82851 Economy Profile: Guatemala Doing Business 2014 Guatemala 2 © 2013 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 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. 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. 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Cover design: The Word Express Doing Business 2014 Guatemala 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 34 Registering property .................................................................................................................. 42 Getting credit .............................................................................................................................. 51 Protecting investors ................................................................................................................... 58 Paying taxes ................................................................................................................................ 67 Trading across borders .............................................................................................................. 74 Enforcing contracts .................................................................................................................... 82 Resolving insolvency .................................................................................................................. 91 Employing workers .................................................................................................................... 96 Data notes ................................................................................................................................. 103 Resources on the Doing Business website ............................................................................ 109 Doing Business 2014 Guatemala 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2012). 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, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 189 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 47 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 25 in East Asia and the Pacific, 25 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 20 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2014 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Guatemala. To allow useful comparison, business regulatory reforms. The data, along with it also provides data for other selected economies information on ordering Doing Business 2014, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2013 (except for http://www.doingbusiness.org. Doing Business 2014 Guatemala 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start 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 Region: Latin America & Caribbean business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of Population: 15,082,831 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 3,120 percentile rankings on each of the 10 topics included in the index in Doing Business 2014: starting a business, DB2014 rank: 79 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2013 rank: 93* investors, paying taxes, trading across borders, Change in rank: 14 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the DB 2014 DTF: 67.05 percentile rankings on its component indicators (see the data notes for more details). The employing workers DB 2013 DTF: 64.19 indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented Change in DTF: 2.85 in this year’s economy profile. The aggregate ranking on the ease of doing business * DB2013 ranking shown is not last year’s published benchmarks each economy’s performance on the ranking but a comparable ranking for DB2013 that indicators against that of all other economies in the captures the effects of such factors as data Doing Business sample (figure 1.1). While this ranking corrections and the addition of 4 economies (Libya, tells much about the business environment in an Myanmar, San Marino and South Sudan) to the economy, it does not tell the whole story. The ranking on sample this year. See the data notes for sources and the ease of doing business, and the underlying definitions. 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 2014 Guatemala 6 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 2014 Guatemala 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Guatemala and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2014 Guatemala 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Guatemala ranks on Doing Business topics Source: Doing Business database. Doing Business 2014 Guatemala 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far on average an Yearly movements in rankings can provide some indication economy is from the best performance achieved by any of changes in an economy’s regulatory environment for economy on each Doing Business indicator since 2005, firms, but they are always relative. except for the getting electricity indicators, which were introduced in 2009. Moreover, year-to-year changes in the overall rankings do not reflect how the business regulatory environment in an Comparing the measure for an economy at 2 points in economy has changed over time—or how it has changed time allows users to assess how much the economy’s in different areas. To aid in assessing such changes, regulatory environment as measured by Doing Business has changed over time—how far it has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.4). Figure 1.4 How far has Guatemala come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 Guatemala 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist — numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Guatemala Best performer globally El Salvador DB2014 Guatemala DB2014 Guatemala DB2013 Costa Rica DB2014 Honduras DB2014 Colombia DB2014 Panama DB2014 Mexico DB2014 Indicator DB2014 Starting a Business 145 176 79 102 148 162 48 25 New Zealand (1) (rank) Procedures (number) 6 12 9 9 8 13 6 5 New Zealand (1)* Time (days) 19.5 40.0 15.0 24.0 16.5 14.0 6.0 6.0 New Zealand (0.5) Cost (% of income per 46.4 48.1 7.5 9.5 45.5 45.3 19.7 7.2 Slovenia (0.0) capita) Paid-in Min. Capital (% 19.6 20.9 0.0 0.0 2.8 15.2 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 61 94 24 82 144 83 40 62 China (1) (rank) Hong Kong SAR, Procedures (number) 11 11 8 14 24 13 11 16 China (6) Time (days) 107.0 158.0 54.0 123.0 144.0 109.0 82.0 99.5 Singapore (26.0) Doing Business 2014 Guatemala 11 Best performer globally El Salvador DB2014 Guatemala DB2014 Guatemala DB2013 Costa Rica DB2014 Honduras DB2014 Colombia DB2014 Panama DB2014 Mexico DB2014 Indicator DB2014 Cost (% of income per 414.9 500.4 295.4 137.0 157.0 350.9 353.1 66.0 Qatar (1.1) capita) Getting Electricity 34 35 101 47 154 125 133 16 Iceland (1) (rank) Procedures (number) 4 4 5 5 8 8 7 5 10 Economies (3)* Time (days) 39 39 105 62 88 33 85 35 Germany (17) Cost (% of income per 548.8 594.8 541.6 226.9 563.1 968.5 369.1 10.3 Japan (0.0) capita) Registering Property 23 20 53 46 59 94 150 74 Georgia (1) (rank) Procedures (number) 4 4 7 5 5 7 7 7 4 Economies (1)* Time (days) 23.0 23.0 13.0 19.0 31.0 23.0 74.0 29.5 New Zealand (1.0)* Cost (% of property 0.8 0.8 2.0 3.4 3.8 5.7 5.3 2.3 5 Economies (0.0)* value) Getting Credit (rank) 13 11 73 86 55 13 42 55 Malaysia (1)* Strength of legal rights 8 8 5 3 5 8 6 5 10 Economies (10)* index (0-10) Depth of credit 6 6 5 6 6 6 6 6 31 Economies (6)* information index (0-6) Public registry coverage 19.1 18.0 0.0 25.4 27.3 21.1 0.0 0.0 Portugal (100.0)* (% of adults) Private bureau 8.6 8.7 83.8 100.0 83.3 31.9 100.0 60.8 22 Economies (100.0)* coverage (% of adults) Protecting Investors 157 156 6 170 170 170 68 80 New Zealand (1) (rank) Extent of disclosure 3 3 9 2 3 0 8 4 10 Economies (10)* Doing Business 2014 Guatemala 12 Best performer globally El Salvador DB2014 Guatemala DB2014 Guatemala DB2013 Costa Rica DB2014 Honduras DB2014 Colombia DB2014 Panama DB2014 Mexico DB2014 Indicator DB2014 index (0-10) Extent of director 2 2 8 5 0 5 5 4 Cambodia (10) liability index (0-10) Ease of shareholder 5 5 8 2 6 4 4 8 3 Economies (10)* suits index (0-10) Strength of investor 3.3 3.3 8.3 3.0 3.0 3.0 5.7 5.3 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 85 129 104 136 165 144 118 175 (1) Payments (number per Hong Kong SAR, 7 21 10 22 53 47 6 52 year) China (3)* United Arab Emirates Time (hours per year) 326 332 203 226 320 224 334 417 (12) Trading Across Borders 116 112 94 44 64 84 59 11 Singapore (1) (rank) Documents to export 8 8 4 5 7 5 4 3 Ireland (2)* (number) Time to export (days) 17 17 14 13 13 12 11 10 5 Economies (6)* Cost to export (US$ per 1,435 1,307 2,355 1,015 980 1,345 1,450 625 Malaysia (450) container) Documents to import 7 7 6 5 7 7 4 3 Ireland (2)* (number) Time to import (days) 17 17 13 14 10 16 11 9 Singapore (4) Cost to import (US$ per 1,500 1,425 2,470 1,070 970 1,500 1,740 965 Singapore (440) container) Enforcing Contracts 97 97 155 130 68 182 71 127 Luxembourg (1) (rank) Doing Business 2014 Guatemala 13 Best performer globally El Salvador DB2014 Guatemala DB2014 Guatemala DB2013 Costa Rica DB2014 Honduras DB2014 Colombia DB2014 Panama DB2014 Mexico DB2014 Indicator DB2014 Time (days) 1,402 1,459 1,288 852 786 920 400 686 Singapore (150) Cost (% of claim) 26.5 26.5 47.9 24.3 19.2 35.2 31.0 50.0 Bhutan (0.1) Procedures (number) 31 31 34 40 34 47 38 32 Singapore (21)* Resolving Insolvency 109 111 25 124 90 136 26 112 Japan (1) (rank) Time (years) 3.0 3.0 1.7 3.0 3.5 3.8 1.8 2.5 Ireland (0.4) Cost (% of estate) 15 15 6 15 12 15 18 25 Norway (1) Outcome (0 as piecemeal sale and 1 as 0 0 1 0 0 0 1 0 going concern) Recovery rate (cents on 27.7 27.8 70.3 24.5 32.8 19.5 67.6 27.5 Japan (92.8) the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. * 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 2014 Guatemala 14 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 Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day (2 business in an economy by recording all procedures cannot start on the same day). procedures officially required or commonly done in Procedures that can be fully completed practice by an entrepreneur to start up and online are an exception to this rule. formally operate an industrial or commercial Procedure completed once final document is business—as well as the time and cost required to received complete these procedures. It also records the paid-in minimum capital that companies must No prior contact with officials deposit before registration (or within 3 months). Cost required to complete each procedure The ranking on the ease of starting a business is (% of income per capita) the simple average of the percentile rankings on the 4 component indicators: procedures, time, cost Official costs only, no bribes and paid-in minimum capital requirement. 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:  Has a start-up capital of 10 times income per  Is a limited liability company, located in the capita. largest business city and is 100% domestically  Has a turnover of at least 100 times income per owned. capita.  