92145 Doing Business 2015 Timor-Leste Economy Profile 2015 Timor-Leste Doing Business 2015 Timor-Leste 2 © 2014 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 17 16 15 14 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 2015 Timor-Leste 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 22 Getting electricity ....................................................................................................................... 29 Registering property .................................................................................................................. 34 Getting credit .............................................................................................................................. 38 Protecting minority investors ................................................................................................... 45 Paying taxes ................................................................................................................................ 53 Trading across borders .............................................................................................................. 57 Enforcing contracts .................................................................................................................... 61 Resolving insolvency .................................................................................................................. 70 Labor market regulation ........................................................................................................... 72 Distance to frontier and ease of doing business ranking ...................................................... 80 Resources on the Doing Business website .............................................................................. 83 Doing Business 2015 Timor-Leste 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for Timor-Leste. To allow useful comparison, it information on ordering Doing Business 2015, are also provides data for other selected economies available on the Doing Business website at (comparator economies) for each indicator. The data in http://www.doingbusiness.org. this report are current as of June Doing Business 2015 Timor-Leste 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 Timor-Leste 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: East Asia & Pacific 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 189 by the ease of doing business ranking. This Population: 1,178,252 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 3,580 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 172 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 174* distance to the best performance in each Doing Business Change in rank: 2 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 46.9 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 44.3 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 2.6 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2015 Timor-Leste 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 2015 Timor-Leste 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 Timor-Leste and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2014 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 2015 Timor-Leste 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Timor-Leste (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Timor-Leste (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2014 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 2015 Timor-Leste 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. 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 in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Timor-Leste 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 since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. 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 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 Timor-Leste 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 Timor-Leste Best performer globally Timor-Leste DB2015 Timor-Leste DB2014 Philippines DB2015 Indonesia DB2015 Myanmar DB2015 Malaysia DB2015 Portugal DB2015 Thailand DB2015 Indicator DB2015 Starting a Business 96 169 155 13 189 161 10 75 New Zealand (1) (rank) Starting a Business (DTF 83.73 58.05 68.84 94.90 22.85 67.23 96.27 87.98 New Zealand (99.96) Score) Procedures (number) 5.0 8.0 10.0 3.0 11.0 16.0 3.0 4.0 New Zealand (1.0)* Time (days) 10.0 94.0 52.5 5.5 72.0 34.0 2.5 27.5 New Zealand (0.5) Cost (% of income per 0.3 2.9 21.1 7.2 155.9 16.6 2.3 6.6 Slovenia (0.0) capita) Paid-in min. capital (% 127.5 124.9 35.5 0.0 6,190.1 3.6 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 115 113 153 28 130 124 58 6 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 67.52 67.53 59.03 82.49 64.93 66.08 77.31 88.77 China (95.53) (DTF Score) Doing Business 2015 Timor-Leste 12 Best performer globally Timor-Leste DB2015 Timor-Leste DB2014 Philippines DB2015 Indonesia DB2015 Myanmar DB2015 Malaysia DB2015 Portugal DB2015 Thailand DB2015 Indicator DB2015 Hong Kong SAR, Procedures (number) 16.0 16.0 17.0 13.0 13.0 24.0 14.0 7.0 China (5.0) Time (days) 207.0 207.0 211.0 74.0 128.0 94.0 113.0 113.0 Singapore (26.0) Cost (% of warehouse 0.3 0.2 4.3 1.3 8.8 1.2 1.4 0.1 Qatar (0.0)* value) Getting Electricity 15 15 78 27 121 16 47 12 Korea, Rep. (1) (rank) Getting Electricity (DTF 90.79 90.85 76.90 86.67 66.78 90.59 82.00 91.71 Korea, Rep. (99.83) Score) Procedures (number) 3.0 3.0 5.0 5.0 5.0 4.0 5.0 4.0 12 Economies (3.0)* Time (days) 63.0 63.0 90.7 32.0 91.0 42.0 64.0 35.0 Korea, Rep. (18.0)* Cost (% of income per 654.1 638.0 353.6 46.3 2,801.7 90.6 52.9 66.1 Japan (0.0) capita) Registering Property 189 189 117 75 151 108 25 28 Georgia (1) (rank) Registering Property 0.00 0.00 60.74 71.16 52.26 62.81 83.67 83.04 Georgia (99.88) (DTF Score) no no Procedures (number) 5.0 8.0 6.0 9.0 1.0 2.0 4 Economies (1.0)* practice practice no no Time (days) 27.4 13.5 113.0 35.0 1.0 2.0 3 Economies (1.0)* practice practice Cost (% of property no no 10.8 3.3 7.2 4.3 7.3 6.3 4 Economies (0.0)* value) practice practice Getting Credit (rank) 160 157 71 23 171 104 89 89 New Zealand (1) Getting Credit (DTF 20.00 20.00 50.00 70.00 10.00 40.00 45.00 45.00 New Zealand (100) Score) Doing Business 2015 Timor-Leste 13 Best performer globally Timor-Leste DB2015 Timor-Leste DB2014 Philippines DB2015 Indonesia DB2015 Myanmar DB2015 Malaysia DB2015 Portugal DB2015 Thailand DB2015 Indicator DB2015 Strength of legal rights 0 0 4 7 2 3 2 3 3 Economies (12)* index (0-12) Depth of credit 4 4 6 7 0 5 7 6 23 Economies (8)* information index (0-8) Credit registry coverage 5.7 5.4 46.4 56.2 0.0 0.0 100.0 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 0.0 0.0 0.0 78.6 0.0 11.3 23.4 52.7 23 Economies (100.0)* (% of adults) Protecting Minority 100 97 43 5 178 154 51 25 New Zealand (1) Investors (rank) Protecting Minority 50.83 50.83 60.83 74.17 29.17 41.67 59.17 65.83 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 4.7 4.7 6.0 8.7 2.0 4.0 6.0 7.7 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 5.5 5.5 6.2 6.2 3.8 4.3 5.8 5.5 France (7.8)* 10) Strength of minority investor protection 5.1 5.1 6.1 7.4 2.9 4.2 5.9 6.6 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 55 52 160 32 116 127 64 62 (1)* Paying Taxes (DTF United Arab Emirates 79.97 79.97 53.66 83.95 68.64 66.46 77.84 77.99 Score) (99.44)* Payments (number per Hong Kong SAR, 18.0 18.0 65.0 13.0 31.0 36.0 8.0 22.0 year) China (3.0)* Time (hours per year) 276.0 276.0 253.5 133.0 154.5 193.0 275.0 264.0 Luxembourg (55.0) Trading Across Borders 94 97 62 11 103 65 29 36 Singapore (1) Doing Business 2015 Timor-Leste 14 Best performer globally Timor-Leste DB2015 Timor-Leste DB2014 Philippines DB2015 Indonesia DB2015 Myanmar DB2015 Malaysia DB2015 Portugal DB2015 Thailand DB2015 Indicator DB2015 (rank) Trading Across Borders 72.49 72.29 77.46 89.94 70.02 77.23 85.20 83.57 Singapore (96.47) (DTF Score) Documents to export 6 6 4 4 8 6 4 5 Ireland (2)* (number) Time to export (days) 