Doing Business 2017 Croatia Economy Profile 2017 Croatia Doing Business 2017 Croatia 2 © 2017 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 19 18 17 16 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2017 Croatia 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 17 Dealing with conustruction permits ........................................................................................ 25 Getting electricity ....................................................................................................................... 39 Registering property .................................................................................................................. 48 Getting credit .............................................................................................................................. 59 Protecting minority investors ................................................................................................... 65 Paying taxes ................................................................................................................................ 73 Trading across borders .............................................................................................................. 79 Enforcing contracts .................................................................................................................... 86 Resolving insolvency .................................................................................................................. 94 Labor market regulation ......................................................................................................... 103 Distance to frontier and ease of doing business ranking .................................................... 110 Resources on the Doing Business website ............................................................................ 113 Doing Business 2017 Croatia 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is provides data for other selected economies (comparator for a local entrepreneur to open and run a small to economies) for each indicator. The data in this report are medium-size business when complying with relevant current as of June 1, 2016 (except for the paying taxes regulations. It measures and tracks changes in indicators, which cover the period January–December regulations affecting 11 areas in the life cycle of a 2015). business: starting a business, dealing with construction The Doing Business methodology has limitations. Other permits, getting electricity, registering property, getting areas important to business—such as an economy’s credit, protecting minority investors, paying taxes, proximity to large markets, the quality of its trading across borders, enforcing contracts, resolving infrastructure services (other than those related to insolvency and labor market regulation. Doing Business trading across borders and getting electricity), the 2017 presents the data for the labor market regulation security of property from theft and looting, the indicators in an annex. The report does not present transparency of government procurement, rankings of economies on labor market regulation macroeconomic conditions or the underlying strength of indicators or include the topic in the aggregate distance institutions—are not directly studied by Doing Business. to frontier score or ranking on the ease of doing The indicators refer to a specific type of business, business. generally a local limited liability company operating in In a series of annual reports Doing Business presents the largest business city. Because standard assumptions quantitative indicators on business regulations and the are used in the data collection, comparisons and protection of property rights that can be compared benchmarks are valid across economies. The data not across 190 economies, from Afghanistan to Zimbabwe, only highlight the extent of obstacles to doing business; over time. The data set covers 48 economies in Sub- they also help identify the source of those obstacles, Saharan Africa, 32 in Latin America and the Caribbean, 25 supporting policy makers in designing regulatory reform. in East Asia and the Pacific, 25 in Eastern Europe and More information is available in the full report. Doing Central Asia, 20 in the Middle East and North Africa and Business 2017 presents the indicators, analyzes their 8 in South Asia, as well as 32 OECD high-income relationship with economic outcomes and presents economies. The indicators are used to analyze economic business regulatory reforms. The data, along with outcomes and identify what reforms have worked, where information on ordering Doing Business 2017, are and why. available on the Doing Business website at This economy profile presents the Doing Business http://www.doingbusiness.org. indicators for Croatia. To allow useful comparison, it also Doing Business 2017 Croatia 5 CHANGES IN DOING BUSINESS 2017 As part of a three-year update in methodology, Doing having equal evidentiary weight of women’s testimony in Business 2017 expands further by adding postfiling court. processes to the paying taxes indicator, including a Also for the first time this year Doing Business collects gender component in three of the indicators and data on Somalia, bringing the total number of developing a new pilot indicator on selling to the economies covered to 190. government. Also, for the first time this year Doing Business collects data on Somalia, bringing the total For more details on the changes, see the “”Old and new number of economies covered to 190. factors covered in Doing Business” section in the The paying taxes indicator is expanded this year to Overview chapter starting on page 1 of the Doing include postfiling processes – those processes that occur Business 2017 report. For more details on the data and after a firm complies with its regular tax obligations. methodology, please see the “Data Notes” chapter These include tax refunds, tax audits and tax appeals. In starting on page 114 of the Doing Business 2017 report. particular, Doing Business measures the time it takes to For more details on the distance to frontier metric, get a value added tax (VAT) refund, deal with a simple please see the “Distance to frontier and ease of doing mistake on a corporate tax return that can potentially business ranking” chapter in this profile. trigger an audit and good practices with administrative appeals process. This year’s Doing Business report presents a gender dimension in four of the indicator sets: starting a business, registering property, enforcing contracts and labor market regulation. Three of these areas are included in the distance to frontier score and in the ease of doing business ranking, while the fourth —labor market regulation—is not. Doing Business has traditionally assumed that the entrepreneurs or workers discussed in the case studies were men. This was incomplete by not reflecting correctly the Doing Business processes as applied to women—which in some economies may be different from the processes applied to men. Starting this year, Doing Business measures the starting a business process for two case scenarios: one where all entrepreneurs are men and one where all entrepreneurs are women. In economies where the processes are more onerous if the entrepreneur is a woman, Doing Business now counts the extra procedures applied to roughly half of the population that is female (for example, obtaining a husband’s consent or gender-specific requirements for opening a personal bank account when starting a business). Within the registering property indicators, a gender component has been added to the quality of land administration index. This component measures women’s ability to use, own, and transfer property according to the law. Finally, within the enforcing contracts indicator set, economies will be scored on Doing Business 2017 Croatia 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: Europe & Central Asia based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: High income businesses through their life cycle. Economies are ranked from 1 to 190 by the ease of doing business ranking. Population: 4,224,404 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 12,690 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2017 rank: 43 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2016 rank: 39* 0 represents the worst performance and 100 the frontier. Change in rank: -4 (See the chapter on the distance to frontier and ease of doing business). DB 2017 DTF: 72.99 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2016 DTF: 72.78 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 0.21 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2016 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2016 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 114 of the Doing Business 2017 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2017: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in the economy profile. Doing Business 2017 Croatia THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2017 Croatia THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Croatia and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2016 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2017 Croatia 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Croatia (Scale: Rank 190 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Croatia (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2016 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Doing Business 2017 Croatia 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Croatia come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2017 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2017 Croatia 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Croatia Bosnia and Herzegovina Best performer globally Czech Republic DB2017 Germany DB2017 Hungary DB2017 Albania DB2017 Croatia DB2017 Croatia DB2016 Indicator Italy DB2017 DB2017 DB2017 Starting a Business 95 99 46 174 81 114 75 63 1 (New Zealand) (Rank) Starting a Business (DTF 85.56 84.73 91.73 65.09 86.86 83.42 87.28 89.40 99.96 (New Zealand) Score) Procedure – Men 8.0 8.0 5.0 12.0 8.0 9.0 6.0 6.0 1.0 (New Zealand) (number) Time – Men (days) 7.0 12.0 5.0 65.0 9.0 10.5 7.0 6.5 0.5 (New Zealand) Cost – Men (% of 7.3 3.4 10.1 13.5 5.7 1.9 7.1 13.9 0.0 (Slovenia) income per capita) Procedure – Women 8.0 8.0 5.0 12.0 8.0 9.0 6.0 6.0 1.0 (New Zealand) (number) Time – Women (days) 7.0 12.0 5.0 65.0 9.0 10.5 7.0 6.5 0.5 (New Zealand) Cost – Women (% of 7.3 3.4 10.1 13.5 5.7 1.9 7.1 13.9 0.0 (Slovenia) income per capita) Paid-in min. capital (% 25.5 26.6 0.0 13.4 0.0 32.9 45.5 0.0 0.0 (127 Economies*) of income per capita) Dealing with 128 126 106 170 130 12 69 86 1 (New Zealand) Construction Permits Doing Business 2017 Croatia 12 Bosnia and Herzegovina Best performer globally Czech Republic DB2017 Germany DB2017 Hungary DB2017 Albania DB2017 Croatia DB2017 Croatia DB2016 Indicator Italy DB2017 DB2017 DB2017 (Rank) Dealing with Construction Permits 63.41 62.73 67.61 52.54 62.76 81.45 71.70 69.41 87.40 (New Zealand) (DTF Score) Procedures (number) 19.0 19.0 16.0 15.0 21.0 8.0 17.0 10.0 7.0 (4 Economies*) Time (days) 127.0 127.0 220.0 179.0 247.0 96.0 202.0 227.5 28.0 (Korea, Rep.) Cost (% of warehouse 0.1 (Trinidad and 8.3 8.8 3.3 18.5 0.3 1.1 0.2 3.5 value) Tobago) Building quality control 12.0 12.0 13.0 13.0 12.0 9.5 13.0 11.0 15.0 (Luxembourg*) index (0-15) Getting Electricity 68 66 156 123 13 5 121 51 1 (Korea, Rep.) (Rank) Getting Electricity (DTF 76.25 75.66 48.30 60.05 90.32 98.79 60.13 80.70 99.88 (Korea, Rep.) Score) Procedures (number) 5.0 5.0 6.0 8.0 4.0 3.0 5.0 4.0 3.0 (15 Economies*) Time (days) 65.0 70.0 134.0 125.0 68.0 28.0 257.0 124.0 18.0 (Korea, Rep.