Has between 10 and 50 employees.  Does not qualify for any special benefits.  Conducts general commercial or industrial  Does not own real estate. activities. Doing Business 2014 Guatemala 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Guatemala? days, costs 46.4% of income per capita and requires According to data collected by Doing Business, starting paid-in minimum capital of 19.6% of income per capita a business there requires 6 procedures, takes 19.5 (figure 2.1). Figure 2.1 What it takes to start a business in Guatemala Paid-in minimum capital (% of income per capita): 19.6 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 2014 Guatemala 16 STARTING A BUSINESS Globally, Guatemala stands at 145 in the ranking of and the regional average ranking provide other useful 189 economies on the ease of starting a business information for assessing how easy it is for an (figure 2.2). The rankings for comparator economies entrepreneur in Guatemala to start a business. Figure 2.2 How Guatemala and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 Guatemala 17 STARTING A BUSINESS What are the changes over time? The benchmarks provided by the economies that over 2.3) can help show what is possible in making it easier time have had the best performance regionally or to start a business. And changes in regional averages globally on the procedures, time, cost or paid-in can show where Guatemala is keeping up—and where minimum capital required to start a business (figure it is falling behind. Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2014 Guatemala 18 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety economies globally have no paid-in minimum capital requirement. DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Guatemala 19 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Guatemala (table 2.1)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.1 How has Guatemala made starting a business easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Guatemala made starting a business easier by creating an DB2014 online platform that allows simultaneous registration of a new company with different government agencies. 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 2014 Guatemala 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Guatemala is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Guatemala City firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Sociedad Anónima (SA) - Corporation professionals and the study of laws, regulations and Paid in Minimum Capital Requirement: GTQ 5,000 publicly available information on business entry in that economy. Following is a detailed summary of Start-up Capital: 10 times GNI per capita those procedures, along with the associated time and cost. These 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). Summary of procedures for starting a business in Guatemala—and the time and cost Time to No. Procedure Cost to complete complete Check the proposed company name online and obtain a letter from a Guatemalan notary public to open bank account The minimum paid capital requirement of GTQ 5,000 must be deposited in a local bank before the articles of incorporation are signed. For this purpose, a notary public must issue a letter confirming that he or she QTZ 0.5 for each 1 has been requested to draw up and register the company’s deed of 1 day name constitution. This letter allows for the opening of a temporary bank account while registration is completed. The letter has to indicate the exact address for the new company, which has to be supported by a bill of a public service. Deposit the subscribed capital in a bank and obtain a receipt The legal representative opens a bank account and deposits the subscribed capital. The bank will require a bill of any public service with 2 the address of the new company. The deposit slip is presented to the 1 day no charge Notary. The deposit slip is then presented to the notary. A notary public draws the deed of constitution, fills the forms required by the Commercial Registry and the tax authority and pays the registration fees online Less than one day 3 see comment (online procedure) On March 18, 2013, Guatemala launched Mi Negocio, a new online platform that allows registering a new company with the commercial registrar (Registro Mercantil), the tax authority (Superintendencia de Doing Business 2014 Guatemala 21 Time to No. Procedure Cost to complete complete Administración Tributaria), the social security institute (Instituto Guatemalteco de Seguridad Social) and the Ministry of Labor (Ministerio de Trabajo) through a single form online. This new online platform reduces significantly the time for an entrepreneur to obtain the definitive registration, tax and social security numbers and the authorization to print invoices. The notary issues a certified copy of the deed and draws the appointment of the legal representative (Sole Administrator or members of the Board), who has to be personally registered before the Tax Authorities. Then, the notary fills online the forms required by the Commercial Registry and Superintendence of Tax Administration with the help of the new company´s accountant. The following forms are required by the Commercial Registry: a- certified copy of the deed of constitution b- appointment of legal representative c- bill of any public service with the exact address of the new company d- letter of intent from the owner of the address e- payment receipt Finally, the notary pays in Banrural Bank the amount required by the Registry: GTQ 8,400 average notarial fees + GTQ 250 stamp tax, GTZ 300 notarial stamp tax for the certified copy, GTZ 112 stamp tax for the appointment+ GTZ 275 flat free + QTZ 6 per every GTZ 1000 of authorized capital; GTZ 15 edict; GTZ 75 appointment + QTQ 100 commercial license+ QTZ 100 Social Books. Procedure can be done online Obtain the provisional registration of the new company before the Mercantil Register; the Tax Identification Number; the Edict; the Registration of the legal representative appointment and the authorization to print invoices 4 3 days no charge Provisional registration at the Commercial Registry with the tax and social security authorities can be completed in 2–3 days. Publication of the edit in Diario de Centro America and opposition 3 days for the to the provisional registration of the company by affected third parties edict to be published and 8 Three days after the provisional registration, the Mercantile Registry days for the 5 GTQ 525.6 publishes the notice of incorporation. The law establishes an opposition opposition to the term of 8 working days, upon the day after the publication, in case any provisional third party disagrees with the registration of the corporation. registration by third parties Doing Business 2014 Guatemala 22 Time to No. Procedure Cost to complete complete Obtain the definitive registration, the commercial license, the Social Security Number and the Authorization for social and accounting books. 6 3 days QTZ 250 stamp tax Once registration is completed, the social security identification number, the commercial license, as well as the authorization for social and accounting books can be obtained. * 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 2014 Guatemala 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Submitting all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a land telephone line cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a completion (if required for use as collateral or warehouse in the economy’s largest business city, for transfer of the warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day. percentile rankings on its component indicators: Procedures that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final Doing Business uses several assumptions about the document is received business and the warehouse, including the utility connections. No prior contact with officials The business: Cost required to complete each procedure (% of income per capita)  Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city.  Will be connected to water, sewerage (sewage system, septic tank or their  Is domestically owned and operated. equivalent) and a fixed telephone line. The  Has 60 builders and other employees. connection to each utility network will be 10 The warehouse: meters (32 feet, 10 inches) long.  Is a new construction (there was no  Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions).  Has complete architectural and technical plans prepared by a licensed architect or  Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 Guatemala 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 11 procedures, takes 107.0 days build a warehouse in Guatemala? According to data and costs 414.9% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Guatemala 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 2014 Guatemala 25 DEALING WITH CONSTRUCTION PERMITS Globally, Guatemala stands at 61 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 Guatemala to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Guatemala and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 Guatemala 26 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to deal with time have had the best performance regionally or construction permits. And changes in regional globally on the procedures, time or cost required to averages can show where Guatemala is keeping up— deal with construction permits (figure 3.3) help show and where it is falling behind. Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2014 Guatemala 27 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Guatemala 28 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Guatemala (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How has Guatemala made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Guatemala eased the process of dealing with construction permits with a new land management plan that simplified the DB2010 process of approval based on a risk assessment scheme, and mixed zoning regimes made the process of approval much faster. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. Guatemala made dealing with construction permits easier by DB2013 introducing a risk-based approval system Guatemala made dealing with construction permits easier by streamlining procedures through the creation of a one-stop DB2014 shop, backed by agreements between institutions and agencies involved in the permitting process. 