92038 Doing Business 2015 Hong Kong SAR, China Economy Profile 2015 Hong Kong SAR, China Doing Business 2015 Hong Kong SAR, China 2 © 2014 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 17 16 15 14 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2015 Hong Kong SAR, China 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 22 Getting electricity ....................................................................................................................... 29 Registering property .................................................................................................................. 37 Getting credit .............................................................................................................................. 44 Protecting minority investors ................................................................................................... 50 Paying taxes ................................................................................................................................ 59 Trading across borders .............................................................................................................. 63 Enforcing contracts .................................................................................................................... 67 Resolving insolvency .................................................................................................................. 74 Labor market regulation ........................................................................................................... 77 Distance to frontier and ease of doing business ranking ...................................................... 85 Resources on the Doing Business website .............................................................................. 88 Doing Business 2015 Hong Kong SAR, China 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for Hong Kong SAR, China. To allow useful information on ordering Doing Business 2015, are comparison, it also provides data for other selected available on the Doing Business website at economies (comparator economies) for each indicator. http://www.doingbusiness.org. The data in this report are current as of June Doing Business 2015 Hong Kong SAR, China 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 Hong Kong SAR, China 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: East Asia & Pacific based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: High income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. This Population: 7,187,500 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 38,420 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 3 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 3* distance to the best performance in each Doing Business Change in rank: 0 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 85 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 84.5 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 0.5 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2015 Hong Kong SAR, China THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Hong Kong SAR, China and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Hong Kong SAR, China (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Hong Kong SAR, China (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Hong Kong SAR, China come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Hong Kong SAR, China United Kingdom DB2015 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Korea, Rep. DB2015 Singapore DB2015 Malaysia DB2015 Indicator Japan DB2015 China DB2015 DB2015 DB2014 DB2015 Starting a Business 8 8 128 83 17 13 6 45 New Zealand (1) (rank) Starting a Business (DTF 96.38 96.45 77.43 86.21 94.36 94.90 96.48 91.23 New Zealand (99.96) Score) Procedures (number) 3.0 3.0 11.0 8.0 3.0 3.0 3.0 6.0 New Zealand (1.0)* Time (days) 2.5 2.5 31.4 10.7 4.0 5.5 2.5 6.0 New Zealand (0.5) Cost (% of income per 1.4 0.8 0.9 7.5 14.5 7.2 0.6 0.3 Slovenia (0.0) capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 1 1 179 83 12 28 2 17 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 95.53 95.03 43.75 73.30 85.89 82.49 92.84 85.06 China (95.53) (DTF Score) Doing Business 2015 Hong Kong SAR, China 12 United Kingdom DB2015 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Korea, Rep. DB2015 Singapore DB2015 Malaysia DB2015 Indicator Japan DB2015 China DB2015 DB2015 DB2014 DB2015 Hong Kong SAR, Procedures (number) 5.0 5.0 22.0 12.0 10.0 13.0 10.0 9.0 China (5.0) Time (days) 66.0 71.0 244.3 197.0 29.0 74.0 26.0 105.0 Singapore (26.0) Cost (% of warehouse 0.4 0.4 7.6 0.6 4.3 1.3 0.3 1.2 Qatar (0.0)* value) Getting Electricity 13 13 124 28 1 27 11 70 Korea, Rep. (1) (rank) Getting Electricity (DTF 91.54 91.54 66.35 86.51 99.83 86.67 92.45 78.42 Korea, Rep. (99.83) Score) Procedures (number) 4.0 4.0 5.5 3.4 3.0 5.0 4.0 4.0 12 Economies (3.0)* Time (days) 38.0 38.0 143.2 97.7 18.0 32.0 31.0 126.0 Korea, Rep. (18.0)* Cost (% of income per 1.4 1.5 459.4 0.0 41.1 46.3 26.3 90.1 Japan (0.0) capita) Registering Property 96 92 37 73 79 75 24 68 Georgia (1) (rank) Registering Property 66.19 66.18 80.67 71.33 70.99 71.16 84.78 72.55 Georgia (99.88) (DTF Score) Procedures (number) 5.0 5.0 4.0 6.0 7.0 8.0 4.0 6.0 4 Economies (1.0)* Time (days) 35.5 35.5 19.4 13.0 7.0 13.5 4.5 21.5 3 Economies (1.0)* Cost (% of property 7.7 7.7 3.6 5.8 5.1 3.3 2.8 4.6 4 Economies (0.0)* value) Getting Credit (rank) 23 19 71 71 36 23 17 17 New Zealand (1) Getting Credit (DTF 70.00 70.00 50.00 50.00 65.00 70.00 75.00 75.00 New Zealand (100) Score) Strength of legal rights 7 7 4 4 5 7 8 7 3 Economies (12)* index (0-12) Doing Business 2015 Hong Kong SAR, China 13 United Kingdom DB2015 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Korea, Rep. DB2015 Singapore DB2015 Malaysia DB2015 Indicator Japan DB2015 China DB2015 DB2015 DB2014 DB2015 Depth of credit 7 7 6 6 8 7 7 8 23 Economies (8)* information index (0-8) Credit registry coverage 0.0 0.0 33.2 0.0 0.0 56.2 0.0 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 96.1 93.6 0.0 100.0 100.0 78.6 50.8 100.0 23 Economies (100.0)* (% of adults) Protecting Minority 2 3 132 35 21 5 3 4 New Zealand (1) Investors (rank) Protecting Minority 80.83 79.17 45.00 62.50 66.67 74.17 80.00 78.33 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 9.0 8.7 5.0 7.0 7.0 8.7 9.3 8.3 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 7.2 7.2 4.0 5.5 6.3 6.2 6.7 7.3 France (7.8)* 10) Strength of minority investor protection 8.1 7.9 4.5 6.3 6.7 7.4 8.0 7.8 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 4 4 120 122 25 32 5 16 (1)* Paying Taxes (DTF United Arab Emirates 98.51 98.51 67.44 67.19 86.09 83.95 97.19 90.52 Score) (99.44)* Payments (number per Hong Kong SAR, 3.0 3.0 7.0 14.0 10.0 13.0 5.0 8.0 year) China (3.0)* Time (hours per year) 78.0 78.0 261.0 330.0 187.0 133.0 82.0 110.0 Luxembourg (55.0) Trading Across Borders 2 2 98 20 3 11 1 15 Singapore (1) (rank) Trading Across Borders 95.36 95.46 71.68 87.23 93.45 89.94 96.47 88.32 Singapore (96.47) Doing Business 2015 Hong Kong SAR, China 14 United Kingdom DB2015 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Korea, Rep. DB2015 Singapore DB2015 Malaysia DB2015 Indicator Japan DB2015 China DB2015 DB2015 DB2014 DB2015 (DTF Score) Documents to export 3 3 8 3 3 4 3 4 Ireland (2)* (number) Time to export (days) 6.0 6.0 21.0 11.0 8.0 11.0 6.0 8.0 5 Economies (6.0)* Cost to export (US$ per 590.0 590.0 823.0 829.3 670.0 525.0 460.0 1,005.0 Timor-Leste (410.0) container) Cost to export (deflated 590.0 575.5 823.0 829.3 670.0 525.0 460.0 1,005.0 US$ per container) Documents to import 3 3 5 5 3 4 3 4 Ireland (2)* (number) Time to import (days) 5.0 5.0 24.0 11.0 7.0 8.0 4.0 6.0 Singapore (4.0) Cost to import (US$ per 565.0 565.0 800.0 1,021.3 695.0 560.0 440.0 1,050.0 Singapore (440.0) container) Cost to import (deflated 565.0 551.2 800.0 1,021.3 695.0 560.0 440.0 1,050.0 US$ per container) Enforcing Contracts 6 6 35 26 4 29 1 36 Singapore (1) (rank) Enforcing Contracts 80.32 80.32 68.21 69.95 81.71 69.39 89.54 68.08 Singapore (89.54) (DTF Score) Time (days) 360.0 360.0 452.8 360.0 230.0 425.0 150.0 437.0 Singapore (150.0) Cost (% of claim) 21.2 21.2 16.2 32.2 10.3 37.3 25.8 39.9 Iceland (9.0) Procedures (number) 26.0 26.0 37.0 32.0 32.0 29.0 21.0 29.0 Singapore (21.0)* Resolving Insolvency 25 25 53 2 5 36 19 13 Finland (1) (rank) Resolving Insolvency 75.06 71.82 55.31 93.74 90.06 65.61 77.94 82.04 Finland (93.85) (DTF Score) Doing Business 2015 Hong Kong SAR, China 15 United Kingdom DB2015 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Korea, Rep. DB2015 Singapore DB2015 Malaysia DB2015 Indicator Japan DB2015 China DB2015 DB2015 DB2014 DB2015 Time (years) 0.8 1.7 0.6 1.5 1.0 0.8 1.0 Ireland (0.4) Cost (% of estate) 5.0 9.0 22.0 3.5 3.5 10.0 3.0 6.0 Norway (1.0) Outcome (0 as piecemeal sale and 1 as 1 1 0 1 1 1 1 1 going concern) Recovery rate (cents on 87.2 81.2 36.0 92.9 83.1 81.3 89.7 88.6 Japan (92.9) the dollar) Strength of insolvency 9.0 9.0 11.5 14.0 14.5 7.0 9.5 11.0 5 Economies (15.0)* framework index (0-16) Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of s uch factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Is a limited liability company, located in the  Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. owned . 1  Has a turnover of at least 100 times income per  Has between 10 and 50 employees. capita.  Conducts general commercial or industrial  Does not qualify for any special benefits. activities.  Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Hong Kong SAR, China 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Hong Kong SAR, the largest business city of an economy, except for 11 China? According to data collected by Doing Business, economies for which the data are a population-weighted starting a business there requires 3.0 procedures, takes average of the 2 largest business cities. See the chapter 2.5 days, costs 1.4% of income per capita and requires on distance to frontier and ease of doing business paid-in minimum capital of 0.0% of income per capita ranking at the end of this profile for more details. (figure 2.1). Most indicator sets refer to a case scenario in Figure 2.1 What it takes to start a business in Hong Kong SAR, China - Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 18 STARTING A BUSINESS Globally, Hong Kong SAR, China stands at 8 in the other useful information for assessing how easy it is for ranking of 189 economies on the ease of starting a an entrepreneur in Hong Kong SAR, China to start a business (figure 2.2). The rankings for comparator business. economies and the regional average ranking provide Figure 2.2 How Hong Kong SAR, China and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 19 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Hong Kong SAR, China (table 2.1)? Table 2.1 How has Hong Kong SAR, China made starting a business easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Hong Kong SAR, China, made starting a business easier by DB2010 simplifying registration formalities and merging certain procedures. Hong Kong SAR (China) made starting a business easier by DB2012 introducing online electronic services for company and business registration. Hong Kong SAR, China, made starting a business less costly by DB2014 abolishing the capital duty levied on local companies. Hong Kong SAR, China, made starting a business more difficult DB2015 by increasing the registration fee. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Hong Kong SAR, China is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and Legal form: Limited Liability Company register a new firm. These are identified by Doing Business through collaboration with relevant local Paid in minimum capital requirement: HKD 0 professionals and the study of laws, regulations and City: Hong Kong 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). Table 2.2 Summary of time, cost and procedures for starting a business in Hong Kong SAR, China - Time to No. Procedure Cost to complete complete Choose a company name and obtain a certificate of incorporation A company name (which may be in English, traditional Chinese or both) can be searched online free of charge at the Companies Registry (www.icris.cr.gov.hk/csci/login_i.do?loginType=iguest&username=igues t ), however the acceptability of a company name can only be confirmed after an application has been processed. A certificate of incorporation will be issued upon the filing of an incorporation form signed by the founder member(s) (for companies limited by shares this is a Form NNC1), a copy of the articles of association and a Notice to Business Registration Office (IRBR1). The HKD 1,720 incorporation form contains comprehensive information on the address application fee + of the registered office and particulars of the first secretary and first HKD 2,000 business Less than one day 1 directors of a company. Paper submissions for incorporation normally registration fee + (online procedure) require approximately four working days for the certificate to be issued. HKD 250 for On 23 January 2014, the new Companies Ordinance (“the new CO”) business abolishes the requirement to have a Memorandum of Association registration levy (“MA”) as a constitutional document of a local company. A company incorporated in Hong Kong under the new CO is only required to have Articles of Association (“AA”). With the implementation of the "e-Registry" in 2011, applicants can now complete the incorporation and business registration process by submitting electronic applications online to the Companies Registry (www.eregistry.gov.hk). In straightforward cases, this enables registered users to complete the relevant procedures and download the electronic Certificate of Incorporation and Business Registration Certificate within one day. Doing Business 2015 Hong Kong SAR, China 21 Time to No. Procedure Cost to complete complete Agency: Companies Registry Sign up Employee's Compensation Insurance and Mandatory Provident Fund (MPF) Schemes with a private company or a bank Under the Employees’ Compensation Ordinance, an employer must possess a valid insurance policy to cover its employees (both full- and part-time) who are fatally injured or disabled due to accidents arising out of and during employment. In addition, all employees ages 18–65 and employed for 60 days or more under an employment contract (regardless of the number of work hours) must enroll in an Mandatory Provident Fund ("MPF") scheme 1 day no charge 2 (except for persons exempted from the scheme) administered by any MPF approved trustee in Hong Kong and such enrollment can be arranged through MPF registered intermediaries, which includes banks and insurance companies. The employer is also required to display the participation certificate issued by the Mandatory Provident Fund Authority at the work premises. Agency: Labour Department; Mandatory Provident Fund Schemes Authority (MPFA) Make a corporate seal and company rubber stamp Business founders can make a corporate seal and company rubber stamp at the Sealmaker for HKD 215. 1 day HKD 215 3 Agency: Sealmaker * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 22 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes  Is a limited liability company operating in the construction business and located in  Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have  Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility  Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse:  Will be used for general storage, such as of books or stationery (not for goods requiring  Is valued at 50 times income per capita. special conditions).  Is a new construction (there was no  Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 Hong Kong SAR, China 23 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build largest business city of an economy, except for 11 a warehouse in Hong Kong SAR, China? According to economies for which the data are a population-weighted data collected by Doing Business, dealing with average of the 2 largest business cities. See the chapter construction permits there requires 5.0 procedures, takes on distance to frontier and ease of doing business 66.0 days and costs 0.4% of the warehouse value (figure ranking at the end of this profile for more details. 3.1). Most indicator sets refer to a case scenario in the Figure 3.1 What it takes to comply with formalities to build a warehouse in Hong Kong SAR, China - Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 24 DEALING WITH CONSTRUCTION PERMITS Globally, Hong Kong SAR, China stands at 1 in the provide other useful information for assessing how easy ranking of 189 economies on the ease of dealing with it is for an entrepreneur in Hong Kong SAR, China to construction permits (figure 3.2). The rankings for legally build a warehouse. comparator economies and the regional average ranking Figure 3.2 How Hong Kong SAR, China and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 25 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while compliance costs reasonable, governments around the making compliance easy and accessible to all. Coherent world have worked on consolidating permitting and transparent rules, efficient processes and adequate requirements. What construction permitting reforms has allocation of resources are especially important in sectors Doing Business recorded in Hong Kong SAR, China (table where safety is at stake. Construction is one of them. In 3.1)? an effort to ensure building safety while keeping Table 3.1 How has Hong Kong SAR, China made dealing with construction permits easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Hong Kong SAR, China, reduced the time required to obtain a building permit by establishing a one-stop center that brings DB2010 together 6 local departments and 2 private utility companies under the same roof. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 26 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Hong Kong SAR, BUILDING A WAREHOUSE China are based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated cost of information collected from experts in construction HKD 15,078,186 construction : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Hong Kong service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and cost, that apply to a company and structure matching the are summarized below. standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Hong Kong SAR, China - Time to No. Procedure Cost to complete complete Obtain approval by submitting applications to the One Stop Center BuildCo must submit the following documents for approval: • Building plans (Forms BA5, BD24) • General building plans • Spread footing plans • Hoarding plans • Site formation plans • Fire service installation plan (Form FSI/314) • Drainage plan In December 2008 a One Stop Center was established for Warehouse Construction Permits under the administration of the Efficiency Unit (EU) for receiving all relevant building license applications to 6 government departments and 2 private utilities (i.e. telephone line and electricity supply) and coordinating their joint inspections for two- storey warehouse projects. 