28.0 28.0 17.0 11.0 20.0 15.0 15.0 14.0 5 Economies (6.0)* Cost to export (US$ per 410.0 410.0 571.8 525.0 620.0 755.0 780.0 595.0 Timor-Leste (410.0) container) Cost to export (deflated 410.0 439.8 571.8 525.0 620.0 755.0 780.0 595.0 US$ per container) Documents to import 7 7 8 4 8 7 4 5 Ireland (2)* (number) Time to import (days) 26.0 26.0 26.0 8.0 22.0 15.0 13.0 13.0 Singapore (4.0) Cost to import (US$ per 415.0 415.0 646.8 560.0 610.0 915.0 925.0 760.0 Singapore (440.0) container) Cost to import (deflated 415.0 445.2 646.8 560.0 610.0 915.0 925.0 760.0 US$ per container) Enforcing Contracts 189 189 172 29 185 124 27 25 Singapore (1) (rank) Enforcing Contracts 3.59 3.59 37.28 69.39 27.31 52.02 69.65 70.05 Singapore (89.54) (DTF Score) Time (days) 1,285.0 1,285.0 471.0 425.0 1,160.0 842.0 547.0 440.0 Singapore (150.0) Cost (% of claim) 163.2 163.2 115.7 37.3 51.5 31.0 13.8 15.0 Iceland (9.0) Procedures (number) 51.0 51.0 40.0 29.0 45.0 37.0 34.0 36.0 Singapore (21.0)* Resolving Insolvency 189 189 75 36 160 50 10 45 Finland (1) (rank) Doing Business 2015 Timor-Leste 15 Best performer globally Timor-Leste DB2015 Timor-Leste DB2014 Philippines DB2015 Indonesia DB2015 Myanmar DB2015 Malaysia DB2015 Portugal DB2015 Thailand DB2015 Indicator DB2015 Resolving Insolvency 0.00 0.00 46.75 65.61 23.51 56.74 84.19 58.73 Finland (93.85) (DTF Score) no no Time (years) 1.9 1.0 5.0 2.7 2.0 2.7 Ireland (0.4) practice practice no no Cost (% of estate) 21.6 10.0 18.0 32.0 9.0 36.0 Norway (1.0) practice practice Outcome (0 as no no piecemeal sale and 1 as 0 1 0 0 1 1 practice practice going concern) Recovery rate (cents on 0.0 0.0 31.7 81.3 14.7 21.2 72.2 42.3 Japan (92.9) the dollar) Strength of insolvency no no 9.5 7.0 5.0 14.5 14.5 11.5 5 Economies (15.0)* framework index (0-16) practice practice Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of such factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 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” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2015 Timor-Leste 16 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 1 limit the financial liability of company owners to their business city 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 Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business: • Is a limited liability company, located in the • Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. 1 owned . • Has a turnover of at least 100 times income per • Has between 10 and 50 employees. capita. • Conducts general commercial or industrial • Does not qualify for any special benefits. activities. • Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Timor-Leste 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Timor-Leste? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 5.0 procedures, takes 10.0 days, average of the 2 largest business cities. See the chapter costs 0.3% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 127.5% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the Figure 2.1 What it takes to start a business in Timor-Leste - Paid-in minimum capital (% of income per capita): 127.5 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. Source: Doing Business database. Doing Business 2015 Timor-Leste 18 STARTING A BUSINESS Globally, Timor-Leste stands at 96 in the ranking of 189 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 Timor- The rankings for comparator economies and the regional Leste to start a business. Figure 2.2 How Timor-Leste and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2015 Timor-Leste 19 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 Timor-Leste (table 2.1)? Table 2.1 How has Timor-Leste made starting a business easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Timor-Leste made starting a business faster by improving the DB2012 registration process. Timor-Leste made starting a business easier by creating a one- DB2015 stop shop. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Timor-Leste 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Timor-Leste is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Private Limited Liability Company firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid in minimum capital requirement: USD the study of laws, regulations and publicly available 5,000 information on business entry in that economy. City: Dili 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 Timor-Leste - Time to No. Procedure Cost to complete complete Deposit minimum capital at the Bank Registration fees are paid at a national bank. The minimum capital requirement is prescribed by the Commercial Registry Code, Articles 16 1 and 188. 1 day no charge Agency: Bank or post office (BNU) Register company’s name, file the company’s statute and apply for TIN According to Article 34 of the Commercial Registry Code and article 33 of the Decree-Law 35/2012, a company must register by filing the following documents: 1) Article of association (including the paid-in minimum capital). By the law (Commercial Registry Code, Articles 16 and 188) requires that at least 50% of the share capital shall be paid up the moment of 5 days no charge 2 registration (with minimum paid-up capital of US$5,000). Notwithstanding, SERVE only requires a declaration stating that the share capital was already paid-up (according to article 23, 1, d). However in practice, the company is required to make the deposit before. 2) Information on company shareholders and managers. (ID documents of the administrators and shareholders- need to prove that administrators) Doing Business 2015 Timor-Leste 21 Time to No. Procedure Cost to complete complete 3) Map showing the company’s location. Agency: One-stop shop (SERVE) Obtain the final company’s registration number (CRC- numero unico da empresa), certificate of incorporation certified by SERVE and AEA (business license) After submitting all documents and article of incorporation, SERVE has 5 days to issue the final documents that will authorize the company to start its operations. 3 1 day no charge When these documents are ready to pick, entrepreneurs go to SERVE and pick all documents together, as mentioned in Article 58 of Decree- Law 35/2012. Agency: One-stop shop (SERVE) Publish statutes at SERVE After the SERVE makes all the internal registration procedures, it has to publish the “resumo do registro” (summary of the company’s 4 registration). 1 day no charge Agency: One-stop shop (SERVE) Obtain a company stamp The company seal requirement is not required by law and SERVE does not required, however in practice in order to interact with government agencies, as the Ministry of Commerce, companies will need to have a 2 days USD 10 5 company stamp. Agency: Sealmaker * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Timor-Leste 22 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 the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes • Is a limited liability company operating in the construction business and located in • Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have • Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility • Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse: • Will be used for general storage, such as of books or stationery (not for goods requiring • Is valued at 50 times income per capita. special conditions). • Is a new construction (there was no • Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 Timor-Leste 23 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 Timor-Leste? According to data collected which the data are a population-weighted average of the by Doing Business, dealing with construction permits 2 largest business cities. See the chapter on distance to there requires 16.0 procedures, takes 207.0 days and frontier and ease of doing business ranking at the end of costs 0.3% 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 Timor-Leste - 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. Source: Doing Business database. Doing Business 2015 Timor-Leste 24 DEALING WITH CONSTRUCTION