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 2014 Guatemala 29 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Guatemala 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 City : Guatemala City information collected from experts in construction licensing, including architects, civil engineers, Estimated construction lawyers, construction firms, utility GTQ 1,560,720 Warehouse Value : service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and that apply to a company and structure matching cost, are summarized below. the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Guatemala —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain certificate of land ownership for the property where the warehouse is to be built The certificate is valid for 3 months. Since August 2007 the fee related 8 days GTQ 50 1 to obtaining the certificate of land ownership has been increased from GTQ 35.00 to GTQ 50.00. * Hire an Environmental Specialist and prepare an initial Environmental Assessment of Minimum Impact The environmental assessment of minimum impact is usually prepared 2 by a professional (engineer/architect) authorized to do so. The 14 days GTQ 20,000 company owning the project hires the professional, and the cost will vary depending on project characteristics. * Submit a Brief or Simple Industrial Report This report contains an affidavit regarding storage use and any 1 day no charge 3 industrial process to be carried out in the warehouse. Submit Environmental Assessment of Minimum Impact and receive approval from MARN (Ministerio de Ambiente y Recursos Naturales) 4 14 days GTQ 100 The environmental assessment along with application is submitted to the one-stop shop. Required documents include: Doing Business 2014 Guatemala 30 Time to No. Procedure Cost to complete complete 1. An initial Environmental Assessment of Minimum Impact 2. Sworn Statement of the petitioner 3. Photocopy of identity card or DPI 4. Legal representation of the Representative 5. Location or sketch plan of the Project 6. A photocopy of the complete file The favorable decision, provided everything is correct can be issued within 24 hours for Actividades de Minimo Impacto (AMI) by the Ventanilla Agil. If the judgment is unfavorable, the company owning the project must make the necessary corrections for the project to be approved. Request and obtain a Construction License The Municipality of Guatemala City introduced as of January 7, 2009 a new Land Management Plan (Plan de Ordenamiento Territorial- “POT”), and new building control regulations that also regulate the construction permit issuance. According to the new POT of Guatemala City the land use classifications were changed based on the principles of sustainability, certainty, and better quality of life. In the old system the land was divided into industrial, residential, and commercial zones, whereas, the new zoning regimes are established according to general use of land which among others introduced mixed use of zoning regimes. This tool was developed in consultation with both private and public sector and widely publicized. It also introduces a more sophisticated risk based system of approval of construction permit. Before, the application had only one process of approval, whereby the application would be classified as complete, and compliant with all requirements. This led to issuance of construction permit. However, if incomplete it would need to be corrected. Under the new implementing regulations of POT this mechanisms is based on three stages: Simplified Procedure (Precedimiento Directo); Approval of Land Management Council (Junta de Ordenamiento Territorial); Approval of 14 days GTQ 70,232 5 Land Management Council and Neighbours’ Consent. Each phase is triggered if previous phase is not complied with. BuildCo's case would fall into the ‘Simplified Procedure' scheme and does not require subsequent procedure with Land Management Council and neighbors. Under this scheme if all requirements established in the regulations are satisfactory and complied with, the application would be approved in 10 working days. As of February 28, 2009 out of 580 applications for a new construction permit to the Central Territorial Directorate under the Municipality of Guatemala City (Direccion Central Territorial) 40% of cases went under simplified procedure and approved within this time-limit. This procedure is administered under a newly operationalized single window principle. Additionally, the application forms have been substantially simplified and reduced in volume from 27 pages to mere 3 pages. BuildCo must submit the corresponding form with all the requested specifics together with all the requirements in the previous procedures, photocopies of the identification cards of its legal agent and the professional responsible for the construction, and a photocopy of the latest Single Real Estate Tax (Impuesto Unico sobre Inmueble) receipt Doing Business 2014 Guatemala 31 Time to No. Procedure Cost to complete complete and any other required receipts. An architect or engineer must be responsible for the construction work, signing the submitted form and the plans. The cost of the license is the estimated based on warehouse value at 4.5%. There is no time limit. This procedure depends on the time taken by the company applying for the license to complete all the requirements. If any requirements are still pending and there is no action on the record after 60 days, the process is deemed canceled and is sent to the general files, after which the company must start another application. If BuildCo starts the procedures for the license application with all requirements in order and duly authorized (approved decisions and resolutions), the license may be delivered after a minimum of 4 working days. According to law, required deposits are as follows: • Article 183: The recipient of a construction license must make a guarantee deposit of GTQ 5.00 (for buildings up to a cost of GTQ 5,000.00) or 0.01% of the cost of the building (if the cost exceeds GTQ 5,000.00). For our case it would be GTQ 380.20. This amount shall be refunded when the building has been completed and the license has been returned after the approval of the Construction Licensing Department. Provided there were no violations upon which the authority would retain the deposit. • Article 184: If, after a year from the date of license expiration, the interested party does not claim the deposit, it will automatically be incorporated into the municipal treasury. Notify the Construction Licensing Department on construction completion and return the license The license must be returned to the Construction Licensing Department, which performs the last inspection. If the construction work conforms to approved specifications, the occupancy permit is 1 day no charge 6 issued. When the license is returned, the municipality notifies the cadastre office about the construction and its cost. Within 7 -- 14 days, the municipality visits the site to verify that the building complies with approved specifications. Receive final inspection and obtain occupation permit According to Article 78, on completion of the construction work, the interested parties shall request final inspection from the Construction Licensing Department. This inspection shall be performed by the supervisor in charge, who shall record the result on an inspection card. 14 days no charge 7 If the building does not comply with approved specifications, the card must state the reasons and the appropriate remedies. If all aspects are in order and the card expressly states so, after the return of the respective license, the interested parties may request the building occupancy permit from the head of the office by completing the form stated in Annex 1 of the Regulation. Doing Business 2014 Guatemala 32 Time to No. Procedure Cost to complete complete If no objections are raised during the inspection (meaning that every part of the construction is authorized as complying with the plans submitted to the Construction Licensing Department, the professional in charge of the inspection may immediately go back to the office and issue the occupancy permit to be delivered to the company. After that BuildCo will be given back its deposit of 0.01% of warehouse value that was paid at the stage of building permit approval. * Request water sewage connection and receive requirements from EMPAGUA BuildCo must fill out the application and receive the requirements at office of the Water and Sewerage Authority (Empresa Municipal de Agua, EMPAGUA). There they will be notified of the fee to be paid as a deposit to cover the completion of the procedure and a service feasibility study that must be carried out by EMPAGUA. EMPAGUA will start the feasibility study within about 15 days. 8 1 day no charge In 2007 the Municipality of Guatemala unified the application forms and relevant requirements for EMPAGUA, Department of Urban Construction Control (Departamento de Control de Construcción Urbana) and Infrastructure Directorate (Dirección de Infraestructura). Other change is that approvals from all these entities are given simultaneously. However, has not had any practical impact. * Request and obtain a feasibility study by EMPAGUA According to regulatory changes this procedure should be done in 27 working days. The EMPAGUA must issue a resolution regarding feasibility or nonfeasibility and the steps to be taken by BuildCo for EMPAGUA to make the necessary hook-up connections. On completion of the feasibility study, EMPAGUA notifies the applicant of the amount to be paid to the municipality for the feasibility study and the 40 days GTQ 6,132 9 connections to be made. The cost may vary depending on the work to be done and the estimated required potable water supply and sewage volume to be drained from the project. The inspections performed by EMPAGUA experts may vary depending on the number of inspections needed to determine service feasibility. * Receive connection to water 10 60 days GTQ 8,800 Doing Business 2014 Guatemala 33 Time to No. Procedure Cost to complete complete * Obtain a telephone line 11 1 day GTQ 625 * 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 2014 Guatemala 34 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a 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 Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is to either the low-voltage or the medium-  Is a new construction being connected to voltage distribution network and either overhead electricity for the first time. or underground, whichever is more common in the economy and area where the warehouse is  Has 2 stories, both above ground, with a located. The length of any connection in the total surface of about 1,300.6 square customer’s private domain is negligible. meters (14,000 square feet), and is built on a plot of 929 square meters (10,000 square  Requires crossing of a 10-meter road but all the feet). works are carried out in a public land, so there is no crossing into other people's private property. The electricity connection:  Involves installing one electricity meter. The  Is 150 meters long and is a 3-phase, 4-wire Y, monthly electricity consumption will be 0.07 140-kilovolt-ampere (kVA) (subscribed gigawatt-hour (GWh). The internal electrical capacity) connection. wiring has been completed. Doing Business 2014 Guatemala 35 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 39 days and costs 548.8% of income connection in Guatemala? According