Doing Business 2017 Ukraine Economy Profile 2017 Ukraine Doing Business 2017 Ukraine 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 Ukraine 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 17 Dealing with conustruction permits ........................................................................................ 24 Getting electricity ....................................................................................................................... 39 Registering property .................................................................................................................. 49 Getting credit .............................................................................................................................. 62 Protecting minority investors ................................................................................................... 68 Paying taxes ................................................................................................................................ 76 Trading across borders .............................................................................................................. 82 Enforcing contracts .................................................................................................................... 90 Resolving insolvency .................................................................................................................. 98 Labor market regulation ......................................................................................................... 108 Distance to frontier and ease of doing business ranking .................................................... 114 Resources on the Doing Business website ............................................................................ 117 Doing Business 2017 Ukraine 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is provides data for other selected economies (comparator for a local entrepreneur to open and run a small to economies) for each indicator. The data in this report are medium-size business when complying with relevant current as of June 1, 2016 (except for the paying taxes regulations. It measures and tracks changes in indicators, which cover the period January–December regulations affecting 11 areas in the life cycle of a 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 Ukraine. To allow useful comparison, it also Doing Business 2017 Ukraine 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 Ukraine 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: Europe & Central Asia 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: 45,198,200 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 2,620 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2017 rank: 80 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2016 rank: 81* 0 represents the worst performance and 100 the frontier. Change in rank: 1 (See the chapter on the distance to frontier and ease of doing business). DB 2017 DTF: 63.9 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2016 DTF: 62.77 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 1.13 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 Ukraine 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 Ukraine 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 Ukraine 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 Ukraine 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Ukraine (Scale: Rank 190 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Ukraine (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 Ukraine 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 Ukraine 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 Ukraine 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 Ukraine Kyrgyz Republic DB2017 Best performer globally Kazakhstan DB2017 Russian Federation Moldova DB2017 Ukraine DB2017 Ukraine DB2016 Belarus DB2017 Poland DB2017 Indicator DB2017 DB2017 Starting a Business 20 24 31 45 30 44 107 26 1 (New Zealand) (Rank) Starting a Business (DTF 94.40 93.88 92.91 91.94 92.95 91.96 84.22 93.57 99.96 (New Zealand) Score) Procedure – Men 4.0 4.0 5.0 5.0 4.0 5.0 4.0 3.7 1.0 (New Zealand) (number) Time – Men (days) 5.0 7.0 5.0 9.0 10.0 6.0 37.0 9.8 0.5 (New Zealand) Cost – Men (% of 0.5 0.6 0.6 0.3 2.0 6.2 12.1 1.0 0.0 (Slovenia) income per capita) Procedure – Women 4.0 4.0 5.0 5.0 4.0 5.0 4.0 3.7 1.0 (New Zealand) (number) Time – Women (days) 5.0 7.0 5.0 9.0 10.0 6.0 37.0 9.8 0.5 (New Zealand) Cost – Women (% of 0.5 0.6 0.6 0.3 2.0 6.2 12.1 1.0 0.0 (Slovenia) income per capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 0.0 0.0 10.9 0.0 0.0 (127 Economies*) of income per capita) Dealing with 140 137 28 22 32 165 46 115 1 (New Zealand) Construction Permits Doing Business 2017 Ukraine 12 Kyrgyz Republic DB2017 Best performer globally Kazakhstan DB2017 Russian Federation Moldova DB2017 Ukraine DB2017 Ukraine DB2016 Belarus DB2017 Poland DB2017 Indicator DB2017 DB2017 (Rank) Dealing with Construction Permits 61.42 61.36 78.32 79.05 76.74 54.14 75.15 65.86 87.40 (New Zealand) (DTF Score) Procedures (number) 10.0 10.0 16.0 13.0 11.0 27.0 12.0 13.7 7.0 (4 Economies*) Time (days) 67.0 67.0 115.0 68.0 142.0 276.0 153.0 239.3 28.0 (Korea, Rep.) Cost (% of warehouse 0.1 (Trinidad and 15.2 15.2 0.7 1.3 1.8 0.7 0.3 1.4 value) Tobago) Building quality control 8.0 8.0 13.0 10.0 11.0 12.0 10.0 10.0 15.0 (Luxembourg*) index (0-15) Getting Electricity 130 140 24 75 163 73 46 30 1 (Korea, Rep.) (Rank) Getting Electricity (DTF 58.45 54.84 86.01 73.64 44.05 74.60 81.35 84.37 99.88 (Korea, Rep.) Score) Procedures (number) 5.0 5.0 4.0 7.0 7.0 6.0 4.0 3.0 3.0 (15 Economies*) Time (days) 281.0 263.0 105.0 77.0 125.0 87.0 122.0 160.5 18.0 (Korea, Rep.*) Cost (% of income per 637.6 795.3 119.3 50.6 858.1 738.4 19.0 44.1 0.0 (Japan) capita) Reliability of supply and transparency of tariff 6.0 5.0 8.0 7.0 0.0 7.0 7.0 8.0 8.0 (26 Economies*) index (0-8) Registering Property 63 62 5 18 8 21 38 9 1 (New Zealand) (Rank) Registering Property 69.61 69.44 92.19 83.72 90.60 82.92 76.49 90.55 94.46 (New Zealand) (DTF Score) Procedures (number) 7.0 7.0 2.0 3.0 3.0 5.0 6.0 3.0 1.0 (4 Economies*) Doing Business 2017 Ukraine 13 Kyrgyz Republic DB2017 Best performer globally Kazakhstan DB2017 Russian Federation Moldova DB2017 Ukraine DB2017 Ukraine DB2016 Belarus DB2017 Poland DB2017 Indicator DB2017 DB2017 Time (days) 23.0 23.0 3.0 3.5 3.5 5.5 33.0 15.0 1.0 (3 Economies*) Cost (% of property 1.9 2.0 0.0 0.1 0.2 0.9 0.3 0.2 0.0 (Saudi Arabia) value) Quality of the land administration index (0- 15.5 15.5 23.5 16.0 24.5 22.0 19.5 26.0 29.0 (Singapore) 30) Getting Credit (Rank) 20 19 101 75 32 32 20 44 1 (New Zealand) Getting Credit (DTF 75.00 75.00 45.00 55.00 70.00 70.00 75.00 65.00 100.00 (New Zealand) Score) Strength of legal rights 8.0 8.0 2.0 4.0 8.0 8.0 7.0 6.0 12.0 (3 Economies*) index (0-12) Depth of credit 7.0 7.0 7.0 7.0 6.0 6.0 8.0 7.0 8.0 (30 Economies*) information index (0-8) Credit registry coverage 0.0 0.0 70.1 0.0 0.0 0.0 0.0 0.0 100.0 (3 Economies*) (% of adults) Credit bureau coverage 40.0 36.7 0.0 52.0 30.6 11.4 92.5 77.2 100.0 (23 Economies*) (% of adults) Protecting Minority 70 101 42 3 42 42 42 53 1 (New Zealand*) Investors (Rank) Protecting Minority 56.67 50.00 63.33 80.00 63.33 63.33 63.33 60.00 83.33 (New Zealand*) Investors (DTF Score) Strength of minority investor protection 5.7 5.0 6.3 8.0 6.3 6.3 6.3 6.0 8.3 (New Zealand) index (0-10) Extent of conflict of interest regulation 4.7 4.0 5.7 8.0 6.7 6.3 6.0 5.0 9.3 (New Zealand) index (0-10) Extent of shareholder 6.7 6.0 7.0 8.0 6.0 6.3 6.7 7.0 8.3 (Norway) governance index (0- Doing Business 2017 Ukraine 14 Kyrgyz Republic DB2017 Best performer globally Kazakhstan DB2017 Russian Federation Moldova DB2017 Ukraine DB2017 Ukraine DB2016 Belarus DB2017 Poland DB2017 Indicator DB2017 DB2017 10) 1 (United Arab Paying Taxes (Rank) 84 83 99 60 148 31 47 45 Emirates) Paying Taxes (DTF 99.44 (United Arab 72.72 72.99 70.4 79.54 56.43 84.76 82.73 82.96 Score) Emirates) Payments (number per 3.0 (Hong Kong SAR, 5.0 5.0 7.0 7.0 51.0 10.0 7.0 7.0 year) China*) Time (hours per year) 355.5 346.0 176.0 178.0 225.0 181.0 271.0 168.0 55.0 (Luxembourg) Total tax rate (% of 51.9 52.2 54.8 29.2 29.0 40.4 40.4 47.4 26.1 (32 Economies*) profit) Postfiling index (0-100) 79.3 50.0 49.1 36.9 91.4 92.2 98.5 (Estonia) Trading across Borders 115 110 30 119 79 34 1 140 1 (10 Economies*) (Rank) Trading across Borders 100.00 (10 64.26 65.15 93.71 63.19 74.91 92.32 100.00 57.96 (DTF Score) Economies*) Time to export: Border 26 26 5 133 20 3 0 96 0 (18 Economies*) compliance (hours) Cost to export: Border 75 75 108 574 445 76 0 765 0 (18 Economies*) compliance (USD) Time to export: Documentary 96 96 4 128 21 48 1 25 1 (25 Economies*) compliance (hours) Cost to export: Documentary 292 292 140 320 145 44 0 92 0 (19 Economies*) compliance (USD) Time to import: Border 72 52 1 2 37 4 0 96 0 (25 Economies*) compliance (hours) Doing Business 2017 Ukraine 15 Kyrgyz Republic DB2017 Best performer globally Kazakhstan DB2017 Russian Federation Moldova DB2017 Ukraine DB2017 Ukraine DB2016 Belarus DB2017 Poland DB2017 Indicator DB2017 DB2017 Cost to import: Border 100 100 0 0 512 83 0 1125 0 (28 Economies*) compliance (USD) Time to import: Documentary 168 168 4 6 36 2 1 43 1 (29 Economies*) compliance (hours) Cost to import: Documentary 212 212 0 0 200 41 0 153 0 (30 Economies*) compliance (USD) Enforcing Contracts 81 93 27 9 141 62 55 12 1 (Korea, Rep.) (Rank) Enforcing Contracts 58.96 57.11 70.36 75.70 48.57 60.87 63.44 74.96 84.15 (Korea, Rep.) (DTF Score) Time (days) 378.0 378.0 275.0 370.0 410.0 585.0 685.0 337.0 164.0 (Singapore) Cost (% of claim) 46.3 46.3 23.4 22.0 47.0 28.6 19.4 16.5 9.0 (Iceland) Quality of judicial 9.0 8.0 9.0 13.0 4.0 9.5 10.5 11.0 15.5 (Australia) processes index (0-18) Resolving Insolvency 150 148 69 37 130 60 27 51 1 (Finland) (Rank) Resolving Insolvency 27.50 27.92 49.08 69.17 34.08 52.61 76.37 56.69 93.89 (Finland) (DTF Score) Recovery rate (cents on 7.5 8.3 33.1 41.4 34.3 28.1 60.6 38.6 92.9 (Norway) the dollar) Time (years) 2.9 2.9 1.5 1.5 1.5 2.8 3.0 2.0 0.4 (22 Economies*) Cost (% of estate) 42.0 42.0 20.0 15.0 15.0 15.0 15.0 9.0 1.0 (22 Economies*) Strength of insolvency 7.5 7.5 10.0 15.0 5.0 12.0 14.0 11.5 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 Ukraine 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 Ukraine 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 Ukraine 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 Ukraine 19 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Ukraine? mandatory for both men and women. Most indicator sets According to data collected by Doing Business, starting a refer to a case scenario in the largest business city of an business there requires 4.0 procedures , takes 5.0 days, economy, except for 11 economies for which the data costs 0.5% of income per capita for men, and requires are a population-weighted average of the 2 largest 4.0 procedures , takes 5.0 days, costs 0.5% of income per business cities. See the chapter on distance to frontier capita for women. A requirement of paid-in minimum and ease of doing business ranking at the end of this capital of 0.0% of income per capita (figure 2.1) is legally profile for more details. Figure 2.1 What it takes to start a business in Ukraine Paid-in minimum capital (% of income per capita): 0.0 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 Ukraine 20 STARTING A BUSINESS Globally, Ukraine stands at 20 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 Ukraine to The rankings for comparator economies and the regional start a business. Figure 2.2 How Ukraine and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2017 Ukraine 21 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Ukraine (table 2.1)? Table 2.1 How has Ukraine made starting a business easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Ukraine eased business start-up by substantially reducing the DB2011 minimum capital requirement. Ukraine made starting a business easier by eliminating the DB2012 requirement to obtain approval for a new corporate seal. Ukraine made starting a business easier by eliminating the minimum capital requirement for company incorporation as DB2013 well as the requirement to have incorporation documents notarized. Ukraine made starting a business easier by eliminating the DB2014 requirement for registration with the statistics authority and by eliminating the cost for value added tax registration. Ukraine made starting a business easier by reducing the time required for VAT registration and by eliminating business DB2016 registration fees. 