*) Cost (% of income per 303.2 317.1 515.5 400.2 25.0 40.8 93.9 158.0 0.0 (Japan) capita) Reliability of supply and transparency of tariff 5.0 5.0 0.0 6.0 8.0 8.0 6.0 7.0 8.0 (26 Economies*) index (0-8) Registering Property 62 61 106 99 31 79 28 24 1 (New Zealand) (Rank) Registering Property 69.77 69.77 58.77 61.54 79.68 65.72 80.08 81.69 94.46 (New Zealand) (DTF Score) Procedures (number) 5.0 5.0 6.0 7.0 4.0 6.0 4.0 4.0 1.0 (4 Economies*) Doing Business 2017 Croatia 13 Bosnia and Herzegovina Best performer globally Czech Republic DB2017 Germany DB2017 Hungary DB2017 Albania DB2017 Croatia DB2017 Croatia DB2016 Indicator Italy DB2017 DB2017 DB2017 Time (days) 62.0 62.0 19.0 24.0 28.0 52.0 17.5 16.0 1.0 (3 Economies*) Cost (% of property 5.0 5.0 9.9 5.2 4.0 6.7 5.0 4.4 0.0 (Saudi Arabia) value) Quality of the land administration index (0- 22.5 22.5 15.5 12.5 25.0 22.0 26.0 26.5 29.0 (Singapore) 30) Getting Credit (Rank) 75 70 44 44 32 32 20 101 1 (New Zealand) Getting Credit (DTF 55.00 55.00 65.00 65.00 70.00 70.00 75.00 45.00 100.00 (New Zealand) Score) Strength of legal rights 5.0 5.0 7.0 7.0 7.0 6.0 10.0 2.0 12.0 (3 Economies*) index (0-12) Depth of credit 6.0 6.0 6.0 6.0 7.0 8.0 5.0 7.0 8.0 (30 Economies*) information index (0-8) Credit registry coverage 0.0 0.0 38.9 37.6 6.8 1.9 0.0 29.0 100.0 (3 Economies*) (% of adults) Credit bureau coverage 100.0 100.0 0.0 10.4 79.2 100.0 89.8 100.0 100.0 (23 Economies*) (% of adults) Protecting Minority 27 40 19 81 53 53 81 42 1 (New Zealand*) Investors (Rank) Protecting Minority 66.67 63.33 71.67 55.00 60.00 60.00 55.00 63.33 83.33 (New Zealand*) Investors (DTF Score) Strength of minority investor protection 6.7 6.3 7.2 5.5 6.0 6.0 5.5 6.3 8.3 (New Zealand) index (0-10) Extent of conflict of interest regulation 5.7 5.0 7.7 4.7 5.3 5.0 4.0 6.0 9.3 (New Zealand) index (0-10) Extent of shareholder 7.7 7.7 6.7 6.3 6.7 7.0 7.0 6.7 8.3 (Norway) governance index (0- Doing Business 2017 Croatia 14 Bosnia and Herzegovina Best performer globally Czech Republic DB2017 Germany DB2017 Hungary DB2017 Albania DB2017 Croatia DB2017 Croatia DB2016 Indicator Italy DB2017 DB2017 DB2017 10) 1 (United Arab Paying Taxes (Rank) 49 23 97 133 53 48 77 126 Emirates) Paying Taxes (DTF 99.44 (United Arab 81.74 86.74 70.96 60.08 80.69 82.1 74.46 61.65 Score) Emirates) Payments (number per 3.0 (Hong Kong SAR, 31.0 19.0 34.0 34.0 8.0 9.0 11.0 14.0 year) China*) Time (hours per year) 206.0 206.0 261.0 411.0 234.0 218.0 277.0 240.0 55.0 (Luxembourg) Total tax rate (% of 20.9 20.0 36.5 22.6 50.0 48.9 46.5 62.0 26.1 (32 Economies*) profit) Postfiling index (0-100) 97.9 83.0 47.9 94.3 97.5 75.8 48.4 98.5 (Estonia) Trading across Borders 1 1 24 36 1 38 1 1 1 (10 Economies*) (Rank) Trading across Borders 100.00 (10 100.00 100.00 96.29 91.87 100.00 91.77 100.00 100.00 (DTF Score) Economies*) Time to export: Border 0 0 9 5 0 36 0 0 0 (18 Economies*) compliance (hours) Cost to export: Border 0 0 55 106 0 345 0 0 0 (18 Economies*) compliance (USD) Time to export: Documentary 1 1 6 4 1 1 1 1 1 (25 Economies*) compliance (hours) Cost to export: Documentary 0 0 10 92 0 45 0 0 0 (19 Economies*) compliance (USD) Time to import: Border 0 0 10 6 0 0 0 0 0 (25 Economies*) compliance (hours) Doing Business 2017 Croatia 15 Bosnia and Herzegovina Best performer globally Czech Republic DB2017 Germany DB2017 Hungary DB2017 Albania DB2017 Croatia DB2017 Croatia DB2016 Indicator Italy DB2017 DB2017 DB2017 Cost to import: Border 0 0 77 109 0 0 0 0 0 (28 Economies*) compliance (USD) Time to import: Documentary 1 1 8 8 1 1 1 1 1 (29 Economies*) compliance (hours) Cost to import: Documentary 0 0 10 97 0 0 0 0 0 (30 Economies*) compliance (USD) Enforcing Contracts 7 7 116 64 68 17 8 108 1 (Korea, Rep.) (Rank) Enforcing Contracts 75.87 75.87 53.66 60.60 60.36 73.17 75.79 54.79 84.15 (Korea, Rep.) (DTF Score) Time (days) 572.0 572.0 525.0 595.0 611.0 499.0 395.0 1120.0 164.0 (Singapore) Cost (% of claim) 16.7 16.7 34.9 36.0 33.0 14.4 15.0 23.1 9.0 (Iceland) Quality of judicial 15.0 15.0 6.0 11.0 10.5 12.0 12.0 13.0 15.5 (Australia) processes index (0-18) Resolving Insolvency 54 57 43 41 26 3 63 25 1 (Finland) (Rank) Resolving Insolvency 55.62 53.92 64.96 66.93 76.42 92.28 51.25 76.59 93.89 (Finland) (DTF Score) Recovery rate (cents on 33.7 30.5 42.3 37.3 66.5 84.4 43.0 63.9 92.9 (Norway) the dollar) Time (years) 3.1 3.1 2.0 3.3 2.1 1.2 2.0 1.8 0.4 (22 Economies*) Cost (% of estate) 14.5 14.5 10.0 9.0 17.0 8.0 14.5 22.0 1.0 (22 Economies*) Strength of insolvency 12.0 12.0 13.5 15.0 13.0 15.0 9.0 13.5 15.0 (6 Economies*) framework index (0-16) Source: Doing Business database. Note: DB2016 rankings shown are not last year’s published rankings but comparable rankings for DB2016 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest Doing Business 2017 Croatia 16 time recorded among all economies in the DB2017 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Doing Business 2017 Croatia 17 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Obtaining approval from spouse to start a generating more revenue for the government. business, to leave the home to register the company or open a bank account. What do the indicators cover? Obtaining any gender specific document for Doing Business records all procedures officially company registration and operation, national required, or commonly done in practice, for an identification card or opening a bank entrepreneur to start up and formally operate an account. industrial or commercial business, as well as the time and cost to complete these procedures and the paid- Time required to complete each procedure in minimum capital requirement. These procedures (calendar days) include obtaining all necessary licenses and permits Does not include time spent gathering and completing any required notifications, information verifications or inscriptions for the company and employees with relevant authorities. The ranking of Each procedure starts on a separate day (2 economies on the ease of starting a business is procedures cannot start on the same day). determined by sorting their distance to frontier Procedures that can be fully completed scores for starting a business. These scores are the online are recorded as ½ day. simple average of the distance to frontier scores for Procedure completed once final document is each of the component indicators. received To make the data comparable across economies, No prior contact with officials several assumptions about the business and the procedures are used. It is assumed that any required Cost required to complete each procedure information is readily available and that the (% of income per capita) entrepreneur will pay no bribes. Assumptions about Official costs only, no bribes the business: No professional fees unless services required  Is a limited liability company (or its legal by law or commonly used in practice equivalent). If there is more than one type of limited liability company in the economy, the Paid-in minimum capital (% of income limited liability form most common among per capita) domestic firms is chosen. Information on the Deposited in a bank or with a notary before most common form is obtained from registration (or within 3 months) incorporation lawyers or the statistical office.  Operates in the economy’s largest business city.  The size of the entire office space is For 11 economies the data are also collected for the second largest business city. approximately 929 square meters (10,000 square feet). Doing Business 2017 Croatia 18  Is 100% domestically owned and has five owners,  Does not qualify for investment incentives or none of whom is a legal entity. any special benefits.  Has start-up capital of 10 times income per  Has at least 10 and up to 50 employees one capita month after the commencement of operations, all of them domestic nationals.  Performs general industrial or commercial activities, such as the production or sale to the  Has a turnover of at least 100 times income per public of products or services. The business does capita. not perform foreign trade activities and does not  Has a company deed 10 pages long handle products subject to a special tax regime, for example, liquor or tobacco. It is not using The owners: heavily polluting production processes.  Have reached the legal age of majority and are  Leases the commercial plant or offices and is not capable of making decisions as an adult. If a proprietor of real estate. there is no legal age of majority, they are assumed to be 30 years old.  The amount of the annual lease for the office space is equivalent to 1 times income per capita.  Are sane, competent, in good health and have no criminal record.  Are married, the marriage is monogamous and registered with the authorities.  Where the answer differs according to the legal system applicable to the woman or man in question (as may be the case in economies where there is legal plurality), the answer used will be the one that applies to the majority of the population. Doing Business 2017 Croatia 19 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Croatia? legally mandatory for both men and women. Most According to data collected by Doing Business, starting a indicator sets refer to a case scenario in the largest business there requires 8.0 procedures , takes 7.0 days, business city of an economy, except for 11 economies for costs 7.3% of income per capita for men, and requires which the data are a population-weighted average of the 8.0 procedures , takes 7.0 days, costs 7.3% of income per 2 largest business cities. See the chapter on distance to capita for women. A requirement of paid-in minimum frontier and ease of doing business ranking at the end of capital of 25.5% of income per capita (figure 2.1) is this profile for more details. Figure 2.1 What it takes to start a business in Croatia Paid-in minimum capital (% of income per capita): 25.5 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Procedures in light blue for married women only. Doing Business 2017 Croatia 20 STARTING A BUSINESS Globally, Croatia stands at 95 in the ranking of 190 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Croatia to The rankings for comparator economies and the regional start a business. Figure 2.2 How Croatia and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2017 Croatia 21 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Croatia (table 2.1)? Table 2.1 How has Croatia made starting a business easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Croatia eased business start-up by allowing limited liability DB2011 companies to file their registration application with the court registries electronically through the notary public. Croatia made starting a business easier by introducing a new DB2014 form of limited liability company with a lower minimum capital requirement and simplified incorporation procedures. Croatia made starting a business easier by reducing notary DB2015 fees. Croatia made starting a business more difficult by increasing DB2017 notary fees. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Croatia 22 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Croatia is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Limited Liability Company, D.O.O. firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid-in minimum capital requirement: HRK the study of laws, regulations and publicly available 20,000 information on business entry in that economy. City: Zagreb Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Croatia Time to No. Procedure Cost to complete complete Check the availability of the company's name Checking company name availability is free and can be done online. If there is no desired name available, then clients can go through process of company name reservation. The Court Registry will check the company name reservation application within three days, and if it meets all legal criteria, will proceed with the reservation. The court fee for reservation of the company's name is 10 HRK. Less than one day 1 no charge (online procedure) The reserved company name is visible on the sudreg.pravosudje.hr website and valid for 30 days. If the reserved company name is not used for company registration within 30 days, it is deleted from the registry. Agency: Commercial Court The notary prepares the memorandum of association The Public Notary prepares the documentation, which is then signed by the business founders and notarized. included in 2 1 day procedure 3 Agency: Public Notary Doing Business 2017 Croatia 23 Time to No. Procedure Cost to complete complete Register the company with the Commercial Court It typically takes 24 hours to register company with the Commercial court electronically. Revised fees in 2015 by Chamber of Notaries are as follows: HRK 3400 + VAT + HRK 800 notary fee (drafting and notarizing the articles of association), HRK 700 + VAT + HRK 10 notary fee, per director (drafting application for registration) HRK 100 + 25% VAT + HRK 15 notary fee (drafting the statement of see procedure 3 acceptance of appointment) 1 day details HRK 30 + 25% VAT + HRK 10 notary fee (notarizing founders’ statements of non-existence of debts, only the certification of signature is necessary) HRK 30 + 25% VAT + HKR 10 notary fee (notarizing director signature specimen) HRK 400 (court fees) Agency: Commercial Court Order official seal Official seals are readily available throughout Croatia at special seal- making shops. A copy of the court decision on registration of incorporation should be presented in order to have the seal made. The seal should be used on all official documents (including invoices, receipts and so on) issued by the company. Seals can also be ordered 1 day HRK 169 4 through FINA offices (on 24 locations as well as where are HITRO.HR offices). If done through FINA, the entrepreneur can at the same time also apply for statistical registration. Agency: Seal maker Apply for statistical registration number Applying for a statistical file number can be done at the Croatian Bureau of Statistics or through the One Stop Shop service, used by HITRO.HR officers. 