42666 Luxembourg Doing Business 2008 Luxembourg A Project Benchmarking the Regulatory Cost of Doing Business in 178 Economies Doing Business Project World Bank Group © 2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved. 1 2 3 4 5 09 08 07 06 A copublication of the World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank Group encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: .pubrights@worldbank.org Copies of Doing Business 2008, Doing Business 2007: How to Reform, Doing Business in 2006: Creating Jobs, Doing Business in 2005: Removing Obstacles to Growth and Doing Business in 2004: Understanding Regulation may be purchased at www.doingbusiness.org. Contents Introduction......................1 Economy rankings.............2 Reforms...........................3 Summary of indicators........6 Starting a business.............8 Dealing with licenses.........13 Employing workers............18 Registering property...........22 Getting credit....................27 Protecting investors............31 Paying taxes.....................35 Trading across borders.......39 Enforcing contracts............43 Closing a business.............47 Topic details......................51 Introduction Doing Business 2008 is the fifth in a series of annual reports investigating the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 178 economies-from Afghanistan to Zimbabwe-and over time. Regulations affecting 10 stages of a business's life are measured: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Data in Doing Business 2008 are current as of June 1, 2007. The indicators are used to analyze economic outcomes and identify what reforms have worked, where, and why. The Doing Business methodology has limitations. Other areas important to business -- such as a country's proximity to large markets, the quality of its infrastructure services (other than those related to trading across borders), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions, and the underlying strength of institutions -- are not studied directly by Doing Business. To make the data comparable across countries, the indicators refer to a specific type of business -- generally a limited liability company operating in the largest business city. Because standard assumptions are used in the data collection, comparisons and benchmarks are valid across economies. The data not only highlight the extent of obstacles to doing business; they also help identify the source of those obstacles, supporting policymakers in designing reform. The data set covers 178 economies: 46 in Sub-Saharan Africa, 31 in Latin America and the Caribbean, 28 in Eastern Europe and Central Asia, 24 in East Asia and Pacific, 17 in the Middle East and North Africa and 8 in South Asia-as well as 24 OECD high-income economies as benchmarks. Some of the regions have been divided into subregions to generate a total of 13 regional profiles. The following pages present the summary Doing Business indicators for Luxembourg along with the comparator economies selected. The data used for this country profile come from the Doing Business database and are summarized in graphs and tables. This report allows a comparison of the economies not only with one another but also with the "best practice" economy for each indicator. The best-practice economies are identified by their position in each indicator as well as their overall ranking and by their capacity to provide good examples of business regulation to other economies. These best-practice economies do not necessarily rank number 1 in the topic or indicator, but they are in the top 5. More information is available in the full report. Doing Business 2008 presents the indicators, analyzes their relationship with economic outcomes and recommends reforms. The data, along with information on ordering the report, are available on the Doing Business website . http://www.doingbusiness.org 1 Economy Rankings - Ease of Doing Business Luxembourg is ranked 42 out of 178 economies. Singapore is the top ranked economy in the Ease of Doing Business. Luxembourg - Compared to Global Best / Selected Economies: Luxembourg's ranking in Doing Business 2008 Rank Doing Business 2008 Ease of Doing Business 42 Starting a Business 41 Dealing with Licenses 36 Employing Workers 164 Registering Property 116 Getting Credit 97 Protecting Investors 107 Paying Taxes 17 Trading Across Borders 32 Enforcing Contracts 2 Closing a Business 46 2 Reforms - Who is reforming? This year Egypt tops the list of reformers that are making it easier to do business. Egypt's reforms went deep with reforms in 5 of the 10 areas studied by Doing Business, and it greatly improved its position in the global rankings as a result. Besides Egypt, the other top 10 reformers are, in order, Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria. 1. Egypt, the top reformer in the region and worldwide, greatly improved its position in the global rankings on the ease of doing business. Its reforms went deep. Egypt cut the minimum capital required to start a business, from 50,000 Egyptian pounds to just 1,000 and halved the time and cost of start-up. It reduced fees for registering property from 3 percent of the property value to a low, fixed amount. It eased the bureaucracy that builders face in getting construction permits. It launched new one-stop shops for traders at Egyptian ports, cutting the time to import by seven days and the time to export by five. And it established a new private credit bureau that will soon be making it easier for borrowers to get credit. 2. Croatia reformed in four of the 10 areas studied by Doing Business. Two years ago, registering property in Croatia took 956 days. Now it takes 174. Company start-up also became faster, with procedures consolidated at a "one-stop shop" and pension and health services registration now online. Credit became easier to access: a new credit bureau was launched, and a unified registry now records charges against movable property in one place. In its first two months, 1.4 billion in credit was registered. In addition, amendments to the country's insolvency law introduced professional requirements for bankruptcy trustees and shorter timelines. 3. Ghana, a top 10 reformer for the second year running, continues to increase the efficiency of its public services. It cut bottlenecks in property registration, reducing delays from six months to one. Greater efficiency at the company registry and the environment agency cut the time for business start-up to 42 days. Changes in the port authority's operations sped up imports. New civil procedure rules and mandatory arbitration and mediation reduced the time it takes to enforce contracts. 4. FYR Macedonia eliminated the minimum capital requirement for business start-up, sped up the process for getting construction permits, lowered the corporate income tax rate to 12 percent (with another cut to 10 percent planned for 2008), and simplified tax payment procedures. Its ranking on the ease of doing business rose from 96 to 75. 5. Georgia reformed in six areas. It strengthened investor protections, including through amendments to its securities law that eliminate loopholes that had allowed corporate insiders to expropriate minority investors. It adopted a new insolvency law that shortens timelines for reorganization of a distressed company or disposition of a debtor's assets. Georgia sped up approvals for construction permits and simplified procedures for registering property. It made starting a business easier by eliminating the paid-in capital requirement. In addition, the country's private credit bureau added payment information from retailers, utilities, and trade creditors to the data it collects and distributes. 6. Colombia, the region's top reformer, has made great strides in easing trade. By extending port operating hours and adopting more selective customs inspections, it reduced the time for port and terminal handling activities by three days. The country strengthened investor protections by increasing disclosure requirements for related-party transactions. It introduced an electronic tax filing system, cutting the average time businesses must spend on tax compliance each year by 188 hours, or 41 percent. And it is progressively reducing the corporate income tax rate, from 35 to 34 percent in 2007 and 33 percent in 2008. 7. Saudi Arabia, the runner-up reformer in the region, eliminated the minimum capital requirement of 1,057 percent of income per capita and reduced the days needed for company start-up from 39 to 15. It launched a commercial credit bureau whose reports include the credit exposure of companies. It also sped up trade, reducing the number of documents required for importing and cutting the time needed for handling at ports and terminals by two days for both imports and exports. 8. Kenya, the region's other top 10 reformer, launched an ambitious licensing reform program. So far the program has eliminated 110 business licenses and simplified eight others. The changes have streamlined business start-up and cut both the time and cost of getting building permits. The program will eventually eliminate or simplify at least 900 more of the country's 1,300 licenses. Property registration is also faster now, thanks to the introduction of competition among land valuers. And the country's private credit bureau now collects a wider range of data. 3 9. In China, a new property law put private property rights on equal footing with state property rights. The law also expanded the range of assets that can be used as collateral to include inventory and accounts receivable. The new bankruptcy law gives secured creditors priority to the proceeds from their collateral. Construction also became easier, with electronic processing of building permits reducing delays by two weeks. 10. Bulgaria eased the tax burden on businesses and made it easier to pay taxes online. Bulgaria also introduced private bailiffs to improve efficiency in enforcing judgments. And it made building inspections less burdensome. Number of reforms in Doing Business 2008 Positive Reform Borders Licenses Workers Property Investors Total Negative Reform Business Contracts Business a with Credit Taxes Across a number of reforms Economy Starting Dealing Employing Registering Getting Protecting Paying Rank Trading Enforcing Closing 1 Egypt 5 2 Croatia 4 3 Ghana 5 4 Macedonia, FYR 3 5 Colombia 3 6 Georgia 6 7 Saudi Arabia 3 8 Kenya 4 9 China 3 10 Bulgaria 3 Luxembourg 0 Denmark 1 Finland 1 France 2 Germany 0 Iceland 1 Norway 1 Note: Economies are ranked on the number and impact of reforms, Doing Business selects the economies that reformed in 3 or more of the Doing Business topics. Second, it ranks these economies on the increase in rank in Ease of Doing Business from the previous year. The larger the imporvement, the higher the ranking as a reformer. 