PERMITS Globally, Timor-Leste stands at 115 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Timor-Leste to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Timor-Leste and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 Timor-Leste 25 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Timor-Leste are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated cost of information collected from experts in construction USD 196,149 construction : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Dili service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and cost, that apply to a company and structure matching the are summarized below. standard assumptions used by Doing Business in 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 Timor-Leste - Time to No. Procedure Cost to complete complete Request a "no objection" letter from the Directorate of Land and Property The Directorate of Land and Property does not issue certificates of ownership or right of use of land. It issues a no-objection letter because it is not yet able to issue titles. The time to obtain this document varies from 1 -- 2 weeks if the applicant knows the right people but up to 6 1 day no charge 1 months if the applicant is an outsider. A reasonable estimate is 1 -- 2 months. The Directorate of Land and Property performs a site inspection before issuing the letter. Agency: Directorate of Land and Property Receive inspection certificate from the Directorate of Land and Property 2 1 day no charge Agency: Directorate of Land and Property Obtain a "no objection" letter from the Directorate of Land and Property 3 45 days no charge Agency: Directorate of Land and Property * Obtain project clearance from the Ministry of Trade, Industry and Environment 4 30 days no charge Agency: Ministry of Trade, Industry and Environment Doing Business 2015 Timor-Leste 26 Time to No. Procedure Cost to complete complete Submit application for building permit 5 1 day no charge Agency: National Directorate of Buildings, Directorate-General for Public Works, Ministry of Infrastructure Receive inspection from the Public Works Office 6 1 day no charge Agency: National Directorate of Buildings, Directorate-General for Public Works, Ministry of Infrastructure Obtain building permit The building permit is issued at no charge. To obtain the permit, BuildCo must submit the no-objection letter from the Land and Property Directorate, the environmental clearance, and the architectural and engineering plans/drawings. It takes 2 to 3 weeks to obtain a permit in a best-case scenario where the investor is constantly 88 days no charge 7 following up. Otherwise, it takes an average of 3 months to receive a building permit. Agency: National Directorate of Buildings, Directorate-General for Public Works, Ministry of Infrastructure Receive excavation work inspection 8 1 day no charge Agency: National Directorate of Buildings, Directorate-General for Public Works, Ministry of Infrastructure Receive foundations work inspection 9 1 day no charge Agency: National Directorate of Buildings, Directorate-General for Public Works, Ministry of Infrastructure Doing Business 2015 Timor-Leste 27 Time to No. Procedure Cost to complete complete Receive concrete work inspection 10 1 day no charge Agency: National Directorate of Buildings, Directorate-General for Public Works, Ministry of Infrastructure Receive labor inspection A labor inspection occurs on a random basis. It often results from a complaint filed by the workers with the Ministry of Labor. If there is no complaint, this inspection is less likely to occur. 1 day no charge 11 Agency: National Directorate of Buildings, Directorate-General for Public Works, Ministry of Infrastructure Receive final inspection 12 1 day no charge Agency: National Directorate of Buildings, Directorate-General for Public Works, Ministry of Infrastructure Obtain approval upon completion of project from the Public Works Office 13 14 days no charge Agency: National Directorate of Buildings, Directorate-General for Public Works, Ministry of Infrastructure * Apply for water and sewerage connection 14 1 day no charge Agency: Directorate-General of Electricity, Water and Sanitation, Ministry of Infrastructure Receive water and sewerage inspection 15 1 day no charge Agency: Directorate-General of Electricity, Water and Sanitation, Ministry of Infrastructure Doing Business 2015 Timor-Leste 28 Time to No. Procedure Cost to complete complete Obtain water and sewerage connection 16 50 days USD 500 Agency: Directorate-General of Electricity, Water and Sanitation, Ministry of Infrastructure * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Timor-Leste 29 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 a customer is always to gain access by obtaining a connection (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, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information • Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax • Is not in a special economic zone where the connection would be eligible for subsidization or faster service. • Is to either the low-voltage or the medium- voltage distribution network and either • Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is • Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain. • Is 2 stories, both above ground, with a total • Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods • Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal • Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 Timor-Leste 30 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 Timor-Leste? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 3.0 procedures, which the data are a population-weighted average of the takes 63.0 days and costs 654.1% 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 Timor-Leste - 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. Source: Doing Business database. Doing Business 2015 Timor-Leste 31 GETTING ELECTRICITY Globally, Timor-Leste stands at 15 in the ranking of 189 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 Timor-Leste to The rankings for comparator economies and the regional connect a warehouse to electricity. Figure 4.2 How Timor-Leste and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2015 Timor-Leste 32 GETTING ELECTRICITY What are the details? The indicators reported here for Timor-Leste are based OBTAINING AN ELECTRICITY CONNECTION on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Electricidade de Timor- Name of utility: identified by Doing Business. Data are collected from the Leste distribution utility, then completed and verified by electricity regulatory agencies and independent City: Dili professionals such as electrical engineers, electrical The procedures are those that apply to a warehouse and contractors and construction companies. The electricity electricity connection matching the standard distribution utility surveyed is the one serving the area assumptions used by Doing Business in collecting the (or areas) in which warehouses are located. If there is a data (see the section in this chapter on what the choice of distribution utilities, the one serving the largest indicators cover). The procedures, along with the number of customers is selected. associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Timor-Leste - Time to No. Procedure Cost to complete complete Submit an application for electricity connection to EDTL and await estimate of the connection fees. The application can be submitted by mail or in person. With the application a customer has to submit: location of site, proposed building location, proposed service location, estimated load requirement and a registration of the business ant the National Direction of Commerce (EDTL has different tariffs according to different type of business activities, this will also help EDTL to assign the correct tariff). Since the power required is more than 4500 VA, EDTL requires an installation wiring project. This project concerns the internal wiring. The documents do not require notarization. The supply contract is signed the same day the application is submitted. All departments of Electricidade de Timor-Leste are located in one building and the 28 calendar days USD 600 1 customer service in one part of the building takes care of applications and supply contracts. The day the customer signs the contract he has to make a declaration, accepting all terms and conditions given by EDTL for use of electricity. This will be among others, to never make an illegal connection, to never damage meters, to allow EDTL staff to inspect the installation whenever needed, and use electricity according the load required submitted to EDTL. Then the utility works on the plan of the connection and provides an estimate to the applicant. The application fee depends on the distance from the grid. Doing Business 2015 Timor-Leste 33 Time to No. Procedure Cost to complete complete Agency: EDTL External Inspection by the utility Someone from the applicant’s party is required to be present during the inspection. 