83408 Regional Profile: European Union (EU) Doing Business 2014 EUROPEAN UNION (EU) 2 © 2013 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Doing Business 2014: Understanding Smarter Regulations for Small and Medium-Size Enterprises. Washington, DC: World Bank Group. DOI: 10.1596/978-0-8213-9615-5. License: Creative Commons Attribution CC BY 3.0 Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. All queries on rights and licenses should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Additional copies of all 11 editions of Doing Business may be purchased at www.doingbusiness.org. Cover design: The Word Express Doing Business 2014 EUROPEAN UNION (EU) 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 12 Dealing with construction permits........................................................................................... 23 Getting electricity ....................................................................................................................... 31 Registering property .................................................................................................................. 38 Getting credit .............................................................................................................................. 48 Protecting investors ................................................................................................................... 54 Paying taxes ................................................................................................................................ 62 Trading across borders .............................................................................................................. 72 Enforcing contracts .................................................................................................................... 82 Resolving insolvency .................................................................................................................. 89 Data notes ................................................................................................................................... 99 Resources on the Doing Business website ............................................................................ 104 Doing Business 2014 EUROPEAN UNION (EU) 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is The data in this report are current as of June 1, 2013 for a local entrepreneur to open and run a small to (except for the paying taxes indicators, which cover the medium-size business when complying with relevant period January–December 2012). regulations. It measures and tracks changes in The Doing Business methodology has limitations. Other regulations affecting 11 areas in the life cycle of a areas important to business—such as an economy’s business: starting a business, dealing with construction proximity to large markets, the quality of its permits, getting electricity, registering property, infrastructure services (other than those related to getting credit, protecting investors, paying taxes, trading across borders and getting electricity), the trading across borders, enforcing contracts, resolving security of property from theft and looting, the insolvency and employing workers. transparency of government procurement, In a series of annual reports Doing Business presents macroeconomic conditions or the underlying strength quantitative indicators on business regulations and the of institutions—are not directly studied by Doing protection of property rights that can be compared Business. The indicators refer to a specific type of across 189 economies, from Afghanistan to Zimbabwe, business, generally a local limited liability company over time. The data set covers 47 economies in Sub- operating in the largest business city. Because Saharan Africa, 33 in Latin America and the Caribbean, standard assumptions are used in the data collection, 25 in East Asia and the Pacific, 25 in Eastern Europe comparisons and benchmarks are valid across and Central Asia, 20 in the Middle East and North economies. The data not only highlight the extent of Africa and 8 in South Asia, as well as 31 OECD high- obstacles to doing business; they also help identify the income economies. The indicators are used to analyze source of those obstacles, supporting policy makers in economic outcomes and identify what reforms have designing regulatory reform. worked, where and why. More information is available in the full report. Doing This regional profile presents the Doing Business Business 2014 presents the indicators, analyzes their indicators for economies in European Union (EU). It relationship with economic outcomes and also shows the regional average, the best performance recommends regulatory reforms. The data, along with globally for each indicator and data for the following information on ordering the Doing Business 2014 comparator regions: East Asia and the Pacific (EAP), report, are available on the Doing Business website at Europe and Central Asia (ECA), Middle East and North http://www.doingbusiness.org. Africa (MENA), Latin America and OECD High Income. Doing Business 2014 EUROPEAN UNION (EU) 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s The ranking on each topic is the simple average of regulatory environment for business, a good place to the percentile rankings on its component start is to find out how it compares with the indicators (see the data notes for more details). regulatory environment in other economies. Doing The aggregate ranking on the ease of doing Business provides an aggregate ranking on the ease business benchmarks each economy’s of doing business based on indicator sets that performance on the indicators against that of all measure and benchmark regulations applying to other economies in the Doing Business sample domestic small to medium-size businesses through (figure 1.1). While this ranking tells much about their life cycle. Economies are ranked from 1 to 189 the business environment in an economy, it does by the ease of doing business index. For each not tell the whole story. The ranking on the ease of economy the index is calculated as the ranking on the doing business, and the underlying indicators, do simple average of its percentile rankings on each of not measure all aspects of the business the 10 topics included in the index in Doing Business environment that matter to firms and investors or 2014: starting a business, dealing with construction that affect the competitiveness of the economy. permits, getting electricity, registering property, Still, a high ranking does mean that the getting credit, protecting investors, paying taxes, government has created a regulatory environment trading across borders, enforcing contracts and conducive to operating a business. resolving insolvency. Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 6 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy stands regional average (figure 1.2). Another perspective is in the aggregate ranking on the ease of doing business is provided by the regional average rankings on the topics useful. Also useful is to know how it ranks compared with included in the ease of doing business index (figure 1.3). other economies in the region and compared with the Figure 1.2 How economies in European Union (EU) rank on the ease of doing business *The economy with the best performance globally is included as a benchmark. Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 7 THE BUSINESS ENVIRONMENT Figure 1.3 How European Union (EU) ranks on Doing Business topics Regional average ranking Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 8 Figure 1.4 How far has European Union (EU) come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average a region is from the best performance achieved by any region on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing more significant impact as measured by Doing business tells only part of the story, so do changes in Business. that ranking. Yearly movements in rankings can The absolute values of the indicators tell another part provide some indication of changes in an economy’s of the story (table 1.1). Policy makers can learn much regulatory environment for firms, but they are always by comparing the indicators for their economy with relative. An economy’s ranking might change because those for the lowest- and highest-scoring economies of developments in other economies. An economy that in the region as well as those for the best performers implemented business regulation reforms may fail to globally. These comparisons may reveal unexpected rise in the rankings (or may even drop) if it is passed strengths in an area of business regulation—such as a by others whose business regulation reforms had a regulatory process that can be completed with a small number of procedures in a few days and at a low cost. Table 1.1 Summary of Doing Business indicators for European Union (EU) Lowest regional Best regional Best global Indicator Regional average performance performance performance Starting a Business 161 (Malta) 11 (Lithuania) 70 1 (New Zealand) (rank) Procedures (number) 11 (Malta) 2 (Slovenia) 5 1 (New Zealand)* Time (days) 40.0 (Malta) 3.0 (Portugal) 13.3 1.0 (New Zealand) Cost (% of income per 14.3 (Poland) 0.0 (Slovenia) 4.2 0.0 (Slovenia) capita) Paid-in Min. Capital (% 47.8 (Austria) 0.0 (11 Economies*) 10.8 0.0 (112 Economies*) of income per capita) Dealing with 1 (Hong Kong SAR, Construction Permits 163 (Malta) 8 (Denmark) 74 China) (rank) 6 (Hong Kong SAR, Procedures (number) 33 (Czech Republic) 7 (Sweden) 14 China) Time (days) 677.0 (Cyprus) 66.0 (Finland) 173.7 26.0 (Singapore) Cost (% of income per 446.3 (Ireland) 6.6 (Slovak Republic) 97.5 1.1 (Qatar) capita) Getting Electricity 174 (Romania) 3 (Germany) 74 1 (Iceland) (rank) Procedures (number) 7 (Romania) 3 (Sweden)* 5 3 (10 Economies*) Time (days) 279 (Czech Republic) 17 (Germany) 121 17 (Germany) Cost (% of income per 534.0 (Romania) 10.6 (Slovak Republic) 145.3 0.0 (Japan) capita) Doing Business 2014 EUROPEAN UNION (EU) 10 Lowest regional Best regional Best global Indicator Regional average performance performance performance Registering Property 180 (Belgium) 6 (Lithuania) 63 1 (Georgia) (rank) Procedures (number) 11 (Greece) 1 (Sweden)* 5 1 (4 Economies*) Time (days) 109.5 (Slovenia) 1.0 (Portugal) 24.9 1.0 (New Zealand)* Cost (% of property 12.7 (Belgium) 0.0 (Slovak Republic) 4.7 0.0 (5 Economies*) value) Getting Credit (rank) 180 (Malta) 1 (United Kingdom) 56 1 (Malaysia)* Strength of legal 3 (3 Economies*) 10 (United Kingdom)* 7 10 (10 Economies*) rights index (0-10) Depth of credit 2 (Cyprus) 6 (5 Economies*) 5 6 (31 Economies*) information index (0-6) Public registry 0.0 (Germany) 100.0 (Portugal) 38.9 100.0 (Portugal)* coverage (% of adults) Private bureau 6.7 (Cyprus) 100.0 (6 Economies*) 64.4 100.0 (22 Economies*) coverage (% of adults) Protecting Investors 128 (Luxembourg)* 6 (Ireland) 66 1 (New Zealand) (rank) Extent of disclosure 2 (Hungary)* 10 (4 Economies*) 6 10 (10 Economies*) index (0-10) Extent of director 1 (France) 9 (Slovenia) 5 10 (Cambodia) liability index (0-10) Ease of shareholder 3 (Luxembourg) 9 (Ireland)* 6 10 (3 Economies*) suits index (0-10) Strength of investor 4.3 (Luxembourg)* 8.3 (Ireland) 5.8 9.7 (New Zealand) protection index (0-10) Paying Taxes (rank) 138 (Italy) 6 (Ireland) 63 1 (United Arab Emirates) Payments (number per 3 (Hong Kong SAR, 39 (Romania) 4 (Sweden) 12 year) China)* 12 (United Arab Time (hours per year) 454 (Bulgaria) 55 (Luxembourg) 192 Emirates) Trading Across 108 (Slovak Republic) 6 (Sweden) 36 1 (Singapore) Borders (rank) Documents to export 7 (Slovak Republic) 2 (Ireland)* 4 2 (Ireland)* (number) Time to export (days) 20 (Bulgaria) 6 (Denmark)* 12 6 (5 Economies*) Cost to export (US$ per 1,500 (Slovak Republic) 600 (Latvia) 1,024 450 (Malaysia) Doing Business 2014 EUROPEAN UNION (EU) 11 Lowest regional Best regional Best global Indicator Regional average performance performance performance container) Documents to import 7 (3 Economies*) 2 (France)* 5 2 (Ireland)* (number) Time to import (days) 19 (Hungary) 5 (3 Economies*) 11 4 (Singapore) Cost to import (US$ 1,495 (Romania) 625 (Finland) 1,066 440 (Singapore) per container) Enforcing Contracts 122 (Malta) 1 (Luxembourg) 45 1 (Luxembourg) (rank) Time (days) 1,300 (Greece) 300 (Lithuania) 566 150 (Singapore) Cost (% of claim) 39.9 (United Kingdom) 9.7 (Luxembourg) 21.8 0.1 (Bhutan) Procedures (number) 43 (Cyprus) 21 (Ireland) 32 21 (Singapore)* Resolving Insolvency 99 (Romania) 3 (Finland) 37 1 (Japan) (rank) Time (years) 4.0 (Slovak Republic) 0.4 (Ireland) 2.0 0.4 (Ireland) Cost (% of estate) 22 (Italy) 4 (5 Economies*) 10 1 (Norway) Recovery rate (cents on 30.0 (Romania) 90.2 (Finland) 62.0 92.8 (Japan) the dollar) * 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 2014 EUROPEAN UNION (EU) 12 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for INDICATORS MEASURE business owners and employees. Legal entities 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 Registration in the economy’s largest additional benefit comes with limited liability business city companies. These limit the financial liability of company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. registration, company seal) Where governments make this process easy, more Time required to complete each procedure entrepreneurs start businesses in the formal sector, (calendar days) creating more good jobs and generating more Does not include time spent gathering revenue for the government. information What do the indicators cover? Each procedure starts on a separate day (2 procedures cannot start on the same day). Doing Business measures the ease of starting a Procedures that can be fully completed business in an economy by recording all online are an exception to this rule. procedures officially required or commonly done in practice by an entrepreneur to start up and Procedure considered completed once final document is received formally operate an industrial or commercial business—as well as the time and cost required to No prior contact with officials complete these procedures. It also records the paid-in minimum capital that companies must Cost required to complete each procedure deposit before registration. The ranking on the (% of income per capita) ease of starting a business is the simple average of Official costs only, no bribes the percentile rankings on the 4 component No professional fees unless services required indicators: procedures, time, cost and paid-in by law minimum capital requirement. Paid-in minimum capital (% of income To make the data comparable across economies, per capita) Doing Business uses several assumptions about the business and the procedures. It assumes that all Funds deposited in a bank or with a notary before registration (or within 3 months) information is readily available to the entrepreneur and that there has been no prior contact with • Conducts general commercial or industrial officials. It also assumes that the entrepreneur will activities. pay no bribes. And it assumes that the business: • Has a start-up capital of 10 times income per • Is a 100% domestically owned limited liability capita and has a turnover of at least 100 times company, located in the largest business city. income per capita. • Has between 10 and 50 employees. • Does not qualify for any special benefits. • Does not own real estate. Doing Business 2014 EUROPEAN UNION (EU) 13 STARTING A BUSINESS Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in business suggest an answer (figure 2.1). The average European Union (EU) to start a business? The global ranking of the region and comparator regions provide rankings of these economies on the ease of starting a a useful benchmark. Figure 2.1 How economies in European Union (EU) rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 14 STARTING A BUSINESS The indicators underlying the rankings may be more cost and the paid-in minimum capital requirement revealing. Data collected by Doing Business show (figure 2.2). Comparing these indicators across the what it takes to start a business in each economy in region and with averages both for the region and for the region: the number of procedures, the time, the comparator regions can provide useful insights. Figure 2.2 What it takes to start a business in economies in European Union (EU) Procedures (number) Doing Business 2014 EUROPEAN UNION (EU) 15 STARTING A BUSINESS Time (days) Doing Business 2014 EUROPEAN UNION (EU) 16 STARTING A BUSINESS Cost (% of income per capita) Doing Business 2014 EUROPEAN UNION (EU) 17 STARTING A BUSINESS Paid-in minimum capital (% of income per capita) Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 18 STARTING A BUSINESS What are the changes over time? Economies around the world have taken steps making stages—and often as part of a larger regulatory reform it easier to start a business—streamlining procedures program. Among the benefits have been greater firm by setting up a one-stop shop, making procedures satisfaction and savings and more registered simpler or faster by introducing technology, and businesses, financial resources and job opportunities. reducing or eliminating minimum capital requirements. What business registration reforms has Doing Business Many have undertaken business registration reforms in recorded in European Union (EU) (table 2.1)? Table 2.1 How have economies in European Union (EU) made starting a business easier—or not? By Doing Business report year DB year Economy Reform Belgium made starting a business easier by making an electronic registration and publication system available to all DB2008 Belgium notaries. This system introduced a single registration number and made publication in the State Gazette automatic. With the full implementation of the company registration DB2008 Czech Republic reform, the time to register a new business decreased. The commercial code was amended to introduce standard articles of association. If entrepreneurs use the model forms, DB2008 Estonia company registration-done electronically and without notary involvement-can be completed in 1 day. A new, fixed fee schedule lowered registration costs. The new Finnish Companies Act reduced the minimum share capital from € 8.000 to €2.500, or from 27% of GNIpc to about 8%. The reform also simplified documentation DB2008 Finland requirements, replacing the deed of incorporation and the minutes of the constitutive meeting by a new, simplified agreement of association. Germany made starting a business simpler by implementing DB2008 Germany an electronic registration and online publication instead of in the official gazette. A new Company Act and a new Corporate Procedure Act DB2008 Hungary introduced standardized forms, a "silent-is-consent" rule, and electronic registration. Portugal made starting a business simpler by eliminating outdated start-up formalities and simplifying requirements DB2008 Portugal for company registration and implementing an online incorporation system for use by lawyers. Romania made starting a business more cumbersome by DB2008 Romania implementing several laws resulting in more steps and more Doing Business 2014 EUROPEAN UNION (EU) 19 DB year Economy Reform time for business start-up. Commercial registration centralized electronic database was created consolidating and substantially reducing the number DB2009 Bulgaria of registration procedures, and other registration formalities were cut. A Project Czech Point where multiple registration-related DB2009 Czech Republic documents could be obtained at one place was created reducing the number of procedures and days. The minimum capital requirement was reduced by about DB2009 Greece 80%, the cost of capital tax was reduced and the publication requirement time was reduced substantially. The new laws reduced the minimum capital requirements by DB2009 Hungary about 80% and introduced online filing and publication and made the use of notaries optional. Procedures to start a business can by carried out through a DB2009 Italy single notice reducing tremendously the number of procedures. The one-stop shop merged 4 procedures into 1 and reduced DB2009 Slovak Republic costs. The single access point reforms reduced the number of DB2009 Slovenia procedures and day substantially. Bulgaria eased the process of business start-up by reducing DB2010 Bulgaria the paid-in minimum capital requirement to 23.9% of GNI pc and enhancing the efficiency at the company registry. Germany eased the business start up process by reducing the DB2010 Germany minimum capital requirement to a symbolic value. Hungary further simplified the start up process by DB2010 Hungary implementing on-line registration with confirmation of registration requiring one hour from application. Luxembourg eased business start-up process by making it DB2010 Luxembourg possible to reserve a company name online and abolishing capital duties. Poland simplified business start up by reducing the required amount of minimum capital from PLN 50,000 to 5,000, and DB2010 Poland the National Court Register now consolidates the applications for registration, Tax, Social Security, and Statistics Slovenia eased business start up by reducing the time for company registration, allowing for simultaneous tax DB2010 Slovenia registration during company registration through the e-Vem system, and abolishing the use of company seal. Bulgaria eased business start-up by reducing the minimum DB2011 Bulgaria capital requirement from 5,000 leva ($3,250) to 2 leva ($1.30). Doing Business 2014 EUROPEAN UNION (EU) 20 DB year Economy Reform Denmark eased business start-up by reducing the minimum capital requirement for limited liability companies from DB2011 Denmark 125,000 Danish kroner ($22,850) to 80,000 Danish kroner ($14,620). Germany eased business start-up by increasing the efficiency of communications between the notary and the commercial DB2011 Germany registry and eliminating the need to publish an announcement in a newspaper. Italy made starting a business easier by enhancing an online DB2011 Italy registration system. Lithuania tightened the time limit for completing the DB2011 Lithuania registration of a company. Luxembourg eased business start-up by speeding up the DB2011 Luxembourg delivery of the business license. Slovenia made starting a business easier through DB2011 Slovenia improvements to its one-stop shop that allowed more online services. Sweden cut the minimum capital requirement for limited DB2011 Sweden liability companies by half, making it easier to start a business. Greece made starting a business easier by implementing an DB2012 Greece electronic platform that interconnects several government agencies. Latvia made starting a business easier by reducing the DB2012 Latvia minimum capital requirement and introducing a common application for value added tax and company registration. Portugal made starting a business easier by allowing company founders to choose the amount of minimum capital DB2012 Portugal and make their paid-in capital contribution up to 1 year after the company’s creation, and by eliminating the stamp tax on company’s share capital subscriptions. Romania made starting a business more difficult by requiring DB2012 Romania a tax clearance certificate for a new company’s headquarters before company registration. Spain eased the process of starting a business by reducing DB2012 Spain the cost to start a business and decreasing the minimum capital requirement. Bulgaria made starting a business easier by reducing the cost DB2013 Bulgaria of registration. Hungary made starting a business more complex by increasing the registration fees for limited liability companies DB2013 Hungary and adding a new tax registration at the time of incorporation. Doing Business 2014 EUROPEAN UNION (EU) 21 DB year Economy Reform Ireland made starting a business easier by introducing a new DB2013 Ireland online facility for business registration. Lithuania made starting a business easier by introducing online registration for limited liability companies and DB2013 Lithuania eliminating the notarization requirement for incorporation documents. The Netherlands made starting a business easier by DB2013 Netherlands eliminating the requirement for a declaration of nonobjection by the Ministry of Justice before incorporation. Romania made starting a business easier by reducing the DB2013 Romania time required to obtain a clearance certificate from the fiscal administration agency. The Slovak Republic made starting a business easier by speeding up the processing of applications at the one-stop DB2013 Slovak Republic shop for trading licenses, income tax registration and health insurance registration. Greece made starting a business easier by introducing a DB2014 Greece simpler form of limited liability company and abolishing the minimum capital requirement for such companies. Latvia made starting a business easier by making it possible to file the applications for company registration and value DB2014 Latvia added tax registration simultaneously at the commercial registry. Lithuania made starting a business easier by creating a new DB2014 Lithuania form of limited liability company with no minimum capital requirement. The Netherlands made starting a business easier by DB2014 Netherlands abolishing the minimum capital requirement. Poland made starting a business easier by eliminating the DB2014 Poland requirement to register the new company at the National Labor Inspectorate and the National Sanitary Inspectorate. Portugal made starting a business easier by eliminating the DB2014 Portugal requirement to report to the Ministry of Labor. Romania made starting a business easier by transferring responsibility for issuing the headquarters clearance DB2014 Romania certificate from the Fiscal Administration Office to the Trade Registry. The Slovak Republic made starting a business more difficult DB2014 Slovak Republic by adding a new procedure for establishing a limited liability company. Spain made starting a business easier by eliminating the DB2014 Spain requirement to obtain a municipal license before starting operations and by improving the efficiency of the commercial Doing Business 2014 EUROPEAN UNION (EU) 22 DB year Economy Reform registry. The United Kingdom made starting a business easier by DB2014 United Kingdom providing model articles for use in preparing memorandums and articles of association. 