65291 Economy Profile: El Salvador © 2012 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org All rights reserved. 1 2 3 4 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. 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ISBN: 978-0-8213-8833-4 E-ISBN: 978-0-8213-8834-1 DOI: 10.1596/978-0-8213-8833-4 ISSN: 1729-2638 Printed in the United States Doing Business 2012 El Salvador 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 35 Registering property .................................................................................................................. 42 Getting credit .............................................................................................................................. 51 Protecting investors ................................................................................................................... 58 Paying taxes ................................................................................................................................ 68 Trading across borders .............................................................................................................. 76 Enforcing contracts .................................................................................................................... 85 Resolving insolvency .................................................................................................................. 92 Data notes ................................................................................................................................... 98 Resources on the Doing Business website ............................................................................ 103 Doing Business 2012 El Salvador 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2010). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 10 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts and transparency of government procurement, resolving insolvency. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 183 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 32 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 18 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for El Salvador. To allow useful comparison, recommends regulatory reforms. The data, along with it also provides data for other selected economies information on ordering Doing Business 2012, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2011 (except for http://www.doingbusiness.org. Doing Business 2012 El Salvador 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: Latin America & Caribbean business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 6,194,126 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 3,360.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 112 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 112 investors, paying taxes, trading across borders, Change in rank: 0 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 El Salvador 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2012 El Salvador 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy’s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How El Salvador and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 El Salvador 8 THE BUSINESS ENVIRONMENT Figure 1.3 How El Salvador ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 El Salvador 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the ―frontier,‖ a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy’s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy’s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy’s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has El Salvador come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 El Salvador 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for El Salvador Best performer globally El Salvador DB2012 El Salvador DB2011 Guatemala DB2012 Costa Rica DB2012 Honduras DB2012 Colombia DB2012 Panama DB2012 Mexico DB2012 Indicator DB2012 Starting a Business 136 129 65 122 165 150 75 29 New Zealand (1) (rank) Procedures (number) 8 8 9 12 12 13 6 6 Canada (1)* Time (days) 17 17 14 60 37 14 9 8 New Zealand (1) Cost (% of income per 45.1 45.0 8.0 11.1 52.5 46.7 11.2 9.9 Denmark (0.0)* capita) Paid-in Min. Capital (% 3.0 3.0 0.0 0.0 22.3 17.0 8.4 0.0 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 144 141 29 141 151 70 43 71 China (1) (rank) Procedures (number) 33 33 8 20 19 14 10 17 Denmark (5) Time (days) 157 157 46 188 165 94 81 113 Singapore (26)* Cost (% of income per 168.3 167.8 338.9 164.5 541.7 309.8 333.1 95.5 Qatar (1.1) capita) Doing Business 2012 El Salvador 11 Best performer globally El Salvador DB2012 El Salvador DB2011 Guatemala DB2012 Costa Rica DB2012 Honduras DB2012 Colombia DB2012 Panama DB2012 Mexico DB2012 Indicator DB2012 Getting Electricity (rank) 130 126 134 43 30 114 142 15 Iceland (1) Procedures (number) 7 7 5 5 4 8 7 5 Germany (3)* Time (days) 78 78 165 62 39 33 114 35 Germany (17) Cost (% of income per 533.3 540.0 1081.3 299.5 624.9 1082.2 395.5 15.4 Japan (0.0) capita) Registering Property 54 50 51 46 23 94 140 120 New Zealand (3) (rank) Procedures (number) 5 5 7 5 4 7 7 8 Portugal (1)* Time (days) 31 31 15 20 23 23 74 32 Portugal (1) Cost (% of property 3.7 3.8 2.0 3.4 0.9 5.7 5.3 5.3 Slovak Republic (0.0) value) Getting Credit (rank) 48 45 67 98 8 8 40 48 United Kingdom (1)* Strength of legal rights 5 5 5 3 8 8 6 5 New Zealand (10)* index (0-10) Depth of credit 6 6 5 5 6 6 6 6 Japan (6)* information index (0-6) Public registry coverage 23.9 21.8 0.0 25.5 17.3 16.3 0.0 0.0 Portugal (86.2) (% of adults) Private bureau coverage 81.1 95.0 71.2 78.9 8.9 31.2 98.1 53.8 New Zealand (100.0)* (% of adults) Protecting Investors 166 172 5 166 133 166 46 111 New Zealand (1) (rank) Extent of disclosure 3 3 8 2 3 0 8 1 France (10)* index (0-10) Doing Business 2012 El Salvador 12 Best performer globally El Salvador DB2012 El Salvador DB2011 Guatemala DB2012 Costa Rica DB2012 Honduras DB2012 Colombia DB2012 Panama DB2012 Mexico DB2012 Indicator DB2012 Extent of director 0 0 8 5 3 5 5 4 Singapore (9)* liability index (0-10) Ease of shareholder suits 6 5 9 2 6 4 5 9 New Zealand (10)* index (0-10) Strength of investor 3.0 2.7 8.3 3.0 4.0 3.0 6.0 4.7 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 146 141 95 138 124 140 109 169 Canada (8) Payments (number per 53 53 9 31 24 47 6 53 Norway (4) year) Time (hours per year) 320 320 193 246 344 224 347 482 Luxembourg (59) Trading Across Borders 69 72 87 73 119 103 59 11 Singapore (1) (rank) Documents to export 8 8 5 6 10 6 5 3 France (2) (number) Hong Kong SAR, Time to export (days) 14 14 14 13 17 18 12 9 China (5)* Cost to export (US$ per 845 845 2270 1190 1127 1242 1450 615 Malaysia (450) container) Documents to import 8 8 6 7 9 8 4 4 France (2) (number) Time to import (days) 10 10 13 15 17 22 12 9 Singapore (4) Cost to import (US$ per 845 845 2830 1190 1302 1420 1780 965 Malaysia (435) container) Enforcing Contracts 66 57 149 129 97 177 81 119 Luxembourg (1) (rank) Doing Business 2012 El Salvador 13 Best performer globally El Salvador DB2012 El Salvador DB2011 Guatemala DB2012 Costa Rica DB2012 Honduras DB2012 Colombia DB2012 Panama DB2012 Mexico DB2012 Indicator DB2012 Time (days) 786 786 1346 852 1459 920 415 686 Singapore (150) Cost (% of claim) 19.2 19.2 47.9 24.3 26.5 35.2 32.0 50.0 Bhutan (0.1) Procedures (number) 34 31 34 40 31 47 38 31 Ireland (21)* Resolving Insolvency 88 92 12 121 101 131 24 83 Japan (1) (rank) Time (years) 4.0 4.0 1.3 3.5 3.0 3.8 1.8 2.5 Ireland (0.4) Cost (% of estate) 9 9 1 15 15 15 18 18 Singapore (1)* Recovery rate (cents on 31.5 29.2 82.8 22.2 27.9 19.2 67.1 33.3 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practice� marks, see the data notes for details. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2012 El Salvador 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that all government and nongovernment entities involved in the process  Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business:  Does not qualify for any special benefits.  Is a limited liability company, located in the  Does not own real estate. largest business city.