Doing Business 2017 El Salvador Economy Profile 2017 El Salvador Doing Business 2017 El Salvador 2 © 2017 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 19 18 17 16 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 2017 El Salvador 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 17 Dealing with conustruction permits ........................................................................................ 24 Getting electricity ....................................................................................................................... 38 Registering property .................................................................................................................. 47 Getting credit .............................................................................................................................. 57 Protecting minority investors ................................................................................................... 63 Paying taxes ................................................................................................................................ 71 Trading across borders .............................................................................................................. 77 Enforcing contracts .................................................................................................................... 84 Resolving insolvency .................................................................................................................. 91 Labor market regulation ........................................................................................................... 95 Distance to frontier and ease of doing business ranking .................................................... 101 Resources on the Doing Business website ............................................................................ 104 Doing Business 2017 El Salvador 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is also provides data for other selected economies for a local entrepreneur to open and run a small to (comparator economies) for each indicator. The data in medium-size business when complying with relevant this report are current as of June 1, 2016 (except for the regulations. It measures and tracks changes in paying taxes indicators, which cover the period January– regulations affecting 11 areas in the life cycle of a December 2015). business: starting a business, dealing with construction The Doing Business methodology has limitations. Other permits, getting electricity, registering property, getting areas important to business—such as an economy’s credit, protecting minority investors, paying taxes, proximity to large markets, the quality of its trading across borders, enforcing contracts, resolving infrastructure services (other than those related to insolvency and labor market regulation. Doing Business trading across borders and getting electricity), the 2017 presents the data for the labor market regulation security of property from theft and looting, the indicators in an annex. The report does not present transparency of government procurement, rankings of economies on labor market regulation macroeconomic conditions or the underlying strength of indicators or include the topic in the aggregate distance institutions—are not directly studied by Doing Business. to frontier score or ranking on the ease of doing The indicators refer to a specific type of business, business. generally a local limited liability company operating in In a series of annual reports Doing Business presents the largest business city. Because standard assumptions quantitative indicators on business regulations and the are used in the data collection, comparisons and protection of property rights that can be compared benchmarks are valid across economies. The data not across 190 economies, from Afghanistan to Zimbabwe, only highlight the extent of obstacles to doing business; over time. The data set covers 48 economies in Sub- they also help identify the source of those obstacles, Saharan Africa, 32 in Latin America and the Caribbean, 25 supporting policy makers in designing regulatory reform. in East Asia and the Pacific, 25 in Eastern Europe and More information is available in the full report. Doing Central Asia, 20 in the Middle East and North Africa and Business 2017 presents the indicators, analyzes their 8 in South Asia, as well as 32 OECD high-income relationship with economic outcomes and presents economies. The indicators are used to analyze economic business regulatory reforms. The data, along with outcomes and identify what reforms have worked, where information on ordering Doing Business 2017, are and why. available on the Doing Business website at This economy profile presents the Doing Business http://www.doingbusiness.org. indicators for El Salvador. To allow useful comparison, it Doing Business 2017 El Salvador 5 CHANGES IN DOING BUSINESS 2017 As part of a three-year update in methodology, Doing having equal evidentiary weight of women’s testimony in Business 2017 expands further by adding postfiling court. processes to the paying taxes indicator, including a Also for the first time this year Doing Business collects gender component in three of the indicators and data on Somalia, bringing the total number of developing a new pilot indicator on selling to the economies covered to 190. government. Also, for the first time this year Doing Business collects data on Somalia, bringing the total For more details on the changes, see the “”Old and new number of economies covered to 190. factors covered in Doing Business” section in the The paying taxes indicator is expanded this year to Overview chapter starting on page 1 of the Doing include postfiling processes – those processes that occur Business 2017 report. For more details on the data and after a firm complies with its regular tax obligations. methodology, please see the “Data Notes” chapter These include tax refunds, tax audits and tax appeals. In starting on page 114 of the Doing Business 2017 report. particular, Doing Business measures the time it takes to For more details on the distance to frontier metric, get a value added tax (VAT) refund, deal with a simple please see the “Distance to frontier and ease of doing mistake on a corporate tax return that can potentially business ranking” chapter in this profile. trigger an audit and good practices with administrative appeals process. This year’s Doing Business report presents a gender dimension in four of the indicator sets: starting a business, registering property, enforcing contracts and labor market regulation. Three of these areas are included in the distance to frontier score and in the ease of doing business ranking, while the fourth —labor market regulation—is not. Doing Business has traditionally assumed that the entrepreneurs or workers discussed in the case studies were men. This was incomplete by not reflecting correctly the Doing Business processes as applied to women—which in some economies may be different from the processes applied to men. Starting this year, Doing Business measures the starting a business process for two case scenarios: one where all entrepreneurs are men and one where all entrepreneurs are women. In economies where the processes are more onerous if the entrepreneur is a woman, Doing Business now counts the extra procedures applied to roughly half of the population that is female (for example, obtaining a husband’s consent or gender-specific requirements for opening a personal bank account when starting a business). Within the registering property indicators, a gender component has been added to the quality of land administration index. This component measures women’s ability to use, own, and transfer property according to the law. Finally, within the enforcing contracts indicator set, economies will be scored on Doing Business 2017 El Salvador 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: Latin America & Caribbean based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Lower middle income businesses through their life cycle. Economies are ranked from 1 to 190 by the ease of doing business ranking. Population: 6,126,583 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 3,940 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2017 rank: 95 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2016 rank: 86* 0 represents the worst performance and 100 the frontier. Change in rank: -9 (See the chapter on the distance to frontier and ease of doing business). DB 2017 DTF: 61.02 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2016 DTF: 62.2 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: -1.18 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2016 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2016 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 114 of the Doing Business 2017 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2017: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in the economy profile. Doing Business 2017 El Salvador THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2017 El Salvador THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How El Salvador and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2016 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 2017 El Salvador 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - El Salvador (Scale: Rank 190 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - El Salvador (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2016 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. Doing Business 2017 El Salvador 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has El Salvador come in the areas measured by Doing Business? 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 114 of the Doing Business 2017 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2017 El Salvador 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for El Salvador Best performer globally El Salvador DB2017 El Salvador DB2016 Guatemala DB2017 Costa Rica DB2017 Honduras DB2017 Colombia DB2017 Panama DB2017 Mexico DB2017 Indicator DB2017 Starting a Business 129 122 61 125 119 148 93 43 1 (New Zealand) (Rank) Starting a Business (DTF 80.70 80.19 89.57 81.57 82.31 77.02 85.74 92.01 99.96 (New Zealand) Score) Procedure – Men 8.0 8.0 6.0 9.0 7.0 11.0 7.8 5.0 1.0 (New Zealand) (number) Time – Men (days) 15.5 16.5 9.0 22.5 19.5 13.0 8.4 6.0 0.5 (New Zealand) Cost – Men (% of 40.7 42.7 7.5 9.1 24.1 41.1 17.8 5.8 0.0 (Slovenia) income per capita) Procedure – Women 8.0 8.0 6.0 9.0 7.0 11.0 7.8 5.0 1.0 (New Zealand) (number) Time – Women (days) 15.5 16.5 9.0 22.5 19.5 13.0 8.4 6.0 0.5 (New Zealand) Cost – Women (% of 40.7 42.7 7.5 9.1 24.1 41.1 17.8 5.8 0.0 (Slovenia) income per capita) Paid-in min. capital (% 2.5 2.6 0.0 0.0 17.2 0.0 0.0 0.0 0.0 (127 Economies*) of income per capita) Dealing with 156 154 34 53 89 84 83 73 1 (New Zealand) Construction Permits Doing Business 2017 El Salvador 12 Best performer globally El Salvador DB2017 El Salvador DB2016 Guatemala DB2017 Costa Rica DB2017 Honduras DB2017 Colombia DB2017 Panama DB2017 Mexico DB2017 Indicator DB2017 (Rank) Dealing with Construction Permits 56.29 56.03 76.54 74.63 69.30 69.57 69.79 71.31 87.40 (New Zealand) (DTF Score) Procedures (number) 24.0 24.0 10.0 15.0 11.0 15.0 13.0 16.0 7.0 (4 Economies*) Time (days) 111.0 111.0 73.0 118.0 158.0 89.0 86.4 98.0 28.0 (Korea, Rep.) Cost (% of warehouse 0.1 (Trinidad and 4.2 4.4 6.7 1.7 6.8 6.0 9.8 2.0 value) Tobago) Building quality control 7.0 7.0 11.0 11.0 11.0 10.0 11.7 9.0 15.0 (Luxembourg*) index (0-15) Getting Electricity 109 106 74 27 19 144 98 23 1 (Korea, Rep.) (Rank) Getting Electricity (DTF 63.75 63.68 73.73 85.04 88.95 53.66 68.32 86.67 99.88 (Korea, Rep.) Score) Procedures (number) 8.0 8.0 5.0 5.0 4.0 7.0 6.8 5.0 3.0 (15 Economies*) Time (days) 59.0 59.0 109.0 45.0 39.0 39.0 100.4 35.0 18.0 (Korea, Rep.*) Cost (% of income per 513.0 536.1 581.4 182.3 477.6 775.1 336.7 8.9 0.0 (Japan) capita) Reliability of supply and transparency of tariff 5.0 5.0 6.0 7.0 7.0 0.0 6.2 7.0 8.0 (26 Economies*) index (0-8) Registering Property 71 70 53 52 74 85 101 84 1 (New Zealand) (Rank) Registering Property 67.09 67.13 73.29 73.39 66.47 64.26 61.05 65.17 94.46 (New Zealand) (DTF Score) Procedures (number) 5.0 5.0 6.0 5.0 6.0 6.0 7.7 7.0 1.0 (4 Economies*) Doing Business 2017 El Salvador 13 Best performer globally El Salvador DB2017 El Salvador DB2016 Guatemala DB2017 Costa Rica DB2017 Honduras DB2017 Colombia DB2017 Panama DB2017 Mexico DB2017 Indicator DB2017 Time (days) 31.0 31.0 16.0 19.0 24.0 22.0 42.1 22.5 1.0 (3 Economies*) Cost (% of property 3.8 3.8 2.0 3.4 3.7 5.7 5.2 2.4 0.0 (Saudi Arabia) value) Quality of the land administration index (0- 12.5 12.5 16.5 17.5 13.0 14.0 16.3 11.0 29.0 (Singapore) 30) Getting Credit (Rank) 44 14 2 7 16 7 5 20 1 (New Zealand) Getting Credit (DTF 65.00 80.00 95.00 85.00 80.00 85.00 90.00 75.00 100.00 (New Zealand) Score) Strength of legal rights 9.0 9.0 12.0 10.0 9.0 9.0 10.0 7.0 12.0 (3 Economies*) index (0-12) Depth of credit 4.0 7.0 7.0 7.0 7.0 8.0 8.0 8.0 8.0 (30 Economies*) information index (0-8) Credit registry coverage 28.7 27.6 0.0 30.5 17.7 22.8 0.0 0.0 100.0 (3 Economies*) (% of adults) Credit bureau coverage 3.0 34.4 92.1 100.0 7.9 60.5 100.0 58.1 100.0 (23 Economies*) (% of adults) Protecting Minority 158 157 13 165 173 132 53 70 1 (New Zealand*) Investors (Rank) Protecting Minority 38.33 38.33 73.33 35.00 33.33 43.33 60.00 56.67 83.33 (New Zealand*) Investors (DTF Score) Strength of minority investor protection 3.8 3.8 7.3 3.5 3.3 4.3 6.0 5.7 8.3 (New Zealand) index (0-10) Extent of conflict of interest regulation 3.3 3.3 8.0 3.3 3.3 5.7 6.0 5.3 9.3 (New Zealand) index (0-10) Extent of shareholder 4.3 4.3 6.7 3.7 3.3 3.0 6.0 6.0 8.3 (Norway) governance index (0- Doing Business 2017 El Salvador 14 Best performer globally El Salvador DB2017 El Salvador DB2016 Guatemala DB2017 Costa Rica DB2017 Honduras DB2017 Colombia DB2017 Panama DB2017 Mexico DB2017 Indicator DB2017 10) 1 (United Arab Paying Taxes (Rank) 166 168 139 62 93 152 114 170 Emirates) Paying Taxes (DTF 99.44 (United Arab 49.51 47.04 58.91 78.98 71.55 54.97 65.81 48.09 Score) Emirates) Payments (number per 3.0 (Hong Kong SAR, 41.0 41.0 12.0 10.0 8.0 48.0 6.0 52.0 year) China*) Time (hours per year) 248.0 312.0 239.0 151.0 256.0 224.0 286.0 417.0 55.0 (Luxembourg) Total tax rate (% of 38.8 38.8 69.8 58.3 35.2 44.4 52.0 37.2 26.1 (32 Economies*) profit) Postfiling index (0-100) 10.1 47.5 91.1 39.3 48.1 46.6 98.5 (Estonia) Trading across Borders 44 44 121 71 77 109 61 53 1 (10 Economies*) (Rank) Trading across Borders 100.00 (10 88.49 88.49 62.83 79.32 75.31 65.85 82.09 85.47 (DTF Score) Economies*) Time to export: Border 38 38 112 20 36 88 20 24 0 (18 Economies*) compliance (hours) Cost to export: Border 128 128 545 375 310 601 400 270 0 (18 Economies*) compliance (USD) Time to export: Documentary 9 9 60 24 48 48 8 6 1 (25 Economies*) compliance (hours) Cost to export: Documentary 50 50 90 80 105 80 60 60 0 (19 Economies*) compliance (USD) Time to import: Border 40 40 112 80 72 96 44 24 0 (25 Economies*) compliance (hours) Doing Business 2017 El Salvador 15 Best performer globally El Salvador DB2017 El Salvador DB2016 Guatemala DB2017 Costa Rica DB2017 Honduras DB2017 Colombia DB2017 Panama DB2017 Mexico DB2017 Indicator DB2017 Cost to import: Border 128 128 545 420 405 483 450 490 0 (28 Economies*) compliance (USD) Time to import: Documentary 13 13 64 26 32 72 18 6 1 (29 Economies*) compliance (hours) Cost to import: Documentary 67 67 50 75 140 70 100 50 0 (30 Economies*) compliance (USD) Enforcing Contracts 104 102 174 125 173 151 40 145 1 (Korea, Rep.) (Rank) Enforcing Contracts 55.20 55.20 34.29 52.41 34.55 45.54 67.01 48.10 84.15 (Korea, Rep.) (DTF Score) Time (days) 786.0 786.0 1288.0 852.0 1402.0 920.0 340.7 686.0 164.0 (Singapore) Cost (% of claim) 19.2 19.2 45.8 24.3 26.5 35.2 33.0 38.0 9.0 (Iceland) Quality of judicial 7.5 7.5 9.0 8.0 6.0 7.5 10.1 6.0 15.5 (Australia) processes index (0-18) Resolving Insolvency 80 78 33 107 149 139 30 133 1 (Finland) (Rank) Resolving Insolvency 45.83 45.90 71.74 39.62 27.52 31.66 73.11 33.36 93.89 (Finland) (DTF Score) Recovery rate (cents on 32.9 33.0 69.4 27.2 27.9 18.2 69.1 27.2 92.9 (Norway) the dollar) Time (years) 3.5 3.5 1.7 3.0 3.0 3.8 1.8 2.5 0.4 (22 Economies*) Cost (% of estate) 12.0 12.0 8.5 14.5 14.5 14.5 18.0 25.0 1.0 (22 Economies*) Strength of insolvency 9.0 9.0 11.0 8.0 4.0 7.0 11.5 6.0 15.0 (6 Economies*) framework index (0-16) Source: Doing Business database. Note: DB2016 rankings shown are not last year’s published rankings but comparable rankings for DB2016 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest Doing Business 2017 El Salvador 16 time recorded among all economies in the DB2017 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. 