14 calendar days USD 0 2 Agency: EDTL External connection works carried out by the utility and final connection. The utility is in charge of designing the connection and carrying out the physical connection works. It might higher a subcontractor to complete the works. A customer has to await external connection works depending on availability of material. All the material is provided either by the utility, and the applicant is charged at the end for the expenses, or the customer can buy the materials themselves. If the material is not available external connection works take many months. Material is however usually available more than 50% of the time although there is a problem with the lack of materials. The meter is installed by the utility at the same time as when the external 3 works are done. 21 calendar days USD 22,816.25 A load of 140 kVA requires construction of a new substation. The cost of the transformer is paid after the estimate is provided and before any external connection works can start. The cost to pay for the external works depends on many factors, such as whether they prefer a private transformer dedicated only to their business or a public transformer that they will share with future customers. The meter is installed by the utility and electricity starts flowing as soon as the external connection works are over and the fees have been paid. Agency: EDTL * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Timor-Leste 34 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure • Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included • Are located in the economy’s largest 2 business city . • Is located in a periurban commercial zone, and no rezoning is required. • Have 50 employees each, all of whom are nationals. • Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller): • Consists of 557.4 square meters (6,000 square • Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000 • Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal • Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Timor-Leste 35 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in puts the economy at the bottom of the ranking on the Timor-Leste? According to data collected by Doing relevant indicator. Business,Timor-Leste receives a no practice mark. If an Most indicator sets refer to a case scenario in the largest economy has no laws or regulations covering a specific business city of an economy, except for 11 economies for area it receives a “no practice” mark. Similarly, an which the data are a population-weighted average of the economy receives a “no practice” mark if regulation 2 largest business cities. See the chapter on distance to exists but is never used in practice or if a competing frontier and ease of doing business ranking at the end of regulation prohibits such practice. A “no practice” mark this profile for more details. Doing Business 2015 Timor-Leste 36 REGISTERING PROPERTY Globally, Timor-Leste stands at 189 in the ranking of 189 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 Timor-Leste to transfer property. Figure 5.2 How Timor-Leste and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2015 Timor-Leste 37 and procedures for registering property in TimorLeste * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Timor-Leste 38 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 3 lenders’ rights to view a potential borrower’s financial Strength of legal rights index (0–12) history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially 4 movable property, as security to generate capital— Depth of credit information index (0–8) while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a • Has up to 50 employees. secured borrower and a secured lender and • Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2015 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal • Is a private limited liability company. rights index and the depth of credit information • Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 Timor-Leste 39 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Timor-Leste stands at 160 in the ranking of 189 and bankruptcy laws in Timor-Leste facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 4 on the depth of rankings for comparator economies and the regional credit information index and a score of 0 on the strength average ranking provide other useful information for of legal rights index (see the summary of scoring at the assessing how well regulations and institutions in Timor- end of this chapter for details). Higher scores indicate Leste support lending and borrowing. more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Timor-Leste and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2015 Timor-Leste 40 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Timor-Leste 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 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. Source: Doing Business database. Doing Business 2015 Timor-Leste 41 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 Timor-Leste (table 6.1)? Table 6.1 How has Timor-Leste made getting credit easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Timor-Leste improved its credit information system by DB2012 establishing a public credit registry. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Timor-Leste 42 GETTING CREDIT What are the details? The getting credit indicators reported here for Timor- The data on the legal rights of borrowers and lenders are Leste 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: 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 No assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of No 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 No its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically No to 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 No include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is unified geographically and by asset type, with an electronic database indexed by debtor's No name? Does a notice-based collateral registry exist in which all functional equivalents can be No registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and No 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 No defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is No 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 No providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2015 Timor-Leste 43 Strength of legal rights index (0–12) Index score: 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 No public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 4 Are data on both firms and individuals distributed? No Yes 1 Are both positive and negative credit data distributed? No No 0 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 of negative data or erase data on No No 0 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per No Yes 1 capita distributed? By law, do borrowers have the right to access their No Yes 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an No Yes 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. 