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 2014 EUROPEAN UNION (EU) 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 (number) time and money, many builders opt out. They may 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 Submitting all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, sewerage and a land telephone line Doing Business records the procedures, time and cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a simple completion (if required for use as collateral or commercial warehouse in the economy’s main city, for transfer of warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another 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 that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure completed once final document is Doing Business uses several assumptions about the received business and the warehouse, including the utility No prior contact with officials connections. The business: Cost required to complete each procedure (% of income per capita) • Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city. • Will be connected to water, sewerage (sewage system, septic tank or their • Is domestically owned and operated. equivalent) and a fixed telephone line. • Has 60 builders and other employees. • The connection to each utility network will be The warehouse: 10 meters (32 feet, 10 inches) long. • Is a new construction (there was no • Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions). • Has complete architectural and technical plans prepared by a licensed architect or • Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 EUROPEAN UNION (EU) 24 DEALING WITH CONSTRUCTION PERMITS Where do the region’s economies stand today? How easy it is for entrepreneurs in economies in dealing with construction permits suggest an answer European Union (EU) to legally build a warehouse? The (figure 3.1). The average ranking of the region and global rankings of these economies on the ease of comparator regions provide a useful benchmark. Figure 3.1 How economies in European Union (EU) rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 25 DEALING WITH CONSTRUCTION PERMITS The indicators underlying the rankings may be more of procedures, the time and the cost (figure 3.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to comply with formalities to build a averages both for the region and for comparator warehouse in each economy in the region: the number regions can provide useful insights. Figure 3.2 What it takes to comply with formalities to build a warehouse in economies in European Union (EU) Procedures (number) Doing Business 2014 EUROPEAN UNION (EU) 26 DEALING WITH CONSTRUCTION PERMITS Time (days) Doing Business 2014 EUROPEAN UNION (EU) 27 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) * Indicates a “no practice” mark. See the data notes for details. Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 28 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? 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 European Union (EU) (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How have economies in European Union (EU) made dealing with construction permits easier—or not? By Doing Business report year DB year Economy Reform Bulgaria made obtaining a construction permit clearer by DB2008 Bulgaria adopting new legislations. The time to obtain licenses was reduced by passing a new DB2008 Czech Republic Building Act and implementing several regulations aimed at simplifying the building process. Bulgaria made obtaining a construction permit more DB2009 Bulgaria complicated by increasing the fees, time and procedures for obtaining approvals of construction related procedures. A new law implemented in 2008 provides for on-line application, assigns officers for each application and simplifies approval for building permits. However, not all DB2009 Portugal provisions are fully enforced and operational yet. Stricter control of labor regulations adds one procedure for inspection during construction. Czech Republic streamlined the construction permitting DB2010 Czech Republic process by reducing internal processing time for registering new plots. In the Netherlands, a new Spatial Planning Law was enacted DB2010 Netherlands to improve the construction regulation process. Portugal introduced an improved fire safety appraisal system DB2010 Portugal for new construction projects, as well as faster registration of new buildings. Cost of construction in Romania was increased because of a DB2010 Romania new fee equal to 0.05% of project value. Doing Business 2014 EUROPEAN UNION (EU) 29 DB year Economy Reform The United Kingdom eased the process of dealing with construction permits with the wider use of Approved DB2010 United Kingdom Inspectors, resulting in a reduction of time and number of steps. Estonia made dealing with construction permits more DB2011 Estonia complex by increasing the time for obtaining design criteria from the municipality. Hungary implemented a time limit for the issuance of DB2011 Hungary building permits. Portugal made it easier dealing with construction permits by DB2011 Portugal implementing the 95 day time limit for the approval of project designs. Romania amended regulations related to construction DB2011 Romania permitting to reduce fees and expedite the process. Portugal made dealing with construction permits easier by DB2012 Portugal streamlining its inspection system. The United Kingdom made dealing with construction permits DB2012 United Kingdom easier by increasing efficiency in the issuance of planning permits. Greece reduced the time required to obtain a construction DB2013 Greece permit by introducing strict time limits for processing permit applications at the municipality. The Netherlands made dealing with construction permits DB2013 Netherlands simpler by merging several approvals and implementing an online application system. Portugal made obtaining construction permits easier by DB2013 Portugal implementing strict time limits to process urban projects and simplifying the associated procedures. Denmark made dealing with construction permits more DB2014 Denmark costly by increasing the fee for building permits. Latvia made dealing with construction permits easier by introducing new time limits for issuing a building permit and DB2014 Latvia by eliminating the Public Health Agency’s role in approving building permits and conducting inspections. DB2014 Malta Malta made dealing with construction permits less costly by Doing Business 2014 EUROPEAN UNION (EU) 30 DB year Economy Reform significantly reducing the building permit fees. Poland made dealing with construction permits easier by DB2014 Poland eliminating the requirement to obtain a description of the geotechnical documentation of the land. Slovenia made dealing with construction permits easier by DB2014 Slovenia eliminating the requirement to obtain project conditions from the water and sewerage provider. 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 2014 EUROPEAN UNION (EU) 31 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 Obtaining external installation works and warehouse, as well as the time and cost to possibly purchasing material for these works complete them. These procedures include Concluding any necessary supply contract and applications and contracts with electricity utilities, obtaining final supply clearances from other agencies and the external and final connection works. The ranking on the Time required to complete each procedure ease of getting electricity is the simple average of (calendar days) the percentile rankings on its component Is at least 1 calendar day indicators: procedures, time and cost. To make the Each procedure starts on a separate day data comparable across economies, several assumptions are used. Does not include time spent gathering information The warehouse: Reflects the time spent in practice, with little • Is located in the economy’s largest follow-up and no prior contact with officials business city, in an area where other Cost required to complete each procedure (% warehouses are located. of income per capita) • Is not in a special economic zone where Official costs only, no bribes the connection would be eligible for subsidization or faster service. Excludes value added tax • Has road access. The connection works 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 • Has 2 stories, both above ground, with a overhead or underground, whichever is more total surface of about 1,300.6 square common in the economy and in the area meters (14,000 square feet), and is built on where the warehouse is located. The length a plot of 929 square meters (10,000 square of any connection in the customer’s private feet). domain is negligible. The electricity connection: • Requires crossing of a 10-meter road but all the works are carried out in a public land, so • Is a 3-phase, 4-wire Y, 140-kilovolt-ampere there is no crossing into other people's (kVA) (subscribed capacity) connection. private property. Doing Business 2014 EUROPEAN UNION (EU) 32 • Involves installing one electricity meter. The monthly electricity consumption will be 0.07 gigawatt-hour (GWh). The internal electrical wiring has been completed. Doing Business 2014 EUROPEAN UNION (EU) 33 GETTING ELECTRICITY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in (figure 4.1). The average ranking of the region and European Union (EU) to connect a warehouse to comparator regions provide a useful benchmark. electricity? The global rankings of these economies on the ease of getting electricity suggest an answer Figure 4.1 How economies in European Union (EU) rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 34 GETTING ELECTRICITY The indicators underlying the rankings may be more time and the cost (figure 4.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to get a new electricity connection in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Figure 4.2 What it takes to get an electricity connection in economies in European Union (EU) Procedures (number) Doing Business 2014 EUROPEAN UNION (EU) 35 GETTING ELECTRICITY Time (days) Doing Business 2014 EUROPEAN UNION (EU) 36 GETTING ELECTRICITY Cost (% of income per capita) Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 37 GETTING ELECTRICITY What are the changes over time? Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic connection costs reasonable, governments around the operations. In many economies the connection world have worked to consolidate requirements for process is complicated by the multiple laws and obtaining an electricity connection. What reforms in regulations involved—covering service quality, general getting electricity has Doing Business recorded in safety, technical standards, procurement practices and European Union (EU) (table 4.1)? internal wiring installations. In an effort to ensure Table 4.1 How have economies in European Union (EU) made getting electricity easier—or not? By Doing Business report year DB year Economy Reform Latvia made getting electricity faster by introducing a DB2012 Latvia simplified process for approval of external connection designs. Lithuania made getting electricity more difficult by abolishing DB2012 Lithuania the one-stop shop for obtaining technical conditions for utility services. Italy made getting electricity easier and less costly by DB2013 Italy improving the efficiency of the utility Acea Distribuzione and reducing connection fees. Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 38 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 Procedures to legally transfer title on again. And where property is informal or poorly immovable property (number) administered, it has little chance of being accepted as collateral for loans—limiting access to Preregistration procedures (for example, finance. checking for liens, notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration procedures in the economy’s Doing Business records the full sequence of largest business city procedures necessary for a business to purchase Postregistration procedures (for example, filing property from another business and transfer the title with the municipality) property title to the buyer’s name. The transaction Time required to complete each procedure is considered complete when it is opposable to (calendar days) third parties and when the buyer can use the 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 Each procedure starts on a separate day. rankings on its component indicators: procedures, Procedures that can be fully completed online time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are No prior contact with officials used. Cost required to complete each procedure (% The parties (buyer and seller): of property value) • Are limited liability companies, 100% Official costs only, no bribes domestically and privately owned. No value added or capital gains taxes included • Are located in the periurban area of the economy’s largest business city. • Have 50 employees each, all of whom are nationals. • Has no mortgages attached and has been under the same ownership for the past 10 • Perform general commercial activities. years. The property (fully owned by the seller): • Consists of 557.4 square meters (6,000 square • Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000 square feet). The warehouse is in good • Is registered in the land registry or condition and complies with all safety cadastre, or both, and is free of title standards, building codes and legal disputes. requirements. There is no heating system. The • Is located in a periurban commercial zone, property will be transferred in its entirety. and no rezoning is required. Doing Business 2014 EUROPEAN UNION (EU) 39 REGISTERING PROPERTY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in property suggest an answer (figure 5.1). The average European Union (EU) to transfer property? The global ranking of the region and comparator regions provide rankings of these economies on the ease of registering a useful benchmark. Figure 5.1 How economies in European Union (EU) rank on the ease of registering property Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 40 REGISTERING PROPERTY The indicators underlying the rankings may be more the time and the cost (figure 5.2). Comparing these revealing. Data collected by Doing Business show indicators across the region and with averages both what it takes to complete a property transfer in each for the region and for comparator regions can economy in the region: the number of procedures, provide useful insights. Figure 5.2 What it takes to register property in economies in European Union (EU) Procedures (number) Doing Business 2014 EUROPEAN UNION (EU) 41 REGISTERING PROPERTY Time (days) Doing Business 2014 EUROPEAN UNION (EU) 42 REGISTERING PROPERTY Cost (% of property value) * Indicates a “no practice” mark. See the data notes for details. Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 43 REGISTERING PROPERTY What are the changes over time? Economies worldwide have been making it easier for buyers to use or mortgage their property earlier. What entrepreneurs to register and transfer property—such property registration reforms has Doing Business as by computerizing land registries, introducing time recorded in European Union (EU) (table 5.1)? limits for procedures and setting low fixed fees. Many have cut the time required substantially—enabling Table 5.1 How have economies in European Union (EU) made registering property easier—or not? By Doing Business report year DB year Economy Reform The new Tele@ctes system allows notaries to access the land DB2008 France registry electronically, reducing delays. Germany made transferring property more costly by DB2008 Germany increasing the transfer tax in Berlin. The process for registering property was sped up by opening a second registry office in Budapest. The time needed to DB2008 Hungary submit an application to the Land Registry Office and register the title decreased. Poland made registering property cheaper by changing the DB2008 Poland fee scheme from a variable rate to a fixed fee schedule. As part of a modernization initiative by the Portuguese government, real estate registries in Lisbon continue to be DB2008 Portugal computerized for better efficiency. This digitalization has cut the time to register property significantly. A new registry office operating in Budapest has reduced the total time to register a title in Budapest. Increased internal DB2009 Hungary cooperation among these agencies reduced the total time to register property from 63 to 17 days. The State Land Service introduced an online database allowing the employees of the registry to check the cadastral DB2009 Latvia value of the real estate. This resulted in the removal of 1 procedure, bringing the total number to 7, and the total time from 54 to 50 Doing Business 2014 EUROPEAN UNION (EU) 44 DB year Economy Reform Lithuania merged the procedure of obtaining the certificate for transaction with the notarization procedure. As a result of DB2009 Lithuania this reform, the number of procedures went down from 3 to 2. Belgium has eased the process of property transfer by setting DB2010 Belgium statutory time limits. An integrated web-based property register providing online DB2010 Bulgaria access to the ownership and cadastre status of the properties decreased the total time to register property in Bulgaria. The Czech Republic eased the process of property DB2010 Czech Republic registration with an ongoing effort at re-organization at the Registry combined with computerization. Estonia has eased the process of property registration with the computerization of property records at the Land Registry DB2010 Estonia that has introduced the option of registering a property online for notaries. A fuller electronic connection between notaries and land registry decreased time to transfer property in France and DB2010 France made it easier to obtain encumbrance and ownership documents from the registry. Ireland eased property registration by reducing the maximum DB2010 Ireland chargeable stamp duty for property transactions from 9% to 6% of the property value. Portugal sped up the process of registering property with the implementation of a computerization process at the Registry DB2010 Portugal backed by an amendment to the Registry Code making the use of notaties optional Romania sped the process of registering property by DB2010 Romania introductng expedited procedures at the Land Registry and the Cadastre. DB2010 United Kingdom The lodging of a land transaction return is now processed automatically and electronically by the HM Revenue & Doing Business 2014 EUROPEAN UNION (EU) 45 DB year Economy Reform Customs in the UK reducing time to register property. Austria made it easier to transfer property by requiring online DB2011 Austria submission of all applications to register property transfers. Belgium’s capital city, Brussels, made it more difficult to DB2011 Belgium transfer property by requiring a clean-soil certificate. Computerization of Denmark’s land registry cut the number DB2011 Denmark of procedures required to register property by half. Greece made transferring property more costly by increasing DB2011 Greece the transfer tax from 1% of the property value to 10%. Hungary reduced the property registration fee by 6% of the DB2011 Hungary property value. Poland eased property registration by computerizing its land DB2011 Poland registry. Portugal established a one-stop shop for property DB2011 Portugal registration. Greater computerization in Slovenia’s land registry reduced DB2011 Slovenia delays in property registration by 75%. Sweden made registering property easier by eliminating the DB2011 Sweden requirement to obtain a preemption waiver from the municipality Belgium made property registration quicker for entrepreneurs DB2012 Belgium by setting time limits and implementing its “e-notariat” system. The Czech Republic speeded up property registration by DB2012 Czech Republic computerizing its cadastral office, digitizing all its data and introducing electronic communications with notaries. Latvia made transferring property easier by allowing electronic access to municipal tax databases that show the tax DB2012 Latvia status of property, eliminating the requirement to obtain this information in paper format. Doing Business 2014 EUROPEAN UNION (EU) 46 DB year Economy Reform Slovenia made transferring property easier and less costly by DB2012 Slovenia introducing online procedures and reducing fees. Sweden increased the cost of transferring property between DB2012 Sweden companies. Cyprus made property transfers faster by computerizing its DB2013 Cyprus land registry. The Czech Republic made registering property easier by allowing the cadastral office online access to the commercial DB2013 Czech Republic registry’s database and thus eliminating the need to obtain a paper certificate from the registry before applying for registration at the cadastre. Denmark made registering property easier by introducing DB2013 Denmark electronic submission of property transfer applications at the land registry. Ireland made property transfers less costly by introducing a single stamp duty rate for transfers of nonresidential DB2013 Ireland property. It also extended compulsory registration to all property in Ireland. Italy made transferring property easier by digitizing cadastral DB2013 Italy maps of properties and making the maps available to notaries online. Poland made property registration faster by introducing a new caseload management system for the land and DB2013 Poland mortgage registries and by continuing to digitize the records of the registries. In Sweden property transfers became more time consuming DB2013 Sweden during implementation of a new information technology system at the land registry. The Czech Republic made transferring property more costly DB2014 Czech Republic by increasing the property transfer tax rate. France made transferring property easier by speeding up the DB2014 France registration of the deed of sale at the land registry. Doing Business 2014 EUROPEAN UNION (EU) 47 DB year Economy Reform Italy made transferring property easier by eliminating the DB2014 Italy requirement for an energy performance certificate for commercial buildings with no heating system. The Netherlands made transferring property easier by DB2014 Netherlands increasing the efficiency of the title search process. The United Kingdom made transferring property easier by DB2014 United Kingdom introducing electronic lodgment for property transfer applications. 