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” 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. * 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). Doing Business 2017 El Salvador 17 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Obtaining approval from spouse to start a generating more revenue for the government. business, to leave the home to register the company or open a bank account. What do the indicators cover? Obtaining any gender specific document for Doing Business records all procedures officially company registration and operation, national required, or commonly done in practice, for an identification card or opening a bank entrepreneur to start up and formally operate an account. industrial or commercial business, as well as the time and cost to complete these procedures and the paid- Time required to complete each procedure in minimum capital requirement. These procedures (calendar days) include obtaining all necessary licenses and permits Does not include time spent gathering and completing any required notifications, information verifications or inscriptions for the company and employees with relevant authorities. The ranking of Each procedure starts on a separate day (2 economies on the ease of starting a business is procedures cannot start on the same day). determined by sorting their distance to frontier Procedures that can be fully completed scores for starting a business. These scores are the online are recorded as ½ day. simple average of the distance to frontier scores for Procedure completed once final document is each of the component indicators. received To make the data comparable across economies, No prior contact with officials several assumptions about the business and the procedures are used. It is assumed that any required Cost required to complete each procedure information is readily available and that the (% of income per capita) entrepreneur will pay no bribes. Assumptions about Official costs only, no bribes the business: No professional fees unless services required  Is a limited liability company (or its legal by law or commonly used in practice equivalent). If there is more than one type of limited liability company in the economy, the Paid-in minimum capital (% of income limited liability form most common among per capita) domestic firms is chosen. Information on the Deposited in a bank or with a notary before most common form is obtained from registration (or within 3 months) incorporation lawyers or the statistical office.  Operates in the economy’s largest business city.  The size of the entire office space is For 11 economies the data are also collected for the second largest business city. approximately 929 square meters (10,000 square feet). Doing Business 2017 El Salvador 18  Is 100% domestically owned and has five owners,  Does not qualify for investment incentives or none of whom is a legal entity. any special benefits.  Has start-up capital of 10 times income per  Has at least 10 and up to 50 employees one capita month after the commencement of operations, all of them domestic nationals.  Performs general industrial or commercial activities, such as the production or sale to the  Has a turnover of at least 100 times income per public of products or services. The business does capita. not perform foreign trade activities and does not  Has a company deed 10 pages long handle products subject to a special tax regime, for example, liquor or tobacco. It is not using The owners: heavily polluting production processes.  Have reached the legal age of majority and are  Leases the commercial plant or offices and is not capable of making decisions as an adult. If a proprietor of real estate. there is no legal age of majority, they are assumed to be 30 years old.  The amount of the annual lease for the office space is equivalent to 1 times income per capita.  Are sane, competent, in good health and have no criminal record.  Are married, the marriage is monogamous and registered with the authorities.  Where the answer differs according to the legal system applicable to the woman or man in question (as may be the case in economies where there is legal plurality), the answer used will be the one that applies to the majority of the population. Doing Business 2017 El Salvador 19 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in El Salvador? 2.1) is legally mandatory for both men and women. Most According to data collected by Doing Business, starting a indicator sets refer to a case scenario in the largest business there requires 8.0 procedures , takes 15.5 days, business city of an economy, except for 11 economies for costs 40.7% of income per capita for men, and requires which the data are a population-weighted average of the 8.0 procedures , takes 15.5 days, costs 40.7% of income 2 largest business cities. See the chapter on distance to per capita for women. A requirement of paid-in frontier and ease of doing business ranking at the end of minimum capital of 2.5% of income per capita (figure this profile for more details. Figure 2.1 What it takes to start a business in El Salvador Paid-in minimum capital (% of income per capita): 2.5 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Procedures in light blue for married women only. Doing Business 2017 El Salvador 20 STARTING A BUSINESS Globally, El Salvador stands at 129 in the ranking of 190 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in El The rankings for comparator economies and the regional Salvador to start a business. Figure 2.2 How El Salvador and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2017 El Salvador 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for El STANDARDIZED COMPANY Salvador is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Sociedades Anónimas de Capital firm. These are identified by Doing Business through Variable collaboration with relevant local professionals and the study of laws, regulations and publicly available Paid-in minimum capital requirement: USD 100 information on business entry in that economy. City: San Salvador Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in El Salvador Time to No. Procedure Cost to complete complete Deposit the legally required initial capital in a Salvadoran bank and obtain deposit evidence or a certified check At least 5% of the initial start-up capital has to be shown and evidenced to a Salvadoran public notary. This capital has to be shown through a certified check payable to the name of the company, for the amount for which the company will initiate its operations. The check will be 1 day no charge 1 deposited in the company’s new account once the deed is duly registered at the Registry of Commerce (that is, the company has been established). Agency: Bank Check the uniqueness of the company name Entrepreneurs can check the uniqueness of the company name at the Registry of Commerce online (http://www.e.cnr.gob.sv/portal/). Less than one day 2 no charge (online procedure) Agency: Registry of Commerce Notarize the articles of association To establish a corporation, Article 22 and Article 101 of the Code of Commerce require fulfillment of the following requirements: Between USD 500 3 - Name and personal data of company shareholders (minimum of two 1 day and USD 1,000 shareholders) - Commercial name - Term, domicile, and company social purpose - Capital stock Doing Business 2017 El Salvador 22 Time to No. Procedure Cost to complete complete - External and fiscal auditors. The cost to notarize the articles of incorporation ranges between USD 500 to USD 1,000. Agency: Notary Register the company and obtain the publication and legalization of books The entrepreneur can also register at the Commercial registry with the Ministry of Labor, the VAT Authority, and the Salvadorian Institute of Social Security (“trámite integral”). The Registry of Commerce Act establishes fees for the registration of companies. Article 63 establishes different fees for the company's business license according to the company's initial capital, from USD 2,000 to USD 57,150 the fee is USD 91.43; from USD 57,151 to USD 114,286 the fee is USD 137.14; from USD 114,287 to USD 228,572 the fee is USD 228.57; and, if the company's initial capital exceeds USD 228,572, the company has to pay USD 11.43 for every USD 100,000 or fraction of it, but cannot exceed USD 11,428.57. The registration fees are the following: USD 0.57 for every USD 114.28 + see procedure 4 3 days USD 2.3 (for copies) + USD 17.14 (Balance Deposit) + USD 137.14 details (business license) + USD 0.1 per page (legalization of books, assuming 3 books, 100 pages per book) + USD 34.29 (local registration). In addition, every founder partner must filled form F-210 (USD 1.25) to obtain a Salvadoran Tax Card (Numero de Identificacion Tributaria/Tarjeta de NIT). This form can be filled at the time of registration or after registration before the Ministry of Treasury (Decreto Legislativo 227 del 12 de Diciembre de 2009 Ley del NIT). The pre-registration can be done online (http://miempresa.gob.sv). However, most entrepreneurs still complete this procedure in-person and it is required to visit the registry to obtain the final documents. Agency: National Registration Centre Legalize company books by an auditor The external auditor of the company authorizes the accounting procedures and the internal books, which include the general shareholders meeting book, the board of directors' book, the registry of 10 days USD 450 5 shareholders book, and the increase or decrease of capital stock book. Article 40 of the Code of Commerce, states that the books can be legalized either by the external auditor or by the Register of Commerce. Agency: Auditor Doing Business 2017 El Salvador 23 Time to No. Procedure Cost to complete complete Register employees with either of the two Pension Fund Administrators All new businesses must register employees with any of the Pension Fund Administrators (Administradora de Fondos de Pensiones).This obligation is procured before any of the two Pension Fund Administrators in El Salvador (AFP CRECER or AFP CONFIA). 3 days The following documents must be presented: (simultaneous with *6 a) a copy of the Salvadoran Identification Card of Passport of the Legal no charge previous Representative procedure) b) a copy of the VAT card of the company c) a copy of the Incorporation Document d) a filing of the application Agency: Either Pension Fund Administrator (Administradora de Fondos de Pensiones) Register the company for taxes Upon registering at the Registry of Commerce, each founder must pay a tax (Vialidad A) of about USD 10 each. The following requirements apply: i) Filing of an application ii) Fling of a notary certified copy of the registered initial balance sheet of the company 1 day iii) Filing of a notary certified copy of the registered incorporation (simultaneous with *7 document of the company USD 50 previous iv)Filing a notary certified copy of the Identification Document of the procedure) Legal Representative of the company v)Payment of fees vi) A notary certified copy of he VAT card of the company coup be requested Agency: Mayor's Office Make a company seal 2 days Because no authorization is required, it is customary for companies to (simultaneous with *8 make a seal. A company seal can be made in 1 or 2 days at a cost of USD 15 previous about USD 15–USD 30, depending on the size and design selected by procedure) the client. Doing Business 2017 El Salvador 24 Time to No. Procedure Cost to complete complete Agency: Sealmakers * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Procedures in light blue for married women only. Doing Business 2017 El Salvador 25 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 many builders opt out. They may pay bribes to pass (number) 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 What do the indicators cover? receiving all necessary inspections Doing Business records all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, the building quality completion control index evaluates the quality of building Time required to complete each procedure regulations, the strength of quality control and safety (calendar days) mechanisms, liability and insurance regimes, and professional certification requirements. Does not include time spent gathering information The ranking of economies on the ease of dealing with construction permits is determined by sorting their Each procedure starts on a separate day— though procedures that can be fully distance to frontier scores for dealing with completed online are an exception to this rule construction permits. These scores are the simple average of the distance to frontier scores for each of Procedure considered completed once final the component indicators. document is received To make the data comparable across economies, No prior contact with officials several assumptions about the construction Cost required to complete each procedure (% company, the warehouse project and the utility of warehouse value) connections are used. Official costs only, no bribes Assumptions about the construction company Building quality control index (0-15) The construction company (BuildCo): Sum of the scores of six component indices:  Is a limited liability company (or its legal Quality of building regulations (0-2) equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business city. For 11 economies the data are also collected for Quality control during construction (0-3) the second largest business city. Quality control after construction (0-3)  Is 100% domestically and privately owned. Liability and insurance regimes (0-2)  Has five owners, none of whom is a legal entity. Professional certifications (0-4)  Is fully licensed and insured to carry out construction projects, such as building warehouses.  Has 60 builders and other employees, all of them nationals with the technical expertise and Doing Business 2017 El Salvador 26 professional experience necessary to obtain  Is valued at 50 times income per capita. construction permits and approvals.  Will be a new construction (there was no previous  Has a licensed architect and a licensed engineer, construction on the land), with no trees, natural both registered with the local association of water sources, natural reserves or historical architects or engineers. BuildCo is not assumed monuments of any kind on the plot. to have any other employees who are technical  Will have complete architectural and technical plans or licensed experts, such as geological or prepared by a licensed architect. If preparation of topographical experts. the plans requires such steps as obtaining further  Has paid all taxes and taken out all necessary documentation or getting prior approvals from insurance applicable to its general business external agencies, these are counted as procedures. activity (for example, accidental insurance for  Will include all technical equipment required to be construction workers and third-person liability). fully operational.  Owns the land on which the warehouse will be  Will take 30 weeks to construct (excluding all delays built and will sell the warehouse upon its due to administrative and regulatory requirements). completion. Assumptions about the warehouse Assumptions about the utility connections The warehouse: The water and sewerage connections:  Will be used for general storage activities, such as storage of books or stationery. The warehouse  Will be 150 meters (492 feet) from the existing will not be used for any goods requiring special water source and sewer tap. If there is no water conditions, such as food, chemicals or delivery infrastructure in the economy, a borehole pharmaceuticals. will be dug. If there is no sewerage infrastructure, a septic tank in the smallest size available will be  Will have two stories, both above ground, with a installed or built. total constructed area of approximately 1,300.6 square meters (14,000 square feet). Each floor  Will not require water for fire protection reasons; a will be 3 meters (9 feet, 10 inches) high. fire extinguishing system (dry system) will be used instead. If a wet fire protection system is required  Will have road access and be located in the by law, it is assumed that the water demand periurban area of the economy’s largest business specified below also covers the water needed for city (that is, on the fringes of the city but still fire protection. within its official limits). For 11 economies the data are also collected for the second largest  Will have an average water use of 662 liters (175 business city. gallons) a day and an average wastewater flow of 568 liters (150 gallons) a day. Will have a peak  Will not be located in a special economic or water use of 1,325 liters (350 gallons) a day and a industrial zone. peak wastewater flow of 1,136 liters (300 gallons) a  Will be located on a land plot of approximately day. 929 square meters (10,000 square feet) that is  Will have a constant level of water demand and 100% owned by BuildCo and is accurately wastewater flow throughout the year. registered in the cadastre and land registry.  