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 Ukraine 22 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Ukraine is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Tovarystvo z Obmezhenoyu firm. These are identified by Doing Business through Vidpovidalnistyu - Limited Liability Company collaboration with relevant local professionals and the study of laws, regulations and publicly available Paid-in minimum capital requirement: UAH 0 information on business entry in that economy. City: Kiev 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 Ukraine Time to No. Procedure Cost to complete complete Register at the Registration Office Currently, the LLC founders to enforce its registration must submit to the registrar or notary the following documents according to Art. 17 of the Law of Ukraine "On State Registration of Legal Entities, Individual Entrepreneurs and Public Formations" No.755-IV, dated May 15, 2003: - application form (the format of application form is standard and is approved with the order of Ministry of Justice of Ukraine dated 6 January 2016 No. 15/5); - LLC company's charter executed by the founders. Information about individual beneficiary owners is to be specified in the 3 days no charge 1 text of application form itself and is not a separate document, as it was in 2015. Minutes of General Participants Meeting on the decision of the establishment of legal entity are not included to the above list, nevertheless, registrars (either state registrars or notaries) usually request this document to be submitted. Agency: State Registrar, Notary Prepare a seal The use of a company seal is not mandated by law but the seal is widely UAH 190-250, use in practice. The Registrar itself requires for documents to be sealed. 1 day depending on the 2 complexity of a seal Courts and state authorities usually accept powers of attorney issued by legal entities only if they are sealed. Otherwise they demand the POA to be notarized. Banks require payment orders to be sealed only if a Doing Business 2017 Ukraine 23 Time to No. Procedure Cost to complete complete specimen signature card (one of the documents a company needs to provide to the bank while opening an account) contains not only signatures of company’s authorized officials, but also the seal. Certificates and applications that are signed by a company’s official but not sealed are still considered by state authorities as not trustworthy unless they have been signed in front of a state official. Among the exceptions are tax records, as tax authorities accept them in paper form without the seal if a signee marks the record with “w/s” (“without seal”). Agency: Sealmaker Open a permanent bank account According to the regulation № 212 of the National bank of Ukraine "On Alteration to some regulation acts of the National bank of Ukraine" dated June 06, 2013, the list of required documents for opening of the bank account for the Legal Entity is as follows: a) bank signature specimen card certified by a notary is replaced by card with samples of signature and imprint of seal; b) the copy of extract from Unified State registrar of Entities and Entrepreneurs needs to be presented (http://zakon4.rada.gov.ua/laws/show/z1121-13); c) an application for opening a bank account and d) a notarized copy of the legal entity's charter. In case a limited liability company did not open a bank account prior to the state registration of a limited liability company, the bank, Pursuant to the Tax Code, must notify the tax inspection about the account opening within 1 business day after the account opening. Within three business days after receiving a notification from the bank, the tax 1 day no charge 3 inspection must notify the bank on registration of the account or about refusal to register the account. In practice, notification of the tax inspection by bank and receiving answer from the tax inspection takes 1-2 business days. A limited liability company may use its account for outflow operations only after the bank receives notification from the tax inspection on registration of the respective account. According to the Tax Code Amendments and the Notification Order, the bank shall notify the Ministry of Duties and Revenues of Ukraine via Internet about the account opening within 1 business day. After receiving the electronic notification through the Internet portal, a local tax authority within 1 business day shall notify the bank about registration of the account/refusal to register the account (if applicable). Agency: Bank Doing Business 2017 Ukraine 24 Time to No. Procedure Cost to complete complete Register VAT at the State Tax Authority and obtain a VAT number As defined in Law No. 71-VIII On Amendments to the Tax Code of Ukraine and some Legislative Acts of Ukraine Concerning Tax Reform which went into effect on January 1, 2015, if the total amount of transactions with delivery of goods or/and services, including the use of local or global computer network, charged (paid) during last 12 calendar months, totally exceeds UAH 1 million (excluding VAT), such company is obliged to register as VAT taxpayer, except single tax payer company. Actually, Art. 182 of the above mentioned Tax Code also provides option for voluntarily VAT taxpayer registration. 4 2 days free of charge The Government of Ukraine issued an Order of the Ministry of Finance № 185/26630 “On Amendments to the Regulation on registration of taxpayers VAT” on February 2, 2015, which came into effect on March 30, 2015. The aforementioned order stipulates that the VAT registration shall be made within 3 working days after filing the registration statement to the state authority. In the future, the filing of the VAT registration statement will be done electronically. The online system is not yet operational in practice. Agency: District Tax Office * 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 Ukraine 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 Ukraine 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 Ukraine 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 Ukraine? According to data collected by which the data are a population-weighted average of the Doing Business, dealing with construction permits there 2 largest business cities. See the chapter on distance to requires 10.0 procedures, takes 67.0 days and costs frontier and ease of doing business ranking at the end of 15.2% 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 Ukraine 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 Ukraine 28 DEALING WITH CONSTRUCTION PERMITS Globally, Ukraine stands at 140 in the ranking of 190 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Ukraine to legally build a warehouse. Figure 3.2 How Ukraine and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2017 Ukraine 29 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Ukraine (table 3.1)? Table 3.1 How has Ukraine made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Ukraine made dealing with construction permits easier by DB2011 implementing national and local regulations that streamlined procedures. Ukraine made dealing with construction permits easier by introducing a risk-based approval system, eliminating DB2014 requirements for certain approvals and technical conditions and simplifying the process for registering real estate ownership rights. 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 Ukraine 30 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Ukraine are based BUILDING A WAREHOUSE 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 UAH 2,276,025 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Kiev 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 Ukraine Time to No. Procedure Cost to complete complete Request and obtain technical conditions from water and sewage authority The application must include the plan, information on the expected volume of water and sewerage system use, and basic characteristics of the building. A fee estimated to UAH 2,895.00 might be paid by BuildCo. The 1 calculation of such fees is based on estimated labor expenditures 21 days UAH 2,895 in accordance with the Rules on using the central sewage and water supply systems as approved by Order of Ministry of Housing and Communal Services of Ukraine No. 190, from June 27, 2008 as further amended. Agency: Kyivvodokanal Joint Stock Company Request and obtain technical terms and conditions on fire safety from the State Service of Ukraine for Emergency Situations According to the Decree of the Ministry of Defense of Ukraine from November 14, 2013 № 771 "On approval of rules on providing technical conditions on fire and technological security for engineering provisions of construction projects" the technical 19 days no charge *2 conditions for fire and technological safety are provided by the State Service of Ukraine for Emergency Situations and its territorial bodies free of charge within 15 working days from the date of receipt of the application. Agency: State Service of Ukraine for Emergency Situations Doing Business 2017 Ukraine 31 Time to No. Procedure Cost to complete complete Request and obtain urban planning specifications and requirements for land plot development To obtain urban development specifications and requirements, BuildCo submits the documents (to the Main Department of Architecture and Urban Planning of the Kyiv City State Administration) provided by the Law on Urban Planning, Order Ministry of Regional Development dated July 07, 2011. № 109 "On approval of the provision of urban conditions and restrictions land development, their structure and content" and the Cabinet of Ministers of Ukraine of December 07, 2005 № 1176. The architectural and technical objectives/conditions are part of the input data needed for designing the project. Resolution 489 of the Cabinet of Ministers "On Approval of the Procedure for Issuance of the Benchmark Data for the Designing of Town Planning Objects"dated May 20, 2009 develops provisions of Law of Ukraine No. 509-VI dated September 16, 2008. Under Regulation