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. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 0 0 Number of individuals 0 0 Percent of total 0.0 5.7 Doing Business 2015 Timor-Leste 44 Source: Doing Business database. Doing Business 2015 Timor-Leste 45 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions ; Disclosure requirements for related-party transactions What do the indicators cover? Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5) • Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from • Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects • Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3 • The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10) • All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer. • Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 Timor-Leste 46 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 Timor-Leste? The economy has a score of not measure all aspects related to the protection of 5.1 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, Timor-Leste stands at 100 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Timor-Leste and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 Timor-Leste 47 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Timor-Leste in 2014. A summary of scoring for minority investors indicators into context is to see where the protecting minority investors indicators at the end of the economy stands in the distribution of scores across this chapter provides details on how the indices were comparator economies. Figures 7.2 through 7.7 highlight calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 Timor-Leste 48 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 Timor-Leste 49 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 Timor-Leste 50 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 Timor-Leste 51 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Timor-Leste are based on detailed information shareholder rights, governance structure 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 2015 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 Timor-Leste. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Timor-Leste Answer Score Extent of disclosure index (0-10) 5.0 Which corporate body can provide legally sufficient Shareholders excluding interested 3 approval for the Buyer-Seller transaction? (0-3) parties Is disclosure by the interested director to the board of Existence of a conflict without any 1 directors required? (0-2) specifics Is disclosure of the transaction in published periodic filings No disclosure obligation 0 (annual reports) required? (0-2) Is immediate disclosure of the transaction to the public No disclosure obligation 0 and/or shareholders required? (0-2) Must an external body review the terms of the transaction Yes 1 before it takes place? (0-1) Extent of director liability index (0-10) 4.0 Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0- Yes 1 1) Can shareholders hold the interested director liable for the Liable if negligent 1 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Liable if negligent 1 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder No 0 plaintiff? (0-1) Can both fines and imprisonment be applied against the No 0 interested indrector? (0-1) Can a court void the transaction upon a successful claim by Only in case of fraud or bad faith 0 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 5.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? Yes 1 (0-1) Can the plaintiff obtain any documents from the defendant Any relevant document 3 Doing Business 2015 Timor-Leste 52 and witnesses during trial? (0-3) Can the plaintiff request categories of documents from the No 0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and No 0 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of No 0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if successful 1 the company? (0-2) Strength of minority investor protection index (0-10) 5.1 Extent of conflict of interest regulation index (0-10) 4.7 Extent of shareholder rights index (0-10.5) 6.0 Can shareholders amend company bylaws or statutes with a No 0 simple majority? Can shareholders owning 10% of the company's share No 0 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of Yes 1.5 directors before the end of their term. Must a company obtain its shareholders’ approval every Yes 1.5 time it issues new shares? Are shareholders automatically granted subscription rights Yes 1.5 on new shares? Must shareholders approve the election and dismissal of the No 0 external auditor? Can shareholders freely trade shares prior to a major Yes 1.5 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 6.0 Is the CEO barred from also serving as chair of the board of Yes 1.5 directors? Must the board of directors include independent board No 0 members? Must a company have a separate audit committee? Yes 1.5 Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected Yes 1.5 shares? Must a potential acquirer make a tender offer to all Yes 1.5 shareholders upon acquiring 50% of a company? Is cross-shareholding between 2 independent companies Yes 1.5 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its Yes 1.5 parent company? Extent of corporate transparency index (0-9) 4.5 Must ownership stakes representing 10% be disclosed? Yes 1.5 Must information about board members’ other directorships as well as basic information on their primary employment Yes 1.5 be disclosed? Must the compensation of individual managers be No 0 disclosed? Must financial statements contain explanatory notes on significant accounting policies, trends, risks, uncertainties No 0 and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Doing Business 2015 Timor-Leste 53 auditor? Must audit reports be disclosed to the public? No 0 Extent of shareholder governance index (0-10) 5.5 Source: Doing Business database. PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS 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 2013 (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 measures 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 the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to 5 Profit or corporate income tax one of the component indicators, the total tax rate . The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes • TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012. • Taxes and mandatory contributions include • The business starts from the same financial corporate income tax, turnover tax and all 5 position in each economy. All the taxes labor taxes and contributions paidof by the 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 0.8. The threshold is defined as and mandatory the total contributions tax rate at the 15th percentilepaid during of the company. overall distribution for all years included in the analysis. It is calculated and adjusted on a the yearly basis. second The thresholdyear of is not operation based are recorded. on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set • range Alower at the end ofstandard of deductions the distribution and of tax rates levied on medium-size • Taxes and mandatory contributions are exemptions enterprises in the manufacturing sector as observed through the paying taxes indicators. are also This reduces recorded. the bias in the indicators toward economies that do not need to levyat measured all levels significant government. ofon taxes companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 26.1%. Doing Business 2015 Timor-Leste 54 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Timor-Leste—and how much do firms pay in frontier and ease of doing business ranking at the end of taxes? On average, firms make 18.0 tax payments a year, this profile for more details. spend 276.0 hours a year filing, preparing and paying Globally, Timor-Leste stands at 55 in the ranking of 189 taxes and pay total taxes amounting to 11.0% of profit economies on the ease of paying taxes (figure 8.1). The (see the summary at the end of this chapter for details). rankings for comparator economies and the regional Most indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Timor-Leste. Figure 8.1 How Timor-Leste and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 Timor-Leste 55 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue rise. consolidating filings, reducing the frequency of What tax reforms has Doing Business recorded in Timor- payments or offering electronic filing and payment. Leste (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Timor-Leste made paying taxes easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Timor-Leste made paying taxes less costly for companies by DB2010 reducing the corporate income tax rate and eliminating the alternative minimum tax and the withholding tax on interest. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Timor-Leste 56 PAYING TAXES What are the details? The indicators reported here for Timor-Leste are LOCATION OF STANDARDIZED COMPANY based on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section City: Dili in this 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 the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. 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 5 132 10% 11 profit Fuel tax 1 0 USD 0.06 per liter 0 Employee paid - Personal 12 144 0 withheld income tax Totals 18.0 276.0 11.0 Source: Doing Business database. Doing Business 2015 Timor-Leste 57 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business: • Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data • Is not hazardous nor includes military items. for a second city have been added. • Does not require refrigeration or any other • Is a private, limited liability company, special environment. domestically owned and does not operate • Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than • Conducts export and import activities, but accepted international standards. does not have any special accreditation • Is one of the economy’s leading export or such as an authorized economic operator import products. status. • Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 Timor-Leste 58 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Timor-Leste? population-weighted average of the 2 largest business According to data collected by Doing Business, exporting cities. See the chapter on distance to frontier and ease of a standard container of goods requires 6 documents, doing business ranking at the end of this profile for more takes 28.0 days and costs $410.0. Importing the same details. container of goods requires 7 documents, takes 26.0 Globally, Timor-Leste stands at 94 in the ranking of 189 days and costs $415.0 (see the summary of four economies on the ease of trading across borders (figure predefined stages and documents at the end of this 9.1). The rankings for comparator economies and the chapter for details). Most indicator sets refer to a case regional average ranking provide other useful scenario in the largest business city of an economy, information for assessing how easy it is for a business in except for 11 economies for which the data are a Timor-Leste to export and import goods. Figure 9.1 How Timor-Leste and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Timor-Leste 59 TRADING ACROSS BORDERS What are the details? The indicators reported here for Timor-Leste are LOCATION OF STANDARDIZED COMPANY based on a set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the Port Name: Dili Port indicators cover). Information on the required documents and the time and cost to complete export City: Dili and import is collected from local freight forwarders, The predefined stages, and the associated time and cost, shipping lines, customs brokers, port officials and for exporting and importing a standard shipment of banks. goods are listed in the summary below, along with the required documents. Table 9.2 Summary of predefined stages and documents for trading across borders in Timor-Leste Stages to export Time (days) Cost (US$) Customs clearance and inspections 4 50 Documents preparation 14 140 Inland transportation and handling 2 100 Ports and terminal handling 8 120 Totals 28 410 Stages to import Time (days) Cost (US$) Customs clearance and inspections 5 50 Documents preparation 12 145 Inland transportation and handling 2 100 Ports and terminal handling 7 120 Totals 26 415 Doing Business 2015 Timor-Leste 60 Documents to export Bill of Lading Commercial invoice Customs export declaration Packing list Tax Compliance Certificate (Certidao de dividas) Technical standard/health certificate Documents to import Bank payment slip for customs-related fees Bill of Lading Commercial invoice Customs import declaration Delivery Order Packing list Tax Compliance Certificate (Certidao de dividas) Source: Doing Business database. Doing Business 2015 Timor-Leste 61 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case: • The seller and buyer are located in the economy’s largest business city. For the 11 economies with a population of more than • The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added. • The dispute on the quality of the goods • The buyer orders custom-made goods, requires an expert opinion. then fails to pay. • The judge decides in favor of the seller; there • The seller sues the buyer before a is no appeal. competent court. • The seller enforces the judgment through a • The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 Timor-Leste 62 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial business cities. See the chapter on distance to frontier dispute through the courts in Timor-Leste? According to and ease of doing business ranking at the end of this data collected by Doing Business, contract enforcement profile for more details. takes 1285.0 days, costs 163.2% of the value of the claim Globally, Timor-Leste stands at 189 in the ranking of 189 and requires 51.0 procedures (see the summary at the economies on the ease of enforcing contracts (figure end of this chapter for details). Most indicator sets refer 10.1). The rankings for comparator economies and the to a case scenario in the largest business city of an regional average ranking provide other useful economy, except for 11 economies for which the data benchmarks for assessing the efficiency of contract are a population-weighted average of the 2 largest enforcement in Timor-Leste. Figure 10.1 How Timor-Leste and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Timor-Leste 63 ENFORCING CONTRACTS Economies in all regions have improved contract reducing backlogs by introducing periodic reviews to enforcement in recent years. A judiciary can be improved clear inactive cases from the docket and by making in different ways. Higher-income economies tend to look procedures faster. What reforms making it easier (or for ways to enhance efficiency by introducing new more difficult) to enforce contracts has Doing Business technology. Lower-income economies often work on recorded in Timor-Leste (table 10.1)? Table 10.1 How has Timor-Leste made enforcing contracts easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Timor-Leste increased court efficiency by training and DB2011 appointing new judges and passing a new civil procedure code. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Timor-Leste 64 ENFORCING CONTRACTS What are the details? The indicators reported here for Timor-Leste are COURT NAME based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter on Claim value: USD 8,009 what the indicators cover). These procedures, and the time and cost of completing them, are identified Court name: Dili District Court through study of the codes of civil procedure and other court regulations, as well as through City: Dili questionnaires completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Table 10.2 Summary of time, cost and procedures for enforcing a contract in Timor-Leste East Asia & Indicator Timor-Leste Pacific average Time (days) 1,285 554 Filing and service 200 Trial and judgment 995 Enforcement of judgment 90 Cost (% of claim) 163.2 48.6 Attorney cost (% of claim) 155.7 Court cost (% of claim) 4.0 Enforcement Cost (% of claim) 3.5 Procedures (number) 51 37 Number of procedures (without bonus points) 51 Total number of procedures (including bonus points) 51 Doing Business 2015 Timor-Leste 65 No. Procedures Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff hires a lawyer: Plaintiff hires a lawyer. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 3 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Judicial scrutiny of summons and complaint: Judge examines Plaintiff's summons and complaint for 4 formal requirements as a matter of law or standard practice. Judge admits summons and complaint: Judge admits summons and complaint (after verifying the formal * requirements). Plaintiff requests service of process on Defendant: Plaintiff requests in writing to the court for an order 5 that process be served on Defendant. 6 Court order for service: Upon Plaintiff’s request, judge orders process be served on Defendant. Delivery of summons and complaint to person authorized to perform service of process on Defendant: 7 The judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. Attempt at physical delivery: An attempt to physically deliver summons and complaint to Defendant is 8 made. * Proof of service: Plaintiff submits proof of service to court, as required by law or standard practice. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. Decision on pre-judgment attachment: Judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 9 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Custody of assets attached prior to judgment: If physical attachment is ordered, Defendant's attached 10 assets are placed in the custody or control of an enforcement officer or private bailiff. Doing Business 2015 Timor-Leste 66 No. Procedures Report on pre-judgment attachment: Court enforcement officer or private bailiff issues and delivers a 11 report on the attachment of Defendant’s property to the judge. Trial and judgment: Defendant files preliminary objections.: Defendant presents preliminary objections to the court. * (Preliminary exemptions differ from answers on the merits. Examples of preliminary motions are motions to dismiss on the basis of the statute of limitations or jurisdictional objections, etc.) Checke Plaintiff’s answer to preliminary motions: Plaintiff responds to preliminary motions raised by Defendant. * Checked as ‘yes’ if preliminary motions are commonly raised (step 30) and if Plaintiff responds to them immediately. Judge’s resolution on preliminary objections: Judge decides on preliminary objections separately from the 12 merits of the case. Checked as ‘yes’ if preliminary objections are commonly made (step 30) and if judge resolves the question before rendering his decision. Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 13 or defense on the merits of the case (see assumption 4). Deadline for Plaintiff to reply to Defendant's defense or answer: Judge sets a deadline for Plaintiff’s 14 submission of a reply to the Defendant's defense or answer. Plaintiff’s written reply to Defendant's answer: Plaintiff responds to Defendant’s answer with a written 15 pleading, which may or may not include witness statements or expert (witness) statements. Filing of written submissions: Plaintiff and Defendant file written pleadings and submissions with the court 16 and transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Adjournments: Court procedure is delayed because one or both parties request and obtain an 17 adjournment to submit written pleadings. Check as ‘yes’ if this commonly happens. Court’s mailing of allocation questionnaire to parties: The court mails a questionnaire to the parties asking * each to allocate the case among different case-tracks (for example, multi track, fast track) and asking each to frame the issues for trial. Parties’ answer to court's allocation questionnaire: Parties submit their completed allocation 18 questionnaires to the court (including their answers regarding case-tracks and the issues for trial). Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 5-b). Notification of court-appointment of independent expert: The court notifies both parties that the court is 19 appointing an independent expert (see assumption 5-b). Delivery of expert report by court-appointed expert: The independent expert, appointed by the court, * delivers his or her expert report to the court (see assumption 5-b). * Setting of date(s) for oral hearing or trial: Judge sets the date(s) for the oral hearing or trial. Preliminary hearing aimed at preparing for the oral hearing: The judge meets the parties to make practical 20 arrangements for the oral hearing on the merits of the case. Doing Business 2015 Timor-Leste 67 No. Procedures * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court (see assumption 5-a). Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 21 hearing or trial (see assumption 5-a). Adjournments: Court proceedings are delayed because one or both parties request and obtain an 22 adjournment to prepare for the oral hearing or trial as a matter of common practice. Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 23 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Adjournments: Court proceedings are delayed because one or both parties request and obtain an 24 adjournment during the oral hearing or trial, resulting in an additional or later trial or hearing date. 25 Closing of the evidence period: The court makes the formal decision to close the evidence period. Order for submission of final arguments: The judge sets a deadline for the submission of final factual and 26 legal arguments. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 27 Judgment date: The judge sets a date for delivery of the judgment. 28 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 29 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 30 judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 31 judgment is available at the courthouse. Plaintiff receives a copy of the judgment: Plaintiff receives a copy of the written judgment which is 100% 32 in favor of Plaintiff (see assumption 6). Defendant is formally notified of the judgment: Plaintiff or court formally notifies the Defendant of the 33 judgment. The appeal period starts to run from the day the Defendant is formally notified of the judgment. Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 34 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Order for reimbursement by Defendant of Plaintiff's court fees: The judgment orders Defendant to 35 reimburse Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff hires a lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented by * a lawyer during the enforcement of judgment phase. Doing Business 2015 Timor-Leste 68 No. Procedures Plaintiff requests an enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). 36 Plaintiff advances enforcement fees: Plaintiff pays the fees related to the enforcement of the judgment. Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 37 judgment. Plaintiff’s request for physical enforcement: As Plaintiff commonly fears that Defendant might physically * resist the taking into custody of its previously attached movable assets, Plaintiff requests the judge or the police authorities to obtain police assistance during the physical enforcement of the Judge's order for physical enforcement: Judge orders the police to assist with the physical enforcement of 38 the attachment of Defendant's movable assets. Check as “yes” only if the pretrial order of attachment for Defendant’s moveable assets does not ordinarily involve physical seizure of the as Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 39 private bailiff requests Defendant to voluntarily comply with the judgment. Identification of Defendant's assets by court official or Defendant for purposes of enforcement: The judge, 40 a court enforcement officer, a private bailiff or the Defendant himself identifies Defendant's movable assets for the purposes of enforcing the judgment through a sale of Defendant’s assets. Contestation of selection of assets identified for sale: A party, Plaintiff or Defendant, which was not 41 involved in the designation of the assets for attachment, contests the selection of assets for enforcement of judgment through a sale. 42 Plaintiff identifies Defendant's assets for attachment: Plaintiff identifies Defendant's assets for attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 43 assets). Report on execution of attachment: A court enforcement officer or private bailiff delivers a report on the 44 attachment of Defendant's movable goods to the judge. Valuation or appraisal of attached movable goods: The court or court-appointed valuation expert 45 evaluates the attached goods. Enforcement disputes before court: The enforcement of the judgment is delayed because Defendant 46 opposes aspects of the enforcement process before the judge. 47 Sale through public auction: The Defendant’s movable property is sold at public auction. Direct sale: Defendant's property is sold but not through a public auction. Checked as ‘yes’ if the direct * sale is common as an alternative to a public auction (assumption 9 is disregarded here). 48 Judge's decision on bids: Judge determines the adequacy of the bids presented at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to Plaintiff (and, where 49 applicable, to other creditors, according to the rules of priority). Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 50 Plaintiff had advanced previously. 51 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. Doing Business 2015 Timor-Leste 69 * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2015 Timor-Leste 70 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 Timor-Leste 71 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice Globally, Timor-Leste stands at 189 in the ranking of 189 characterize the top-performing economies. How economies on the ease of resolving insolvency (figure efficient are insolvency proceedings in Timor-Leste? 11.1). The rankings for comparator economies and the Timor-Leste receives a no practice mark for resolving regional average ranking provide other useful insolvency, indicating that in each of the previous 5 years benchmarks for assessing the efficiency of insolvency there were no cases involving a judicial reorganization, proceedings in Timor-Leste. judicial liquidation or debt enforcement procedure (foreclosure). A “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. Figure 11.1 How Timor-Leste and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2015 Timor-Leste 72 Doing Business 2015 Timor-Leste 73 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers • Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International • Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188 • Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment • Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6 • Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of • Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked • Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 Timor-Leste LABOR MARKET REGULATION Employment laws are needed to protect workers from the past 5 years did so in ways that increased labor arbitrary or unfair treatment and to ensure efficient market flexibility. What changes did Timor-Leste adopt contracting between employers and workers. Many that affected the Doing Business indicators on labor economies that changed their labor market regulation in market regulation (table 12.1)? Table 12.1 What changes did Timor-Leste make in terms of labor market regulation? DB year Reform Timor-Leste reduced the maximum duration of fixed-term DB2013 contracts and also introduced a wage premium for night work. Source: Doing Business database. Doing Business 2015 Timor-Leste 75 LABOR MARKET REGULATION What are the details? The data reported here for Timor-Leste 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. Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? Yes Maximum length of a single fixed-term contract (months) 36 months, Sec.11.4 Labour Law 4/2012 Maximum length of fixed-term contracts, including renewals (months) 36 Minimum wage applicable to the worker assumed in the case study 104.95 (US$/month) Ratio of minimum wage to value added per worker 0.18 Source: Doing Business database. Doing Business 2015 Timor-Leste 76 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. Rigidity of hours index Data 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in workload? Maximum working days per week 6.0 Premium for night work (% of hourly pay) 25% Premium for work on weekly rest day (% of hourly pay) 100% Major restrictions on night work? No Major restrictions on weekly holiday? Yes Paid annual leave for a worker with 1 year of tenure (in working days) 12.0 Paid annual leave for a worker with 5 years of tenure (in working days) 12.0 Paid annual leave for a worker with 10 years of tenure (in working days) 12.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 12.0 working days) Source: Doing Business database. Doing Business 2015 Timor-Leste 77 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 redundant workers; (v) priority rules apply for reemployment. Difficulty of redundancy index Data Maximum length of probationary period (months) 1.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? Yes Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? Yes Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2015 Timor-Leste 78 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 and 1/3 weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure 4.3 Notice period for redundancy dismissal for a worker with 10 years of tenure 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 0.0 Severance pay for redundancy dismissal for a worker with 5 years of tenure 0.0 Severance pay for redundancy dismissal for a worker with 10 years of tenure 0.0 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 0.0 of tenure) Source: Doing Business database. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of Doing Business also assesses the mechanisms available unemployment protection schemes as well as data on to resolve labor disputes. More specifically, it collects whether employers are legally required to provide data on what courts would be competent to hear labor health insurance for employees with permanent disputes and whether the competent court is contracts. specialized in resolving labor disputes. Social protection schemes and benefits & Labor disputes indicator Data Availability of unemployment protection scheme? No Health insurance existing for permanent employees? No Availability of courts or court sections specializing in labor disputes? No Source: Doing Business database. Doing Business 2015 Timor-Leste 79 Doing Business 2015 Timor-Leste 80 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components—yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in 6 Doing Business . Thus Doing Business uses the simplest calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 Timor-Leste 81 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the 7 components . threshold reduces the bias in the indicator toward economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 2015 report). Tokyo 65 Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 correlations among indicators do not differ much. An alternative to the Russian Federation St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. 7 Source: United Nations, Department of Economic and Social For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 Timor-Leste 82 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 Timor-Leste 83 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 10,700 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 Timor-Leste 84