Will be 1 inch in diameter for the water connection and 4 inches in diameter for the sewerage connection. Doing Business 2017 El Salvador 27 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build business city of an economy, except for 11 economies for a warehouse in El Salvador? According to data collected which the data are a population-weighted average of the by Doing Business, dealing with construction permits 2 largest business cities. See the chapter on distance to there requires 24.0 procedures, takes 111.0 days and frontier and ease of doing business ranking at the end of costs 4.2% of the warehouse value (figure 3.1). Most this profile for more details. indicator sets refer to a case scenario in the largest Figure 3.1 What it takes to comply with formalities to build a warehouse in El Salvador Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. . Doing Business 2017 El Salvador 28 DEALING WITH CONSTRUCTION PERMITS Globally, El Salvador stands at 156 in the ranking of 190 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in El Salvador to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How El Salvador and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2017 El Salvador 29 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for El Salvador are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction USD 201,757 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : San Salvador service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in El Salvador Time to No. Procedure Cost to complete complete Pay for construction line, site qualification, and zoning revision at Commercial Bank Since 2010, the fee is 0.20 per sq. m for the Linea de Construccion y Calificacion de Lugar, 0.30 per sq. m for Revision Vial y Zonificacion and 0.34 per sq. m for the second level or basement. If the fast-track option is chosen the procedure cost is 1 day USD 1,243 1 doubled. Agency: Commercial Bank Obtain construction line and site qualification To request a construction line, BuildCo must present the deed of ownership and a topographical plan with geodesic coordinates. This is required to ensure that public works (street or highway) will not affect the land. The construction line is the document that defines the alignment of new construction with the Metropolitan Area of San Salvador (AMSS) road network. It describes the right of way, retract area, and transversal section of the road projects to be developed, or widening to be undertaken in the San Salvador metropolitan area. The document is valid for 11 days no charge 2 5 years. For San Salvador, this document should be requested at the Office of Planning of Metropolitan Area of San Salvador (OPAMSS). The site or land qualification defines whether the proposed construction is allowed on that land for the use projected. The compatibility of land use is based on reference to the soil matrix, as defined in the General Plan of Zoning in force for AMSS, which indicates the requirements for project development. This document is valid for 12 months and should be requested from OPAMSS, the Municipal Authority, or the Vice-Ministry of Doing Business 2017 El Salvador 30 Time to No. Procedure Cost to complete complete Housing. Time and cost have been calculated on the assumption that a special service was used so that documents can be obtained in half the time if a premium (double the cost) is paid. The silence- is-consent rule applies to this procedure. Approvals are granted automatically if the applicant does not hear from OPAMSS in 30 days. Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador) Obtain approval of environmental form (formulario ambiental) According to Acuerdo Ejecutive No. 23 (Environmental Law on the Classification of Activities, Works and Projects) published in the Diario Oficial No 162, Tomo No 380 from September 1st 2008, the warehouse in the Doing Business case study would fall under Category 'A' which is exempt from an Environmental Impact Study. In this case, all that is required is for the architect or engineer to fill out an Environmental Form and submit it to 21 days no charge *3 MARN (Ministry of Environment). The Form outlines the project and its potential environmental impact. MARN will then decide if the work can be considered exempt from the full impact study. In the Doing Business case study, the project would most likely be exempt from the full impact study. Agency: Ministry of Environment Obtain zoning or road construction revision Independently from the environmental revision, BuildCo. can start having the the zoning or road construction revision should be requested from (Office of Planning of Metropolitan Area of San Salvador, OPAMSS), the Municipal Authority, or the Vice- Ministry of Housing. The document verifies the compliance of the planned construction with the requirements established for the use of soil, as established under the General Plan of Zoning *4 for the Metropolitan Area of San Salvador and its standing 21 days no charge bylaws. Compliance with this procedure includes verification of the internal road network, dwelling spaces, circulation of pedestrians, recreational areas, and the provision of equipment. Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador) Doing Business 2017 El Salvador 31 Time to No. Procedure Cost to complete complete Request and obtain analysis of the feasibility of connecting to potable water and sewage services. BuildCo requests for the feasibility of potable water and sewage services study with the national water and sewage utility (ANDA). The utility defines the place for the sewage discharge and where are the locations of the water mains. In order to obtain the 21 days no charge *5 feasibility study, BuildCo should receive an on-site inspection by the national water and sewage utility (ANDA). Agency: ANDA Request and obtain an analysis of the feasibility of connecting to electricity BuildCo applies for the point of delivery of electric power and indicates the amount requested. This request should be placed with the local private power company (in this case, AES El *6 Salvador). In order to obtain the feasibility study, BuildCo should 7 days no charge receive an on-site inspection by a local private power company (AES El Salvador). Agency: AES El Salvador Request and obtain an analysis of the feasibility of having rainwater drainage Once BuildCo has obtained the location of the discharge location for the sewage from the water company (ANDA), BuildCo may proceed with the request of the feasibility of rainwater drainage study, which is performed by the OPAMSS. The location for the discharge of the rainwater will be determined by the Municipality, after the site-inspection has been done by the Office of Planning of Metropolitan Area of San Salvador. 14 days USD 372 7 As of 2010, the feasibility analysis fee is LCU 0.20 per sq. m of land. A fast-track option is available and if chosen, the cost is doubled. Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador) Pay for water and sewage feasibility studies After the request for the feasibility study for water and sewage, payment of the fees is made through a commercial bank. 1 day USD 92 *8 Agency: Commercial bank Doing Business 2017 El Salvador 32 Time to No. Procedure Cost to complete complete Receive inspection for rain water drainage by the Office of Planning of Metropolitan Area of San Salvador Upon payment for the feasibility studies, BuildCo. receives an inspection regarding the construction guidelines compliance, from the Office of Planning of Metropolitan Area of San 1 day no charge *9 Salvador, at no charge. Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador) Receive inspection by the national water and sewage utility (ANDA) BuildCo. can also receive at the same time, the inspection from the utility company (ANDA), in order to assess the feasibility of 1 day no charge * 10 the connection. Agency: ANDA Receive inspection by a local private power company (AES El Salvador) BuildCo. also can receive at the same time another inspection from the power supply company, in order to assess a feasibility 1 day no charge * 11 study. Agency: AES El Salvador Pay construction permit application fee at Commercial Bank According to Diario Oficial No. 176, Tomo No. 388 of 22 September 2010, the fee for this procedure is USD 1.00 per sq. m., based on the area of the construction. If the fast-track option 12 is chosen the procedure cost is doubled. 1 day USD 2,601 Agency: Commercial Bank Pay for construction permit application fee and obtain construction permit The following documents are needed to obtain the construction permit, which constitutes the final approval of the project: soil study, architectonic designs, structural designs, electric system 13 designs, hydraulic systems design, mechanical systems designs, 21 days USD 1,009 fireproof system, calculations report, and technical specifications. The construction permit is granted by the OPAMSS in San Salvador or by the Municipal Authority or the Vice-Ministry of Housing. The different approvals mentioned are coordinated by the OPAMSS itself and do not require BuildCo’s follow up. Doing Business 2017 El Salvador 33 Time to No. Procedure Cost to complete complete Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador) Receive first inspection during construction The OPAMSS must be notified of the start of the construction and will then inspect the site at least once per month. The notice must be given at least 15 days before the start of construction. An inspection takes 2 -- 3 hours and does not interrupt construction work. According to "Reglamento a la Ley de Desarrollo y Ordenamiento Territorial del Area Metropolitana de San Salvador y de los Municipios Aledaños con sus Anexo" (article VIII.27), the OPAMSS with the collaboration of the appropriate institutions and municipalities from AMSS, has the right and obligation to inspect all the works of division (of lands into plots) and / or 14 construction by qualified staff duly authorized to enforce this 1 day no charge regulation. The builders or owners of the work will not be able to prevent the inspections and must provide access to the documentation indicated in this Regulation. Inspectors from OPAMSS must visit at least once a month, unless the OPAMSS suggests having more frequent inspections. Inspectors must periodically submit reports of their visits and will be jointly responsible with the Director of the construction works, if they do not report the corresponding anomalies. The inspection is performed at no cost. Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador), Municipal Authority or Vice-Ministry of Housing is involved in this procedure Receive inspection during construction - II BuildCo. receives the second inspection during the construction phase. 15 1 day no charge Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador), Municipal Authority or Vice-Ministry of Housing is involved in this procedure Receive inspection during construction - III BuildCo. receives the third inspection during the construction phase. 16 1 day no charge Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador), Municipal Authority or Vice-Ministry of Housing is involved in this procedure Doing Business 2017 El Salvador 34 Time to No. Procedure Cost to complete complete Receive inspection during construction - IV BuildCo. receives the forth inspection during the construction phase. 17 1 day no charge Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador), Municipal Authority or Vice-Ministry of Housing is involved in this procedure Receive inspection during construction - V BuildCo. receives the fifth inspection during the construction phase. 18 1 day no charge Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador), Municipal Authority or Vice-Ministry of Housing is involved in this procedure Request and receive inspection from Fire Department Once all the inspection were conducted, BuildCo. can request the Fire Department Inspection. From the time of the request, it takes about 4 -- 5 working days until the fire inspectors visit the 4 days no charge 19 site. Agency: Fire Department Request "recepcion de obras" and obtain final inspection The project manager at BuildCo needs to fill out a form and request the "recepcion de obra" at OPAMSS. Once the construction is completed and the final inspection is done jointly by OPAMSS and the corresponding Municipality, BuildCo will obtain the "Recepción de obras". This is the official resolution BuildCo is given that proofs that the construction has been done in accordance to plans. 20 According to Diario Oficial No. 17, Tomo No. 388 of September 1 day USD 2,601 2010, the fee is USD 1 per sq. m. (or USD 2 per sq. m for the fast- track option) based on the construction area. Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador), Municipal Authority or Vice-Ministry of Housing is involved in this procedure Obtain "recepción de obras" and request occupancy permit 21 The "recepcion de obras" is granted once the final inspection by 1 day no charge OPAMSS and the Municipal Authority is approved,. This "recepcion de obras" will be necessary for BuildCo to obtain the occupancy permit ("permiso de habitar") from the Doing Business 2017 El Salvador 35 Time to No. Procedure Cost to complete complete Municipality Agency. The cost associated to the occupancy permit, assuming that BuildCo constructs the warehouse in Apopa is of USD 221.10. The cost per square meter to obtain this permit in this Municipality is of USD 0.17 per square meter. Agency: OPAMSS (Office of Planning of Metropolitan Area of San Salvador), Municipal Authority or Vice-Ministry of Housing. Obtain occupancy permit Upon payment, BuildCo. receives the occupancy permit. The cost associated to the occupancy permit, assuming that BuildCo constructs the warehouse in Apopa is of USD 221.10. The cost 22 per square meter to obtain this permit in this Municipality is of 8 days USD 221 USD 0.17 per square meter. Agency: Municipal Authority Obtain water and sewage connection All utilities can be requested only after the occupancy permit is granted. 30 days USD 338 23 Agency: ANDA Arrange for payments at a commercial bank for utility connections It is assumed that BuildCo arranges for as many concurrent 24 payments as possible to save time. 1 day no charge Agency: Commercial Bank * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2017 El Salvador 36 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Table 3.3 Summary of quality control and safety mechanisms in El Salvador Answer Score Building quality control index (0-15) 7.0 Which third-party entities are required by law to verify that the building plans are in compliance with existing building Licensed engineer. regulations? (0-1) Quality of building regulations index (0-2) 2.0 How accessible are building laws and regulations in your Available online; Free of 1.0 economy? (0-1) charge. List of required Which requirements for obtaining a building permit are clearly documents; Fees to be specified in the building regulations or on any accessible website, 1.0 paid; Required brochure or pamphlet? (0-1) preapprovals. Quality control before construction index (0-1) 1.0 Which third-party entities are required by law to verify that the building plans are in compliance with existing building Licensed engineer. 1.0 regulations? (0-1) Quality control during construction index (0-3) 0.0 What types of inspections (if any) are required by law to be Unscheduled 0.0 carried out during construction? (0-2) inspections. Mandatory inspections Do legally mandated inspections occur in practice during are not always done in 0.0 construction? (0-1) practice during construction. Quality control after construction index (0-3) 3.0 Yes, final inspection is done by government agency; Yes, in-house Is there a final inspection required by law to verify that the engineer submits building was built in accordance with the approved plans and 2.0 report for final regulations? (0-2) inspection; Final inspection is not required by law. Final inspection always Do legally mandated final inspections occur in practice? (0-1) 1.0 occurs in practice. Doing Business 2017 El Salvador 37 Answer Score Liability and insurance regimes index (0-2) 0.0 Which parties (if any) are held liable by law for structural flaws or problems in the building once it is in use (Latent Defect Liability . 