to data collected per capita (figure 4.1). by Doing Business, getting electricity there requires 4 Figure 4.1 What it takes to obtain an electricity connection in Guatemala 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 2014 Guatemala 36 GETTING ELECTRICITY Globally, Guatemala stands at 34 in the ranking of 189 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Guatemala to connect a warehouse to electricity. Figure 4.2 How Guatemala and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 Guatemala 37 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Guatemala Best performer in Best performer Indicator Guatemala DB2014 Guatemala DB2013 Latin America & globally DB2014 Caribbean DB2014 Rank Trinidad and Tobago 34 35 Iceland (1) (10) Procedures (number) St. Vincent and the 4 4 10 Economies* (3) Grenadines (3) Time (days) 39 39 St. Kitts and Nevis (18) Germany (17) Cost (% of income per Trinidad and Tobago capita) 548.8 594.8 Japan (0.0) (7.0) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Guatemala 38 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and Guatemala (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Guatemala made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Guatemala 39 GETTING ELECTRICITY What are the details? The indicators reported here for Guatemala 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 City: Guatemala City utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Empresa Electrica de verified by electricity regulatory agencies and Guatemala, S.A independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Guatemala—and the time and cost Time to No. Procedure Cost to complete complete The customer submits in person a request for electrical services with Empresa Eléctrica de Guatemala (EEGSA) and signs the supply contract the same day Since it is a company that requests the service, it is required to present a copy of a legal representation document, local identity card (ID) of the legal representative, proof of ownership of the property or lease contract, list of technical data of the load required and the guarantee deposit which is refunded when the customer no longer requires the service of power supply (according to the General Electricity Law). Legal Representation documents and the lease contracts require notarization. 8 calendar days GTQ 23,500.0 1 Only a day passes from presenting the application to the signing the contract (it can be done the same day if all the required documentation is presented). There is no cost for the customer, he should not expect to prepare pay a fee. When it is a connection at less than 200m from EEGSA existing distribution lines no study and therefore extra cost is needed. There is no cost for the customer, therefore there is no need to submit a budget or pay a fee again. | With the application for electricity the customer must send a guarantee deposit that is refunded when the customer no longer requires the service of power supply (according to the General Electricity Law). For loads above 100 kW, the deposit is not paid in cash but is covered by a bond issued by a guarantee agency in Guatemala. | Doing Business 2014 Guatemala 40 Time to No. Procedure Cost to complete complete Empresa Eléctrica de Guatemala (EEGSA) carries out an external inspection EEGSA performs an external inspection. It is recommended that the electrician in charge of the internal installations is present to clarify technical details. The visit consist on reviewing EEGSA's installation and 2 their interactions with the new user, there is no review of the user's 1 calendar day no charge internal wiring installation. EEGSA is responsible for the service until the metering equipment; from there it's the customer's responsibility. The internal wiring installation can be done by any electrician hired by the customer. The client hires a private company to lay out the underground cables and other work needed for the external connection For EEGSA to make the connection, it is needed that the civil works are completed. EEGSA is responsible until the measuring equipment and therefore does not supervise the construction of the laying of the cables, so the customer should contract the services of an independent engineer 3 for this part of the works. 30 calendar days USD 14,250.0 The boundary of the external connection work is the pole-mounted transformer which is provided by EEGSA. From there, the customer installs the pipe onto the post, the meter box, the underground wiring to the main board. Empresa Eléctrica de Guatemala (EEGSA) finalizes the external connection and installs the meter When the civil works are completed, the internal wiring are ready and the contract is signed, EEGSA installs the meter, transformers and connects the internal wiring to the transformers. The physical installation is performed by the Distributor (EEGSA) although subcontractors do the job. The electricity distribution company has a sufficient stock of 30 calendar days no charge 4 materials. The customer does not buy any materials for the external connection. The meter installation is simultaneous with the connection and the electricity begins to flow from the moment the connection is made. It is necessary to mount the transformer station, which involves installing a post and installing the metering equipment, all of this is paid by EEGSA. * Takes place simultaneously with another procedure. Doing Business 2014 Guatemala 41 Source: Doing Business database. Doing Business 2014 Guatemala 42 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 immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day. time and cost. Procedures that can be fully completed online are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure (% of property value)  Are limited liability companies, 100% domestically and privately owned. Official costs only, no bribes  Are located in the economy’s largest No value added or capital gains taxes included business city. and no rezoning is required.  Have 50 employees each, all of whom are  Has no mortgages attached and has been nationals. under the same ownership for the past 10  Perform general commercial activities. years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story  Has a value of 50 times income per capita. warehouse of 929 square meters (10,000 The sale price equals the value. square feet). The warehouse is in good  Is registered in the land registry or cada- condition and complies with all safety stre, or both, and is free of title disputes. standards, building codes and legal requirements. There is no heating system. The  Is located in a periurban commercial zone, property will be transferred in its entirety. Doing Business 2014 Guatemala 43 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 23.0 days and costs 0.8% of the Guatemala? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 4 Figure 5.1 What it takes to register property in Guatemala Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Guatemala 44 REGISTERING PROPERTY Globally, Guatemala stands at 23 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 Guatemala to transfer property. Figure 5.2 How Guatemala and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2014 Guatemala 45 REGISTERING PROPERTY What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to register time have had the best performance regionally or property. And changes in regional averages can show globally on the procedures, time or cost required to where Guatemala is keeping up—and where it is falling complete a property transfer (figure 5.3) help show behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2014 Guatemala 46 REGISTERING PROPERTY Cost (% of property value) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Guatemala 47 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Guatemala (table 5.1)? Table 5.1 How has Guatemala made registering property easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Guatemala has eased the process of registering property by DB2010 centralizing more procedures at the cadastral, reorganizing operations, and making greater use of electronic services DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Guatemala 48 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property City: Guatemala City lawyers, notaries and property registries. These procedures are those that apply to a transaction Property Value: GTQ 1,276,636 matching the standard assumptions used by Doing Business in collecting the data (see the section in The procedures, along with the associated time and this chapter on what the indicators cover). cost, are summarized below. Summary of procedures for registering property in Guatemala—and the time and cost Time to No. Procedure Cost to complete complete Obtain a property certificate ("Certificacion del historial de la finca") and the cadastral value certificate ("Valor de matricula") The seller obtains a certificate at the Property Registry in which the buyer can verify that the property is free from mortgages and encumbrances, and to verify that the property is owned by the seller. In order to obtain the certificate the buyer needs to know the registry numbers where the property is registered. Usually this information is provided by the seller. It is usually the lawyer who verifies the books at the registry and obtains this information. This updated certificate of the property will be used later by the lawyer/notary to prepare the public deed. 3-4 days QTG 50 (for first (depending on 10 pages, each The seller must obtain the cadastral value of the property from DICABI length of the real additional page 1 (Dirección de Catastro y Avalúo de Bienes Inmuebles). DICABI is a estate file or if it +QTG 5) + QTG national institution containing information based on a “personal registry is digitalized) 164 (legal fees) type” on all the regional registries in the country. Pursuant to amendments in Tax Law (Article 171 Decree 10-2012), authorized valuation of property and declaration of value of the real estate are mandatory.This information is obtained at DICABI. DICABI cadastral display can also be obtained at http://dicabilinea.minfin.gob.gt/dicabi_enlinea// Both certificates can be requested at the Land registry. Notaries can request them by email and then pick them up. Lawyer/notary prepares the sale agreement and notarizes it, along between QTG with the public deed 6500 - QTG 8200 2 2 days (notary fees) + If the seller is a registered VAT Taxpayer, the tax must be paid with an QTG 500 (tax invoice, in which the tax is charged. stamps, copies, Doing Business 2014 Guatemala 49 Time to No. Procedure Cost to complete complete and others) The lawyer/notary (In Guatemala, the lawyer is also the notary public) prepares the sale agreement and notarizes it by preparing the public deed. There is a scale in the Notary Bill that regulates the fees, but nowadays since the market has driven prices for notary services down, one will likely pay between $800 and $1000 for such a transaction. The