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 2014 EUROPEAN UNION (EU) 48 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 borrowers and lenders’ rights in collateral and bankruptcy laws. Credit information Strength of legal rights index (0–10) systems enable lenders to view a potential borrower’s financial history (positive or negative)— Protection of rights of borrowers and lenders valuable information to consider when assessing through collateral laws risk. And they permit borrowers to establish a good Protection of secured creditors’ rights through credit history that will allow easier access to credit. bankruptcy laws Sound collateral laws enable businesses to use their assets, especially movable property, as security to Depth of credit information index (0–6) generate capital—while strong creditors’ rights Scope and accessibility of credit information have been associated with higher ratios of private distributed by public credit registries and 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 information index measures rules and practices Private credit bureau coverage (% of adults) affecting the coverage, scope and accessibility of Number of individuals and firms listed in credit information available through a public credit largest private credit bureau as percentage of registry or a private credit bureau. The strength of adult population legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the • Has up to 100 employees. secured transactions system, involving a secured • Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and • Is a private, incorporated, limited liability the strength of legal rights index. company. • Has its headquarters and only base of operations in the largest business city. Doing Business 2014 EUROPEAN UNION (EU) 49 GETTING CREDIT Where do the region’s economies stand today? How well do the credit information systems and getting credit suggest an answer (figure 6.1). The collateral and bankruptcy laws in economies in average ranking of the region and comparator regions European Union (EU) facilitate access to credit? The provide a useful benchmark. global rankings of these economies on the ease of Figure 6.1 How economies in European Union (EU) rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 50 GETTING CREDIT Another way to assess how well regulations and particular score on the strength of legal rights index. institutions support lending and borrowing in the Figure 6.3 shows the same thing for the depth of credit region is to look at the distribution of its economies by information index. Higher scores indicate stronger their scores on the getting credit indicators. Figure 6.2 legal rights for borrowers and lenders and more credit shows how many economies in the region received a information. Figure 6.3 How extensive—and how accessible—is credit information in economies in European Union Figure 6.2 How strong are legal rights for borrowers (EU)? and lenders in economies in European Union (EU)? Number of economies in region with each score on depth of Number of economies in region with each score on strength credit information index (0–6) of legal rights index (0–10) Note: Higher scores indicate the availability of more credit Note: Higher scores indicate that collateral and bankruptcy information, from either a credit registry or a credit bureau, laws are better designed to facilitate access to credit. to facilitate lending decisions. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 51 GETTING CREDIT What are the changes over time? 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 European Union (EU) (table 6.1)? Table 6.1 How have economies in European Union (EU) made getting credit easier—or not? By Doing Business report year DB year Economy Reform A unified collateral registry which is centralized DB2008 France geographically became operational in France Parties may agree to out-of court-enforcement of the security DB2008 Romania right when the security agreement is signed. The public credit registry increased the minimum loan DB2008 Slovenia requirement from 0 to 500 Euros, as a result of the implementation of Euro. Czech Republic made access to finance more difficult by DB2009 Czech Republic decreasing secured creditors' rights during reorganization procedure. The regulations regarding the credit information of private persons and companies in Finland have now been assembled into one Act. The new credit information Act, governing the DB2009 Finland production, storage, disclosure and use of credit data, concerns private persons, companies as well as entrepreneurs and traders. There is a one-year transition period for the implementation of the Act. Germany made access to finance more difficult by decreasing DB2009 Germany secured creditors' rights during reorganization procedure. A new private bureau started operation - SISBON. However, Slovenia also made access to finance more difficult by DB2009 Slovenia decreasing secured creditors' rights during reorganization procedure. Greece's private credit bureau, Tiresias, expanded the amount DB2010 Greece of information it distributes in its credit reports enhancing access to credit information Doing Business 2014 EUROPEAN UNION (EU) 52 DB year Economy Reform Latvia’s new public credit registry started sharing data on DB2010 Latvia loans thus improving access to credit information. Poland improved its credit information system by collecting and distributing information on firms. In addition, Poland improved access to credit with an amendment to the 1996 DB2010 Poland Act on Registered Pledges and the Pledges Register to allow all legal persons including foreign entities to have capacity as a pledgee. 2009 changes to the Rights of Priority Act give priority for DB2010 Sweden secured creditor claims in case of default outside bankruptcy Cyprus improved access to credit information by establishing DB2011 Cyprus its first private credit bureau. Estonia improved access to credit by amending the Code of DB2011 Estonia Enforcement Procedure and allowing out-of-court enforcement of collateral by secured creditors. Lithuania’s private credit bureau now collects and distributes DB2011 Lithuania positive information on borrowers. Bulgaria made access to credit information more difficult by DB2012 Bulgaria stopping the distribution of credit reports to financial institutions by the private credit bureau (Experian). Hungary reduced the amount of credit information available from private credit bureaus by shortening the period for DB2012 Hungary retaining data on defaults and late payments (if repaid) from 5 years to 1 year. The Slovak Republic improved its credit information system DB2012 Slovak Republic by guaranteeing by law the right of borrowers to inspect their own data. Hungary improved access to credit information by passing its DB2013 Hungary first credit bureau law mandating the creation of a database with positive credit information on individuals. Romania strengthened its legal framework for secured transactions by allowing the automatic extension of security DB2013 Romania interests to the products, proceeds and replacement of collateral. Latvia improved its credit information system by adopting a DB2014 Latvia new law regulating the public credit registry. Doing Business 2014 EUROPEAN UNION (EU) 53 DB year Economy Reform Lithuania strengthened its secured transactions system by broadening the range of movable assets that can be used as DB2014 Lithuania collateral, allowing a general description in the security agreement of the assets pledged as collateral and permitting out-of-court enfor The Netherlands weakened its secured transactions system through an amendment to the Collection of State Taxes Act DB2014 Netherlands that grants priority outside bankruptcy to tax claims over secured creditors’ claims. 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 2014 EUROPEAN UNION (EU) 54 PROTECTING INVESTORS Protecting investors matters 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 protect minority shareholders, investors may be Extent of disclosure index (0–10) reluctant to provide funding to companies through the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor Available legal remedies (damages, protections: transparency of related-party disgorgement of profits, fines, imprisonment transactions (extent of disclosure index), liability for and rescission of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to evidence before and Ease of shareholder suits index (0–10) during (ease of shareholder suits index). The ranking Access to internal corporate documents on the strength of investor protection index is the (directly or through a government inspector) simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of • Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). • The price is higher than the going price for used trucks, but the transaction goes forward. • Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of • All required approvals are obtained, and all Buyer where permitted, even if this is not required disclosures made, though the specifically required by law. transaction is prejudicial to Buyer. The transaction involves the following details: • Shareholders sue the interested parties and the members of the board of directors. • Mr. James, a director and the majority shareholder of the company, proposes that the company purchase used trucks from another company he owns. Doing Business 2014 EUROPEAN UNION (EU) 55 Doing Business 2014 EUROPEAN UNION (EU) 56 PROTECTING INVESTORS Where do the region’s economies stand today? How strong are investor protections against self- related to the protection of minority investors, a higher dealing in economies in European Union (EU)? The ranking does indicate that an economy’s regulations global rankings of these economies on the strength of offer stronger investor protections against self-dealing investor protection index suggest an answer (figure in the areas measured. 7.1). While the indicator does not measure all aspects Figure 7.1 How economies in European Union (EU) rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 57 PROTECTING INVESTORS But the overall ranking on the strength of investor ease of shareholder suits indices may also be revealing protection index tells only part of the story. Economies (figure 7.2). Higher scores indicate stronger investor may offer strong protections in some areas but not protections. Comparing the scores across the region others. So the number of economies in European on the strength of investor protection index and with Union (EU) that have a certain score recorded on the averages both for the region and for comparator extent of disclosure, extent of director liability and regions can provide useful insights. Figure 7.2 How strong are investor protections in economies in European Union (EU)? Strength of investor protection index (0–10) Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 58 PROTECTING INVESTORS Extent of disclosure index (0–10) Extent of director liability index (0–10) Number of economies in region with each score on extent of Number of economies in region with each score on extent of disclosure index (0–10) director liability index (0–10) Note: Higher scores indicate greater disclosure. Note: Higher scores indicate greater liability of directors. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 59 PROTECTING INVESTORS Ease of shareholder suits index (0–10) Number of economies in region with each score on ease of shareholder suits index (0–10) Note: Higher scores indicate greater powers of shareholders to challenge the transaction. Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 60 PROTECTING INVESTORS What are the changes over time? Economies with the strongest protections of minority reasonable time. So reforms to strengthen investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have as through new or amended company laws, securities well-functioning courts and up-to-date procedural regulations or revisions to court procedures. What rules that give minority shareholders the means to investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in European Union (EU) (table 7.1)? Table 7.1 How have economies in European Union (EU) strengthened investor protections—or not? By Doing Business report year DB year Economy Reform Portugal strengthened investor protections by clarifying the statutory provisions regarding director’s duties, by reducing DB2008 Portugal the shareholding threshold in relation to the right of action against directors on behalf of listed companies, and by introducing a business judgment rule statutory provision. Slovenia strengthened investor protections by requiring that boards of directors obtain a prior approval from the DB2008 Slovenia shareholders before entering into transactions representing 25% or more of the company's assets. Greece strengthened investor protections by reducing the DB2009 Greece threshold necessary to initiate a derivative suit against directors. Slovenia strengthened investor protections by allowing minority investors to initiate suits against directors on behalf DB2009 Slovenia of the company in order to defend their rights as shareholders. Sweden strengthened investor protections by requiring DB2011 Sweden greater corporate disclosure and regulating the approval of transactions between interested parties. Cyprus strengthened investor protections by requiring DB2012 Cyprus greater corporate disclosure to the board of directors, to the public and in the annual report. DB2012 Lithuania Lithuania strengthened investor protections by introducing Doing Business 2014 EUROPEAN UNION (EU) 61 DB year Economy Reform greater requirements for corporate disclosure to the public and in the annual report. Greece strengthened investor protections by requiring DB2013 Greece greater immediate and annual disclosure of material related- party transactions. The Netherlands strengthened investor protections through a DB2013 Netherlands new law regulating the approval of related-party transactions. Slovenia strengthened investor protections through a new DB2013 Slovenia law regulating the approval of related-party transactions. Greece strengthened investor protections by introducing a DB2014 Greece requirement for director approval of related-party transactions. 