1 day HRK 55 5 Agency: State Statistical Department Open a bank account Documents required to open a company bank account are: 1 day no charge 6 1. Ruling on registration of a Company, 2. Statistical registration number of a Company, 3. Personal identification number (OIB) of a Company Doing Business 2017 Croatia 24 Time to No. Procedure Cost to complete complete In case of Ltd. Company establishment client signs: the Contract, signature cards, a statement of the beneficial owner and the related parties, and must provide a copy of personal data, extract from the Court Register and Information on classification of the business entity pursuant to the National Classification of Activities. Agency: Bank Register for VAT and employee income tax withdrawals Upon registering with the Commercial Court Register and fulfilling its obligations with the State Bureau of Statistics, the company must register with the competent tax authority. Once a company is registered at the State Bureau of Statistics, company data is sent electronically to the tax authority, which levies the annual company tax. The company must register for VAT at the Tax Office, however, only after its first invoice (within 15 days of issuance). Once the company is registered for VAT, all tax payments can be processed through an electronic system, e-VAT. If the company’s total taxable annual income exceeds HRK 1 day 230,000, it must register itself as an entity in the VAT system with the (simultaneous with *7 no charge competent tax authority, based on the company's registered seat. previous Starting from January 01, 2009 a revision of the existing Croatian Law procedure) on Companies came into force (published in the Official Gazette no. 146/2008). The change involves inducing "OIB" (personal identification number), that replaces tax number for legal entities. Personal identification number is defined as identification mark of personal identification number that users of that number use in their official evidences and with change of dates. Agency: Tax Authority (Porezna Uprava) Register with the Croatian Institute for Pension Insurance (HZMO) and Croatian Institute for Health Insurance (HZZO) The Company must register with the Croatian Institute for Pension Insurance within 24 hours from the start of its business operation. The Company must also register each of its employees with the Croatian Institute for Pension Insurance within 24 hours. Company with 3 or more employees will be obligated from 1 April 2014 to Less than one day register/deregister employees at Croatian Institute for Pension (online procedure, *8 Insurance exclusively online. simultaneous with no charge Currently the procedure may be completed before the competent previous HZZO office. The following documents should be submitted: procedure) • Decision about the registration into the Court Registry. • Notice of classification from the National Institute for Statistics Application (to the Croatian Health Insurance Fund). • Proof of place of residence and the work contract. All persons employed for the first time and age 40 are obliged to register in the second pillar of retirement insurance. A person has to Doing Business 2017 Croatia 25 Time to No. Procedure Cost to complete complete choose the obligatory pension fund within 3 months of the date of employment. If the fund is not chosen after that period, REGOS (the Central Register of the Insured) itself chooses the obligatory pension fund that the person will register in. All persons employed for the first time and between ages 40 and 50 can, if they desire, register with the second pillar of retirement insurance. A person has to choose the obligatory pension fund within 6 months of the date of employment. Agency: Croatian Institute for Pension Insurance (HZMO) and Croatian Institute for Health Insurance (HZZO) * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Procedures in light blue for married women only. Doing Business 2017 Croatia 26 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, the building quality completion control index evaluates the quality of building Time required to complete each procedure regulations, the strength of quality control and safety (calendar days) mechanisms, liability and insurance regimes, and professional certification requirements. Does not include time spent gathering information The ranking of economies on the ease of dealing with construction permits is determined by sorting their Each procedure starts on a separate day— though procedures that can be fully distance to frontier scores for dealing with completed online are an exception to this rule construction permits. These scores are the simple average of the distance to frontier scores for each of Procedure considered completed once final the component indicators. document is received To make the data comparable across economies, No prior contact with officials several assumptions about the construction Cost required to complete each procedure (% company, the warehouse project and the utility of warehouse value) connections are used. Official costs only, no bribes Assumptions about the construction company Building quality control index (0-15) The construction company (BuildCo): Sum of the scores of six component indices:  Is a limited liability company (or its legal Quality of building regulations (0-2) equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business city. For 11 economies the data are also collected for Quality control during construction (0-3) the second largest business city. Quality control after construction (0-3)  Is 100% domestically and privately owned. Liability and insurance regimes (0-2)  Has five owners, none of whom is a legal entity. Professional certifications (0-4)  Is fully licensed and insured to carry out construction projects, such as building warehouses.  Has 60 builders and other employees, all of them nationals with the technical expertise and Doing Business 2017 Croatia 27 professional experience necessary to obtain  Is valued at 50 times income per capita. construction permits and approvals.  Will be a new construction (there was no previous  Has a licensed architect and a licensed engineer, construction on the land), with no trees, natural both registered with the local association of water sources, natural reserves or historical architects or engineers. BuildCo is not assumed monuments of any kind on the plot. to have any other employees who are technical  Will have complete architectural and technical plans or licensed experts, such as geological or prepared by a licensed architect. If preparation of topographical experts. the plans requires such steps as obtaining further  Has paid all taxes and taken out all necessary documentation or getting prior approvals from insurance applicable to its general business external agencies, these are counted as procedures. activity (for example, accidental insurance for  Will include all technical equipment required to be construction workers and third-person liability). fully operational.  Owns the land on which the warehouse will be  Will take 30 weeks to construct (excluding all delays built and will sell the warehouse upon its due to administrative and regulatory requirements). completion. Assumptions about the warehouse Assumptions about the utility connections The warehouse: The water and sewerage connections:  Will be used for general storage activities, such as storage of books or stationery. The warehouse  Will be 150 meters (492 feet) from the existing will not be used for any goods requiring special water source and sewer tap. If there is no water conditions, such as food, chemicals or delivery infrastructure in the economy, a borehole pharmaceuticals. will be dug. If there is no sewerage infrastructure, a septic tank in the smallest size available will be  Will have two stories, both above ground, with a installed or built. total constructed area of approximately 1,300.6 square meters (14,000 square feet). Each floor  Will not require water for fire protection reasons; a will be 3 meters (9 feet, 10 inches) high. fire extinguishing system (dry system) will be used instead. If a wet fire protection system is required  Will have road access and be located in the by law, it is assumed that the water demand periurban area of the economy’s largest business specified below also covers the water needed for city (that is, on the fringes of the city but still fire protection. within its official limits). For 11 economies the data are also collected for the second largest  Will have an average water use of 662 liters (175 business city. gallons) a day and an average wastewater flow of 568 liters (150 gallons) a day. Will have a peak  Will not be located in a special economic or water use of 1,325 liters (350 gallons) a day and a industrial zone. peak wastewater flow of 1,136 liters (300 gallons) a  Will be located on a land plot of approximately day. 929 square meters (10,000 square feet) that is  Will have a constant level of water demand and 100% owned by BuildCo and is accurately wastewater flow throughout the year. registered in the cadastre and land registry.  Will be 1 inch in diameter for the water connection and 4 inches in diameter for the sewerage connection. Doing Business 2017 Croatia 28 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build an economy, except for 11 economies for which the data a warehouse in Croatia? According to data collected by are a population-weighted average of the 2 largest Doing Business, dealing with construction permits there business cities. See the chapter on distance to frontier requires 19.0 procedures, takes 127.0 days and costs and ease of doing business ranking at the end of this 8.3% of the warehouse value (figure 3.1). Most indicator profile for more details. sets refer to a case scenario in the largest business city of Figure 3.1 What it takes to comply with formalities to build a warehouse in Croatia Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. . Doing Business 2017 Croatia 29 DEALING WITH CONSTRUCTION PERMITS Globally, Croatia stands at 128 in the ranking of 190 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Croatia to legally build a warehouse. Figure 3.2 How Croatia and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2017 Croatia 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Croatia (table 3.1)? Table 3.1 How has Croatia made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Croatia replaced the location permit and project design DB2011 confirmation with a single certificate, simplifying and speeding up the construction permitting process. Croatia made dealing with construction permits easier by DB2015 reducing the requirements and fees for building permits and carrying out the final building inspection more promptly. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Croatia 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Croatia are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction HRK 3,928,194 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Zagreb service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Croatia Time to No. Procedure Cost to complete complete Receive clearance from the waste collection department There is a clearance to ensure that the building has been constructed in accordance with the conditions that were outlined 1 for the building. 