103368 Regional Profile 2016 Latin America Doing Business 2016 LATIN AMERICA 2 © 2016 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 Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank with external contributions. 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. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2016 LATIN AMERICA 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 32 Registering property .................................................................................................................. 40 Getting credit .............................................................................................................................. 49 Protecting minority investors ................................................................................................... 56 Paying taxes ................................................................................................................................ 62 Trading across borders .............................................................................................................. 72 Enforcing contracts .................................................................................................................... 86 Resolving insolvency .................................................................................................................. 92 Distance to frontier and ease of doing business ranking ...................................................... 97 Resources on the Doing Business website ............................................................................ 100 Doing Business 2016 LATIN AMERICA 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is each indicator and data for the following comparator for a local entrepreneur to open and run a small to regions: Caribbean States, East Asia and the Pacific (EAP), medium-size business when complying with relevant European Union (EU), South Asia (SA) and OECD High regulations. It measures and tracks changes in Income.. The data in this report are current as of June 1, regulations affecting 11 areas in the life cycle of a 2015 (except for the paying taxes indicators, which cover business: starting a business, dealing with construction the period January–December 2014). permits, getting electricity, registering property, getting The Doing Business methodology has limitations. Other credit, protecting minority investors, paying taxes, areas important to business—such as an economy’s trading across borders, enforcing contracts, resolving proximity to large markets, the quality of its insolvency and labor market regulation. Doing Business infrastructure services (other than those related to 2016 presents the data for the labor market regulation trading across borders and getting electricity), the indicators in an annex. The report does not present security of property from theft and looting, the rankings of economies on labor market regulation transparency of government procurement, indicators or include the topic in the aggregate distance macroeconomic conditions or the underlying strength of to frontier score or ranking on the ease of doing institutions—are not directly studied by Doing Business. business. The indicators refer to a specific type of business, In a series of annual reports Doing Business presents generally a local limited liability company operating in quantitative indicators on business regulations and the the largest business city. Because standard assumptions protection of property rights that can be compared are used in the data collection, comparisons and across 189 economies, from Afghanistan to Zimbabwe, benchmarks are valid across economies. The data not over time. The data set covers 47 economies in Sub- only highlight the extent of obstacles to doing business; Saharan Africa, 32 in Latin America and the Caribbean, 25 they also help identify the source of those obstacles, in East Asia and the Pacific, 25 in Eastern Europe and supporting policy makers in designing regulatory reform. Central Asia, 20 in the Middle East and North Africa and More information is available in the full report. Doing 8 in South Asia, as well as 32 OECD high-income Business 2016 presents the indicators, analyzes their economies. The indicators are used to analyze economic relationship with economic outcomes and recommends outcomes and identify what reforms have worked, where regulatory reforms. The data, along with information on and why. ordering the Doing Business 2016 report, are available on This regional profile presents the Doing Business the Doing Business website at indicators for economies in Latin America. It also shows http://www.doingbusiness.org. the regional average, the best performance globally for Doing Business 2016 LATIN AMERICA 5 THE BUSINESS ENVIRONMENT CHANGES IN DOING BUSINESS 2016 As part of a two-year update in methodology, Doing The case study underlying the trading across borders Business 2016 expands the focus of five indicator sets indicators has been changed to increase its relevance. (dealing with construction permits, getting electricity, For each economy the export product and partner are registering property, enforcing contracts and labor now determined on the basis of the economy’s market regulation), substantially revises the comparative advantage, the import product is auto parts, methodology for one indicator set (trading across and the import partner is selected on the basis of which borders) and implements small updates to the economy has the highest trade value in that product. The methodology for another (protecting minority investors). indicators continue to measure the time and cost to export and import. The indicators on dealing with construction permits now include an index of the quality of building regulation and Beyond these changes there is one other update in its implementation. The getting electricity indicators now methodology, for the protecting minority investors include a measure of the price of electricity consumption indicators. A few points for the extent of shareholder and an index of the reliability of electricity supply and governance index have been fine-tuned, and the index transparency of tariffs. Starting this year, the registering now also measures aspects of the regulations applicable property indicators include an index of the quality of the to limited companies rather than privately held joint land administration system in each economy in addition stock companies. to the indicators on the number of procedures and the For more details on the changes, see the “What is time and cost to transfer property. And for enforcing changing in Doing Business?” chapter starting on page contracts an index of the quality and efficiency of judicial 27 of the Doing Business 2016 report. For more details processes has been added while the indicator on the on the data and methodology, please see the “Data number of procedures to enforce a contract has been Notes” chapter starting on page 119 of the Doing dropped. Business 2016 report. For more details on the distance to The scope of the labor market regulation indicator set frontier metric, please see the “Distance to frontier and has also been expanded, to include more areas capturing ease of doing business ranking” chapter in this profile. aspects of job quality. The labor market regulation indicators continue to be excluded from the aggregate distance to frontier score and ranking on the ease of doing business. Doing Business 2016 LATIN AMERICA 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s permits, getting electricity, registering property, regulatory environment for business, a good place to getting credit, protecting minority investors, paying start is to find out how it compares with the regulatory taxes, trading across borders, enforcing contracts environment in other economies. Doing Business and resolving insolvency. The labor market provides an aggregate ranking on the ease of doing regulation indicators are not included in this year’s business based on indicator sets that measure and aggregate ease of doing business ranking, but the benchmark regulations applying to domestic small to data are presented in the economy profile. medium-size businesses through their life cycle. The ease of doing business ranking compares Economies are ranked from 1 to 189 by the ease of economies with one another; the distance to frontier doing business ranking. Doing Business presents results score benchmarks economies with respect to for 2 aggregate measures: the distance to frontier score regulatory best practice, showing the absolute and the ease of doing business ranking. The ranking of distance to the best performance on each Doing economies is determined by sorting the aggregate Business indicator. When compared across years, the distance to frontier scores, rounded to two decimals. An distance to frontier score shows how much the economy’s distance to frontier score is indicated on a regulatory environment for local entrepreneurs in an scale from 0 to 100, where 0 represents the worst economy has changed over time in absolute terms, performance and 100 the frontier. (See the chapter on while the ease of doing business ranking can show the distance to frontier and ease of doing business). only how much the regulatory environment has The 10 topics included in the ranking in Doing Business changed relative to that in other economies. 2016: starting a business, dealing with construction Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2016 LATIN AMERICA 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy stands in regional average (figure 1.2). Another perspective is 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 ranking (figure 1.3) other economies in the region and compared with the and the distance to frontier scores (figures 1.4 and 1.5). Figure 1.2 How economies in Latin America rank on the ease of doing business Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population- weighted average for the 2 cities. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 8 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Latin America (Scale: Rank 189 center, Rank 1 outer edge) Regional average ranking Source: Doing Business database. Figure 1.4 Distance to frontier scores on Doing Business topics - Latin America (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respec t to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 9 Figure 1.5 How far has Latin America come in the areas measured by Doing Business? Source: Doing Business database. Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 119 of the Doing Business 2016 report for more details on the distance to frontier score. Doing Business 2016 LATIN AMERICA 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business The absolute values of the indicators tell another part of tells only part of the story, so do changes in that ranking. the story (table 1.1). Policy makers can learn much by Yearly movements in rankings can provide some comparing the indicators for their economy with those indication of changes in an economy’s regulatory for the lowest- and highest-scoring economies in the environment for firms, but they are always relative. An region as well as those for the best performers globally. economy’s ranking might change because of These comparisons may reveal unexpected strengths in developments in other economies. An economy that an area of business regulation—such as a regulatory implemented business regulation reforms may fail to rise process that can be completed with a small number of in the rankings (or may even drop) if it is passed by procedures in a few days and at a low cost. others whose business regulation reforms had a more significant impact as measured by Doing Business. Table 1.1 Summary of Doing Business indicators for Latin America Lowest regional Best regional Best global Indicator Regional average performance performance performance Starting a Business 186 (Venezuela, RB) 44 (Panama) 126 1 (New Zealand) (rank) Starting a Business 40.38 (Venezuela, RB) 91.95 (Panama) 75.41 99.96 (New Zealand) (DTF Score) Procedures (number) 17.0 (Venezuela, RB) 5.0 (Panama*) 9.3 1.0 (New Zealand*) Time (days) 144.0 (Venezuela, RB) 6.0 (Panama) 35.5 0.5 (New Zealand) Cost (% of income per 100.7 (Suriname) 3.8 (Brazil) 33.0 0.0 (Slovenia) capita) Paid-in min. capital (% 18.1 (Guatemala) 0.0 (13 Economies*) 1.8 0.0 (105 Economies*) of income per capita) Dealing with Construction Permits 173 (Argentina) 38 (Colombia) 106 1 (Singapore) (rank) Dealing with Construction Permits 49.67 (Argentina) 75.99 (Colombia) 65.01 92.97 (Singapore) (DTF Score) Procedures (number) 25.0 (El Salvador) 7.0 (Guyana) 14.3 7.0 (5 Economies*) Time (days) 425.7 (Brazil) 73.0 (Colombia) 186.3 26.0 (Singapore) Cost (% of warehouse 10.2 (Mexico) 0.2 (Suriname) 2.8 0.0 (Qatar) value) Building quality control 1.0 (Guyana) 12.0 (Peru) 8.5 15.0 (New Zealand) index (0-15) Getting Electricity 171 (Venezuela, RB) 21 (Guatemala) 83 1 (Korea, Rep.) (rank) Doing Business 2016 LATIN AMERICA 11 Lowest regional Best regional Best global Indicator Regional average performance performance performance Getting Electricity 39.60 (Venezuela, RB) 85.76 (Guatemala) 69.63 99.88 (Korea, Rep.) (DTF Score) Procedures (number) 8.0 (3 Economies*) 4.0 (3 Economies*) 5.8 3.0 (14 Economies*) Time (days) 178.0 (Venezuela, RB) 35.0 (Panama) 71.3 18.0 (Korea, Rep.