notary will be in charge of buying the state stamps for VAT payment if necessary (12% of transaction value), and adhere the stamps to the Public Deed; it is safer to the buyer to process VAT payment directly in cash. Payments of registration fees (Q.160.00 plus Q 1.5 for each Q 1,000 of transaction value) are made to the notary, who will then pay the property registry. The documentation shall include: (i) Property Title issued by the Real Estate Office (advisable) (ii) Actualized Certificate of the property issued by the Property Registry (Obtained in step 1) (iii) Photocopy of the ID of seller and buyer (passport or local ID). In case the seller/buyer is a Company, photocopy of the appointment in which the Company gives sufficient faculties to proceed with the transfer of property. In some cases, a Board of Director resolution may be required (iv) Invoice issued by the seller or Form in which the Tax Authorities certified that the consumption tax (VAT that is 12% of the value of the transaction) is paid; Nevertheless, the sale agreement must be formalized with the public deed (v) Cadastral value obtained in DICABI (Obtained in step 1) Public deed is delivered to the Property Registry for its recording The public deed is delivered to the Property Registry for its recording under the name of the buyer. It is also advisable to obtain a certificate at the Property Registry to verify that the change of ownership is properly recorded. The internal procedures conducted by the Property Registry are as follows: (1) Departamento de Reparto –all incoming cases are assigned to the officials (operadores), whose salaries are based on a percentage of the QTG 160 + 0.15% fees. Since 2005, an electronic system is fully implemented to assign of transaction 3 cases based on current workload (1 business day). 7 days value (registration (2) The official registers the property electronically; and issues the case fees) file (expediente) (3) Departamento de Revision (legal assessors) reviews and approves the transaction (4) Accounting department verifies the payment of fees (5) Departamento de Firma Electronica: Registrar or auxiliary registrars (24 full-time and 5 part-time) sign the registration certificate. As of Decree 42-2006, electronic signatures from auxiliary registrars are legally valid. Each one is assigned a unique number by which they can electronically sign, facilitating the registration process. (6) Departamento de Archivo –updates the information in the system Doing Business 2014 Guatemala 50 Time to No. Procedure Cost to complete complete (7) Certificate is signed Notify the Municipality and DICABI of the transaction Notify the Municipality and the DICABI of the transaction. Sometimes this information is not updated, so in order to register the transaction it is mandatory to update prior information. This step is important to update the cadastral value of the property for 4 the purpose of tax collection. There is a small fine if this procedure is not 10 days no cost fulfilled, but it has no effect on the validity of the title obtained in the previous step. In 2009, the land registry has started informing electronically the municipalities of the transaction, and plans to implement a similar proces with the DICABI in the future. * 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 2014 Guatemala 51 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s Strength of legal rights index (0–10) financial history (positive or negative)—valuable Rights of borrowers and lenders through information to consider when assessing risk. And collateral laws they permit borrowers to establish a good credit Protection of secured creditors’ rights through history that will allow easier access to credit. Sound bankruptcy laws collateral laws enable businesses to use their assets, especially movable property, as security to generate Depth of credit information index (0–6) capital—while strong creditors’ rights have been Scope and accessibility of credit information associated with higher ratios of private sector credit distributed by public credit registries and to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has up to 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, incorporated, limited liability the strength of legal rights index. company.  Has its headquarters and only base of operations in the largest business city. Doing Business 2014 Guatemala 52 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Guatemala stands at 13 in the ranking of 189 collateral and bankruptcy laws in Guatemala facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 6 on the The rankings for comparator economies and the depth of credit information index and a score of 8 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Guatemala support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How Guatemala and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 Guatemala 53 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened — well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Guatemala support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Guatemala over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. .. 11 13 Strength of legal rights 4 4 4 4 7 8 8 8 8 8 index (0-10) Depth of credit 5 5 5 5 5 6 6 6 6 6 information index (0-6) Public registry coverage 0.0 0.0 16.1 20.7 16.1 16.9 16.4 17.3 18.0 19.1 (% of adults) Private bureau 12.4 9.9 9.2 13.1 19.7 28.4 8.8 8.9 8.7 8.6 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Guatemala 54 GETTING CREDIT One way to put an economy’s score on the getting and shows the number of economies with this score in credit indicators into context is to see where the 2013 as well as the regional average score. Figure 6.3 economy stands in the distribution of scores across shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for Guatemala in 2013 Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2013 information index (0–6), 2013 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. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Source: Doing Business database. Doing Business 2014 Guatemala 55 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Guatemala (table 6.2)? Table 6.2 How has Guatemala made getting credit easier—or not? By Doing Business report year DB year Reform Guatemala enacted a new Secured transactions law; creating a new form of pledge over movable assets and a registry for these pledges. (The registry was not yet in operation at the time DB2009 of publication.) Under the new law, accounts receivable and inventory can be described in general terms when they are used as collateral and parties may agree to out-of court-enforcement of the security right when the security agreement is signed. Guatemala strengthened its credit information system with a new decree on Access to Public Information which guarantees the rights of borrowers to inspect their own data in any public DB2010 institution. In addition, Guatemala strenthened access to credit and the regime for secured transactions with a new movable asset registry that applied to all movable assets and all types of creditors and debtors, and is also searchable by debtor name. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Guatemala 56 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders Guatemala are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a credit well as public sources of information on collateral and registry and/or credit bureau (if one exists). To bankruptcy laws. For the strength of legal rights index, construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in credit registry or credit bureau (see summary of bankruptcy law. scoring below). Summary of scoring for the getting credit indicators in Guatemala Latin America & OECD high income Indicator Guatemala Caribbean average average Strength of legal rights index (0-10) 8 6 7 Depth of credit information index (0-6) 6 5 5 Public registry coverage (% of adults) 19.1 31.5 42.9 Private bureau coverage (% of adults) 8.6 63.1 73.9 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Regional averages for the credit registry coverage exclude economies with no credit registry. Regional averages for the credit bureau coverage exclude economies with no credit bureau. Strength of legal rights index (0–10) Index score: 8 Can any business use movable assets as collateral while keeping possession of the assets; and Yes any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes 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 Yes 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 Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Doing Business 2014 Guatemala 57 Strength of legal rights index (0–10) Index score: 8 Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor Yes defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is Yes liquidated? Are secured creditors either not subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure, or does the law provide secured No creditors with grounds for relief from an automatic stay or/and sets a time limit to it? Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Depth of credit information index (0–6) Credit bureau Credit registry Index score: 6 Are data on both firms and individuals distributed? Yes Yes 1 Are both positive and negative data distributed? Yes Yes 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as Yes No 1 financial institutions? Are more than 2 years of historical credit information Yes Yes 1 distributed? Is data on all loans below 1% of income per capita Yes Yes 1 distributed? Is it guaranteed by law that borrowers can inspect No Yes 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 19,250 10,575 Number of individuals 690,000 1,568,117 Source: Doing Business database. Doing Business 2014 Guatemala 58 PROTECTING INVESTORS Protecting investors matters for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not protect minority shareholders, investors may be reluctant to provide funding to companies through Extent of disclosure index (0–10) the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor protections: transparency of related-party Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission transactions (extent of disclosure index), liability for of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to evidence before and Ease of shareholder suits index (0–10) during trial (ease of shareholder suits index). The Access to internal corporate documents ranking on the strength of investor protection index is (directly or through a government inspector) the simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of  Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). the company purchase used trucks from another company he owns.  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of  The price is higher than the going price for used Buyer where permitted, even if this is not trucks, but the transaction goes forward. specifically required by law.  