No. 489, the benchmark data include: • City planning conditions • Technical conditions • Design assignment The city planning conditions and restrictions are based on the respective city development rules (Rules of Development of Kiev City). These should not interfere with the engineering and 9 days no charge *3 architectural solutions of the project, unless only required by the need to protect the existing architectural, historical or cultural environment. The form of the city planning conditions and restrictions has been approved by the same Regulation No. 489. In order to obtain the city planning conditions and restrictions, BuildCo should submit to the Main Department of the City- Planning, Architecture and Urban Environment Design of the Kiev City State Administration the application together with the notarized copies of its foundation documents and of the documents confirming its land title as well as pre-design documents, if any. The documents are checked for compliance with the city development rules (Rules of Development of Kiev City) within 10 days upon receipt of the documents. In case of the positive outcome of such a compliance check, the city planning conditions and restrictions are issued to the developer (BuildCo) within 2 weeks. If, however, the outcome is negative, the respective conclusion and recommendations on elimination on noncompliance is issued within a one-month term. If the developer's intention to construct the property does not comply with the city planning documentation, it can initiate the proceeding for the amendment of such documentation by filing a respective application with the Main Department of the City- Planning, Architecture and Urban Environment Design of the Kiev City State Administration which decides on the matter within 2 weeks in coordination with the relevant bodies (land resources, environmental and cultural protection authorities, sanitary and Doing Business 2017 Ukraine 32 Time to No. Procedure Cost to complete complete epidemiological stations) and submits its respective proposals to the Kiev City Council for the final approval. The implementation of the relevant practice of issuing city planning conditions and restrictions to developers has already started in Kiev. Upon obtaining of the city planning conditions and restrictions, the developer should apply for the technical conditions. These include the data on engineering and utility servicing of the to-be constructed property (the warehouse), including the sources of supply, connection points as well as the basic engineering parameters of the property. The city planning conditions and restrictions as well as the technical conditions are valid until completion of construction, but for the term not less than 2 and not longer than 5 years and they can be extended at the request of the developer. The design assignment should comply with the city planning conditions and terms and refine the benchmark for design, with account for the specific features of the project. The design assignment is developed and approved by the developer and is provided to the general designer for the project. Agency: Chief Department of Town-Planning and Architecture of the Kiev City State Administration Pay contribution to the city social and engineering-transport infrastructure As of January 27, 2007 according the Resolution of the Cabinet of Ministers of Ukraine, No. 40 which updates the Decree of Kiev City Council from February 27, 2003 "On shared participation (shares) of investors (Building Owners) creation of city social and engineering-transport infrastructure in Kiev City", the building which is set into operation will be approved only after paying the obligatory share of participation fees of investor into development of social, civil, engineering and traffic infrastructure of the city of Kyiv. The amount of such contribution is defined by the Chief Department of Economics and Investments of the Kyiv Municipal State Administration in certificate on approval on the stage of elaborating the project documentation. 1 day UAH 227,603 *4 According to Law of Ukraine "On Alteration of Some Legislative Acts of Ukraine Regarding Assistance of the Construction", dated September 16, 2008, No. 509-VI, there is a new order on paying the contribution to the city social and engineering-transport infrastructure. This amends the relevant Law of Ukraine “On the Planification and Building-up of the Territories”, dated April 20, 2000, No. 1699-III. Under this amendment the following main features are introduced: • BuildCo should sign agreement with local municipal council (the Kyiv City Administration), where the terms of paying contribution to the city social and engineering-transport infrastructure (hereinafter -- “contribution payment”) is to be stipulated; such agreement should be signed before building permit obtaining Doing Business 2017 Ukraine 33 Time to No. Procedure Cost to complete complete • BuildCo should pay contribution payment after finishing the warehouse construction, but not later than one month after it • Contribution payment should not exceed 10% of warehouse construction budget (4% for residential buildings), excluding expenses related to obtaining the land plot for construction, installation building utility facilities and transport communications. • If technical terms and conditions establish need for building new utility facilities outside of the land plot, the amount of contribution payment should be decreased by the cost of such expenses. • Contribution payment should not be charged for rendering services, performing of works or transferring of any assets for benefits of local authorities. The Decision of Kyiv City Council, dated December 302012 No.573/5385 stipulates special conditions for calculating contribution payment in paragraph 6.1: B o b = n j * s * k, where: B ob - the amount of share participation developer (investor) for the construction project in the j-industry and national economic complex of the city; nj - standard amount of share participation developers (investors) in the creation of social, engineering and transport infrastructure of the city of Kiev with the assessment of the socio-economic value of construction projects for the city in the j-industry and national economic complex, their function; s - the total area of the object for which the contribution rate is determined; k - summarizing the correction factor. Generalizing the correction factor (k) is calculated for the following formula: from k = kz * I i, wherein kz - zonal coefficient; I i - an index that takes into account inflation since 01.01.2009 before the month in which the calculation is carried out. It should be noted that the standard unit of investor participation in the construction of a warehouse in the tables in Appendix 16 is not defined. This structure can be regarded as "other non-residential premises" in the table. 2, for which the norm is 45.6 USD per 1 m. m total area, or "other production areas" in the table. 3, for which the standard 54.4 USD per 1 m. of the total area. Zonal coefficient depending on the area of construction as shown in Table 4 will be from 1 to 2.5 (areas where, in practice, are built warehouses), however, coefficient 2 would be most likely for the areas where warehouses are built. Inflation index since 2009 (according to the State Statistics Committee) is 132. The amount of share participation in the construction of a warehouse area of 1,300.6 square meters will be: B ob = 54.4 * Doing Business 2017 Ukraine 34 Time to No. Procedure Cost to complete complete 1300.6 * 1.32 * 2 = 186,787. However, since this amount exceeds the 10% of the construction value, the contribution would be limited to 10% of the warehouse value. Agency: Kiev City Administration Hire a technical supervision firm/engineer BuildCo is required to hire a licensed firm to conduct technical supervision of construction throughout the construction period. The market price for technical supervision services is about 5- *5 10% of construction costs. For a simple project the cost would be 1 day UAH 113,801 closer to 5%. Agency: Licensed private firms Submit declaration of the beginning of construction works The procedure is regulated by the Law of Ukraine "On regulation of urban development" of March 12, 2011. BuildCo must notify the State Inspection of Architecture and Construction Control in Kiev about the start of construction works before it is allowed to conduct any construction activities. According to Article 36 of the Law, applicant shall obtain the right to perform construction work on objects related to I - III categories of complexity (including warehouse, which falls under the category II building), after the registration of the declaration of the beginning of construction work. 6 In accordance with the Cabinet of Ministers of Ukraine "Some 7 days no charge questions of preparatory and construction works" № 466 dated April 13, 2011, the declaration must be registered at the Inspectorate of State Architectural and Construction Control in Kiev within 5 working days from the date of submission. If inspection is not registered within the prescribed period, the applicant on the basis of "tacit consent" acquires the right to perform construction work on the 11th working day from the date when the declaration had to be registered or returned. Agency: State Inspection of Architecture and Construction Control in Kiev Request and connect to water and sewage services The exact total price and other terms for connection the warehouse to water and sewage services should be stipulated in 4 days UAH 700 7 the agreement between the BuildCo as the customer and Kyivvodokanal Joint Stock Company as the supplier on the basis of project documentation elaborated for the purpose of connection. Therefore the cost provided above should be Doing Business 2017 Ukraine 35 Time to No. Procedure Cost to complete complete deemed as an average approximate cost. Agency: Kyivvodokanal Joint Stock Company Prepare and submit declaration of readiness to operate the constructed warehouse to the State Inspection of Architectural and Building Control The procedure for obtaining permission to start the operation of a newly constructed building is regulated by the Resolution of the Cabinet of Ministers of Ukraine dated April 13, 2011 № 461 on "The acceptance of the completed construction projects" and the Law of Ukraine "On regulation of urban development." The case study warehouse will be assigned to category II or III of complexity. According to the above regulations, and laws, the acceptance for operation of building within categories I-III is 14 days no charge 8 carried out by the registration at the State Inspection of Architecture and Construction Control and its territorial bodies. The builder has to file a declaration of readiness to put the newly constructed building into operation. Registration of the declaration of readiness is done free of charge within 10 working days from the date of application. The date of acceptance of a building in the I-III categories of complexity is the date of registration of the declaration of readiness. Agency: State Inspectorate Obtain a postal address for the newly constructed building Once the construction is completed, BuildCo’s in-house engineers conduct a final topographic survey of the completed structure and the land plot. After