority informs the following institutions: - Tax Authority. - Construction Authority (for quality control). - Labor Authority (to control the informal economy). Procedure 19 Request and receive connection to the sewerage system Time to complete: 21 days Cost to complete: no charge Comment: Procedure 20 Contact a registered technician to set up sewerage system Time to complete: 1 day Cost to complete: no charge Comment: Procedure 21 Request and receive telephone connection Time to complete: 14 days Cost to complete: HUF 30,000 Comment: Procedure 22 Request water connection Time to complete: 1 day Cost to complete: HUF 100,000 Comment: The water connection consists of two parts: the on-site part (which must be done by a registered technician) and the off-site part (which is the connection from the existing utility to the on-site part). The builder must contact the people in charge of each part separately. The cost depends on the position of the building (distance from the source, local situation). Costs are specific to each case, depending on the expenditures involved. 60 Procedure 23 Contact a registered technician to set up water connection Time to complete: 1 day Cost to complete: no charge Comment: Procedure 24 Receive an on-site inspection to check the quality of the water connection Time to complete: 1 day Cost to complete: no charge Comment: The inspection is requested when the connection is requested. Procedure 25 Receive water connection Time to complete: 10 days Cost to complete: no charge Comment: Procedure 26 Receive electricity connection Time to complete: 11 days Cost to complete: HUF 90,000 Comment: Procedure 27 Contact a registered technician to set up electricity connection Time to complete: 1 day Cost to complete: no charge Comment: Procedure 28 Notify authorities of the completion of construction Time to complete: 1 day Cost to complete: no charge Comment: When the building is completed and the municipality has been notified, the builder (owner) must arrange for a site inspection by the municipal experts; water, electricity, and sewerage providers; and the Fire Department. After the on-site inspection, all the inspectors must declare that the building has been completed in compliance with the technical plans or identify any unfinished work. If there is unfinished work, the deadline for completion must be stated in a document. After completion, the authority issues the occupancy permit. 61 Procedure 29 Receive final inspection of the completed building Time to complete: 1 day Cost to complete: no charge Comment: Procedure 30 Obtain an occupancy permit Time to complete: 30 days Cost to complete: no charge Comment: When the building is completed and the municipality has been notified, the builder (owner) must arrange for a site inspection by the municipal experts; water, electricity, and sewerage providers; and the Fire Department. After the on-site inspection, all the inspectors must declare that the building has been completed in compliance with the technical plans or identify any unfinished work. If there is unfinished work, the deadline for completion must be stated in a document. After completion, the authority issues the occupancy permit. Procedure 31 Register the building with the Land Registry Office Time to complete: 30 days Cost to complete: no charge Comment: The owner must submit a "realization plan" to the Land Registry Office to register the new building and the owner's name on the official site map. In small villages, registration takes 30 days; in big cities and especially in the capital, registration might take from 30 days to 4 years, depending on the specifications of the lot. There is no registration fee, but there is the cost of a lawyer's services (HUF 15,000), although the company's own lawyer may handle the process. 62 Employing Workers in Hungary Employing workers indices are based on responses to survey questions. The table below shows these responses in Hungary. Employing Workers Indicators (2007) Answer Score Rigidity of Employment Index 30.0 Difficulty of Hiring Index 0.0 Are fixed-term contracts prohibited for permanent tasks? No 0 What is the maximum duration of fixed-term contracts (including renewals)? (in months) 60 0.0 What is the ratio of mandated minimum wage to the average value added per worker? 0.24 0.00 Rigidity of Hours Index 80.0 Can the workweek extend to 50 hours (including overtime) for 2 months per year to respond to a Yes 0 seasonal increase in production? What is the maximum number of working days per week? 5 1 Are there restrictions on night work? Yes 1 Are there restrictions on "weekly holiday" work? Yes 1 What is the paid annual vacation (in working days) for an employee with 20 years of service? 28 1 Difficulty of Firing Index 10.0 Is the termination of workers due to redundancy legally authorized? Yes 0 Must the employer notify a third party before terminating one redundant worker? No 0 Does the employer need the approval of a third party to terminate one redundant worker? No 0 Must the employer notify a third party before terminating a group of 25 redundant workers? Yes 1 Does the employer need the approval of a third party to terminate a group of 25 redundant No 0 workers? Can an employer make redundant a worker only if the worker could not have been reassigned or No 0 retrained? Are there priority rules applying to redundancies? No 0 Are there priority rules applying to re-employment? No 0 Firing costs (weeks of wages) 34.5 What is the notice period for redundancy dismissal after 20 years of continuous employment? 