All required approvals are obtained, and all The transaction involves the following details: required disclosures made, though the transaction is prejudicial to Buyer.  Mr. James, a director and the majority shareholder of the company, proposes that  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2014 Guatemala 59 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections against self- index (figure 7.1). While the indicator does not dealing in Guatemala? The economy has a score of 3.3 measure all aspects related to the protection of on the strength of investor protection index, with a minority investors, a higher ranking does indicate that higher score indicating stronger protections (see the an economy’s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, Guatemala stands at 157 in the ranking of 189 economies on the strength of investor protection Figure 7.1 How Guatemala and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 Guatemala 60 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in Guatemala protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in Guatemala over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. 156 157 Extent of disclosure 3 3 3 3 3 3 3 3 3 index (0-10) Extent of director 2 2 2 2 2 2 2 2 2 liability index (0-10) Ease of shareholder 5 5 5 5 5 5 5 5 5 suits index (0-10) Strength of investor protection index (0- 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Guatemala 61 PROTECTING INVESTORS One way to put an economy’s scores on the protecting shows the number of economies with this score in investors indicators into context is to see where the 2013 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across applies to the extent of director liability index, and economies. Figure 7.2 highlights the score on the figure 7.4 to the ease of shareholder suits index. extent of disclosure index for Guatemala in 2013 and Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on the extent of Number of economies with each score on the extent of director liability index (0–10), 2013 disclosure index (0–10), 2013 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 Guatemala 62 PROTECTING INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Number of economies with each score on the ease of shareholder suits index (0–10), 2013 Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2014 Guatemala 63 PROTECTING INVESTORS The scores recorded over time for Guatemala on the changes over time in the regional average score on strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the protections. Source: Doing Business database. Doing Business 2014 Guatemala 64 PROTECTING INVESTORS Economies with the strongest protections of minority reasonable time. As a result, reforms to strengthen investors from self-dealing require detailed disclosure investor protections may move ahead on different and define clear duties for directors. They also have fronts—such as through new or amended company well-functioning courts and up-to-date procedural laws, securities regulations or civil procedure rules. rules that give minority shareholders the means to What investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in Guatemala (table 7.2)? Table 7.2 How has Guatemala strengthened investor protections—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Guatemala 65 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for ease of shareholder suits indices, scores are assigned Guatemala are based on detailed information collected to each based on a range of conditions relating to through a survey of corporate and securities lawyers disclosure, director liability and shareholder suits in a about securities regulations, company laws and court standard case study transaction (see the data notes at rules of evidence and procedure. To construct the the end of this chapter). The summary below shows extent of disclosure, extent of director liability and the details underlying the scores for Guatemala. Summary of scoring for the protecting investors indicators in Guatemala Latin America & OECD high income Indicator Guatemala Caribbean average average Extent of disclosure index (0-10) 3 4 7 Extent of director liability index (0-10) 2 5 5 Ease of shareholder suits index (0-10) 5 6 7 Strength of investor protection index (0-10) 3.3 4.9 6.2 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 3 What corporate body provides legally sufficient Board of directors and Mr. James is 2 approval for the transaction? not allowed to vote Whether disclosure of the conflict of interest by Mr. Existence of a conflict without any 1 James to the board of directors is required? specifics Whether immediate disclosure of the transaction to 0 No disclosure obligation the public and/or shareholders is required? Whether disclosure of the transaction in published 0 No disclosure obligation periodic filings (annual reports) is required? Whether an external body must review the terms of 0 No the transaction before it takes place? Extent of director liability index (0-10) 2 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller transaction causes 0 Not liable to the company? Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 1 Liable for negligence Seller transaction causes to the company? Doing Business 2014 Guatemala 66 Score Score description Whether a court can void the transaction upon a Not possible or only in case of Seller's 0 successful claim by a shareholder plaintiff? fraud or bad faith Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 0 No the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 No shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 5 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 0 No filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 0 No transaction? Whether the plaintiff can obtain any documents from Any information that may lead to the 4 the defendant and witnesses during trial? discovery of relevant information Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 1 Yes defendant and witnesses during trial? Whether the level of proof required for civil suits is 0 No lower than that of criminal cases? Strength of investor protection index (0-10) 3.3 Source: Doing Business database. Doing Business 2014 Guatemala 67 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic and joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2011. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based 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 at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on 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 25.5%. Doing Business 2014 Guatemala 68 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Guatemala stands at 85 in the ranking of 189 taxes in Guatemala—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 7 tax payments a year, rankings for comparator economies and the regional spend 326 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 40.9% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Guatemala. details). Figure 8.1 How Guatemala and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2014 Guatemala 69 PAYING TAXES What are the changes over time? The benchmarks provided by the economies that over show what is possible in easing the administrative time have had the best performance regionally or burden of tax compliance. And changes in regional globally on the number of payments or the time averages can show where Guatemala is keeping up— required to prepare and file taxes (figure 8.2) help and where it is falling behind. Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2014 Guatemala 70 PAYING TAXES Total tax rate (% of profit) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 Guatemala 71 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 consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Guatemala (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Guatemala made paying taxes easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. The Guatemalan government has eased payment of and filing for VAT and corporate income tax by increasing electronic DB2010 compliance thresh holds and extending the electronic system to most banks DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Guatemala made paying taxes easier for companies by DB2014 introducing a new electronic filing and payment system. 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 2014 Guatemala 72 PAYING TAXES What are the details? The indicators reported here for Guatemala are LOCATION OF STANDARDIZED COMPANY based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the data (see City: Guatemala City the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company completed The taxes and contributions paid are listed in the during the year. Respondents are asked how much summary below, along with the associated number of in taxes and mandatory contributions the business payments, time and tax rate. must pay and what the process is for doing so. Summary of tax rates and administrative burden in Guatemala Latin America & OECD high income Indicator Guatemala Caribbean average average Payments (number per year) 7 30 12 Time (hours per year) 326 369 175 Profit tax (%) 25.9 20.5 16.1 Labor tax and contributions (%) 14.3 14.7 23.1 Other taxes (%) 0.7 12.1 2.0 Total tax rate (% profit) 40.9 47.3 41.3 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. 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 profits or Corporate income tax 1 online filing 44 31% or 5% 25.9 gross income net asset included in Solidarity tax (ISO) 1 online filing 0 1% or gross 17.7 other taxes income Doing Business 2014 Guatemala 73 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Employer paid - Social gross 1 online filing 126 12.67% 14.3 security contributions salaries property Property tax 1 online filing 0 0.9% 0.5 value interest Tax on interest 1 0 10% 0.3 income Advertising tax 1 0 0.5% advertising 0 expenses value not Value added tax (VAT) 1 online filing 156 12% added and 0 included land sale Totals 7 326 40.9 Source: Doing Business database. Doing Business 2014 Guatemala 74 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 Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in 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 Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: military items.  