45 days HKD 48,983 1 Property developers can use Form OSC-1 to submit to the One Stop Center which combines all applications relating to building plans approval and consent for commencement of building works from Buildings Department, technical audit of water supply connection works by Water Supplies Department, and road excavation permit from both the Police and Highways Department. This new arrangement simplifies the submission process by combining the following 5 procedures: • Obtain building plans approval HKD 30,240.00 • Apply and pay for technical audit of water supply connection works HKD 16,819.00 • Apply, pay and receive road excavation work permission from Highways Department HKD 1,924.00 • Notify and obtain approval from traffic police • Obtain building consent from Buildings Department The total cost is HKD 48,983.00. Doing Business 2015 Hong Kong SAR, China 27 Time to No. Procedure Cost to complete complete Agency: Hong Kong One Stop Center (OSC) Request and receive inspection of foundation strata At the approval stage for building foundation plans, the Buildings Department normally imposes some requirements and conditions for the construction of the foundation to ensure that the approved plans and the required standards are complied with. Upon the completion of the foundation, Form BA 14 and as-built foundation records must be 2 submitted to notify the Buildings Department that the foundation work 2 days no charge has been completed. The form must be approved by the Buildings Department before the next stage of construction can begin. The construction site is inspected within 7 days of the notification. Agency: Buildings Department Submit notification of project completion and obtain certificate of completion through the One Stop Center Upon completion of construction, the following applications/notifications can be submitted in one visit to the One Stop Center for referral: (a) Application to the Drainage Services Department for technical audit for drainage connection works; HKD 4,340.00 (b) Application to the Fire Services Department for issue of Fire Services Certificate (F.S. 172); HKD 3,440.00 (c) Application to the Buildings Department for Occupation Permit; (d) Application to the Lands Department for issue of Certificate of Compliance (certificate is received through OSC) (e) Application for electricity, telephone line and notification to Water Supplies Department for completion of plumbing works via the 3 Composite Form Cost; HKD 475.00 (cost included in procedure 6) 19 days HKD 7,780 (f) Application for a joint inspection, if preferred (g) Notify Drainage Services Department of construction completion and receive transfer inspection and issuance of water supply certificate (h) Notify Water Services Department of construction completion and receive transfer inspection In March 2012, the Government and some utility service providers collaborated to launch a Composite Form. BuildCo can submit applications for electricity and telecommunication services and notification to Water Supplies Department for completion of plumbing works in one visit via the Composite Form to the One Stop Center administered by the Efficiency Unit. Agency: Hong Kong One Stop Center (OSC) Doing Business 2015 Hong Kong SAR, China 28 Time to No. Procedure Cost to complete complete * Receive joint and final inspection of relevant licensing authorities coordinated by the One Stop Center 4 1 day no charge Agency: Hong Kong One Stop Center (OSC) * Request and obtain water connection 5 1 day no charge Agency: Hong Kong Water Supplies Department (WSD) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 29 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity a customer is always to gain access by obtaining a connection (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information  Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax  Is not in a special economic zone where the connection would be eligible for subsidization or faster service.  Is to either the low-voltage or the medium- voltage distribution network and either  Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is  Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain.  Is 2 stories, both above ground, with a total  Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods  Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal  Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 Hong Kong SAR, China 30 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Hong Kong SAR, China? According to data collected business city of an economy, except for 11 economies for by Doing Business, getting electricity there requires 4.0 which the data are a population-weighted average of the procedures, takes 38.0 days and costs 1.4% of income 2 largest business cities. See the chapter on distance to per capita (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Hong Kong SAR, China - Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 31 GETTING ELECTRICITY Globally, Hong Kong SAR, China stands at 13 in the another perspective in assessing how easy it is for an ranking of 189 economies on the ease of getting entrepreneur in Hong Kong SAR, China to connect a electricity (figure 4.2). The rankings for comparator warehouse to electricity. economies and the regional average ranking provide Figure 4.2 How Hong Kong SAR, China and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 32 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in Hong practices and internal wiring installations. In an effort to Kong SAR, China (table 4.1)? Table 4.1 How has Hong Kong SAR, China made getting electricity easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Hong Kong SAR (China) made getting electricity easier by DB2012 increasing the efficiency of public agencies and streamlining the utility’s procedures with other government agencies. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 33 GETTING ELECTRICITY What are the details? The indicators reported here for Hong Kong SAR, China OBTAINING AN ELECTRICITY CONNECTION are based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— CLP Power Hong Kong Name of utility: identified by Doing Business. Data are collected from the Ltd. distribution utility, then completed and verified by electricity regulatory agencies and independent City: Hong Kong professionals such as electrical engineers, electrical The procedures are those that apply to a warehouse and contractors and construction companies. The electricity electricity connection matching the standard distribution utility surveyed is the one serving the area assumptions used by Doing Business in collecting the (or areas) in which warehouses are located. If there is a data (see the section in this chapter on what the choice of distribution utilities, the one serving the largest indicators cover). The procedures, along with the number of customers is selected. associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Hong Kong SAR, China - Time to No. Procedure Cost to complete complete The client submits application for electricity connection and awaits technical conditions from CLP Power Ltd. Internal wiring works before connection of supply should be carried out by a Registered Electrical Worker (REW) or a team of electricians led by a REW . When it comes to the stage that supply is connected (e.g. for testing or alteration after supply connection), the internal wiring works should be carried out by the REW.] The Registered Electrical Contractor (REC) and the REW should be registered with the Electrical and Mechanical Services Department (EMSD) of the Hong Kong SAR Government (www.emsd.gov.hk). The clients requesting electricity supply need to complete a supply application form and provide a document for identity verification (Copy of identity or Business Registration Certificate). 8 calendar days HKD 0 1 The application form can serve the purpose of a supply contract. If the client signs on the application form, it implies that they accept our supply conditions. The supply conditions are detailed in the "Supply Rule", which can be obtained in our Company website. The client can submit the application for electricity connection with CLP Power Ltd. online, in person, by mail, email, fax, or on the phone. https://www.clponline.com.hk/myHome/CustomerService/OpenAccount/ Pages/Default.aspx CLP Power usually keep in close contact with prospective new customers so that a lot of supply provision preparation work would have been commenced/completed prior to receiving the actual new supply application from the new customers, thereby supply is always available before the occupant moves in. Doing Business 2015 Hong Kong SAR, China 34 Time to No. Procedure Cost to complete complete The utility conducts an inspection of the site after receiving the application to study the specifics of the connection (possibility to connect directly to existing network or need for an expansion). After that, it formulates a supply project including network design and cable route selection after inspection. This is the Project Planning phase. The client does not have to await an estimate of connection fees. Agency: CLP Power Ltd. * The client obtains external inspection from CLP Power Ltd. Site inspection is required for preparing the supply scheme. It is part of CLP Power's work in procedure 1, and interface with the client is not 2 necessary for the inspection. 