5 Summary of Indicators - Luxembourg Starting a Business Procedures (number) 6 Duration (days) 26 Cost (% GNI per capita) 2.3 Paid in Min. Capital (% of GNI per capita) 20.5 Dealing with Licenses Procedures (number) 13 Duration (days) 217 Cost (% of income per capita) 19.4 Employing Workers Difficulty of Hiring Index 67 Rigidity of Hours Index 80 Difficulty of Firing Index 40 Rigidity of Employment Index 62 Nonwage labor cost (% of salary) 13 Firing costs (weeks of wages) 39 Registering Property Procedures (number) 8 Duration (days) 29 Cost (% of property value) 10.2 Getting Credit Legal Rights Index 6 Credit Information Index 0 Public registry coverage (% adults) 0.0 Private bureau coverage (% adults) 0.0 Protecting Investors Disclosure Index 6 Director Liability Index 4 Shareholder Suits Index 3 Investor Protection Index 4.3 Paying Taxes Payments (number) 22 Time (hours) 58 Profit tax (%) 16.7 Labor tax and contributions (%) 16.7 Other taxes (%) 1.9 Total tax rate (% profit) 35.3 6 Trading Across Borders Documents for export (number) 5 Time for export (days) 6 Cost to export (US$ per container) 1250 Documents for import (number) 4 Time for import (days) 6 Cost to import (US$ per container) 1250 Enforcing Contracts Procedures (number) 26 Duration (days) 321 Cost (% of claim) 8.8 Closing a Business Time (years) 2.0 Cost (% of estate) 15 Recovery rate (cents on the dollar) 41.6 Starting a Business in Luxembourg: Entry Regulation When entrepreneurs draw up a business plan and try to get under way, the first hurdles they face are the procedures required to incorporate and register the new firm before they can legally operate. Economies differ greatly in how they regulate the entry of new businesses. In some the process is straightforward and affordable. In others the procedures are so burdensome that entrepreneurs may have to bribe officials to speed the process--or may decide to run their business informally. The data on starting a business are based on a survey and research investigating the procedures that a standard small to medium-size company needs to complete to start operations legally. These include obtaining all necessary permits and licenses and completing all required inscriptions, verifications and notifications with authorities to enable the company to formally operate. The time and cost required to complete each procedure under normal circumstances are calculated, as well as the minimum capital that must be paid in. It is assumed that all information is readily available to the entrepreneur, that there has been no prior contact with officials and that all government and nongovernment entities involved in the process function without corruption. To make the data comparable across economies, detailed assumptions about the type of business are used. Among these assumptions are the following: the business is a limited liability company conducting general commercial activities in the largest business city; it is 100% domestically owned, with start-up capital of 10 times income per capita, turnover of at least 100 times income per capita and between 10 and 50 employees; and it does not qualify for any special benefits, nor does it own real estate. Procedures are recorded only where interaction is required with an external party. It is assumed that the founders complete all procedures themselves unless professional services (such as by a notary or lawyer) are required by law. Voluntary procedures are not counted, nor are industry-specific requirements and utility hook-ups. Lawful shortcuts are counted. Cumbersome entry procedures are associated with more corruption, particularly in developing countries. Each procedure is a point of contact--an opportunity to extract a bribe. Analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices; and fuel corruption. 8 1. Historical data: Starting a Business in Luxembourg Starting a Business data Doing Business 2008 Rank 41 Procedures (number) 6 Duration (days) 26 Cost (% GNI per capita) 2.3 Paid in Min. Capital (% of GNI per capita) 20.5 2. The following graph illustrates the Starting a Business indicators in Luxembourg over the past 3 years: 26 5. 20 6 3.2 edures (number) s) ita) GNI (day r cap of ation pe (% .Capitalpita ) Dur GNI (% ca Proc Cost Min in per 2007 Paid 9 3. Steps to Starting a Business in Luxembourg It requires 6 procedures, takes 26 days, and costs 2.31% GNI per capita to start a business in Luxembourg. List of Procedures: 1. Deposit the minimum capital requirement 2. Verify uniqueness of company name and reserve name 3. Notary drafts and notarizes the company deed 4. Apply for business license 5. Register at the Chamber of Commerce's one-stop shop 6. Unblock the authorized capital More details are available in the appendix. 10 4. Benchmarking Starting a Business Regulations: Luxembourg is ranked 41 overall for Starting a Business. Australia is the top ranked economy followed by Canada, New Zealand and United States. Ranking of Luxembourg in Starting a Business - Compared to best practice and selected economies: 11 The following table shows Starting a Business data for Luxembourg compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% GNI Paid in Min. (number) (days) per capita) Capital (% of GNI per Australia* 2 2 0.0 Denmark 0.0 Selected Economy Luxembourg 6 26 2.3 20.5 Comparator Economies Denmark 4 6 0.0 40.7 Finland 3 14 1.0 7.7 France 5 7 1.1 0.0 Germany 9 18 5.7 42.8 Iceland 5 5 2.7 14.1 Norway 6 10 2.3 23.4 * The following economies are also best practice economies for : Procedures (number): Canada, New Zealand Paid in Min. Capital (% of GNI per capita): Canada, Ireland, Israel, Mauritius, New Zealand, Puerto Rico, Thailand, Trinidad and Tobago, United Kingdom, United States 12 Dealing with Licenses in Luxembourg: Building a Warehouse Once entrepreneurs have registered a business, what regulations do they face in operating it? To measure such regulation, Doing Business focuses on the construction sector. Construction companies are under constant pressure--from government to comply with inspections and with licensing and safety regulations and from customers to be quick and cost-effective. These conflicting pressures point to the tradeoff in building regulation--the tradeoff between protecting people (construction workers, tenants, passersby) and keeping the cost of building affordable. In many countries, especially poor ones, complying with building regulations is so costly in time and money that many builders opt out. Builders may pay bribes to pass inspections or simply build illegally--leading to hazardous construction. In other countries compliance is simple, straightforward and inexpensive--yielding better results. The indicators on dealing with licenses record all procedures officially required for an entrepreneur in the construction industry to build a warehouse. These include submitting project documents (building plans, site maps) to the authorities, obtaining all necessary licenses and permits, completing all required notifications and receiving all necessary inspections. They also include procedures for obtaining utility connections, such as electricity, telephone, water and sewerage. The time and cost to complete each procedure under normal circumstances are calculated. All official fees associated with legally completing the procedures are included. Time is recorded in calendar days. The survey assumes that the entrepreneur is aware of all existing regulations and does not use an intermediary to complete the procedures unless required to do so by law. To make the data comparable across economies, several assumptions about the business and its operations are used. The business is a small to medium-size limited liability company, located in the most populous city, domestically owned and operated, in the construction business, with 20 qualified employees. The warehouse to be built: · Is a new construction (there was no previous construction on the land). · Has complete architectural and technical plans prepared by a licensed architect. · Will be connected to electricity, water, sewerage (sewage system, septic tank or their equivalent) and one land phone line. The connection to each utility network will be 32 feet, 10 inches (10 meters) long. · Will be used for general storage, such as of books or stationery. The warehouse will not be used for any goods requiring special conditions, such as food, chemicals or pharmaceuticals. · Will take 30 weeks to construct (excluding all delays due to administrative and regulatory requirements). Where the regulatory burden is large, entrepreneurs move their activity into the informal economy. There they operate with less concern for safety, leaving everyone worse off. 13 1. Historical data: Dealing with Licenses in Luxembourg Dealing with Licenses data Doing Business 2008 Rank 36 Procedures (number) 13 Duration (days) 217 Cost (% of income per capita) 19.4 2. The following graph illustrates the Dealing with Licenses indicators in Luxembourg over the past 3 years: 217 4. 13 19 edures (number) s) per (day ation income ) of Dur (% capita Proc Cost 2007 14 3. Steps to Building a Warehouse in Luxembourg It requires 13 procedures, takes 217 days, and costs 19.37% GNI per capita to build a warehouse in Luxembourg. List of Procedures: 1. Obtain a recent copy of the cadastre plans from the Cadastre Administration 2. Obtain approval in principle (accord de principe) 3. Obtain Commodo/Incommodo Classe 3 approval from the Environmental Administration 4. Obtain a building permit from the Urban Department (service de l'urbanisme) of the municipality 5. Obtain an excavation permit from the Ministry of Works 6. Hire an independent inspection company to carry out inspections of construction works 7. Request and receive an inspection of completed works from the Environmental Administration 8. Request and receive sewerage (canalization) inspection 9. Obtain a feasibility study for the sewerage (canalization) connection 10. Obtain sewerage (canalization) connection 11. Obtain water connection 12. Obtain electricity connection 15 13. Obtain telephone connection More details are available in the appendix. 