that, BuildCo must submit an application to the Kiev City Cadastre in order to obtain a postal address and must attach the final topographic survey. The application shall include the following documents: - A copy of an extract from the Unified State Register of Legal Entities and individual entrepreneurs; - Duly approved design documentation of the construction; 14 days no charge 9 - Duly certified copy of the contribution in the creation of social and engineering and transport infrastructure of Kiev (if available). The Cadastre Service of the Department of City Planning and Architecture within 10 working days of receipt of the application processes the submitted materials and prepares a draft order of the Department of City Planning and Architecture on assigning an address to the object of new construction. The address is registered in the registry of addresses. Agency: Chief Department of Town-Planning and Architecture of the Kiev City State Administration Doing Business 2017 Ukraine 36 Time to No. Procedure Cost to complete complete Register the warehouse with the Registration Service of the Chief Department of Justice in the City of Kyiv The issuance of the ownership certificate and the registration of ownership rights are done with the same authority, during one single procedure. Effective January 1, 2013, the procedure for property registration was changed due to amendments to the Law “On State Registration of Property Rights to Real Estate and Their Encumbrances” as of July 1st 2004 No. 1952-VI. By this reform, the registration of ownership rights to real estate is conducted according to the “Procedure on State Registration of Property Rights to Real Estate and Their Encumbrances” as approved by the Resolution of the Cabinet of Ministers of Ukraine as of June 22nd 2011, No. 703. With this reform, the power to conduct the state registration of ownership rights to real estate and issue such title documents to real estate as the ownership certificates has been transferred to the State Registration Service of Ukraine, which is coordinated by the Ministry of Justice of Ukraine. The registration shall be performed within the new State Register of Property Rights to Real Estate. 10 7 days UAH 239 Upon performance of the state registration of ownership rights to warehouse, the BuildCo shall obtain: (1) the certificate confirming ownership rights to real property, and (2) extract from the State Register of Property Rights to Real Estate, both issued by Registration Service of the Chief Department of Justice in the city of Kyiv. The term for state registration of the BuildCo’s ownership rights to warehouse shall not exceed 14 business days as from the date of filing the application by BuildCo. In accordance with the amendments to the Decree of the Cabinet Ministers of Ukraine No. 7-93 as of 21 January 1993 "On State Duty", the state duty to be paid by BuildCo for state registration equals to 7 tax-exempt minimum incomes, which amounts to UAH 119. In addition, BuildCo must pay UAH 120 for the ownership certificate. Agency: Registration Service of the Chief Department of Justice in the City of Kyiv * 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 Ukraine 37 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 Ukraine Answer Score Building quality control index (0-15) 8.0 Which third-party entities are required by law to verify that the building plans are in compliance with existing building . 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) 0.0 Which third-party entities are required by law to verify that the building plans are in compliance with existing building . 0.0 regulations? (0-1) Quality control during construction index (0-3) 2.0 Inspections by in-house engineer; Inspections by external engineer or What types of inspections (if any) are required by law to be firm; Inspections at 1.0 carried out during construction? (0-2) various phases; No inspections are legally required during construction. Mandatory inspections Do legally mandated inspections occur in practice during are always done in 1.0 construction? (0-1) practice. Quality control after construction index (0-3) 3.0 Is there a final inspection required by law to verify that the Yes, in-house engineer building was built in accordance with the approved plans and submits report for final 2.0 regulations? (0-2) inspection. Final inspection always Do legally mandated final inspections occur in practice? (0-1) 1.0 occurs in practice. Doing Business 2017 Ukraine 38 Answer Score Liability and insurance regimes index (0-2) 1.0 Which parties (if any) are held liable by law for structural flaws or Architect or engineer; problems in the building once it is in use (Latent Defect Liability 1.0 Construction company. 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) 0.0 Minimum number of What are the qualification requirements for the professional years of experience; responsible for verifying that the architectural plans or drawings 0.0 Passing a certification are in compliance with existing building regulations? (0-2) exam. Minimum number of What are the qualification requirements for the professional who years of experience; 0.0 supervises the construction on the ground? (0-2) Passing a certification exam. Source: Doing Business database. Doing Business 2017 Ukraine 39 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 Ukraine 40 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 Ukraine 41 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 Ukraine? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 5.0 procedures, which the data are a population-weighted average of the takes 281.0 days and costs 637.6% 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 Ukraine 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 Ukraine 42 GETTING ELECTRICITY Globally, Ukraine stands at 130 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 Ukraine to connect The rankings for comparator economies and the regional a warehouse to electricity. Figure 4.2 How Ukraine and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2017 Ukraine 43 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in Ukraine practices and internal wiring installations. In an effort to (table 4.1)? Table 4.1 How has Ukraine made getting electricity easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Ukraine made getting electricity easier by streamlining the DB2014 process for obtaining a new connection. Source: Doing Business database. Doing Business 2017 Ukraine 44 GETTING ELECTRICITY What are the details? The indicators reported here for Ukraine are based on a OBTAINING AN ELECTRICITY CONNECTION* set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility: JSC Kievenergo identified by Doing Business. Data are collected from the distribution utility, then completed and verified by Price of electricity electricity regulatory agencies and independent (US cents per kWh): 9.1 professionals such as electrical engineers, electrical contractors and construction companies. The electricity City: Kiev distribution utility surveyed is the one serving the area (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 Ukraine Time to No. Procedure Cost to complete complete Submit application to Kievenergo and await technical conditions The customer submits to Kievenergo an application for an electricity connection. Attached to the application the customer has to submit a number of documents: a letter with a company seal requesting the connection, bank details of the applicant, company statute, registration certificate from the tax authorities, registration certificate of the company, certificate stating that the company is included in the national company registry, document stating the appointment of the CEO, property ownership certificate and location plan of the property to be connected. After reviewing the application Kievenergo issues technical 1 conditions. The technical conditions concern only the external 30 calendar days UAH 0 connection. In general they may include instructions for construction of a new substation; lining of high-voltage and low-voltage cables; in a case of reconstruction works - participation of the subscriber in the given actions. The application for technical conditions is submitted to the Department of Development (департамент перспективного развития) at Kievenergo which is then internally passed on to the Regional Office in the particular area of Kiev where the warehouse is located and the regional office determines the point of connection. Technicians in the Doing Business 2017 Ukraine 45 Time to No. Procedure Cost to complete complete Regional offices know the network and the substations in their area very well and usually do not need to visit the site for preparation of technical conditions. At this point the connection contract is concluded which outlines the responsibilities between the customer and the utility. Agency: Kievenergo Await project design of external connection by private firm and its approval Once the technical conditions are issued the customer hires a licensed project design company to prepare the electrical project design of the external connection. As part of the project design the company prepares a topogeodesic plan (топогеодезическую съемку М 1:500). The topogeodosic plan is prepared to determine the technical aspects of running cable through the landscape. While the project is being developed the approval of the location of the substation connection to the network and/or the route of the cable 10 kV and 0.4 kV has to be obtained from Kievenergo and from the Main Architectural Planning Organization. At this point the customer should have an operation permit for the warehouse or Main Plan with the Landscape Allocation Plan. The approvals are obtained by the project design firm. Considering the load (140 kW) when receiving an approval of the project of external connection from Kievenergo it is required to attach the project of the internal wiring of the warehouse which at this point should 2 be approved as part of the general architectural design of the 90 calendar days UAH 41,900 warehouse. While the project is being developed the approval of the location of the substation connection to the network and/or the route of the cable 10 kV and 0.4 kV has to be obtained from Kievenergo and from the Main Architectural Planning Organization. At this point the customer should have an operation permit for the warehouse or Main Plan with the Landscape Allocation Plan. The approvals are obtained by the project design firm. If a substation is required before the project design is submitted for approval to Kievenergo it will have to be approved at the State Energy Inspectorate (Energonadzor/“Dergenergonaglyadu”). Considering the load (140 kW) when receiving an approval of the project of external connection from Kievenergo it is required to attach the project of the internal wiring of the warehouse which at this point should be approved as part of the general architectural design of the warehouse. Doing Business 2017 Ukraine 46 Time to No. Procedure Cost to complete complete Agency: Project design firm Await completion of external connection works Once the external connection design is ready and approved, the customer needs to make the payments for the connection. Kievenergo will select a contractor on a tender base who will under