12.9 (weeks of salary) 63 What is the severance pay for redundancy dismissal after 20 years of employment? (weeks of 21.7 salary) What is the legally mandated penalty for redundancy dismissal? (weeks of salary) 0.0 Nonwage labor cost (% of salary) 33.5 Note: The first three indices measure how difficult it is to hire a new worker, how rigid the regulations are on working hours, and how difficult it is to dismiss a redundant worker. Each index assigns values between 0 and 100, with higher values representing more rigid regulations. The overall Rigidity of Employment Index is an average of the three indices. 64 Registering Property in Hungary This topic examines the steps, time, and cost involved in registering property in Hungary. STANDARDIZED PROPERTY Property Value: 547,500.00 City: Budapest Registration Requirements: No: Procedure Time to complete Cost to complete 1 Obtain a certified title record at the Land Registry 1 day HUF 4,000 Office 2 The sale and purchase agreement is signed by a 1 day 1% of the purchase price lawyer to become valid (lawyer's fees) ­ subject to the parties' agreement 3 Obtain the extract of the purchaser from the Court of 1 day HUF 5,000 Registry 4 Submit application to the Land Registry Office and 30-90 days 10% of property value register the title (Stamp duty) + HUF 6,000 (registration fee) 65 Procedure 1 Obtain a certified title record at the Land Registry Office Time to complete: 1 day Cost to complete: HUF 4,000 Comment: Obtain an original certified title sheet folio at the Land Registry Office to check the current data of the property. The title sheet folio includes information on liens and outstanding taxes. According to the Hungarian law, the issue of title sheet folio is valid within 30 days the date of signing of the contract. Procedure 2 The sale and purchase agreement is signed by a lawyer to become valid Time to complete: 1 day Cost to complete: 1% of the purchase price (lawyer's fees) ­ subject to the parties' agreement Comment: After the negotiations between parties, a written sale and purchase agreement is required, and each page has to be initialed/signed by the parties. The contract becomes valid by the countersignature of a lawyer (signature, stamp and dry stamp on each page). The countersignature certifies the identity of the signing parties and that the content of the agreement is in accordance with the legal regulations and the will of the parties. Procedure 3 Obtain the extract of the purchaser from the Court of Registry Time to complete: 1 day Cost to complete: HUF 5,000 Comment: An extract of the purchaser from the commercial registry must be obtained. With the data indicated in the extract the officer can check that the legal entity really exists and that the manager is really entitled to sign for the company. The commercial register is public, so anybody can go there and ask for a company extract. For real estate sales, if the purchaser is a legal entity, it is obliged to submit an extended company extract. The extract has to contain the deleted and actual data of the company, and may not be issued earlier than 30 days preceding the sale. It means that if a company has a fresh extract in its files from former legal relationships, it may use that for this purpose, but since the extract is submitted to the land registry office, it has to get a new one for other purposes. Procedure 4 Submit application to the Land Registry Office and register the title Time to complete: 30-90 days Cost to complete: 10% of property value (Stamp duty) + HUF 6,000 (registration fee) Comment: Since August 2005 two registry offices have been functioning in Budapest instead of only one. Any of the two mentioned registries can deal with commercial and industrial property transfer cases. The official deadline for the land registry office to register a right under the application is 30 days. In practice, it usually takes 1-3 months. The registration fees have increased from HUF 5000 to HUF 6000 as a result of the the Act 122 of February,4 2007. Also, as of January 2006, it is possible to retrieve a standardized application form online, at: www.takarnet.hu. The Registry office only accepts this standard form. Once the application has been submitted to the land registry office, one set of the documents are forwarded to the stamp duty office. The purchaser then receives a letter from the stamp duty office and will pay stamp duty by postal check or bank transfer. Note: Usually, if the purchaser does not pay the full purchase price at the signing 66 of the contract, the vendor retains its ownership. (Such retention may be registered until the payment of the full purchase price). The application may request the registration of the sale with retention of ownership, or the registration of title. As of a regulation issued in January 2006, the seller may declare that he/she will request registration of the purchaser's title at a certain date but no later than 6 months from the date of the