*) Cost (% of income per 1,783.3 (Venezuela, RB) 9.4 (Panama) 459.4 0.0 (Japan) capita) Reliability of supply and transparency of 0.0 (3 Economies*) 7.0 (Mexico*) 4.3 8.0 (18 Economies*) tariff index (0-8) Registering Property 176 (Suriname) 35 (Peru) 101 1 (New Zealand) (rank) Registering Property 36.27 (Suriname) 76.77 (Peru) 59.92 94.46 (New Zealand) (DTF Score) Procedures (number) 13.6 (Brazil) 4.0 (Peru) 7.0 1.0 (4 Economies*) Time (days) 106.0 (Suriname) 6.5 (Peru) 46.3 1.0 (3 Economies*) Cost (% of property 13.7 (Suriname) 1.9 (Paraguay*) 4.5 0.0 (Saudi Arabia) value) Quality of the land administration index 5.5 (Venezuela, RB) 20.5 (Uruguay) 12.4 28.5 (3 Economies*) (0-30) Getting Credit (rank) 174 (Suriname) 2 (Colombia) 70 1 (New Zealand) Getting Credit (DTF 10.00 (Suriname) 95.00 (Colombia) 57.11 100.00 (New Zealand) Score) Strength of legal rights 0.0 (Bolivia) 12.0 (Colombia) 5.0 12.0 (3 Economies*) index (0-12) Depth of credit 0.0 (3 Economies*) 8.0 (9 Economies*) 6.4 8.0 (26 Economies*) information index (0-8) Credit registry 15.0 (Bolivia) 84.1 (Uruguay) 19.4 100.0 (Portugal) coverage (% of adults) Credit bureau coverage 2.4 (Guyana) 100.0 (5 Economies*) 54.1 100.0 (22 Economies*) (% of adults) Protecting Minority 178 (Venezuela, RB) 14 (Colombia) 112 1 (3 Economies*) Investors (rank) Protecting Minority 31.67 (Venezuela, RB) 71.67 (Colombia) 47.37 83.33 (3 Economies*) Investors (DTF Score) Strength of minority investor protection 3.2 (Venezuela, RB) 7.2 (Colombia) 4.7 8.3 (3 Economies*) index (0-10) Doing Business 2016 LATIN AMERICA 12 Lowest regional Best regional Best global Indicator Regional average performance performance performance Extent of conflict of interest regulation 2.3 (Suriname) 8.0 (Colombia) 4.8 9.3 (Singapore*) index (0-10) Extent of shareholder governance index (0- 2.7 (Paraguay) 7.3 (Brazil) 4.7 8.0 (4 Economies*) 10) 1 (United Arab Paying Taxes (rank) 189 (Bolivia) 50 (Peru*) 127 Emirates*) Paying Taxes (DTF 99.44 (United Arab 12.18 (Bolivia) 81.18 (Peru*) 58.78 Score) Emirates*) Payments (number per 3.0 (Hong Kong SAR, 70.0 (Venezuela, RB) 6.0 (Mexico) 27.5 year) China*) Time (hours per year) 2,600.0 (Brazil) 147.0 (Belize) 478.2 55.0 (Luxembourg) Total tax rate (% of 137.4 (Argentina) 27.9 (Suriname) 52.3 25.9 (Ireland) profit) Trading Across 186 (Venezuela, RB) 46 (El Salvador) 108 1 (16 Economies*) Borders (rank) Trading Across 6.14 (Venezuela, RB) 87.78 (El Salvador) 63.43 100.00 (16 Economies*) Borders (DTF Score) Time to export: Border 816 (Venezuela, RB) 20 (Mexico*) 116 0 (15 Economies*) compliance (hours) Cost to export: Border 1,475 (Venezuela, RB) 65 (Bolivia) 511 0 (18 Economies*) compliance (USD) Time to export: Documentary 528 (Venezuela, RB) 6 (Panama) 94 0 (Jordan) compliance (hours) Cost to export: Documentary 375 (Venezuela, RB) 25 (Bolivia) 135 0 (20 Economies*) compliance (USD) Time to import: Border 1,330 (Venezuela, RB) 13 (Uruguay) 139 0 (19 Economies*) compliance (hours) Cost to import: Border 1,750 (Venezuela, RB) 160 (El Salvador) 561 0 (28 Economies*) compliance (USD) Time to import: Documentary 1,090 (Venezuela, RB) 6 (Panama) 128 1 (21 Economies*) compliance (hours) Cost to import: Documentary 400 (Venezuela, RB) 30 (Bolivia) 113 0 (30 Economies*) compliance (USD) Doing Business 2016 LATIN AMERICA 13 Lowest regional Best regional Best global Indicator Regional average performance performance performance Enforcing Contracts 186 (Suriname) 38 (Argentina) 112 1 (Singapore) (rank) Enforcing Contracts 25.94 (Suriname) 67.65 (Argentina) 52.09 84.91 (Singapore) (DTF Score) Time (days) 1,715.0 (Suriname) 389.0 (Mexico) 783.3 150.0 (Singapore) Cost (% of claim) 45.8 (Colombia) 19.0 (Uruguay) 29.9 9.0 (Iceland) Quality of judicial 3.5 (Suriname) 13.1 (Brazil) 7.6 15.5 (3 Economies*) processes index (0-18) Resolving Insolvency 165 (Venezuela, RB) 28 (Mexico) 101 1 (Finland) (rank) Resolving Insolvency 19.05 (Venezuela, RB) 73.03 (Mexico) 42.06 93.81 (Finland) (DTF Score) Recovery rate (cents on 6.4 (Venezuela, RB) 70.0 (Colombia) 31.1 92.9 (Japan) the dollar) Time (years) 5.3 (Ecuador) 1.7 (Colombia) 3.1 0.4 (Ireland) Cost (% of estate) 38.0 (Venezuela, RB) 7.0 (Peru*) 16.8 1.0 (Norway) Strength of insolvency 4.0 (Guatemala) 13.0 (Brazil) 8.1 15.0 (4 Economies*) framework index (0-16) * 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). Note: The global best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2016 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 14 STARTING A BUSINESS WHAT THE STARTING A BUSINESS Formal registration of companies has many INDICATORS MEASURE immediate benefits for the companies and for business owners and employees. Legal entities can Procedures to legally start and operate a outlive their founders. Resources are pooled as company (number) several shareholders join forces to start a company. Formally registered companies have access to Preregistration (for example, name services and institutions from courts to banks as well verification or reservation, notarization) as to new markets. And their employees can benefit Registration in the economy’s largest from protections provided by the law. An additional business city 1 benefit comes with limited liability companies. These Postregistration (for example, social security limit the financial liability of company owners to their registration, company seal) investments, so personal assets of the owners are not put at risk. Where governments make registration Time required to complete each procedure easy, more entrepreneurs start businesses in the (calendar days) formal sector, creating more good jobs and Does not include time spent gathering generating more 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 procedures online are recorded as ½ day. officially required or commonly done in practice by an entrepreneur to start up and formally operate an Procedure completed once final document is industrial or commercial business—as well as the received time and cost required to complete these procedures. No prior contact with officials It also records the paid-in minimum capital that Cost required to complete each procedure companies must deposit before registration (or (% of income per capita) within 3 months). The ranking of economies on the ease of starting a business is determined by sorting Official costs only, no bribes their distance to frontier scores for starting a No professional fees unless services required business. These scores are the simple average of the by law distance to frontier scores for each of the component indicators. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Conducts general commercial or industrial and that there has been no prior contact with activities. officials. It also assumes that the entrepreneur will pay no bribes. And it assumes that the business:  Has a start-up capital of 10 times income per capita.  Is a limited liability company, located in the largest business city , is 100% domestically 1  Has a turnover of at least 100 times income per owned with between 10 and 50 employees. capita.  Does not qualify for any special benefits.  Does not own real estate. For the 11 economies with a population of more than 100 million, data for a second city have been added. 1 Doing Business 2016 LATIN AMERICA 15 STARTING A BUSINESS Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in Latin answer (figure 2.1). The average ranking of the region America to start a business? The global rankings of these and comparator regions provide a useful benchmark. economies on the ease of starting a business suggest an Figure 2.1 How economies in Latin America rank on the ease of starting a business Source: Doing Business database. Doing Business 2016 LATIN AMERICA 16 STARTING A BUSINESS The indicators underlying the rankings may be more and the paid-in minimum capital requirement (figure revealing. Data collected by Doing Business show what 2.2). Comparing these indicators across the region and it takes to start a business in each economy in the with averages both for the region and for comparator region: the number of procedures, the time, the cost regions can provide useful insights. Figure 2.2 What it takes to start a business in economies in Latin America Procedures (number) Doing Business 2016 LATIN AMERICA 17 STARTING A BUSINESS Time (days) Doing Business 2016 LATIN AMERICA 18 STARTING A BUSINESS Cost (% of income per capita) Doing Business 2016 LATIN AMERICA 19 STARTING A BUSINESS Paid-in minimum capital (% of income per capita) Source: Doing Business database. Doing Business 2016 LATIN AMERICA 20 STARTING A BUSINESS What are the changes over time? Economies around the world have taken steps making it often as part of a larger regulatory reform program. easier to start a business—streamlining procedures by Among the benefits have been greater firm satisfaction setting up a one-stop shop, making procedures simpler and savings and more registered businesses, financial or faster by introducing technology, and reducing or resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Latin America (table 2.1)? Table 2.1 How have economies in Latin America made starting a business easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Ecuador made starting a business easier by simplifying the DB2016 Ecuador registration process and by eliminating the need to deposit 50% of the minimum capital in a special account. Uruguay made starting a business more difficult by increasing DB2016 Uruguay incorporation costs. República Bolivariana de Venezuela made starting a business DB2016 Venezuela, RB more difficult by increasing incorporation costs. Guatemala made starting a business easier by eliminating DB2015 Guatemala certain registration fees and reducing the time to publish a notice of incorporation. Nicaragua made starting a business easier by combining DB2015 Nicaragua multiple registration procedures. Suriname made starting a business easier by introducing an DB2015 Suriname online system for obtaining trade licenses. República Bolivariana de Venezuela made starting a business DB2015 Venezuela, RB more difficult by increasing incorporation costs. Argentina made starting a business more difficult by DB2014 Argentina increasing the incorporation costs. Costa Rica made starting a business easier by creating an online platform for business registration, eliminating the DB2014 Costa Rica requirement to have accounting books legalized and simplifying the legalization of company books. Guatemala made starting a business easier by creating an DB2014 Guatemala online platform that allows simultaneous registration of a new company with different government agencies.. Nicaragua made starting a business easier by merging the DB2014 Nicaragua procedures for registering with the revenue authority and with the municipality and by reducing the time required for Doing Business 2016 LATIN AMERICA 21 DB year Economy Reform incorporation. Panama made starting a business easier by eliminating the DB2014 Panama need to visit the municipality to obtain the municipal taxpayer number. Suriname made starting a business easier by reducing the DB2014 Suriname time required to obtain the president’s approval for the registration of a new company. República Bolivariana de Venezuela made starting a business DB2014 Venezuela, RB more costly by increasing the company registration fees. Colombia made starting a business easier by eliminating the DB2013 Colombia requirement to purchase and register accounting books at the time of incorporation. Costa Rica made starting a business easier by streamlining DB2013 Costa Rica the process of obtaining a sanitary permit from the authorities for low-risk activities. Mexico made starting a business easier by eliminating the DB2013 Mexico minimum capital requirement for limited liability companies. República Bolivariana de Venezuela made starting a business DB2013 Venezuela, RB more difficult by increasing the cost of company incorporation. Peru made starting a business easier by eliminating the DB2012 Peru requirement for micro and small enterprises to deposit start- up capital in a bank before registration. Uruguay made starting a business easier by establishing a DB2012 Uruguay one-stop shop for general commercial companies. Panama extended the operating hours of the public registry, DB2012 Panama reducing the time required to register a new company. Guyana eased the process of starting a business by reducing DB2012 Guyana the time needed for registering a new company and for obtaining a tax identification number. Colombia reduced the costs associated with starting a DB2012 Colombia business, by no longer requiring upfront payment of the commercial license fee. Colombia eased the process of Starting a Business by DB2011 Colombia reducing the number of days to register with the Social Security System. Brazil eased business start-up by further enhancing the DB2011 Brazil electronic synchronization between federal and state tax authorities. Ecuador made starting a business easier by introducing an DB2011 Ecuador online registration system for social security. Guyana eased business start-up by digitizing company DB2011 Guyana records, which speeded up the process of company name Doing Business 2016 LATIN AMERICA 22 DB year Economy Reform search and reservation. Mexico launched an online one-stop shop for initiating DB2011 Mexico business registration. Panama eased business start-up by increasing efficiency at DB2011 Panama the registrar. República Bolivariana de Venezuela made starting a business DB2011 Venezuela, RB more difficult by introducing a new procedure for registering a company. Peru eased business start-up by simplifying the requirements DB2011 Peru for operating licenses and creating an online one-stop shop for business registration. Peru made starting a business easier by allowing online DB2010 Peru submission of electronic payroll books at no cost and by making company forms available online. Honduras simplified business start-up by improving the efficiency of business registration at the one-stop shop, DB2010 Honduras improving the tax registration process and eliminating the need for a lawyer’s services to obtain a municipal license. Mexico made starting a business easier by establishing an electronic platform for company registration, by substantially DB2010 Mexico reducing the time required for registration and by eliminating the requirement to register with the statistical office. Guyana made starting a business easier by applying a flat registration fee for all companies, regardless of capital DB2010 Guyana amount; eliminating the duty payable upon incorporation; and streamlining tax registration through the introduction of a unique tax identification number (TIN) system. Colombia made starting a business easier by establishing a new public-private health provider (Nueva EPS) that enables DB2010 Colombia faster enrollment of employees and by introducing online preenrollment with the Social Security Institute (Instituto de Seguro Social). Argentina made starting a business easier by eliminating the DB2010 Argentina requirement for registration with the private pension fund and expediting the publication process. Brazil made starting a business easier by eliminating the DB2010 Brazil requirement to obtain a fire brigade license and inspection before obtaining an operating permit from the municipality. 