73933 Economy Profile: Hong Kong SAR, China Doing Business 2013 Hong Kong SAR, China 2 © 2013 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Doing Business 2013 Hong Kong SAR, China 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 33 Registering property .................................................................................................................. 42 Getting credit .............................................................................................................................. 52 Protecting investors ................................................................................................................... 59 Paying taxes ................................................................................................................................ 68 Trading across borders .............................................................................................................. 76 Enforcing contracts .................................................................................................................... 85 Resolving insolvency .................................................................................................................. 95 Employing workers .................................................................................................................. 101 Data notes ................................................................................................................................. 108 Resources on the Doing Business website ............................................................................ 113 Doing Business 2013 Hong Kong SAR, China 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is (except for the paying taxes indicators, which cover the for a local entrepreneur to open and run a small to period January–December 2011). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 185 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 19 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2013 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Hong Kong SAR, China. To allow useful business regulatory reforms. The data, along with comparison, it also provides data for other selected information on ordering Doing Business 2013, are economies (comparator economies) for each indicator. available on the Doing Business website at The data in this report are current as of June 1, 2012 http://www.doingbusiness.org. Doing Business 2013 Hong Kong SAR, China 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: East Asia & Pacific business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: High income medium-size businesses through their life cycle. Economies are ranked from 1 to 185 by the ease of Population: 7,071,600 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 35,160 percentile rankings on each of the 10 topics included in the index in Doing Business 2013: starting a business, DB2013 rank: 2 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2012 rank: 2* investors, paying taxes, trading across borders, Change in rank: 0 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see * DB2012 ranking shown is not last year’s published the data notes for more details). The employing workers ranking but a comparable ranking for DB2012 that indicators are not included in this year’s aggregate ease captures the effects of such factors as data of doing business ranking, but the data are presented corrections and the addition of 2 economies in this year’s economy profile. (Barbados and Malta) to the sample this year. See the data notes 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 2013 Hong Kong SAR, China 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Hong Kong SAR, China and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Hong Kong SAR, China ranks on Doing Business topics Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business year Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far each economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy since of changes in an economy’s regulatory environment for 2005 on each indicator in 9 Doing Business indicator sets. firms, but they are always relative. An economy’s ranking Comparing the measure for an economy at 2 points in might change because of developments in other time allows users to assess how much the economy’s economies. An economy that implemented business regulatory environment as measured by Doing Business regulation reforms may fail to rise in the rankings (or may has changed over time—how far it has moved toward (or even drop) if it is passed by others whose business away from) the most efficient practices and strongest regulation reforms had a more significant impact as regulations in areas covered by Doing Business (figure 1.4). measured by Doing Business. The results may show that the pace of change varies widely Moreover, year-to-year changes in the overall rankings do across the areas measured. They also may show that an not reflect how the business regulatory environment in an economy is relatively close to the frontier in some areas economy has changed over time—or how it has changed and relatively far from it in others. in different areas. To aid in assessing such changes, last Figure 1.4 How far has Hong Kong SAR, China come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the 9 indicator sets shown in the figure. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist — numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Hong Kong SAR, China United Kingdom DB2013 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Taiwan, China DB2013 Korea, Rep. DB2013 Malaysia DB2013 Indicator Japan DB2013 China DB2013 DB2013 DB2012 DB2013 Starting a Business 6 5 151 114 24 54 16 19 New Zealand (1) (rank) Procedures (number) 3 3 13 8 5 3 3 6 New Zealand (1)* Time (days) 3 3 33 23 7 6 10 13 New Zealand (1) Cost (% of income per 1.9 1.9 2.1 7.5 14.6 15.1 2.4 0.7 Slovenia (0.0) capita) Paid-in Min. Capital (% 0.0 0.0 85.7 0.0 0.0 0.0 0.0 0.0 91 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 1 1 181 72 26 96 9 20 China (1) (rank) Hong Kong SAR, Procedures (number) 6 6 28 14 11 37 11 9 China (6)* Time (days) 67 67 270 193 29 140 94 99 Singapore (26) Cost (% of income per 16.3 17.8 375.3 28.5 127.2 17.5 16.3 62.4 Qatar (1.1) capita) Doing Business 2013 Hong Kong SAR, China 11 United Kingdom DB2013 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Taiwan, China DB2013 Korea, Rep. DB2013 Malaysia DB2013 Indicator Japan DB2013 China DB2013 DB2013 DB2012 DB2013 Getting Electricity 4 4 114 27 3 28 6 62 Iceland (1) (rank) Procedures (number) 4 4 5 3 4 5 4 5 Germany (3)* Time (days) 41 43 145 105 28 46 24 105 Germany (17) Cost (% of income per 1.6 1.7 547.0 0.0 33.3 53.9 50.4 108.9 Japan (0.0) capita) Registering Property 60 58 44 64 75 33 32 73 Georgia (1) (rank) Procedures (number) 5 5 4 6 7 5 3 6 Georgia (1)* Time (days) 36 36 29 14 11 14 5 29 Portugal (1) Cost (% of property 4.0 4.1 3.6 5.8 5.1 3.3 6.2 4.7 Belarus (0.0)* value) Getting Credit (rank) 4 4 70 23 12 1 70 1 United Kingdom (1)* Strength of legal rights 10 10 6 7 8 10 5 10 Malaysia (10)* index (0-10) Depth of credit 5 5 4 6 6 6 5 6 United Kingdom (6)* information index (0-6) Public registry coverage 0.0 0.0 27.7 0.0 0.0 56.1 0.0 0.0 Portugal (90.7) (% of adults) Private bureau United Kingdom 89.4 86.3 0.0 100.0 100.0 81.8 94.1 100.0 coverage (% of adults) (100.0)* Protecting Investors 3 3 100 19 49 4 32 10 New Zealand (1) (rank) Extent of disclosure 10 10 10 7 7 10 9 10 Hong Kong SAR, Doing Business 2013 Hong Kong SAR, China 12 United Kingdom DB2013 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Taiwan, China DB2013 Korea, Rep. DB2013 Malaysia DB2013 Indicator Japan DB2013 China DB2013 DB2013 DB2012 DB2013 index (0-10) China (10)* Extent of director 8 8 1 6 4 9 5 7 Singapore (9)* liability index (0-10) Ease of shareholder 9 9 4 8 7 7 5 7 New Zealand (10)* suits index (0-10) Strength of investor 9.0 9.0 5.0 7.0 6.0 8.7 6.3 8.0 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 4 3 122 127 30 15 54 16 (1) Payments (number per Hong Kong SAR, 3 3 7 14 10 13 12 8 year) China (3)* United Arab Emirates Time (hours per year) 78 80 338 330 207 133 221 110 (12) Trading Across Borders 2 2 68 19 3 11 23 14 Singapore (1) (rank) Documents to export 4 4 8 3 3 5 6 4 France (2) (number) Time to export (days) 5 5 21 10 7 11 10 7 Singapore (5)* Cost to export (US$ per 575 575 580 880 665 435 655 950 Malaysia (435) container) Documents to import 4 4 5 5 3 6 6 4 France (2) (number) Time to import (days) 5 5 24 11 7 8 10 6 Singapore (4) Cost to import (US$ per 565 565 615 970 695 420 720 1,045 Malaysia (420) container) Doing Business 2013 Hong Kong SAR, China 13 United Kingdom DB2013 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Taiwan, China DB2013 Korea, Rep. DB2013 Malaysia DB2013 Indicator Japan DB2013 China DB2013 DB2013 DB2012 DB2013 Enforcing Contracts 10 11 19 35 2 33 90 21 Luxembourg (1) (rank) Time (days) 360 360 406 360 230 425 510 399 Singapore (150) Cost (% of claim) 21.2 21.2 11.1 32.2 10.3 27.5 17.7 25.9 Bhutan (0.1) Procedures (number) 27 27 37 30 33 29 45 28 Ireland (21)* Resolving Insolvency 17 16 82 1 14 49 15 8 Japan (1) (rank) Time (years) 1.1 1.1 1.7 0.6 1.5 1.5 1.9 1.0 Ireland (0.4) Cost (% of estate) 9 9 22 4 4 15 4 6 Singapore (1)* Outcome (0 as piecemeal sale and 1 as 1 0 1 1 0 1 1 going concern) Recovery rate (cents on 81.2 81.2 35.7 92.8 81.8 44.7 81.8 88.6 Japan (92.8) the dollar) Note: DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. The ranking methodology for the paying taxes indicators changed in Doing Business 2013; see the data notes for details. For more information on “no practice� marks, see the data notes. Data for the outcome of the resolving insolvency indicator are not available for DB2012. * 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 2013 Hong Kong SAR, China 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures officially required or commonly done in received practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that the entrepreneur will  Has a turnover of at least 100 times income per pay no bribes. And it assumes that the business: capita.  Is a limited liability company, located in the  Does not qualify for any special benefits. largest business city.  Does not own real estate.  Has between 10 and 50 employees.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2013 Hong Kong SAR, China 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Hong Kong procedures, takes 3 days, costs 1.9% of income per SAR, China? According to data collected by Doing capita and requires paid-in minimum capital of 0.0% of Business, starting a business there requires 3 income per capita (figure 2.1). 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. 