1 calendar day HKD 0 Agency: CLP Power Ltd. The client receives external works from CLP Power Ltd. (a) Application for excavation permit An excavation permit is required for the excavation of cable trench in the public areas. The utility is required to apply to the relevant government departments for the permit. The time required depends on the responsiveness of government departments. The excavation permit will be applied for after the project planning stage. Since the permit will specify a limited work period, before applying for the permit, the utility will confirm with the client the target supply date and the target completion date of the work required by the client e.g. duct and draw pit. The excavation permit application cost is paid by the company and is not charged to clients as part of their cost for 29 calendar days HKD 0 3 connection. Efforts were made to reduce the time to obtain an excavation permit. The efforts consisted of setting up a liaison group with representatives of four relevant government departments, viz. Highways Department, Hong Kong Police Force, Transport Department and Economic Analysis & Business Facilitation Unit, and CLP Power Hong Kong Limited to examine and rationalize the procedures related to applications for excavation permits in connection with supply of electricity for 2-storey warehouses or similar industrial buildings. As a result, the following performance pledges are publicized (http://www.gov.hk/en/theme/bf/smart/efficiency/excavation.htm) : • Highways Department to complete initial assessment of an excavation proposal and approve an application for excavation permit within 1 working day respectively; Doing Business 2015 Hong Kong SAR, China 35 Time to No. Procedure Cost to complete complete • Transport Department to process a proposed temporary traffic arrangement within 21 days; and • Highways Department and Hong Kong Police Force to accept advance notification of electricity companies 2 working days before the commencement of excavation works. These efforts were followed by another set of efforts to further reduce the time needed to obtain the permit: the government conducted a liaison group meeting with the CLP Power Hong Kong Limited to review the application process for excavation permits in connection with electricity supply for 2-storey warehouses in non-residential areas. As a result, the Transport Department has further streamlined its procedures and reduced the time for processing temporary traffic arrangement proposals from 21 days to 14 days. The relevant Guidance Note for the Highways Department, Hong Kong Police Force and Transport Department has been revised accordingly: http://www.hyd.gov.hk/eng/public/publications/xppm/rd/doc/GN_Applic ation%20for%20XP%20for%20Supply%20of%20electricity.pdf For continual improvement, the liaison group reviewed the application process in December 2011. The Hong Kong Police Force reduced the time for processing the lighting, signing and guarding proposal from 14 days to 12 days. The Transport Department further reduced the time for processing temporary traffic arrangement proposals from 14 days to 12 days. (b) Installation Work Processing time includes LV cable laying and jointing work on a trench (150m) with road crossing. (Construction phase) It excludes the advance notification for commencement of the works submitted to government departments after obtaining the excavation permit. This is also a time taken for manpower mobilization and material preparation. This is the Resource programming phase. Agency: CLP Power Ltd. The client obtains meter installation and final connection from CLP Power Ltd. The utility then inspects the internal wiring and installs the meter. The Registered Electrical Worker representing the client must be present. In fact, “according to the Electricity (Wiring) Regulations, Cap. 406E, any 1 calendar day HKD 4,313.84 4 fixed electrical installation shall, after completion and before it is energized for use, be inspected, tested and certified with Work Completion Certificate (Form WR1) by a registered electrical worker and contractor. In case of any repair, alteration or addition to a fixed electrical installation, only the affected parts of the installation need to be inspected, tested and certified with Work Completion Certificate Doing Business 2015 Hong Kong SAR, China 36 Time to No. Procedure Cost to complete complete (Form WR1) by a registered electrical worker and contractor. A copy of the Work Completion Certificate (Form WR1) together with copies of Certificate of Registration of Electrical Contractor and Certificate of Registration of Electrical Worker should be forwarded to the Licensing Office as proof of compliance with the electricity safety requirements.” The Registered Electrical Worker in charge of the internal installation and final inspection signs the WR1 form, and submits it to the utility at the appointment for electricity turn-on. The client requests a final inspection for meter installation from CLP Power through the installation inspection appointment system of the utility. The final inspection does not cover the entire internal wiring, but only the interface with the external circuit. The WR1 form is enough to guarantee the wiring has been done in accordance with the electricity regulations. The meter will be installed and supply connected after satisfactory inspection of the internal wiring (not entire inspection; only for the interface with external network). The service pledge is to install the meter within the same day of the satisfactory inspection of the internal wiring. Agency: CLP Power Ltd. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 37 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure  Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included  Are located in the economy’s largest business city . 2  Is located in a periurban commercial zone, and no rezoning is required.  Have 50 employees each, all of whom are nationals.  Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square  Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000  Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal  Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Hong Kong SAR, China 38 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Hong Kong SAR, China? According to data collected by business city of an economy, except for 11 economies for Doing Business, registering property there requires 5.0 which the data are a population-weighted average of the procedures, takes 35.5 days and costs 7.7% of the 2 largest business cities. See the chapter on distance to property value (figure 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Hong Kong SAR, China - 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 2015 Hong Kong SAR, China 39 REGISTERING PROPERTY Globally, Hong Kong SAR, China stands at 96 in the other useful information for assessing how easy it is for ranking of 189 economies on the ease of registering an entrepreneur in Hong Kong SAR, China to transfer property (figure 5.2). The rankings for comparator property. economies and the regional average ranking provide Figure 5.2 How Hong Kong SAR, China and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 40 REGISTERING PROPERTY Economies worldwide have been making it easier for the time required substantially—enabling buyers to use entrepreneurs to register and transfer property—such as or mortgage their property earlier. What property by computerizing land registries, introducing time limits registration reforms has Doing Business recorded in for procedures and setting low fixed fees. Many have cut Hong Kong SAR, China (table 5.1)? Table 5.1 How has Hong Kong SAR, China made registering property easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Hong Kong SAR, China, made registering property easier by DB2010 making it possible to submit the stamp duty for the sale act (property assignment) online. Hong Kong SAR, China, made transferring property more DB2014 costly by increasing the stamp duty. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 41 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: HKD 15,078,186 notaries and property registries. These procedures are those that apply to a transaction matching the City: Hong Kong standard assumptions used by Doing Business in collecting the data (see the section in this chapter on The procedures, along with the associated time and what the indicators cover). cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Hong??Kong??SAR??China Time to No. Procedure Cost to complete complete Purchaser’s solicitor does a land search at the Land Registry It is a common Procedure that the Buyer's solicitor will conduct a land search before execution of the Agreement for Sale and Purchase (ASP) to ensure that the previous registration title of the property is complete and that no unusual encumbrance is registered against the property. All land records are available for search by the public by doing an online search. The service hours of an online search services have been extended from 16 to 20 hours daily since August 2010. In 2010/11, searches conducted online constituted about 91% of the total search volume. It is a common Procedure that the Purchaser’s solicitor Less than a day 1 conducts a land search online on the day of execution of the agreement (online HKD 25 for sale and purchase as a due diligence check. The prescribed fee is procedure) HK$25 for a full land search (which provides all historical and current data affecting the property) and HK$10 for an up-date land search (which provides the current data). This will take about one (1) day and in fact, immediately if it is done through the online internet service provided by the Land Registry, which many law firms in Hong Kong would have subscribed to such service. Agency: Land Registry and online Preparation of (i) Sale and Purchase Agreement and (ii) Assignment