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 2016 LATIN AMERICA 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 excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse (number) many builders opt out. They may pay bribes to pass inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water and Doing Business records all procedures required for a sewerage business in the construction industry to build a warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, this year Doing Business completion introduces a new measure, the building quality Time required to complete each procedure control index, evaluating the quality of building (calendar days) regulations, the strength of quality control and safety Does not include time spent gathering mechanisms, liability and insurance regimes, and information professional certification requirements. Each procedure starts on a separate day. The ranking of economies on the ease of dealing with Procedures that can be fully completed online construction permits is determined by sorting their are recorded as ½ day distance to frontier scores for dealing with construction permits. These scores are the simple Procedure considered completed once final document is received average of the distance to frontier scores for each of the component indicators. No prior contact with officials To make the data comparable across economies, Cost required to complete each procedure (% several assumptions about the construction of warehouse value) company, the warehouse project and the utility Official costs only, no bribes connections are used. Assumptions about the construction company Building quality control index (0-15) Sum of the scores of six component indices: The construction company (BuildCo): Quality of building regulations (0-2)  Is a limited liability company (or its legal equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business Quality control during construction (0-3) city. For 11 economies the data are also Quality control after construction (0-3) collected for the second largest business city. Liability and insurance regimes (0-2)  Is 100% domestically and privately owned Professional certifications (0-4) with five owners, none of whom is a legal entity.  Is fully licensed and insured to carry out construction projects, such as building warehouses. Doing Business 2016 LATIN AMERICA 24 The construction company (BuildCo) (continued):  Has 60 builders and other employees, all of  Will be a new construction (there was no them nationals with the technical expertise previous construction on the land), with no and professional experience necessary to trees, natural water sources, natural reserves obtain construction permits and approvals. or historical monuments of any kind on the plot.  Has at least one employee who is a licensed architect or engineer and  Will have complete architectural and registered with the local association of technical plans prepared by a licensed architects or engineers. BuildCo is not architect. If preparation of the plans requires assumed to have any other employees who such steps as obtaining further are technical or licensed experts, such as documentation or getting prior approvals geological or topographical experts. from external agencies, these are counted as procedures.  Has paid all taxes and taken out all necessary insurance applicable to its  Will include all technical equipment required general business activity (for example, to be fully operational. accidental insurance for construction  Will take 30 weeks to construct (excluding all workers and third-person liability). delays due to administrative and regulatory  Owns the land on which the warehouse will requirements). be built and will sell the warehouse upon Assumptions about the utility connections its completion. The water and sewerage connections:  Is valued at 50 times income per capita. • Will be 150 meters (492 feet) from the Assumptions about the warehouse existing water source and sewer tap. If there is no water delivery infrastructure in the economy, a  The warehouse: borehole will be dug. If there is no sewerage  Will be used for general storage activities, infrastructure, a septic tank in the smallest size such as storage of books or stationery. The available will be installed or built. warehouse will not be used for any goods  Will not require water for fire protection requiring special conditions, such as food, reasons; a fire extinguishing system (dry chemicals or pharmaceuticals. system) will be used instead. If a wet fire  Will have two stories, both above ground, protection system is required by law, it is with a total constructed area of assumed that the water demand specified approximately 1,300.6 square meters below also covers the water needed for fire (14,000 square feet). Each floor will be 3 protection. meters (9 feet, 10 inches) high.  Will have an average water use of 662 liters  Will have road access and be located in the (175 gallons) a day and an average periurban area of the economy’s largest wastewater flow of 568 liters (150 gallons) a business city (that is, on the fringes of the day. Will have a peak water use of 1,325 liters city but still within its official limits). For 11 (350 gallons) a day and a peak wastewater economies the data are also collected for flow of 1,136 liters (300 gallons) a day. the second largest business city.  Will have a constant level of water demand • Will not be located in a special economic and wastewater flow throughout the year. or industrial zone. Will be located on a land  Will be 1 inch in diameter for the water plot of approximately 929 square meters connection and 4 inches in diameter for the (10,000 square feet) that is 100% owned by sewerage connection. BuildCo and is accurately registered in the cadastre and land registry. Doing Business 2016 LATIN AMERICA 25 DEALING WITH CONSTRUCTION PERMITS Where do the region’s economies stand today? How easy it is for entrepreneurs in economies in Latin construction permits suggest an answer (figure 3.1). The America to legally build a warehouse? The global average ranking of the region and comparator regions rankings of these economies on the ease of dealing with provide a useful benchmark. Figure 3.1 How economies in Latin America rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2016 LATIN AMERICA 26 DEALING WITH CONSTRUCTION PERMITS The indicators underlying the rankings may be more the time and the cost (figure 3.2). Comparing these revealing. Data collected by Doing Business show what it indicators across the region and with averages both for takes to comply with formalities to build a warehouse in the region and for comparator regions can provide each economy in the region: the number of procedures, useful insights. Figure 3.2 What it takes to comply with formalities to build a warehouse in economies in Latin America Procedures (number) Doing Business 2016 LATIN AMERICA 27 DEALING WITH CONSTRUCTION PERMITS Time (days) Doing Business 2016 LATIN AMERICA 28 DEALING WITH CONSTRUCTION PERMITS Cost (% of warehouse value) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the econom y at the bottom of the ranking on the relevant indicator. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 29 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index (0-15) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. Note: The index ranges from 0 to 15, with higher values indicating better quality control and safety mechanisms in the construction permitting system. The indicator is based on the same case study assumptions as the measures of efficiency. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 30 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? Smart regulation ensures that standards are met while world have worked on consolidating permitting making compliance easy and accessible to all. Coherent requirements. What construction permitting reforms has and transparent rules, efficient processes and adequate Doing Business recorded in Latin America (table 3.1)? allocation of resources are especially important in sectors where safety is at stake. Construction is one of them. In an effort to ensure building safety while keeping compliance costs reasonable, governments around the Table 3.1 How have economies in Latin America made dealing with construction permits easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Argentina made dealing with construction permits more DB2015 Argentina costly by increasing several fees. Honduras made dealing with construction permits more DB2015 Honduras costly by increasing the building permit fees. Costa Rica made dealing with construction permits easier by eliminating procedures, improving efficiency DB2014 Costa Rica and launching an online platform that streamlined the building permit process by integrating different agencies’ approval processes. Guatemala made dealing with construction permits easier by streamlining procedures through the creation of a one-stop DB2014 Guatemala shop, backed by agreements between institutions and agencies involved in the permitting process. Costa Rica streamlined the process for obtaining DB2013 Costa Rica construction permits by implementing online approval systems. Guatemala made dealing with construction permits easier by DB2013 Guatemala introducing a risk-based approval system Panama made dealing with construction permits easier by reducing the fees for a permit from the fire department’s DB2013 Panama safety office and by accelerating the process at the building registry for obtaining a certificate of good standing and for registering the new building. DB2013 Peru Peru made obtaining a construction permit easier by eliminating requirements for several preconstruction Doing Business 2016 LATIN AMERICA 31 DB year Economy Reform approvals. Paraguay made dealing with construction permits easier by DB2012 Paraguay implementing a risk-based approval system and a single window for obtaining construction permits. Mexico made dealing with construction permits faster by DB2012 Mexico consolidating internal administrative procedures. Paraguay made dealing with construction permits easier by DB2011 Paraguay creating a new administrative structure and a better tracking system in the municipality of Asunción. Peru streamlined construction permitting by implementing DB2011 Peru administrative reforms. Colombia eased construction permitting by improving the DB2011 Colombia electronic verification of prebuilding certificates. Panama made dealing with construction permits easier by DB2010 Panama eliminating some procedures and simplifying others. Honduras reduced the time required for dealing with DB2010 Honduras construction permits by streamlining administrative processes in the Construction Control Department. Guatemala made dealing with construction permits easier through a new land management plan that simplified the DB2010 Guatemala risk-based approval process for building permits and through new zoning regimes that speeded up the approval process. Colombia made dealing with construction permits easier by introducing regulations that categorize building projects on DB2010 Colombia the basis of risk and allow electronic verification for certain documents. 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 2016 LATIN AMERICA 32 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 on INDICATORS MEASURE self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity connection first step for a customer is always to gain access by (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 a Completing all required notifications and 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 complete possibly purchasing material for these works them. These procedures include applications and Concluding any necessary supply contract and contracts with electricity utilities, clearances from obtaining final supply other agencies and the external and final connection works. In addition, this year Doing Business adds Time required to complete each procedure two new measures: the reliability of supply and (calendar days) transparency of tariffs index (included in the Is at least 1 calendar day aggregate distance to frontier score and ranking on Each procedure starts on a separate day the ease of doing business) and the price of electricity (omitted from these aggregate measures). Does not include time spent gathering The ranking of economies on the ease of getting information electricity is determined by sorting their distance to Reflects the time spent in practice, with little frontier scores for getting electricity. These scores follow-up and no prior contact with officials are the simple average of the distance to frontier Cost required to complete each procedure (% scores for each of the component indicators. To of income per capita) make the data comparable across economies, several assumptions are used. Official costs only, no bribes Assumptions about the warehouse Excludes value added tax The reliability of supply and transparency of The warehouse: tariffs index  Is owned by a local entrepreneur. Sum of the scores of six component indices:  Is located in the economy’s largest business Duration and frequency of outages city. For 11 economies the data are also collected for the second largest business city. Tools to monitor power outages  Is located in an area where similar warehouses Tools to restore power supply are typically located. In this area a new Regulatory monitoring of utilities’ performance electricity connection is not eligible for a Financial deterrents aimed at limiting outages special investment promotion regime (offering special subsidization or faster service, for Transparency and accessibility of tariffs example), and located in an area with no Price of electricity (cents per kilowatt-hour)* physical constraints. For example, the property Price based on monthly bill for commercial is not near a railway. warehouse in case study  Is a new construction and is being connected *Price of electricity is not included in the calculation of to electricity for the first time. distance to frontier nor ease of doing business ranking Doing Business 2016 LATIN AMERICA 33 The warehouse (continued):  Has two stories, both above ground, with Assumptions about the monthly consumption a total surface area of approximately  It is assumed that the warehouse operates 8 1,300.6 square meters (14,000 square hours a day for 30 days a month, with feet). The plot of land on which it is built equipment utilized at 80% of capacity on is 929 square meters (10,000 square feet). average, and that there are no electricity cuts  Is used for storage of goods. (assumed for simplicity). The subscribed capacity of the warehouse is 140 kVA, with a power factor of 1 (1 kVA = 1 kW). The monthly Assumptions about the electricity connection energy consumption is therefore 26,880 kWh, and the hourly consumption 112 kWh (26,880 The electricity connection: kWh/30 days/8 hours).  Is a permanent one.  