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 2013 Hong Kong SAR, China 16 STARTING A BUSINESS Globally, Hong Kong SAR, China stands at 6 in the other useful information for assessing how easy it is for ranking of 185 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 2013 Hong Kong SAR, China 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to start a business in Hong Kong (table 2.1). That can help identify where the potential SAR, China today, data over time show which aspects for improvement is greatest. Table 2.1 The ease of starting a business in Hong Kong SAR, China over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 5 6 Procedures 5 5 5 5 5 5 3 3 3 3 (number) Time (days) 11 11 11 11 11 11 6 6 3 3 Cost (% of income per 2.4 3.4 3.4 3.3 3.1 2.0 1.8 2.0 1.9 1.9 capita) Paid-in Min. Capital (% of 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by what is possible in making it easier to start a business. the economies that over time have had the best And changes in regional averages can show where performance regionally or globally on the procedures, Hong Kong SAR, China is keeping up—and where it is time, cost or paid-in minimum capital required to start falling behind. a business (figure 2.3). These benchmarks help show Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2013 Hong Kong SAR, China 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety-one economies globally have no paid-in minimum capital requirement. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Hong Kong SAR, China (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Hong Kong SAR, China made starting a business easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. Hong Kong SAR (China) has eased the business start up DB2010 process through the simplification of registration formalities and merger of procedures. DB2011 No reform as measured by Doing Business. Hong Kong SAR (China) made starting a business easier by DB2012 introducing online electronic services for company and business registration. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 21 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 City: Hong Kong register a new firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Limited Liability Company professionals and the study of laws, regulations and Paid in Minimum Capital Requirement: None publicly available information on business entry in that economy. Following is a detailed summary of Start-up Capital: 10 times GNI per capita those procedures, along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Hong Kong SAR, China—and the time and cost Time to No. Procedure Cost to complete complete Choose a company name and obtain a certificate of incorporation A company name can be searched online free of charge at the Companies Registry, however the registrability 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 incomporation form (for companies limited by shares this is a Form HKD 1,720 application NC1), a copy of the memorandum of association and articles of fee + 0.1% of association (if any) and a Notice to Business Registration Office (IRBRI). authorized share The incorporation form contains comprehensive information on the 1 day capital, capped at 1 address of the registered office and particulars of the first secretary and HKD 30,000+ HKD first directors of a company. With the implementation of the "e- 450 for business Registry" in 2011, applicants can now complete the incorporation and registration levy. business registration process by submitting electronic applications online to the Companies Registry. 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. Paper submissions for incorporation normally require approximately four working days for the certificate to be issued. Sign up Employee Compensation Insurance and Mandatory Provident Fund (MPF) Schemes with a private company or a bank 2 Under the Employees’ Compensation Ordinance, an employer must 1 day no charge 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 Doing Business 2013 Hong Kong SAR, China 22 Time to No. Procedure Cost to complete complete and employed for 60 days or more under an employment contract (regardless of the number of work hours) must be covered by the Mandatory Provident Fund (MPF) Schemes Ordinance (except for persons exempted from the scheme) and be enrolled in an MPF scheme. The employer is also required to display the participation certificate issued by the Mandatory Provident Fund Authority at the work premises. The employer can arrange this insurance and the MPF scheme with any insurance company or bank in Hong Kong. There are statutory requirements to regulate the insurance companies or banks selling and operating employee compensation insurance policies and MPF schemes. • For employees' compensation insurance, section 40 of the Employees Compensation Ordinance (Cap.282) states that the policy needs to be issued by an "insurer", which must be authorised by the Insurance Authority (i.e. the Office of the Commissioner of Insurance) pursuant to s.8 of the Insurance Companies Ordinance (Cap.41). • For MPF, sections 21 and 21A of the Mandatory Provident Fund Schemes Ordinance (Cap. 485) provide that only an "approved trustee" can register a provident fund scheme with MPFA, so it is incorrect to say that the company can arrange MPF scheme with any insurance company or bank. Make a corporate seal and company rubber stamp 3 1 day HKD 215 * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2013 Hong Kong SAR, China 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to with construction permits there requires 6 procedures, build a warehouse in Hong Kong SAR, China? takes 67 days and costs 16.3% of income per capita According to data collected by Doing Business, dealing (figure 3.1). 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. 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 2013 Hong Kong SAR, China 25 DEALING WITH CONSTRUCTION PERMITS Globally, Hong Kong SAR, China stands at 1 in the ranking provide other useful information for assessing ranking of 185 economies on the ease of dealing with how easy it is for an entrepreneur in Hong Kong SAR, construction permits (figure 3.2). The rankings for China to legally build a warehouse. comparator economies and the regional average 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 2013 Hong Kong SAR, China 26 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how which aspects of the process have changed—and easy (or difficult) it is to deal with construction permits which have not (table 3.1). That can help identify where in Hong Kong SAR, China today, data over time show the potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Hong Kong SAR, China over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 1 1 Procedures (number) 21 21 21 14 6 6 6 6 Time (days) 177 177 177 137 67 67 67 67 Cost (% of income 24.6 23.4 21.1 18.7 18.7 19.4 17.8 16.3 per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see the data notes. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 27 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by possible in making it easier to deal with construction the economies that over time have had the best permits. And changes in regional averages can show performance regionally or globally on the procedures, where Hong Kong SAR, China is keeping up—and time or cost required to deal with construction permits where it is falling behind. (figure 3.3). These benchmarks help show what is Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2013 Hong Kong SAR, China 28 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 29 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Hong Kong SAR, China (table Construction is one of them. In an effort to ensure 3.2)? Table 3.2 How has Hong Kong SAR, China made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. Hong Kong SAR (China) made obtaining construction permits easier by introducing the ―Be the Smart Regulator Program‖, a large-scale improvement program for business licenses DB2009 covering multiple business sectors, which reduced the time to deal with building permits by 36 days and eliminated 8 procedures related to inspections and pre-approvals. Hong Kong SAR (China) established a one-stop center allowing six local departments and two private utility DB2010 companies to function under the same roof to expedite the process to obtain a construction permit. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 30 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 City : Hong Kong through information collected from experts in construction licensing, including architects, Estimated construction lawyers, construction firms, utility HKD 9,754,500 Warehouse Value : service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and that apply to a company and structure matching cost, are summarized below. the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Hong Kong SAR, China —and the time and cost Time to No. Procedure Cost to complete complete Obtain building plans approval BuildCo should 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 Centre 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 1 electricity supply) and coordinating their joint inspections for two- 45 days HKD 40,974 storey warehouse projects. Property developers can use Form OSC-1 to submit to the One Stop Centre in one-go 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 can simplify the submission process by combining the following 6 procedures: • Obtain building plans approval HKD 30,240.00 • Apply and pay for technical audit of water supply connection works HKD 4,470.00 • Apply and pay for technical audit of drainage services HKD 4,340.00 • Apply, pay and receive road excavation work permission from Doing Business 2013 Hong Kong SAR, China 31 Time to No. Procedure Cost to complete complete Highways Department HKD 1,924.00 • Notify and obtain approval from traffic police • Obtain building consent from Buildings Department Total cost: HKD 40,974.00 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 2 and the required standards are complied with. Upon the completion of 1 day no charge the foundation, Form BA 14 and as-built foundation records must be submitted to notify the Buildings Department that the foundation work 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. Notify Drainage Services Department of construction completion and receive transfer inspection and issuance of water supply certificate With the establishment of the One Stop Centre, the following 8 procedures as stated in the Report have been replaced by only 2 new procedures (i.e. (i) Submit notification of project completion and relevant applications to One Stop Centre and (ii) Receive joint and final inspection of relevant licensing authorities coordinated by One Stop Centre) – • Apply and pay for technical audit of Drainage Services Department • Notify Water Supplies Department of construction completion and receive transfer inspection and issuance of water supply certificate 21 days HKD 3,440 3 • Notify Drainage Services Department of construction completion and receive transfer inspection • Obtain certificate of completion of buildings works • Obtain certificate of compliance from Lands Department • Obtain fire certificate for fire service installation • Request electricity connection • Request telephone line The process to receive relevant final inspections