4. Benchmarking Dealing with Licenses Regulations: Luxembourg is ranked 36 overall for Dealing with Licenses. St. Vincent and the Grenadines is the top ranked economy followed by New Zealand, Belize and Marshall Islands. Ranking of Luxembourg in Dealing with Licenses - Compared to best practice and selected economies: * The following economies are also best practice economies for Building a Warehouse: St. Vincent and the Grenadines 16 The following table shows Dealing with Licenses data for Luxembourg compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) income per capita) Denmark 6 Korea 34 United Arab Emirates 1.5 Selected Economy Luxembourg 13 217 19.4 Comparator Economies Denmark 6 69 61.8 Finland 18 38 122.3 France 13 137 24.9 Germany 12 100 63.1 Iceland 18 76 13.9 Norway 14 252 46.2 17 Employing Workers in Luxembourg: Labor Regulations Every economy has established a complex system of laws and institutions intended to protect workers and guarantee a minimum standard of living for its population. This system encompasses four bodies of law: employment, industrial relations, social security and occupational health and safety laws. Doing Business examines government regulation in the area of employment and social security laws. Three measures are presented: a rigidity of employment index, a nonwage labor cost measure and a firing cost measure. The rigidity of employment index is the average of three subindices: difficulty of hiring, rigidity of hours and difficulty of firing. Each index takes values between 0 and 100, with higher values indicating more rigid regulation. The difficulty of hiring index measures the flexibility of contracts and the ratio of the minimum wage to the value added per worker. The rigidity of hours index covers restrictions on weekend and night work, requirements relating to working time and the workweek, and mandated days of annual leave with pay. The difficulty of firing index covers workers' legal protections against dismissal, including the grounds permitted for dismissal and procedures for dismissal (individual and collective). The nonwage labor cost covers all social security payments and payroll taxes associated with hiring an employee, expressed as a percentage of the worker's salary. The firing cost indicator measures the cost of advance notice requirements, severance payments and penalties due when terminating a redundant worker, expressed in weeks of salary. The indicators on employment regulations are based on a detailed study of employment laws. Data are also gathered on the specific constitutional provisions governing the two areas studied. To ensure accuracy, both the actual laws and the applicable collective bargaining agreements are used. Finally, all data are verified and completed by local law firms through a detailed survey of employment regulations. To make the data comparable across economies, a range of assumptions about the worker and the company are used. Assumptions about the worker include that he is a nonexecutive, full-time male employee who has worked in the same company for 20 years and is not a member of the labor union (unless membership is mandatory). The company is assumed to be a limited liability manufacturing corporation that operates in the country's most populous city, is 100% domestically owned and has 201 employees. The company is also assumed to be subject to collective bargaining agreements in countries where such agreements cover more than half the manufacturing sector and apply even to firms not party to them. Most employment regulations are enacted in response to market failures. But that does not mean that today's regulations are optimal. Analysis across countries shows that while employment regulation generally increases the tenure and wages of incumbent workers, rigid regulations have many undesirable side effects. These include less job creation, smaller company size, less investment in research and development, and longer spells of unemployment and thus the obsolescence of skills--all of which may reduce productivity growth. Many countries err on the side of excessive rigidity, to the detriment of businesses and workers alike. 18 1. Historical data: Employing Workers in Luxembourg Employing Workers data Doing Business 2008 Rank 164 Rigidity of Employment Index 62 Nonwage labor cost (% of salary) 13 Firing costs (weeks of wages) 39 2. The following graph illustrates the Employing Workers indicators in Luxembourg over the past 3 years: 62 39 13 of oyment (% ks of cost of Emplx costs(wee) wages idity Inde wage labor salary) Firing Rig Non 2007 19 3. Benchmarking Employing Workers Regulations: Luxembourg is ranked 164 overall for Employing Workers. Marshall Islands is the top ranked economy followed by Brunei, Georgia and Tonga. Ranking of Luxembourg in Employing Workers - Compared to best practice and selected economies: * The following economies are also best practice economies for Employing Workers: Marshall Islands, Singapore 20 The following table shows Employing Workers data for Luxembourg compared to best practice and comparator economies: Best Practice Economies Rigidity of Nonwage Firing costs Employment labor cost (% (weeks of Index of salary) wages) Bangladesh* 0 Denmark* 0 Hong Kong, China* 0 Selected Economy Luxembourg 62 13 39 Comparator Economies Denmark 10 1 0 Finland 48 26 26 France 56 47 32 Germany 44 19 69 Iceland 28 12 13 Norway 47 14 13 * The following economies are also best practice economies for : Rigidity of Employment Index: Singapore, United States Nonwage labor cost (% of salary): Botswana, Ethiopia, Maldives Firing costs (weeks of wages): New Zealand, United States 21 Registering Property in Luxembourg: Regulation of Property Transfer Property registries were first developed to help raise tax revenue. Defining and publicizing property rights through registries has also proved to be good for entrepreneurs. Land and buildings account for between half and three-quarters of the wealth in most economies. Securing rights to this property strengthens incentives to invest and facilitates commerce. And with formal property titles, entrepreneurs can obtain mortgages on their home or land and start businesses. Doing Business measures the ease of registering property based on a standard case of an entrepreneur who wants to purchase land and a building in the largest business city. It is assumed that the property is already registered and free of title dispute. The data cover the full sequence of procedures necessary to transfer the property title from the seller to the buyer. Every required procedure is included, whether it is the responsibility of the seller or the buyer or must be completed by a third party on their behalf. Local property lawyers and officials in property registries provide information on required procedures as well as the time and cost to complete each one. For most countries the data are based on responses from both. Based on the responses, three indicators are constructed: · Number of procedures to register property. · Time to register property (in calendar days). · Official costs to register property (as a percentage of the property value). A large share of the property in developing countries is not formally registered, limiting financing opportunities for businesses. Recognizing this constraint, some developing country governments have embarked on extensive property titling programs. Yet bringing assets into the formal sector is of little value unless they stay there. Many titling programs in Africa were futile because people bought and sold property informally--neglecting to update the title records in the property registry. Why? Doing Business shows that completing a simple formal property transfer in the largest business city of an African country costs 12% of the value of the property and takes more than 100 days on average. Worse, the property registries are so poorly organized that they provide little security of ownership. For both reasons, formalized titles quickly go informal again. Efficient property registration reduces transaction costs and helps keep formal titles from slipping into informal status. Simple procedures to register property are also associated with greater perceived security of property rights and less corruption. That benefits all entrepreneurs, especially women, the young and the poor. The rich have few problems protecting their property rights. They can afford to invest in security systems and other measures to defend their property. But small entrepreneurs cannot. Reform can change this. 22 1. Historical data: Registering Property in Luxembourg Registering Property data Doing Business 2008 Rank 116 Procedures (number) 8 Duration (days) 29 Cost (% of property value) 10.2 2. The following graph illustrates the Registering Property indicators in Luxembourg over the past 3 years: 29 2. 10 8 edures (number) s) y (day propert ation of ) (% Dur value Cost Proc 2007 23 3. Steps to Registering Property in Luxembourg It requires 8 procedures, takes 29 days, and costs 10.16% GNI per capita to register the property in Luxembourg. List of Procedures: 1. Parties visit notary to draft and authenticate deed 2. Notary conducts full search at property registry 3. Notary conducts search at the cadastre 4. Notary notifies tax administration of transfer and obtains tax clearance 5. Buyer sends funds, fees, taxes and anti-moneylaundering documents to notary 6. Parties return to notary to sign transfer deed in original 7. Notary registers transfer deed at the Administration de l'Enregistrement et des Domaines 8. Notary sends recorded transfer deed to the parties More details are available in the appendix. 24 4. Benchmarking Registering Property Regulations: Luxembourg is ranked 116 overall for Registering Property. New Zealand is the top ranked economy followed by Armenia, Saudi Arabia and Lithuania. Ranking of Luxembourg in Registering Property - Compared to best practice and selected economies: 25 The following table shows Registering Property data for Luxembourg compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) property value) New Zealand* 2 Norway* 1 Saudi Arabia* 0.0 Selected Economy Luxembourg 8 29 10.2 Comparator Economies Denmark 6 42 0.6 Finland 3 14 4.0 France 9 123 6.1 Germany 4 40 5.2 Iceland 3 4 2.4 Norway 1 3 2.5 * The following economies are also best practice economies for : Procedures (number): Sweden Duration (days): Sweden, Thailand Cost (% of property value): Bhutan 26 Getting Credit in Luxembourg: Legal Rights and Credit Information Firms consistently rate access to credit as among the greatest barriers to their operation and growth. Doing Business constructs two sets of indicators of how well credit markets function--one on credit registries and the other on legal rights of borrowers and lenders. Credit registries--institutions that collect and distribute credit information on borrowers--can greatly expand access to credit. By sharing credit information, they help lenders assess risk and allocate credit more efficiently. And they free entrepreneurs from having to rely on personal connections alone when trying to obtain credit. Three indicators are constructed to measure the sharing of credit information: · Public registry coverage, which reports the number of individuals and firms covered by a public credit registry as a percentage of the adult population. · Private bureau coverage, which reports the number of individuals and firms covered by a private credit bureau as a percentage of the adult population. · Depth of credit information index, which measures the extent to which