30 days no charge Agency: Waste Collection Department Receive clearance from the National Croatian Electric Grid BuildCo must obtain preliminary approvals from various authorities. Such approvals are issued based on the preliminary project design drawings and other documents. They must be obtained prior to applying for the building permit; however these applications can be filed simultaneously. While the new Building Act of 2014 stipulates that silence is consent from agencies after 15 days, in practice, contractors 1 day no charge *2 would need to follow up with agencies if there has been no response. While agencies have improved their response time, usually to less than 15 days, most of the time further adjustments and corrections are required, leading to a longer time for obtaining approvals. Agency: National Croatian Electric Grid Receive clearance from the Sanitary Inspectorate There is a clearance to ensure that the building has been 24 days HRK 70 *3 constructed in accordance with the conditions that were outlined for the building. Doing Business 2017 Croatia 32 Time to No. Procedure Cost to complete complete Agency: Sanitary Inspectorate Receive clearance from the Local Water Authority BuildCo must obtain preliminary approvals from various authorities. Such approvals are issued based on the preliminary project design drawings and other documents. They must be obtained prior to applying for the building permit; however these applications can be filed simultaneously. While the new Building Act of 2014 stipulates that silence is *4 consent from agencies after 15 days, in practice, contractors 14 days no charge would need to follow up with agencies if there has been no response. While agencies have improved their response time, usually to less than 15 days, most of the time further adjustments and corrections are required, leading to a longer time for obtaining approvals. Agency: Vodopskrba i odvodnja d.o.o. Receive clearance from the Inspectorate for Fire at the Ministry of Interior Affairs There is a clearance to ensure that the building has been constructed in accordance with the conditions that were outlined *5 for the building. 3 days no charge Agency: Inspectorate for Fire at the Ministry of Interior Affairs Obtain excerpt from the Land Registry for subject and bordering lands According to the new building code, The Building Act, which was passed December 6, 2013, the warehouse would no longer require a location permit. However, the excerpt from the Land Registry would still be required for the building permit application as evidence of the legal interest to build. Land Registry Department of the Municipal Court in Zagreb has *6 transferred a significant portion of Land Registry data into 1 day HRK 20 electronic form, as a result, excerpts can be obtained immediately upon request or in a shorter term. Also, as the backlog of cases has reduced due to increased number of staff and other reform efforts, general improvements in the efficiency of the Land Registry Department in Zagreb can be noted. The procedure takes now on average 1 day. Preliminary information is available online for applicants to review. While the documents are currently available for viewing online, they are not accepted as official documentation at this Doing Business 2017 Croatia 33 Time to No. Procedure Cost to complete complete time. If the investor in the construction is not the owner of the land, according to The Building Act of 2013, there are other newly acceptable ways to prove legal interest, including contracts and written approval from the owner. Agency: Land Registry Obtain the list of land owners adjacent to the future construction site The geodetic study needs to contain a list of the people/legal entities that own the plots of land where the building is going to be built (i.e. a list of neighbors). This is required so that the *7 proper individuals are notified of the future construction site. 1 day HRK 70 Agency: County Office (Cadastre and Geodetic Activities) Obtain authentication of the online cadastral map by the Cadaster The geodetic study needs to contain a list of the people/legal entities that own the plots of land where the building is going to *8 be built (i.e. a list of neighbors). This is required so that the 1 day HRK 110 proper individuals are notified of the future construction site. Agency: County Office (Cadastre and Geodetic Activities) Obtain decision from the Municipal Authority regarding utilities BuildCo must obtain a decision from the Municipal Authority on utility fees, based on the construction permit. The amount of the fee depends on the building size (in cubic meters) and on the location. Zagreb is divided into four zones for the purposes of communal fee calculations. The communal fee is set from HRK 56 to HRK 118 per cubic meter of a building, depending on the zone. The Doing Business case study warehouse would be located in Zagreb zone III, with the communal fee set at HRK 75 22 days HRK 292,613 9 per cubic meter. The fee can be paid in full or in installments. According to Regulation on Procedure of Determining Volume of Buildings for Communal Fee Calculation currently in force, the volume of the buliding is used, and as for the warehouse used in the Doing Buisness case study, the volume of the warehouse is 3901.5 cubic meters. Therefore the cost is 3901.5 * HRK 75. Agency: Municipal Authority Doing Business 2017 Croatia 34 Time to No. Procedure Cost to complete complete Pay water contribution to the state company Croatian Waters (Hrvatske Vode) The water contribution is paid to finance the management of water resources and protection from floods. The cost is determined based on the following: (i) The zone the new construction is in. Zone A is Zagreb and the protected coastal area, Zone B is the rest of the country, and Zone C are areas subject to special Government care. * 10 (ii) The purpose of the construction (residential, industrial, public 15 days HRK 19,156 interest) (iii) The volume of the construction. The cost for the case study warehouse is 3901.5 * HRK 4.91 according to the fee schedule of Hrvatske Vode (www.voda.hr). Agency: Hrvatske Vode Hire an external supervising engineer to conduct inspections during construction A private engineer is hired to conduct inspections during construction per Art. 50 & 56 of the Construction Law NN 153/ 13 , BuildCO must hire an external engineer to supervise the * 11 construction work. 1 day no charge There is a cost to be paid for the hiring. Agency: Private Firm Request and receive building permit 12 30 days HRK 1,052 Agency: Municipal Authority Submit commencement notice The investor must notify the building control authority eight days before the commencement of construction. In the notification the builder must include: • Building classification • Register number • Date of issue of the building permit • List the contractor and supervising engineer • Evidence that the building plot was formed in the cadastre if the building is subject to 13 specification of the building plot The building control authority 1 day HRK 20 will then, within five days of receipt of the notification of commencement, notify the Ministry of Interior, building inspection, labor inspection, administrative body of the local self- government unit competent for determining utility charges and body competent for determining water charges, while the building inspection shall also be notified whether the notification is complete. Doing Business 2017 Croatia 35 Time to No. Procedure Cost to complete complete Agency: Municipality of City of Zagreb Receive clearance from labor inspectorate regarding noise protection and work safety There is a clearance to ensure that the building has been constructed in accordance with conditions for safe labor 1 day no charge * 14 practices. Agency: Labor Inspectorate Receive random inspection from the Municipality Inspections are random and may occur on multiple occasions throughout the construction process. 1 day no charge * 15 Agency: Municipality of City of Zagreb Obtain water and sewage connection 16 20 days HRK 8,000 Agency: Water & Sewage Authority Apply for occupancy (use) permit The occupancy permit is mandatory for the use of a completed building. The following documents must be submitted: • Photocopy of the building permit or a copy of the main design for construction work • Information on the participants in the construction (investor, designer, performer of construction works, supervisory engineer) • Written statement of the contractor on works completed and the requirements for the maintenance of the construction • Final report of the supervisory engineer • Statement of the geodetic engineer that the construction work * 17 was built in accordance with the surveying design 1 day HRK 20 • Surveying study for entering the construction work in the cadastre or for change of information on buildings and other construction works, if the construction work is not subject to developing the surveying design, but is to be entered in the cadastre • Statement of the authorized geodetic engineer that the construction work is located on the building plot • Energy certificate of the building, if applicable The Municipality forms an evaluation committee within 30 days after the submission of the application for the issuance of the Doing Business 2017 Croatia 36 Time to No. Procedure Cost to complete complete occupancy permit, and determines the date of the on-site inspection. The investor submits various documents which substantiate that the construction has been conducted in accordance with the regulations (e.g., construction diary, licenses of the construction firm which executed the works, technical certificates for the material used in the construction, etc.) to the evaluation committee not later than on the day after the site inspection. If any of the members of the evaluation committee find that the building does not comply with a specific requirement, the investor may be given an additional 90 days to make the necessary corrections (if the error is, in fact, able to be corrected). If all requirements have been met, the Municipality should issue the occupancy permit within 30 days after the inspection. Agency: Municipality of City of Zagreb Receive final inspection Within 15 to 30 days after receiving a request for the occupancy permit, a technical review team from the municipality must conduct the final inspection. In practice this happens in about a 1 day HRK 2,040 18 week Agency: Municipality of City of Zagreb Receive occupancy (use) permit After the on-site inspection, the municipality has up to 30 days to issue the occupancy certificate. 