utility's supervision obtain the necessary permits and carry out the 120 calendar days UAH 248,324 3 works. Agency: Kievenergo Conclude supply contract with Kievenergo (Energosbyt) Before turning on the power, the customer has to first conclude a supply contract with Kievenergo (Energosbyt). The supply contract can be concluded only after all the inspections are completed. The documents for the supply contract can be presented in the office or 4 sent by mail. It is required to submit a number of documents regarding 20 calendar days UAH 0 internal wiring including a Technical Report of the tests of the internal wiring which should be completed after the internal wiring was finished by an electrician. Agency: Energosbyt (Kievenergo) Request and receive turn-on of power by Kievenergo Once supply agreement is concluded, the customer can visit the dispatcher department of Kievenergo and request power turn on. The dispatcher department processes the order which permits it to turn off 5 the 10 kV cable line, do the testing of the high voltage cable and finally 21 calendar days UAH 0 turn on the electricity for the substation. Agency: Kievenergo * Takes place simultaneously with previous procedure. Source: Doing Business database. Doing Business 2017 Ukraine 47 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 Ukraine Answer Score Reliability of supply and transparency of tariff index (0-8) 6.0 Total duration and frequency of outages per customer a year (0-3) 2.0 System average interruption duration index (SAIDI) 3.52 System average interruption frequency index (SAIFI) 1.74 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) 0.0 Does the utility either pay compensation to customers or face fines by No 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://kyivenergo. Doing Business 2017 Ukraine 48 Answer Score ua/ee- company/tarifi Are customers notified of a change in tariff ahead of the billing cycle? Yes Price of electricity (US cents per kWh) 9.1 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 Ukraine 49 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 Ukraine 50 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Ukraine? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 7.0 procedures, takes which the data are a population-weighted average of the 23.0 days and costs 1.9% 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 15.5 this profile for more details. Figure 5.1 What it takes to register property in Ukraine 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 Ukraine 51 REGISTERING PROPERTY Globally, Ukraine stands at 63 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 Ukraine to transfer property. Figure 5.2 How Ukraine and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2017 Ukraine 52 REGISTERING PROPERTY Economies worldwide have been making it easier for the time required substantially—enabling buyers to use entrepreneurs to register and transfer property—such as or mortgage their property earlier. What property by computerizing land registries, introducing time limits registration reforms has Doing Business recorded in for procedures and setting low fixed fees. Many have cut Ukraine (table 5.1)? Table 5.1 How has Ukraine made registering property easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Ukraine made property transfers faster by introducing an DB2013 effective time limit for processing transfer applications at the land cadastre in Kiev. Ukraine made transferring property easier by streamlining DB2014 procedures and revamping the property registration system. 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 Ukraine 53 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: UAH 2,276,025 notaries and property registries. These procedures are those that apply to a transaction matching the City: Kiev 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 Ukraine Time to No. Procedure Cost to complete complete Assess the price of the land The document on expert evaluation of the price of immovable property can be provided by the experts having certified qualification for providing such services. The procedure of evaluation of the expert price of the immovable property is quite complex and includes certain evaluation tools and calculation methods. Expert evaluation of the price 10 days UAH 1,000 1 of immovable property is required before the notarization of the agreement. Agency: Legal entities which are licenced by the State Center of the Land Cadastre Obtain the extract from the State Center of the Land Cadastre The extract from State Land Cadastre contains full information about the land plot (owner, location, use restrictions, encumbrances etc). The notary may not attest the agreement without such extract. The procedure is governed by Article 38 of the Law 'On State Land Cadastre' and Paragraphs 162 - 186 of the CMU Resolution No 1051. While the UAH 68 CMU Resolution No 1051 allows the notary to obtain the extract 10 days 2 electronically, this option is not available for technical reasons. The Seller shall submit the following documents to obtain the extract: - application in accordance with established form; - document confirming payment of fee for issuance of the extract; Doing Business 2017 Ukraine 54 Time to No. Procedure Cost to complete complete - document confirming powers of the person to request and obtain the extract. In addition to the above documents, the Seller shall present original document confirming ownership rights to the land plot (e.g. a state act of ownership rights) and personal identification document. The extract is valid for 3 months. From 31 August 2015 notary has on-line access to the State Land Cadastre and includes cost of obtaining the extract from the State Land Cadastre into the notary fees. In addition, the extract from the State Centre of the Land Cadastre can be also provided through Administration Service Centre. In this case an applicant may order the document (excerpt from the State Land Cadastre about a land plot) online, but will have to visit the Administration Service Centre in order to receive the document. Agency: State Service for Geodesy, Cartography and Cadastre - (Derzhgeocadastre) Notary registers ownership rights for seller in the new State Register of Property Rights to Immovable Property From January 01, 2013, a new State Register of Property Rights to Immovable Property (“Register of Property Rights”) has been launched. Unlike the State Land Cadastre, which automatically absorbed information about all existing land plots from the (no longer active) State UAH 1500 notary Register of Lands, the Register of Property Rights does not contain fee information about the ownership rights to immovable property which UAH 120 for the have been registered before January 01, 2013. For this reason, prior to execution of the Property sale and purchase agreement, the Seller has to initial registration register ownership rights to the Property in the new Register of Property Less than a day of the land in the Rights. (online new registry of 3 procedure) ownership rights UAH 120 for the Registration of Seller's ownership rights to the Property is performed by initial registration the notary attesting the sale and purchase agreement. The of the warehouse Seller shall provide to the notary: - ownership documents to the Property; - application in accordance with established form; - documents confirming payment of registration fees. Doing Business 2017 Ukraine 55 Time to No. Procedure Cost to complete complete The notary: (1) checks the Seller’s ownership documents; (2) records Seller's ownership rights in the Register of Property Rights; and (3) issues an extract from the Register of Property Rights confirming Seller’s ownership rights to the Property. " Starting from January 01, 2016 registration of ownership rights for seller in the new State Register of Property Rights to Immovable Property is not mandatory. The notary may skip this step and proceed directly with the registration of the ownership right of the buyer regardless of the fact that the property to be acquired has not been registered with the Register of Property Rights. Procedures 3-7 are being completed simultaneously at the notary's office. However, the procedure is still widelly implemented in practice. Agency: Notary Obtain the extract from the State Register of Encumbrances over movable property The notary will verify through this procedure that the tax authorities have Less than a day not registered a security interest over the real property. Since January UAH 34 (online 4 2013, the notaries can obtain this information online. procedure) Agency: Notary Check for encumbrances at the State Registry of Property Rights on Immovable Property UAH 51 for the Seller's LLC UAH 51 for Notary searches the former State Register of Ownership Rights to Immovable Property, State Register of Mortgages, State Register of Less than a days checking against Immovable Property Alienation Bans and State Register of Encumbrances (online; encumbrances on over Movable Property. simultaneous land 5 with procedures 6 UAH 51 for From January 01, 2013, three state registers containing information & 7) checking against about encumbrances on immovable property: encumbrances on (1) State Register of Mortgages; warehouse (2) State Register of Immovable Property Alienation Bans; and (3) State Register of Encumbrances over Movable Property (in respect of tax liens) – are inactive. These registers serve only as a source of information for the notary who transfers the relevant encumbrances Doing Business 2017 Ukraine 56 Time to No. Procedure Cost to complete complete from these registers to the Register of Property Rights upon first-time registration of ownership rights to immovable property in the Register of Property Rights. Therefore, to verify encumbrances on the property ownership rights to which have been registered in the Register of Property Rights, the notary will search only in this register. This procedure takes one day and is performed on the same day on which the Property sale and purchase agreement is executed, prior to the execution of the agreement. Agency: Notary Prepare and notarize the sale agreement (land and building) The sale purchase agreement of the building is notarized by a private or public notary. Notary’s fees are agreed among parties. There could be one single agreement underpinning both sale of building and sale of land or be two separate agreements: the sale of building (warehouse) and the sale of land parcel. Parties can prepare the sale agreements by themselves before notarization, but usually the notary prefers to use his standard proforma. Notary fee for the land (paid by the buyer): UAH 1,500 State Duty (fee) is paid to the notary and equals 1% of the transactional Notary fee for the value of the building. The buyer of the building will also pay a special warehouse (paid assessment in the amount of 1% of building’s transactional value to the by the buyer): UAH State Pension Fund. The buyer can make the payment to the State 1,500 Pension Fund prior to the notarization of building sale agreement or 1 day 1% of the value of provide the notary with the money to make such payment. (simultaneous the land with procedures 5 *6 1% of the value of & 7) the warehouse The documentation shall include: 1% of the value of • Ownership documents the warehouse (NOT THE