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2012 El Salvador 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in El Salvador? costs 45.1% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 3.0% of income per capita (figure a business there requires 8 procedures, takes 17 days, 2.1). Figure 2.1 What it takes to start a business in El Salvador Paid-in minimum capital (% of income per capita): 3.0 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 El Salvador 16 STARTING A BUSINESS Globally, El Salvador stands at 136 in the ranking of and the regional average ranking provide other useful 183 economies on the ease of starting a business information for assessing how easy it is for an (figure 2.2). The rankings for comparator economies entrepreneur in El Salvador to start a business. Figure 2.2 How El Salvador and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 El Salvador 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in El Salvador That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in El Salvador over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 129 136 Procedures (number) 12 12 12 10 9 8 8 8 8 Time (days) 115 115 40 26 26 17 17 17 17 Cost (% of income per 127.4 128.0 118.0 75.6 73.1 49.6 38.7 45.0 45.1 capita) Paid-in Min. Capital (% 133.2 132.5 124.4 119.7 112.5 3.5 2.9 3.0 3.0 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 El Salvador 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by El Salvador on ways to improve the ease of starting a the economies that today have the best performance business. And changes in regional averages can show regionally or globally on the procedures, time, cost or where El Salvador is keeping up—and where it is paid-in minimum capital required to start a business falling behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 El Salvador 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 21 economies in Latin America & Caribbean have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 El Salvador 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in El Salvador (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has El Salvador made starting a business easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. A new commercial code was implemented that simplified business start-up by reducing the minimum capital DB2009 requirement, simplifying the legalization of accounting books, and publication requirements. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 El Salvador 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY El Salvador is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: San Salvador firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Liability Company professionals and the study of laws, regulations and Start-up capital: 10 times GNI per capita publicly available information on business entry in that economy. Following is a detailed summary of Paid-in minimum capital (% of income per those procedures, along with the associated time capita): 3.0 and cost. These procedures are those that apply to a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in El Salvador—and the time and cost Time to No. Procedure Cost to complete complete Deposit the legally required initial capital in a Salvadoran bank and obtain deposit evidence or certified check. At least 5% of the initial start-up capital has to be shown and evidenced to a Salvadoran public notary. This capital has to be shown through a certified check payable to the name of the company, for the amount for 1 day (less than an nominal 1 which the company will initiate its operations. The check will be hour) deposited in the company’s new account once the deed is duly registered at the Registry of Commerce (that is, the company has been established). The bank that opens the account in name of the new corporation will require a certified copy of the articles of association and documents of the company’s legal representative. Check the uniqueness of the company name in the Registry of Commerce According to Article 101 of the Code of Commerce, to select the 2 company name, a company representative must go to the Registry of 1 day no charge Commerce and verify that the name chosen has not been taken by another company. Since April, 2008, entrepreneurs can check the uniqueness of the company name at the Registry of Commerce online. ( For further information: http://www.e.cnr.gob.sv/portal/) Notarize the articles of association To establish a corporation, Article 22 and Article 194 of the Code of Between USD 500 and 3 2 days Commerce require fulfillment of the following requirements: - Name USD 800 and personal data of company shareholders (two shareholders minimum).- Commercial name.- Term, domicile, and company social Doing Business 2012 El Salvador 22 Time to No. Procedure Cost to complete complete purpose. - Capital stock.- Corporate administration shall be delegated either to a board of directors or a sole administrator. (In El Salvador no mercantile or labor limitations exist regarding the administrators of a capital stock company.)- External and fiscal auditors. The cost to notarize the articles of incorporation ranges between USD 500 to USD 1,000. Register with the Registry of Commerce and publication and legalization of books USD 0.57 for every USD 114.28 + USD The Registry of Commerce Act establishes fees for the registration of 2.3 (for copies) + USD companies. Article 63 establishes different fees for the company's business licence according to the company's initial capital, from $2,000 17.14 (Balance to $57,150 the fee is $91.43; from $57,151 to $114,286 the fee is Deposit) + USD 4 $137.14; from $114,287 to $228,572 the fee is $228.57; and, if the 3 days 137.14 (business company´s initial capital exceeds $228,572, the company has to pay license) + USD $11.43 for every $100,000 or fraction of it, but cannot exceed 0.1*100*3 ( $11,428.57. In the same Act, Article 66 establishes the fees for the legalization of books) registration of the incorporated company, which is $0.57 for every + USD 34.29 (local $100.00 USD, up to a maximum of $11,428.57 USD. Article 71 of the registration) same Act establishes the fee for the Deposit of the Initial Balance Sheet; and Article 70 establishes the fee for the Legalization of Books. Accounting system The external auditor of the company authorizes the accounting procedures and the internal books, which include the general 10 days USD 450 5 shareholders meeting book, the board of directors book, the registry of shareholders book, and the increase or decrease of capital stock book. Article 40 of the Code of Commerce states that the books can be legalized either by the external auditor or by the Register of Commerce. * Register employees with one of the pension administrator funds 3 days (simultaneous (Administradora de Fondos de Pensiones). with previous no charge 6 procedure) * Register the company for tax at the Mayor’s Office 1 day (simultaneous 7 with previous USD 10 Upon registering at the Registry of Commerce, each founder must pay a procedure) tax (Vialidad A) of about USD 10. * Make a company seal 2 days (simultaneous Because no authorization is required, it is customary for companies to with previous USD 15 8 make a seal. A company seal can be made in 1 or 2 days at a cost of procedure) about USD 15–USD 30, depending on the size and design selected by the client. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 El Salvador 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2012 El Salvador 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 33 procedures, takes 157 days build a warehouse in El Salvador? According to data and costs 168.3% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in El Salvador Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 El Salvador 25 DEALING WITH CONSTRUCTION PERMITS Globally, El Salvador stands at 144 in the ranking of ranking provide other useful information for assessing 183 economies on the ease of dealing with how easy it is for an entrepreneur in El Salvador to construction permits (figure 3.2). The rankings for legally build a warehouse. comparator economies and the regional average Figure 3.2 How El Salvador and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 El Salvador 26 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed—and which have easy (or difficult) it is to deal with construction permits not (table 3.1). That can help identify where the in El Salvador today, data over time show which potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in El Salvador over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 141 144 Procedures (number) 33 33 33 33 33 33 33 Time (days) 157 157 157 157 157 157 157 Cost (% of income per 24.3 204.9 192.6 171.7 162.4 167.8 168.3 capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 El Salvador 27 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by on ways to improve the ease of dealing with the economies that today have the best performance construction permits. And changes in regional regionally or globally on the procedures, time or cost averages can show where El Salvador is keeping up— required to deal with construction permits (figure 3.3). and where it is falling behind. These economies may provide a model for El Salvador Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 El Salvador 28 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 El Salvador 29 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in El Salvador (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has El Salvador made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 El Salvador 30 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for El Salvador are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : San Salvador information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers USD 479,081 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in El Salvador —and the time and cost Time to No. Procedure Cost to complete complete Pay for construction line, site qualification, and zoning revision at Commercial Bank According to Regulatory Order No5 as of 5 February 20008, Volume 378, published on February 15, 2008 the official fee schedule for procedures has been 1 updated. 1 day USD 204 The fee for obtaining a construction line, zone revision and site qualification is based on USD 0,11 sq. m.. If the procedure needs to be completed in fast track option it will cost twice. The total cost for fast track approval will be USD 204.38. Obtain Construction Line and Site Qualification To request a construction line, BuildCo must present the deed of ownership and a topographical plan with geodesic coordinates. This is required to ensure that public works (street or highway) will not effect the land. The construction line is the document that defines the alignment of new construction with the Metropolitan Area of San Salvador (AMSS) road network. It describes the right of way, retract 2 area, and transversal section of the road projects to be developed, or 10 days no charge widening to be undertaken in the San Salvador metropolitan area. The document is valid for 12 months. For San Salvador, this document should be requested at the Office of Planning of Metropolitan Area of San Salvador (OPAMSS,); outside of this area, at the Municipal Authority or the Vice-Ministry of Housing. The site or land qualification defines whether the proposed construction is allowed on that land for the use projected. The Doing Business 2012 El Salvador 31 Time to No. Procedure Cost to complete complete compatibility of land use is based on reference to the soil matrix, as defined in the General Plan of Zoning in force for AMSS, which indicates the requirements for project development. This document is valid for 12 months and should be requested from OPAMSS, the Municipal Authority, or the Vice-Ministry of Housing. Time and cost have been calculated on the assumption that a special service was used so that documents can be obtained in half the time if a premium (double the cost) is paid. The silence-is-consent rule applies to this procedure. Approvals are granted automatically if the applicant does not hear from OPAMSS in 30 days. Obtain approval of Environmental Impact Study The Environmental Impact Study is requested at the Ministry of 60 days USD 2,046 3 Environment. Given the size of the project considered here, the regulatory institution would eliminate this requirement (at the ministry’s discretion). * Obtain Zoning or Road Construction revision The Zoning or Road Construction Revision should be requested from (Office of Planning of Metropolitan Area of San Salvador, OPAMSS), the Municipal Authority, or the Vice-Ministry of Housing. The document verifies the compliance of the planned construction with the requirements established for the use of soil, as established under the General Plan of Zoning for the Metropolitan Area of San Salvador and 21 days USD 316 4 its standing bylaws. Compliance with this procedure includes verification of the internal road network, dwelling spaces, circulation of pedestrians, recreational areas, and the provision of equipment. Cost associated with procedure: USD 0.17 per square meter, based on the total square meters of the plot. This rate is applicable over lots that have an extension of more than 300 sq. m. With fast track option it will cost USD 315.86. * Obtain an analysis of the feasibility of having rainwater drainage BuildCo must submit a request for the feasibility of rainwater drainage study, which is performed by the OPAMSS. This municipal entity defines, at no charge, the place where the rainwater will be discharged. The request is submitted to the OPAMSS, the Municipal Authority, or 21 days USD 204 5 the Vice-Ministry of Housing. As of February 2008, the feasibility analysis fee is USD 0.11 per square meter, based on the plot size. The rate applies only to plots that are 300 sq. m. or more. With fast track option it would cost USD 204,38 (0,11x 929 s.m. x 2). * Receive inspection by the Office of Planning of Metropolitan Area of San Salvador 1 day no charge 6 * Obtain analysis of the feasibility of connecting to potable water 7 and sewage services 21 days USD 92 Doing Business 2012 El Salvador 32 Time to No. Procedure Cost to complete complete BuildCo must submit a request for the feasibility of potable water and sewage services study with the national water and sewage utility (ANDA). The utility defines the place of sewage discharge and where the requested amount of water is served. * Inspection by the national water and sewage utility (ANDA) 8 1 day no charge * Obtain an analysis of the feasibility of connecting to electricity At this point, BuildCo applies for the point of delivery of electric power 15 days USD 31 9 and indicates the amount requested. This request should be placed with the local private power company (in this case, Electric Lightning Company of San Salvador, CAESS). * Receive inspection by a local private power company (CAESS) 10 1 day no charge * Pay for water and electric power feasibility analysis 11 1 day no charge After the request for the feasibility analyses at the two agencies, payment to both agencies is made through a commercial bank. Obtain construction permit The following documents are needed to obtain the construction permit, which constitutes the final approval of the project: soil study, architectonic designs, structural designs, electric system designs, 12 hydraulic systems design, mechanical systems designs, fireproof 30 days no charge system, calculations report, and technical specifications. The construction permit is granted by the OPAMSS in San Salvador or by the Municipal Authority or the Vice-Ministry of Housing. The different approvals mentioned are coordinated by the OPAMSS itself and do not require BuildCo’s follow up. Pay Construction Permit application fee 13 The fee for building permit which was based before as a function of 1 day USD 741 project value, has been established under fixed USD 0,57 sq. m.. The total cost will be USD 741.34 (057 x 1300.6). Receive first inspection during construction The OPAMSS must be notified of the start of the construction and will 14 then inspect the site every 2 weeks. The notice must be given at least 1 day no charge 15 days before start of construction. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no cost. Receive inspection during construction - II 15 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive inspection during construction - III 16 1 day no charge During construction, the OPAMSS will conduct inspections every 2 Doing Business 2012 El Salvador 33 Time to No. Procedure Cost to complete complete weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive inspection during construction - IV 17 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive inspection during construction - V 18 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive inspection during construction - VI 19 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive inspection during construction - VII 20 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive inspection during construction - VIII 21 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive inspection during construction - IX 22 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive inspection during construction - X 23 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive inspection during construction - XI 24 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive inspection during construction - XII 25 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive inspection during construction - XIII 26 1 day no charge During construction, the OPAMSS will conduct inspections every 2 weeks. An inspection takes 2–3 hours and does not lead to a work Doing Business 2012 El Salvador 34 Time to No. Procedure Cost to complete complete stoppage. The inspection is performed at no charge. Receive inspection during construction - XIV 27 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Request and receive inspection from fire department 28 1 day no charge From the time of the request, it takes about 4–5 working days until the fire inspectors visit the site. Receive final inspection and request occupancy permit 29 During construction, the OPAMSS will conduct inspections every 2 1 day no charge weeks. An inspection takes 2–3 hours and does not lead to a work stoppage. The inspection is performed at no charge. Receive occupancy permit The occupancy permit is granted within 8 days from final inspection by 30 the OPAMSS, the Municipal Authority, or the Vice-Ministry of Housing. 8 days USD 1,483 Occupancy permit is charged at USD 0,57 sq. m.. and in fast track mode double that amount. The total cost would be USD 1,482.6. Obtain water and sewage connection 31 30 days USD 338 All utilities can be requested only after the occupancy permit is granted. * Obtain telephone Connection 32 5 days USD 200 Arrange for payment at a Commercial Bank 33 1 day no charge It is assumed that BuildCo arranges for as many concurrent payments as possible to save time. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 El Salvador 35 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 El Salvador 36 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 78 days and costs 533.3% of income connection in El Salvador? According to data collected per capita (figure 4.1). by Doing Business, getting electricity there requires 7 Figure 4.1 What it takes to obtain an electricity connection in El Salvador Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 El Salvador 37 GETTING ELECTRICITY Globally, El Salvador stands at 130 in the ranking of perspective in assessing how easy it is for an 183 economies on the ease of getting electricity entrepreneur in El Salvador to connect a warehouse to (figure 4.2). The rankings for comparator economies electricity. and the regional average ranking provide another Figure 4.2 How El Salvador and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 El Salvador 38 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for El Salvador on ways to improve the ease of 4.1). If obtaining a new electricity connection requires getting electricity. Regional and global averages on fewer procedures, less time or less cost in other these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in El Salvador and comparator economies Latin America & Global average El Salvador Guatemala Costa Rica Caribbean Honduras Colombia Panama average Mexico Indicator Rank 130 134 43 30 114 142 15 72 .. Procedures (number) 7 5 5 4 8 7 5 5 5 Time (days) 78 165 62 39 33 114 35 65 111 Cost (% of income per capita) 533.3 1081.3 299.5 624.9 1082.2 395.5 15.4 593.7 1,942.3 Source: Doing Business database. Doing Business 2012 El Salvador 39 GETTING ELECTRICITY What are the details? The indicators reported here for El Salvador are based OBTAINING AN ELECTRICITY CONNECTION on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: San Salvador utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: AES El Salvador verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in El Salvador—and the time and cost Time to No. Procedure Cost to complete complete The client hires an electrician authorized by the Superintendence of Electricity and Telecommunications (SIGET) to request the service with AES EL Salvador and to inspect and certify the internal installation 1 7 calendar days USD 200.0 The service request must be submitted and signed by a certified electrician the Superintendence of Electricity and Telecommunications (SIGET). The customer therefore has to first hire such an electrician. The client or its electrician submits in person the request for "feasibility of electricity service" with AES El Salvador and awaits the outcome of the report The customer’s electrician submits the application for a feasibility study. The service request must be signed by a certified electrician the Superintendence of Electricity and Telecommunications (SIGET). With the application the following information should be submitted: 2 • the load needed (140kVA) and 14 calendar days USD 89.9 • the Certificate of Guarantee of Safety of the Internal Electrical Installations, according to the form established by the distributor. The certificate should have been issued by a licensed Electrical Engineer or a certified electrician (submit also copy of the credentials, i.e. that he is accredited as an electrician with SIGET). • a sketch of geographical location, indicating complete nomenclature and any other reference point that allows quick access to the site. • Presented with single identity document (Documento Unico de Identidad -DUI), Driving License or Passport. Doing Business 2012 El Salvador 40 Time to No. Procedure Cost to complete complete • If the client cannot appear, he or she has to send a letter requesting the connection of her service, attaching a photocopy of her ID, Driving License or Passport. • If the service is to be connected to a private line, it must be built according to form 66-E issued by SIGET. Additionally it must submit authorization letter and photocopy of ID, Driving License or Passport of the owner of line. AES El Salvador will identify the best delivery point for the new connection and send the client a notice authorizing the service. * In order to identify the point of connection and determine the feasibility, AES El Salvador inspects in situ the client's property 3 10 calendar days no charge To inform the feasibility study a site visit is conducted. It is recommended that a representative of the applicant be present during the inspection. After receiving the certificate of feasibility, the client submits the electrical plans for revision together with the official application and requests a cost estimate from AES El Salvador The customer must submit the following documents with the official application: • the feasibility report and point of delivery, • a draft budget, 12 calendar days USD 211.1 4 • Certification of Guarantee of the Security of internal installations (by a responsible electrician), • electrical plans, • location sketches, etc AES El Salvador will then revise the electrical plans, calculate the budget and send it in writing to the client. * AES El Salvador inspects for the second time in order to prepare the budget 5 7 calendar days no charge Another inspection is performed to inform the budget and the client has to be present. The client or his authorized contractor installs the transformers and the cables for the external wiring Once the customer has received the budget and agrees with it, the client can start preparing the works that fall into his responsibility. He will install the transformers and poles (if needed) and prepare the cables that 26 calendar days USD 14,500.0 6 the utility will later connect to the meter etc..The time estimate for this procedure includes the wait time to obtain the relevant material. Customers have the choice of paying for this investment themselves and for getting in return a lower consumption tariff or asking the utility to bear the investment in return for a higher consumption tariff later on. Most costumers with a load of 140kVA prefer the first option of making Doing Business 2012 El Salvador 41 Time to No. Procedure Cost to complete complete the initial investment in return for lower consumption tariffs later on. The client pays for the connection, signs the supply agreement and waits for AES El Salvador to finalize the external connection The utility only installs the meter, connects it and makes a service test. 19 calendar days USD 2,919.1 7 Prior to the service connection, the completion of the works of electrical installations is verified in order to schedule the connection. The meter installation is simultaneous with the connection and the electricity begins to flow from the moment the connection is made. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 El Salvador 42 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy’s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2012 El Salvador 43 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in El procedures, takes 31 days and costs 3.7% of the Salvador? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 5 Figure 5.1 What it takes to register property in El Salvador Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 El Salvador 44 REGISTERING PROPERTY Globally, El Salvador stands at 54 in the ranking of 183 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in El Salvador to transfer property. Figure 5.2 How El Salvador and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 El Salvador 45 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in El Salvador That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in El Salvador over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 50 54 Procedures (number) 5 5 6 5 5 5 5 5 Time (days) 52 52 33 31 31 31 31 31 Cost (% of property value) 3.6 3.6 3.6 3.6 3.7 3.8 3.8 3.7 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 El Salvador 46 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by These economies may provide a model for El Salvador the economies that today have the best performance on ways to improve the ease of registering property. regionally or globally on the procedures, time or cost And changes in regional averages can show where El required to complete a property transfer (figure 5.3). Salvador is keeping up—and where it is falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 El Salvador 47 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 El Salvador 48 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in El Salvador (table 5.2)? Table 5.2 How has El Salvador made registering property easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 El Salvador 49 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business City: San Salvador through information collected from local property Property Value: 168,019.7 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in El Salvador—and the time and cost Time to No. Procedure Cost to complete complete Obtain a Literal Certification (LC) and a Non-Lien Certification (NEC) Literal Certification: of the property at the Register of Property $8.86 + Non-Lien 1 3 days Certification (NEC) The LC may already be in the possession of the seller. Both certifications 8.86 + $0.35 per must be obtained by the seller before starting the transaction formally. page The Literal Certification is not necessary if the seller has the property title. Preparation and notarization of the sale agreement A notary will prepare and notarize the sale agreement. In El Salvador, only lawyers are notaries. The parties are responsible for gathering all the documentation to be presented to the notary. The documentation shall include: Photocopy of the parties ID’s of the Limited Liability Companies (LLC) 0.15 – 1.0% of 2 Photocopy of the Tax Identification Numbers (NIT) of the parties 3 days property price Photocopy of the corporate documents of the LLC’s (Articles of (notary’s fees) Incorporation, credentials, documents that can duly establish the legal representation and empowerment of the representatives of the LLC, etc) Photocopy of the Tax Identification Numbers (NIT) of the LLC’s Copy of the property title or Literal Certification (LC) (obtained in Procedure 1) Proof of payments of municipal taxes Proof that parties are tax solvent with Ministry of Finance 0.63% of property price (Registration Payment of registration fees and transfer tax at a commercial bank Fee) + 3% over the 3 1 day excess of $ 28,571.43 of the total price (Transfer of Real Estate Tax) Doing Business 2012 El Salvador 50 Time to No. Procedure Cost to complete complete The deed is presented to the Registry office for registration The public deed is filed at the Register of Property to be recorded under the name of the buyer. The deed will be registered, if it meets all the legal requirements, in 2 - 4 weeks. The registry has to check with the Ministry of Finance ("Hacienda") if the parties are Tax solvent. In addition to reforms at the registry set out by the Law on Standard Procedures of August 2004, an electronic system is currently being introduced and, once fully functional, is expected to reduce the registration time. 14-28 days (10-20 4 Already paid In addition, a special service is available (mainly used by banks, law firms working days) or companies). Upon signing a special agreement with the registry, certain services and documents can be obtained faster (within 2-8 working days) and/or by fax in exchange for a premium payment. The payment is a fixed amount determined according to a cost table. The amount is usually automatically withdrawn from a special running account at the registry. At the time of signing the agreement, the user sets up this account, depositing a certain amount (not more than US$ 100). The agreement has to be renewed on an annual basis. This service is not taken into account here, since it is only one transaction. The public deed is filed at the respective Municipality This is done in order to update the information at the Municipality and $ 0.12 per square for calculation on municipal taxes. The title is already valid even if not meter of land area. filed at the Municipality. The incentive to file the public deed lies on the (The cost is old owner, who will have to continue paying the taxes on the property if calculated based on this is not done. a land plot of 557.4 Depending on the municipality, this step can take from 1 to 5 days. In 1-5 days square meters, as in 5 San Salvador, the municipality has offices in each district. If someone the assumptions for goes to district 1 to register a property that is located on district 4, the this case study. At registry process can take about 5 days, because the documents of the $0.12 per square property are in district 4, but if going directly to district 4, the registry process takes about 1 to 2 days. meter, the cost of is Total cost is calculated based on a land area of 557.4 square meters, as in $66.89) the assumptions of this case study. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 El Salvador 51 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine  Has 100 employees. the scope of the secured transactions system,  Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index  Is a private, limited liability company. (weighted at 62.5%).  