agreement. During this time period the registration is pending and no other registrations or applications may be fulfilled regarding the property. In the event that the land registry office does not receive the consent from the owner of the property, the pending application is deleted. The fact of sale with retention of ownership is indicated on a side note in 24 hours from the submission. This means that some kind of application was submitted with regard to the property but it was not judged by the land registry office yet (not registered, not refused). For sales with retention of ownership, a declaration has to be submitted stating that the title may be registered, simultaneously with the deletion of the retention of ownership. Following the submission of the declaration, a new side note will be indicated, and the title of the purchaser will be registered. Transfers of property are subject to a 20% VAT. The documentation shall include: The standardized application form; Two original copies and one photocopy of the contract; Original extract of the purchaser from the commercial register; Specimen of signature of the executive officer who has signed the contract (issued by a notary public) and a copy of the latest Property Register Card (to be obtained from the City Survey Department) to indicate poroperty does not belong to the Government; Copy of the Municipal Tax bill to indicate the year in which the building was constructed; No Objection Certificate of permission from the Urban Land Ceiling Department (to be obtained from the Talati Office) 67 Getting Credit in Hungary The following table summarize legal rights of borrowers and lenders, and the availability and legal framework of credit registries in Hungary. Getting Credit Indicators (2007) Indicator Private credit Public credit Private bureau coverage (% adults) 5 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or No No 0 utility companies as well as financial institutions? Are more than 2 years of historical credit information distributed? Yes No 1 Is data on all loans below 1% of income per capita distributed? Yes No 1 Is it guaranteed by law that borrowers can inspect their data in the largest Yes No 1 credit registry? Coverage 6.9 0.0 Number of individuals 340,000 0 Number of firms 240,000 0 Legal Rights Index 6 Does the law allow all natural and legal persons to be party to collateral agreements? Yes Does the law allow for general descriptions of assets, so that all types of assets can be used as collateral? No Does the law allow for general descriptions of debt, so that all types of obligations can be secured? Yes Does a unified registry exist for all security rights in movable property? Yes Do secured creditors have absolute priority to their collateral outside bankruptcy procedures? Yes Do secured creditors have absolute priority to their collateral in bankruptcy procedures? Yes During reorganization, are secured creditors' claims exempt from an automatic stay on enforcement? No During reorganization, is management's control of the company's assets suspended? No Does the law authorize parties to agree on out of court enforcement? Yes May parties have recourse to out of court enforcement without restrictions? No 68 Protecting Investors in Hungary The table below provides a full breakdown of how the disclosure, director liability, and shareholder suits indexes are calculated in Hungary. Protecting Investors Data (2007) Indicator Disclosure Index 2 What corporate body provides legally sufficient approval for the transaction? (0-3; see notes) 0 Immediate disclosure to the public and/or shareholders (0-2; see notes) 1 Disclosures in published periodic filings (0-2; see notes) 1 Disclosures by Mr. James to board of directors (0-2; see notes) 0 Requirement that an external body review the transaction before it takes place (0=no, 1=yes) 0 Director Liability Index 4 Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to 1 the company. (0-2; see notes) Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for 1 damage to the company. (0-2; see notes) Whether a court can void the transaction upon a successful claim by a shareholder plaintiff (0-2; see 0 notes) Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the 1 shareholder plaintiff (0=no, 1=yes) Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff (0=no, 1=yes) Whether fines and imprisonment can be applied against Mr. James (0=no, 1=yes) 0 Shareholder plaintiff's ability to sue directly or derivatively for damage the transaction causes to the 1 company (0-1; see notes) Shareholder Suits Index 7 Documents available to the plaintiff from the defendant and witnesses during trial (0-4; see notes) 4 Ability of plaintiffs to directly question the defendant and witnesses during trial (0-2; see notes) 0 Plaintiff can request categories of documents from the defendant without identifying specific ones (0=no, 1 1=yes) Shareholders owning 10% or less of Buyer's shares can request an inspector investigate the transaction 1 (0=no, 1=yes) Level of proof required for civil suits is lower than that for criminal cases (0=no, 1=yes) 0 Shareholders owning 10% or less of Buyer's shares can inspect transaction documents before filing suit 1 (0=no, 1=yes) 69 Investor Protection Index 4.3 Notes: Extent of