0.0 or Decennial Liability)? (0-1) Which parties (if any) are required by law to obtain an insurance No party is required by policy to cover possible structural flaws or problems in the law to obtain insurance 0.0 building once it is in use (Latent Defect Liability Insurance or . Decennial Insurance)? (0-1) Professional certifications index (0-4) 1.0 University degree in What are the qualification requirements for the professional architecture or responsible for verifying that the architectural plans or drawings engineering; Being a 1.0 are in compliance with existing building regulations? (0-2) registered architect or engineer. University degree in engineering, What are the qualification requirements for the professional who construction or 0.0 supervises the construction on the ground? (0-2) construction management. Source: Doing Business database. Doing Business 2017 El Salvador 38 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity connection a customer is always to gain access by obtaining a (number) 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 warehouse, Obtaining external installation works and as well as the time and cost to complete them. These possibly purchasing material for these works procedures include applications and contracts with Concluding any necessary supply contract and electricity utilities, clearances from other agencies obtaining final supply and the external and final connection works. In addition, Doing Business also measures the reliability Time required to complete each procedure of supply and transparency of tariffs index (included (calendar days) in the aggregate distance to frontier score and Is at least 1 calendar day ranking on the ease of doing business) and the price Each procedure starts on a separate day of electricity (omitted from these aggregate measures). The ranking of economies on the ease of Does not include time spent gathering getting electricity is determined by sorting their information distance to frontier scores for getting electricity. Reflects the time spent in practice, with little These scores are the simple average of the distance follow-up and no prior contact with officials to frontier scores for each of the component Cost required to complete each procedure (% indicators. To make the data comparable across of income per capita) economies, several assumptions are used. Official costs only, no bribes Assumptions about the warehouse Excludes value added tax The warehouse: The reliability of supply and transparency of  Is owned by a local entrepreneur. tariffs index  Is located in the economy’s largest business city. Sum of the scores of six component indices: For 11 economies the data are also collected for Duration and frequency of outages 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 electricity connection is not eligible for a special investment Regulatory monitoring of utilities’ performance promotion regime (offering special subsidization Financial deterrents aimed at limiting outages or faster service, for example). Transparency and accessibility of tariffs  Is located in an area with no physical constraints. Price of electricity (cents per kilowatt-hour)* For example, the property is not near a railway. Price based on monthly bill for commercial  Is a new construction and is being connected to warehouse in case study electricity for the first time. *Price of electricity is not included in the calculation of distance to frontier nor ease of doing business ranking Doing Business 2017 El Salvador 39 The warehouse (continued): Assumptions about the monthly consumption  Has two stories, both above ground, with a total  It is assumed that the warehouse operates 30 days surface area of approximately 1,300.6 square a month from 9:00 a.m. to 5:00 p.m. (8 hours a day), meters (14,000 square feet). The plot of land on with equipment utilized at 80% of capacity on which it is built is 929 square meters (10,000 average and that there are no electricity cuts square feet). (assumed for simplicity reasons).  Is used for storage of goods.  The monthly energy consumption is 26,880 kilowatt-hours (kWh); hourly consumption is 112 Assumptions about the electricity connection kWh. The electricity connection:  If multiple electricity suppliers exist, the warehouse  Is a permanent one. is served by the cheapest supplier.  Is a three-phase, four-wire Y connection with a  Tariffs effective in March of the current year are subscribed capacity of 140-kilo-volt-ampere used for calculation of the price of electricity for the (kVA) with a power factor of 1, when 1 kVA = 1 warehouse. Although March has 31 days, for kilowatt (kW). calculation purposes only 30 days are used.  Has a length of 150 meters. The connection is to either the low- or medium-voltage distribution network and is 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.  Does not require work to install the internal wiring of the warehouse. This has already been completed up to and including the customer’s service panel or switchboard and the meter base. Doing Business 2017 El Salvador 40 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in El Salvador? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 8.0 procedures, which the data are a population-weighted average of the takes 59.0 days and costs 513.0% of income per capita 2 largest business cities. See the chapter on distance to (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in El Salvador Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 El Salvador 41 GETTING ELECTRICITY Globally, El Salvador stands at 109 in the ranking of 190 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in El Salvador to The rankings for comparator economies and the regional connect a warehouse to electricity. Figure 4.2 How El Salvador and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2017 El Salvador 42 GETTING ELECTRICITY What are the details? The indicators reported here for El Salvador are based on OBTAINING AN ELECTRICITY CONNECTION* a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— CAESS S.A. - AES El Name of utility: identified by Doing Business. Data are collected from the Salvador distribution utility, then completed and verified by electricity regulatory agencies and independent Price of electricity professionals such as electrical engineers, electrical (US cents per kWh): 14.0 contractors and construction companies. The electricity distribution utility surveyed is the one serving the area City: San Salvador (or areas) in which warehouses are located. If there is a *Price is calculated as a monthly consumption of 26,880 kWh choice of distribution utilities, the one serving the largest for business customers, based on a standardized case study number of customers is selected. adopted by the getting electricity methodology. Doing Business measures the price of electricity but does not include these The procedures are those that apply to a warehouse and data when calculating the distance to frontier score for getting electricity connection matching the standard electricity or the ranking on the ease of getting electricity. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in El Salvador Time to No. Procedure Cost to complete complete Hire authorized electrician to request electricity service and certify internal installation The service request must be submitted and signed by a certified electrician the Superintendence of Electricity and Telecommunications (SIGET). The customer therefore has to first hire such an electrician. 3 calendar days USD 450 1 Agency: Electricista certificado por SIGET (Superintendencia de Electricidad y Telecomunicaciones) Request feasibility study from AES El Salvador and await outcome The customer’s electrician submits the application for a feasibility study. With the application the following information should be submitted: 2 • the load needed (140kVA) and 7 calendar days USD 90.5 • the Certificate of Guarantee of Safety of the Internal Electrical Installations, according to the form established by the distributor. The certificate should have been issued by a licensed Electrical Engineer or a certified electrician (submit also copy of the credentials, i.e. that he is accredited as an electrician with SIGET). Doing Business 2017 El Salvador 43 Time to No. Procedure Cost to complete complete • a sketch of geographical location, indicating complete nomenclature and any other reference point that allows quick access to the site. • Presented with single identity document (Documento Unico de Identidad -DUI), Driving License or Passport. • If the client cannot appear, he or she has to send a letter requesting the connection of her service, attaching a photocopy of her ID, Driving License or Passport. • If the service is to be connected to a private line, it must be built according to form 66-E issued by SIGET. Additionally it must submit authorization letter and photocopy of ID, Driving License or Passport of the owner of line. AES El Salvador will identify the best delivery point for the new connection and send the client a notice authorizing the service. Agency: AES El Salvador Receive site inspection by AES El Salvador for feasibility study An external site inspection is conducted to determine the feasibility of the project. It is recommended that a representative of the applicant be *3 present during the inspection. 7 calendar days USD 0 Agency: AES El Salvador Submit electrical plans and official application and request cost estimate The customer must submit the following documents with the official application: • the feasibility report and point of delivery, • a draft budget, • Certification of Guarantee of the Security of internal installations (by a responsible electrician), 4 • electrical plans, 12 calendar days USD 213.09 • location sketches, etc AES El Salvador will then revise the electrical plans, calculate the budget and send it in writing to the client. Agency: AES El Salvador Doing Business 2017 El Salvador 44 Time to No. Procedure Cost to complete complete Receive site inspection by AES El Salvador for preparing budget Another inspection is performed to determine the cost of the external connection works. The client has to be present. 7 calendar days USD 0 *5 Agency: AES El Salvador Install transformers and cables for external wiring Once the customer has received the cost estimate and agrees with it, the client can start preparing the works that fall into his responsibility. He will install the transformers and poles (if needed) and prepare the cables that the utility will later connect to the meter etc. The time estimate for this procedure includes the wait time to obtain the relevant material. Customers have the choice of paying for this investment themselves and 7 calendar days USD 14,500 6 for getting in return a lower consumption tariff or asking the utility to bear the investment in return for a higher consumption tariff later on. Most costumers with a load of 140kVA prefer the first option of making the initial investment in return for lower consumption tariffs later on. Agency: Sub-contratista Submit plans for the constructed connection for approval 7 10 calendar days USD 102.63 Agency: AES El Salvador Pay for connection, sign supply agreement and await final connection The utility installs the meter, connects it and makes a service test. Before the electricity can start flowing, the external connection works must be 8 inspected. Then the final connection is scheduled and performed, and 19 calendar days USD 5,342.18 the electricity begins to flow. Agency: AES El Salvador * Takes place simultaneously with previous procedure. Source: Doing Business database. Doing Business 2017 El Salvador 45 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in El Salvador Answer Score Reliability of supply and transparency of tariff index (0-8) 5.0 Total duration and frequency of outages per customer a year (0-3) 0.0 System average interruption duration index (SAIDI) 14.73 System average interruption frequency index (SAIFI) 6.08 Mechanisms for monitoring outages (0-1) 1.0 Does the distribution utility use automated tools to monitor outages? Yes Mechanisms for restoring service (0-1) 1.0 Does the distribution utility use automated tools to restore service? Yes Regulatory monitoring (0-1) 1.0 Does a regulator—that is, an entity separate from the utility—monitor Yes the utility’s performance on reliability of supply? Financial deterrents aimed at limiting outages (0-1) 1.0 Does the utility either pay compensation to customers or face fines by Yes the regulator (or both) if outages exceed a certain cap? Communication of tariffs and tariff changes (0-1) 1.0 Are effective tariffs available online? Yes Link to the website, if available online http://www.siget. Doing Business 2017 El Salvador 46 Answer Score gob.sv/index.php /temas/tema- n/documentos/ta rifas/2565- precios-de-la- energia-a- trasladar-a-tarifa- de-las-distintas- empresas- distribuidoras- que-estaran- vigentes-del-15- de-abril-al-14- de-julio-2016 Are customers notified of a change in tariff ahead of the billing cycle? Yes Price of electricity (US cents per kWh) 14.0 Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March. As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of-use tariff is available. Doing Business 2017 El Salvador 47 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 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, Doing Business also measures quality of Does not include time spent gathering the land administration system in each economy. information The ranking of economies on the ease of registering property is determined by sorting their distance to Each procedure starts on a separate day— frontier scores for registering property. These scores though procedures that can be fully completed online are an exception to this rule are the simple average of the distance to frontier scores for each of the component indicators. To Procedure considered completed once final make the data comparable across economies, document is received several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are used. Cost required to complete each procedure (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% domestically and privately owned and perform No value added or capital gains taxes included general commercial activities in the economy’s Quality of land administration index (0-30) largest business city.  Have 50 employees each, all of whom are  Has no mortgages attached, has been under the nationals. same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet)  Has a value of 50 times income per capita. The of land and a 10-year-old, 2-story warehouse of 929 sale price equals the value and entire property square meters (10,000 square feet). The warehouse is will be transferred. in good condition and complies with all safety  Is registered in the land registry or cadastre, or standards, building codes and legal requirements. both, and is free of title disputes. There is no heating system.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2017 El Salvador 48 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in El Most indicator sets refer to a case scenario in the largest Salvador? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 5.0 procedures, takes which the data are a population-weighted average of the 31.0 days and costs 3.8% of the property value (figure 2 largest business cities. See the chapter on distance to 5.1). The score on the quality of land administration frontier and ease of doing business ranking at the end of index is 12.5 this profile for more details. Figure 5.1 What it takes to register property in El Salvador Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 El Salvador 49 REGISTERING PROPERTY Globally, El Salvador stands at 71 in the ranking of 190 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in El Salvador to transfer property. Figure 5.2 How El Salvador and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2017 El Salvador 50 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: USD 201,757 notaries and property registries. These procedures are those that apply to a transaction matching the City: San Salvador standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in El Salvador Time to No. Procedure Cost to complete complete Obtain a Literal Certification (LC) and a Non-Lien Certification (NEC) of the property at the Register of Property Literal These documents are requested by the buyer as due diligence in order Certification: to verify outstanding debts or liabilities of the property. The LC may USD8.86 + Non- already be in the possession of the seller. Both certifications must be Lien Certification 1 obtained by the seller before starting the transaction formally. The Literal 3 days (NEC) USD 8.86 + Certification is not necessary if the seller has the property title. USD 0.35 per page (assuming 5 Agency: Immovable Property and Mortgages Registry (Registro de la Propiedad Raíz e Hipotecas) pages) Preparation and notarization of the sale agreement A notary will prepare and notarize the sale agreement. In El Salvador, only lawyers are notaries. The parties are responsible for gathering all the documentation to be presented to the notary. The documentation shall include: 0.15 – 1.0% of 2 3 days property price (i) Photocopy of the parties ID’s of the Limited Liability Companies (LLC) (notary’s fees) (ii) Photocopy of the Tax Identification Numbers (NIT) of the parties (iii) Photocopy of the corporate documents of the LLC’s (Articles of Incorporation, credentials, documents that can duly establish the legal representation and empowerment of the representatives of the LLC, etc) (iv) Photocopy of the Tax Identification Numbers (NIT) of the LLC’s Doing Business 2017 El Salvador 51 Time to No. Procedure Cost to complete complete (v) Copy of the property title or Literal Certification (LC) (obtained in Procedure 1) (vi) Proof of payments of municipal taxes (vii) Proof that parties are tax solvent with Ministry of Finance Agency: Public Notary Payment of registration fees and transfer tax at a commercial bank The fee for registration is USD 0.63% of the total value of the property agreed in the sale and purchase agreement. The Property Registry issues 0.63% of property a payment order, which has to be canceled by the applicant at any price (Registration authorized bank. Fee) + 3% over the excess of USD 3 1 day 