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 2014 EUROPEAN UNION (EU) 62 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic or joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector— Total number of taxes and contributions paid, including consumption taxes (value added tax, where businesses pay no taxes at all. 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 Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit) payments, time and total tax rate, with a threshold 1 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, 2011. 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 • Taxes and mandatory contributions include the second year of operation are recorded. corporate income tax, turnover tax and all labor taxes and contributions paid by the • Taxes and mandatory contributions are company. measured at all levels of government. • A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.5%. Doing Business 2014 EUROPEAN UNION (EU) 63 PAYING TAXES Where do the region’s economies stand today? What is the administrative burden of complying with useful information for assessing the tax compliance taxes in economies in European Union (EU)—and how burden for businesses (figure 8.1). The average ranking much do firms pay in taxes? The global rankings of of the region and comparator regions provide a useful these economies on the ease of paying taxes offer benchmark. Figure 8.1 How economies in European Union (EU) rank on the ease of paying taxes Note: For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 64 PAYING TAXES The indicators underlying the rankings may be more as well as the total tax rate (figure 8.2). Comparing revealing. Data collected by Doing Business show what these indicators across the region and with averages it takes to comply with tax regulations in each both for the region and for comparator regions can economy in the region—the number of payments per provide useful insights. year and the time required to prepare and file taxes— Figure 8.2 How easy is it to pay taxes in economies in European Union (EU)—and what are the total tax rates? Payments (number per year) Doing Business 2014 EUROPEAN UNION (EU) 65 PAYING TAXES Time (hours per year) Doing Business 2014 EUROPEAN UNION (EU) 66 PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 67 PAYING TAXES What are the changes over time? 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. European Union (EU) (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How have economies in European Union (EU) made paying taxes easier—or not? By Doing Business report year DB year Economy Reform Bulgaria reduced the tax burden for companies by reducing the corporate income tax rate and the social security DB2008 Bulgaria contribution and eased the system of tax payment through the diffusion of e-filing and e-payment Greece reduced the tax burden for companies by reducing DB2008 Greece the corporate income tax rate Hungary made it more costly for company to pay taxes by DB2008 Hungary increasing the health insurance contribution rate. Netherlands reduced the tax burden for companies by DB2008 Netherlands reducing the corporate income tax rate, social security contribution rates and the rates of several other taxes Portugal reduced the tax burden for companies by reducing DB2008 Portugal the corporate income tax rate Romania reduced the tax burden for companies by reducing DB2008 Romania social security contributions rate Slovenia reduced the tax burden for companies by reducing DB2008 Slovenia payroll rate Spain made it less costlier to pay taxes for companies, by DB2008 Spain reducing CIT rates New Corporate Income Tax and Value Added Tax Acts DB2009 Bulgaria introduced. Additional annual VAT return abolished. Employer share of of social security reduced by 5%. Doing Business 2014 EUROPEAN UNION (EU) 68 DB year Economy Reform Corporate income tax rate reduced from 24% to 21% in 2008 DB2009 Czech Republic (and 20% in 2009 and 19% in 2010). Corporate income tax was reduced from 28 % to 25 % DB2009 Denmark effective 1 January 2007. Update in salary ceilings changed the effective rates for social security and payroll taxes. Electronic filing became mandatory DB2009 France for social security contributions, effective 1 January 2007 for companies which are liable for more than 800,000 EUR in social security contributions Effective 1 January 2008, the rate of corporate income tax will decrease from 25% to 15%. Trade tax will reduce to between 11% and 17 %, the exact tax rate depending on the DB2009 Germany corresponding municipality. Straight-line depreciation introduced for fixed assets and low-value asste write-offs introduced (€410 threshold) DB2009 Greece Electronic systems introduced for social security tax. Effective 2008, the IRES rate has been reduced from 33% to DB2009 Italy 27.5%, and the IRAP rate has been reduced from 4.25% percent to 3.9%. The Belgian government is improving the tax payment DB2010 Belgium process and administration by mandating electronic filing for medium sized businesses. Czech Republic has made paying taxes easier with mandatory DB2010 Czech Republic electronic filing for all taxes, a single tax institution and unified filing. Finland has made it easier to pay taxes with electronic filing DB2010 Finland and has reduced the burden on business and the cost of employment by cutting labor taxes Lithuania has increased the tax burden on business by raising DB2010 Lithuania corporate income tax from 15% to 20%. Poland eased the tax burden on business by decreasing its DB2010 Poland social security rates, as well as simplifying its VAT law Doing Business 2014 EUROPEAN UNION (EU) 69 DB year Economy Reform Romania has added to the tax burden on businesses by DB2010 Romania increasing labor taxes. Spain relieved the tax burden on business by reducing the corporate income tax rate from 32.5% to 30% and with DB2010 Spain efficiency gains due to the electronic filing and payment system. Bulgaria reduced employer contribution rates for social DB2011 Bulgaria security. The Czech Republic simplified its labor tax processes and DB2011 Czech Republic reduced employer contribution rates for social security. Estonia increased the unemployment insurance contribution DB2011 Estonia rate. DB2011 Hungary Hungary simplified taxes and tax bases. DB2011 Lithuania Lithuania reduced corporate tax rates. The Netherlands reduced the frequency of filing and paying value added taxes from monthly to quarterly and allowed DB2011 Netherlands small entities to use their annual accounts as the basis for computing their corporate income tax. Portugal introduced a new social security code and lowered DB2011 Portugal corporate tax rates. Romania introduced tax changes, including a new minimum DB2011 Romania tax on profit, that made paying taxes more costly for companies. Slovenia abolished its payroll tax and reduced its corporate DB2011 Slovenia income tax rate. DB2011 Sweden Sweden reduced profit and payroll tax rates The Czech Republic revised its tax legislation to simplify DB2012 Czech Republic provisions relating to administrative procedures and relationships between tax authorities and taxpayers. Doing Business 2014 EUROPEAN UNION (EU) 70 DB year Economy Reform In Estonia a municipal sales tax introduced in Tallinn made DB2012 Estonia paying taxes costlier for firms, though a later parliamentary measure abolished local sales taxes effective January 1, 2012. Finland simplified reporting and payment for the value added DB2012 Finland tax and labor tax. DB2012 Greece Greece reduced its corporate income tax rate. Hungary made paying taxes costlier for firms by introducing a DB2012 Hungary sector-specific surtax Romania made paying taxes easier for companies by introducing an electronic payment system and a unified DB2012 Romania return for social security contributions. It also abolished the annual minimum tax. Cyprus made paying taxes more costly for companies by increasing the special defense contribution rate on interest income and introducing a private sector special contribution DB2013 Cyprus and a fixed annual fee for companies registered in Cyprus. At the same time, it simplified tax compliance by introducing electronic filing for corporate income tax. The Czech Republic made paying taxes faster for companies DB2013 Czech Republic by promoting the use of electronic facilities. Germany made paying taxes more convenient for companies DB2013 Germany by canceling ELENA procedures and implementing electronic filing and payment system for most taxes. Hungary made paying taxes easier for companies by abolishing the community tax. At the same time, Hungary DB2013 Hungary increased health insurance contributions paid by the employer. Poland made paying taxes easier for companies by promoting the use of electronic filing and payment systems—though it DB2013 Poland also made paying taxes more costly by increasing social security contributions. Doing Business 2014 EUROPEAN UNION (EU) 71 DB year Economy Reform The Slovak Republic made paying taxes easier for companies DB2013 Slovak Republic by implementing electronic filing and payment of social security and health insurance contributions. Slovenia made paying taxes easier and less costly for companies by implementing electronic filing and payment of DB2013 Slovenia social security contributions and by reducing the corporate income tax rate. The United Kingdom made paying taxes less costly for DB2013 United Kingdom companies by reducing the corporate income tax rate. Greece made paying taxes more costly for companies by increasing the corporate income tax rate—though it also DB2014 Greece reduced the employers’ contribution rate to the social security fund. Romania made paying taxes easier and less costly for companies by reducing the payment frequency for the firm DB2014 Romania tax from quarterly to twice a year and by reducing the vehicle tax rate. The Slovak Republic made paying taxes more costly for DB2014 Slovak Republic companies by increasing the corporate income tax rate and by adjusting land appraisal values. Sweden made paying taxes less costly for companies by DB2014 Sweden reducing the corporate income tax rate. 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 2014 EUROPEAN UNION (EU) 72 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 extra costs and delays for exporters and importers, Documents required to export and import stifling trade potential. Research shows that (number) exporters in developing countries gain more from Bank documents a 10% drop in their trading costs than from a Customs clearance documents similar reduction in the tariffs applied to their products in global markets. Port and terminal handling documents What do the indicators cover? Transport documents Doing Business measures the time and cost Time required to export and import (days) (excluding tariffs and the time and cost for sea Obtaining, filling out and submitting all the transport) associated with exporting and documents importing a standard shipment of goods by sea transport, and the number of documents necessary Inland transport and handling to complete the transaction. The indicators cover Customs clearance and inspections procedural requirements such as documentation Port and terminal handling requirements and procedures at customs and other regulatory agencies as well as at the port. They also Does not include sea transport time cover trade logistics, including the time and cost of inland transport to the largest business city. The Cost required to export and import (US$ per container) ranking on the ease of trading across borders is the simple average of the percentile rankings on its All documentation component indicators: documents, time and cost Inland transport and handling to export and import. Customs clearance and inspections To make the data comparable across economies, Port and terminal handling Doing Business uses several assumptions about the business and the traded goods. Official costs only, no bribes The business: • Do not require refrigeration or any other special environment. • Is of medium size and employs 60 people. • Do not require any special phytosanitary or • Is located in the periurban area of the environmental safety standards other than economy’s largest business city. accepted international standards. • Is a private, limited liability company, • Are one of the economy’s leading export or domestically owned, formally registered import products. and operating under commercial laws and regulations of the economy. • Are transported in a dry-cargo, 20-foot full container load. The traded goods: • Are not hazardous nor do they include military items. Doing Business 2014 EUROPEAN UNION (EU) 73 TRADING ACROSS BORDERS Where do the region’s economies stand today? How easy it is for businesses in economies in European across borders suggest an answer (figure 9.1). The Union (EU) to export and import goods? The global average ranking of the region and comparator regions rankings of these economies on the ease of trading provide a useful benchmark. Figure 9.1 How economies in European Union (EU) rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 74 TRADING ACROSS BORDERS The indicators underlying the rankings may be more documents, the time and the cost (figure 9.