the rules of a credit information system facilitate lending based on the scope of information distributed, the ease of access to information and the quality of information. The data are from surveys of public registries and the largest private credit bureau in the country. Effective regulation of secured lending--through collateral and bankruptcy laws--can also ease credit constraints. By giving a lender the right to seize and sell a borrower's secured assets upon default, collateral limits the lender's potential losses and acts as a screening device for borrowers. The strength of legal rights index measures 10 aspects of the rights of borrowers and creditors in collateral and bankruptcy laws, including whether: · General rather than specific description of assets and debt is permitted in collateral agreements (expanding the scope of assets and debt covered). · Any legal or natural person may grant or take security in assets. · A unified registry operates that includes charges over movable property. · Secured creditors have priority both within bankruptcy and outside it. · Parties may agree on out-of-court enforcement of collateral by contract. · Creditors may both seize and sell collateral out of court, no automatic stay or "asset freeze" applies upon bankruptcy, and the bankrupt debtor does not retain control of the firm. The index ranges from 0 (weak legal rights) to 10 (strong legal rights). The data were obtained by examining collateral and bankruptcy laws and legal summaries and verified through a survey of financial lawyers. Where good-quality credit information is available and legal rights are stronger, more credit is extended. Benefits flow beyond those gaining access to credit. With better-functioning credit markets, unemployment is lower, and women and low-income people benefit the most. 27 1. Historical data: Getting Credit in Luxembourg Getting Credit data Doing Business 2008 Rank 97 Legal Rights Index 6 Public registry coverage (% adults) 0.0 Private bureau coverage (% adults) 0.0 2. The following graph illustrates the Getting Credit indicators in Luxembourg over the past 3 years: 6 0 0 Index erage(% age (% Rights y covs) bureauadu cover) lt lts Legal registradu blic ate Pu Priv 2007 28 3. Benchmarking Getting Credit Regulations: Luxembourg is ranked 97 overall for Getting Credit. United Kingdom is the top ranked economy followed by Hong Kong, China, Germany and Australia. Ranking of Luxembourg in Getting Credit - Compared to best practice and selected economies: 29 The following table shows Getting Credit data for Luxembourg compared to best practice and comparator economies: Best Practice Economies Legal Rights Public Private Index registry bureau coverage (% coverage (% Argentina* 100.0 Hong Kong, China* 10 Portugal 67.1 Selected Economy Luxembourg 6 0.0 0.0 Comparator Economies Denmark 8 0.0 11.5 Finland 6 0.0 14.9 France 6 24.8 0.0 Germany 8 0.7 98.1 Iceland 7 0.0 100.0 Norway 6 0.0 100.0 * The following economies are also best practice economies for : Legal Rights Index: United Kingdom Private bureau coverage (% adults): Australia, Canada, Iceland, Ireland, New Zealand, Nicaragua, Norway, Sweden, United States 30 Protecting Investors in Luxembourg Officials at Elf Aquitaine, France's largest oil company, awarded business deals in return for large side payments. Along with the extra cash, they got seven years in jail and a 2 million fine for abuse of power. Russian oil firm Gazprom purchased materials for new pipelines through intermediaries owned by company officers. The high cost raised eyebrows, but not court battles. Big cases make headlines. But looting by corporate insiders occurs every day on a smaller scale, and often goes unnoticed. To document the protections investors have, Doing Business measures how countries regulate a standard case of self-dealing--use of corporate assets for personal gain. The case facts are simple. Mr. James, a director and the majority shareholder of a public company, proposes that the company purchase used trucks from another company he owns. The price is higher than the going price for used trucks. The transaction goes forward. All required approvals are obtained, and all required disclosures made, though the transaction is unfair to the purchasing company. Shareholders sue the interested parties and the members of the board of directors. Several questions arise. Who approves the transaction? What information must be disclosed? What company documents can investors access? What do minority shareholders have to prove to get the transaction stopped or to receive compensation from Mr. James? Three indices of investor protection are constructed based on the answers to these and other questions. All indices range from 0 to 10, with higher values indicating more protections or greater disclosure. The extent of disclosure index covers approval procedures, requirements for immediate disclosure to the public and shareholders of proposed transactions, requirements for disclosure in periodic filings and reports and the availability of external review of transactions before they take place. The extent of director liability index covers the ability of investors to hold Mr. James and the board of directors liable for damages, the ability to rescind the transaction, the availability of fines and jail time associated with self-dealing, the availability of direct or derivative suits and the ability to require Mr. James to pay back his personal profits from the transaction. The ease of shareholder suits index covers the availability of documents that can be used during trial, the ability of the investor to examine the defendant and other witnesses, shareholders' access to internal documents of the company, the appointment of an inspector to investigate the transaction and the standard of proof applicable to a civil suit against the directors. These three indices are averaged to create the strength of investor protection index. This index ranges from 0 to 10, with higher values indicating better investor protection. If the rights of investors are not protected, majority ownership in a business is the only way to eliminate expropriation. But then investors must devote more oversight attention to fewer investments. The result: entrepreneurship is suppressed, and fewer profitable investment projects are undertaken. Where self-dealing is curbed, equity investment is higher, ownership concentration lower and trust in the business sector deeper. Investors gain portfolio diversification, and entrepreneurs gain access to cash. 31 1. Historical data: Protecting Investors in Luxembourg Protecting Investors data Doing Business 2008 Rank 107 Investor Protection Index 4.3 2. The following graph illustrates the Protecting Investors index in Luxembourg compared to best practice and selected Economies: 7.9 7.5 3.6 7.6 0.5 3.5 3.5 3.4 urg e d y many Iceland Franc Luxembo Ger Finlan Denmark Norwa Zealand New Note: The higher the score, the greater the investor protection. 32 3. Benchmarking Protecting Investors Regulations: Luxembourg is ranked 107 overall for Protecting Investors. New Zealand is the top ranked economy followed by Singapore, Hong Kong, China and Malaysia. Ranking of Luxembourg in Protecting Investors - Compared to best practice and selected economies: 33 The following table shows Protecting Investors data for Luxembourg compared to best practice and comparator economies: Best Practice Economies Investor Protection Index New Zealand 9.7 Selected Economy Luxembourg 4.3 Comparator Economies Denmark 6.3 Finland 5.7 France 5.3 Germany 5.0 Iceland 5.3 Norway 6.7 34 Paying Taxes: Tax Payable and Compliance in Luxembourg Taxes are essential. Without them there would be no money to fund schools, hospitals, courts, roads, water, waste collection and other public services that help businesses to be more productive. Still, there are good ways and bad ways to collect taxes. The Doing Business tax survey records the effective tax that a company must pay and the administrative costs of doing so. Imagine a medium-size business, TaxpayerCo, that started operations last year. Doing Business asked accountants in 178 economies to review TaxpayerCo's financial statements and a standard list of transactions the company completed during the year. Respondents were asked how much tax the business must pay and what the process is for doing so. The business starts from the same financial position in each country. All the taxes and contributions paid during the second year of operation are recorded. Taxes and contributions are measured at all levels of government and include corporate income tax, turnover tax, all labor contributions paid by the company (including mandatory contributions paid to private pension or insurance funds), property tax, property transfer tax, dividend tax, capital gains tax, financial transactions tax, vehicle tax and other small taxes (such as fuel tax, stamp duty and local taxes). A range of standard deductions and exemptions are also recorded. Three indicators are constructed: · Number of tax payments, which takes into account the method of payment or withholding, the frequency of payment or withholding and the number of agencies involved for the standard case. · Time, which measures the hours per year necessary to prepare, file and pay the corporate income tax, value added or sales tax and labor taxes. · Total tax rate, which measures the amount of taxes payable by the company during the second year of operation. This amount, expressed as a percentage of commercial profit, is the sum of all the different taxes payable after accounting for various deductions and exemptions. Businesses care about what they get for their taxes and contributions, such as the quality of infrastructure and social services. Poor countries tend to use businesses as a collection point for taxes. Rich countries tend to have lower tax rates and less complex tax systems. And rich countries get more from their taxes. Simple, moderate taxes and fast, cheap administration mean less hassle for businesses--and also more revenue collected and better public services. More burdensome tax regimes create an incentive to evade taxes. 35 1. Historical data: Paying Taxes in Luxembourg Paying Taxes data Doing Business 2008 Rank 17 Time (hours) 58 Total tax rate (% profit) 35.3 Payments (number) 22 2. The following graph illustrates the Paying Taxes indicators in Luxembourg over the past 3 years: 58 3. 