28,571.43 of the The Transfer Tax of 3% on the excess of USD 28,571.43, is paid directly to total price the Ministry of Finance ("Hacienda") or any authorized bank, based on a (Transfer of Real request made by the Notary. Estate Tax) Agency: Commercial Bank The deed is presented to the Registry office for registration The public deed is submitted at the Immovable Property and Mortgages Registry to be recorded under the name of the buyer. The deed will be registered, if it meets all the legal requirements, in 2 - 4 weeks. The registry has to check with the Ministry of Finance ("Hacienda") if the parties are Tax solvent. In addition to reforms at the registry set out by the Law on Standard Procedures of August 2004, an electronic system is currently being introduced and, once fully functional, is expected to reduce the registration time. In addition, a special service is available (mainly used by banks, law firms or companies). Upon signing a special agreement with the registry, certain services and documents can be 14-28 days (10- 4 obtained faster (within 2-8 working days) in exchange for a premium Already paid 20 working days) payment. The payment is a fixed amount determined according to a cost table. The amount is usually automatically withdrawn from a special running account at the registry. At the time of signing the agreement, the user sets up this account, depositing a certain amount (not more than US$ 100). The agreement has to be renewed on an annual basis. This service is not taken into account here, since it is only one transaction. Agency: Immovable Property and Mortgages Registry (Registro de la Propiedad Raíz e Hipotecas) Doing Business 2017 El Salvador 52 Time to No. Procedure Cost to complete complete The public deed is filed at the respective Municipality This is done in order to update the information at the Municipality and for calculation on municipal taxes. The title is already valid even if not filed at the Municipality. The incentive to file the public deed lies on the old owner, who will have to continue paying the taxes on the property if this is not done. USD 0.06 for every USD 114.29 of the Depending on the municipality, this step can take from 1 to 5 days. In 1-5 days property value 5 San Salvador, the municipality has offices in each district. If someone declared in the goes to district 1 to register a property that is located on district 4, the deed registry process can take about 5 days, because the documents of the property are in district 4, but if going directly to district 4, the registry process takes about 1 to 2 days. Agency: Municipality * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2017 El Salvador 53 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2015 and June transparency of information, geographic coverage, 2016, the economy receives a “no practice” mark on the land dispute resolution and equal access to property procedures, time and cost indicators. A “no practice” rights indices. economy receives a score of 0 on the quality of land administration index even if its legal framework includes The index ranges from 0 to 30, with higher values provisions related to land administration. indicating better quality of the land administration system. Table 5.3 Summary of quality of land administration in El Salvador Answer Score Quality of the land administration index (0-30) 12.5 Reliability of infrastructure index (0-8) 4.0 Registro de la What is the institution in charge of immovable property registration? Propiedad Raíz e Hipotecas In what format are the majority of title or deed records kept in the Computer/Scann largest business city—in a paper format or in a computerized format 1.0 ed (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, Yes 1.0 mortgages, restrictions and the like)? In what format are the majority of maps of land plots kept in the Computer/Scann largest business city—in a paper format or in a computerized format 1.0 ed (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral information (geographic information Yes 1.0 system)? Is the information recorded by the immovable property registration Separate agency and the cadastral or mapping agency kept in a single database, 0.0 databases in different but linked databases or in separate databases? Do the immovable property registration agency and cadastral or No 0.0 mapping agency use the same identification number for properties? Transparency of information index (0–6) 3.5 Who is able to obtain information on land ownership at the agency in Freely accessible 1.0 charge of immovable property registration in the largest business city? by anyone Is the list of documents that are required to complete any type of Yes, online 0.5 property transaction made publicly available–and if so, how? Doing Business 2017 El Salvador 54 Answer Score http://www.cnr.g ob.sv/servicios- Link for online access: del-registro-de- la-propiedad- raiz-e-hipotecas/ Is the applicable fee schedule for any property transaction at the agency in charge of immovable property registration in the largest Yes, online 0.5 business city made publicly available–and if so, how? http://www.cnr.g ob.sv/aranceles- Link for online access: del-registro-de- la-propiedad- raiz-e-hipotecas/ Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property Yes, online 0.5 ownership within a specific time frame–and if so, how does it communicate the service standard? http://www.cnr.g ob.sv/index.php? option=com_pho cadownload&vie w=category&id= 31:carta-de- servicios-al- cliente-registro- Link for online access: de-la-propiedad- raiz-e- hipotecas&Itemid =283 http://www.cnr.g ob.sv/cartas-de- servicio-al- cliente/ Is there a specific and separate mechanism for filing complaints about a problem that occurred at the agency in charge of immovable property No 0.0 registration? Contact information: Are there publicly available official statistics tracking the number of No 0.0 transactions at the immovable property registration agency? Number of property transfers in the largest business city in 2015: Freely accessible Who is able to consult maps of land plots in the largest business city? 0.5 by anyone Doing Business 2017 El Salvador 55 Answer Score Is the applicable fee schedule for accessing maps of land plots made Yes, online 0.5 publicly available—and if so, how? http://www.cnr.g ob.sv/documento s/igcn/2014/Folle Link for online access: to_de_Requisitos_ y_Aranceles_de_S ervicios_julio_201 4.pdf Does the cadastral or mapping agency commit to delivering an updated map within a specific time frame—and if so, how does it No 0.0 communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about No 0.0 a problem that occurred at the cadastral or mapping agency? Geographic coverage index (0–8) 0.0 Are all privately held land plots in the economy formally registered at No 0.0 the immovable property registry? Are all privately held land plots in the largest business city formally No 0.0 registered at the immovable property registry? Are all privately held land plots in the economy mapped? No 0.0 Are all privately held land plots in the largest business city mapped? No 0.0 Land dispute resolution index (0–8) 5.0 Does the law require that all property sale transactions be registered at the immovable property registry to make them opposable to third Yes 1.5 parties? Is the system of immovable property registration subject to a state or Yes 0.5 private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction No 0.0 based on erroneous information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction (e.g., checking the compliance of Yes 0.5 contracts with requirements of the law)? Registrar; Notary; If yes, who is responsible for checking the legality of the documents? Lawyer; Interested Parties. Doing Business 2017 El Salvador 56 Answer Score Does the legal system require verification of the identity of the parties Yes 0.5 to a property transaction? If yes, who is responsible for verifying the identity of the parties? Registrar; Notary. Is there a national database to verify the accuracy of identity Yes 1.0 documents? For a standard land dispute between two local businesses over tenure rights of a property worth 50 times gross national income (GNI) per Juzgados de lo capita and located in the largest business city, what court would be in Civil y Mercantil charge of the case in the first instance? How long does it take on average to obtain a decision from the first- Between 2 and 3 1.0 instance court for such a case (without appeal)? years Are there any statistics on the number of land disputes in the first No 0.0 instance? Number of land disputes in the largest business city in 2015: Equal access to property rights index (-2–0) 0.0 Do unmarried men and unmarried women have equal ownership rights Yes 0.0 to property? Do married men and married women have equal ownership rights to Yes 0.0 property? Source: Doing Business database. Doing Business 2017 El Salvador 57 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 to view and consider a potential borrower’s Strength of legal rights index (0–12) financial history (positive or negative) when assessing Rights of borrowers and lenders through risk and they allow borrowers to establish a good collateral laws credit history that will facilitate their access to credit. Protection of secured creditors’ rights through Sound collateral laws enable businesses to use their bankruptcy laws assets, especially movable property, as security to generate capital—while strong creditors’ rights have Depth of credit information index (0–8) been associated with higher ratios of private sector Scope and accessibility of credit information 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 largest lenders with respect to secured transactions through credit bureau as percentage of adult population 2 sets of indicators. The depth of credit information Credit registry coverage (% of adults) index measures rules and practices affecting the coverage, scope and accessibility of credit Number of individuals and firms listed in credit registry as percentage of adult population information available through a credit registry or a credit bureau. The strength of legal rights index 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 Has up to 50 employees. of the secured transactions system, involving a 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 credit collateral (for more details on each case, see the Data is determined by sorting their distance to frontier scores Notes section of the Doing Business 2017 report). for getting credit. These scores are the distance to These scenarios assume that the borrower: frontier score for the strength of legal rights index and Is a domestic limited liability company. the depth of credit information index. Has its headquarters and only base of 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 2017 El Salvador 58 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, El Salvador stands at 44 in the ranking of 190 and bankruptcy laws in El Salvador facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 4.0 on the depth of rankings for comparator economies provide other useful credit information index and a score of 9.0 on the information for assessing how well regulations and strength of legal rights index (see the summary of institutions in El Salvador support lending and scoring at the end of this chapter for details). Higher borrowing. scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How El Salvador and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2017 El Salvador 59 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for El Salvador and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Source: Doing Business database. Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. 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. Doing Business 2017 El Salvador 60 GETTING CREDIT 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 El Salvador (table 6.1)? Table 6.1 How has El Salvador made getting credit easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform El Salvador improved access to credit information through a DB2013 new law regulating the management of personal credit information. El Salvador improved access to credit by adopting the Law on Movable Property, which established a modern, centralized, DB2016 notice-based collateral registry and allows a general description of a single category of assets granted as collateral. El Salvador made access to credit information more difficult by DB2017 reducing the coverage of the credit bureau. Source: Doing Business database. 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. Doing Business 2017 El Salvador 61 GETTING CREDIT What are the details? The getting credit indicators reported here for El The data on the legal rights of borrowers and lenders are Salvador are based on detailed information collected in gathered through a survey of financial lawyers and that economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 9.0 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable 1 assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of 1 movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its 1 assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to 1 the products, proceeds or replacements of the original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement include a 1 maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is 1 unified geographically and by asset type, with an electronic database indexed by debtor's name? Can banks and financial institutions access borrowers’ credit information online (for example, 1 through a web interface, a system-to-system connection or both)? Does a modern collateral registry exist in which registrations, amendments, cancellations and 1 searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor 0 defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is 0 liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by 0 providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2017 El Salvador 62 Strength of legal rights index (0–12) Index score: 9.0 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through public auction and 1 private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 4.0 Are data on both firms and individuals distributed? No Yes 1 Are both positive and negative credit data distributed? No Yes 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years No No 0 of negative data or erase data on defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per No Yes 1 capita distributed? By law, do borrowers have the right to access their data No No 0 in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an online No Yes 1 platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. 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. Coverage Credit bureau Credit registry Number of individuals 115,697 1,131,289 Number of firms 3,218 9,966 Total 118,915 1,141,255 Total percentage of adult population 3.0 28.7 Source: Doing Business database. Doing Business 2017 El Salvador 63 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of WHAT THE PROTECTING MINORITY companies to raise the capital they need to grow, innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE 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) Ability of minority shareholders to sue and hold Doing Business measures the protection of minority interested directors liable for prejudicial related-party investors from conflicts of interest through one set of transactions; Available legal remedies (damages, indicators and shareholders’ rights in corporate disgorgement of profits, fines, imprisonment, rescission governance through another. The ranking of economies of the transaction) on the strength of minority investor protections is Ease of shareholder suits index (0–10) determined by sorting their distance to frontier scores Access to internal corporate documents; Evidence for protecting minority investors. These scores are the obtainable during trial and allocation of legal expenses simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Extent of conflict of interest regulation index (0– extent of shareholder governance index. To make the 10) data comparable across economies, a case study uses Simple average of the extent of disclosure, extent of several assumptions about the business and the director 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 Extent of ownership and control index (0-10) economy’s most important stock exchange. If the Governance safeguards protecting shareholders from number of publicly traded companies listed on that undue board control and entrenchment exchange is less than 10, or if there is no stock exchange in the economy, it is assumed that Buyer Extent of corporate transparency index (0-10) is a large private company with multiple Corporate transparency on ownership stakes, shareholders. compensation, audits and financial prospects Extent of shareholder governance index (0–10)  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of Buyer Simple average of the extent of shareholders rights, extent of ownership and control and extent of corporate where permitted, even if this is not specifically transparency indices required by law. Strength of minority investor protection index (0–  Has a supervisory board (applicable to economies 10) with a two-tier board system) on which 60% of the Simple average of the extent of conflict of interest shareholder-elected members have been appointed regulation and extent of shareholder governance indices by Mr. James, who is Buyer’s controlling shareholder and a member of Buyer’s board of directors.  