Disclosure Index What corporate body provides 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 Immediate disclosure to the public and/or shareholders 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures in published periodic filings 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures by Mr. James to board of directors 0=none; 1=existence of a conflict without any specifics; 2= full disclosure of all material facts Director Liability Index Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company 0= Mr. James is not liable or 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 was unfair, oppressive or prejudicial to minority shareholders Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for damage 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, oppressive, or prejudicial to minority 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=available when the transaction is oppressive or prejudicial to minority shareholders; 2=available when the transaction is unfair or entails a conflict of interest Shareholder plaintiffs' ability to sue directly or derivatively for damage the transaction causes to the company 0=not available; 1=direct or derivative suit available for shareholders holding 10% of share capital or less Shareholder Suits Index Documents available to the plaintiff from the defendant and witnesses during trail Score 1 each for (1) information that the defendant has indicated he intends to rely on for his defense; (2) information that directly proves specific facts in the plaintiff's claim; (3) any information that is relevant to the subject matter of the claim; and (4) any information that may lead to the discovery of relevant information. Ability of plaintiffs to directly question 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 70 Paying Taxes in Hungary The table below addresses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year in Hungary, as well as measures of administrative burden in paying taxes. Tax or mandatory Payments Notes on Time Statutory tax Tax Totaltax rate Notes on contribution (number) Payments (hours) rate base (% profit) TTR Environmental tax 1 itemized weight of small amount depending packaging on the packaging material Value added tax (VAT) 1 online filing 98 20.0% value added not included Local tax 2 HUF 2,000 per 0.10 employee Property tax (land) 2 HUF 200 land area 0.19 per square meter Vehicle tax 2 HUF 12 vehicle 0.21 weight + half load Rehabilitation 4 HUF 6,995 per 0.35 contribution employee Property tax 1 HUF 900 building area 0.70 per square meter R&D Tax 4 0.3% turnover plus 0.88 interest income Itemized healthcare 1 online filing HUF 1,950 per 1.17 contribution employee per month Apprenticeship tax 0 paid jointly 1.5% gross 1.69 salaries Unemployment 0 paid jointly 3.0% gross 3.38 insurance salaries Local business tax 4 2.0% turnover plus 5.89 interest income Corporate income tax 1 online filing 39 16.0% taxable 7.87 profits Health Insurance 0 paid jointly 11.0% gross 12.41 salaries 71 Pension contribution 1 online filing 203 18.0% gross 20.30 salaries Totals 24 340 55.1 Notes: a) data not collected b) VAT is not included in the total tax rate because it is a tax levied on consumers c) very small amount d) included in other taxes e) Withheld tax f) electronic filling available g) paid jointly with another tax Name of taxes have been standardized. For instance income tax, profit tax, tax on company's income are all named corporate income tax in this table. When there is more than one statutory tax rate, the one applicable to TaxpayerCo is reported. The hours for VAT include all the VAT and sales taxes applicable. The hours for Social Security include all the hours for labor taxes and mandatory contributions in general. 72 Trading Across Borders in Hungary These tables list the procedures necessary to import and exports a standardized cargo of goods in Hungary. The documents required to export and import the goods are also shown. Nature of Export Procedures (2007) Duration (days) US$ Cost Documents preparation 7 105 Customs clearance and technical control 4 70 Ports and terminal handling 3 250 Inland transportation and handling 4 550 Totals 18 975 Nature of Import Procedures (2007) Duration (days) US$ Cost Documents preparation 10 105 Customs clearance and technical control 1 70 Ports and terminal handling 2 250 Inland transportation and handling 4 550 Totals 17 975 Export Bill of lading Certificate of origin Commercial invoice Customs export declaration Packing list Import Bill of lading Certificate of origin Commercial invoice Customs import declaration Customs transit document Packing list Terminal handling receipts 73 Enforcing Contracts in Hungary This topic looks at the efficiency of contract enforcement in Hungary. Nature of Procedure (2007) Indicator Procedures (number) 33.00 Duration (days) 335.00 Filing and service 60.0 Trial and judgment 185.0 Enforcement of judgment 90.0 Cost (% of claim)* 13.00 Attorney cost (% of claim) 5.0 Court cost (% of claim) 6.0 Enforcement Cost (% of claim) 2.0 Court information: Pest or Buda Central District("Pesti Központi Kerületi Bíróság / Budai Központi Court Kerületi Bíróság") www.fovarosi.birosag.hu/bpte rkep.htm * Claim assumed to be equivalent to 200% of income per capita. 74