can be also coordinated at this stage. Applicants should complete Part 2 of checklist OSC-2. The One Stop Centre will contact the relevant departments and the applicants for the arrangement of joint inspections. * Notify Water Services Department of construction completion and receive transfer inspection 1 day no charge 4 See comments in Procedure 3. * Request and obtain water connection 5 1 day no charge Doing Business 2013 Hong Kong SAR, China 32 Time to No. Procedure Cost to complete complete * Request and obtain telephone line 6 1 day HKD 475 * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 33 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2013 Hong Kong SAR, China 34 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity there requires 4 procedures, takes 41 days and costs connection in Hong Kong SAR, China? According to 1.6% of income per capita (figure 4.1). data collected by Doing Business, getting electricity 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 2013 Hong Kong SAR, China 35 GETTING ELECTRICITY Globally, Hong Kong SAR, China stands at 4 in the another perspective in assessing how easy it is for an ranking of 185 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 2013 Hong Kong SAR, China 36 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Hong Kong SAR, China Best performer in Hong Kong SAR, Hong Kong SAR, Best performer Indicator East Asia & Pacific China DB2013 China DB2012 globally DB2013 DB2013 Rank Hong Kong SAR, 4 4 Iceland (1) China (4) Procedures (number) 4 4 Timor-Leste (3) Germany (3)* Time (days) 41 43 Taiwan, China (24) Germany (17) Cost (% of income Hong Kong SAR, per capita) 1.6 1.7 Japan (0.0) China (1.6) Note: DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 37 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in Hong technical standards, procurement practices and Kong SAR, China (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Hong Kong SAR, China made getting electricity easier—or not? By Doing Business report year 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. DB2013 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 38 GETTING ELECTRICITY What are the details? The indicators reported here for Hong Kong SAR, OBTAINING AN ELECTRICITY CONNECTION China 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 City: Hong Kong distribution utility—identified by Doing Business. Data are collected from the distribution utility, then Name of Utility: CLP Power Hong Kong completed and verified by electricity regulatory Ltd. agencies and independent professionals such as The procedures are those that apply to a warehouse electrical engineers, electrical contractors and and electricity connection matching the standard construction companies. The electricity distribution assumptions used by Doing Business in collecting the utility surveyed is the one serving the area (or areas) in data (see the section in this chapter on what the which warehouses are located. If there is a choice of indicators cover). The procedures, along with the distribution utilities, the one serving the largest associated time and cost, are summarized below. number of customers is selected. Summary of procedures for getting electricity in Hong Kong SAR, China—and the time and cost 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. The clients requesting electricity supply need to complete a supply application form and provide a document for 1 identity verification (Copy of identity or Business Registration Certificate). 8 calendar days no charge 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. 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 Doing Business 2013 Hong Kong SAR, China 39 Time to No. Procedure Cost to complete complete before the occupant moves in. 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. * The client obtains external inspection from CLP Power Ltd. 2 Site inspection is required for preparing the supply scheme. It is part of 1 calendar day no charge CLP Power's work in procedure 1, and interface with the client is not necessary for the inspection. 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 connection. Efforts were made to reduce the time to obtain an excavation permit. 32 calendar days no charge 3 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; • 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. Doing Business 2013 Hong Kong SAR, China 40 Time to No. Procedure Cost to complete complete 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. 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. 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 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 1 calendar day HKD 4,313.8 4 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 (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.‖ Doing Business 2013 Hong Kong SAR, China 41 Time to No. Procedure Cost to complete complete 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. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 42 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy’s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2013 Hong Kong SAR, China 43 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in 5 procedures, takes 36 days and costs 4.0% of the Hong Kong SAR, China? According to data collected property value (figure 5.1). by Doing Business, registering property there requires 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. 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 2013 Hong Kong SAR, China 44 REGISTERING PROPERTY Globally, Hong Kong SAR, China stands at 60 in the other useful information for assessing how easy it is for ranking of 185 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 2013 Hong Kong SAR, China 45 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed—and which have easy (or difficult) it is to register property in Hong not (table 5.1). That can help identify where the Kong SAR, China today, data over time show which potential for improvement is greatest. Table 5.1 The ease of registering property in Hong Kong SAR, China over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. 58 60 Procedures (number) 5 5 5 5 5 5 5 5 5 Time (days) 36 36 36 36 36 45 36 36 36 Cost (% of property value) 4.6 4.2 4.2 4.2 4.2 5.0 4.2 4.1 4.0 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see the data notes. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 46 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by possible in making it easier to register property. And the economies that over time have had the best changes in regional averages can show where Hong performance regionally or globally on the procedures, Kong SAR, China is keeping up—and where it is falling time or cost required to complete a property transfer behind. (figure 5.3). These benchmarks help show what is Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2013 Hong Kong SAR, China 47 REGISTERING PROPERTY Cost (% of property value) Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 48 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Hong Kong SAR, China (table 5.2)? Table 5.2 How has Hong Kong SAR, China made registering property easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. In Hong Kong SAR (China) property registration is easier DB2010 because the stamp duty for the sale act (Property Assignment) can now be submitted online. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 49 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 City: Hong Kong through information collected from local property Property Value: HKD 13,810,637 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Hong Kong SAR, China—and the time and cost 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 1 day HKD 25 1 volume. It is a common Procedure that the Purchaser’s solicitor conducts a land search online on the day of execution of the agreement for sale and purchase as a due diligence check. The prescribed fee is 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. 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. HKD 30,000 + 0.25% Note: The Property Assignment will give the purchaser legal title and 5 days of value exceeding 2 possession of the property. HKD 5,000,000 (solicitor’s fee Scale of costs: Consideration not Exceeding (HKD) Charge (HKD) % of according to Consideration Solicitors -General- HKD 18,125 + 0.125% of value exceeding HKD 5,000,000 Costs Rules (Cap. Doing Business 2013 Hong Kong SAR, China 50 Time to No. Procedure Cost to complete complete HKD 74,375 + 0.075% of value exceeding HKD 50,000,000 159G) which is negotiable). With reference to the above scale of costs, the solicitor fee for the subject warehouse property of the business case (valued at HKD 12,117,428) is around HKD 47,800 (i.e. HKD 30,000 for the first HKD5,000,000 plus HKD 17,800 for the remaining HKD 7,117,428 (at a rate of HKD25 per HKD 10,000)) or 0.4% of the property value. * 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 3 solicitor prepares an Assignment deed. In addition, during this period of 30 days HKD 210 time, the Buyer's solicitor will complete perusal of title deeds and clarify 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). * 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 at (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 3.75% stamp duty 4 payment limits, payment can be made offline by printing a payment 1 day for non-residential notice for settlement by telephone, bank ATM, internet or in person at property the Stamp 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. * Purchaser’s solicitor registers the Property Assignment at the Land 5 Registry 1 day HKD 450 Doing Business 2013 Hong Kong SAR, China 51 Time to No. Procedure Cost to complete complete 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 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. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 52 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 the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, limited liability company. the strength of legal rights index.  Has its headquarters and only base of operations in the largest business city. Doing Business 2013 Hong Kong SAR, China 53 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Hong Kong SAR, China stands at 4 in the collateral and bankruptcy laws in Hong Kong SAR, ranking of 185 economies on the ease of getting credit China facilitate access to credit? The economy has a (figure 6.1). The rankings for comparator economies score of 5 on the depth of credit information index and the regional average ranking provide other useful and a score of 10 on the strength of legal rights index information for assessing how well regulations and (see the summary of scoring at the end of this chapter institutions in Hong Kong SAR, China support lending for details). Higher scores indicate more credit and borrowing. information and stronger 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 2013 Hong Kong SAR, China 54 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how show where institutions and regulations have been well the credit information system and collateral and strengthened—and where they have not (table 6.1). bankruptcy laws in Hong Kong SAR, China support That can help identify where the potential for lending and borrowing today, data over time can help improvement is greatest. Table 6.1 The ease of getting credit in Hong Kong SAR, China over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. 