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to export or import a standard container of averages both for the region and for comparator goods in each economy in the region: the number of regions can provide useful insights. Figure 9.2 What it takes to trade across borders in economies in European Union (EU) Documents to export (number) Doing Business 2014 EUROPEAN UNION (EU) 75 TRADING ACROSS BORDERS Time to export (days) Doing Business 2014 EUROPEAN UNION (EU) 76 TRADING ACROSS BORDERS Cost to export (US$ per container) Doing Business 2014 EUROPEAN UNION (EU) 77 TRADING ACROSS BORDERS Documents to import (number) Doing Business 2014 EUROPEAN UNION (EU) 78 TRADING ACROSS BORDERS Time to import (days) Doing Business 2014 EUROPEAN UNION (EU) 79 TRADING ACROSS BORDERS Cost to import (US$ per container) Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 80 TRADING ACROSS BORDERS What are the changes over time? In economies around the world, trading across borders systems. These changes help improve their 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 European Union (EU) (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How have economies in European Union (EU) made trading across borders easier—or not? By Doing Business report year DB year Economy Reform Austria eased trade by introducing an electronic customs DB2008 Austria clearance system on January 1, 2007 and application of a risk management system. France speeded up and simplified its customs clearance DB2009 France procedures by introducing an electronic customs declaration and eliminating the need to submit certain documents. Customs continuous staff training and improvement of its DB2010 Portugal procedures has reduced their clearance time Slovak Republic has sped trading times with an electronic DB2010 Slovak Republic system for customs administration. Latvia reduced the time to export and import by introducing DB2011 Latvia electronic submission of customs declarations. Lithuania reduced the time to import by introducing, in DB2011 Lithuania compliance with EU law, an electronic system for submitting customs declarations. Spain streamlined the documentation for imports by DB2011 Spain including tax-related information on its single administrative document. Belgium made trading across borders faster by improving its DB2012 Belgium risk-based profiling system for imports. DB2012 Bulgaria Bulgaria made trading across borders faster by introducing Doing Business 2014 EUROPEAN UNION (EU) 81 DB year Economy Reform online submission of customs declaration forms. Poland made trading across borders faster by implementing DB2012 Poland electronic preparation and submission of customs documents. Slovenia made trading across borders faster by introducing DB2012 Slovenia online submission of customs declaration forms. The Czech Republic reduced the time to export and import by DB2013 Czech Republic allowing electronic submission of customs declarations and other documents. Hungary reduced the time to export and import by allowing DB2013 Hungary electronic submission of customs declarations and other documents. The Netherlands made importing easier by introducing a new DB2013 Netherlands web-based system for cargo release at the port terminals in Rotterdam. Portugal made trading across borders easier by implementing DB2013 Portugal an electronic single window for port procedures. Spain reduced the time to import by further expanding the use of electronic submission of customs declarations and DB2013 Spain improving the sharing of information among customs and other agencies. Greece made trading across borders easier by implementing DB2014 Greece a system allowing electronic submission of customs declarations for exports. Latvia made trading across borders easier by reducing the DB2014 Latvia number of documents required for importing. 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 2014 EUROPEAN UNION (EU) 82 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the Steps to enforce the judgment outcome of a long court dispute. What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case: • The seller and buyer are located in the economy’s largest business city. • The dispute on the quality of the goods requires an expert opinion. • The buyer orders custom-made goods, then fails to pay. • The judge decides in favor of the seller; there is no appeal. • The seller sues the buyer before a competent court. • The seller enforces the judgment through a public sale of the buyer’s movable assets. • The value of the claim is 200% of income per capita. • The seller requests a pretrial attachment to secure the claim. Doing Business 2014 EUROPEAN UNION (EU) 83 ENFORCING CONTRACTS Where do the region’s economies stand today? How efficient is the process of resolving a commercial on the ease of enforcing contracts suggest an answer dispute through the courts in economies in European (figure 10.1). The average ranking of the region and Union (EU)? The global rankings of these economies comparator regions provide a useful benchmark. Figure 10.1 How economies in European Union (EU) rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 84 ENFORCING CONTRACTS The indicators underlying the rankings may also be procedures, the time and the cost (figure 10.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to enforce a contract through the courts in averages both for the region and for comparator each economy in the region: the number of regions can provide useful insights. Figure 10.2 What it takes to enforce a contract through the courts in economies in European Union (EU) Procedures (number) Doing Business 2014 EUROPEAN UNION (EU) 85 ENFORCING CONTRACTS Time (days) Doing Business 2014 EUROPEAN UNION (EU) 86 ENFORCING CONTRACTS Cost (% of claim) Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 87 ENFORCING CONTRACTS What are the changes over time? 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 European Union (EU) introducing new technology. Lower-income economies (table 10.1)? often work on reducing backlogs by introducing Table 10.1 How have economies in European Union (EU) made enforcing contracts easier—or not? By Doing Business report year DB year Economy Reform Bulgaria introduced changes to the judicial system, increasing DB2008 Bulgaria transparency and appointing private bailiffs. Poland made enforcing conracts easier by making rules of DB2008 Poland procedure sticter. Portugal simplified the rules for small claims and is improving DB2008 Portugal their case management system. Austria mainstreamed electronic filing by making use of an electronic data channel comprehensive for all DB2009 Austria correspondence between lawyers and the court in civil matters. This cut out manual procedures and made proceedings more efficient. Belgium established as a standard procedure to fix a procedural calendar for written pleading, and introduced DB2009 Belgium tighter deadlines for the delivery of expert opinions. The amendments also have sanctions if the deadlines are not respected. Bulgaria amended many provisions of its civil code, reforming rules for evidence and default judgment. The minimum DB2009 Bulgaria threshold for the lower jurisdiction was revised upward and powers given to the last instance civil court to select which cases to hear, limiting abuse of the appeals process. A reform of the procedural code increased the scope for DB2009 Portugal summary proceedings by raising the monetary threshold. This reduced procedural complexity. Romania simplified the enforcement of judgments by DB2009 Romania abolishing the need of an enforcement order. It also made the attachment of credit balances and accounts receivable Doing Business 2014 EUROPEAN UNION (EU) 88 DB year Economy Reform available, diminishing enforcement time by one month. Portugal decreased the time and improved procedures for contract enforcement by enabling e-filing for the initiation of DB2010 Portugal suit and by reducing the need for judge intervention in the execution of judgment. Sweden adopted new legislation that introduced stringent DB2010 Sweden time limits, thereby reducing the time to resolve a commercial dispute. The United Kingdom improved the process for enforcing DB2011 United Kingdom contracts by modernizing civil procedures in the commercial court. Poland made enforcing contracts easier by amending the civil DB2013 Poland procedure code and appointing more judges to commercial courts. The Slovak Republic made enforcing contracts easier by adopting several amendments to the code of civil procedure DB2013 Slovak Republic intended to simplify and speed up proceedings as well as to limit obstructive tactics by the parties to a case. The Czech Republic made enforcing contracts easier by DB2014 Czech Republic simplifying and speeding up the proceedings for the execution and enforcement of judgments. Estonia made enforcing contracts easier by lowering court DB2014 Estonia fees. Italy made enforcing contracts easier by regulating attorneys’ DB2014 Italy fees and streamlining some court proceedings. Romania made enforcing contracts easier by adopting a new DB2014 Romania civil procedure code that streamlines and speeds up all court proceedings. 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 2014 EUROPEAN UNION (EU) 89 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of 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 Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through reorganization, liquidation or debt enforcement Recovery rate for creditors (cents on the (foreclosure) proceedings. The recovery rate is a dollar) function of time, cost and other factors, such as Measures the cents on the dollar recovered lending rate and the likelihood of the company by creditors continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account • Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered • Operates in the economy’s largest business city. • Has 201 employees, 1 main secured • Has a higher value as a going concern—and creditor and 50 unsecured creditors. that the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 EUROPEAN UNION (EU) 90 RESOLVING INSOLVENCY Where do the region’s economies stand today? How efficient are insolvency proceedings in economies benchmark for assessing the efficiency of insolvency in European Union (EU)? The global rankings of these proceedings. Speed, low costs and continuation of economies on the ease of resolving insolvency suggest viable businesses characterize the top-performing an answer (figure 11.1). The average ranking of the economies. region and comparator regions provide a useful Figure 11.1 How economies in European Union (EU) rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 91 RESOLVING INSOLVENCY The indicators underlying the rankings may be more Comparing these indicators across the region and with revealing. Data collected by Doing Business show the averages both for the region and for comparator average time and cost required to resolve insolvency regions can provide useful insights. as well as the average recovery rate (figure 11.2). Figure 11.2 How efficient is the insolvency process in economies in European Union (EU) Time (years) Doing Business 2014 EUROPEAN UNION (EU) 92 RESOLVING INSOLVENCY Cost (% of estate) Doing Business 2014 EUROPEAN UNION (EU) 93 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) * Indicates a “no practice” mark. See the data notes for details. Source: Doing Business database. Doing Business 2014 EUROPEAN UNION (EU) 94 RESOLVING INSOLVENCY What are the changes over time? 