If multiple electricity suppliers exist, the  Is a three-phase, four-wire Y, 140-kilovolt- warehouse is served by the cheapest supplier. ampere (kVA) (subscribed capacity) connection (where the voltage is 120/208  Tariffs effective in March of the current year are used for calculation of the price of V, the current would be 400 amperes; electricity for the warehouse. where it is 230/400 B, the current would be nearly 200 amperes).  Is 150 meters long. The connection is to either the low-voltage or the medium- voltage distribution network and either overhead or underground, whichever is more common in the area where the warehouse is located.  Requires works that involve the crossing of a 10-meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Will supply monthly electricity consumption of 26,880 kilowatt-hours (kWh).  Does not involve work to install the internal electrical wiring. This has already been completed, up to and including the customer’s service panel or switchboard and installation of the meter base. Doing Business 2016 LATIN AMERICA 34 GETTING ELECTRICITY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in Latin average ranking of the region and comparator regions America to connect a warehouse to electricity? The provide a useful benchmark. global rankings of these economies on the ease of getting electricity suggest an answer (figure 4.1). The Figure 4.1 How economies in Latin America rank on the ease of getting electricity Source: Doing Business database. Doing Business 2016 LATIN AMERICA 35 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 it indicators across the region and with averages both for 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 Latin America Procedures (number) Doing Business 2016 LATIN AMERICA 36 GETTING ELECTRICITY Time (days) Doing Business 2016 LATIN AMERICA 37 GETTING ELECTRICITY Cost (% of income per capita) Source: Doing Business database. Doing Business 2016 LATIN AMERICA 38 GETTING ELECTRICITY Reliability of supply and transparency of tariff index (0-8) Source: Doing Business database. Note: The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Doing Business 2016 LATIN AMERICA 39 GETTING ELECTRICITY What are the changes over time? Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in Latin practices and internal wiring installations. In an effort to America (table 4.1)? Table 4.1 How have economies in Latin America made getting electricity easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform The utility in Costa Rica made getting electricity easier by reducing the time required for preparing the design of the DB2016 Costa Rica external connection works and for installing the meter and initiating the electricity supply. Costa Rica reduced the time required for getting electricity by DB2015 Costa Rica improving the coordination between different departments at the utility. Colombia made getting electricity easier by opening a one- DB2014 Colombia stop shop for electricity connections and improving the efficiency of the utility’s internal processes. Ecuador made getting electricity easier by dividing the city of Quito into zones for the purpose of DB2014 Ecuador handling applications for new connections—a changethat improved the utility’s customer service—and by reducing the fees to obtain a connection. Mexico made getting electricity easier by increasing the efficiency of the utility’s internal processes and by enforcing a DB2014 Mexico “silence is consent” rule for the approval of the feasibility study for a new connection. Nicaragua reduced the time required for getting electricity by increasing efficiency in granting approval of the connection DB2014 Nicaragua design and by informing the customer in advance what the amount of the security deposit will be. In Mexico the distribution utility made getting electricity easier by streamlining procedures, offering training DB2013 Mexico opportunities to private contractors, using a geographic information system (GIS) to map the electricity distribution network and increasing the stock of materials. Guyana made getting electricity more expensive by tripling DB2012 Guyana the security deposit required for a new connection. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 40 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. In (calendar days) addition, this year Doing Business adds a new Does not include time spent gathering measure to the set of registering property information indicators, an index of the quality of the land administration system in each economy. The Each procedure starts on a separate day. ranking of economies on the ease of registering Procedures that can be fully completed online are recorded as ½ day. property is determined by sorting their distance to frontier scores for registering property. These scores Procedure considered completed once final are the simple average of the distance to frontier document is received scores for each of the component indicators. To No prior contact with officials make the data comparable across economies, several assumptions about the parties to the Cost required to complete each procedure transaction, the property and the procedures are (% of property value) used. Official costs only, no bribes The parties (buyer and seller): No value added or capital gains taxes included  Are limited liability companies, 100% Quality of land administration index (0-30) domestically and privately owned and  Is located in a periurban commercial zone, and perform general commercial activities and no rezoning is required. are located in the economy’s largest business city .  Has no mortgages attached, has been under 2 the same ownership for the past 10 years.  Have 50 employees each, all of whom are nationals.  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value and entire condition and complies with all safety property will be transferred. standards, building codes and legal  Is registered in the land registry or cada- requirements. There is no heating system. stre, or both, and is free of title disputes. For the 11 economies with a population of more than 100 million, data for a second city have been added. 2 Doing Business 2016 LATIN AMERICA 41 REGISTERING PROPERTY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in Latin suggest an answer (figure 5.1). The average ranking of America to transfer property? The global rankings of the region and comparator regions provide a useful these economies on the ease of registering property benchmark. Figure 5.1 How economies in Latin America rank on the ease of registering property Source: Doing Business database. Doing Business 2016 LATIN AMERICA 42 REGISTERING PROPERTY The indicators underlying the rankings may be more time and the cost (figure 5.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to complete a property transfer in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Figure 5.2 What it takes to register property in economies in Latin America Procedures (number) Doing Business 2016 LATIN AMERICA 43 REGISTERING PROPERTY Time (days) Doing Business 2016 LATIN AMERICA 44 REGISTERING PROPERTY Cost (% of property value) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 45 REGISTERING PROPERTY Quality of Land Administration Index (0-30) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. Source: Doing Business database. Note: The index ranges from 0 to 30, with higher values indicating better quality of the land administration system. Doing Business 2016 LATIN AMERICA 46 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 as property registration reforms has Doing Business by computerizing land registries, introducing time limits recorded in Latin America (table 5.1)? for procedures and setting low fixed fees. Many have cut the time required substantially—enabling Table 5.1 How have economies in Latin America made registering property easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Brazil made transferring property in São Paulo more DB2016 Brazil expensive by increasing the property transfer tax. Colombia made transferring property easier by eliminating DB2015 Colombia the need for a provisional registration. Panama made transferring property easier by connecting the DB2014 Panama land registry with the cadastre. Suriname made transferring property easier by increasing DB2014 Suriname administrative efficiency at the land registry. Brazil made transferring property more difficult by DB2013 Brazil introducing a new certificate on good standing on labor debts, adding to the number of due diligence procedures. In Ecuador property transfers became more time consuming DB2013 Ecuador as a result of implementation problems in transferring authority over property records to the municipality of Quito. Panama made property transfers faster by increasing working DB2013 Panama hours at the registry and reorganizing the caseload of its staff. In Guyana transferring property became slower because of a DB2012 Guyana lack of personnel at the deed registry. Nicaragua made transferring property more efficient by DB2012 Nicaragua introducing a fast-track procedure for registration. DB2012 Argentina Argentina made transferring property more difficult by Doing Business 2016 LATIN AMERICA 47 DB year Economy Reform adding a requirement that the notary obtain the tax agency’s reference value for property before notarizing the sale deed. Costa Rica made transferring property easier and quicker by DB2012 Costa Rica making property certificates available online through a single website. Peru introduced fast-track procedures at the land registry, DB2011 Peru cutting by half the time needed to register property. Panama made it more expensive to transfer property by DB2011 Panama requiring that an amount equal to 3% of the property value be paid upon registration. In Uruguay the Municipality of Montevideo made registering DB2011 Uruguay property easier by eliminating the need to obtain a mandatory waiver for preemption rights. Suriname increased the cost, time and number of procedures to register property by implementing new valuation DB2010 Suriname requirements to ensure proper tax payments at the land registry. Uruguay made transferring property more difficult through a new law giving preemption rights to the Municipality of DB2010 Uruguay Montevideo and thus adding a procedure—though at the same time it made transferring property easier through new online procedures. Peru made registering property easier through faster electronic processing times and through an internet DB2010 Peru connection between the tax agency and notaries facilitating the payment of municipal taxes. Panama reduced the time required to transfer property by DB2010 Panama making it possible to obtain the certificate of good standing from the tax agency online. Guatemala made registering property easier by centralizing DB2010 Guatemala more procedures at the property registry, reorganizing operations and making greater use of electronic services. Doing Business 2016 LATIN AMERICA 48 DB year Economy Reform Colombia made transferring property easier by making certificates required for the process available online and DB2010 Colombia providing a standard preliminary sale agreement free of charge, online and in notary offices. Argentina made transferring property more difficult by DB2010 Argentina adding a new requirement to declare all transactions over 300,000 Argentine pesos. 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 2016 LATIN AMERICA 49 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 borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s financial Strength of legal rights index (0–12) history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially movable property, as security to generate capital— Depth of credit information index (0–8) while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable The ranking of economies on the ease of getting collateral (for more details on each case, see the Data credit is determined by sorting their distance to Notes section of the Doing Business 2016 report). frontier scores for getting credit. These scores are These scenarios assume that the borrower: the distance to frontier score for the strength of  Is a private limited liability company. legal rights index and the depth of credit Has its headquarters and only base of information index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 LATIN AMERICA 50 GETTING CREDIT Where do the region’s economies stand today? How well do the credit information systems and these economies on the ease of getting credit suggest collateral and bankruptcy laws in economies in Latin an answer (figure 6.1). The average ranking of the region America facilitate access to credit? The global rankings of and comparator regions provide a useful benchmark. Figure 6.1 How economies in Latin America rank on the ease of getting credit Source: Doing Business database. Doing Business 2016 LATIN AMERICA 51 GETTING CREDIT Another way to assess how well regulations and the strength of legal rights index for Latin America and institutions support lending and borrowing in the region comparators on the strength of legal rights index. Figure is to see where the region stands in the distribution of 6.3 shows the same thing for the depth of credit scores across regions. Figure 6.2 highlights the score on information index. Figure 6.2 How strong are legal rights for borrowers and lenders? Region scores on strength of legal rights index Note: Higher scores indicate that collateral and bankruptcy laws are better designed to facilitate access to credit. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 52 Figure 6.3 How much credit information is shared—and how widely? Region scores on depth of credit information index Note: Higher scores indicate the availability of more credit information, from either a credit registry or a credit bureau, to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 53 GETTING CREDIT What are the changes over time? When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Latin America (table 6.1)? Table 6.1 How have economies in Latin America made getting credit easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Costa Rica improved access to credit by adopting a new secured transactions law that establishes a functional secured transactions system and a modern, centralized, notice-based DB2016 Costa Rica collateral registry. The law broadens the range of assets that can be used as collateral, allows a general description of assets granted as collateral and allows out-of-court enforcement of collateral. Guyana improved access to credit information by establishing DB2016 Guyana a new credit bureau. Mexico improved access to credit by implementing a decree DB2016 Mexico allowing a general description of assets granted as collateral. This reform applies to both Mexico City and Monterrey. Peru improved its credit information system by implementing DB2016 Peru a new law on personal data protection. El Salvador improved access to credit by adopting the Law on Movable Property, which established a modern, centralized, DB2016 El Salvador notice-based collateral registry and allows a general description of a single category of assets granted as collateral. Colombia improved access to credit by adopting a new secured transactions law that establishes a functional secured transactions system and a centralized, notice-based collateral registry. The law broadens the range of assets that can be used as collateral, allows a general description of assets DB2015 Colombia granted as collateral, establishes clear priority rules inside bankruptcy for secured creditors, sets out grounds for relief from a stay of enforcement actions by secured creditors during reorganization procedures and allows out-of-court enforcement of collateral. Doing Business 2016 LATIN AMERICA 54 DB year Economy Reform Mexico improved access to credit by amending its insolvency proceedings law and establishing clear grounds for relief from DB2015 Mexico a stay of enforcement actions by secured creditors during reorganization procedures. This reform applies to both Mexico City and Monterrey. Nicaragua improved access to credit information by starting DB2015 Nicaragua to provide credit scores to banks and financial institutions. Panama improved access to credit through a new law broadening the range of assets that can be used as collateral, DB2015 Panama allowing a general description of assets granted as collateral and allowing out-of-court enforcement of collateral. República Bolivariana de Venezuela improved access to credit DB2014 Venezuela, RB information by starting to collect data on firms from financial institutions. Costa Rica improved access to credit information by DB2013 Costa Rica guaranteeing borrowers’ right to inspect their personal data. El Salvador improved access to credit information through a DB2013 El Salvador new law regulating the management of personal credit information. Honduras strengthened its secured transactions system through a new decree establishing a centralized and DB2012 Honduras computerized collateral registry and providing for out-of- court enforcement of collateral upon default. Mexico strengthened its secured transactions system by DB2012 Mexico implementing a centralized collateral registry with an electronic database that is accessible online. Paraguay improved its credit information system by DB2012 Paraguay establishing an online platform for financial institutions to exchange information with the public credit registry. Uruguay improved its credit information system by DB2012 Uruguay introducing a new online platform allowing access to credit reports for financial institutions, public utilities and borrowers. Brazil improved its credit information system by allowing DB2012 Brazil private credit bureaus to collect and share positive information. Doing Business 2016 LATIN AMERICA 55 DB year Economy Reform República Bolivariana de Venezuela improved access to credit DB2011 Venezuela, RB information by creating a private credit bureau. Guyana enhanced access to credit by establishing a regulatory framework that allows the licensing of private DB2011 Guyana credit bureaus and gives borrowers the right to inspect their data. Honduras improved its credit information system through a resolution that enhances the operations of the public credit DB2010 Honduras bureau and introduces several categories for classifying debtors on the basis of their credit history. Guatemala strengthened its secured transactions system by creating a new movable asset registry that covers all types of DB2010 Guatemala movable assets as well as creditors and debtors and improved access to credit information by guaranteeing borrowers’ right to inspect their own data. Ecuador’s credit bureau started to distribute historical data, DB2010 Ecuador improving access to credit information. Colombia improved access to credit information by guaranteeing borrowers’ right to inspect their own data and DB2010 Colombia by making it mandatory for credit providers to consult and share information with credit bureaus. 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 2016 LATIN AMERICA 56 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of WHAT THE PROTECTING MINORITY INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. Effective regulations define related-party transactions precisely, promote clear and efficient disclosure requirements, require Extent of disclosure index (0–10) shareholder participation in major decisions of the Review and approval requirements for related-party company and set detailed standards of accountability transactions ; Disclosure requirements for related-party for company insiders. transactions What do the indicators cover? Extent of director liability index (0–10) Doing Business measures the protection of minority Ability of minority shareholders to sue and hold interested investors from conflicts of interest through one set of directors liable for prejudicial related-party transactions; indicators and shareholders’ rights in corporate Available legal remedies (damages, disgorgement of profits, governance through another. The ranking of economies fines, imprisonment, rescission of the transaction) on the strength of minority investor protections is determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the Extent of conflict of interest regulation index extent of shareholder governance index. To make the (0–10) data comparable across economies, a case study uses Simple average of the extent of disclosure, extent of director several assumptions about the business and the liability and ease of shareholder indices transaction. Extent of shareholder rights index (0-10) The business (Buyer): Shareholders’ rights and role in major corporate decisions  Is a publicly traded corporation listed on the economy’s most important stock exchange Extent of ownership and control index (0-10) (or at least a large private company with Governance safeguards protecting shareholders from undue multiple shareholders). board control and entrenchment  Has a board of directors and a chief executive Extent of corporate transparency index (0-10) officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Corporate transparency on ownership stakes, compensation, specifically required by law. audits and financial prospects The transaction involves the following details: Extent of shareholder governance index (0–  Mr. James, a director and the majority 10) shareholder of the company, proposes that Simple average of the extent of shareholders rights, extent the company purchase used trucks from of ownership and control and extent of corporate another company he owns. transparency indices  The price is higher than the going price for Strength of investor protection index (0–10) used trucks, but the transaction goes forward. Simple average of the extent of conflict of interest  All required approvals are obtained, and all regulation and extent of shareholder governance indices required disclosures made, though the transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2016 LATIN AMERICA 57 PROTECTING MINORITY INVESTORS Where do the region’s economies stand today? How strong are investor protections against self-dealing does not measure all aspects related to the protection of in economies in Latin America? The global rankings of minority investors, a higher ranking does indicate that an these economies on the strength of investor protection economy’s regulations offer stronger investor index suggest an answer (figure 7.1). While the indicator protections against self-dealing in the areas measured. Figure 7.1 How economies in Latin America rank on the strength of investor protection index Source: Doing Business database. Doing Business 2016 LATIN AMERICA 58 PROTECTING MINORITY INVESTORS The strength of minority investor protection index is the highlight the scores on the various minority investor average of the extent of conflict of interest regulation protection indices for Latin America. Comparing the index and the extent of shareholder governance index. scores across the region and with averages both for the The index ranges from 0 to 10, rounded to the nearest region and for comparator regions can provide useful decimal place, with higher values indicating stronger insights. minority investor protections. Figures 7.2 and 7.3 Figure 7.2 How extensive are conflict of interest regulations? Extent of conflict of interest regulation index (0-10) Note: Higher values indicate stronger regulation of conflicts of interest. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 59 Figure 7.3 How extensive is shareholder governance? Extent of shareholder governance index (0-10) Note: Higher scores indicate stronger rights of shareholders in corporate governance. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 60 PROTECTING MINORITY INVESTORS What are the changes over time? Economies with the strongest protections of minority reforms to strengthen minority investor protections may investors from self-dealing require detailed disclosure move ahead on different fronts—such as through new or and define clear duties for directors. They also have well- amended company laws, securities regulations or functioning courts and up-to-date procedural rules that revisions to court procedures. What minority investor give minority shareholders the means to prove their case protection reforms has Doing Business recorded in Latin and obtain a judgment within a reasonable time. So America (table 7.1)? Table 7.1 How have economies in Latin America strengthened minority investor protections—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Honduras strengthened minority investor protections by introducing provisions requiring greater disclosure of related- party transactions, prohibiting interested parties from voting DB2016 Honduras on a related-party transaction, allowing shareholders representing at least 5% of a company’s share capital to bring a direct action for damages against its directors and giving any shareholder the right to inspect company documents. Ecuador strengthened minority investor protections by introducing greater requirements for disclosure of related- DB2015 Ecuador party transactions as well as a requirement that a potential acquirer make a tender offer to all shareholders upon acquiring voting shares. Panama strengthened investor protections by increasing the DB2014 Panama disclosure requirements for publicly held companies. Peru strengthened investor protections through a new law regulating the approval of related-party transactions and DB2013 Peru making it easier to sue directors when such transactions are prejudicial. El Salvador strengthened investor protections by allowing DB2012 El Salvador greater access to corporate information during the trial. Peru strengthened investor protections through a new law DB2012 Peru allowing minority shareholders to request access to nonconfidential corporate documents. Doing Business 2016 LATIN AMERICA 61 DB year Economy Reform Colombia strengthened investor protections by making it DB2010 Colombia easier to sue directors when a related-party transaction harms the company. 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 2016 LATIN AMERICA 62 WHAT THE PAYING TAXES INDICATORS PAYING TAXES Taxes are essential. The level of tax rates needs to MEASURE be carefully chosen—and needless complexity in tax rules avoided. Firms in economies that rank Tax payments for a manufacturing company better on the ease of paying taxes in the Doing in 2014 (number per year adjusted for Business study tend to perceive both tax rates and electronic and joint filing and payment) tax administration as less of an obstacle to Total number of taxes and contributions paid, business according to the World Bank Enterprise including consumption taxes (value added tax, Survey research. sales tax or goods and service tax) Method and frequency of filing and payment What do the indicators cover? Time required to comply with 3 major taxes Using a case scenario, Doing Business records the (hours per year) taxes and mandatory contributions that a medium- size company must pay in a given year as well as Collecting information and computing the tax measures of the administrative burden of paying payable taxes and contributions. This case scenario uses a set Completing tax return forms, filing with of financial statements and assumptions about proper agencies transactions made over the year. Information is also Arranging payment or withholding compiled on the frequency of filing and payments as well as time taken to comply with tax laws. The Preparing separate tax accounting books, if ranking of economies on the ease of paying taxes is required determined by sorting their distance to frontier Total tax rate (% of profit before all taxes) scores on the ease of paying taxes. These scores are the simple average of the distance to frontier scores Profit or corporate income tax for each of the component indicators, with a Social contributions and labor taxes paid by threshold and a nonlinear transformation applied to the employer one of the component indicators, the total tax rate . 3 Property and property transfer taxes The financial statement variables have been updated to be proportional to 2012 income per capita; Dividend, capital gains and financial previously they were proportional to 2005 income transactions taxes per capita. To make the data comparable across Waste collection, vehicle, road and other taxes economies, several assumptions are used.  Taxes and mandatory contributions are  TaxpayerCo is a medium-size business that measured at all levels of government. started operations on January 1, 2013.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paid by the and mandatory contributions paid during company. the second year of operation are recorded.  A range of standard deductions and exemptions are also recorded. The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. 