4 4 Strength of legal rights 10 10 10 10 10 10 10 10 10 index (0-10) Depth of credit 5 5 5 5 5 5 5 5 5 information index (0-6) Public registry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 coverage (% of adults) Private bureau 61.5 64.5 64.5 64.7 69.9 71.9 72.0 86.3 89.4 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 55 GETTING CREDIT One way to put an economy’s score on the getting China in 2012 and shows the number of economies credit indicators into context is to see where the with this score in 2012 as well as the regional average economy stands in the distribution of scores across score. Figure 6.3 shows the same thing for the depth of economies. Figure 6.2 highlights the score on the credit information index. strength of legal rights index for Hong Kong SAR, Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2012 information index (0–6), 2012 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 public credit registry or a private Source: Doing Business database. credit bureau, to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no public registry or private bureau. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 56 GETTING CREDIT When economies strengthen the legal rights of lenders access to credit. What credit reforms has Doing and borrowers under collateral and bankruptcy laws, Business recorded in Hong Kong SAR, China (table and increase the scope, coverage and accessibility of 6.2)? credit information, they can increase entr epreneurs’ Table 6.2 How has Hong Kong SAR, China made getting credit easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. 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 2013 Hong Kong SAR, China 57 GETTING CREDIT What are the details? The getting credit indicators reported here for Hong The data on the legal rights of borrowers and lenders Kong SAR, China are based on detailed information are gathered through a survey of financial lawyers and collected in that economy. The data on credit verified through analysis of laws and regulations as information sharing are collected through a survey of a well as public sources of information on collateral and public credit registry or private credit bureau (if one bankruptcy laws. For the strength of legal rights index, exists). To construct the depth of credit information a score of 1 is assigned for each of 8 aspects related to index, a score of 1 is assigned for each of 6 features of legal rights in collateral law and 2 aspects in the public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Hong Kong SAR, China Hong Kong SAR, East Asia & OECD high income Indicator China Pacific average average Strength of legal rights index (0-10) 10 7 7 Depth of credit information index (0-6) 5 4 5 Public registry coverage (% of adults) 0.0 36.4 31.5 Private bureau coverage (% of adults) 89.4 51.2 74.6 Note: In cases where an economy’s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no public registry or private bureau. Regional averages for the public registry coverage exclude economies with no public registry. Regional averages for the private bureau coverage exclude economies with no private bureau. Strength of legal rights index (0–10) Index score: 10 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category Yes of 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 Yes automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Doing Business 2013 Hong Kong SAR, China 58 Strength of legal rights index (0–10) Index score: 10 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 5 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well No No 0 as financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 132,382 0 Number of individuals 4,656,737 0 Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 59 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2013 Hong Kong SAR, China 60 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Hong Kong protection index (figure 7.1). While the indicator does SAR, China? The economy has a score of 9.0 on the not measure all aspects related to the protection of strength of investor protection index, with a higher minority investors, a higher ranking does indicate that score indicating stronger protections (see the an economy’s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, Hong Kong SAR, China stands at 3 in the ranking of 185 economies on the strength of investor Figure 7.1 How Hong Kong SAR, China and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 61 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how And the global ranking on the strength of investor well regulations in Hong Kong SAR, China protect protection index over time shows whether the minority investors today, data over time show whether economy is slipping behind other economies in the protections have been strengthened (table 7.1). investor protections—or surpassing them. Table 7.1 The strength of investor protections in Hong Kong SAR, China over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 3 3 Extent of disclosure 10 10 10 10 10 10 10 10 index (0-10) Extent of director liability index (0- 8 8 8 8 8 8 8 8 10) Ease of shareholder 8 9 9 9 9 9 9 9 suits index (0-10) Strength of investor protection 8.7 9.0 9.0 9.0 9.0 9.0 9.0 9.0 index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 62 PROTECTING INVESTORS One way to put an economy’s scores on the protecting 2012 and shows the number of economies with this investors indicators into context is to see where the score in 2012 as well as the regional average score. economy stands in the distribution of scores across Figure 7.3 shows the same thing for the extent of economies. Figure 7.2 highlights the score on the director liability index, and figure 7.4 for the ease of extent of disclosure index for Hong Kong SAR, China in shareholder suits index. Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on extent of Number of economies with each score on extent of director liability index (0–10), 2012 disclosure index (0–10), 2012 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. No economy receives a score of 10 on the extent of Source: Doing Business database. director liability index. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 63 PROTECTING INVESTORS Figure 7.4 How easy is access to internal corporate documents? Number of economies with each score on ease of shareholder suits index (0–10), 2012 Note: Higher scores indicate greater powers of shareholders to challenge the transaction. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 64 PROTECTING INVESTORS The scores recorded over time for Hong Kong SAR, be the changes over time in the regional average score China on the strength of investor protection index may on this index. also be revealing (figure 7.5). Equally interesting may Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the investor protections. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 65 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Hong Kong SAR, China (table their case and obtain a judgment within a reasonable 7.2)? Table 7.2 How has Hong Kong SAR, China strengthened investor protections—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. 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 2013 Hong Kong SAR, China 66 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for assigned for each of a range of conditions relating to Hong Kong SAR, China are based on detailed disclosure, director liability and shareholder suits in a information collected through a survey of corporate standard case study transaction (see the notes at the and securities lawyers as well as on securities end of this chapter). The summary below shows the regulations, company laws and court rules of evidence. details underlying the scores for Hong Kong SAR, To construct the extent of disclosure, extent of director China. liability and ease of shareholder suits indices, a score is Summary of scoring for the protecting investors indicators in Hong Kong SAR, China Hong Kong SAR, East Asia & OECD high income Indicator China Pacific average average Extent of disclosure index (0-10) 10 5 6 Extent of director liability index (0-10) 8 5 5 Ease of shareholder suits index (0-10) 9 6 7 Strength of investor protection index (0-10) 9.0 5.4 6.1 Note: In cases where an economy’s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 10 Both board of directors and What corporate body provides legally sufficient 3 shareholders meeting and Mr. James approval for the transaction? is not allowed to vote Whether disclosure of the conflict of interest by Mr. 2 Full disclosure of all material facts James to the board of directors is required? Whether immediate disclosure of the transaction to Disclosure on the transaction and Mr. 2 the public and/or shareholders is required? James' conflict of interest Whether disclosure of the transaction in published Disclosure on the transaction and Mr. 2 periodic filings (annual reports) is required? James' conflict of interest Whether an external body must review the terms of 1 Yes the transaction before it takes place? Extent of director liability index (0-10) 8 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Doing Business 2013 Hong Kong SAR, China 67 Score Score description Whether shareholders can hold Mr. James liable for Liable for unfair/oppressive the damage that the Buyer-Seller transaction causes 2 transaction or prejudicial to minority to the company? shareholders Whether shareholders can hold members of the Liable for unfair/oppressive approving body liable for the damage that the Buyer- 2 transaction or prejudicial to minority Seller transaction causes to the company? shareholders Possible when the transaction is Whether a court can void the transaction upon a 1 oppressive or prejudicial to minority successful claim by a shareholder plaintiff? shareholders Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 1 Yes the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 Yes shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 9 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 1 Yes filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 1 Yes transaction? Whether the plaintiff can obtain any documents from Any information that may lead to the 4 the defendant and witnesses during trial? discovery of relevant information Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 2 Yes, without approval from the judge defendant and witnesses during trial? Whether the level of proof required for civil suits is 1 Yes lower than that of criminal cases? Strength of investor protection index (0-10) 9.0 Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 68 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2011 (number per year adjusted for Doing Business data, in economies where it is more electronic or joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2010. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an ―optimal tax rate‖ that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.7%. Doing Business 2013 Hong Kong SAR, China 69 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Hong Kong SAR, China stands at 4 in the taxes in Hong Kong SAR, China—and how much do ranking of 185 economies on the ease of paying taxes firms pay in taxes? On average, firms make 3 tax (figure 8.1). The rankings for comparator economies payments a year, spend 78 hours a year filing, and the regional average ranking provide other useful preparing and paying taxes and pay total taxes information for assessing the tax compliance burden amounting to 23.0% of profit (see the summary at the for businesses in Hong Kong SAR, China. end of this chapter for details). Figure 8.1 How Hong Kong SAR, China and comparator economies rank on the ease of paying taxes Note: DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 70 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed — and which easy (or difficult) it is to comply with tax rules in Hong have not (table 8.1). That can help identify where the Kong SAR, China today, data over time show which potential for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Hong Kong SAR, China over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 3 4 Payments (number per 4 4 4 4 4 3 3 3 year) Time (hours per year) 80 80 80 80 80 80 80 78 Total tax rate (% profit) 24.4 24.4 24.4 24.2 23.1 23.0 23.0 23.0 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 71 PAYING TAXES Equally helpful may be the benchmarks provided by possible in easing the administrative burden of tax the economies that over time have had the best compliance. And changes in regional averages can performance regionally or globally on the number of show where Hong Kong SAR, China is keeping up— payments or the time required to prepare and file and where it is falling behind. taxes (figure 8.2). These benchmarks help show what is Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2013 Hong Kong SAR, China 72 PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 73 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Hong Kong SAR, China (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Hong Kong SAR, China made paying taxes easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 Hong Kong SAR (China) abolished the fuel tax on diesel. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 74 PAYING TAXES What are the details? The indicators reported here for Hong Kong SAR, LOCATION OF STANDARDIZED COMPANY China are based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the City: Hong Kong data (see the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company The taxes and contributions paid are listed in the completed during the year. Respondents are asked summary below, along with the associated number of how much in taxes and mandatory contributions payments, time and tax rate. the business must pay and what the process is for doing so. Summary of tax rates and administrative burden in Hong Kong SAR, China Hong Kong SAR, East Asia & OECD high income Indicator China Pacific average average Payments (number per year) 3 25 12 Time (hours per year) 78 209 176 Profit tax (%) 17.6 16.7 15.2 Labor tax and contributions (%) 5.3 10.9 23.8 Other taxes (%) 0.1 6.9 3.7 Total tax rate (% profit) 23.0 34.5 42.7 Note: In cases where an economy’s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Total tax Tax or mandatory Payments Notes on Time Statutory Notes on Tax base rate (% of contribution (number) payments (hours) tax rate total tax rate profit) taxable Corporate income tax 1 50 17% 17.6 profit Employer paid - Mandatory gross provident fund (MPF) 1 online filing 28 5% 5.3 salaries contributions annual Property tax 1 0 5% 0.1 rental value Totals 3 78 23.0 Doing Business 2013 Hong Kong SAR, China 75 Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 76 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include military items. Doing Business 2013 Hong Kong SAR, China 77 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Hong Kong Globally, Hong Kong SAR, China stands at 2 in the SAR, China? According to data collected by Doing ranking of 185 economies on the ease of trading Business, exporting a standard container of goods across borders (figure 9.1). The rankings for requires 4 documents, takes 5 days and costs $575. comparator economies and the regional average Importing the same container of goods requires 4 ranking provide other useful information for assessing documents, takes 5 days and costs $565 (see the how easy it is for a business in Hong Kong SAR, China summary of procedures and documents at the end of to export and import goods. this chapter for details). Figure 9.1 How Hong Kong SAR, China and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 78 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to export or import in Hong Kong (table 9.1). That can help identify where the potential SAR, China today, data over time show which aspects for improvement is greatest. Table 9.1 The ease of trading across borders in Hong Kong SAR, China over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 2 2 Documents to export 6 4 4 4 4 4 4 4 (number) Time to export (days) 13 6 6 6 6 6 5 5 Cost to export (US$ per 425 525 525 625 625 625 575 575 container) Documents to import 8 4 4 4 4 4 4 4 (number) Time to import (days) 17 5 5 5 5 5 5 5 Cost to import (US$ per 425 525 525 633 583 600 565 565 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 79 TRADING ACROSS BORDERS Equally helpful may be the benchmarks provided by These benchmarks help show what is possible in the economies that over time have had the best making it easier to trade across borders. And changes performance regionally or globally on the documents, in regional averages can show where Hong Kong SAR, time or cost required to export or import (figure 9.2). China is keeping up—and where it is falling behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2013 Hong Kong SAR, China 80 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2013 Hong Kong SAR, China 81 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 82 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Hong Kong SAR, China (table risk-based inspections and electronic data interchange 9.2)? Table 9.2 How has Hong Kong SAR, China made trading across borders easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. 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 2013 Hong Kong SAR, China 83 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 procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this City: Hong Kong chapter on what the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each The procedural requirements, and the associated time procedure is collected from local freight forwarders, and cost, for exporting and importing a standard shipping lines, customs brokers, port officials and shipment of goods are listed in the summary below, banks. along with the required documents. Summary of procedures and documents for trading across borders in Hong Kong SAR, China Hong Kong SAR, East Asia & OECD high income Indicator China Pacific average average Documents to export (number) 4 6 4 Time to export (days) 5 21 10 Cost to export (US$ per container) 575 923 1,028 Documents to import (number) 4 7 5 Time to import (days) 5 22 10 Cost to import (US$ per container) 565 958 1,080 Note: In cases where an economy’s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 1 90 Customs clearance and technical control 1 0 Ports and terminal handling 2 265 Inland transportation and handling 1 220 Totals 5 575 Procedures to import Time (days) Cost (US$) Documents preparation 2 100 Customs clearance and technical control 1 0 Doing Business 2013 Hong Kong SAR, China 84 Procedures to import Time (days) Cost (US$) Ports and terminal handling 1 265 Inland transportation and handling 1 200 Totals 5 565 Documents to export Documents to import Bill of Lading Bill of lading Commercial invoice Commercial invoice Customs export declaration Customs import declaration Packing list Packing list Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 85 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects Time required to complete procedures data relating to the time, cost and procedural (calendar days) complexity of resolving a commercial lawsuit. The ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs assumptions about the case: Enforcement costs  The seller and buyer are located in the economy’s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2013 Hong Kong SAR, China 86 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Hong Kong SAR, China stands at 10 in the dispute through the courts in Hong Kong SAR, China? ranking of 185 economies on the ease of enforcing According to data collected by Doing Business, contracts (figure 10.1). The rankings for comparator enforcing a contract takes 360 days, costs 21.2% of the economies and the regional average ranking provide value of the claim and requires 27 procedures (see the other useful benchmarks for assessing the efficiency of summary at the end of this chapter for details). 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 2013 Hong Kong SAR, China 87 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how indicators over time help identify which areas have easy (or difficult) it is to enforce a contract in Hong changed and where the potential for improvement is Kong SAR, China today, data on the underlying greatest (table 10.1). Table 10.1 The ease of enforcing contracts in Hong Kong SAR, China over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 11 10 Time (days) 211 211 211 211 211 211 280 280 360 360 Cost (% of claim) 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 Procedures (number) 27 27 27 27 27 27 27 27 27 27 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 88 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by help show what is possible in improving the efficiency the economies that over time have had the best of contract enforcement. And changes in regional performance regionally or globally on the number of averages can show where Hong Kong SAR, China is steps, time or cost required to enforce a contract keeping up—and where it is falling behind. through the courts (figure 10.2). These benchmarks Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2013 Hong Kong SAR, China 89 ENFORCING CONTRACTS Procedures (number) Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 90 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in Hong Kong SAR, China introducing new technology. Lower-income economies (table 10.2)? often work on reducing backlogs by introducing Table 10.2 How has Hong Kong SAR, China made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. 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. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 91 ENFORCING CONTRACTS What are the details? The indicators reported here for Hong Kong SAR, COMPETENT COURT China are based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the City: Hong Kong section in this chapter on what the indicators cover). These procedures, and the time and cost of The procedures for resolving a commercial lawsuit, and completing them, are identified through study of the associated time and cost, are listed in the summary the codes of civil procedure and other court below. regulations, as well as through surveys completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Summary of procedures for enforcing a contract in Hong Kong SAR, China—and the time and cost Hong Kong SAR, East Asia & OECD high income Indicator China Pacific average average Time (days) 360 522 510 Filing and service 5 Trial and judgment 310 Enforcement of judgment 45 Cost (% of claim) 21.2 48.6 20.1 Attorney cost (% of claim) 19.5 Court cost (% of claim) 0.7 Enforcement Cost (% of claim) 1.0 Procedures (number) 27 37 31 Note: In cases where an economy’s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Doing Business 2013 Hong Kong SAR, China 92 ENFORCING CONTRACTS No. Procedure Filing and service: 1 Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the contract. 2 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally or in * writing. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other type of court fee. Registration of court case: The court administration registers the lawsuit or court case. This includes assigning a 3 reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random procedure, * automated system, ruling of an administrative judge, court officer, etc. Arrangements for physical delivery of summons and complaint: Plaintiff takes whatever steps are necessary to * arrange for physical service of process on Defendant, such as 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. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Guarantees securing attached property: Plaintiff typically submits guarantees or bonds to secure Defendant 4 against possible damages to attached property. (see assumption 5) Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either physical or 5 achieved by registering, marking, debiting or separating assets. (see assumption 5) Trial and judgment: Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his 6 defense or answer on the merits of the case. Defendant's written answer may or may not include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Deadline for Plaintiff to answer Defendant's defense or answer: Judge sets the deadline by which Plaintiff will be 7 allowed to answer Defendant's defense or answer. Plaintiff’s written response to Defendant's defense or answer: Plaintiff responds to Defendant’s defense or 8 answer with a written pleading. Plaintiff's answer may or may not include a witness statements or expert (witness) statements. Filing of pleadings: Plaintiff and Defendant file written pleadings and submissions with the court and transmit 9 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 2013 Hong Kong SAR, China 93 No. Procedure Adjournments: Court procedure is delayed because one or both parties request and obtain an adjournment to 10 submit written pleadings. 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. * Setting of date(s) for oral hearing or trial: The 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 arrangements 11 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 6-a) Trial (prevalent in common law): The parties argue the merits of the case at (an) oral session(s) before the court. 12 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 period specified in the law. 15 Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse Plaintiff for 16 the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff's approaching of court enforcement officer or (private) bailiff to enforce the judgment: To enforce 17 the judgment, Plaintiff approaches a court enforcement officer such as a court bailiff or sheriff, or a private bailiff. 18 Publication of judgment: The judgment must be published in an official journal, gazette or local newspaper. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a (private) 19 bailiff requests Defendant to voluntarily comply with the judgment, giving Defendant a last chance to comply voluntarily with the judgment. Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court enforcement 20 officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Notification of intent to attach: A court enforcement officer or (private) bailiff notifies other creditors of the intent 21 to attach Defendant's goods. 22 Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating assets). Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 23 newspapers. Doing Business 2013 Hong Kong SAR, China 94 No. Procedure 24 Sale through public auction: The Defendant’s movable property is sold at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to various creditors (including 25 Plaintiff), according to the rules of priority. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which Plaintiff 26 had advanced previously. 27 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 95 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement Official costs of the insolvency proceedings (foreclosure) proceedings. The recovery rate is a are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be recovered business and the case. It assumes that the company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy’s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2013 Hong Kong SAR, China 96 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses sold as going concern. The average recovery rate is characterize the top-performing economies. How 81.2 cents on the dollar. efficient are insolvency proceedings in Hong Kong Globally, Hong Kong SAR, China stands at 17 in the SAR, China? According to data collected by Doing ranking of 185 economies on the ease of resolving Business, resolving insolvency takes 1.1 years on insolvency (figure 11.1). The rankings for comparator average and costs 9% of the debtor’s estate, with the economies and the regional average ranking provide most likely outcome being that the company will be other useful benchmarks for assessing the efficiency of 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 Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 97 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the efficiency has changed—and where it has not (table efficiency of insolvency proceedings in Hong Kong 11.1). That can help identify where the potential for SAR, China today, data over time show where the improvement is greatest. Table 11.1 The ease of resolving insolvency in Hong Kong SAR, China over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 16 17 Time (years) 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 Cost (% of estate) 9 9 9 9 9 9 9 9 9 9 Recovery rate (cents on the 81.2 81.2 81.2 79.0 79.0 79.8 79.8 81.2 81.2 81.2 dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year’s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 98 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by possible in improving the efficiency of insolvency the economies that over time have had the best proceedings. And changes in regional averages can performance regionally or globally on the time or cost show where Hong Kong SAR, China is keeping up— of insolvency proceedings or on the recovery rate and where it is falling behind. (figure 11.2). These benchmarks help show what is Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2013 Hong Kong SAR, China 99 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: Regional averages on time and cost exclude economies with a “no practice� mark. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 100 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Hong Kong SAR, China (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Hong Kong SAR, China made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. Hong Kong SAR (China) amended the respective powers and DB2009 duties of trustees granting them more power. This is expected to make the liquidation procedure more efficient. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. 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 2013 Hong Kong SAR, China 101 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of Particular data for Hong Kong SAR, China are employment, specifically as it affects the hiring and presented here without scoring. redundancy of workers and the rigidity of working hours. From 2007 to 2011 improvements were made to To make the data on employing workers comparable align the methodology for the employing workers across economies, several assumptions about the indicators with the letter and spirit of the International worker and the business are used. Labour Organization (ILO) conventions. Only 4 of the 188 ILO conventions cover areas measured by Doing The worker: Business: employee termination, weekend work, holiday with pay and night work. The Doing Business  Earns a salary plus benefits equal to the methodology is fully consistent with these 4 economy’s average wage during the entire conventions. The ILO conventions covering areas period of his employment. related to the employing workers indicators do not  Has a pay period that is the most common for include the ILO core labor standards—8 conventions workers in the economy. covering the right to collective bargaining, the  Is a lawful citizen who belongs to the same elimination of forced labor, the abolition of child labor race and religion as the majority of the and equitable treatment in employment practices. economy’s population.  Resides in the economy’s largest business city. Between 2009 and 2011 the World Bank Group worked  Is not a member of a labor union, unless with a consultative group—including labor lawyers, membership is mandatory. employer and employee representatives, and experts from the ILO, the Organisation for Economic Co- The business: operation and Development, civil society and the private sector—to review the employing workers  Is a limited liability company. methodology and explore future areas of research.  Operates in the economy’s largest business city. A full report with the conclusions of the consultative  Is 100% domestically owned. group is available at http://www.doingbusiness.org/  Operates in the manufacturing sector. methodology/employing-workers.  Has 60 employees.  