21 days HRK 1,052 19 Agency: Municipality of City of Zagreb * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2017 Croatia 37 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Table 3.3 Summary of quality control and safety mechanisms in Croatia Answer Score Building quality control index (0-15) 12.0 Which third-party entities are required by law to verify that the Civil servant reviews building plans are in compliance with existing building plans. regulations? (0-1) Quality of building regulations index (0-2) 2.0 How accessible are building laws and regulations in your Available online; Free of 1.0 economy? (0-1) charge. List of required Which requirements for obtaining a building permit are clearly documents; Fees to be specified in the building regulations or on any accessible website, 1.0 paid; Required brochure or pamphlet? (0-1) preapprovals. Quality control before construction index (0-1) 0.0 Which third-party entities are required by law to verify that the Civil servant reviews building plans are in compliance with existing building 0.0 plans. regulations? (0-1) Quality control during construction index (0-3) 2.0 Inspections by external engineer or firm; No What types of inspections (if any) are required by law to be inspections are legally 1.0 carried out during construction? (0-2) required during construction. Mandatory inspections Do legally mandated inspections occur in practice during are always done in 1.0 construction? (0-1) practice. Quality control after construction index (0-3) 3.0 Is there a final inspection required by law to verify that the Yes, final inspection is building was built in accordance with the approved plans and done by government 2.0 regulations? (0-2) agency. Final inspection always Do legally mandated final inspections occur in practice? (0-1) 1.0 occurs in practice. Liability and insurance regimes index (0-2) 1.0 Which parties (if any) are held liable by law for structural flaws or Architect or engineer; 1.0 problems in the building once it is in use (Latent Defect Liability Professional in charge Doing Business 2017 Croatia 38 Answer Score or Decennial Liability)? (0-1) of the supervision; Construction company. Which parties (if any) are required by law to obtain an insurance No party is required by policy to cover possible structural flaws or problems in the law to obtain insurance 0.0 building once it is in use (Latent Defect Liability Insurance or . Decennial Insurance)? (0-1) Professional certifications index (0-4) 4.0 Minimum number of years of experience; What are the qualification requirements for the professional University degree in responsible for verifying that the architectural plans or drawings architecture or 2.0 are in compliance with existing building regulations? (0-2) engineering; Being a registered architect or engineer. Minimum number of years of experience; University degree in engineering, What are the qualification requirements for the professional who construction or 2.0 supervises the construction on the ground? (0-2) construction management; Being a registered architect or engineer. Source: Doing Business database. Doing Business 2017 Croatia 39 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity connection a customer is always to gain access by obtaining a (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, Obtaining external installation works and as well as the time and cost to complete them. These possibly purchasing material for these works procedures include applications and contracts with Concluding any necessary supply contract and electricity utilities, clearances from other agencies obtaining final supply and the external and final connection works. In addition, Doing Business also measures the reliability Time required to complete each procedure of supply and transparency of tariffs index (included (calendar days) in the aggregate distance to frontier score and Is at least 1 calendar day ranking on the ease of doing business) and the price Each procedure starts on a separate day of electricity (omitted from these aggregate measures). The ranking of economies on the ease of Does not include time spent gathering getting electricity is determined by sorting their information distance to frontier scores for getting electricity. Reflects the time spent in practice, with little These scores are the simple average of the distance follow-up and no prior contact with officials to frontier scores for each of the component Cost required to complete each procedure (% indicators. To make the data comparable across of income per capita) economies, several assumptions are used. Official costs only, no bribes Assumptions about the warehouse Excludes value added tax The warehouse: The reliability of supply and transparency of  Is owned by a local entrepreneur. tariffs index  Is located in the economy’s largest business city. Sum of the scores of six component indices: For 11 economies the data are also collected for Duration and frequency of outages the second largest business city. Tools to monitor power outages  Is located in an area where similar warehouses Tools to restore power supply are typically located. In this area a new electricity connection is not eligible for a special investment Regulatory monitoring of utilities’ performance promotion regime (offering special subsidization Financial deterrents aimed at limiting outages or faster service, for example). Transparency and accessibility of tariffs  Is located in an area with no physical constraints. Price of electricity (cents per kilowatt-hour)* For example, the property is not near a railway. Price based on monthly bill for commercial  Is a new construction and is being connected to warehouse in case study electricity for the first time. *Price of electricity is not included in the calculation of distance to frontier nor ease of doing business ranking Doing Business 2017 Croatia 40 The warehouse (continued): Assumptions about the monthly consumption  Has two stories, both above ground, with a total  It is assumed that the warehouse operates 30 days surface area of approximately 1,300.6 square a month from 9:00 a.m. to 5:00 p.m. (8 hours a day), meters (14,000 square feet). The plot of land on with equipment utilized at 80% of capacity on which it is built is 929 square meters (10,000 average and that there are no electricity cuts square feet). (assumed for simplicity reasons).  Is used for storage of goods.  The monthly energy consumption is 26,880 kilowatt-hours (kWh); hourly consumption is 112 Assumptions about the electricity connection kWh. The electricity connection:  If multiple electricity suppliers exist, the warehouse  Is a permanent one. is served by the cheapest supplier.  Is a three-phase, four-wire Y connection with a  Tariffs effective in March of the current year are subscribed capacity of 140-kilo-volt-ampere used for calculation of the price of electricity for the (kVA) with a power factor of 1, when 1 kVA = 1 warehouse. Although March has 31 days, for kilowatt (kW). calculation purposes only 30 days are used.  Has a length of 150 meters. The connection is to either the low- or medium-voltage distribution network and is either overhead or underground, whichever is more common in the area where the warehouse is located  Requires works that involve the crossing of a 10- meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Does not require work to install the internal wiring of the warehouse. This has already been completed up to and including the customer’s service panel or switchboard and the meter base. Doing Business 2017 Croatia 41 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Croatia? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 5.0 procedures, which the data are a population-weighted average of the takes 65.0 days and costs 303.2% of income per capita 2 largest business cities. See the chapter on distance to (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Croatia Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Croatia 42 GETTING ELECTRICITY Globally, Croatia stands at 68 in the ranking of 190 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Croatia to connect a The rankings for comparator economies and the regional warehouse to electricity. Figure 4.2 How Croatia and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2017 Croatia 43 GETTING ELECTRICITY What are the details? The indicators reported here for Croatia are based on a OBTAINING AN ELECTRICITY CONNECTION* set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility: HEP ODS identified by Doing Business. Data are collected from the distribution utility, then completed and verified by Price of electricity electricity regulatory agencies and independent (US cents per kWh): 16.2 professionals such as electrical engineers, electrical contractors and construction companies. The electricity City: Zagreb distribution utility surveyed is the one serving the area (or areas) in which warehouses are located. If there is a *Price is calculated as a monthly consumption of 26,880 kWh choice of distribution utilities, the one serving the largest for business customers, based on a standardized case study number of customers is selected. adopted by the getting electricity methodology. Doing Business measures the price of electricity but does not include these The procedures are those that apply to a warehouse and data when calculating the distance to frontier score for getting electricity connection matching the standard electricity or the ranking on the ease of getting electricity. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Croatia Time to No. Procedure Cost to complete complete Submit application and receive preliminary connection approval and contract An application cannot be submitted online. The application can be submitted with HEP ODS in the office. Required documents and the “Request for the issuance of energy consent and connection” are to be submitted in accordance with the General Conditions of Electricity Supply (Official Gazette, No. 14/06) Article 7. These documents do not need notarization. An external site inspection is necessary to prepare an 1 estimate for the connection fees. The customer's party does not have to 25 calendar days HRK 0 be present, unless inevitable, to carry out the inspection. The customer receives preliminary approval of the connection and technical specifications of the connection which are required to obtain a building permit of the warehouse. Agency: HEP Distribution System Operator (HEP ODS) Doing Business 2017 Croatia 44 Time to No. Procedure Cost to complete complete Accept estimate and await completion of external works by utility Upon the receipt of the application for the preliminary connection approval/the connection, the contract will be sent to the customer with details of the connection condition and charges. The terms of the connection contract (the estimate) are accepted by signing the contract and returning it to HEP DSO with the payment plus any other documentation specified in the preliminary connection approval. The work will start in accordance with the preliminary connection approval/the connection contract upon receipt of the signed connection contract and payment. HEP DSO designs the process and draws up the required investment technical documentation. External connection works 30 calendar days HRK 238,000 2 include supply and installation of a connection cubicle, a meter, a tariff switch unit or a time switch and a limiter switch or some other demand controller. The meter is installed in parallel with the connection process carried out by the Maintenance Department. Connection to the electric power network is possible after the customer concluded a supply contract with a chosen supplier and a use of network contract with HEP DSO. The utility will not do the final connection (flow of electricity) if the customer does not have a supply contract yet. Agency: HEP ODS Conclude supply agreement After the preliminary connection approval has been issued to the customer and before the final connection, the customer should conclude a supply and use of network contract. When providing a quotation it is practice to advise the customer that he needs to nominate a supplier before the connection can be made and preferably before accepting the 5 calendar days HRK 0 *3 quotation. It is advisable that the customer appoints and signs a contract with an electricity supplier at least 20 days before the date the customer wants electricity to flow. Agency: Electricity retailer Submit internal wiring certificate to utility and request final connection After external and internal connection work has been completed, the customer visits HEP ODS office to arrange a time and method for energizing the connection. The customer has to submit the application 4 for the issuance of the connection approval and for connection. The 5 calendar days HRK 184.43 application form can be found on the website. Information required in this form and in the procedure for the issuance of the connection approval and for connection is the building permit number, category of consumer, the building permit, confirmation from the contractor (Electrical Completion Certificate) that the customer or a producer’s electric facilities and installations have been built and tested in accord Doing Business 2017 Croatia 45 Time to No. Procedure Cost to complete complete with the preliminary connection approval, design documentation and technical regulations and standards, with an explicit statement of the contractor that the said facilities and installations may be connected to the network and the required test of quality. At the request of the application for issuance of connection approval and for connection, HEP ODS issues and the customer obtains the connection approval. Agency: HEP ODS Receive visit by utility to open the meter An authorized person from HEP ODS will come to open the meter and electricity starts flowing. Before electricity starts flowing, the customer 5 should provide all the forms related to the connection. 