3 The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. Doing Business 2016 LATIN AMERICA 63 PAYING TAXES Where do the region’s economies stand today? What is the administrative burden of complying with information for assessing the tax compliance burden for taxes in economies in Latin America—and how much do businesses (figure 8.1). The average ranking of the region firms pay in taxes? The global rankings of these provides a useful benchmark. economies on the ease of paying taxes offer useful Figure 8.1 How economies in Latin America rank on the ease of paying taxes Note: All economies with a total tax rate below the threshold of 26.1% applied in DB2015, receive the same distance to frontier score for the total tax rate (a distance to frontier score of 100 for the total tax rate) for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 64 PAYING TAXES The indicators underlying the rankings may be more major taxes (corporate income tax, VAT or sales tax and revealing. Data collected by Doing Business show what it labor taxes and mandatory contributions)—as well as the takes to comply with tax regulations in each economy in total tax rate (figure 8.2). Comparing these indicators the region—the number of payments per year and the across the region and with averages both for the region time required to prepare, and file and pay taxes the 3 and for comparator regions can provide useful insights. Figure 8.2 How easy is it to pay taxes in economies in Latin America—and what are the total tax rates? Payments (number per year) Doing Business 2016 LATIN AMERICA 65 PAYING TAXES Time (hours per year) Doing Business 2016 LATIN AMERICA 66 PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2016 LATIN AMERICA 67 PAYING TAXES What are the changes over time? Economies around the world have made paying taxes concrete results. Some economies simplifying faster and easier for businesses—such as by compliance with tax obligations and reducing rates have consolidating filings, reducing the frequency of seen tax revenue rise. What tax reforms has Doing payments or offering electronic filing and payment. Business recorded in Latin America (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How have economies in Latin America made paying taxes easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Colombia made paying taxes less costly for companies by DB2016 Colombia reducing the payroll tax rate and introducing exemptions for health care contributions paid by employers. Costa Rica made paying taxes easier for companies by DB2016 Costa Rica promoting the use of its electronic filing and payment system for corporate income tax and general sales tax. Guatemala made paying taxes less costly for companies by DB2016 Guatemala reducing the corporate income tax rate. Honduras made paying taxes more costly for companies by DB2016 Honduras introducing an alternative minimum income tax. Mexico made paying taxes easier for companies by abolishing the business flat tax—though it also made paying taxes more costly by allowing only a portion of salaries to be deductible. DB2016 Mexico These changes apply to both Mexico City and Monterrey. In addition, the payroll tax rate paid by employers was increased for Mexico City. Peru made paying taxes easier for companies by creating an DB2016 Peru advanced online registry with up-to-date information on employees. Uruguay made paying taxes easier for companies by DB2016 Uruguay continually upgrading and improving the electronic system for filing and paying the major taxes. DB2015 Colombia Colombia made paying taxes more complicated for Doing Business 2016 LATIN AMERICA 68 DB year Economy Reform companies by introducing a new profit tax (CREE), though it also reduced the corporate income tax rate and payroll taxes. Costa Rica made paying taxes easier for companies by DB2015 Costa Rica implementing an electronic system for filing corporate income tax and VAT. Guatemala made paying taxes easier and less costly for companies by enhancing the electronic system for filing and paying corporate income tax and VAT and by reducing the DB2015 Guatemala capital gains and corporate income tax rates. On the other hand, it also made paying taxes more complicated by introducing a new form for capital gains tax. Guatemala made paying taxes easier for companies by DB2014 Guatemala introducing a new electronic filing and payment system. Guyana made paying taxes easier for companies by reducing DB2014 Guyana the corporate income tax rate. Panama made paying taxes easier for companies by changing the payment frequency for corporate income taxes from DB2014 Panama monthly to quarterly and by implementing a new online platform for filing the social security payroll. Paraguay made paying taxes easier for companies by making DB2014 Paraguay electronic filing and payment mandatory for corporate income and value added taxes. El Salvador made paying taxes more costly for companies by DB2014 El Salvador increasing the corporate income tax rate. Costa Rica made paying taxes easier for companies by DB2013 Costa Rica implementing electronic payment for municipal taxes — though it also introduced a registration flat tax. DB2013 El Salvador El Salvador introduced an alternative minimum tax. Panama made paying taxes easier for companies by enhancing the electronic filing system for value added tax DB2013 Panama and simplifying tax return forms for corporate income tax— though it also began requiring companies to pay corporate income tax monthly rather than quarterly. Doing Business 2016 LATIN AMERICA 69 DB year Economy Reform Uruguay made paying taxes easier for small and medium-size companies by fully implementing an online filing and DB2013 Uruguay payment system for capital, value added and corporate income taxes and by improving the online facilities for social security contributions. República Bolivariana de Venezuela made paying taxes more DB2013 Venezuela, RB costly and difficult for companies by introducing a sports, physical activities and physical education tax. República Bolivariana de Venezuela made paying taxes DB2012 Venezuela, RB costlier for firms by doubling the municipal economic activities tax (sales tax). Peru made paying taxes easier for companies by improving electronic filing and payment of the major taxes and DB2012 Peru promoting the use of the electronic option among the majority of taxpayers. Paraguay made paying taxes more burdensome for DB2012 Paraguay companies by introducing new tax declarations that must be filed monthly. Nicaragua made paying taxes easier for companies by DB2012 Nicaragua promoting electronic filing and payment of the major taxes, an option now used by the majority of taxpayers. Colombia eased the administrative burden of paying taxes for DB2012 Colombia firms by establishing mandatory electronic filing and payment for some of the major taxes. In Costa Rica online payment of social security contributions DB2012 Costa Rica is now widespread and used by the majority of taxpayers. Honduras made paying taxes costlier for firms by raising the DB2012 Honduras solidarity tax rate. Mexico continued to ease the administrative burden of paying taxes for firms by ending the requirement to file a DB2012 Mexico yearly value added tax return and reduced filing requirements for other taxes DB2012 Belize Belize made paying taxes easier for firms by improving Doing Business 2016 LATIN AMERICA 70 DB year Economy Reform electronic filing and payment for social security contributions, an option now used by the majority of taxpayers. DB2012 Bolivia Bolivia raised social security contribution rates for employers. Nicaragua increased taxes on firms by raising social security contribution rates and introducing a 10% withholding tax on DB2011 Nicaragua the gross interest accrued from deposits. It also improved electronic payment of taxes through bank transfer. Panama reduced the corporate income tax rate, modified DB2011 Panama various taxes and created a new tax court of appeals. Mexico increased taxes on companies by raising several tax rates, including the corporate income tax and the rate on DB2011 Mexico cash deposits. At the same time, the administrative burden was reduced slightly with more options for online payment and increased use of accounting software. República Bolivariana de Venezuela abolished the tax on DB2011 Venezuela, RB financial transactions. República Bolivariana de Venezuela made paying taxes more DB2010 Venezuela, RB costly for companies by introducing 2 new taxes. Peru made paying taxes easier and less costly for companies by distributing software for value added tax payments, DB2010 Peru reducing the check tax and introducing a new regime of accelerated depreciation. Mexico made paying taxes easier for companies by DB2010 Mexico introducing electronic payment systems for payroll, property and social security taxes. Guatemala made paying taxes easier for companies by expanding the category of businesses for which electronic DB2010 Guatemala filing and payment of value added and corporate income tax is mandatory and by extending the electronic system to most banks. Brazil made paying taxes less costly for companies by DB2010 Brazil abolishing the tax on check transactions. Doing Business 2016 LATIN AMERICA 71 DB year Economy Reform Colombia made paying taxes easier and less costly for DB2010 Colombia companies by introducing electronic filing and payment and reducing some payments. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 LATIN AMERICA 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 FOR IMPORT & EXPORT business. Excessive document requirements, burdensome customs procedures, inefficient port Documentary compliance – cost (US$) & time operations and inadequate infrastructure all lead to (hours) extra costs and delays for exporters and importers, stifling trade potential. Obtain, prepare and submit documents: What do the indicators cover? -During transport, clearance, inspections and port or border handling in origin economy Doing Business records the time and cost associated with the logistical process of exporting and -Required by origin, transit and destination economies importing goods. Under the new methodology introduced this year, Doing Business measures the Covers all documents by law and in practice time and cost (excluding tariffs) associated with three Border compliance – cost (US$) & time sets of procedures—documentary compliance, (hours) border compliance and domestic transport—within the overall process of exporting or importing a Customs clearance and inspections shipment of goods. The ranking of economies on the Inspections by other agencies ease of trading across borders is determined by Port or border handling sorting their distance to frontier scores for trading across borders. These scores are the simple average Obtaining, preparing and submitting of the distance to frontier scores for the time and documents during clearance, inspections and port or border handling cost for documentary compliance and border compliance to export and import. Domestic transport* Loading and unloading of shipment To make the data comparable across economies, a few assumptions are made about the traded goods Transport between warehouse and terminal/port and the transactions: Transport between terminal/port and border Time Obtaining, preparing and submitting  Time is measured in hours, and 1 day is 24 documents during domestic transport hours (for example, 22 days are recorded Traffic delays and road police checks while as 22 × 24 = 528 hours). If customs shipment is en route clearance takes 7.5 hours, the data are recorded as is. Alternatively, suppose that * Although Doing Business collects and publishes data on documents are submitted to a customs the time and cost for domestic transport, it does not use agency at 8:00 a.m., are processed these data in calculating the distance to frontier score for overnight and can be picked up at 8:00 trading across borders or the ranking on the ease of trading a.m. the next day. In this case the time for across borders. customs clearance would be recorded as Cost 24 hours because the actual procedure  Insurance cost and informal payments for took 24 hours. which no receipt is issued are excluded from the costs recorded. Costs are reported in U.S. dollars. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. Doing Business 2016 LATIN AMERICA 73 Assumptions of the case study  For each of the 189 economies covered by  Shipping cost based on weight is assumed to Doing Business, it is assumed that a shipment be greater than shipping cost based on travels from a warehouse in the largest business volume. city of the exporting economy to a warehouse  If government fees are determined by the in the largest business city of the importing value of the shipment, the value is assumed economy. For 11 economies the data are also to be $50,000. collected, under the same case study assumptions, for the second largest business  The product is new, not secondhand or used city. merchandise.  The import and export case studies assume  The exporting firm is responsible for hiring different traded products. It is assumed that and paying for a freight forwarder or customs each economy imports a standardized shipment broker (or both) and pays for all costs related of 15 metric tons of containerized auto parts to international shipping, domestic transport, (HS 8708) from its natural import partner—the clearance and mandatory inspections by economy from which it imports the largest value customs and other government agencies, port (price times quantity) of auto parts. It is or border handling, documentary compliance assumed that each economy exports the fees and the like for exports. The importing product of its comparative advantage (defined firm is responsible for the above costs for by the largest export value) to its natural export imports. partner—the economy that is the largest  The mode of transport is the one most widely purchaser of this product. Precious metal and used for the chosen export or import product gems, live animals and pharmaceuticals are and the trading partner, as is the seaport, excluded from the list of possible export airport or land border crossing. products, however, and the second largest product category is considered as needed.  