35 22 (number) Time (hours) it) prof (% yments Pa Totaltax rate 2007 36 3. Benchmarking Paying Taxes Regulations: Luxembourg is ranked 17 overall for Paying Taxes. Maldives is the top ranked economy followed by Singapore, Hong Kong, China and United Arab Emirates. Ranking of Luxembourg in Paying Taxes - Compared to best practice and selected economies: * The following economies are also best practice economies for Paying Taxes: Maldives 37 The following table shows Paying Taxes data for Luxembourg compared to best practice and comparator economies: Best Practice Economies Payments Time (hours) Total tax (number) rate (% profit) Sweden* 2 United Arab Emirates* 12 Vanuatu 8.4 Selected Economy Luxembourg 22 58 35.3 Comparator Economies Denmark 9 135 33.3 Finland 20 269 47.8 France 23 132 66.3 Germany 16 196 50.8 Iceland 31 140 27.2 Norway 4 87 42.0 * The following economies are also best practice economies for : Payments (number): Maldives Time (hours): Maldives 38 Trading Across Borders: Importing and Exporting from Luxembourg The benefits of trade are well documented--as are the obstacles to trade. Tariffs, quotas and distance from large markets greatly increase the cost of goods or prevent trading altogether. But with faster ships and bigger planes, the world is shrinking. Global and regional agreements have brought down trade barriers. Yet Africa's share of global trade is smaller today than it was 25 years ago. So is the Middle East's, excluding oil exports. The reason is simple: many entrepreneurs face numerous hurdles to exporting or importing goods. They often give up. Others never try. Doing Business compiles procedural requirements for trading a standard shipment of goods by ocean transport. Every official procedure--and the associated documents, time and cost--for importing and exporting the goods is recorded, starting with the contractual agreement between the two parties and ending with delivery of the goods. For importing the goods, the procedures measured range from the vessel's arrival at the port of entry to the shipment's delivery at the factory warehouse. For exporting the goods, the procedures measured range from the packing of the goods at the factory to their departure from the port of exit. To make the data comparable across countries, several assumptions about the business and the traded goods are used. The business is of medium size, with 100 or more employees, and is located in the periurban area of the country's most populous city. It is a private, limited liability company, domestically owned, formally registered and operating under commercial laws and regulations of the country. The traded goods are ordinary, legally manufactured products, and they travel in a dry-cargo, 20-foot FCL (full container load) container. Documents recorded include port filing documents, customs declaration and clearance documents, and official documents exchanged between the concerned parties. Time is recorded in calendar days, from start to finish of each procedure. Cost measures the fees levied on a 20-foot container in U.S. dollars. All the fees associated with completing the procedures to export or import the goods are included, such as costs for documents, administrative fees for customs clearance and technical control, terminal handling charges and inland transport. The cost measure does not include tariffs or trade taxes. Countries that have efficient customs, good transport networks and fewer document requirements--making compliance with export and import procedures faster and cheaper--are more competitive globally. That leads to more exports--and exports are associated with faster growth and more jobs. Conversely, a need to file many documents is associated with more corruption in customs. Faced with long delays and frequent demands for bribes, many traders avoid customs altogether. Instead, they smuggle goods across the border. That defeats the very purpose in having border control of trade--to levy taxes and ensure high quality of goods. 39 1. Historical data: Trading Across Borders in Luxembourg Trading Across Borders data Doing Business 2008 Rank 32 Documents for export (number) 5 Time for export (days) 6 Cost to export (US$ per container) 1250 Documents for import (number) 4 Time for import (days) 6 Cost to import (US$ per container) 1250 2. The following graph illustrates the Trading Across Borders indicators in Luxembourg over the past 3 years: 1250 1250 5 6 4 6 r export s) $ pe ort s) r (US imp (day $ pe entsumber) for ort (day ort (US exp ner) ents forber) ner) (n import Docum Time for exp to contai (num Cost Docum Time for import to contai Cost 2007 40 3. Benchmarking Trading Across Borders Regulations: Luxembourg is ranked 32 overall for Trading Across Borders. Singapore is the top ranked economy followed by Denmark, Hong Kong, China and Norway. Ranking of Luxembourg in Trading Across Borders - Compared to best practice and selected economies: 41 The following table shows Trading Across Borders data for Luxembourg compared to best practice and comparator economies: Best Practice Economies Documents Time for Cost to Documents Time for Cost to for export export (days) export (US$ for import import (days) import (US$ (number) per (number) per Canada* 3 China 390 Denmark* 5 3 Singapore 3 367 Selected Economy Luxembourg 5 6 1250 4 6 1250 Comparator Economies Denmark 4 5 540 3 5 540 Finland 4 8 420 5 8 420 France 4 11 1028 5 12 1148 Germany 4 7 740 5 7 765 Iceland 5 15 469 5 14 443 Norway 4 7 518 4 7 468 * The following economies are also best practice economies for : Documents for export (number): Estonia, Micronesia, Panama Time for export (days): Estonia, Singapore Documents for import (number): Sweden 42 Enforcing Contracts: Court Efficiency in Luxembourg Where contract enforcement is efficient, businesses are more likely to engage with new borrowers or customers. Doing Business tracks the efficiency of the judicial system in resolving a commercial dispute, following the step-by-step evolution of a commercial sale dispute before local courts. The data are collected through study of the codes of civil procedure and other court regulations as well as surveys completed by local litigation lawyers (and, in a quarter of the countries, by judges as well). The dispute, between two businesses (the Seller and the Buyer) located in the country's most populous city, concerns a contract for the sale of goods. The Seller agrees to deliver the goods, worth 200% of the country's income per capita, to the Buyer. After receiving and inspecting the goods, the Buyer concludes that their quality is inadequate. The Buyer sends the goods back without paying for them. The Seller disagrees and argues that their quality is adequate. The Seller seeks full payment from the Buyer, arguing that the goods cannot be sold to a third party because they were custom-made for the Buyer. The Seller sues the Buyer before the court in the most populous city to recover the amount due under the sales agreement (200% of the country's income per capita). Three indicators of the efficiency of commercial contract enforcement are developed: · Number of procedures, which includes all those that demand interaction between the parties or between them and the judge or court officer. · Time, which counts the number of days from the moment the plaintiff files the lawsuit in court until the moment of payment. This measure includes both the days on which actions take place and the waiting periods between actions. · Cost, which measures the official cost of going through court procedures, expressed as a percentage of the claim (assumed to be equivalent to 200% of income per capita). The cost includes court costs, enforcement costs and attorney fees where the use of attorneys is mandatory or common. Businesses that have little or no access to efficient courts must rely on other mechanisms, both formal and informal--such as trade associations, social networks, credit bureaus or private information channels--to decide whom to do business with and under what conditions. Or they might adopt a conservative approach to business, dealing only with a small group of people linked through kinship, ethnic origin or previous dealings and structuring transactions to forestall disputes. In either case economic and social value may be lost. The main reason to regulate procedures in commercial dispute resolution is that informal justice is vulnerable to subversion by the rich and powerful. But heavy regulation of dispute resolution backfires. Across countries, the more procedures it takes to enforce a contract, the longer the delays and the higher the cost. The result: less wealth is created. 43 1. Historical data: Enforcing Contracts in Luxembourg Enforcing Contracts data Doing Business 2008 Rank 2 Procedures (number) 26 Duration (days) 321 Cost (% of claim) 8.8 2. The following graph illustrates the Enforcing Contracts indicators in Luxembourg over the past 3 years: 321 26 8.8 edures (number) s) (day claim) of ation (% Dur Cost Proc 2007 44 3. Benchmarking Enforcing Contracts Regulations: Luxembourg is ranked 2 overall for Enforcing Contracts. Hong Kong, China is the top ranked economy followed by Luxembourg, Latvia and Singapore. Ranking of Luxembourg in Enforcing Contracts - Compared to best practice and selected economies: 45 The following table shows Enforcing Contracts data for Luxembourg compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) claim) Bhutan 0.1 Ireland 20 Singapore 120 Selected Economy Luxembourg 26 321 8.8 Comparator Economies Denmark 34 380 23.3 Finland 33 235 10.4 France 30 331 17.4 Germany 33 394 11.8 Iceland 26 393 6.1 Norway 33 310 9.9 46 Closing Business in Luxembourg: Bankruptcy The economic crises of the 1990s in emerging markets--from East Asia to Latin America, from Russia to Mexico--raised concerns about the design of bankruptcy systems and the ability of such systems to help reorganize viable companies and close down unviable ones. In countries where bankruptcy is inefficient, unviable businesses linger for years, keeping assets and human capital from being reallocated to more productive uses. The Doing Business indicators identify weaknesses in the bankruptcy law as well as the main procedural and administrative bottlenecks in the bankruptcy process. In many developing countries bankruptcy is so inefficient that creditors hardly ever use it. In countries such as these, reform would best focus on improving contract enforcement outside bankruptcy. The data on closing a business are developed using a standard set of case assumptions to track a company going through the step-by-step procedures of the bankruptcy process. It is assumed that the company is a domestically owned, limited liability corporation operating a hotel in the country's most populous city. The company has 201 employees, 1 main secured creditor and 50 unsecured creditors. Assumptions are also made about the debt structure and future cash flows. The case is designed so that the company has a higher value as a going concern--that is, the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. The data are derived from questionnaires answered by attorneys at private law firms. Three measures are constructed from the survey responses: the time to go through the insolvency process, the cost to go through the process and the recovery rate--how much of the insolvency estate is recovered by stakeholders, taking into account the time, cost, depreciation of assets and the outcome of the insolvency proceeding. Bottlenecks in bankruptcy cut into the amount claimants can recover. In countries where bankruptcy is used, this is a strong deterrent to investment. Access to credit shrinks, and nonperforming loans and financial risk grow because creditors cannot recover overdue loans. Conversely, efficient bankruptcy laws can encourage entrepreneurs. The freedom to fail, and to do so through an efficient process, puts people and capital to their most effective use. The result is more productive businesses and more jobs. 47 1. Historical data: Closing Business in Luxembourg Closing a Business data Doing Business 2008 Rank 46 Time (years) 2.0 Cost (% of estate) 15 Recovery rate (cents on the dollar) 41.6 2. The following graph illustrates the Closing Business indicators in Luxembourg over the past 3 years: 6. 