5 calendar days HRK 0 Agency: HEP ODS * Takes place simultaneously with previous procedure. Source: Doing Business database. Doing Business 2017 Croatia 46 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in Croatia Answer Score Reliability of supply and transparency of tariff index (0-8) 5.0 Total duration and frequency of outages per customer a year (0-3) 1.0 System average interruption duration index (SAIDI) 5.04 System average interruption frequency index (SAIFI) 1.66 Mechanisms for monitoring outages (0-1) 1.0 Does the distribution utility use automated tools to monitor outages? Yes Mechanisms for restoring service (0-1) 1.0 Does the distribution utility use automated tools to restore service? Yes Regulatory monitoring (0-1) 1.0 Does a regulator—that is, an entity separate from the utility—monitor Yes the utility’s performance on reliability of supply? Financial deterrents aimed at limiting outages (0-1) 0.0 Does the utility either pay compensation to customers or face fines by No the regulator (or both) if outages exceed a certain cap? Communication of tariffs and tariff changes (0-1) 1.0 Are effective tariffs available online? Yes Link to the website, if available online http://www.hep.h Doing Business 2017 Croatia 47 Answer Score r/ods/kupci/podu zetnistvo.aspx Are customers notified of a change in tariff ahead of the billing cycle? Yes Price of electricity (US cents per kWh) 16.2 Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March. As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of-use tariff is available. Doing Business 2017 Croatia 48 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. In (calendar days) addition, Doing Business also measures quality of Does not include time spent gathering the land administration system in each economy. information The ranking of economies on the ease of registering property is determined by sorting their distance to Each procedure starts on a separate day— frontier scores for registering property. These scores though procedures that can be fully completed online are an exception to this rule are the simple average of the distance to frontier scores for each of the component indicators. To Procedure considered completed once final make the data comparable across economies, document is received several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are used. Cost required to complete each procedure (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% domestically and privately owned and perform No value added or capital gains taxes included general commercial activities in the economy’s Quality of land administration index (0-30) largest business city.  Have 50 employees each, all of whom are  Has no mortgages attached, has been under the nationals. same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet)  Has a value of 50 times income per capita. The of land and a 10-year-old, 2-story warehouse of 929 sale price equals the value and entire property square meters (10,000 square feet). The warehouse is will be transferred. in good condition and complies with all safety  Is registered in the land registry or cadastre, or standards, building codes and legal requirements. both, and is free of title disputes. There is no heating system.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2017 Croatia 49 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Croatia? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 5.0 procedures, takes which the data are a population-weighted average of the 62.0 days and costs 5.0% of the property value (figure 2 largest business cities. See the chapter on distance to 5.1). The score on the quality of land administration frontier and ease of doing business ranking at the end of index is 22.5 this profile for more details. Figure 5.1 What it takes to register property in Croatia Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Croatia 50 REGISTERING PROPERTY Globally, Croatia stands at 62 in the ranking of 190 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Croatia to transfer property. Figure 5.2 How Croatia and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2017 Croatia 51 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: HRK 3,928,194 notaries and property registries. These procedures are those that apply to a transaction matching the City: Zagreb standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Croatia Time to No. Procedure Cost to complete complete Obtain the land registry extract from the competent land register court Obtaining a land registry extract has become a crucial part during the preparation process for the purchase of a real estate, since the land registry extract enjoys public faith. Due diligence requires that the buyer knows the status of the land registry. Not knowing it can also result in conflicts on the property. The extract must be stamped by the Land Register Court in order to be verified. This usually does not take more than one day. Croatia has been in the process of computerizing the Registry. This process is still in its early stages. As the process of computerizing the 1 day 1 HRK 20 per extract registry is progressing, the number of properties for which data are available online and electronic Land Registry Extracts can be obtained is notably increasing. Parties can obtain an electronic Land Registry Extract for a property that has been entered in the database. However, electronic extracts are not considered official extracts when it comes to using them for collateral purposes. Only Extracts obtained in paper directly in the Land Registry, have the legal power; the same applies for the cadastre extracts. In accordance with the Regulation on Technical and Other Conditions of Electronic Operations in the Land Registry (Official Gazette No. 119/15) from November 2,2015 it is possible to obtain an official land registry extract from a notary public or a lawyer. A notary public and a lawyer are Doing Business 2017 Croatia 52 Time to No. Procedure Cost to complete complete authorised to issue official land registry extracts if they previously obtained a consent from the Ministry of Justice by submiting a request through the Croatian Notaries Chamber or the Croatian Bar Association. It is also possible to obtain a official land registry extract personally by using a personal box in the so called "E-citizen system". "E-citizen sytem" is a government financied project initiated with a purpose of modernizing, simplifying and expediting communication between the citizens and public administration by providing public services through an on-line platform. The platform allows a person to use different public services including obtaining a valid land registry extract. The number of public services provided by "E-citizen system" increases every year. When obtaining a land registry extract from a public notary or a lawyer an additional fee in the amount of HRK 20 per extract is paid. Agency: Municipal Court Zagreb, Land Registry Department Notary notarizes the sale contract The sale contract contains a clausula intabulandi (i.e. the declaration by the seller that the purchaser may be entered in the land register) and is prepared by parties or by the lawyer. Pursuant to the Croatian law on Ownership and Other Property Rights and Land Registry Act (OG 55/13) it is defined that for the transfer of the property there is only a signature by the person whose rights have been restricted, encumbered, terminated or conveyed to another person (Article 52). In accordance to this law, the public notary verifies signature of the seller (the party whose property right will be terminated by the contract). The notary is authorized to obtain official extracts from the Company registrar, maintained by the Commercial Courts. If the lawyer prepares HRK 47.5 per 2 the sale contract, it will cost about 1.25% of the property price (plus 25% 1 day signature verified VAT according to changes and amendments to the Law on Taxation of by public notary Real Estate which entered into force on 1 March 2011-Official Gazette No. 22/11) for properties with the value above HRK 500,000. For lower values, there is a fixed fee on a scale. In addition to that, according to the Lawyers' Fee Schedule and Cost Compensation, for drafting the sales contract, the lawyer is entitled to the remuneration calculated according to the value of the propriety increased by 25 %. Further on, the lawyer’s fee is increased by VAT (25%) and the expenses incurred while rendering these services. The documentation shall include: Land register extract (obtained in Procedure 1). Agency: Notary Doing Business 2017 Croatia 53 Time to No. Procedure Cost to complete complete Register the title transfer at the Land Registry Court The request for the property registration must be submitted to the Registry by the parties on the appropriate registration form approved by the Ministry of Justice. However, the request shall not be rejected just because it was not submitted on the prescribed registration form. The participation of an attorney is not mandatory, but if one is involved, his fees will be about 0.5% of the property value. The Registry conducts the registration Procedure and renders the decision issuing the property title. The process of recording the sale agreement with the competent land register court takes around 60-80 days, when the proceedings are conducted by an experienced lawyer. Depending on the various courts, this process may take even longer. It should be highlighted that only the final decision, the one allowing the registration, produces the legal effect. However, regardless of the time when the final decision is rendered, the date of applying for registration will be the date marked in the Registry as the moment of transferring the ownership title. From that moment the party is protected towards all applications submitted afterwards. This rule is called the rule of priority: the buyer has the legal right to dispose of the property (to sell, lease, bequeath, transfer by gift, and mortgage the property). From that moment until the final registration the buyer has "quasi ownership". Therefore, even before the registration is completed, the first buyer - quasi owner can sell the property to another, second buyer. However there is a risk if the final 1-2 months registration of the first buyer - quasi owner is not allowed. In that case he (simultaneous To be paid in 3 will be liable for damage towards the second buyer. In practice the other with procedures 4 procedure 5 contractual party will probably not be willing to enter into the legal and 5) transactions with the person who is not the legal owner of the real-estate in question (or take the risk). From 2004 the Court no longer accepts incomplete applications. If the registration form contains certain deficiencies, the court will not invite the applicant to correct the request but will immediately dismiss the application. The applicant may submit a new request, which will then have a lower rank. This has resulted in some reduction of backlog at the Courts and has also led to higher demand for professional assistance with the application process. Furthermore, changes in 2005 entrust the Land Registry clerks with the authority to decide on applications, with judges deciding on appeals. With registration moving from a judicial process to a more administrative process, this is a welcome change that indicates potential for decreasing the amount of time for registration. Recent internal reorganization of the Land Books also indicates future potential for increased efficiency. The documentation shall include: (i) Notarized sale agreement (ii) Application form (iii) Certified copy of an ID or a passport (iv) Personal Identification Number (OIB) (required since January 1, 2009, Land registry Act of December 18, 2009). Agency: Land Register Court (land registry office) Doing Business 2017 Croatia 54 Time to No. Procedure Cost to complete complete Submit the sale contract to the municipal tax administration to receive an estimate of the land transfer taxes The buyer shall submit the sale agreement to the tax administration on the City/Municipality level for payment of land transfer taxes. The tax administration passes a decision on the amount of taxes payable within 30 days and sends this decision to the address of the person who submitted the sale agreement. Along with this decision of the tax administration, a payment slip is attached, with the amount of the tax due, and with the bank account number indicated. The notary public shall also report the sale agreement to the tax administration on the City/Municipality level for payment of land transfer taxes. While the buyer has the legal obligation to deliver the contract of sale to the tax authority within 30 days as of the conclusion of the sale 30 days agreement, the notary is obliged to deliver the sale agreement to the tax (simultaneous no cost *4 authority within 15 days of the month in which the certification of with procedure 3 signatures took place. Within 15 days upon receipt of the tax and 5) assessment notice, the buyer shall pay the real property transfer tax. In the event of a default by the buyer, the tax authority can hold the seller jointly liable for the payment of this tax, provided that the seller assumed the contractual obligation to pay the tax. If the buyer does not notify the tax office of all circumstances regarding the real property transaction that are relevant for the proper assessment of the real property transfer tax, he shall be subject to penalties in an amount ranging from HRK 500 up to HRK 200,000. If the buyer does not pay the tax, it will not prevent the right to register the ownership. Agency: Municipal Tax Administration Pay land transfer taxes, stamp duty and registration fees at the commercial bank or post office HRK 50 (stamp duty) + HRK 200 1 day The fees and taxes can be paid in the post offices or in the commercial (registration fee) + (simultaneous *5 banks, but only to the indicated State Budget bank account number. 