LAND, • Founding documents of the company only the building) for the pension • Decision with respect to the sale of the building (if necessary) fund contribution. • Extract from the State Land Cadastre, • Extracts from the Unified State Registry of Legal Persons and Physical Persons - Entrepreneurs (documents - copy of the passport and application, issuing authority - any State District Administration in the City (but it is recommended to obtain it in the administration in which respective legal person was registered)) • Act of evaluation of parcel of land, powers of attorney (if necessary) Doing Business 2017 Ukraine 57 Time to No. Procedure Cost to complete complete • Notary certifies agreement, makes inscription on the State Certificate on Land Ownership as to the transference of title over parcel of land to new owner, registers information as to the transaction in the Unified State Registry of Transactions and issues an extract from this registry on above mentioned transaction. Agency: Notary Notary registers Buyer's ownership rights on the property in the Register of Property Rights From January 01, 2013, the registration of ownership rights to immovable property (other than newly constructed building/newly Notary fee: UAH allotted land plot in some other cases) is performed by notaries attesting 1,500 the sale and purchase agreement (Articles 3.5, 9 of the Law of Ukraine UAH 730.8 “On State Registration of Property Rights to Immovable Property and administrative fee Their Encumbrances”). for the land ownership transfer Less than a day Following notarial attestation of the Property sale and purchase (adminsbor) (online agreement, the notary shall register Buyer’s ownership rights to the UAH 730.8 procedure; Property in the Register of Property Rights. The procedure of registration administrative fee simultaneous *7 is governed by Articles 15-24 of the Law of Ukraine “On State for the warehouse with procedures 5 Registration of Property Rights to Immovable Property and Their ownership transfer & 6) Encumbrances” No 1952-IV of July 01, 2004, as restated and amended, (adminsbor) and the Resolution of Cabinet of Ministers of Ukraine No 703 dated June UAH 120 (land) 22, 2011, as amended (“CMU Resolution No 703”). The registration is registration fee performed by the notary based on the Buyer’s application (in accordance UAH 120 with established form) and the Property sale and purchase agreement. (warehouse) Upon registration of Buyer’s ownership rights to the Property, the notary registration fee. issues an extract from the Register of Property Rights for the Buyer. Agency: Notary * 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 Ukraine 58 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 Ukraine Answer Score Quality of the land administration index (0-30) 15.5 Reliability of infrastructure index (0-8) 6.0 State Registry on Property Rights What is the institution in charge of immovable property registration? under the Ministry of Justice 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/Fully largest business city—in a paper format or in a computerized format 2.0 digital (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 Yes 1.0 mapping agency use the same identification number for properties? Transparency of information index (0–6) 3.0 Only Who is able to obtain information on land ownership at the agency in intermediaries 0.0 charge of immovable property registration in the largest business city? (notaries, lawyers, etc.) Doing Business 2017 Ukraine 59 Answer Score 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? http://zakon2.rad a.gov.ua/laws/sho Link for online access: w/z0282- 12/paran19#n19 Is the applicable fee schedule for any property transaction at the Yes, on public agency in charge of immovable property registration in the largest 0.5 boards business city made publicly available–and if so, how? Link for online access: 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://ddr.minjust .gov.ua/uk/4424b bf47abcd8a3a6f6 Link for online access: 5ca7a0256435/no rmatyvnopravova _baza/ 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 Is the applicable fee schedule for accessing maps of land plots made Yes, on public 0.5 publicly available—and if so, how? boards Link for online access: Does the cadastral or mapping agency commit to delivering an Yes, on public updated map within a specific time frame—and if so, how does it 0.5 boards 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? Doing Business 2017 Ukraine 60 Answer Score 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) 6.5 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)? If yes, who is responsible for checking the legality of the documents? Notary. 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? Notary. Is there a national database to verify the accuracy of identity No 0.0 documents? For a standard land dispute between two local businesses over tenure he Commercial rights of a property worth 50 times gross national income (GNI) per (Economic) Court capita and located in the largest business city, what court would be in of Kyiv charge of the case in the first instance? How long does it take on average to obtain a decision from the first- Less than a year 3.0 instance court for such a case (without appeal)? Are there any statistics on the number of land disputes in the first Yes 0.5 instance? 3357 out of Number of land disputes in the largest business city in 2015: 68226 cases Doing Business 2017 Ukraine 61 Answer Score 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 Ukraine 62 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 Ukraine 63 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Ukraine stands at 20 in the ranking of 190 and bankruptcy laws in Ukraine facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 7.0 on the depth of rankings for comparator economies provide other useful credit information index and a score of 8.0 on the information for assessing how well regulations and strength of legal rights index (see the summary of institutions in Ukraine support lending and borrowing. scoring at the end of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Ukraine and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2017 Ukraine 64 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Ukraine 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 Ukraine 65 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 Ukraine (table 6.1)? Table 6.1 How has Ukraine made getting credit easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Ukraine improved access to credit information by collecting DB2014 data on firms from financial institutions. 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 Ukraine 66 GETTING CREDIT What are the details? The getting credit indicators reported here for Ukraine The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and 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: 8.0 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 0 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 infor mation online (for example, 0 through a web interface, a system-to-system connection or both)? Does a modern collateral registry exist in which registrations, amendments, cancellations and 0 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 1 defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is 1 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 Ukraine 67 Strength of legal rights index (0–12) Index score: 8.0 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: 7.0 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 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 Yes No 1 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 Yes No 1 capita distributed? By law, do borrowers have the right to access their data Yes No 1 in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an online Yes No 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 Yes No 1 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 12,500,000 0 Number of firms 122,000 0 Total 12,622,000 0 Total percentage of adult population 40.0 0.0 Source: Doing Business database. Doing Business 2017 Ukraine 68 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 Ukraine 69 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 Ukraine 70 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 Ukraine? The economy has a score of 5.7 not measure all aspects related to the protection of 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, Ukraine stands at 70 in the ranking of 190 economies on the strength of minority investor Figure 7.1 How Ukraine and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2017 Ukraine 71 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 Ukraine. Figure 7.2 Summary of the various minority investor protection indices for Ukraine and comparator economies. Source: Doing Business database. Doing Business 2017 Ukraine 72 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 Ukraine (table 7.1)? Table 7.1 How has Ukraine strengthened minority investor protections—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Ukraine strengthened minority investor protections by requiring interested director or shareholder to be excluded from the vote, by requiring that proposed related-party DB2017 transactions undergo external review, by introducing remedies in cases where related-party transactions are harmful to the company and also clarifying ownership and control structures. 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 Ukraine 73 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Ukraine 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 Ukraine. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Ukraine Answer Score Strength of minority investor protection index (0-10) 5.7 Extent of conflict of interest regulation index (0-10) 4.7 Extent of disclosure index (0-10) 6.0 Which corporate body is legally sufficient to approve the Board of directors excluding 2.0 Buyer-Seller transaction? (0-3) interested members Must Mr. James disclose his conflict of interest to the board Full disclosure of all material facts 2.0 of directors? (0-2) Must Buyer disclose the transaction in published periodic Disclosure on the transaction only 1.0 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 Yes 1.0 before it takes place? (0-1) Extent of director liability index (0-10) 2.0 Can shareholders representing 10% of Buyer's share capital sue directly or derivatively for the damage the transaction Yes 1.0 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 Liable if negligent 1.0 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) 6.0 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 No 0.0 Doing Business 2017 Ukraine 74 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2.0 witnesses at trial? (0-2) Is the level of proof required for civil suits lower than that of No 0.0 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) 6.7 Extent of shareholder rights index (0-10) 6.0 Does the sale of 51% of Buyer's assets require shareholder Yes 1.0 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 No 0.