41 15 2 the (cent) s on Time (years) e) estat of (% ry ratedollar Cost Recove 2007 48 3. Benchmarking Closing Business Regulations: Luxembourg is ranked 46 overall for Closing a Business. Japan is the top ranked economy followed by Singapore, Norway and Canada. Ranking of Luxembourg in Closing Business - Compared to best practice and selected economies: 49 The following table shows Closing Business data for Luxembourg compared to best practice and comparator economies: Best Practice Economies Recovery Time (years) Cost (% of rate (cents estate) on the Colombia 1 Ireland* 0.4 Japan 92.6 Selected Economy Luxembourg 41.6 2.0 15 Comparator Economies Denmark 87.0 1.1 4 Finland 88.2 0.9 4 France 47.4 1.9 9 Germany 53.4 1.2 8 Iceland 80.3 1.0 4 Norway 90.7 0.9 1 * The following economies are also best practice economies for : Time (years): Cape Verde 50 APPENDICES Starting a Business in Luxembourg This table summarizes the procedures and costs associated with setting up a business in Luxembourg. STANDARDIZED COMPANY Legal Form: Socièté a Responsabilité Limitée (SARL) Minimum Capital Requirement: EUR 12,500 City: Luxembourg Registration Requirements: No: Procedure Time to complete Cost to complete 1 Deposit the minimum capital requirement 1 day no charge 2 Verify uniqueness of company name and reserve name 3 days EUR 6 3 Notary drafts and notarizes the company deed 2 days EUR2 4 * Apply for business license 20 days, simultaneous EUR 24 with previous procedure 5 * Register at the Chamber of Commerce's one-stop shop 4 days, simultaneous EUR 1,375 with previous procedure 6 Unblock the authorized capital 1 day no charge * Takes place simultaneously with another procedure. 51 Procedure 1 Deposit the minimum capital requirement Time to complete: 1 day Cost to complete: no charge Comment: The promoters must open a "blocked" bank account in the name of the company in formation before formalizing the company statutes and must transfer statutory capital to this account before signature of the notarial deed. For notarial purposes, the bank will remit a blocking certificate (certificat de blocage). The bank account is automatically unblocked on delivery of a certified copy of the notarial deed of incorporation. Procedure 2 Verify uniqueness of company name and reserve name Time to complete: 3 days Cost to complete: EUR 6 Comment: Shareholders are free to choose the company's name but must ensure that it is unique. Uniqueness can be verified with the Trade and Companies Register. The Register rejects the registration of a company if the name already exists. However, company names cannot be reserved with the Trade and Companies Register. The company name may include the name of the shareholders or may assume a corporate name. In practice, the notary public checks and reserves the proposed company name with the Commercial Registry. Procedure 3 Notary drafts and notarizes the company deed Time to complete: 2 days Cost to complete: EUR2 Comment: A private limited liability company must be incorporated before a notary public. The notary draws up a deed based on model articles of incorporation found on the Internet. (The national Chamber of Commerce's Espace Entreprises information center can help incorporators complete model documents.) The notary is obliged to collect an initial payment for all incorporation fees and taxes. These incorporation fees include a tax of 1% calculated on statutory capital (droit d'apport). All the other cost elements will remain within EUR 1,000­2,000. The notary must provide a detailed account after the newly created corporation is announced. Procedure 4 Apply for business license Time to complete: 20 days, simultaneous with previous procedure Cost to complete: EUR 24 Comment: Commercial activities require an establishment permit. Pursuant to domestic law or the provisions of European directives, this permit is issued by the Ministry of Middle Classes upon request and on proof of knowledge of business management. To apply for a business license, promoters must submit the following documents: - Application form (completed and signed) for an establishment permit. - Tax stamp for 24 EUR. The amount can be transferred to the national Giro account (CCP) of the Registration and Domains Administration (Administration de l'Enregistrement et des Domaines): LU47 1111 0087 9262 0000, with the reference: 52 "Office Fee for Establishment Permit [ENTER APPLICANT'S NAME]." In this case, proof of payment must be presented. The tax stamp can also be obtained from the Espace Entreprises information center. - For nonresidents and persons residing in Luxembourg for fewer than 5 years, a recent notarized certificate of nonbankruptcy. - Articles of association (executed or draft) for a commercial company. - School certificates or professional diplomas (certified by the institution) required for the intended activity. Otherwise, proof of relevant professional experience such as an EU certificate or certificate of registration with a social security authority. - An affidavit on the exercise of any management posts previously held in Luxembourg, for verification of nonbankruptcy. - The applicant's identity card (copy). - The applicant's police record or affidavit. Note: This applies to nonresidents and persons residing in Luxembourg for less than 5 years. The business permit application can be submitted before executing the notary deed because the Ministry of the Middle Classes checks the draft articles of association--the company name, business purpose, and identity of directors and officers for compliance with the provisions of the Law of Establishment. Generally, the business permit application and notary deed processes start more or less at the same time and are pursued simultaneously. Although the company incorporation process requires a notary, the founder may directly register the company with different administrations and obtain identification numbers and the business license. Procedure 5 Register at the Chamber of Commerce's one-stop shop Time to complete: 4 days, simultaneous with previous procedure Cost to complete: EUR 1,375 Comment: The notary public must levy an initial payment for all applicable company incorporation fees and taxes, including registration costs. A tax on incorporation is levied of 1% calculated on the statutory capital (droit d'apport). Within 4 weeks, the notary must register (a) the statutes with the tax administration (Administration de l'Enregistrement) at the Chamber of Commerce's one-stop shop; and (b) the company with the Commercial Registry, within 4 weeks of company incorporation. The Commercial Register arranges for publication in the Official Gazette, according to the Companies Act, within 2 months of company registration. Upon 24 hours of registration, the Commercial Registry will generate an administrative or official (register) number that accompanies the company during its corporate life (matricule). This number forms the basis for all other identification numbers to be issued by the administration for direct taxes (tax number), the administration for indirect taxes (VAT number), or the social security service (pay-as-you-earn number and employer number). Applications can be filed for both VAT and social security at the one-stop, which distributes the forms to the relevant administrations. Company registration with the Chamber of Commerce is done automatically. Procedure 6 Unblock the authorized capital Time to complete: 1 day Cost to complete: no charge Comment: On incorporating the company, the notary public immediately issues a release certificate (certificate de déblocage), indicating that the company has come into existence and listing the corporate officers' identities. This certificate will be sent to the bank for the release of the capital. 53 Dealing with Licenses in Luxembourg The table below summarizes the procedures, time, and costs to build a warehouse in Luxembourg. BUILDING A WAREHOUSE Date as of: January 2,007 Estimated Warehouse Value: City: Luxembourg Registration Requirements: No: Procedure Time to complete Cost to complete 1 Obtain a recent copy of the cadastre plans from the Cadastre 1 day EUR 10 Administration 2 Obtain approval in principle (accord de principe) 60 days EUR 60 3 * Obtain Commodo/Incommodo Classe 3 approval from the 120 days no charge Environmental Administration 4 * Obtain a building permit from the Urban Department (service de 90 days EUR 960 l'urbanisme) of the municipality 5 * Obtain an excavation permit from the Ministry of Works 60 days EUR 10 6 * Hire an independent inspection company to carry out inspections of 1 day EUR 4,552 construction works 7 Request and receive an inspection of completed works from the 1 day no charge Environmental Administration 8 Request and receive sewerage (canalization) inspection 1 day no charge 9 Obtain a feasibility study for the sewerage (canalization) connection 30 days EUR 1,950 10 * Obtain sewerage (canalization) connection 30 days no charge 11 * Obtain water connection 5 days EUR 3,000 12 * Obtain electricity connection 30 days EUR 1,000 13 * Obtain telephone connection 30 days EUR 200 * Takes place simultaneously with another procedure. 