Has not adopted any bylaws or articles of association that differ from default minimum standards and does not follow any nonmandatory codes, principles, recommendations or guidelines Doing Business 2017 El Salvador 64 relating to corporate governance.  Is a manufacturing company with its own distribution network. The transaction involves the following details:  Mr. James owns 60% of Buyer and elected two directors to Buyer’s five-member board.  Mr. James also owns 90% of Seller, a company that operates a chain of retail hardware stores. Seller recently closed a large number of its stores.  Mr. James proposes that Buyer pur chase Seller’s unused fleet of trucks to expand Buyer’s distribution of its food products, a proposal to which Buyer agrees. The price is equal to 10% of Buyer’s assets and is higher than the market value.  The proposed transaction is part of the company’s ordinary course of business and is not outside the authority of the company.  Buyer enters into the transaction. All required approvals are obtained, and all required disclosures made (that is, the transaction is not fraudulent).  The transaction causes damages to Buyer. Shareholders sue Mr. James and the other parties that approved the transaction. Doing Business 2017 El Salvador 65 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in El Salvador? The economy has a score of not measure all aspects related to the protection of 3.8 on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, El Salvador stands at 158 in the ranking of 190 economies on the strength of minority investor Figure 7.1 How El Salvador and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2017 El Salvador 66 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for El Salvador. Figure 7.2 Summary of the various minority investor protection indices for El Salvador and comparator economies. Source: Doing Business database. Doing Business 2017 El Salvador 67 PROTECTING MINORITY INVESTORS Economies with the strongest protections of minority result, reforms to strengthen minority investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have well- as through new or amended company laws, securities functioning courts and up-to-date procedural rules that regulations or civil procedure rules. What minority give minority shareholders the means to prove their case investor protection reforms has Doing Business recorded and obtain a judgment within a reasonable time. As a in El Salvador (table 7.1)? Table 7.1 How has El Salvador strengthened minority investor protections—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform El Salvador strengthened investor protections by allowing DB2012 greater access to corporate information during the trial. Source: Doing Business database. 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. Doing Business 2017 El Salvador 68 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for El Salvador are based on detailed information shareholder rights, ownership and control and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2017 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for El Salvador. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in El Salvador Answer Score Strength of minority investor protection index (0-10) 3.8 Extent of conflict of interest regulation index (0-10) 3.3 Extent of disclosure index (0-10) 3.0 Which corporate body is legally sufficient to approve the Shareholders excluding interested 3.0 Buyer-Seller transaction? (0-3) parties Must Mr. James disclose his conflict of interest to the board No disclosure obligation 0.0 of directors? (0-2) Must Buyer disclose the transaction in published periodic No disclosure obligation 0.0 filings (annual reports)? (0-2) Must Buyer immediately disclose the transaction to the No disclosure obligation 0.0 public and/or shareholders? (0-2) Must an external body review the terms of the transaction No 0.0 before it takes place? (0-1) Extent of director liability index (0-10) 0.0 Can shareholders representing 10% of Buyer's share capital sue directly or derivatively for the damage the transaction No 0.0 caused to Buyer? (0-1) Can shareholders hold the interested director liable for the Not liable 0.0 damage the transaction caused to Buyer? (0-2) Can shareholders hold the other directors liable for the Not liable 0.0 damage the transaction caused to Buyer (0-2) Must Mr. James pay damages for the harm caused to Buyer No 0.0 upon a successful claim by shareholders? (0-1) Must Mr. James repay profits made from the transaction No 0.0 upon a successful claim by shareholders? (0-1) Is Mr. James disqualifed or fined and imprisoned upon a No 0.0 successful claim by shareholders? (0-1) Can a court void the transaction upon a successful claim by Only in case of fraud or bad faith 0.0 shareholders? (0-2) Ease of shareholder suits index (0-10) 7.0 Before suing can shareholders representing 10% of Buyer's No 0.0 share capital inspect the transaction documents? (0-1) Can the plaintiff obtain any documents from the defendant Any relevant document 3.0 and witnesses at trial? (0-3) Can the plaintiff request categories of documents from the Yes 1.0 Doing Business 2017 El Salvador 69 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Preapproved questions only 1.0 witnesses at trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1.0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if successful 1.0 the company? (0-2) Extent of shareholder governance index (0-10) 4.3 Extent of shareholder rights index (0-10) 6.0 Does the sale of 51% of Buyer's assets require shareholder No 0.0 approval? Can shareholders representing 10% of Buyer's share capital Yes 1.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it Yes 1.0 issues new shares? Do shareholders automatically receive preemption rights Yes 1.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the Yes 1.0 external auditor? Are changes to the rights of a class of shares only possible if No 0.0 the holders of the affected shares approve? Assuming that Buyer is a limited company, does the sale of No 0.0 51% of its assets require member approval? Assuming that Buyer is a limited company, can members representing 10% call for an extraordinary meeting of No 0.0 members? Assuming that Buyer is a limited company, must all Yes 1.0 members consent to add a new member? Assuming that Buyer is a limited company, must a member first offer to sell his interest to the existing members before Yes 1.0 selling to a non-member? Extent of ownership and control index (0-10) 2.0 Is it forbidden to appoint the same individual as CEO and No 0.0 chair of the board of directors? Must the board of directors include independent and No 0.0 nonexecutive board members? Can shareholders remove members of the board of Yes 1.0 directors without cause before the end of their term? Must the board of directors include a separate audit No 0.0 committee exclusively comprising board members? Must a potential acquirer make a tender offer to all No 0.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by No 0.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its No 0.0 parent company? Assuming that Buyer is a limited company, is there a Yes 1.0 management deadlock breaking mechanism? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer No 0.0 Doing Business 2017 El Salvador 70 distribute profits within a maximum period set by law after the declaration date? Extent of corporate transparency index (0-10) 5.0 Must Buyer disclose direct and indirect beneficial ownership No 0.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their No 0.0 primary employment? Must Buyer disclose the compensation of individual No 0.0 managers? Must a detailed notice of general meeting be sent 21 days No 0.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital Yes 1.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public? Yes 1.0 Assuming that Buyer is a limited company, must members No 0.0 meet at least once a year? Assuming that Buyer is a limited company, can members Yes 1.0 representing 5% put items on the meeting agenda? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external Yes 1.0 auditor? Source: Doing Business database. Doing Business 2017 El Salvador 71 PAYING TAXES Taxes are essential. The level of tax rates needs to be WHAT THE PAYING TAXES INDICATORS carefully chosen—and needless complexity in tax rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2014 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business records the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions and dealing with postfiling processes. This case scenario uses a set of financial Collecting information and computing the tax payable statements and assumptions about transactions made over the year. Information is also compiled on Completing tax return forms, filing with the frequency of filing and payments, time taken to proper agencies comply with tax laws, time taken to comply with the Arranging payment or withholding requirements of postfiling processes and time waiting for these processes to be completed. The Preparing separate tax accounting books, if required ranking of economies on the ease of paying taxes is 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 Profit or corporate income tax the simple average of the distance to frontier scores for each of the four component indicators – number Social contributions and labor taxes paid by of tax payments. time, total tax rate and postfiling the employer index – with a threshold and a nonlinear Property and property transfer taxes transformation applied to one of the component Dividend, capital gains and financial indicators, the total tax rate1. If both VAT (or GST) transactions taxes and corporate income tax apply, the postfiling index is the simple average of the distance to frontier Waste collection, vehicle, road and other taxes scores for each of the four components: the time to Postfiling Index comply with a VAT or GST refund, the time to obtain The time to comply with a VAT or GST refund a VAT or GST refund, the time to comply with a corporate income tax audit and the time to complete The time to receive a VAT or GST refund a corporate income tax audit. If only VAT (or GST) or The time to comply with a corporate income corporate income tax If onapplies, the postfiling tax audit index is the simple average of the scores for only the The time to complete a corporate income tax two components pertaining to the applicable tax. If audit neither VAT (or GST) nor corporate income tax 1 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. 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 2017 El Salvador 72 applies, the postfiling index is not included in the ranking of the ease of paying taxes. Assumptions about the corporate income tax audit process: Taxes and mandatory contributions include corporate income tax, turnover tax and all labor  An error in the calculation of the income tax taxes and contributions paid by the company. A liability (for example, use of incorrect tax range of standard deductions and exemptions are depreciation rates, or incorrectly treating an also recorded. expense as tax deductible) leads to an incorrect All financial statement variables are proportional to income tax return and consequently an 2012 income per capita. To make the data underpayment of corporate income tax. comparable across economies, several assumptions  TaxpayerCo. discovered the error and are used. voluntarily notified the tax authority of the error TaxpayerCo is a medium-size business that started in the corporate income tax return. operations on January 1, 2014. The business starts from the same financial position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. Taxes and mandatory contributions are measured at all levels of government. Assumptions about the VAT refund process:  In June 2015, TaxpayerCo. makes a large capital purchase: one additional machine for manufacturing pots.  The value of the machine is 65 times income per capita of the economy.  Sales are equally spread per month (that is, 1,050 times income per capita divided by 12).  Cost of goods sold are equally expensed per month (that is, 875 times income per capita divided by 12).  The seller of the machinery is registered for VAT or general sales tax (GST).  Excess input VAT incurred in June will be fully recovered after four consecutive months if the VAT or GST rate is the same for inputs, sales and the machine and the tax reporting period is every month. Doing Business 2017 El Salvador 73 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with tax table 8.2 and table 8.3 the end of this chapter for details). obligations and postfiling processes in El Salvador—and Most indicator sets refer to a case scenario in the largest how much do firms pay in taxes? Globally, El Salvador business city of an economy, except for 11 economies for stands at 166 in the ranking of 190 economies on the which the data are a population-weighted average of the ease of paying taxes (figure 8.1). The rankings for 2 largest business cities. See the chapter on distance to comparator economies and the regional average ranking frontier and ease of doing business ranking at the end of provide other useful information for assessing the tax this profile for more details. compliance burden for businesses in El Salvador (see . Figure 8.1 How El Salvador and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2017 El Salvador 74 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses —such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in El Salvador (table 8.1)? Table 8.1 How has El Salvador made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform DB2013 El Salvador introduced an alternative minimum tax. El Salvador made paying taxes more costly for companies by DB2014 increasing the corporate income tax rate. El Salvador made paying taxes easier by encouraging the use of DB2017 the electronic system for filing taxes. Source: Doing Business database. 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. Doing Business 2017 El Salvador 75 PAYING TAXES What are the details? The indicators reported here for El Salvador are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: San Salvador chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in table 8.2, completed during its 2nd year of operation. along with the associated number of payments, time Respondents are asked how much taxes and and tax rate. mandatory contributions the business must pay, how these taxes are filed and paid, how much time The postfiling index is based on four components—the taxpayers spend preparing, filing and paying three time to comply with a VAT or GST refund, the time to major taxes (profit taxes, labor taxes including obtain a VAT or GST refund, the time to comply with a mandatory contributions and consumption taxes) and corporate income tax audit and the time to complete a how much time taxpayers spend complying with corporate income tax audit. These components are postfiling processes and waiting for these processes based on expanded case study assumptions. If only VAT to be completed. (or GST) or corporate income tax applies for an economy, the postfiling index is the simple average of the scores for only the two components pertaining to the applicable tax. If neither VAT (or GST) nor corporate income tax applies, the postfiling index is not included in the ranking of the ease of paying taxes. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Employer paid - Social security gross 12 84 7.5% 8.46 contributions salaries Employer paid - Pension fund gross 0 jointly 6.75% 7.61 contributions (AFP) salaries taxable Corporate income tax 13 80 30% 19.70 profit various total Municipal tax 1 1.14 rates assets Employer paid - Training tax gross 0 jointly 1% 1.13 (INSAFORP) salaries capital Capital gains tax 0 jointly 10% 0.51 gains Doing Business 2017 El Salvador 76 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Business license tax 1 fixed fee 0.16 Vehicle taxes 1 fixed fee 0.08 fuel 20c per Fuel tax 1 consumpti 0.00 gallon on value not Value added tax (VAT) 12 84 13% 0.00 added included Employee paid - Social security gross 0 jointly 3% 0.00 withheld contributions salaries Employee paid - Pension fund gross 0 jointly 6.25% 0.00 withheld contributions (AFP) salaries Totals 41.0 248.0 38.8 Source: Doing Business database. Doing Business 2017 El Salvador 77 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 use of paper documents, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance to extra costs and delays for exporters and Obtaining, preparing and submitting documents importers, stifling trade potential. during transport, clearance, inspections and port or border handling in origin economy What do the indicators cover? Obtaining, preparing and submitting documents Doing Business records the time and cost required by destination economy and any transit associated with the logistical process of exporting economies and importing goods. Doing Business measures the Covers all documents required by law and in time and cost (excluding tariffs) associated with practice, including electronic submissions of three sets of procedures—documentary information as well as non-shipment-specific compliance, border compliance and domestic documents necessary to complete the trade transport—within the overall process of exporting Border compliance or importing a shipment of goods. The ranking of economies on the ease of trading across borders is Customs clearance and inspections determined by sorting their distance to frontier Inspections by other agencies (if applied to more scores for trading across borders. These scores are than 10% of shipments) the simple average of the distance to frontier Port or border handling scores for the time and cost for documentary compliance and border compliance to export and Processing of documents during clearance, import (domestic transport is not used for inspections and port or border handling. calculating the ranking). Domestic transport Loading and unloading of shipment at warehouse, To make the data comparable across economies, a dry port or border few assumptions are made about the traded goods and the transactions: Transport by most widely used mode between warehouse and terminal or dry port Time Traffic delays and road police checks while Time is measured in hours, and 1 day is 24 hours shipment is en route (for example, 22 days are recorded as 22 × 24 = 528 hours). If customs clearance takes 7.5 hours, the data are recorded as is. Alternatively, suppose Cost that documents are submitted to a customs Insurance cost and informal payments for which no receipt agency at 8:00 a.m., are processed overnight and is issued are excluded from the costs recorded. Costs are can be picked up at 8:00 a.m. the next day. In this reported in U.S. dollars. Contributors are asked to convert case the time for customs clearance would be local currency into U.S. dollars based on the exchange rate recorded as 24 hours because the actual procedure prevailing on the day they answer the questionnaire. took 24 hours. Doing Business 2017 El Salvador 78 Assumptions of the case study  If government fees are determined by the value of the shipment, the value is assumed to be $50,000.  For each of the 190 economies covered by Doing Business, it is assumed that a shipment  The product is new, not secondhand or used travels from a warehouse in the largest merchandise. business city of the exporting economy to a  The exporting firm is responsible for hiring and paying warehouse in the largest business city of the for a freight forwarder or customs broker (or both) importing economy. For 11 economies the and pays for all costs related to international shipping, data are also collected, under the same case domestic transport, clearance and mandatory study assumptions, for the second largest inspections by customs and other government business city. agencies, port or border handling, documentary  The import and export case studies assume compliance fees and the like for exports. The different traded products. It is assumed that importing firm is responsible for the above costs for each economy imports a standardized imports. shipment of 15 metric tons of containerized  The mode of transport is the one most widely used for auto parts (HS 8708) from its natural import the chosen export or import product and the trading partner—the economy from which it imports partner, as is the seaport, airport or land border the largest value (price times quantity) of auto crossing. parts. It is assumed that each economy exports the product of its comparative advantage  All electronic submissions of information requested by (defined by the largest export value) to its any government agency in connection with the natural export partner—the economy that is shipment are considered to be documents obtained, the largest purchaser of this product. Special prepared and submitted during the export or import products, such as precious metal and gems, process. live animals and pharmaceuticals are excluded  A port or border is defined as a place (seaport, airport from the list of possible export products, or land border crossing) where merchandise can enter however, and the second largest product or leave an economy. category is considered as needed.  Government agencies considered relevant are  A shipment is a unit of trade. Export shipments agencies such as customs, port authorities, road do not necessarily need to be containerized, police, border guards, standardization agencies, while import shipments of auto parts are ministries or departments of agriculture or industry, assumed to be containerized. national security agencies and any other government authorities. Doing Business 2017 El Salvador 79 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Borders indicator refers to a case Globally, El Salvador stands at 44 in the ranking of 190 study scenario of a warehouse in the largest business city economies on the ease of trading across borders (figure of an economy (except for 11 economies for which the 9.1). data are a population-weighted average of the 2 largest While not included in the distance to frontier or ease of business cities) trading with the main import and export doing business ranking, data on domestic transportation partner through the economy’s main border crossing. is also recorded for all economies and provided in Table 9.3. Figure 9.1 How El Salvador and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2017 El Salvador 80 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in El Salvador (table 9.1)? based inspections and electronic data interchange Table 9.1 How has El Salvador made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform El Salvador made trading across borders easier by developing DB2014 a one-stop shop for exporting and by implementing electronic data interchange systems. El Salvador increased the border compliance time for DB2016 exporting and importing by adding an extra, nonintrusive inspection at the Anguiatú border crossing with Guatemala. Source: Doing Business database. 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. Doing Business 2017 El Salvador 81 TRADING ACROSS BORDERS What are the details? The indicators reported here for El Salvador are based LOCATION OF STANDARDIZED COMPANY on a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea or land or some City: San Salvador combination of these). The information on the time and cost to complete export and import is collected The details on the predefined set of procedures, and the from local freight forwarders, customs brokers and associated time and cost, for exporting and importing a traders. shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in El Salvador El Salvador Latin America & Caribbean Time to export: Border compliance (hours) 38 63 Cost to export: Border compliance (USD) 128 527 Time to export: Documentary compliance (hours) 9 56 Cost to export: Documentary compliance (USD) 50 111 Time to import: Border compliance (hours) 40 65 Cost to import: Border compliance (USD) 128 685 Time to import: Documentary compliance (hours) 13 83 Cost to import: Documentary compliance (USD) 67 120 Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in El Salvador Export Import HS 61 : Articles of apparel HS 8708: Parts and accessories Product and clothing accessories, of motor vehicles knitted or crocheted Trade partner United States United States Border Anguiatú border crossing Anguiatú border crossing Distance (km) 124 124 Domestic transport time (hours) 4 4 Domestic transport cost (USD) 400 400 Source: Doing Business database. Note: Although Doing Business collects and publishes data on the time and cost for domestic transport, it does not use these Doing Business 2017 El Salvador 82 data in calculating the distance to frontier score for trading across borders or the ranking on the ease of trading across borders. Documents to export Commercial invoice Packing list Customs Export Declaration Certificate of origin Road Transport Document Transit document Bill of lading Terminal handling receipt Non-Intrusive Scanner Payment Receipt Documents to import Commercial invoice Packing list Customs Import Declaration Certificate of origin Transit Document Bill of lading Non-Intrusive Scanner Payment Receipt Terminal Handling receipt Road Transport Document Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2017 El Salvador 83 Figure 9.2 Summary of El Salvador on the ease of trading across borders Export Import Source: Doing Business database. Doing Business 2017 El Salvador 84 ENFORCING CONTRACTS WHAT THE ENFORCING CONTRACTS Effective commercial dispute resolution has many 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 Time to enforce the judgment court dispute. Cost required to enforce a contract through What do the indicators cover? the courts (% of claim) Doing Business measures the time and cost for Attorney fees resolving a standardized commercial dispute through a local first-instance court. In addition, Doing Court fees Business measures the quality of judicial processes Enforcement fees index, evaluating whether each economy has Quality of judicial processes index (0-18) adopted a series of good practices that promote quality and efficiency in the court system. The Court structure and proceedings (0-5) ranking of economies on the ease of enforcing Case management (0-6) contracts is determined by sorting their distance to frontier scores. These scores are the simple average Court automation (0-4) of the distance to frontier scores for each of the Alternative dispute resolution (0-3) component indicators. The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The  The seller sues the buyer before the court with case study assumes that the court hears an expert on jurisdiction over commercial cases worth 200% of the quality of the goods in dispute. This distinguishes income per capita or $5,000. the case from simple debt enforcement. To make the  The seller requests a pretrial attachment to secure data comparable across economies, Doing Business the claim. uses several assumptions about the case:  The dispute on the quality of the goods requires an expert opinion.  The dispute concerns a lawful transaction  The judge decides in favor of the seller; there is no between two businesses (Seller and Buyer), both appeal. located in the economy’s largest business city. For 11 economies the data are also collected for  The seller enforces the judgment through a public the second largest business city. sale of the buyer’s movable assets.  The buyer orders custom-made goods, then fails to pay.  The value of the dispute is 200% of the income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2017 El Salvador 85 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial frontier and ease of doing business ranking at the end of dispute through the courts in El Salvador? According to this profile for more details. data collected by Doing Business, contract enforcement Globally, El Salvador stands at 104 in the ranking of 190 takes 786.0 days and costs 19.2% of the value of the economies on the ease of enforcing contracts (figure claim. Most indicator sets refer to the largest business 10.1). The rankings for comparator economies and the city of an economy, except for 11 economies for which regional average provide other useful benchmarks for the data are a population-weighted average of the 2 assessing the efficiency of contract enforcement in El largest business cities. See the chapter on distance to Salvador. Figure 10.1 How El Salvador and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2017 El Salvador 86 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for El ECONOMY DETAILS Salvador are built by following the step-by-step evolution of a commercial sale dispute within the court, under the assumptions about the case Claim value: USD 7,641 described above (figure 10.2). The time and cost of resolving the standardized dispute are identified San Salvador Civil and through study of the codes of civil procedure and Court name: Commercial Courts other court regulations, as well as through questionnaires completed by local litigation lawyers City: San Salvador (and, in a quarter of the economies covered by Doing Business, by judges as well). Figure 10.2 Time and cost of contract enforcement in El Salvador and comparator economies Source: Doing Business database. Doing Business 2017 El Salvador 87 Table 10.2 Details on time and cost for enforcing contracts in El Salvador Latin America & Indicator El Salvador Caribbean average Time (days) 786 749 Filing and service 40 Trial and judgment 381 Enforcement of judgment 365 Cost (% of claim) 19.2 31.3 Attorney fees 15.0 Court fees 3.0 Enforcement fees 1.2 Source: Doing Business database. Doing Business 2017 El Salvador 88 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in El Salvador (figure 10.3). practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating more efficient judicial processes. Figure 10.3 Quality of judicial processes index in El Salvador and comparator economies Doing Business 2017 El Salvador 89 Source: Doing Business database. Table 10.3 Details of the quality of judicial processes index in El Salvador Answer Score Quality of judicial processes index (0-18) 7.5 Court structure and proceedings (0-5) 2.5 1. Is there a court or division of a court dedicated solely to hearing No 0.0 commercial cases? 2. Small claims court 1.0 2.a. Is there a small claims court or a fast-track procedure for small Yes claims? 2.b. If yes, is self-representation allowed? No 3. Is pretrial attachment available? Yes 1.0 4. Are new cases assigned randomly to judges? Yes, but manual 0.5 5. Does a woman's testimony carry the same evidentiary weight in Yes 0.0 court as a man's? Case management (0-6) 2.0 1. Time standards 1.0 1.a. Are there laws setting overall time standards for key court events in Yes a civil case? 1.b. If yes, are the time standards set for at least three court events? Yes 1.c. Are these time standards respected in more than 50% of cases? Yes 2. Adjournments 0.0 2.a. Does the law regulate the maximum number of adjournments that No can be granted? 2.b. Are adjournments limited to unforeseen and exceptional Yes circumstances? 2.c. If rules on adjournments exist, are they respected in more than 50% No of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; No 0.0 (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques Yes 1.0 used before the competent court? 5. Are there any electronic case management tools in place within the No 0.0 competent court for use by judges? Doing Business 2017 El Salvador 90 Answer Score 6. Are there any electronic case management tools in place within the No 0.0 competent court for use by lawyers? Court automation (0-4) 0.5 1. Can the initial complaint be filed electronically through a dedicated No 0.0 platform within the competent court? 2. Is it possible to carry out service of process electronically for claims No 0.0 filed before the competent court? 3. Can court fees be paid electronically within the competent court? No 0.0 4. Publication of judgments 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public through publication in official gazettes, No in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through Yes publication in official gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 1. Arbitration 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy—that cannot be submitted to No arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the Yes courts? 2. Mediation/Conciliation 1.0 2.a. Is voluntary mediation or conciliation available? Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or conciliation is successful, a refund of No court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2017 El Salvador 91 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 Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors 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 Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the Lawyers’ fees recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recovered by secured creditors through Other related fees reorganization, liquidation or debt enforcement Outcome (foreclosure or receivership) proceedings. To determine the present value of the amount Whether business continues operating as a recovered by creditors, Doing Business uses the going concern or business assets are sold lending rates from the International Monetary Fund, piecemeal supplemented with data from central banks and the Recovery rate for creditors Economist Intelligence Unit. Measures the cents on the dollar recovered To make the data on the time, cost and outcome by secured creditors comparable across economies, several assumptions Outcome for the business (survival or not) about the business and the case are used: determines the maximum value that can be  A hotel located in the largest city (or cities) has recovered 201 employees and 50 suppliers. The hotel Official costs of the insolvency proceedings experiences financial difficulties. are deducted  The value of the hotel is 100% of the income per Depreciation of furniture is taken into capita or the equivalent in local currency of USD account 200,000, whichever is greater. Present value of debt recovered  The hotel has a loan from a domestic bank, Strength of insolvency framework index (0- secured by a mortgage over the hotel’s real 16) estate. The hotel cannot pay back the loan, but makes enough money to operate otherwise. Sum of the scores of four component indices: Commencement of proceedings index (0-3) In addition, Doing Business evaluates the adequacy and integrity of the existing legal framework Management of debtor’s assets index (0-6) applicable to liquidation and reorganization Reorganization proceedings index (0-3) proceedings through the strength of insolvency Creditor participation index (0-4) framework index. The index tests whether economies adopted internationally accepted good practices in management of debtor’s assets, reorganization four areas: commencement of proceedings, proceedings and creditor participation. Doing Business 2017 El Salvador 92 RESOLVING INSOLVENCY Where does the economy stand today? Globally, El Salvador stands at 80 in the ranking of 190 not measure insolvency proceedings of individuals and economies on the ease of resolving insolvency (figure financial institutions. The data are derived from 11.1). The ranking of economies on the ease of resolving questionnaire responses by local insolvency practitioners insolvency is determined by sorting their distance to and verified through a study of laws and regulations as frontier scores for resolving insolvency. These scores are well as public information on bankruptcy systems. the simple average of the distance to frontier scores for the recovery rate and the strength of insolvency framework index. The resolving insolvency indicator does Figure 11.1 How El Salvador and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2017 El Salvador 93 RESOLVING INSOLVENCY Recovery of debt in insolvency Data on the time, cost and outcome refer to the most average recovery rate is 32.9 cents on the dollar. Most likely in-court insolvency procedure applicable under indicator sets refer to a case scenario in the largest specific case study assumptions. business city of an economy, except for 11 economies for which the data are a population-weighted average of the According to data collected by Doing Business, resolving 2 largest business cities. insolvency takes 3.5 years on average and costs 12.0% of the debtor’s estate, with the most likely outcome being that the company will be sold as piecemeal sale. The Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in El Salvador and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2015 lending rates. Doing Business 2017 El Salvador 94 Table 11.1 Details of data on efficiency of insolvency proceedings in El Salvador Indicator Answer Explanation After Mirage’s default, the most likely scenario for BizBank would be to start a foreclosure proceeding in order sale the estate used as a collateral. Mirage would not be able to request any suspension of the enforcement action to avoid foreclosure because the law does not provide for this possibility. In a foreclosure procedure based on the Civil Procedure Code, the creditor would request the payment by filing a claim before the court. The debtor Proceeding foreclosure would have the opportunity to counter-claim. After that an approval to initiate foreclosure will be handed down by the Court and an order to set up an auction will be issued. Once the time allocated by law for appeal lapses, the court would appoint an auctioneer to sell the debtor's assets pledged as collateral in a public auction. The Court would subsequently validate the distribution of the debtor’s assets among the creditors. Because of the sale of the property through a public auction the hotel won’t be Outcome piecemeal sale able to continue operating and its assets will be sold separately. The foreclosure proceeding will take approximately 3.5 years in El Salvador from the moment of Mirage’s default until the debt is repaid to the secured creditor. It will take 1 year until the approval to initiate foreclosure is handed down by the Court including all required notifications and the debtor’s Time (in counter-claim. After that, it would take 2 years for the auction to take place 3.5 years) (including the necessary time to appoint an auctioneer, the scheduling of the auction and the sale of the real estate). It will take additional 6 months for the judge to approve the sale. For a foreclosure proceeding, the estimate cost would be 12% of the value of Mirage’s estate. The main component of the cost are the attorney’s fees (8%). Cost (% of The rest (3%) will be appraisal and auctioneer’s fees and fees of other 12.0 estate) professionals such as accountants (1%). In El Salvador, there are not judicial costs or cost related to service, since free access to justice is assured by the Constitution. Recovery rate: 32.9 Source: Doing Business database. Doing Business 2017 El Salvador 95 LABOR MARKET REGULATION Doing Business studies the flexibility of regulation of food retail sector and they apply even to firms employment, specifically as it relates to the areas of that are not party to them. hiring, working hours and redundancy. Doing Business  Abides by every law and regulation but does not also measures several aspects of job quality such as the grant workers more benefits than those availability of maternity leave, paid sick leave and the mandated by law, regulation or (if applicable) equal treatment of men and women at the workplace. collective bargaining agreements. Doing Business 2017 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and regulations as well as secondary sources are reviewed to ensure accuracy. To make the data comparable across economies, several assumptions about the worker and the business are used. The worker:  Is a cashier in a supermarket or grocery store, age 19, with one year of work experience.  Is a full-time employee.  Is not a member of the labor union, unless membership is mandatory. The business:  Is a limited liability company (or the equivalent in the economy).  Operates a supermarket or grocery store in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  Has 60 employees.  Is subject to collective bargaining agreements if such agreements cover more than 50% of the Doing Business 2017 El Salvador 96 LABOR MARKET REGULATION What are the details? The data reported here for El Salvador are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Hiring Data on hiring cover five areas: (i) whether fixed-term minimum wage to the average value added per worker contracts are prohibited for permanent tasks; (ii) the (the ratio of an economy’s GNI per capita to the maximum cumulative duration of fixed-term contracts; working-age population as a percentage of the total (iii) the minimum wage for a cashier, age 19, with one population). year of work experience; and (iv) the ratio of the Hiring Data Fixed-term contracts prohibited for permanent tasks? Yes Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 213.0 (US$/month) Ratio of minimum wage to value added per worker 0.4 Source: Doing Business database. Doing Business 2017 El Salvador 97 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men*; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work; and (ix) the average paid annual leave for percentage of hourly pay); (iv) the premium for overtime workers with 1 year of tenure, 5 years of tenure, and 10 work (as a percentage of hourly pay); (v) whether there years of tenure. are restrictions on night work; (vi) whether nonpregnant Working Hours Data Maximum number of working days per week 6.0 Premium for night work (% of hourly pay) 25.0 Premium for work on weekly rest day (% of hourly pay) 100.0 Premium for overtime work (% of hourly pay) 125.0 Restrictions on night work? Yes Whether nonpregnant and nonnursing women can work the same night Yes hours as men Restrictions on weekly holiday? Yes Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 11.0 Paid annual leave for a worker with 5 years of tenure (working days) 11.0 Paid annual leave for a worker with 10 years of tenure (working days) 11.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 11.0 working days) Source: Doing Business database. Doing Business 2017 El Salvador 98 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Redundancy rules Data Maximum length of probationary period (months) 1.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if one worker is dismissed? No Third-party approval if one worker is dismissed? No Third-party notification if nine workers are dismissed? No Third-party approval if nine workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2017 El Salvador 99 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year of requirements and severance payments due when tenure, a worker with 5 years and a worker with 10 years terminating a redundant worker, expressed in weeks of is considered. One month is recorded as 4 and 1/3 salary. The average value of notice requirements and weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 0.0 Notice period for redundancy dismissal for a worker with 5 years of tenure 0.0 Notice period for redundancy dismissal for a worker with 10 years of tenure 0.0 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 0.0 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure 21.4 Severance pay for redundancy dismissal for a worker with 10 years of tenure 42.9 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 22.9 of tenure) Source: Doing Business database. Doing Business 2017 El Salvador 100 LABOR MARKET REGULATION Job quality Doing Business introduced new data on job quality in leave receive 100% of wages; (vi) the availability of five 2015. Doing Business 2017 covers eight questions on job fully paid days of sick leave a year; (vii) whether a worker quality (i) whether the law mandates equal remuneration is eligible for an unemployment protection scheme after for work of equal value; (ii) whether the law mandates one year of service; and (viii) the minimum duration of nondiscrimination based on gender in hiring; (iii) the contribution period (in months) required for whether the law mandates paid or unpaid maternity unemployment protection. leave; (iv) the minimum length of paid maternity leave (in . calendar days); (v) whether employees on maternity Job Quality Data Equal remuneration for work of equal value? No Gender nondiscrimination in hiring? No Paid or unpaid maternity leave mandated by law? Yes Minimum length of maternity leave (calendar days)? 112 days Receive 100% of wages on maternity leave? Yes Five fully paid days of sick leave a year? No Unemployment protection after one year of employment? No Minimum contribution period for unemployment protection (months)? n.a. Source: Doing Business database. Doing Business 2017 El Salvador 101 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 41 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, New Zealand has the smallest number of business, but many need 9 days), the worst performance procedures required (1), and New Zealand the shortest is calculated after the removal of outliers. The definition time to fulfill them (0.5 days). Slovenia has the lowest of outliers is based on the distribution for each cost (0.0), and Australia, Colombia and 111 other component indicator. To simplify the process two rules economies have no paid-in minimum capital were defined: the 95th percentile is used for the requirement (table 14.1 in the Doing Business 2017 indicators with the most dispersed distributions report). (including minimum capital, number of payments to pay taxes, and the time and cost indicators), and the 99th Calculation of the distance to frontier score percentile is used for number of procedures. No outlier is Calculating the distance to frontier score for each removed for component indicators bound by definition economy involves two main steps. In the first step or construction, including legal index scores (such as the individual component indicators are normalized to a depth of credit information index, extent of conflict of common unit where each of the 41 component interest regulation index and strength of insolvency indicators y (except for the total tax rate) is rescaled framework index) and the recovery rate (figure 14.1 in using the linear transformation (worst − y)/(worst − the Doing Business 2017 report). frontier). In this formulation the frontier represents the In the second step for calculating the distance to frontier best performance on the indicator across all economies score, the scores obtained for individual indicators for since 2005 or the third year in which data for the each economy are aggregated through simple averaging indicator were collected. Both the best performance and into one distance to frontier score, first for each topic the worst performance are established every five years and then across all 10 topics: starting a business, dealing based on the Doing Business data for the year in which with construction permits, getting electricity, registering they are established, and remain at that level for the five property, getting credit, protecting minority investors, years regardless of any changes in data in interim years. paying taxes, trading across borders, enforcing contracts Thus an economy may set the frontier for an indicator and resolving insolvency. More complex aggregation methods—such as principal components and unobserved components—yield a ranking nearly Doing Business 2017 El Salvador 102 identical to the simple average used by Doing Business2. The nonlinear transformation is not based on any Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components 3. overall tax system. Instead, it is mainly empirical in nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2017 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier 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 2017 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 than it would have had before (line D is bigger than line C in figure 14.2 of the Doing Business 2017 report). 2 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. 3 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 2017 El Salvador 103 Table 13.1 Weights used in calculating the distance to the most. First, it selects the economies that in 2015/16 frontier scores for economies with 2 cities covered implemented regulatory reforms making it easier to do business in 3 or more of the 10 topics included in this Economy City Weight (%) year’s aggregate distance to frontier score. Twenty-nine Dhaka 78 Bangladesh economies meet this criterion: Algeria; Azerbaijan; Chittagong 22 São Paulo 61 Bahrain; Belarus; Brazil; Brunei Darussalam; Burkina Faso; Brazil Rio de Janeiro 39 Côte d’Ivoire; Georgia; India; Indonesia; Kazakhstan; Shanghai 55 Kenya; Madagascar; Mali; Mauritania; Morocco; Niger; China Beijing 45 Pakistan; Poland; Senegal; Serbia; Singapore; Thailand; Mumbai 47 Togo; Uganda; the United Arab Emirates; Uzbekistan and India Delhi 53 Vanuatu. Second, Doing Business sorts these economies Jakarta 78 Indonesia on the increase in their distance to frontier score from Surabaya 22 Tokyo 65 the previous year using comparable data. Japan Osaka 35 Mexico City 83 Selecting the economies that implemented regulatory Mexico Monterrey 17 reforms in at least three topics and had the biggest Lagos 77 improvements in their distance to frontier scores is Nigeria Kano 23 intended to highlight economies with ongoing, broad- Karachi 65 based reform programs. The improvement in the Pakistan Lahore 35 distance to frontier score is used to identify the top Moscow 70 Russian Federation improvers because this allows a focus on the absolute St. Petersburg 30 improvement—in contrast with the relative improvement New York 60 United States Los Angeles 40 shown by a change in rankings—that economies have made in their regulatory environment for business. Source: United Nations, Department of Economic and Social Affairs, Population Division, World Urbanization Prospects, 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking The ease of doing business ranking ranges from 1 to 190. Economies that improved the most across 3 or more The ranking of economies is determined by sorting the Doing Business topics in 2015/16 aggregate distance to frontier scores, rounded to 2 Doing Business 2017 uses a simple method to calculate decimals. which economies improved the ease of doing business Doing Business 2017 El Salvador 104 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 190 Contributors http://www.doingbusiness.org/rankings More than 12,500 specialists in 190 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 190 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 190 economies to the frontier in Methodology 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 DB2017 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 2017 El Salvador 105