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the No 0.0 external auditor? Are changes to the rights of a class of shares only possible if Yes 1.0 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 Yes 1.0 members? Assuming that Buyer is a limited company, must all No 0.0 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) 5.0 Is it forbidden to appoint the same individual as CEO and Yes 1.0 chair of the board of directors? Must the board of directors include independent and Yes 1.0 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 Yes 1.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by Yes 1.0 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 No 0.0 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 Ukraine 75 distribute profits within a maximum period set by law after the declaration date? Extent of corporate transparency index (0-10) 9.0 Must Buyer disclose direct and indirect beneficial ownership Yes 1.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their Yes 1.0 primary employment? Must Buyer disclose the compensation of individual Yes 1.0 managers? Must a detailed notice of general meeting be sent 21 days Yes 1.0 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 Yes 1.0 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 No 0.0 auditor? Source: Doing Business database. Doing Business 2017 Ukraine 76 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 Ukraine 77 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 Ukraine 78 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with tax 8.3 the end of this chapter for details). Most indicator obligations and postfiling processes in Ukraine—and sets refer to a case scenario in the largest business city of how much do firms pay in taxes? Globally, Ukraine an economy, except for 11 economies for which the data stands at 84 in the ranking of 190 economies on the ease are a population-weighted average of the 2 largest of paying taxes (figure 8.1). The rankings for comparator business cities. See the chapter on distance to frontier economies and the regional average ranking provide and ease of doing business ranking at the end of this other useful information for assessing the tax compliance profile for more details. burden for businesses in Ukraine (see table 8.2 and table . Figure 8.1 How Ukraine and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2017 Ukraine 79 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 Ukraine (table 8.1)? Table 8.1 How has Ukraine made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Ukraine eased tax compliance by introducing and continually DB2011 enhancing an electronic filing system for value added tax. Ukraine made paying taxes easier and less costly for firms by DB2012 revising and unifying tax legislation, reducing corporate income tax rates and unifying social security contributions. Ukraine made paying taxes easier by implementing electronic DB2013 filing and payment for medium-size and large enterprises. Ukraine made paying taxes easier for companies by simplifying DB2014 tax returns and further improving its electronic filing system. Ukraine made paying taxes easier for companies by introducing DB2015 an electronic system for filing and paying labor taxes. On the other hand, it increased the environmental tax. 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 Ukraine 80 PAYING TAXES What are the details? The indicators reported here for Ukraine are based on LOCATION OF STANDARDIZED COMPANY 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: Kiev 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 taxable Corporate income tax 1 online 57 18% 8.75 profit gross Unified Social Contribution 1 online 100 38.19% 43.08 salaries various land area Land tax 1 online 0.09 rates and value various ton of Environmental taxes 1 online 0.01 rates waste Employee paid - Social security online and gross 0 3.6% 0.00 withheld contributions jointly salaries online and personal Military contribution 0 1.5% 0.00 withheld jointly income Doing Business 2017 Ukraine 81 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 value not Value added tax (VAT) 1 online 199 20% 0.00 added included Totals 5.0 355.5 51.9 Source: Doing Business database. Doing Business 2017 Ukraine 82 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 Ukraine 83 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 Ukraine 84 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Borders indicator refers to a case Globally, Ukraine stands at 115 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 Ukraine and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2017 Ukraine 85 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 Ukraine (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Ukraine made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Ukraine made trading across borders more difficult by DB2012 introducing additional inspections for customs clearance of imports. Ukraine made trading across borders easier by releasing DB2014 customs declarations more quickly and reducing the number of physical inspections. 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 Ukraine 86 TRADING ACROSS BORDERS What are the details? The indicators reported here for Ukraine are based on LOCATION OF STANDARDIZED COMPANY 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 combination City: Kiev of these). The information on the time and cost to complete export and import is collected from local The details on the predefined set of procedures, and the freight forwarders, customs brokers and traders. associated time and cost, for exporting and importing a 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 Ukraine Ukraine Europe & Central Asia Time to export: Border compliance (hours) 26 28 Cost to export: Border compliance (USD) 75 195 Time to export: Documentary compliance (hours) 96 27 Cost to export: Documentary compliance (USD) 292 111 Time to import: Border compliance (hours) 72 26 Cost to import: Border compliance (USD) 100 202 Time to import: Documentary compliance (hours) 168 26 Cost to import: Documentary compliance (USD) 212 91 Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Ukraine Export Import HS 8708: Parts and accessories Product HS 72 : Iron and steel of motor vehicles Trade partner Russian Federation Russian Federation Border Smolenskaya Oblast Smolenskaya Oblast Distance (km) 335 335 Domestic transport time (hours) 5 5 Domestic transport cost (USD) 300 300 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 data in calculating the distance to frontier score for trading across borders or the ranking on the ease of trading across borders. Doing Business 2017 Ukraine 87 Documents to export CMR waybill Certificate of origin Certificate of quality Sanitary and Epidemiological clearance Contract VED Commercial invoice Export declaration with bank stamp Packing list Act of loading Documents to import Contract (sale-purchase) Verification from the State Service of Export Control of Ukraine on the auto-parts Compliance certificate on auto parts (Specification of the product) Transit document (T1) Specification of the product Packing list Import declaration Doing Business 2017 Ukraine 88 Preliminary import declaration 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 Ukraine 89 Figure 9.2 Summary of Ukraine on the ease of trading across borders Export Import Source: Doing Business database. Doing Business 2017 Ukraine 90 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 Ukraine 91 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial and ease of doing business ranking at the end of this dispute through the courts in Ukraine? According to data profile for more details. collected by Doing Business, contract enforcement takes Globally, Ukraine stands at 81 in the ranking of 190 378.0 days and costs 46.3% of the value of the claim. economies on the ease of enforcing contracts (figure Most indicator sets refer to the largest business city of an 10.1). The rankings for comparator economies and the economy, except for 11 economies for which the data regional average provide other useful benchmarks for are a population-weighted average of the 2 largest assessing the efficiency of contract enforcement in business cities. See the chapter on distance to frontier Ukraine. Figure 10.1 How Ukraine and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2017 Ukraine 92 ENFORCING CONTRACTS reducing backlogs by introducing periodic reviews to Economies in all regions have improved contract clear inactive cases from the docket and by making enforcement in recent years. A judiciary can be improved procedures faster. What reforms making it easier (or in different ways. Higher-income economies tend to look more difficult) to enforce contracts has Doing Business for ways to enhance efficiency by introducing new recorded in Ukraine (table 10.1)? technology. Lower-income economies often work on Table 10.1 How has Ukraine made enforcing contracts easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Ukraine amended legislation to streamline commercial dispute DB2012 resolution and increase the efficiency of enforcement procedures. Ukraine made enforcing contracts easier by introducing a DB2017 system that allows users to pay court fees electronically. 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 Ukraine 93 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for Ukraine ECONOMY DETAILS are built by following the step-by-step evolution of a commercial sale dispute within the court, under the assumptions about the case described above (figure Claim value: UAH 72,490 10.2). The time and cost of resolving the standardized dispute are identified through study of Court name: Kiev Commercial Court the codes of civil procedure and other court regulations, as well as through questionnaires City: Kiev completed by local litigation lawyers (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 Ukraine and comparator economies Source: Doing Business database. Doing Business 2017 Ukraine 94 Table 10.2 Details on time and cost for enforcing contracts in Ukraine Europe & Central Indicator Ukraine Asia average Time (days) 378 486 Filing and service 48 Trial and judgment 150 Enforcement of judgment 180 Cost (% of claim) 46.3 26.6 Attorney fees 25.0 Court fees 9.9 Enforcement fees 11.4 Source: Doing Business database. Doing Business 2017 Ukraine 95 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 Ukraine (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 Ukraine and comparator economies Doing Business 2017 Ukraine 96 Source: Doing Business database. Table 10.3 Details of the quality of judicial processes index in Ukraine Answer Score Quality of judicial processes index (0-18) 9.0 Court structure and proceedings (0-5) 3.5 1. Is there a court or division of a court dedicated solely to hearing Yes 1.5 commercial cases? 2. Small claims court 0.0 2.a. Is there a small claims court or a fast-track procedure for small No claims? 2.b. If yes, is self-representation allowed? n.a. 3. Is pretrial attachment available? Yes 1.0 4. Are new cases assigned randomly to judges? Yes, automatic 1.0 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 No circumstances? 2.c. If rules on adjournments exist, are they respected in more than 50% n.a. 