54 Procedure 1 Obtain a recent copy of the cadastre plans from the Cadastre Administration Time to complete: 1 day Cost to complete: EUR 10 Comment: Procedure 2 Obtain approval in principle (accord de principe) Time to complete: 60 days Cost to complete: EUR 60 Comment: Although not required, obtaining an "approval in principle" of the architectural plans facilitates the process for obtaining the environmental, road (excavation), and building permits. Procedure 3 Obtain Commodo/Incommodo Classe 3 approval from the Environmental Administration Time to complete: 120 days Cost to complete: no charge Comment: An environmental clearance is required if the warehouse is to be used for storing more than 100 metric tons of paper products. Procedure 4 Obtain a building permit from the Urban Department (service de l'urbanisme) of the municipality Time to complete: 90 days Cost to complete: EUR 960 Comment: The building permit is valid for a year. The building plans must be conform to the master plan of the city of Luxembourg. The application file comprises an application form, a cadastral extract, and the building design plans. Various departments within the Commune must approve the application, including all the utility and the fire safety departments. The Commune charges EUR 24 as an application processing fee and EUR 0.24 per cubic meter. Procedure 5 Obtain an excavation permit from the Ministry of Works Time to complete: 60 days Cost to complete: EUR 10 Comment: Assuming the warehouse is to be built near a main road, BuildCo must obtain an excavation permit to dig for utility connections. The Ministry of Public Works charges a stamp duty of EUR 10. Procedure 6 Hire an independent inspection company to carry out inspections of construction works Time to complete: 1 day Cost to complete: EUR 4,552 55 Comment: BuildCo must hire an independent inspection company to perform inspections during construction, which costs about 0.5% of construction value. Procedure 7 Request and receive an inspection of completed works from the Environmental Administration Time to complete: 1 day Cost to complete: no charge Comment: The Environmental Administration inspects the completed building to ensure that it complies with the environmental clearance obtained prior to construction. Procedure 8 Request and receive sewerage (canalization) inspection Time to complete: 1 day Cost to complete: no charge Comment: Procedure 9 Obtain a feasibility study for the sewerage (canalization) connection Time to complete: 30 days Cost to complete: EUR 1,950 Comment: BuildCo applies for a water connection and requests water services from the Commune to prepare an estimate for all the costs associated with the water/sewerage connection. Procedure 10 Obtain sewerage (canalization) connection Time to complete: 30 days Cost to complete: no charge Comment: BuildCo applies for a sewerage connection and requests water services from the Commune in order to prepare an estimate for all the costs associated with the sewerage connection. Procedure 11 Obtain water connection Time to complete: 5 days Cost to complete: EUR 3,000 Comment: Procedure 12 Obtain electricity connection Time to complete: 30 days Cost to complete: EUR 1,000 56 Comment: The Commune or the Electrical Company of the Great Duchy of Luxemburg (Compagnie Grand-Ducale d'Electricite du Luxembourg, CEGEDEL) provides a cost estimate. The connection takes place after BuildCo has received the road approval. Procedure 13 Obtain telephone connection Time to complete: 30 days Cost to complete: EUR 200 Comment: Post and Telecomunications (Poste et télécommunications, P&T) provides a cost estimate. The connection takes place after BuildCo has received the road approval. 57 Employing Workers in Luxembourg Employing workers indices are based on responses to survey questions. The table below shows these responses in Luxembourg. Employing Workers Indicators (2007) Answer Score Rigidity of Employment Index 62.2 Difficulty of Hiring Index 66.7 Are fixed-term contracts prohibited for permanent tasks? Yes 1 What is the maximum duration of fixed-term contracts (including renewals)? (in months) 24 1.0 What is the ratio of mandated minimum wage to the average value added per worker? 0.21 0.00 Rigidity of Hours Index 80.0 Can the workweek extend to 50 hours (including overtime) for 2 months per year to respond to a No 1 seasonal increase in production? What is the maximum number of working days per week? 6 0 Are there restrictions on night work? Yes 1 Are there restrictions on "weekly holiday" work? Yes 1 What is the paid annual vacation (in working days) for an employee with 20 years of service? 25 1 Difficulty of Firing Index 40.0 Is the termination of workers due to redundancy legally authorized? Yes 0 Must the employer notify a third party before terminating one redundant worker? Yes 1 Does the employer need the approval of a third party to terminate one redundant worker? No 0 Must the employer notify a third party before terminating a group of 25 redundant workers? Yes 1 Does the employer need the approval of a third party to terminate a group of 25 redundant No 0 workers? Can an employer make redundant a worker only if the worker could not have been reassigned or Yes 1 retrained? Are there priority rules applying to redundancies? No 0 Are there priority rules applying to re-employment? Yes 1 Firing costs (weeks of wages) 39.0 What is the notice period for redundancy dismissal after 20 years of continuous employment? 26.0 (weeks of salary) 58 What is the severance pay for redundancy dismissal after 20 years of employment? (weeks of 13.0 salary) What is the legally mandated penalty for redundancy dismissal? (weeks of salary) 0.0 Nonwage labor cost (% of salary) 13.4 Note: The first three indices measure how difficult it is to hire a new worker, how rigid the regulations are on working hours, and how difficult it is to dismiss a redundant worker. Each index assigns values between 0 and 100, with higher values representing more rigid regulations. The overall Rigidity of Employment Index is an average of the three indices. 59 Registering Property in Luxembourg This topic examines the steps, time, and cost involved in registering property in Luxembourg. STANDARDIZED PROPERTY Property Value: 3,802,000.00 City: Luxembourg Registration Requirements: No: Procedure Time to complete Cost to complete 1 Parties visit notary to draft and authenticate deed 1 - 2 days 1 EUR stamp per page of the deed (5 pages) 2 * Notary conducts full search (recherche per case 1 day in person EUR 2.48 for full search hypothecaire) at property registry (Bureau des (simultaneous with Hypotheques) procedure 3) 3 * Notary conducts search at the cadastre 1 day in person no cost (simultaneous with procedure 2) 4 Notary notifies tax administration of transfer and 1 day in person no cost obtains tax clearance, stating all property taxes are settled 5 Buyer sends funds, fees, taxes and 2 days EUR 4765.5 notary fees + anti-moneylaundering documents to notary 6% market value of property (registration fee) + 3% market value of property (municipal surcharge within city of Luxembourg) + 1% market value of property (transcription duty) 6 Parties return to notary to sign transfer deed in original 1 - 2 days already paid in procedure 5 7 Notary registers transfer deed at the Administration de 3 - 5 days to record already paid in procedure l'Enregistrement et des Domaines + 14 days to send a 5 copy of the registered deed 8 Notary sends recorded transfer deed to the parties 1 - 2 days already paid in procedure 5 * Takes place simultaneously with another procedure. 60 Procedure 1 Parties visit notary to draft and authenticate deed Time to complete: 1 - 2 days Cost to complete: 1 EUR stamp per page of the deed (5 pages) Comment: After signing a 'compromis de vente' agreement between themselves, as per common practice, the parties will visit a notary so he can draft and authenticate the notarial deed. The sale is complete between the parties, and ownership is acquired as of right by the buyer with respect to the seller, as soon as the thing and the price have been agreed upon, although the thing has not yet been delivered or the price paid (Article 1583 of the Civil Code). As a sale of real estate must be registered (which triggers the payment of registration taxes) and recorded in the mortgage registry in order to be enforceable vis-à-vis third parties and as only duly certified deeds may be entered in the register, the sale must be recorded in a notarial deed ("acte de vente"). It is sometimes preferable for each party to appoint its own notary (in which case, the notaries' fee is split between the two notaries). Here we assume the case of only one notary. The notary is deemed a public official with powers delegated by the state to authenticate the deeds he drafts and provides complete security to the contracts he supervises. The authenticity of the deeds grants the parties an undisputable date and content in Court. The law imposes a personal liability on the notary for his professional acts which is more extensive than that of other branches of the legal profession. There are 36 notaries, 13 of those in Luxembourg canton, in the Grand-Duchy of Luxembourg and the sale may be drawn up in front of anyone of them. The time period which is necessary to obtain an appointment with the notary public depends on the availability of such notary (holiday season, etc.). This study assume that parties would call on day one and receive an appointment for the same or following day. Procedure 2 Notary conducts full search (recherche per case hypothecaire) at property registry (Bureau des Hypotheques) Time to complete: 1 day in person (simultaneous with procedure 3) Cost to complete: EUR 2.48 for full search Comment: The notary may go in person to the Bureau des Hypotheques to request and receive either a 'releve des inscriptions hypothecaires' (containing a list of mortgages) at a cost of EUR 0.50, or a 'recherche par case hypothecaire' (containing a list of all land transactions effected by the landowner together with that of every mortgage or charge burdening the property) at a cost of EUR 2.48. For purposes of certainty, in this study we consider the latter option. Procedure 3 Notary conducts search at the cadastre Time to complete: 1 day in person (simultaneous with procedure 2) Cost to complete: no cost Comment: The notary should also check the status of the property at the cadastre. Procedure 4 Notary notifies tax administration of transfer and obtains tax clearance, stating all property taxes are settled Time to complete: 1 day in person 61 Cost to complete: no cost Comment: The notary visits the tax administration office to notify them that the property will be sold. The tax administration office confirms that the property has no claims or unpaid taxes on it. If there are outstanding claims or taxes, the tax administration may register a judicial mortgage on the property. Procedure 5 Buyer sends funds, fees, taxes and anti-moneylaundering documents to notary Time to complete: 2 days Cost to complete: EUR 4765.5 notary fees + 6% market value of property (registration fee) + 3% market value of property (municipal surcharge within city of Luxembourg) + 1% market value of property (transcription duty) Comment: The buyer will pay the taxes, fees and funds for the property by wire transfer to the notary, in addition to notarial fees. Notarial fees are determined by the Regulation of 24 July, 1971 on the revision of notary fees. The buyer must also send anti-moneylaundering documentation to the notary at this time, regarding the origin of the funds he is using. Procedure 6 Parties return to notary to sign transfer deed in original Time to complete: 1 - 2 days Cost to complete: already paid in procedure 5 Comment: Procedure 7 Notary registers transfer deed at the Administration de l'Enregistrement et des Domaines Time to complete: 3 - 5 days to record + 14 days to send a copy of the registered deed Cost to complete: already paid in procedure 5 Comment: The notary registers the transfer deed at the Administration de l'Enregistrement et des Domaines, which charges the transfer duty to the notary. The Administration will record the transfer, making it opposable to third parties, after two to five days. The Administration will also send the deed to the Administration du Cadastre for registration of the new owner there. It will take the Cadastre about two weeks to record the new owner. At the same time, the Administration will take about two weeks to send a copy of the registered deed, with the stamp of the Administration and a reference number on it, back to the notary. This document would be needed in practice to use the property to obtain a loan from a bank. The registration, municipal and inscription fees are paid by the parties to the notary, who pays the Administration. Procedure 8 Notary sends recorded transfer deed to the parties Time to complete: 1 - 2 days Cost to complete: already paid in procedure 5 Comment: Once he receives it, the notary will send the registered deed to the parties. 