Has its headquarters and only base of operations in the largest business city. Doing Business 2012 El Salvador 52 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, El Salvador stands at 48 in the ranking of 183 collateral and bankruptcy laws in El Salvador facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 6 on the The rankings for comparator economies and the depth of credit information index and a score of 5 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in El Salvador support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How El Salvador and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 El Salvador 53 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in El Salvador support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in El Salvador over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 45 48 Strength of legal rights 5 5 5 5 5 5 5 5 index (0-10) Depth of credit 5 5 6 6 6 6 6 6 information index (0-6) Public registry coverage 19.8 17.3 30.5 17.2 18.4 21.0 21.8 23.9 (% of adults) Private bureau 82.3 78.7 79.6 74.6 83.0 94.6 95.0 81.1 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 El Salvador 54 GETTING CREDIT One way to put an economy’s getting credit indicators index for El Salvador in 2011 and shows the number of into context is to see where the economy stands in the other economies having the same score in 2011. distribution of scores across other economies. Figure Figure 6.3 shows the same thing for the depth of credit 6.2 highlights the score on the strength of legal rights information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 El Salvador 55 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in El Salvador (table 6.2)? Table 6.2 How has El Salvador made getting credit easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 El Salvador 56 GETTING CREDIT What are the details? The getting credit indicators reported here for El The data on the legal rights of borrowers and lenders Salvador are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a public well as public sources of information on collateral and credit registry or private credit bureau (if one exists). bankruptcy laws. For the strength of legal rights index, To construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in El Salvador Latin America & Indicator El Salvador OECD high income Caribbean Strength of legal rights index (0-10) 5 6 7 Depth of credit information index (0-6) 6 3 5 Public registry coverage (% of adults) 23.9 10.1 9.5 Private bureau coverage (% of adults) 81.1 34.2 63.9 Strength of legal rights index (0–10) Index score: 5 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of No movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend No automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No debtor defaults outside an insolvency procedure? Doing Business 2012 El Salvador 57 Strength of legal rights index (0–10) Index score: 5 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its No security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 6 bureau registry Are data on both firms and individuals distributed? Yes Yes 1 Are both positive and negative data distributed? Yes Yes 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as Yes No 1 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes Yes 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 71,904 9,945 Number of individuals 747,334 896,466 Source: Doing Business database. Doing Business 2012 El Salvador 58 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2012 El Salvador 59 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in El Salvador? index (figure 7.1). While the indicator does not The economy has a score of 3.0 on the strength of measure all aspects related to the protection of investor protection index, with a higher score minority investors, a higher ranking does indicate that indicating stronger protections (see the summary of an economy’s regulations offer stronger investor scoring at the end of this chapter for details). protections against self-dealing in the areas measured. Globally, El Salvador stands at 166 in the ranking of 183 economies on the strength of investor protection Figure 7.1 How El Salvador and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 El Salvador 60 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in El Salvador protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in El Salvador over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 172 166 Extent of disclosure 3 3 3 3 3 3 3 index (0-10) Extent of director 0 0 0 0 0 0 0 liability index (0-10) Ease of shareholder 5 5 5 5 5 5 6 suits index (0-10) Strength of investor 2.7 2.7 2.7 2.7 2.7 2.7 3.0 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 El Salvador 61 PROTECTING INVESTORS But the overall ranking on the strength of investor liability and ease of shareholder suits indices may also protection index tells only part of the story. Economies be revealing (figure 7.2). Equally interesting may be the may offer strong protections in some areas but not changes over time in the regional average scores for others. So the scores recorded over time for El those indices. Salvador on the extent of disclosure, extent of director Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 El Salvador 62 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 El Salvador 63 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in El Salvador (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has El Salvador strengthened investor protections—or not? By Doing Business report year DB Year Reform El Salvador strengthened investor protections DB2012 by allowing greater access to corporate information during the trial. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 El Salvador 64 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for El shareholder suits indices, a score is assigned for each Salvador are based on detailed information collected of a range of conditions relating to disclosure, director through a survey of corporate and securities lawyers liability and shareholder suits in a standard case study and are based on securities regulations, company laws transaction (see the notes at the end of this chapter). and court rules of evidence. To construct the extent of The summary below shows the details underlying the disclosure, extent of director liability and ease of scores for El Salvador. Summary of scoring for the protecting investors indicators in El Salvador Latin America & Indicator El Salvador OECD high income Caribbean Extent of disclosure index (0-10) 3 4 6 Extent of director liability index (0-10) 0 5 5 Ease of shareholder suits index (0-10) 6 6 7 Strength of investor protection index (0-10) 3.0 5.1 6.0 Score Extent of disclosure index (0-10) 3 What corporate body provides legally sufficient approval for the transaction? 3 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 0 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 0 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 0 required? Whether an external body must review the terms of the transaction before it takes place? 0 Extent of director liability index (0-10) 0 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 0 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 0 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 0 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 0 Doing Business 2012 El Salvador 65 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 0 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 0 Ease of shareholder suits index (0-10) 6 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 0 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 0 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 3 trial? Whether the plaintiff can request categories of documents from the defendant without 1 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 1 Whether the level of proof required for civil suits is lower than that of criminal cases? 1 Strength of investor protection index (0-10) 3.0 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide legally sufficient approval for the transaction 0 = CEO or managing director alone; 1 = shareholders or board of directors vote and Mr. James can vote; 2 = board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Doing Business 2012 El Salvador 66 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company’s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is liable only if he acted fraudulently or in bad faith; 1 = Mr. James is liable if he influenced the approval or was negligent; 2 = Mr. James is liable if the transaction is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes to the company 0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1 = liable for negligence in the approval of the transaction; 2 = liable if the transaction is unfair or prejudicial to the other shareholders. Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 = rescission is unavailable or available only in case of Seller’s fraud or bad faith; 1 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff’s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 El Salvador 67 Whether the plaintiff can directly examine the defendant and witnesses during trial 0 = no; 1 = yes, with prior approval by the court of the questions posed; 2 = yes, without prior approval. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 El Salvador 68 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 2 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2009. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded.  Taxes and mandatory contributions include  Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company.  A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 El Salvador 69 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, El Salvador stands at 146 in the ranking of taxes in El Salvador—and how much do firms pay in 183 economies on the ease of paying taxes (figure 8.1). taxes? On average, firms make 53 tax payments a year, The rankings for comparator economies and the spend 320 hours a year filing, preparing and paying regional average ranking provide other useful taxes and pay total taxes amounting to 16.5% of profit information for assessing the tax compliance burden (see the summary at the end of this chapter for for businesses in El Salvador. details). Figure 8.1 How El Salvador and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 El Salvador 70 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how the process have changed — and which have not easy (or difficult) it is to comply with tax rules in El (table 8.1). That can help identify where the potential Salvador today, data over time show which aspects of for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in El Salvador over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 141 146 Payments (number per 53 53 53 53 53 53 53 year) Time (hours per year) 320 320 320 320 320 320 320 Total tax rate (% profit) 34.8 34.8 34.8 34.9 35.0 35.0 35.0 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 El Salvador 71 PAYING TAXES Equally helpful may be the benchmarks provided by on ways to ease the administrative burden of tax the economies that today have the best performance compliance. And changes in regional averages can regionally or globally on the number of payments or show where El Salvador is keeping up—and where it is the time required to prepare and file taxes (figure 8.2). falling behind. These economies may provide a model for El Salvador Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 El Salvador 72 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 El Salvador 73 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. El Salvador (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has El Salvador made paying taxes easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 El Salvador 74 PAYING TAXES What are the details? The indicators reported here for El Salvador are based that the company completed during the year. on a standard set of taxes and contributions that Respondents are asked how much in taxes and would be paid by the case study company used by mandatory contributions the business must pay and Doing Business in collecting the data (see the section in what the process is for doing so. The taxes and this chapter on what the indicators cover). Tax contributions paid are listed in the summary below, practitioners are asked to review standard financial along with the associated number of payments, time statements as well as a standard list of transactions and tax rate. Summary of tax rates and administrative burden in El Salvador Latin America & Indicator El Salvador OECD high income Caribbean Payments (number per year) 53 32 13 Time (hours per year) 320 382 186 Profit tax (%) 16.5 19.9 15.4 Labor tax and contributions (%) 17.2 14.6 24.0 Other taxes (%) 1.3 13.2 3.2 Total tax rate (% profit) 35.0 47.7 42.7 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 13 128 25% 16.5 profits Social security gross 12 96 6.75% 8.5 contributions salaries Mandatory health gross 0 paid jointly 0 7.5% 7.6 contributions salaries gross Other payroll taxes 12 0 1% 1.1 salaries capital Capital gains tax 0 paid jointly 0 10% 0.5 gains fuel USD 0,20 Excise tax (fuel tax) 1 0 consumptio 0.3 per gallon n Doing Business 2012 El Salvador 75 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Business license tax 1 0 fixed fee 0.2 Different rates Municipal tax over assets 1 0 total assets 0.1 according to assets Vehicle taxes 1 0 fixed fee 0.1 Value added tax (VAT) 12 96 13% value added 0 not included Totals 53 320 35.0 Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 El Salvador 76 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other  Is located in the periurban area of the special environment. economy’s largest business city.  Do not require any special phytosanitary or  Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy.  Are one of the economy’s leading export or import products. The traded goods:  Are transported in a dry-cargo, 20-foot full  Are not hazardous nor do they include container load. military items. Doing Business 2012 El Salvador 77 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in El Salvador? Globally, El Salvador stands at 69 in the ranking of 183 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 8 (figure 9.1). The rankings for comparator economies documents, takes 14 days and costs $845. Importing and the regional average ranking provide other useful the same container of goods requires 8 documents, information for assessing how easy it is for a business takes 10 days and costs $845 (see the summary of in El Salvador to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How El Salvador and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 El Salvador 78 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in El Salvador That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in El Salvador over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 72 69 Documents to export 7 7 8 8 8 8 8 (number) Time to export (days) 22 22 21 14 14 14 14 Cost to export (US$ per 540 540 540 880 880 845 845 container) Documents to import 10 10 10 8 8 8 8 (number) Time to import (days) 30 30 18 10 10 10 10 Cost to import (US$ per 540 540 540 820 820 845 845 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by economies may provide a model for El Salvador on the economies that today have the best performance ways to improve the ease of trading across borders. regionally or globally on the documents, time or cost And changes in regional averages can show where El required to export or import (figure 9.2). These Salvador is keeping up—and where it is falling behind. Doing Business 2012 El Salvador 79 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 El Salvador 80 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 El Salvador 81 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 El Salvador 82 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in El Salvador (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has El Salvador made trading across borders easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. El Salvador reduced time to import and export through modernization of its customs system and physical DB2009 inspections, increased traffic control, implementation of a single window, and improvements in the banking sector. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 El Salvador 83 TRADING ACROSS BORDERS What are the details? The indicators reported here for El Salvador are based freight forwarders, shipping lines, customs brokers, on a set of specific procedural requirements for port officials and banks. The procedural requirements, trading a standard shipment of goods by ocean and the associated time and cost, for exporting and transport (see the section in this chapter on what the importing a standard shipment of goods are listed in indicators cover). Information on the procedures as the summary below, along with the required well as the required documents and the time and cost documents. to complete each procedure is collected from local Summary of procedures and documents for trading across borders in El Salvador Latin America & Indicator El Salvador OECD high income Caribbean Documents to export (number) 8 6 4 Time to export (days) 14 18 10 Cost to export (US$ per container) 845 1,257 1,032 Documents to import (number) 8 7 5 Time to import (days) 10 20 11 Cost to import (US$ per container) 845 1,546 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 4 380 Customs clearance and technical control 4 75 Ports and terminal handling 3 90 Inland transportation and handling 3 300 Totals 14 845 Procedures to import Time (days) Cost (US$) Documents preparation 3 380 Customs clearance and technical control 2 75 Ports and terminal handling 3 90 Inland transportation and handling 2 300 Totals 10 845 Doing Business 2012 El Salvador 84 TRADING ACROSS BORDERS Documents to export Documents to import Bill of lading Bill of lading Cargo release order Cargo release order Certificate of origin Certificate of origin Commercial invoice Commercial invoice Customs export declaration Customs import declaration Packing list Packing list Technical standard/health certificate Technical standard/health certificate Terminal handling receipts Terminal handling receipts Doing Business 2012 El Salvador 85 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs, including expert fees assumptions about the case: Enforcement costs  The seller and buyer are located in the economy’s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2012 El Salvador 86 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, El Salvador stands at 66 in the ranking of 183 dispute through the courts in El Salvador? According economies on the ease of enforcing contracts (figure to data collected by Doing Business, enforcing a 10.1). The rankings for comparator economies and the contract requires 34 procedures, takes 786 days and regional average ranking provide other useful costs 19.2% of the value of the claim (see the summary benchmarks for assessing the efficiency of contract at the end of this chapter for details). enforcement in El Salvador. Figure 10.1 How El Salvador and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 El Salvador 87 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how time help identify which areas have changed and easy (or difficult) it is to enforce a contract in El where the potential for improvement is greatest (table Salvador today, data on the underlying indicators over 10.1). Table 10.1 The ease of enforcing contracts in El Salvador over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 57 66 Time (days) 786 786 786 786 786 786 786 786 786 Cost (% of claim) 19.2 19.2 19.2 19.2 19.2 19.2 19.2 19.2 19.2 Procedures (number) 31 31 31 31 31 31 31 31 34 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 El Salvador 88 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for El Salvador on ways to improve the efficiency of the economies that today have the best performance contract enforcement. And changes in regional regionally or globally on the number of steps, time or averages can show where El Salvador is keeping up— cost required to enforce a contract through the courts and where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 El Salvador 89 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 El Salvador 90 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in El Salvador (table introducing new technology. Lower-income economies 10.2)? often work on reducing backlogs by introducing Table 10.2 How has El Salvador made enforcing contracts easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 El Salvador 91 ENFORCING CONTRACTS What are the details? The indicators reported here for El Salvador are based regulations, as well as through surveys completed by on a set of specific procedural steps required to local litigation lawyers (and, in a quarter of the resolve a standardized commercial dispute through economies covered by Doing Business, by judges as the courts (see the section in this chapter on what the well). The procedures for resolving a commercial indicators cover). These procedures, and the time and lawsuit, and the associated time and cost, are listed in cost of completing them, are identified through study the summary below. of the codes of civil procedure and other court Summary of procedures for enforcing a contract in El Salvador—and the time and cost Latin America & Indicator El Salvador OECD high income Caribbean Time (days) 786 707.78 518.03 Filing and service 40 Trial and judgment 381 Enforcement of judgment 365 Cost (% of claim) 19.2 31.21 19.71 Attorney cost (% of claim) 15 Court cost (% of claim) 3 Enforcement Cost (% of claim) 1.2 Procedures (number) 34 40.03 31.42 Source: Doing Business database. Doing Business 2012 El Salvador 92 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be business and the case. It assumes that the recovered company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy’s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 El Salvador 93 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, El Salvador stands at 88 in the ranking of 183 characterize the top-performing economies. How economies on the ease of resolving insolvency (figure efficient are insolvency proceedings in El Salvador? 11.1). The rankings for comparator economies and the According to data collected by Doing Business, regional average ranking provide other useful resolving insolvency takes 4.0 years on average and benchmarks for assessing the efficiency of insolvency costs 9% of the debtor’s estate. The average recovery proceedings in El Salvador. rate is 31.5 cents on the dollar. Figure 11.1 How El Salvador and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 El Salvador 94 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in El Salvador help identify where the potential for improvement is today, data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in El Salvador over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 92 88 Time (years) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Cost (% of estate) 9 9 9 9 9 9 9 9 9 Recovery rate (cents on 24.3 24.3 30.5 29.2 28.4 30.8 30.8 29.2 31.5 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2012 El Salvador 95 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by on ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where El Salvador is keeping up—and where it is proceedings or on the recovery rate (figure 11.2). falling behind. These economies may provide a model for El Salvador Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 El Salvador 96 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 El Salvador 97 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in El Salvador (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has El Salvador made resolving insolvency easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 El Salvador 98 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2011. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund’s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the ―regional‖ classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 El Salvador 99 Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy’s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 El Salvador 100 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year’s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year’s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea’s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website’s ―Ask a Question‖ on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year’s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the ―distance to frontier.‖ Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 El Salvador 101 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is ―no practice‖ mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree ―no practice‖ or ―not possible‖ mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a ―no ability of different government agencies to deliver practice‖ mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy’s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year’s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It‖ (World Bank, Washington, DC, 2005). Principal components This year’s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the ―frontier‖ and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 El Salvador 102 the extent to which the economy has closed this gap The difference between an economy’s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many th are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95 the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy’s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 El Salvador 103 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 El Salvador 104