All electronic submissions of information requested by any government agency in  To identify the trading partners and export connection with the shipment are considered product for each economy, Doing Business to be documents obtained, prepared and collected data on trade flows for the most submitted during the export or import recent four-year period from international process. databases such as the United Nations Commodity Trade Statistics Database (UN  A port or border is defined as a place Comtrade). For economies for which trade flow (seaport, airport or land border crossing) data were not available, data from ancillary where merchandise can enter or leave an government sources (various ministries and economy. departments) and World Bank Group country  Government agencies considered relevant offices were used to identify the export product are agencies such as customs, port and natural trading partners. authorities, road police, border guards,  A shipment is a unit of trade. Export shipments standardization agencies, ministries or do not necessarily need to be containerized, departments of agriculture or industry, while import shipments of auto parts are national security agencies and any other assumed to be containerized. government authorities. Doing Business 2016 LATIN AMERICA 74 TRADING ACROSS BORDERS Where do the region’s economies stand today? How easy it is for businesses in economies in Latin across borders suggest an answer (figure 9.1). The America 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 Latin America rank on the ease of trading across borders Source: Doing Business database. Doing Business 2016 LATIN AMERICA 75 TRADING ACROSS BORDERS The indicators reported here are for trading a shipment and import is collected from local freight forwarders, of goods by the most widely used mode of transport customs brokers and traders. Comparing these indicators (whether sea, land, air or some combination of these). across the region and with averages both for the region The information on the time and cost to complete export and for comparator regions can provide useful insights. Figure 9.2 What it takes to trade across borders in economies in Latin America Time to export: Border compliance (hours) Doing Business 2016 LATIN AMERICA 76 TRADING ACROSS BORDERS Cost to export: Border compliance (USD) Doing Business 2016 LATIN AMERICA 77 TRADING ACROSS BORDERS Time to export: Documentary compliance (hours) Doing Business 2016 LATIN AMERICA 78 TRADING ACROSS BORDERS Cost to export: Documentary compliance (USD) Doing Business 2016 LATIN AMERICA 79 TRADING ACROSS BORDERS Time to import: Border compliance (hours) Doing Business 2016 LATIN AMERICA 80 TRADING ACROSS BORDERS Cost to import: Border compliance (USD) Doing Business 2016 LATIN AMERICA 81 TRADING ACROSS BORDERS Time to import: Documentary compliance (hours) Doing Business 2016 LATIN AMERICA 82 TRADING ACROSS BORDERS Cost to import: Documentary compliance (USD) Source: Doing Business database. Doing Business 2016 LATIN AMERICA 83 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 Business tools to facilitate trade—including single windows, risk- recorded in Latin America (table 9.1)? based inspections and electronic data interchange Table 9.1 How have economies in Latin America made trading across borders easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Brazil reduced the time for documentary and border compliance for exporting by implementing the electronic SISCOMEX Portal system. This reform applies to both Rio de DB2016 Brazil Janeiro and São Paulo. Guatemala reduced the documentary and border compliance time for importing by making electronic submission of documents compulsory and eliminating the need for many DB2016 Guatemala hard-copy documents. El Salvador increased the border compliance time for DB2016 El Salvador exporting and importing by adding an extra, nonintrusive inspection at the Anguiatú border crossing with Guatemala. Suriname reduced the time for documentary and border compliance for exporting and importing by implementing an DB2016 Suriname automated customs data management system, ASYCUDA (Automated System for Customs Data) World. Bolivia made trading across borders more difficult by DB2015 Bolivia increasing customs clearance time. Ecuador made trading across borders easier by introducing a DB2015 Ecuador new electronic data interchange system called ECUAPASS. Doing Business 2016 LATIN AMERICA 84 DB year Economy Reform Uruguay made trading across borders easier by implementing DB2015 Uruguay a risk-based inspection system that reduced customs clearance time for both exports and imports. Argentina reduced the number of documents necessary for DB2014 Argentina importing by eliminating nonautomatic license requirements. Mexico made trading across borders easier by implementing DB2014 Mexico an electronic single-window system. El Salvador made trading across borders easier by developing DB2014 El Salvador a one-stop shop for exporting and by implementing electronic data interchange systems. Uruguay made trading across borders easier by implementing DB2014 Uruguay an electronic customs declaration system. Argentina increased the time, cost and number of documents needed to import by expanding the list of products requiring DB2013 Argentina nonautomatic licenses and introducing new preapproval procedures for all imports. Belize reduced the time to export and import by DB2013 Belize implementing the ASYCUDA World electronic data interchange system. Suriname increased the time to export by involving more DB2013 Suriname customs departments in clearing exports. Uruguay reduced the time to import by improving port DB2013 Uruguay efficiency and introducing electronic payment and predeclaration systems for customs. Honduras made trading across borders faster by DB2012 Honduras implementing a web-based electronic data interchange system and X-ray machines at the port of Puerto Cortes. Nicaragua expedited trade by migrating to a new electronic data interchange system for customs, setting up a physical DB2011 Nicaragua one-stop shop for exports and investing in new equipment at the port of Corinto. Doing Business 2016 LATIN AMERICA 85 DB year Economy Reform Guyana improved its risk profiling system for customs DB2011 Guyana inspection, reducing physical inspections of shipments and the time to trade. Peru made trading easier by implementing a new web-based DB2011 Peru electronic data interchange system, risk-based inspections and payment deferrals. Paraguay reduced the time required for trading across DB2010 Paraguay borders by implementing an electronic single-window system for exports and improving the risk-based inspection system. Peru made trading across borders easier by adding cranes at DB2010 Peru the port of Callao and thereby speeding up port and terminal handling activities. Colombia speeded up the customs clearance process by DB2010 Colombia implementing the electronic data interchange system MUISCA. Guyana reduced the time for exporting and importing by DB2010 Guyana implementing a system allowing customs brokers to submit documents electronically. 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 2016 LATIN AMERICA 86 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 Time required to enforce a contract through courts encourage new business relationships because the courts (calendar days) businesses know they can rely on the courts if a new customer fails to pay. Speedy trials are essential for Time to file and serve the case small enterprises, which may lack the resources to Time for trial and to obtain the judgment stay in business while awaiting the outcome of a long court dispute. Time to enforce the judgment What do the indicators cover? Cost required to enforce a contract through the courts (% of claim) Doing Business measures the time and cost for resolving a standardized commercial dispute through Attorney fees a local first-instance court. In addition, this year it Court fees introduces a new measure, the quality of judicial Enforcement fees processes index, evaluating whether each economy has adopted a series of good practices that promote Quality of judicial processes index (0-18) quality and efficiency in the court system. This new Court structure and proceedings (0-5) index replaces the indicator on procedures, which was eliminated this year. The ranking of economies Case management (0-6) on the ease of enforcing contracts is determined by Court automation (0-4) sorting their distance to frontier scores. These scores Alternative dispute resolution (0-3) are the simple average of the distance to frontier scores for each of the component indicators The dispute in the case study involves the breach of a  The value of the dispute is 200% of the sales contract between 2 domestic businesses. The income per capita or the equivalent in local case study assumes that the court hears an expert on currency of USD 5,000, whichever is greater. the quality of the goods in dispute. This distinguishes  The seller sues the buyer before the court the case from simple debt enforcement. To make the with jurisdiction over commercial cases worth data comparable across economies, Doing Business 200% of income per capita or $5,000. uses several assumptions about the case:  The seller requests a pretrial attachment to  The dispute concerns a lawful transaction secure the claim. between two businesses (Seller and Buyer), both located in the economy’s largest  The dispute on the quality of the goods business city. For 11 economies the data requires an expert opinion. are also collected for the second largest  The judge decides in favor of the seller; there business city. is no appeal.  The buyer orders custom-made goods,  The seller enforces the judgment through a then fails to pay. public sale of the buyer’s movable assets. Doing Business 2016 LATIN AMERICA 87 ENFORCING CONTRACTS Where do the region’s economies stand today? How efficient is the process of resolving a commercial ease of enforcing contracts suggest an answer (figure dispute through the courts in economies in Latin 10.1). The average ranking of the region and comparator America? The global rankings of these economies on the regions provide a useful benchmark. Figure 10.1 How economies in Latin America rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2016 LATIN AMERICA 88 ENFORCING CONTRACTS The indicators underlying the rankings may also be judicial processes index (figure 10.2). Comparing these revealing. Data collected by Doing Business show what it indicators across the region and with averages both for takes to enforce a contract through the courts in each the region and for comparator regions can provide economy in the region: the time, the cost and quality of useful insights. Figure 10.2 What it takes to enforce a contract through the courts in economies in Latin America Time (days) Doing Business 2016 LATIN AMERICA 89 ENFORCING CONTRACTS Cost (% of claim) Source: Doing Business database. Doing Business 2016 LATIN AMERICA 90 ENFORCING CONTRACTS Quality of Judicial Processes Index (0-18) Source: Doing Business database. Note: Higher values indicate more efficient judicial processes. Doing Business 2016 LATIN AMERICA 91 ENFORCING CONTRACTS What are the changes over time? Economies in all regions have improved contract reducing backlogs by introducing periodic reviews to enforcement in recent years. A judiciary can be improved clear inactive cases from the docket and by making in different ways. Higher-income economies tend to look procedures faster. What reforms making it easier (or for ways to enhance efficiency by introducing new more difficult) to enforce contracts has Doing Business technology. Lower-income economies often work on recorded in Latin America (table 10.1)? Table 10.1 How have economies in Latin America made enforcing contracts easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Uruguay made enforcing contracts easier by simplifying and DB2015 Uruguay speeding up the proceedings for commercial disputes. Colombia made enforcing contracts easier by simplifying and DB2014 Colombia speeding up the proceedings for commercial disputes. Mexico made enforcing contracts easier by creating small DB2014 Mexico claims courts, with oral proceedings, that can hear both civil and commercial cases. Brazil made enforcing contracts easier by implementing an DB2013 Brazil electronic system for filing initial complaints at the São Paulo civil district court. Honduras adopted a new civil procedure code that modified DB2012 Honduras litigation procedures for enforcing a contract. Nicaragua raised the monetary threshold for commercial claims that can be brought to the Managua local civil court, DB2012 Nicaragua leaving lower-value claims in the local courts, where proceedings are simpler and faster. Peru made enforcing contracts easier by introducing deadlines for filing evidence and contesting enforcement DB2010 Peru procedures and by permitting electronic judicial notices in lieu of publication in the official gazette. Costa Rica improved its contract enforcement system by allowing new modes of delivery of service and by simplifying DB2010 Costa Rica auction procedures by authorizing the publication of a single auction notice. 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 2016 LATIN AMERICA 92 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses to normal operation and increase returns to Time required to recover debt (years) creditors. By clarifying the expectations of creditors Measured in calendar years and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable businesses and sustainably grow the economy. Cost required to recover debt (% of debtor’s estate) What do the indicators cover? Doing Business studies the time, cost and outcome of Measured as percentage of estate value insolvency proceedings involving domestic legal Court fees entities. These variables are used to calculate the Fees of insolvency administrators recovery rate, which is recorded as cents on the dollar recovered by secured creditors through Lawyers’ fees reorganization, liquidation or debt enforcement Assessors’ and auctioneers’ fees (foreclosure or receivership) proceedings. To Other related fees determine the present value of the amount recovered by creditors, Doing Business uses the Outcome lending rates from the International Monetary Fund, Whether business continues operating as a supplemented with data from central banks and the going concern or business assets are sold Economist Intelligence Unit. piecemeal In addition, Doing Business evaluates the adequacy Recovery rate for creditors and integrity of the existing legal framework applicable to liquidation and reorganization Measures the cents on the dollar recovered by proceedings through the strength of insolvency secured creditors framework index. The index tests whether economies Outcome for the business (survival or not) adopted internationally accepted good practices in determines the maximum value that can be four areas: commencement of proceedings, recovered management of debtor’s assets, reorganization Official costs of the insolvency proceedings are proceedings and creditor participation. deducted The ranking of economies on the ease of resolving Depreciation of furniture is taken into account insolvency is determined by sorting their distance to frontier scores for resolving insolvency. These scores Present value of debt recovered are the simple average of the distance to frontier Strength of insolvency framework index (0- scores for the recovery rate and the strength of 16) insolvency framework index. The Resolving Sum of the scores of four component indices: Insolvency indicator does not measure insolvency proceedings of individuals and financial institutions. Commencement of proceedings index (0-3) The data are derived from questionnaire responses Management of debtor’s assets index (0-6) by local insolvency practitioners and verified through a study of laws and regulations as well as public Reorganization proceedings index (0-3) information on bankruptcy systems. Creditor participation index (0-4) Doing Business 2016 LATIN AMERICA 93 RESOLVING INSOLVENCY Where do the region’s economies stand today? How efficient are insolvency proceedings in economies in comparator regions provide a useful benchmark for Latin America? The global rankings of these economies assessing the efficiency of insolvency proceedings. on the ease of resolving insolvency suggest an answer Speed, low costs and continuation of viable businesses (figure 11.1). The average ranking of the region and characterize the top-performing economies. Figure 11.1 How economies in Latin America rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2016 LATIN AMERICA 94 RESOLVING INSOLVENCY The indicators underlying the rankings may be more these indicators across the region and with averages revealing. Data collected by Doing Business show the both for the region and for comparator regions can average recovery rate and the average strength of provide useful insights. insolvency framework index (figure 11.2). Comparing Figure 11.2 How efficient is the insolvency process in economies in Latin America Recovery Rate (0–100) Source: Doing Business database. Doing Business 2016 LATIN AMERICA 95 Total Strength of Insolvency Framework index (0-16) Source: Doing Business database. * Indicates a “no practice” mark. See the data notes for details. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “ no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. Source: Doing Business database. Note: Higher values indicate insolvency legislation that is better designed for rehabilitating viable firms and liquidating nonviable ones. Doing Business 2016 LATIN AMERICA 96 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 Latin America (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How have economies in Latin America made resolving insolvency easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Mexico made resolving insolvency easier by clarifying several rules, shortening the time extensions allowed during reorganization, facilitating the electronic submission of DB2015 Mexico documents and improving the legal rights of creditors and other parties involved in bankruptcy procedures. This reform applies to both Mexico City and Monterrey. Colombia amended regulations governing insolvency DB2012 Colombia proceedings to simplify the proceedings and reduce their time and cost Uruguay improved its insolvency process through a new insolvency law aimed at keeping a larger number of DB2010 Uruguay financially distressed companies operating as a going concern. Colombia enhanced its insolvency process through several DB2010 Colombia decrees regulating the profession of insolvency administrators. 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 2016 LATIN AMERICA 97 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate even though it is no longer at the frontier in a measures: the distance to frontier score and the ease of subsequent year. doing business ranking, which is based on the distance For scores such as those on the strength of legal rights to frontier score. The ease of doing business ranking index or the quality of land administration index, the compares economies with one another; the distance to frontier is set at the highest possible value. For the total frontier score benchmarks economies with respect to tax rate, consistent with the use of a threshold in regulatory best practice, showing the absolute distance calculating the rankings on this indicator, the frontier is to the best performance on each Doing Business defined as the total tax rate at the 15th percentile of the indicator. When compared across years, the distance to overall distribution for all years included in the analysis frontier score shows how much the regulatory up to and including Doing Business 2015. For the time to environment for local entrepreneurs in an economy has pay taxes the frontier is defined as the lowest time changed over time in absolute terms, while the ease of recorded among all economies that levy the three major doing business ranking can show only how much the taxes: profit tax, labor taxes and mandatory regulatory environment has changed relative to that in contributions, and value added tax (VAT) or sales tax. For other economies. the different times to trade across borders, the frontier is Distance to Frontier defined as 1 hour even though in many economies the time is less than that. The distance to frontier score captures the gap between an economy’s performance and a measure of best In the same formulation, to mitigate the effects of practice across the entire sample of 36 indicators for 10 extreme outliers in the distributions of the rescaled data Doing Business topics (the labor market regulation for most component indicators (very few economies indicators are excluded). For starting a business, for need 700 days to complete the procedures to start a example, the former Yugoslav Republic of Macedonia business, but many need 9 days), the worst performance and New Zealand have the smallest number of is calculated after the removal of outliers. The definition procedures required (1), and New Zealand the shortest of outliers is based on the distribution for each time to fulfill them (0.5 days). Slovenia has the lowest component indicator. To simplify the process two rules cost (0.0), and Australia, Colombia and 103 other were defined: the 95th percentile is used for the economies have no paid-in minimum capital indicators with the most dispersed distributions requirement (table 14.1 in the Doing Business 2016 (including minimum capital, number of payments to pay report). taxes, and the time and cost indicators), and the 99th percentile is used for number of procedures. No outlier is Calculation of the distance to frontier score removed for component indicators bound by definition Calculating the distance to frontier score for each or construction, including legal index scores (such as the economy involves two main steps. In the first step depth of credit information index, extent of conflict of individual component indicators are normalized to a interest regulation index and strength of insolvency common unit where each of the 36 component framework index) and the recovery rate (figure 14.1). indicators y (except for the total tax rate) is rescaled In the second step for calculating the distance to frontier using the linear transformation (worst − y)/(worst − score, the scores obtained for individual indicators for frontier). In this formulation the frontier represents the each economy are aggregated through simple averaging best performance on the indicator across all economies into one distance to frontier score, first for each topic since 2005 or the third year in which data for the and then across all 10 topics: starting a business, dealing indicator were collected. Both the best performance and with construction permits, getting electricity, registering the worst performance are established every five years property, getting credit, protecting minority investors, based on the Doing Business data for the year in which paying taxes, trading across borders, enforcing contracts they are established, and remain at that level for the five and resolving insolvency. More complex aggregation years regardless of any changes in data in interim years. methods—such as principal components and Thus an economy may set the frontier for an indicator unobserved components—yield a ranking nearly Doing Business 2016 LATIN AMERICA 98 identical to the simple average used by Doing Business . than it would have had before (line D is bigger than line 4 Thus Doing Business uses the simplest method: C in figure 14.2 of the Doing Business 2016 report). weighting all topics equally and, within each topic, giving The nonlinear transformation is not based on any equal weight to each of the topic components . 5 economic theory of an “optimal tax rate” that minimizes An economy’s distance to frontier score is indicated on a distortions or maximizes efficiency in an economy’s scale from 0 to 100, where 0 represents the worst overall tax system. Instead, it is mainly empirical in performance and 100 the frontier. All distance to frontier nature. The nonlinear transformation along with the calculations are based on a maximum of five decimals. threshold reduces the bias in the indicator toward However, indicator ranking calculations and the ease of economies that do not need to levy significant taxes on doing business ranking calculations are based on two companies like the Doing Business standardized case decimals. study company because they raise public revenue in other ways—for example, through taxes on foreign The difference between an economy’s distance to companies, through taxes on sectors other than frontier score in any previous year and its score in 2015 manufacturing or from natural resources (all of which are illustrates the extent to which the economy has closed outside the scope of the methodology). In addition, it the gap to the regulatory frontier over time. And in any acknowledges the need of economies to collect taxes given year the score measures how far an economy is from firms. from the best performance at that time. Calculation of scores for economies with 2 cities Treatment of the total tax rate covered The total tax rate component of the paying taxes For each of the 11 economies in which Doing Business indicator set enters the distance to frontier calculation in collects data for the second largest business city as well a different way than any other indicator. The distance to as the largest one, the distance to frontier score is frontier score obtained for the total tax rate is calculated as the population-weighted average of the transformed in a nonlinear fashion before it enters the distance to frontier scores for these two cities (table distance to frontier score for paying taxes. As a result of 13.1). This is done for the aggregate score, the scores for the nonlinear transformation, an increase in the total tax each topic and the scores for all the component rate has a smaller impact on the distance to frontier indicators for each topic. score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 of the Doing Business 2016 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores 4 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the 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 importance in the context of a specific economy. 5 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights Doing Business 2016 LATIN AMERICA 99 Table 13.1 Weights used in calculating the distance to implemented regulatory reforms making it easier to do frontier scores for economies with 2 cities covered business in 3 or more of the 10 topics included in this year’s aggregate distance to frontier score. Changes Economy City Weight (%) making it more difficult to do business are subtracted Dhaka 78 Bangladesh from the total number of those making it easier to do Chittagong 22 São Paulo 61 business. Twenty-four economies meet this criterion: Brazil Armenia; Azerbaijan; Benin; Costa Rica; Côte d’Ivoire; Rio de Janeiro 39 Shanghai 55 Cyprus; Hong Kong SAR, China; Indonesia; Jamaica; China Beijing 45 Kazakhstan; Kenya; Lithuania; Madagascar; Mauritania; Mumbai 47 Morocco; Romania; the Russian Federation; Rwanda; India Delhi 53 Senegal; Togo; Uganda; the United Arab Emirates; Jakarta 78 Uzbekistan; and Vietnam. Second, Doing Business sorts Indonesia Surabaya 22 these economies on the increase in their distance to Tokyo 65 Japan frontier score from the previous year using comparable Osaka 35 data. Mexico City 83 Mexico Monterrey 17 Selecting the economies that implemented regulatory Lagos 77 reforms in at least three topics and had the biggest Nigeria Kano 23 improvements in their distance to frontier scores is Karachi 65 intended to highlight economies with ongoing, broad- Pakistan Lahore 35 based reform programs. The improvement in the Moscow 70 Russian Federation distance to frontier score is used to identify the top St. Petersburg 30 New York 60 improvers because this allows a focus on the absolute United States improvement—in contrast with the relative improvement Los Angeles 40 Source: United Nations, Department of Economic and Social shown by a change in rankings—that economies have Affairs, Population Division, World Urbanization Prospects, made in their regulatory environment for business. 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking Economies that improved the most across 3 or more The ease of doing business ranking ranges from 1 to 189. Doing Business topics in 2014/15 The ranking of economies is determined by sorting the Doing Business 2016 uses a simple method to calculate aggregate distance to frontier scores, rounded to 2 decimals. which economies improved the ease of doing business the most. First, it selects the economies that in 2014/15 Doing Business 2016 LATIN AMERICA 100 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 11,400 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 136 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, case studies and repreneurship customized economy and regional profiles http://www.doingbusiness.org/reports Distance to frontier Data benchmarking 189 economies to the frontier Methodology in regulatory practice and a distance to frontier The methodologies and research papers underlying calculator Doing Business http://www.doingbusiness.org/data/distance-to- http://www.doingbusiness.org/methodology frontier Research Information on good practices Abstracts of papers on Doing Business topics and Showing where the many good practices identified related policy issues by Doing Business have been adopted http://www.doingbusiness.org/research http://www.doingbusiness.org/data/good-practice Doing Business reforms Short summaries of DB2016 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2016 LATIN AMERICA 101