Is subject to collective bargaining agreements Doing Business 2013 does not present rankings of in economies where such agreements cover economies on the employing workers indicators or more than half the manufacturing sector and include the topic in the aggregate ranking on the ease apply even to firms not party to them. of doing business. The report does present the data on  Abides by every law and regulation but does the employing workers indicators in an annex. Detailed not grant workers more benefits than data collected on labor regulations are available on the mandated by law, regulation or (if applicable) Doing Business website (http://www.doing business.org). collective bargaining agreement. Doing Business 2013 Hong Kong SAR, China 102 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Hong Kong other things, the minimum wage for a 19-year-old SAR, China (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 103 EMPLOYING WORKERS Employment laws are needed to protect workers from past 4 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Hong Kong SAR, China contracting between employers and workers. Many adopt that affected the Doing Business indicators on economies that changed their labor regulations in the employing workers (table 12.1)? Table 12.1 What changes did Hong Kong SAR, China make in employing workers in 2012? Reform No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 104 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and Hong Kong SAR, China are based on a detailed survey regulations as well as secondary sources are reviewed of employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? 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 for a 19-year old worker or an apprentice (US$/month) 0.0 Ratio of minimum wage to value added per worker 0.00 Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 105 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data Standard workday in manufacturing (hours) 8 hours 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 0% operations Premium for work on weekly rest day (% of hourly pay) in case of 0% continuous operations Major restrictions on night work in case of continuous operations? No Major restrictions on weekly holiday in case of continuous operations? 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 2013 Hong Kong SAR, China 106 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? No Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 107 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 4.3 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 4.3 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 4.3 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 0.3 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 1.4 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 2.9 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 1.5 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2013 Hong Kong SAR, China 108 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2013 reports 2011 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2012. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2011 gross contract, go through bankruptcy or trade across national income (GNI) in U.S. dollars is used as the borders. Third, they measure the extent of legal denominator. GNI data were not available from the protections of property, for example, the protections World Bank for Afghanistan; Australia; The Bahamas; of investors against looting by company directors or Bahrain; Barbados; Brunei Darussalam; Cyprus; the range of assets that can be used as collateral Djibouti; Guyana; the Islamic Republic of Iran; according to secured transactions laws. Fourth, a set of Kuwait; Malta; New Zealand; Oman; Puerto Rico indicators documents the tax burden on businesses. (territory of the United States); Sudan; Suriname; the Finally, a set of data covers different aspects of Syrian Arab Republic; Timor-Leste; West Bank and employment regulation. Gaza; and the Republic of Yemen. In these cases GDP or GNP per capita data and growth rates from The data for all sets of indicators in Doing Business the International Monetary Fund’s World Economic 2 2013 are for June 2012. Outlook database and the Economist Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and The Doing Business data are collected in a income group classifications, available at standardized way. To start, the Doing Business team, http://data.worldbank.org/about/country- with academic advisers, designs a questionnaire. The classifications. The World Bank does not assign questionnaire uses a simple business case to ensure regional classifications to high-income economies. comparability across economies and over time —with For the purpose of the Doing Business report, high- assumptions about the legal form of the business, its income OECD economies are assigned the ―regional‖ size, its location and the nature of its operations. classification OECD high income. Figures and tables Questionnaires are administered through more than presenting regional averages include economies 9,600 local experts, including lawyers, business from all income groups (low, lower middle, upper consultants, accountants, freight forwarders, middle and high income). government officials and other professionals routinely Population administering or advising on legal and regulatory Doing Business 2013 reports midyear 2011 requirements. These experts have several rounds of population statistics as published in World interaction with the Doing Business team, involving Development Indicators 2012. conference calls, written correspondence and visits by the team. For Doing Business 2013 team members visited 24 economies to verify data and recruit The Doing Business methodology offers several respondents. The data from questionnaires are advantages. It is transparent, using factual information subjected to numerous rounds of verification, leading about what laws and regulations say and allowing to revisions or expansions of the information collected. multiple interactions with local respondents to clarify potential misinterpretations of questions. Having 2 The data for paying taxes refer to January – December 2011. Doing Business 2013 Hong Kong SAR, China 109 representative samples of respondents is not an issue; 2013 would differ from the recollection of Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business completed subnational comparisons and benchmarks are valid across studies for Indonesia, Kenya, Mexico, the Russian economies. Finally, the data not only highlight the Federation and the United Arab Emirates. Each of extent of specific regulatory obstacles to business but these countries had already asked to have subnational also identify their source and point to what might be data in the past, and this year Doing Business updated reformed. the indicators, measured improvements over time and Information on the methodology for each Doing expanded geographic coverage to additional cities or Business topic can be found on the Doing Business added additional indicators. Doing Business also website at http://www.doingbusiness.org/methodology/. published regional studies for the Arab world, the East African Community and member states of the Organization for the Harmonization of Business Law in Limits to what is measured Africa (OHADA). The Doing Business methodology has 5 limitations that The subnational studies point to differences in should be considered when interpreting the data. First, business regulation and its implementation —as well as the collected data refer to businesses in the economy’s in the pace of regulatory reform—across cities in the largest business city (which in some economies differs same economy. For several economies subnational from the capital) and may not be representative of studies are now periodically updated to measure regulation in other parts of the economy. To address change over time or to expand geographic coverage this limitation, subnational Doing Business indicators to additional cities. This year that is the case for all the were created (see the section on subnational Doing subnational studies published. Business indicators). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified size — Changes in what is measured and may not be representative of the regulation on The ranking methodology for paying taxes was other businesses, for example, sole proprietorships. updated this year. The threshold for the total tax rate Third, transactions described in a standardized case introduced last year for the purpose of calculating the scenario refer to a specific set of issues and may not ranking on the ease of paying taxes was updated. All represent the full set of issues a business encounters. economies with a total tax rate below the threshold Fourth, the measures of time involve an element of (which is calculated and adjusted on a yearly basis) judgment by the expert respondents. When sources receive the same ranking on the total tax rate indicate different estimates, the time indicators indicator. The threshold is not based on any economic reported in Doing Business represent the median theory of an ―optimal tax rate‖ that minimizes values of several responses given under the distortions or maximizes efficiency in the tax system of assumptions of the standardized case. an economy overall. Instead, it is mainly empirical in Finally, the methodology assumes that a business has nature, set at the lower end of the distribution of tax full information on what is required and does not rates levied on medium-size enterprises in the waste time when completing procedures. In practice, manufacturing sector as observed through the paying completing a procedure may take longer if the taxes indicators. This reduces the bias in the indicators business lacks information or is unable to follow up toward economies that do not need to levy significant promptly. Alternatively, the business may choose to taxes on companies like the Doing Business disregard some burdensome procedures. For both standardized case study company because they raise reasons the time delays reported in Doing Business public revenue in other ways—for example, through Doing Business 2013 Hong Kong SAR, China 110 taxes on foreign companies, through taxes on sectors investors, paying taxes, trading across borders, other than manufacturing or from natural resources enforcing contracts, and resolving insolvency. The (all of which are outside the scope of the employing workers indicators are not included in this methodology). Giving the same ranking to all year’s aggregate ease of doing business ranking. In economies whose total tax rate is below the threshold addition to this year’s ranking, Doing Business presents avoids awarding economies in the scoring for having a comparable ranking for the previous year, adjusted an unusually low total tax rate, often for reasons for any changes in methodology as well as additions of 3 unrelated to government policies toward enterprises. economies or topics. For example, economies that are very small or that are Construction of the ease of doing business index rich in natural resources do not need to levy broad- based taxes. Here is one example of how the ease of doing business index is constructed. In Finland it takes 3 procedures, 14 days and 4% of annual income per capita in fees to Data challenges and revisions register a property. On these 3 indicators Finland ranks in the 6th, 16th and 39th percentiles. So on average Most laws and regulations underlying the Doing Finland ranks in the 20th percentile on the ease of Business data are available on the Doing Business registering property. It ranks in the 30th percentile on website at http://www.doingbusiness.org. All