HKD 450 (Assignment Depending on encumbrances that might be still associated with the registration fee) + property this process might take a longer time. Note: The Property HKD 30,000 + Assignment will give the purchaser legal title and possession of the 5 days 2 0.25% of value property. Scale of costs: Consideration not Exceeding (HKD) Charge (HKD) % of Consideration HKD 18,125 + 0.125% of value exceeding HKD exceeding HKD 5,000,000 HKD 74,375 + 0.075% of value exceeding HKD 50,000,000 5,000,000 With reference to the above scale of costs, the solicitor fee for the (solicitor’s fee subject warehouse property of the business case (valued at HKD according to Doing Business 2015 Hong Kong SAR, China 42 Time to No. Procedure Cost to complete complete 12,117,428) is around HKD 47,800 (i.e. HKD 30,000 for the first Solicitors - HKD5,000,000 plus HKD 17,800 for the remaining HKD 7,117,428 (at a General- Costs rate of HKD25 per HKD 10,000)) or 0.4% of the property value. Rules (Cap. 159G) which is Agency: Solitors' firm negotiable). Execution of Sale and Purchase Agreement and filing at the Land Registry The Purchaser’s solicitor registers the executed agreement for sale and purchase with the Land Registry. At this time, the Purchaser usually gives a 10% down payment on the property and has time to arrange financing for the remainder owed. During the 30-day period, the Purchaser’s solicitor prepares an Assignment deed. In addition, during this period of time, the Buyer's solicitor will complete perusal of title deeds and clarify 30 days HKD 210 3 any title issues with the Seller's solicitors and confirm good title to the Buyer (through a final land search on the property to ensure there has not been any competing deed lodged with the Land Registry after the executed agreement for sale and purchase has been registered with the Land Registry). Agency: Land Registry * The Purchaser's solicitor settles the stamp duty payable with the Stamp Office via e-stamping All necessary forms and documents for stamping can be submitted online (www.gov.hk/estamping.) or in paper. The process of submission and payment is straight forward, details of the transaction are submitted over the internet, a stamp invoice is issued immediately which can be printed. After the online payment of stamp duty, solicitors can print the stamp certificates and attach them to the instruments as evidence of stamping. Payment of the stamp duty can be done using different methods, (PPS, MasterCard, and Visa). The current payment limits for credit cards are HK$5,000. If the duty amount exceeds the payment Less than a day 7.5% stamp duty limits, payment can be made offline by printing a payment notice for (online for non-residential 4 settlement by telephone, bank ATM, internet or in person at the Stamp procedure) property Office or Post Offices. After payment of stamp duty, a stamp certificate will be issued instantly and available for printing. Each stamp certificate will have its own "Stamp Certificate Number". For online payments and e-stamping, it is not required to present the original instruments to the Stamp Office. Details of the e-Stamping service in Hong Kong are available at www.ird.gov.hk/eng/tax/e_stamp.htm. Both methods fulfill the stamping requirement equally. Under the conventional method no stamp certificate is issued, instead, the relevant document (e.g. the assignment) would be stamped by the Stamp Office with the value of stamp duty paid. Doing Business 2015 Hong Kong SAR, China 43 Time to No. Procedure Cost to complete complete Agency: Stamp Office * Purchaser’s solicitor registers the Property Assignment at the Land Registry The duly stamped Assignment will then be presented by the solicitors to the Land Registry. The purchaser’s solicitor shall register the Assignment at the Land Registry within 30 days from the date of Assignment so as to preserve its priority under the law. After receipt of the original Assignment by the Land Registry, it will take another 30 days depending on the workload of the Land Registry at that time to complete the 1 day HKD 450 5 registration and return the Assignment to the solicitor’s office. However, the title is legally property of the purchaser once the Property Assignment is submitted to the Land Registry on the first day. The remaining days (or months) account for the Registry to document the transfer in microfilm and other media. Agency: Land Registry * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 44 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 Strength of legal rights index (0–12) 3 lenders’ rights to view a potential borrower’s financial history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially Depth of credit information index (0–8) 4 movable property, as security to generate capital— while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2015 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 Hong Kong SAR, China 45 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Hong Kong SAR, China stands at 23 in the and bankruptcy laws in Hong Kong SAR, China facilitate ranking of 189 economies on the ease of getting credit access to credit? The economy has a score of 7 on the (figure 6.1). The rankings for comparator economies and depth of credit information index and a score of 7 on the the regional average ranking provide other useful 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 Hong Kong SAR, China support lending scores indicate more credit information and stronger and borrowing. legal rights for borrowers and lenders. Figure 6.1 How Hong Kong SAR, China and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 46 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Hong Kong SAR, China and shows the indicators into context is to see where the economy scores for comparator economies as well as the regional stands in the distribution of scores across economies. average score. Figure 6.3 shows the same for the depth Figure 6.2 highlights the score on the strength of legal of credit information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 47 GETTING CREDIT What are the details? The getting credit indicators reported here for Hong The data on the legal rights of borrowers and lenders are Kong SAR, China are based on detailed information gathered through a survey of financial lawyers and collected in that economy. The data on credit verified through analysis of laws and regulations as well information sharing are collected through a survey of a as public sources of information on collateral and credit registry and/or credit bureau (if one exists). To bankruptcy laws. For the strength of legal rights index, a construct the depth of credit information index, a score score of 1 is assigned for each of 10 aspects related to of 1 is assigned for each of 8 features of the credit legal rights in collateral law and 2 aspects in bankruptcy registry or credit bureau (see summary of scoring below). law. Strength of legal rights index (0–12) Index score: 7 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable No assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of 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 Yes 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 for both incorporated and non-incorporated entities, that is unified geographically and by asset type, with an electronic database indexed by debtor's No name? Does a notice-based collateral registry exist in which all functional equivalents can be No registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and No searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor 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 subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by No providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2015 Hong Kong SAR, China 48 Strength of legal rights index (0–12) Index score: 7 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through Yes public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 7 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on Yes No 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their Yes No 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an Yes No 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions Yes No 1 assess the creditworthiness of borrowers? Note: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 157,884 0 Number of individuals 4,974,673 0 Percent of total 96.1 0.0 Doing Business 2015 Hong Kong SAR, China 49 Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 50 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions ; Disclosure requirements for related-party transactions What do the indicators cover? Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5)  Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from  Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects  Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3  The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10)  All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 Hong Kong SAR, China 51 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against investor protection index (figure 7.1). While the indicator self-dealing in Hong Kong SAR, China? The economy has does not measure all aspects related to the protection of a score of 8.1 on the strength of minority investor minority investors, a higher ranking does indicate that an protection index, with a higher score indicating stronger economy’s regulations offer stronger minority investor protections. protections against self-dealing in the areas measured. Globally, Hong Kong SAR, China stands at 2 in the ranking of 189 economies on the strength of minority Figure 7.1 How Hong Kong SAR, China and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 52 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Hong Kong SAR, China in 2014. A summary of minority investors indicators into context is to see where scoring for the protecting minority investors indicators at the economy stands in the distribution of scores across the end of this chapter provides details on how the comparator economies. Figures 7.2 through 7.7 highlight indices were calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 53 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 54 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 55 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 56 PROTECTING MINORITY INVESTORS Economies with the strongest protections of minority result, reforms to strengthen minority investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have well- as through new or amended company laws, securities functioning courts and up-to-date procedural rules that regulations or civil procedure rules. What minority give minority shareholders the means to prove their case investor protection reforms has Doing Business recorded and obtain a judgment within a reasonable time. As a in Hong Kong SAR, China (table 7.1)? Table 7.1 How has Hong Kong SAR, China strengthened minority investor protections—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Hong Kong SAR, China, strengthened minority investor protections by introducing requirements for directors to DB2015 provide more detailed disclosure of conflicts of interest to the other board members. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 57 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported of conditions relating to disclosure, director liability, here for Hong Kong SAR, China are based on detailed shareholder suits, shareholder rights, governance information collected through a survey of corporate and structure and corporate transparency in a standard case securities lawyers about securities regulations, company study (for more details, see the Data Notes section of the laws and court rules of evidence and procedure. To Doing Business 2015 report). The summary below shows construct the six indicators on minority investor the details underlying the scores for Hong Kong SAR, protection, scores are assigned to each based on a range China. Table 7.2 Summary of scoring for the protecting minority investors indicators in Hong Kong SAR, China Answer Score Extent of disclosure index (0-10) 10.0 Which corporate body can provide legally sufficient Shareholders excluding interested 3 approval for the Buyer-Seller transaction? (0-3) parties Is disclosure by the interested director to the board of Full disclosure of all material facts 2 directors required? (0-2) Is disclosure of the transaction in published periodic filings Disclosure on the transaction and 2 (annual reports) required? (0-2) on the conflict of interest Is immediate disclosure of the transaction to the public Disclosure on the transaction and 2 and/or shareholders required? (0-2) on the conflict of interest Must an external body review the terms of the transaction Yes 1 before it takes place? (0-1) Extent of director liability index (0-10) 8.0 Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0- Yes 1 1) Can shareholders hold the interested director liable for the Liable if unfair or prejudicial 2 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Liable if unfair or prejudicial 2 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder Yes 1 plaintiff? (0-1) Can both fines and imprisonment be applied against the No 0 interested indrector? (0-1) Can a court void the transaction upon a successful claim by Voidable if negligently concluded 1 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 9.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? Yes 1 (0-1) Doing Business 2015 Hong Kong SAR, China 58 Can the plaintiff obtain any documents from the defendant No 3 and witnesses during trial? (0-3) Can the plaintiff request categories of documents from the Yes 1 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if successful 1 the company? (0-2) Strength of minority investor protection index (0-10) 8.1 Extent of conflict of interest regulation index (0-10) 9.0 Extent of shareholder rights index (0-10.5) 9.0 Can shareholders amend company bylaws or statutes with a No 0 simple majority? Can shareholders owning 10% of the company's share Yes 1.5 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of Yes 1.5 directors before the end of their term. Must a company obtain its shareholders’ approval every Yes 1.5 time it issues new shares? Are shareholders automatically granted subscription rights Yes 1.5 on new shares? Must shareholders approve the election and dismissal of the Yes 1.5 external auditor? Can shareholders freely trade shares prior to a major Yes 1.5 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 6.5 Is the CEO barred from also serving as chair of the board of Yes 1.5 directors? Must the board of directors include independent board Yes for listed companies 1 members? Must a company have a separate audit committee? Yes for listed companies 1 Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected Yes 1.5 shares? Must a potential acquirer make a tender offer to all Yes 1.5 shareholders upon acquiring 50% of a company? Is cross-shareholding between 2 independent companies No 0 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its No 0 parent company? Extent of corporate transparency index (0-9) 6.0 Must ownership stakes representing 10% be disclosed? Yes for listed companies 1 Must information about board members’ other directorships as well as basic information on their primary employment Yes for listed companies 1 be disclosed? Must the compensation of individual managers be No 0 disclosed? Must financial statements contain explanatory notes on significant accounting policies, trends, risks, uncertainties Yes 1.5 and other factors influencing the reporting? Doing Business 2015 Hong Kong SAR, China 59 Must annual financial statements be audited by an external Yes 1.5 auditor? Must audit reports be disclosed to the public? Yes for listed companies 1 Extent of shareholder governance index (0-10) 7.2 Source: Doing Business database. PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2013 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business measures the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to Profit or corporate income tax one of the component indicators, the total tax rate . 5 The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes  TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012.  Taxes and mandatory contributions include  The business starts from the same financial corporate 5 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for income tax, the total tax turnover rate to the powertaxofand all threshold is 0.8. The position in each economy. All the taxes yearstaxes labor defined as the total tax rate at the 15th percentile of the overall distribution for all includedand contributions in the paid by and theadjusted on a analysis. It is calculated and yearly basis. Themandatory threshold is notcontributions paid during based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax company. the system of an second economy year Instead, of operation overall. are it is mainly recorded. 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 A range  indicators. of reduces This standard deductions the bias and toward economies in the indicators  not that do Taxes need to levy mandatory and contributions significant taxes are on companies like exemptions the Doing Business standardized caseare studyalso recorded. company because they raise public revenue measured in other ways at all —for example, levels through of government. taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 26.1%. Doing Business 2015 Hong Kong SAR, China 60 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with average of the 2 largest business cities. See the chapter taxes in Hong Kong SAR, China—and how much do firms on distance to frontier and ease of doing business pay in taxes? On average, firms make 3.0 tax payments a ranking at the end of this profile for more details. year, spend 78.0 hours a year filing, preparing and Globally, Hong Kong SAR, China stands at 4 in the paying taxes and pay total taxes amounting to 22.8% of ranking of 189 economies on the ease of paying taxes profit (see the summary at the end of this chapter for (figure 8.1). The rankings for comparator economies and details). Most indicator sets refer to a case scenario in the regional average ranking provide other useful the largest business city of an economy, except for 11 information for assessing the tax compliance burden for economies for which the data are a population-weighted businesses in Hong Kong SAR, China. Figure 8.1 How Hong Kong SAR, China and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 61 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue rise. consolidating filings, reducing the frequency of What tax reforms has Doing Business recorded in Hong payments or offering electronic filing and payment. Kong SAR, China (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Hong Kong SAR, China made paying taxes easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform DB2011 Hong Kong SAR (China) abolished the fuel tax on diesel. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 62 PAYING TAXES What are the details? The indicators reported here for Hong Kong SAR, LOCATION OF STANDARDIZED COMPANY China are based on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the City: Hong Kong section in this chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 50 16.5% 17.6 profits Employer paid - Mandatory gross provident fund (MPF) 1 online filing 28 5% 5.1 salaries contributions annual Property tax 1 0 5% rental 0.1 value Employee paid - Mandatory gross provident fund (MPF) 0 paid jointly 0 5% 0 withheld salaries contributions Totals 3.0 78.0 22.8 Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 63 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business:  Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data  Is not hazardous nor includes military items. for a second city have been added.  Does not require refrigeration or any other  Is a private, limited liability company, special environment. domestically owned and does not operate  Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than  Conducts export and import activities, but accepted international standards. does not have any special accreditation  Is one of the economy’s leading export or such as an authorized economic operator import products. status.  Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 Hong Kong SAR, China 64 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Hong Kong SAR, cities. See the chapter on distance to frontier and ease of China? According to data collected by Doing Business, doing business ranking at the end of this profile for more exporting a standard container of goods requires 3 details. documents, takes 6.0 days and costs $590.0. Importing Globally, Hong Kong SAR, China stands at 2 in the the same container of goods requires 3 documents, ranking of 189 economies on the ease of trading across takes 5.0 days and costs $565.0 (see the summary of four borders (figure 9.1). The rankings for comparator predefined stages and documents at the end of this economies and the regional average ranking provide chapter for details). Most indicator sets refer to a case other useful information for assessing how easy it is for a scenario in the largest business city of an economy, business in Hong Kong SAR, China to export and import except for 11 economies for which the data are a goods. population-weighted average of the 2 largest business Figure 9.1 How Hong Kong SAR, China and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 65 TRADING ACROSS BORDERS What are the details? The indicators reported here for Hong Kong SAR, LOCATION OF STANDARDIZED COMPANY China are based on a set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the Port Name: Hong Kong indicators cover). Information on the required documents and the time and cost to complete export City: Hong Kong and import is collected from local freight forwarders, The predefined stages, and the associated time and cost, shipping lines, customs brokers, port officials and for exporting and importing a standard shipment of banks. goods are listed in the summary below, along with the required documents. Table 9.2 Summary of predefined stages and documents for trading across borders in Hong Kong SAR, China Stages to export Time (days) Cost (US$) Customs clearance and inspections 1 0 Documents preparation 2 105 Inland transportation and handling 1 220 Ports and terminal handling 2 265 Totals 6 590 Stages to import Time (days) Cost (US$) Customs clearance and inspections 1 0 Documents preparation 2 100 Inland transportation and handling 1 200 Ports and terminal handling 1 265 Totals 5 565 Doing Business 2015 Hong Kong SAR, China 66 Documents to export Bill of Lading Commercial invoice Customs export declaration Documents to import Bill of lading Commercial invoice Customs import declaration Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 67 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city. For the 11 economies with a population of more than  The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added.  The dispute on the quality of the goods  The buyer orders custom-made goods, requires an expert opinion. then fails to pay.  The judge decides in favor of the seller; there  The seller sues the buyer before a is no appeal. competent court.  The seller enforces the judgment through a  The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 Hong Kong SAR, China 68 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial 2 largest business cities. See the chapter on distance to dispute through the courts in Hong Kong SAR, China? frontier and ease of doing business ranking at the end of According to data collected by Doing Business, contract this profile for more details. enforcement takes 360.0 days, costs 21.2% of the value Globally, Hong Kong SAR, China stands at 6 in the of the claim and requires 26.0 procedures (see the ranking of 189 economies on the ease of enforcing summary at the end of this chapter for details). Most contracts (figure 10.1). The rankings for comparator indicator sets refer to a case scenario in the largest economies and the regional average ranking provide business city of an economy, except for 11 economies for other useful benchmarks for assessing the efficiency of which the data are a population-weighted average of the contract enforcement in Hong Kong SAR, China. Figure 10.1 How Hong Kong SAR, China and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 69 ENFORCING CONTRACTS Economies in all regions have improved contract reducing backlogs by introducing periodic reviews to enforcement in recent years. A judiciary can be improved clear inactive cases from the docket and by making in different ways. Higher-income economies tend to look procedures faster. What reforms making it easier (or for ways to enhance efficiency by introducing new more difficult) to enforce contracts has Doing Business technology. Lower-income economies often work on recorded in Hong Kong SAR, China (table 10.1)? Table 10.1 How has Hong Kong SAR, China made enforcing contracts easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Reforms implemented in the civil justice system of Hong Kong DB2011 SAR (China) will help increase the efficiency and cost- effectiveness of commercial dispute resolution. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 70 ENFORCING CONTRACTS What are the details? The indicators reported here for Hong Kong SAR, COURT NAME China are based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this Claim value: HKD 582,902 chapter on what the indicators cover). These procedures, and the time and cost of completing Court name: Hong Kong District Court them, are identified through study of the codes of civil procedure and other court regulations, as well City: Hong Kong as through questionnaires completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Table 10.2 Summary of time, cost and procedures for enforcing a contract in Hong Kong SAR, China Hong Kong SAR, East Asia & Indicator China Pacific average Time (days) 360 554 Filing and service 5 Trial and judgment 310 Enforcement of judgment 45 Cost (% of claim) 21.2 48.6 Attorney cost (% of claim) 19.5 Court cost (% of claim) 0.7 Enforcement Cost (% of claim) 1.0 Procedures (number) 26 37 Number of procedures (without bonus points) 27 Specialized commercial courts -1 Total number of procedures (including bonus points) 26 Doing Business 2015 Hong Kong SAR, China 71 No. Procedures Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff hires a lawyer: Plaintiff hires a lawyer. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 3 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Arrangements for physical delivery of summons and complaint: Plaintiff takes the necessary steps to * arrange for physical service of process on Defendant (e.g. instructing a court officer or a private bailiff). Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons * and complaint to Defendant. * Proof of service: Plaintiff submits proof of service to court, as required by law or standard practice. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. Guarantees securing attached property: Plaintiff submits guarantees or bonds to secure Defendant 4 against possible damages to attached property. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 5 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Trial and judgment: Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 6 or defense on the merits of the case (see assumption 4). Deadline for Plaintiff to reply to Defendant's defense or answer: Judge sets a deadline for Plaintiff’s 7 submission of a reply to the Defendant's defense or answer. Plaintiff’s written reply to Defendant's answer: Plaintiff responds to Defendant’s answer with a written 8 pleading, which may or may not include witness statements or expert (witness) statements. Filing of written submissions: Plaintiff and Defendant file written pleadings and submissions with the court 9 and transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Doing Business 2015 Hong Kong SAR, China 72 No. Procedures Adjournments: Court procedure is delayed because one or both parties request and obtain an 10 adjournment to submit written pleadings. Check as ‘yes’ if this commonly happens. Court’s mailing of allocation questionnaire to parties: The court mails a questionnaire to the parties asking * each to allocate the case among different case-tracks (for example, multi track, fast track) and asking each to frame the issues for trial. Discovery requests: Plaintiff and Defendant make requests for the disclosure of documents, attempting to * force the other party to reveal potentially detrimental documents. Check as ‘yes’ if discovery requests usually entail disputes. * Setting of date(s) for oral hearing or trial: Judge sets the date(s) for the oral hearing or trial. Pre-trial conference aimed at preparing for trial: The judge meets with parties to make practical 11 arrangements for the trial (for example, the number of witnesses parties intend to call on during trial, how much time each party is given to present oral arguments etc.). * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court (see assumption 5-a). Trial (prevalent in common law): The parties argue the merits of the case at (an) oral session(s) before the 12 court. Witnesses and expert witnesses are questioned and cross-examined during trial. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 13 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 14 Writing of judgment: The judge produces a written copy of the judgment. Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 15 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Order for reimbursement by Defendant of Plaintiff's court fees: The judgment orders Defendant to 16 reimburse Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff retains an enforcement agent to enforce the judgment.: Plaintiff retains the services of a court 17 enforcement officer such as a court bailiff or sheriff, or a private bailiff. 18 Publication of judgment: The judgment is published in an official journal, gazette or local newspaper. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 19 private bailiff requests Defendant to voluntarily comply with the judgment. Identification of Defendant's assets by court official or Defendant for purposes of enforcement: The judge, 20 a court enforcement officer, a private bailiff or the Defendant himself identifies Defendant's movable assets for the purposes of enforcing the judgment through a sale of Defendant’s assets. Creditor notification of intent to attach: A court enforcement officer or private bailiff notifies other 21 creditors of the intent to attach Defendant's goods. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 22 assets). Doing Business 2015 Hong Kong SAR, China 73 No. Procedures Call for public auction: Judge calls a public auction by, for example, advertising or publication in the 23 newspapers. 24 Sale through public auction: The Defendant’s movable property is sold at pub lic auction. Distribution of proceeds: The proceeds of the public auction are distributed to Plaintiff (and, where 25 applicable, to other creditors, according to the rules of priority). Reimbursement of Plaintiff’s enforcement fees: Defendant reimbur ses Plaintiff's enforcement fees which 26 Plaintiff had advanced previously. 27 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 2015 Hong Kong SAR, China 74 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 Hong Kong SAR, China 75 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, Hong characterize the top-performing economies. How Kong SAR, China scores 3.0 out of 3 points on the efficient are insolvency proceedings in Hong Kong SAR, commencement of proceedings index, 2.0 out of 6 points China? According to data collected by Doing Business, on the management of debtor’s assets index, 1.0 out of 3 resolving insolvency takes 0.8 years on average and costs points on the reorganization proceedings index, and 3.0 5.0% of the debtor’s estate, with the most likely outcome out of 4 points on the creditor participation index. Hong being that the company will be sold as going concern. Kong SAR, China’s total score on the strength of The average recovery rate is 87.2 cents on the dollar. insolvency framework index is 9.0 out of 16. Most indicator sets refer to a case scenario in the largest Globally, Hong Kong SAR, China stands at 25 in the business city of an economy, except for 11 economies for ranking of 189 economies on the ease of resolving which the data are a population-weighted average of the insolvency (figure 11.1). The rankings for comparator 2 largest business cities. See the chapter on distance to economies and the regional average ranking provide frontier and ease of doing business ranking at the end of other useful benchmarks for assessing the efficiency of this profile for more details. insolvency proceedings in Hong Kong SAR, China. Figure 11.1 How Hong Kong SAR, China and comparator economies rank on the ease of resolving insolvency Doing Business 2015 Hong Kong SAR, China 76 Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 77 Figure 11.2 Recovery Rate (0-100) - Hong Kong SAR, China Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - Hong Kong SAR, China Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 78 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers  Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International  Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188  Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment  Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6  Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of  Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked  Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 Hong Kong SAR, China LABOR MARKET REGULATION Employment laws are needed to protect workers from the past 5 years did so in ways that increased labor arbitrary or unfair treatment and to ensure efficient market flexibility. What changes did Hong Kong SAR, contracting between employers and workers. Many China adopt that affected the Doing Business indicators economies that changed their labor market regulation in on labor market regulation (table 12.1)? Table 12.1 What changes did Hong Kong SAR, China make in terms of labor market regulation? DB year Reform DB2012 Hong Kong, China introduced a Minimum Wage. Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 80 LABOR MARKET REGULATION What are the details? The data reported here for Hong Kong SAR, China are Employment laws and regulations as well as secondary based on a detailed survey of labor market regulation sources are reviewed to ensure accuracy. that is completed by local lawyers and public officials. Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 794.99 (US$/month) Ratio of minimum wage to value added per worker 0.18 Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 81 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. Rigidity of hours index Data 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in workload? Maximum working days per week 6.0 Premium for night work (% of hourly pay) 0% Premium for work on weekly rest day (% of hourly pay) 0% Major restrictions on night work? No Major restrictions on weekly holiday? No Paid annual leave for a worker with 1 year of tenure (in working days) 7.0 Paid annual leave for a worker with 5 years of tenure (in working days) 10.0 Paid annual leave for a worker with 10 years of tenure (in working days) 14.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 10.3 working days) Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 82 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 redundant workers; (v) priority rules apply for reemployment. Difficulty of redundancy index Data Maximum length of probationary period (months) 1.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? 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 2015 Hong Kong SAR, China 83 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 and 1/3 weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure 4.3 Notice period for redundancy dismissal for a worker with 10 years of tenure 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 0.0 Severance pay for redundancy dismissal for a worker with 5 years of tenure 1.4 Severance pay for redundancy dismissal for a worker with 10 years of tenure 2.9 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 1.4 of tenure) Source: Doing Business database. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of Doing Business also assesses the mechanisms available unemployment protection schemes as well as data on to resolve labor disputes. More specifically, it collects whether employers are legally required to provide data on what courts would be competent to hear labor health insurance for employees with permanent disputes and whether the competent court is contracts. specialized in resolving labor disputes. Social protection schemes and benefits & Labor disputes indicator Data Availability of unemployment protection scheme? No Health insurance existing for permanent employees? No Availability of courts or court sections specializing in labor disputes? Yes Source: Doing Business database. Doing Business 2015 Hong Kong SAR, China 84 Doing Business 2015 Hong Kong SAR, China 85 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components —yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in Doing Business . Thus Doing Business uses the simplest 6 calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 Hong Kong SAR, China 86 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the components . threshold reduces the bias in the indicator toward 7 economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 Tokyo 65 2015 report). Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 Russian Federation correlations among indicators do not differ much. An alternative to the St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. Source: United Nations, Department of Economic and Social 7 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 Hong Kong SAR, China 87 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 Hong Kong SAR, China 88 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 10,700 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 Hong Kong SAR, China 89