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include Doing Business 2014 Guatemala 75 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Guatemala? Globally, Guatemala stands at 116 in the ranking of According to data collected by Doing Business, 189 economies on the ease of trading across borders exporting a standard container of goods requires 8 (figure 9.1). The rankings for comparator economies documents, takes 17 days and costs $1435. Importing and the regional average ranking provide other useful the same container of goods requires 7 documents, information for assessing how easy it is for a business takes 17 days and costs $1500 (see the summary of in Guatemala to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Guatemala and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 Guatemala 76 TRADING ACROSS BORDERS What are the changes over time? The benchmarks provided by the economies that over possible in making it easier to trade across borders. time have had the best performance regionally or And changes in regional averages can show where globally on the documents, time or cost required to Guatemala is keeping up—and where it is falling export or import (figure 9.2) help show what is behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2014 Guatemala 77 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2014 Guatemala 78 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Guatemala 79 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Guatemala (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How has Guatemala made trading across borders easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Guatemala 80 TRADING ACROSS BORDERS What are the details? The indicators reported here for Guatemala are LOCATION OF STANDARDIZED COMPANY based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this chapter on what City: Guatemala City the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each procedure is The procedural requirements, and the associated time collected from local freight forwarders, shipping and cost, for exporting and importing a standard lines, customs brokers, port officials and banks. shipment of goods are listed in the summary below, along with the required documents. Summary of procedures and documents for trading across borders in Guatemala Latin America & OECD high income Indicator Guatemala Caribbean average average Documents to export (number) 8 6 4 Time to export (days) 17 17 11 Cost to export (US$ per container) 1,435 1,283 1,070 Documents to import (number) 7 7 4 Time to import (days) 17 19 10 Cost to import (US$ per container) 1,500 1,676 1,090 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 10 270 Customs clearance and technical control 2 175 Ports and terminal handling 2 240 Inland transportation and handling 3 750 Totals 17 1,435 Procedures to import Time (days) Cost (US$) Documents preparation 10 290 Doing Business 2014 Guatemala 81 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 2 200 Ports and terminal handling 3 260 Inland transportation and handling 2 750 Totals 17 1,500 Documents to export Documents to import Bill of lading Bill of lading Commercial invoice Commercial invoice Customs export declaration Customs import declaration Export license Inspection report Inspection report Packing list Packing list Technical standard/health certificate Technical standard/health certificate Terminal handling receipts Terminal handling receipts (carta de porte) Source: Doing Business database. Doing Business 2014 Guatemala 82 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 Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment Time required to complete procedures What do the indicators cover? (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The 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.  The dispute on the quality of the goods requires an expert opinion.  The buyer orders custom-made goods, then fails to pay.  The judge decides in favor of the seller; there is no appeal.  The seller sues the buyer before a competent court.  The seller enforces the judgment through a public sale of the buyer’s movable assets.  The value of the claim is 200% of income per capita.  The seller requests a pretrial attachment to secure the claim. Doing Business 2014 Guatemala 83 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Guatemala stands at 97 in the ranking of 189 dispute through the courts in Guatemala? According economies on the ease of enforcing contracts (figure to data collected by Doing Business, contract 10.1). The rankings for comparator economies and the enforcement takes 1402 days, costs 26.5% of the value regional average ranking provide other useful of the claim and requires 31 procedures (see the benchmarks for assessing the efficiency of contract summary at the end of this chapter for details). enforcement in Guatemala. Figure 10.1 How Guatemala and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 Guatemala 84 ENFORCING CONTRACTS What are the changes over time? The benchmarks provided by the economies that over help show what is possible in improving the efficiency time have had the best performance regionally or of contract enforcement. And changes in regional globally on the number of steps, time or cost required averages can show where Guatemala is keeping up— to enforce a contract through the courts (figure 10.2) and where it is falling behind. Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2014 Guatemala 85 ENFORCING CONTRACTS Procedures (number) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Guatemala 86 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Guatemala (table 10.1)? Table 10.1 How has Guatemala made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Guatemala 87 ENFORCING CONTRACTS What are the details? The indicators reported here for Guatemala 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 City: Guatemala City chapter on what the indicators cover). These procedures, and the time and cost of completing Claim Value LCU: 47841 them, are identified through study of the codes of civil procedure and other court regulations, as well Guatemala City Justice of as through surveys completed by local litigation Court Name: the Peace lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). The procedures for resolving a commercial lawsuit, and the associated time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in Guatemala—and the time and cost Latin America & OECD high income Indicator Guatemala Caribbean average average Time (days) 1,402 734 529 Filing and service 66 Trial and judgment 796 Enforcement of judgment 540 Cost (% of claim) 26.5 31.0 21.0 Attorney cost (% of claim) 15.0 Court cost (% of claim) 6.5 Enforcement Cost (% of claim) 5.0 Procedures (number) 31 40 31 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Doing Business 2014 Guatemala 88 ENFORCING CONTRACTS No. Procedure Filing and service: A third person formally notifies Defendant: A person other than the Plaintiff or his lawyer, such as a notary 1 public, formally notifies Defendant of Plaintiff’s request for payment. 2 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court . Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally * or in writing. Registration of court case: The court administration registers the lawsuit or court case. This includes 3 assigning a reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random * procedure, automated system, ruling of an administrative judge, court officer, etc. Court scrutiny of summons and complaint: A judge examines Plaintiff's summons and complaint for 4 formal requirements. Judge admits summons and complaint: After verifying the formal requirements, the judge decides to * admit Plaintiff’s summons and complaint. Delivery of summons and complaint to person authorized to perform service of process on Defendant: 5 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. First attempt at physical delivery: A first attempt to physically deliver summons and complaint to 6 Defendant is successful in the majority of cases. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Thi s step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either 7 physical or achieved by registering, marking, debiting or separating assets. (see assumption 5) Custody of assets attached prior to judgment: Defendant's attached assets are put under enforcement 8 officer's or (private) bailiff's care. (see assumption 5) Trial and judgment: Defendant’s filing of preliminary exemptions: Defendant presents preliminary exemptions to the court. * Preliminary exemptions differ from answers on the merits of the claim. Examples of preliminary exemptions are statute of limitations, jurisdictions, etc. Plaintiff’s answer to preliminary exemptions: Plaintiff responds to the preliminary exemptions raised by * Defendant. Doing Business 2014 Guatemala 89 No. Procedure Judge’s resolution on preliminary exemptions: Judge decides on preliminary exemptions separately from 9 the merits of the case. Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his defense or answer on the merits of the case. Defendant's written answer may or may not 10 include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Plaintiff’s written response to Defendant's defense or answer: Plaintiff responds to Defendant’s defense or 11 answer with a written pleading. Plaintiff's answer may or may not include a witness statements or expert (witness) statements. 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 6-b of this case) Notification of court-appointment of independent expert: The court notifies both parties that the court is 12 appointing an independent expert. (see assumption 6-b of this case) 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 6-b of this case) * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court. (see assumption 6-a) Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 13 hearing or trial. (see assumption 6-a) Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 14 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. 15 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 16 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 17 judgment. 18 Plaintiff's receipt of a copy of written judgment: Plaintiff receives a copy of the written judgment. Notification of Defendant of judgment: Plaintiff or court formally notifies the Defendant of the judgment. 19 The appeal period starts to run the day the Defendant is formally notified of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in 20 the law. Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse 21 Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff’s hiring of 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 2014 Guatemala 90 No. Procedure Plaintiff’s request for enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Plaintiff’s advancement of enforcement fees: Plaintiff pays the fees related to the enforcement of the 22 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a (private) bailiff. Plaintiff’s request for physical enforcement: As Plaintiff fears that Defendant might physically resist the * attachment of its movable goods, Plaintiff addresses a request to the judge or to the police authorities to obtain police assistance during the attachment of Defendant's movable goods. Judge's order for physical enforcement: The judge orders the police to assist with the physical 23 enforcement of the attachment of Defendant's movable goods. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 24 (private) bailiff requests Defendant to voluntarily comply with the judgment, giving Defendant a last chance to comply voluntarily with the judgment. Plaintiff’s identification of Defendant's assets for attachment: Plaintiff identifies Defendant's assets for 25 attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 26 assets). Valuation or appraisal of attached movable goods: The court or court appointed valuation expert 27 evaluates the attached goods. Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 28 newspapers. 29 Sale through public auction: The Defendant’s movable property is sold at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to various creditors (including 30 Plaintiff), according to the rules of priority. 31 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2014 Guatemala 91 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and 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 Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through Recovery rate for creditors (cents on the reorganization, liquidation or debt enforcement dollar) (foreclosure) proceedings. The recovery rate is a Measures the cents on the dollar recovered function of time, cost and other factors, such as by creditors lending rate and the likelihood of the company continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account  Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered  Operates in the economy’s largest business city.  Has 201 employees, 1 main secured  Has a higher value as a going concern—and creditor and 50 unsecured creditors. the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 Guatemala 92 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses piecemeal sale. The average recovery rate is 27.7 cents characterize the top-performing economies. How on the dollar. efficient are insolvency proceedings in Guatemala? Globally, Guatemala stands at 109 in the ranking of According to data collected by Doing Business, 189 economies on the ease of resolving insolvency resolving insolvency takes 3.0 years on average and (figure 11.1). The rankings for comparator economies costs 15% of the debtor’s estate, with the most likely and the regional average ranking provide other useful outcome being that the company will be sold as benchmarks for assessing the efficiency of insolvency proceedings in Guatemala. Figure 11.1 How Guatemala and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 Guatemala 93 RESOLVING INSOLVENCY What are the changes over time? The benchmarks provided by the economies that over possible in improving the efficiency of insolvency time have had the best performance regionally or proceedings. And changes in regional averages can globally on the time or cost of insolvency proceedings show where Guatemala is keeping up—and where it is or on the recovery rate (figure 11.2) help show what is falling behind. Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2014 Guatemala 94 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. “No practice” indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for “no practice” economies is 0. Regional averages on time and cost exclude economies with a “no practice” mark. Source: Doing Business database. Doing Business 2014 Guatemala 95 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Guatemala (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Guatemala made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Guatemala 96 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of employing workers methodology proposed by the employment, specifically as it affects the hiring and consultative group are available on the Doing Business redundancy of workers and the rigidity of working website (http://www.doingbusiness.org). The data on hours. Over the period from 2007 to 2011 employing workers are based on a detailed survey of improvements were made to align the methodology employment regulations that is completed by local for the employing workers indicators with the letter lawyers and public officials. Employment laws and and spirit of the International Labour Organization regulations as well as secondary sources are reviewed (ILO) conventions. Only 4 of the 188 ILO conventions to ensure accuracy. cover areas measured by Doing Business: employee To make the data comparable across economies, termination, weekend work, holiday with pay and night several assumptions about the worker and the work. The Doing Business methodology is fully business are used. consistent with these 4 conventions. The ILO conventions covering areas related to the Employing The worker: Workers indicators do not include the ILO core labor  Earns a salary plus benefits equal to the standards—8 conventions covering the right to economy’s average wage during the entire collective bargaining, the elimination of forced labor, period of his employment. the abolition of child labor and equitable treatment in  Has a pay period that is the most common for workers in the economy. employment practices.  Is a lawful citizen who belongs to the same race and religion as the majority of the Between 2009 and 2011 the World Bank Group worked economy’s population. with a consultative group—including labor lawyers,  Resides in the economy’s largest business city. employer and employee representatives, and experts  Is not a member of a labor union, unless from the ILO, OECD, civil society and the private membership is mandatory. sector—to review the employing workers methodology and explore future areas of research. A i The business:  Is a limited liability company. full report with the conclusions of the consultative  Operates in the economy’s largest business group is available at city. http://www.doingbusiness.org/methodology/employin  Is 100% domestically owned. g-workers.  Operates in the manufacturing sector.  Has 60 employees. This year Doing Business continued research collecting  Is subject to collective bargaining agreements additional data on regulations covering the in economies where such agreements cover probationary period for new employees. more than half the manufacturing sector and apply even to firms not party to them. Doing Business 2014 presents the data on the  Abides by every law and regulation but does not grant workers more benefits than employing workers indicators in an annex. The report mandated by law, regulation or (if applicable) does not present rankings of economies on the collective bargaining agreement. employing workers indicators nor include the topic in the aggregate ranking on the ease of doing business. Detailed data collected on labor regulations and the Doing Business 2014 Guatemala 97 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Guatemala other things, the minimum wage for a 19-year-old (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2014 Guatemala 98 EMPLOYING WORKERS Employment laws are needed to protect workers from past 5 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Guatemala adopt that contracting between employers and workers. Many affected the Doing Business indicators on employing economies that changed their labor regulations in the workers (table 12.1)? Table 12.1 What changes did Guatemala make in employing workers in 2013? DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Guatemala 99 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and Guatemala are based on a detailed survey of regulations as well as secondary sources are reviewed employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? Yes No limit; time limit depends only on the duration of the temporary task, on the Maximum length of a single fixed-term contract (months) expiration date or on the occurrence of any event or circumstance (Art.25) Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage for a 19-year old worker or an apprentice (US$/month) 345.3 Ratio of minimum wage to value added per worker 0.73 Source: Doing Business database. Doing Business 2014 Guatemala 100 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data 8 hours (day); 7 hours (mixed); 6 hours Standard workday in manufacturing (hours) (night) 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 0% operations Premium for work on weekly rest day (% of hourly pay) in case of 50% continuous operations Major restrictions on night work in case of continuous operations? Yes Major restrictions on weekly holiday in case of continuous operations? Yes Paid annual leave for a worker with 1 year of tenure (in working days) 15.0 Paid annual leave for a worker with 5 years of tenure (in working days) 15.0 Paid annual leave for a worker with 10 years of tenure (in working days) 15.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 15.0 working days) Source: Doing Business database. Doing Business 2014 Guatemala 101 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? No 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 2014 Guatemala 102 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 0.0 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 0.0 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 0.0 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 0.0 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 5.1 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 25.3 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 50.6 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 27.0 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2014 Guatemala 103 DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information about what laws and regulations say and allowing 2 The data for paying taxes refer to January – December 2012. multiple interactions with local respondents to clarify Doing Business 2014 Guatemala 104 potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation —as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified Changes in what is measured size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully reasons the time delays reported in Doing Business completed online in just a few hours. This change 2014 would differ from the recollection of affects the time indicator for starting a business, Doing Business 2014 Guatemala 105 dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business and the distance to frontier measure. The business. ease of doing business ranking compares economies More complex aggregation methods—such as 3 For getting electricity the rule that each procedure must take a principal components and unobserved components— minimum of 1 day still applies because in practice there are no yield a ranking nearly identical to the simple average cases in which procedures can be fully completed online in less than a day. For example, even though in some cases it is possible to apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 Guatemala 106 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly since 2003 or the first year the indicator was collected. 5 identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 Guatemala 107 the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. Doing Business 2014 Guatemala 109 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2014 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/ iphone Doing Business 2014 Guatemala 110