the th starting a business, 28 percentile on getting credit, sample questionnaires and the details underlying the 24th percentile on paying taxes, 13th percentile on indicators are also published on the website. Questions enforcing contracts, 5th percentile on trading across on the methodology and challenges to data can be borders and so on. Higher rankings indicate simpler submitted through the website’s ―Ask a Question‖ regulation and stronger protection of property rights. function at http://www.doingbusiness.org. The simple average of Finland’s percentile rankings on all topics is 21st. When all economies are ordered by Ease of doing business and distance to their average percentile rankings, Finland stands at 11 frontier in the aggregate ranking on the ease of doing business. Doing Business 2013 presents results for 2 aggregate measures: the aggregate ranking on the ease of doing More complex aggregation methods—such as business and the distance to frontier measure. The principal components and unobserved components— ease of doing business ranking compares economies yield a ranking nearly identical to the simple average 4 with one another, while the distance to frontier used by Doing Business. Thus, Doing Business uses measure benchmarks economies to the frontier in the simplest method: weighting all topics equally and, regulatory practice, measuring the absolute distance to the best performance on each indicator. Both measures can be used for comparisons over time. 3 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a When compared across years, the distance to frontier comparable time series since the year the relevant economy or topic measure shows how much the regulatory environment was first included in the data set. The time series is available on the for local entrepreneurs in each economy has changed Doing Business website (http://www.doingbusiness.org). Six topics over time in absolute terms, while the ease of doing and more than 50 economies have been added since the inception business ranking can show only relative change. of the project. Earlier rankings on the ease of doing business are therefore not comparable. Ease of doing business 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to The ease of doing business index ranks economies Do It‖ (World Bank, Washington, DC, 2005). Principal components from 1 to 185. For each economy the ranking is and unobserved components methods yield a ranking nearly calculated as the simple average of the percentile identical to that from the simple average method because both rankings on each of the 10 topics included in the index these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An in Doing Business 2013: starting a business, dealing alternative to the simple average method is to give different weights with construction permits, getting electricity, to the topics, depending on which are considered of more or less registering property, getting credit, protecting importance in the context of a specific economy. Doing Business 2013 Hong Kong SAR, China 111 within each topic, giving equal weight to each of the ability of different government agencies to deliver 5 topic components. tangible results in their area of responsibility. If an economy has no laws or regulations covering a Economies that improved the most across 3 or more specific area—for example, insolvency—it receives a Doing Business topics in 2011/12 ―no practice‖ mark. Similarly, an economy receives a Doing Business 2013 uses a simple method to calculate ―no practice‖ or ―not possible‖ mark if regulation exists which economies improved the most in the ease of but is never used in practice or if a competing doing business. First, it selects the economies that in regulation prohibits such practice. Either way, a ―no 2011/12 implemented regulatory reforms making it practice‖ mark puts the economy at the bottom of the easier to do business in 3 or more of the 10 topics ranking on the relevant indicator. 6 included in this year’s ease of doing business ranking. The ease of doing business index is limited in scope. It Twenty-three economies meet this criterion: Benin, does not account for an economy’s proximity to large Burundi, Costa Rica, the Czech Republic, Georgia, markets, the quality of its infrastructure services (other Greece, Guinea, Kazakhstan, Korea, the Lao People’s than services related to trading across borders and Democratic Republic, Liberia, Mongolia, the getting electricity), the strength of its financial system, Netherlands, Panama, Poland, Portugal, Serbia, the the security of property from theft and looting, Slovak Republic, Slovenia, Sri Lanka, Ukraine, the macroeconomic conditions or the strength of United Arab Emirates and Uzbekistan. Second, Doing underlying institutions. Business ranks these economies on the increase in their ranking on the ease of doing business from the Variability of economies’ rankings across topics previous year using comparable rankings. Each indicator set measures a different aspect of the Selecting the economies that implemented regulatory business regulatory environment. The rankings of an reforms in at least 3 topics and improved the most in economy can vary, sometimes significantly, across the aggregate ranking is intended to highlight indicator sets. The average correlation coefficient economies with ongoing, broad-based reform between the 10 indicator sets included in the programs. aggregate ranking is 0.37, and the coefficients between any 2 sets of indicators range from 0.19 Distance to frontier measure (between dealing with construction permits and A drawback of the ease of doing business ranking is getting credit) to 0.60 (between starting a business that it can measure the regulatory performance of and protecting investors). These correlations suggest economies only relative to the performance of others. that economies rarely score universally well or It does not provide information on how the absolute universally badly on the indicators. quality of the regulatory environment is improving Consider the example of Canada. It stands at 17 in the over time. Nor does it provide information on how aggregate ranking on the ease of doing business. Its large the gaps are between economies at a single ranking is 3 on starting a business, and 4 on both point in time. resolving insolvency and protecting investors. But its The distance to frontier measure is designed to ranking is only 62 on enforcing contracts, 69 on address both shortcomings, complementing the ease dealing with construction permits and 152 on getting of doing business ranking. This measure illustrates the electricity. distance of an economy to the ―frontier,‖ and the Variation in performance across the indicator sets is change in the measure over time shows the extent to not at all unusual. It reflects differences in the degree which the economy has closed this gap. The frontier is of priority that government authorities give to a score derived from the most efficient practice or particular areas of business regulation reform and the highest score achieved on each of the component indicators in 9 Doing Business indicator sets (excluding 5 6 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2013 Hong Kong SAR, China 112 the employing workers and getting electricity The maximum (max) and minimum (min) observed indicators) by any economy since 2005. In starting a values are computed for the 174 economies included business, for example, New Zealand has achieved the in the Doing Business sample since 2005 and for all highest performance on the time (1 day), Canada and years (from 2005 to 2012). The year 2005 was chosen New Zealand on the number of procedures required as the baseline for the economy sample because it was (1), Slovenia on the cost (0% of income per capita) and the first year in which data were available for the Australia and 90 other economies on the paid-in majority of economies (a total of 174) and for all 9 minimum capital requirement (0% of income per indicator sets included in the measure. To mitigate the capita). Calculating the distance to frontier for each effects of extreme outliers in the distributions of the economy involves 2 main steps. First, individual rescaled data (very few economies need 694 days to indicator scores are normalized to a common unit: complete the procedures to start a business, but many th except for the total tax rate. To do so, each of the 28 need 9 days), the maximum (max) is defined as the 95 component indicators y is rescaled to (max − y)/(max percentile of the pooled data for all economies and all − min), with the minimum value (min) representing the years for each indicator. The exceptions are the getting frontier—the highest performance on that indicator credit, protecting investors and resolving insolvency across all economies since 2005. For the total tax rate, indicators, whose construction precludes outliers. consistent with the calculation of the rankings, the Take Ghana, which has a score of 67 on the distance to frontier is defined as the total tax rate corresponding th frontier measure for 2012. This score indicates that the to the 15 percentile based on the overall distribution economy is 33 percentage points away from the of total tax rates for all years. Second, for each frontier constructed from the best performances economy the scores obtained for individual indicators across all economies and all years. Ghana was further are aggregated through simple averaging into one from the frontier in 2005, with a score of 54. The distance to frontier score. An economy’s distance to difference between the scores shows an improvement frontier is indicated on a scale from 0 to 100, where 0 over time. represents the lowest performance and 100 the frontier. The distance to frontier measure can also be used for comparisons across economies in the same year, The difference between an economy’s distance to complementing the ease of doing business ranking. frontier score in 2005 and its score in 2012 illustrates For example, Ghana stands at 64 this year in the ease the extent to which the economy has closed the gap to of doing business ranking, while Peru, which is 29 the frontier over time. And in any given year the score percentage points from the frontier, stands at 43. measures how far an economy is from the highest performance at that time. Doing Business 2013 Hong Kong SAR, China 113 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2013 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 185 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 185 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 9,600 specialists in 185 economies who profiles participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers NEW! Entrepreneurship data underlying Doing Business Data on business density for 130 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and More to come related policy issues Coming soon—information on good practices and http://www.doingbusiness.org/research/ data on transparency and on the distance to frontier Doing Business 2013 Hong Kong SAR, China 114