62 Getting Credit in Luxembourg The following table summarize legal rights of borrowers and lenders, and the availability and legal framework of credit registries in Luxembourg. Getting Credit Indicators (2007) Indicator Private credit Public credit Private bureau coverage (% adults) 0 bureau registry Are data on both firms and individuals distributed? No No 0 Are both positive and negative data distributed? No No 0 Does the registry distribute credit information from retailers, trade creditors or No No 0 utility companies as well as financial institutions? Are more than 2 years of historical credit information distributed? No No 0 Is data on all loans below 1% of income per capita distributed? No No 0 Is it guaranteed by law that borrowers can inspect their data in the largest No No 0 credit registry? Coverage 0.0 0.0 Number of individuals 0 0 Number of firms 0 0 Legal Rights Index 6 Does the law allow all natural and legal persons to be party to collateral agreements? Yes Does the law allow for general descriptions of assets, so that all types of assets can be used as collateral? No Does the law allow for general descriptions of debt, so that all types of obligations can be secured? Yes Does a unified registry exist for all security rights in movable property? No Do secured creditors have absolute priority to their collateral outside bankruptcy procedures? Yes Do secured creditors have absolute priority to their collateral in bankruptcy procedures? Yes During reorganization, are secured creditors' claims exempt from an automatic stay on enforcement? No During reorganization, is management's control of the company's assets suspended? Yes Does the law authorize parties to agree on out of court enforcement? Yes May parties have recourse to out of court enforcement without restrictions? No 63 Protecting Investors in Luxembourg The table below provides a full breakdown of how the disclosure, director liability, and shareholder suits indexes are calculated in Luxembourg. Protecting Investors Data (2007) Indicator Disclosure Index 6 What corporate body provides legally sufficient approval for the transaction? (0-3; see notes) 2 Immediate disclosure to the public and/or shareholders (0-2; see notes) 2 Disclosures in published periodic filings (0-2; see notes) 1 Disclosures by Mr. James to board of directors (0-2; see notes) 1 Requirement that an external body review the transaction before it takes place (0=no, 1=yes) 0 Director Liability Index 4 Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to 1 the company. (0-2; see notes) Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for 1 damage to the company. (0-2; see notes) Whether a court can void the transaction upon a successful claim by a shareholder plaintiff (0-2; see 0 notes) Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the 1 shareholder plaintiff (0=no, 1=yes) Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff (0=no, 1=yes) Whether fines and imprisonment can be applied against Mr. James (0=no, 1=yes) 1 Shareholder plaintiff's ability to sue directly or derivatively for damage the transaction causes to the 0 company (0-1; see notes) Shareholder Suits Index 3 Documents available to the plaintiff from the defendant and witnesses during trial (0-4; see notes) 3 Ability of plaintiffs to directly question the defendant and witnesses during trial (0-2; see notes) 0 Plaintiff can request categories of documents from the defendant without identifying specific ones (0=no, 0 1=yes) Shareholders owning 10% or less of Buyer's shares can request an inspector investigate the transaction 0 (0=no, 1=yes) Level of proof required for civil suits is lower than that for criminal cases (0=no, 1=yes) 0 Shareholders owning 10% or less of Buyer's shares can inspect transaction documents before filing suit 0 (0=no, 1=yes) 64 Investor Protection Index 4.3 Notes: Extent of Disclosure Index What corporate body provides legally sufficient approval for the transaction? 0=CEO or managing director alone; 1=shareholders or board of directors vote and Mr. James can vote; 2=board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote Immediate disclosure to the public and/or shareholders 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures in published periodic filings 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures by Mr. James to board of directors 0=none; 1=existence of a conflict without any specifics; 2= full disclosure of all material facts Director Liability Index Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company 0= Mr. James is not liable or liable only if he acted fraudulently or in bad faith; 1= Mr. James is liable if he influenced the approval or was negligent; 2= Mr. James is liable if the transaction was unfair, oppressive or prejudicial to minority shareholders Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for damage to the company 0=members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1=liable for negligence in the approval of the transaction; 2=liable if the transaction is unfair, oppressive, or prejudicial to minority shareholders Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0=rescission is unavailable or available only in case of Seller's fraud or bad faith; 1=available when the transaction is oppressive or prejudicial to minority shareholders; 2=available when the transaction is unfair or entails a conflict of interest Shareholder plaintiffs' ability to sue directly or derivatively for damage the transaction causes to the company 0=not available; 1=direct or derivative suit available for shareholders holding 10% of share capital or less Shareholder Suits Index Documents available to the plaintiff from the defendant and witnesses during trail Score 1 each for (1) information that the defendant has indicated he intends to rely on for his defense; (2) information that directly proves specific facts in the plaintiff's claim; (3) any information that is relevant to the subject matter of the claim; and (4) any information that may lead to the discovery of relevant information. Ability of plaintiffs to directly question the defendant and witnesses during trial 0=no; 1=yes, with prior approval by the court of the questions posed; 2=yes, without prior approval 65 Paying Taxes in Luxembourg The table below addresses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year in Luxembourg, as well as measures of administrative burden in paying taxes. Tax or mandatory Payments Notes on Time Statutory tax Tax Totaltax rate Notes on contribution (number) Payments (hours) rate base (% profit) TTR Value added tax (VAT) 1 online filing 23 15.0% value added not included Stamp duty 1 Euro paper size small amount 1.86-9.92 Vehicle tax 1 varies vehicle 0.01 weight Insurance tax 1 4.0% insurance 0.08 premium Net wealth tax 1 online filing 0.5% equity 0.12 Waste disposal 1 varies waste weight 0.14 Property tax 1 online filing 0.9% to 1% 0.27 of unitary value Fuel tax 1 included in 1.26 fuel price Municipal tax 1 online filing 6.8% taxable 3.77 profits Corporate income tax 1 online filing 21 22.9% taxable 12.91 profits Social security 12 14 12.31% to gross 16.71 contributions 14.56% salaries Totals 22 58 35.3 66 Notes: a) data not collected b) VAT is not included in the total tax rate because it is a tax levied on consumers c) very small amount d) included in other taxes e) Withheld tax f) electronic filling available g) paid jointly with another tax Name of taxes have been standardized. For instance income tax, profit tax, tax on company's income are all named corporate income tax in this table. When there is more than one statutory tax rate, the one applicable to TaxpayerCo is reported. The hours for VAT include all the VAT and sales taxes applicable. The hours for Social Security include all the hours for labor taxes and mandatory contributions in general. 67 Trading Across Borders in Luxembourg These tables list the procedures necessary to import and exports a standardized cargo of goods in Luxembourg. The documents required to export and import the goods are also shown. Nature of Export Procedures (2007) Duration (days) US$ Cost Documents preparation 2 300 Customs clearance and technical control 2 100 Ports and terminal handling 1 350 Inland transportation and handling 1 500 Totals 6 1250 Nature of Import Procedures (2007) Duration (days) US$ Cost Documents preparation 2 300 Customs clearance and technical control 2 100 Ports and terminal handling 1 350 Inland transportation and handling 1 500 Totals 6 1250 Export Bill of lading Commercial invoice Packing list Single Administrative Document (Customs export declaration) Transit document Import Bill of lading Commercial invoice Packing list Single Administrative Document (Customs import declaration) 68 Enforcing Contracts in Luxembourg This topic looks at the efficiency of contract enforcement in Luxembourg. Nature of Procedure (2007) Indicator Procedures (number) 26.00 Duration (days) 321.00 Filing and service 21.0 Trial and judgment 240.0 Enforcement of judgment 60.0 Cost (% of claim)* 8.77 Attorney cost (% of claim) 6.0 Court cost (% of claim) 1.9 Enforcement Cost (% of claim) 0.9 Court information: Luxembourg District Court, ("Tribunal d'arrondissement siégeant en matière Commercial Section commerciale") * Claim assumed to be equivalent to 200% of income per capita. 69