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 European Union (EU) (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How have economies in European Union (EU) made resolving insolvency easier—or not? By Doing Business report year DB year Economy Reform Denmark adopted legislation that transferred some powers DB2008 Denmark over bankruptcy proceedings from trustees to judges and granted more rights to creditors. Hungary amended its bankruptcy legislation to grant secured DB2008 Hungary creditors priority over their pledged security. Italy adopted legislation that empowers trustees and grants DB2008 Italy creditors the right to propose an “insolvent composition” which may shorten the liquidation procedure. Portugal adopted legislation that creates fast-track DB2008 Portugal procedures for the voluntary liquidation of commercial enterprises. Bulgaria passed 2 laws: the Civil Procedure Code and the Law for the Commercial Registry. The Civil Procedure Code specifies that the Supreme Cassation Court has the discretion to decide whether or not to hear a case. The Law for DB2009 Bulgaria Commercial Registry specifies that major decisions and rulings of the bankruptcy court are posted on the commercial registry’s website. These changes are expected to reduce delays and allows for faster resolution of bankruptcy. Czech Republic passed an Insolvency Act. The law introduces reorganization as the preferred method for resolving DB2009 Czech Republic insolvency, mandates stricter deadlines, establishes an electronic insolvency register and sets new qualification standards for trustees. Finland revised its Restructuring of Enterprises Act, accelerating hearings and making the entire process more DB2009 Finland flexible. The reform makes it easier for companies to enter a reorganization process. DB2009 Germany Germany amended its Insolvency Code to facilitate Doing Business 2014 EUROPEAN UNION (EU) 95 DB year Economy Reform maintaining the debtor’s business as a going concern. The new law allows the court to suspend enforcement actions against assets that are essential to the continuation of the business. Greece passed a new bankruptcy law which aims at reorganizing financially distressed companies, preserving the business assets, treating creditors equally and preventing DB2009 Greece piecemeal sale. The law is expected to lead to more restructurings and allow more companies to continue as going concerns. Latvia passed a new insolvency law which allows for the first time financially distressed companies to continue operating DB2009 Latvia by pursuing reorganization. The reform also strengthened the qualification standards for bankruptcy administrators. Poland introduced the Law on Trustee Licensing tightening professional requirements for administrators. A trustee’s DB2009 Poland license now requires an examination in economics, law, finance and management. The reform also limits trustees’ pay to 3% of the bankrupt estate’s value, down from 5%. Portugal eliminated the formality of publishing insolvency notices in newspapers. It also introduced a fast-track DB2009 Portugal procedure for debtors with less than €5,000 in assets and new procedures to accelerate payments to insolvency administrators. Portugal also limited appeals. Estonia adopted a new Reorganization Act establishes a new legal procedure enabling distressed companies on the verge DB2010 Estonia of insolvency to reorganize themselves, restructure their debt, and apply other measures to regain financial health and restore profitability. France enhanced the process of insolvency by encouraging DB2010 France pre-insolvency work-outs while also no longer requiring the estimation of the assets by a public auctioneer. Germany’s recent Act on the Implementation of Measures to Stabilize the Financial Market DB2010 Germany (Finanzmarktstabilisierungsgesetz) removes the requirement for potentially viable companies to file for immediate insolvency in cases of over-indebtedness. Lithuania eased the process of closing a business with the DB2010 Lithuania introduction of amendments to the Enterprise Bankruptcy Law. Doing Business 2014 EUROPEAN UNION (EU) 96 DB year Economy Reform Poland eased the process of dealing with distressed companies with an amendment to its bankruptcy law DB2010 Poland introducing an option of opening a pre-bankruptcy reorganization procedure that applies to companies that are facing financial difficulties instead of bankruptcy proceedings. Romania amended its insolvency law with the immediate impact of increasing costs of insolvency procedures by 1.5%, DB2010 Romania which are to be transferred to a fund that reimburses the expenses of insolvency administrators in cases where the debtor has no assets. Belgium introduced a new law that will promote and facilitate DB2011 Belgium the survival of viable businesses experiencing financial difficulties. The Czech Republic made it easier to deal with insolvency by introducing further legal amendments to restrict setoffs in DB2011 Czech Republic insolvency cases and suspending for some insolvent debtors the obligation to file for bankruptcy. Amendments to Estonia’s recent insolvency law increased the chances that viable businesses will survive insolvency by DB2011 Estonia improving procedures and changing the qualification requirements for insolvency administrators. Amendments to Hungary’s bankruptcy law encourage DB2011 Hungary insolvent companies to consider reaching agreements with creditors out of court so as to avoid bankruptcy. Latvia introduced a mechanism forout-of-court settlement of DB2011 Latvia insolvencies to alleviate pressure on courts and tightened some procedural deadlines. Lithuania introduced regulations relating to insolvency DB2011 Lithuania administrators that set out clear rules of liability for violations of law. Substantial amendments to Romania’s bankruptcy laws— DB2011 Romania introducing, among other things, a procedure for out-of- court workouts—made dealing with insolvency easier. Spain amended its regulations governing insolvency DB2011 Spain proceedings with the aim of reducing the cost and time. The new regulations also introduced out-of-court workouts. Amendments to the United Kingdom’s insolvency rules streamline bankruptcy procedures, favor the sale of the firm DB2011 United Kingdom as a whole and improve the calculation of administrators’ fees. Doing Business 2014 EUROPEAN UNION (EU) 97 DB year Economy Reform Austria passed a new law that simplifies restructuring DB2012 Austria proceedings and gives preferential consideration to the interests of the debtors. Bulgaria amended its commerce act to extend further rights DB2012 Bulgaria to secured creditors and increase the transparency of insolvency proceedings. Denmark introduced new rules on company reorganization, DB2012 Denmark which led to the elimination of the suspension-of-payments regime. France passed a law that enables debtors to implement a DB2012 France restructuring plan with financial creditors only, without affecting trade creditors. Italy introduced debt restructuring and reorganization procedures as alternatives to bankruptcy proceedings and DB2012 Italy extended further rights to secured creditors during insolvency proceedings. Latvia adopted a new insolvency law that streamlines and DB2012 Latvia expedites the insolvency process and introduces a reorganization option for companies. Lithuania amended its reorganization law to simplify and shorten reorganization proceedings, grant priority to secured DB2012 Lithuania creditors and introduce professional requirements for insolvency administrators. Poland amended its bankruptcy and reorganization law to DB2012 Poland simplify court procedures and extend more rights to secured creditors. Romania amended its insolvency law to shorten the duration DB2012 Romania of insolvency proceedings. Slovenia simplified and streamlined the insolvency process DB2012 Slovenia and strengthened professional requirements for insolvency administrators. Germany strengthened its insolvency process by adopting a DB2013 Germany new insolvency law that facilitates in-court restructurings of distressed companies and increases participation by creditors. Greece enhanced its insolvency process by abolishing the DB2013 Greece conciliation procedure and introducing a new rehabilitation proceeding. Lithuania made resolving insolvency easier by establishing DB2013 Lithuania which cases against the company’s property shall be taken to the bankruptcy court, tightening the time frame for decisions Doing Business 2014 EUROPEAN UNION (EU) 98 DB year Economy Reform on appeals, abolishing the court’s obligation to individually notify creditors and other stakeholders about restructuring proceedings and setting new time limits for creditors to file claims. Poland strengthened its insolvency process by updating guidelines on the information and documents that need to be DB2013 Poland included in the bankruptcy petition and by granting secured creditors the right to take over claims encumbered with financial pledges in case of liquidation. Portugal made resolving insolvency easier by introducing a DB2013 Portugal new insolvency law that expedites liquidation procedures and creates fast-track mechanisms both in and out of court. The Slovak Republic improved its insolvency process by redefining the roles and powers of creditors and trustees, DB2013 Slovak Republic strengthening the rights of secured creditors and redefining rules for the conversion of restructuring into a bankruptcy proceeding. Slovenia strengthened its insolvency process by requiring that the debtor offer creditors payment of at least 50% of the claims within 4 years; giving greater power to the creditors’ committee in a bankruptcy proceeding; prohibiting DB2013 Slovenia insolvency administrators from allowing relatives to render services associated with the bankruptcy proceeding; and establishing fines for members of management that violate certain obligations or prohibitions. Spain strengthened its insolvency process by making workouts easier, offering more protections for refinancing agreements, allowing conversion from reorganization into DB2013 Spain liquidation at any time, allowing reliefs of the stay under certain circumstances and permitting the judge to determine whether an asset of the insolvent company is necessary for its continued operation. Italy made resolving insolvency easier through amendments to its bankruptcy code that introduce a stay period for DB2014 Italy enforcement actions while the debtor is preparing a restructuring plan, make it easier to convert from one type of restructuring proceeding t 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 2014 EUROPEAN UNION (EU) 99 DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information 2 The data for paying taxes refer to January – December 2012. Doing Business 2014 EUROPEAN UNION (EU) 100 about what laws and regulations say and allowing reasons the time delays reported in Doing Business multiple interactions with local respondents to clarify 2014 would differ from the recollection of potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation—as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited Changes in what is measured liability company (or its legal equivalent) of a specified size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully Doing Business 2014 EUROPEAN UNION (EU) 101 completed online in just a few hours. This change business and the distance to frontier measure. The affects the time indicator for starting a business, ease of doing business ranking compares economies dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business. 3 For getting electricity the rule that each procedure must take a minimum of 1 day still applies because in practice there are no More complex aggregation methods—such as cases in which procedures can be fully completed online in less than principal components and unobserved components— a day. For example, even though in some cases it is possible to yield a ranking nearly identical to the simple average apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 EUROPEAN UNION (EU) 102 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly identical to that from the simple average method because both since 2003 or the first year the indicator was collected. 5 these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 EUROPEAN UNION (EU) 103 the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. RESOURCES ON THE DOING BUSINESS WEBSITE Current features Business reforms News on the Doing Business project Short summaries of DB2014 business reforms, lists http://www.doingbusiness.org of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics /entrepreneurship/ Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/