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; Yes 1.0 (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques No 0.0 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 Ukraine 97 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) 2.0 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? Yes 1.0 4. Publication of judgments 1.0 4.a Are judgments rendered in commercial cases at all levels made available to the general public through publication in official gazettes, Yes 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) 1.5 1. Arbitration 1.0 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 Yes arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the Yes courts? 2. Mediation/Conciliation 0.5 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 No 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 Ukraine 98 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 Ukraine 99 RESOLVING INSOLVENCY Where does the economy stand today? Globally, Ukraine stands at 150 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 Ukraine and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2017 Ukraine 100 RESOLVING INSOLVENCY Recovery of debt in insolvency Data on the time, cost and outcome refer to the most average recovery rate is 7.5 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 2.9 years on average and costs 42.0% 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 Ukraine 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 Ukraine 101 Table 11.1 Details of data on efficiency of insolvency proceedings in Ukraine Indicator Answer Explanation Under current Ukrainian insolvency legislation (Articles 5-6 of the bankruptcy law), Mirage's management can initiate pre-insolvency restructuring proceedings, but it needs BizBank's consent. BizBank is likely not to agree to such proceedings, because it would be more interested in recovering its loan through foreclosure. Therefore, in order to prevent the foreclosure by BizBank liquidation against Mirage's property (and, as a result, sale of Mirage's property (after an piecemeal), Mirage will initiate insolvency proceeding. According to Art. 19 of Proceeding attempt at the bankruptcy law, once Mirage's management initiates insolvency reorganization) proceeding, all enforcement actions for claims which arose prior to insolvency filing will be stayed for the entire duration of the insolvency proceedings and no penalties will be added to the existing claims. However, it is unlikely that Mirage's solvency can be restored and restructured during the reorganization proceedings. As a result, the commercial court will announce Mirage bankrupt and initiate liquidation proceedings. As part of the liquidation proceedings, the insolvency administrator will attempt to sell the hotel's assets in order to satisfy the creditors' claims. It is Outcome piecemeal sale very unlikely that a purchaser can be found willing to buy the hotel as a whole and continue operating it. Therefore, the assets of the hotel will most likely be sold piecemeal. Mirage’s management will initiate insolvency proceedings, which will stay all enforcement actions for claims which arose prior to insolvency filing (Art. 19 of the bankruptcy law). The court will notify the creditors through public announcement. Creditors will file their claims within a 30-day period (Art. 23 of the bankruptcy law). The court will appoint an insolvency administrator who will review the creditors’ claims and submit a report with the results of the review to the court’s approval. After the decision by the court, the insolvency administrator will notify the creditors whether their claims were accepted or Time (in 2.9 rejected and the list of creditors’ claims will be composed. After the list of years) creditors’ claims is finalized, the first meeting of the creditors will be held, where the creditors will decide whether to liquidate Mirage or to proceed with restructuring proceedings. If the creditors cannot agree on the course of action, the court will make a decision to liquidate the company. After the decision to liquidate the company is made, an evaluation of the assets will be made and the assets will be sold piecemeal. Reorganization procedure is limited to 6 months, but can be extended on the request of the administrator for up to 12 months. The liquidation phase can take about 12 months. Major expenses are comprised of attorneys’ fees (up to 10%), fees of Cost (% of insolvency representative (up to 15%) and other professionals involved in the 42.0 estate) insolvency proceedings (up to 5%). Auctioneer's fees are up to 10-15% of the value of the sold assets. Court fees and notification costs are around 2%. Recovery rate: 7.5 Source: Doing Business database. Doing Business 2017 Ukraine 102 Doing Business 2017 Ukraine 103 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the with higher values indicating insolvency legislation that is sum of the scores on the commencement of better designed for rehabilitating viable firms and proceedings index, management of debtor’s assets liquidating nonviable ones. Ukraine’s score on the index, reorganization proceedings index and creditor strength of insolvency framework index is 7.5 out of 16. participation index. The index ranges from 0 to 16, Data on provisions applicable to judicial liquidation and reorganization is based on the current law governing insolvency proceedings in each economy. Figure 11.3 Strength of insolvency framework index (0-16) in Ukraine and comparator economies Source: Doing Business database. Doing Business 2017 Ukraine 104 Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice”. Doing Business 2017 Ukraine 105 Table 11.2 Summary of data for the strength of insolvency framework index in Ukraine Answer Score Strength of insolvency framework index (0-16) 7.5 Commencement of proceedings index (0-3) 2.0 (b) Debtor may What procedures are available to a DEBTOR when commencing insolvency file for liquidation 0.5 proceedings? only (b) Yes, but a Does the insolvency framework allow a CREDITOR to file for insolvency of creditor may file 0.5 the debtor? for liquidation only (a) Debtor is What basis for commencement of the insolvency proceedings is allowed generally unable 1.0 under the insolvency framework? to pay its debts as they mature Management of debtor's assets index (0-6) 4.0 Does the insolvency framework allow the continuation of contracts Yes 1.0 supplying essential goods and services to the debtor? Does the insolvency framework allow the rejection by the debtor of overly Yes 1.0 burdensome contracts? Does the insolvency framework allow avoidance of preferential Yes 1.0 transactions? Does the insolvency framework allow avoidance of undervalued Yes 1.0 transactions? Does the insolvency framework provide for the possibility of the debtor No 0.0 obtaining credit after commencement of insolvency proceedings? (c) No priority is Does the insolvency framework assign priority to post-commencement assigned to post- 0.0 credit? commencement creditors Reorganization proceedings index (0-3) 0.5 (c) Other, please Which creditors vote on the proposed reorganization plan? 0.5 specify Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as what they would obtain in a No 0.0 liquidation? Are the creditors devided into classes for the purposes of voting on the reorganization plan, does each class vote separately and are creditors in No 0.0 the same class treated equally? Doing Business 2017 Ukraine 106 Answer Score Creditor participation index (0-4) 1.0 Does the insolvency framework require approval by the creditors for No 0.0 selection or appointment of the insolvency representative? Does the insolvency framework require approval by the creditors for sale No 0.0 of substantial assets of the debtor? Does the insolvency framework provide that a creditor has the right to No 0.0 request information from the insolvency representative? Does the insolvency framework provide that a creditor has the right to Yes 1.0 object to decisions accepting or rejecting creditors' claims? Source: Doing Business database. Doing Business 2017 Ukraine 107 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Ukraine (table 11.3)? even viable businesses are liquidated. This is starting to Table 11.3 How has Ukraine made resolving insolvency easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Ukraine amended its legislation on enforcement, introducing DB2012 more guarantees for secured creditors. Ukraine made resolving insolvency easier by strengthening the rights of secured creditors, introducing new rehabilitation DB2014 procedures and mechanisms, making it easier to invalidate suspect transactions and shortening the statutory periods for several steps of the insolvency process. 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 Ukraine 108 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 Ukraine 109 LABOR MARKET REGULATION What are the details? The data reported here for Ukraine 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 No limit. (Except for seasonal works where the duration or a single fixed-term Maximum length of a single fixed-term contract (months) contract may not exceed the duration of a season--6 months at the most.) Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 83.5 (US$/month) Ratio of minimum wage to value added per worker 0.3 Source: Doing Business database. Doing Business 2017 Ukraine 110 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 5.5 Premium for night work (% of hourly pay) 20.0 Premium for work on weekly rest day (% of hourly pay) 100.0 Premium for overtime work (% of hourly pay) 100.0 Restrictions on night work? No Whether nonpregnant and nonnursing women can work the same night No hours as men Restrictions on weekly holiday? Yes Restrictions on overtime work? Yes Paid annual leave for a worker with 1 year of tenure (working days) 18.0 Paid annual leave for a worker with 5 years of tenure (working days) 18.0 Paid annual leave for a worker with 10 years of tenure (working days) 18.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 18.0 working days) Source: Doing Business database. Doing Business 2017 Ukraine 111 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) 3.0 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? Yes Priority rules for redundancies? Yes Priority rules for reemployment? Yes Source: Doing Business database. Doing Business 2017 Ukraine 112 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 8.7 Notice period for redundancy dismissal for a worker with 5 years of tenure 8.7 Notice period for redundancy dismissal for a worker with 10 years of tenure 8.7 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 8.7 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 4.3 Severance pay for redundancy dismissal for a worker with 10 years of tenure 4.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Source: Doing Business database. Doing Business 2017 Ukraine 113 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? Yes Paid or unpaid maternity leave mandated by law? Yes Minimum length of maternity leave (calendar days)? 126.0 Receive 100% of wages on maternity leave? Yes Five fully paid days of sick leave a year? Yes Unemployment protection after one year of employment? Yes Minimum contribution period for unemployment protection (months)? 6.0 Source: Doing Business database. Doing Business 2017 Ukraine 114 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 Ukraine 115 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 components3. 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 Ukraine 116 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 Ukraine 117 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 Ukraine 118