5% of property with procedure 3 value (real and 4) Agency: Commercial Bank or Post Office property transfer tax) * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2017 Croatia 55 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2015 and June transparency of information, geographic coverage, 2016, the economy receives a “no practice” mark on the land dispute resolution and equal access to property procedures, time and cost indicators. A “no practice” rights indices. economy receives a score of 0 on the quality of land administration index even if its legal framework includes The index ranges from 0 to 30, with higher values provisions related to land administration. indicating better quality of the land administration system. Table 5.3 Summary of quality of land administration in Croatia Answer Score Quality of the land administration index (0-30) 22.5 Reliability of infrastructure index (0-8) 5.0 Municipal Court Zagreb, Land What is the institution in charge of immovable property registration? Registry Department In what format are the majority of title or deed records kept in the Computer/Scann largest business city—in a paper format or in a computerized format 1.0 ed (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, Yes 1.0 mortgages, restrictions and the like)? In what format are the majority of maps of land plots kept in the Computer/Scann largest business city—in a paper format or in a computerized format 1.0 ed (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral information (geographic information Yes 1.0 system)? Is the information recorded by the immovable property registration Different agency and the cadastral or mapping agency kept in a single database, databases but 1.0 in different but linked databases or in separate databases? linked Do the immovable property registration agency and cadastral or No 0.0 mapping agency use the same identification number for properties? Transparency of information index (0–6) 3.5 Who is able to obtain information on land ownership at the agency in Anyone who pays 1.0 charge of immovable property registration in the largest business city? the official fee Is the list of documents that are required to complete any type of Yes, online 0.5 property transaction made publicly available–and if so, how? Doing Business 2017 Croatia 56 Answer Score http://sudovi.prav osudje.hr/osvt/in dex.php?linkID=2 4 https://gov.hr/mo Link for online access: ja- uprava/stanovanj e-i- okolis/vlasnicka- prava/upis-prava- vlasnistva/1855 Is the applicable fee schedule for any property transaction at the agency in charge of immovable property registration in the largest Yes, online 0.5 business city made publicly available–and if so, how? http://sudovi.prav osudje.hr/ogszg/i Link for online access: ndex.php?linkID= 38 Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property No 0.0 ownership within a specific time frame–and if so, how does it communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about a problem that occurred at the agency in charge of immovable property No 0.0 registration? Contact information: Are there publicly available official statistics tracking the number of Yes 0.5 transactions at the immovable property registration agency? Number of property transfers in the largest business city in 2015: 449 321 Freely accessible Who is able to consult maps of land plots in the largest business city? 0.5 by anyone Is the applicable fee schedule for accessing maps of land plots made Yes, online 0.5 publicly available—and if so, how? http://www.katast ar.hr/dgu/predme ti Link for online access: http://www.katast ar.hr/dgu/proizvo di-Kopija- katastarskog- Doing Business 2017 Croatia 57 Answer Score plana-# Tariff Number 55 to 57 of the Administrative Fees Act and the Administrative Fees Tariff (published in Official Gazette No. 8/96, 77/96, 95/97, 131/97, 68/98, 66/99, 145/99, 30/00, 116/00, 163/03, 17/04, 110/04, 141/04, 150/05, 153/05, 129/06, 117/07, 25/08, 60/08, 20/10, 69/10, 126/11, 112/12, 19/13, 80/13). Does the cadastral or mapping agency commit to delivering an updated map within a specific time frame—and if so, how does it No 0.0 communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about No 0.0 a problem that occurred at the cadastral or mapping agency? Geographic coverage index (0–8) 8.0 Are all privately held land plots in the economy formally registered at Yes 2.0 the immovable property registry? Are all privately held land plots in the largest business city formally Yes 2.0 registered at the immovable property registry? Are all privately held land plots in the economy mapped? Yes 2.0 Are all privately held land plots in the largest business city mapped? Yes 2.0 Land dispute resolution index (0–8) 6.0 Does the law require that all property sale transactions be registered at the immovable property registry to make them opposable to third Yes 1.5 parties? Is the system of immovable property registration subject to a state or Yes 0.5 Doing Business 2017 Croatia 58 Answer Score private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction Yes 0.5 based on erroneous information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction (e.g., checking the compliance of Yes 0.5 contracts with requirements of the law)? If yes, who is responsible for checking the legality of the documents? Registrar. Does the legal system require verification of the identity of the parties Yes 0.5 to a property transaction? If yes, who is responsible for verifying the identity of the parties? Registrar; Notary. Is there a national database to verify the accuracy of identity No 0.0 documents? Municipal civil For a standard land dispute between two local businesses over tenure court Zagreb and rights of a property worth 50 times gross national income (GNI) per Municipal court capita and located in the largest business city, what court would be in Novi Zagreb, charge of the case in the first instance? Land Registry department How long does it take on average to obtain a decision from the first- Between 1 and 2 2.0 instance court for such a case (without appeal)? years Are there any statistics on the number of land disputes in the first Yes 0.5 instance? 7.582 objections and 1.921 appeals (25.33 % Number of land disputes in the largest business city in 2015: of objections end up as an appeal at the courts in first instances) Equal access to property rights index (-2–0) 0.0 Do unmarried men and unmarried women have equal ownership rights Yes 0.0 to property? Do married men and married women have equal ownership rights to Yes 0.0 property? Source: Doing Business database. Doing Business 2017 Croatia 59 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view and consider a potential borrower’s Strength of legal rights index (0–12) financial history (positive or negative) when assessing Rights of borrowers and lenders through risk and they allow borrowers to establish a good collateral laws credit history that will facilitate their access to credit. Protection of secured creditors’ rights through Sound collateral laws enable businesses to use their bankruptcy laws assets, especially movable property, as security to generate capital—while strong creditors’ rights have Depth of credit information index (0–8) been associated with higher ratios of private sector Scope and accessibility of credit information credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in largest lenders with respect to secured transactions through credit bureau as percentage of adult population 2 sets of indicators. The depth of credit information Credit registry coverage (% of adults) index measures rules and practices affecting the coverage, scope and accessibility of credit Number of individuals and firms listed in credit registry as percentage of adult population information available through a credit registry or a credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope Has up to 50 employees. of the secured transactions system, involving a secured borrower and a secured lender and Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable The ranking of economies on the ease of getting credit collateral (for more details on each case, see the Data is determined by sorting their distance to frontier scores Notes section of the Doing Business 2017 report). for getting credit. These scores are the distance to These scenarios assume that the borrower: frontier score for the strength of legal rights index and Is a domestic limited liability company. the depth of credit information index. Has its headquarters and only base of operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2017 Croatia 60 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Croatia stands at 75 in the ranking of 190 and bankruptcy laws in Croatia facilitate access to credit? economies on the ease of getting credit (figure 6.1). The The economy has a score of 6.0 on the depth of credit rankings for comparator economies provide other useful information index and a score of 5.0 on the strength of information for assessing how well regulations and legal rights index (see the summary of scoring at the end institutions in Croatia support lending and borrowing. of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Croatia and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2017 Croatia 61 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Croatia and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Source: Doing Business database. Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2017 Croatia 62 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ a ccess to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Croatia (table 6.1)? Table 6.1 How has Croatia made getting credit easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform In Croatia the private credit bureau started to collect and DB2012 distribute information on firms, improving the credit information system. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Croatia 63 GETTING CREDIT What are the details? The getting credit indicators reported here for Croatia The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 5.0 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable 0 assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of 0 movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its 1 assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to 0 the products, proceeds or replacements of the original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement include a 1 maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is 1 unified geographically and by asset type, with an electronic database indexed by debtor's name? Can banks and financial institutions access borrowers’ credit info rmation online (for example, 0 through a web interface, a system-to-system connection or both)? Does a modern collateral registry exist in which registrations, amendments, cancellations and 0 searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor 0 defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is 1 liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by 0 providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2017 Croatia 64 Strength of legal rights index (0–12) Index score: 5.0 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through public auction and 1 private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 6.0 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years Yes No 1 of negative data or erase data on defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their data Yes No 1 in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an online Yes No 1 platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Coverage Credit bureau Credit registry Number of individuals 3,136,314 0 Number of firms 163,371 0 Total 3,299,685 0 Total percentage of adult population 100.0 0.0 Source: Doing Business database. Doing Business 2017 Croatia 65 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of WHAT THE PROTECTING MINORITY companies to raise the capital they need to grow, innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require Extent of disclosure index (0–10) shareholder participation in major decisions of the Review and approval requirements for related-party company and set detailed standards of accountability transactions; Disclosure requirements for related-party for company insiders. transactions What do the indicators cover? Extent of director liability index (0–10) Ability of minority shareholders to sue and hold Doing Business measures the protection of minority interested directors liable for prejudicial related-party investors from conflicts of interest through one set of transactions; Available legal remedies (damages, indicators and shareholders’ rights in corporate disgorgement of profits, fines, imprisonment, rescission governance through another. The ranking of economies of the transaction) on the strength of minority investor protections is Ease of shareholder suits index (0–10) determined by sorting their distance to frontier scores Access to internal corporate documents; Evidence for protecting minority investors. These scores are the obtainable during trial and allocation of legal expenses simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Extent of conflict of interest regulation index (0– extent of shareholder governance index. To make the 10) data comparable across economies, a case study uses Simple average of the extent of disclosure, extent of several assumptions about the business and the director liability and ease of shareholder indices transaction. Extent of shareholder rights index (0-10) The business (Buyer): Shareholders’ rights and role in major corporate decisions  Is a publicly traded corporation listed on the Extent of ownership and control index (0-10) economy’s most important stock exchange. If the Governance safeguards protecting shareholders from number of publicly traded companies listed on that undue board control and entrenchment exchange is less than 10, or if there is no stock exchange in the economy, it is assumed that Buyer Extent of corporate transparency index (0-10) is a large private company with multiple Corporate transparency on ownership stakes, shareholders. compensation, audits and financial prospects Extent of shareholder governance index (0–10)  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of Buyer Simple average of the extent of shareholders rights, extent of ownership and control and extent of corporate where permitted, even if this is not specifically transparency indices required by law. Strength of minority investor protection index (0–  Has a supervisory board (applicable to economies 10) with a two-tier board system) on which 60% of the Simple average of the extent of conflict of interest shareholder-elected members have been appointed regulation and extent of shareholder governance indices by Mr. James, who is Buyer’s controlling shareholder and a member of Buyer’s board of directors.  Has not adopted any bylaws or articles of association that differ from default minimum standards and does not follow any nonmandatory codes, principles, recommendations or guidelines Doing Business 2017 Croatia 66 relating to corporate governance.  Is a manufacturing company with its own distribution network. The transaction involves the following details:  Mr. James owns 60% of Buyer and elected two directors to Buyer’s five-member board.  Mr. James also owns 90% of Seller, a company that operates a chain of retail hardware stores. Seller recently closed a large number of its stores.  Mr. James proposes that Buyer pur chase Seller’s unused fleet of trucks to expand Buyer’s distribution of its food products, a proposal to which Buyer agrees. The price is equal to 10% of Buyer’s assets and is higher than the market value.  The proposed transaction is part of the company’s ordinary course of business and is not outside the authority of the company.  Buyer enters into the transaction. All required approvals are obtained, and all required disclosures made (that is, the transaction is not fraudulent).  The transaction causes damages to Buyer. Shareholders sue Mr. James and the other parties that approved the transaction. Doing Business 2017 Croatia 67 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Croatia? The economy has a score of 6.7 not measure all aspects related to the protection of on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Croatia stands at 27 in the ranking of 190 economies on the strength of minority investor Figure 7.1 How Croatia and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2017 Croatia 68 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for Croatia. Figure 7.2 Summary of the various minority investor protection indices for Croatia and comparator economies. Source: Doing Business database. Doing Business 2017 Croatia 69 PROTECTING MINORITY INVESTORS Economies with the strongest protections of minority result, reforms to strengthen minority investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have well- as through new or amended company laws, securities functioning courts and up-to-date procedural rules that regulations or civil procedure rules. What minority give minority shareholders the means to prove their case investor protection reforms has Doing Business recorded and obtain a judgment within a reasonable time. As a in Croatia (table 7.1)? Table 7.1 How has Croatia strengthened minority investor protections—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Croatia strengthened minority investor protections by DB2017 requiring detailed internal disclosure of conflicts of interest by directors. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Croatia 70 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Croatia are based on detailed information shareholder rights, ownership and control and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2017 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Croatia. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Croatia Answer Score Strength of minority investor protection index (0-10) 6.7 Extent of conflict of interest regulation index (0-10) 5.7 Extent of disclosure index (0-10) 5.0 Which corporate body is legally sufficient to approve the Shareholders or board of directors 1.0 Buyer-Seller transaction? (0-3) including interested parties Must Mr. James disclose his conflict of interest to the board Full disclosure of all material facts 2.0 of directors? (0-2) Must Buyer disclose the transaction in published periodic Disclosure on the transaction and 2.0 filings (annual reports)? (0-2) on the conflict of interest Must Buyer immediately disclose the transaction to the No disclosure obligation 0.0 public and/or shareholders? (0-2) Must an external body review the terms of the transaction No 0.0 before it takes place? (0-1) Extent of director liability index (0-10) 6.0 Can shareholders representing 10% of Buyer's share capital sue directly or derivatively for the damage the transaction Yes 1.0 caused to Buyer? (0-1) Can shareholders hold the interested director liable for the Liable if negligent 1.0 damage the transaction caused to Buyer? (0-2) Can shareholders hold the other directors liable for the Liable if negligent 1.0 damage the transaction caused to Buyer (0-2) Must Mr. James pay damages for the harm caused to Buyer Yes 1.0 upon a successful claim by shareholders? (0-1) Must Mr. James repay profits made from the transaction Yes 1.0 upon a successful claim by shareholders? (0-1) Is Mr. James disqualifed or fined and imprisoned upon a No 0.0 successful claim by shareholders? (0-1) Can a court void the transaction upon a successful claim by Voidable if negligently concluded 1.0 shareholders? (0-2) Ease of shareholder suits index (0-10) 6.0 Before suing can shareholders representing 10% of Buyer's Yes 1.0 share capital inspect the transaction documents? (0-1) Can the plaintiff obtain any documents from the defendant Documents that the defendant 1.0 and witnesses at trial? (0-3) relied on Can the plaintiff request categories of documents from the No 0.0 Doing Business 2017 Croatia 71 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2.0 witnesses at trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1.0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if successful 1.0 the company? (0-2) Extent of shareholder governance index (0-10) 7.7 Extent of shareholder rights index (0-10) 8.0 Does the sale of 51% of Buyer's assets require shareholder Yes 1.0 approval? Can shareholders representing 10% of Buyer's share capital Yes 1.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it Yes 1.0 issues new shares? Do shareholders automatically receive preemption rights Yes 1.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the Yes 1.0 external auditor? Are changes to the rights of a class of shares only possible if Yes 1.0 the holders of the affected shares approve? Assuming that Buyer is a limited company, does the sale of No 0.0 51% of its assets require member approval? Assuming that Buyer is a limited company, can members representing 10% call for an extraordinary meeting of Yes 1.0 members? Assuming that Buyer is a limited company, must all Yes 1.0 members consent to add a new member? Assuming that Buyer is a limited company, must a member first offer to sell his interest to the existing members before No 0.0 selling to a non-member? Extent of ownership and control index (0-10) 9.0 Is it forbidden to appoint the same individual as CEO and Yes 1.0 chair of the board of directors? Must the board of directors include independent and Yes 1.0 nonexecutive board members? Can shareholders remove members of the board of Yes 1.0 directors without cause before the end of their term? Must the board of directors include a separate audit Yes 1.0 committee exclusively comprising board members? Must a potential acquirer make a tender offer to all Yes 1.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by Yes 1.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its Yes 1.0 parent company? Assuming that Buyer is a limited company, is there a Yes 1.0 management deadlock breaking mechanism? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer Yes 1.0 Doing Business 2017 Croatia 72 distribute profits within a maximum period set by law after the declaration date? Extent of corporate transparency index (0-10) 6.0 Must Buyer disclose direct and indirect beneficial ownership Yes 1.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their No 0.0 primary employment? Must Buyer disclose the compensation of individual No 0.0 managers? Must a detailed notice of general meeting be sent 21 days Yes 1.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital Yes 1.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public? Yes 1.0 Assuming that Buyer is a limited company, must members No 0.0 meet at least once a year? Assuming that Buyer is a limited company, can members No 0.0 representing 5% put items on the meeting agenda? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external Yes 1.0 auditor? Source: Doing Business database. Doing Business 2017 Croatia 73 PAYING TAXES Taxes are essential. The level of tax rates needs to be WHAT THE PAYING TAXES INDICATORS carefully chosen—and needless complexity in tax rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2014 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business records the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions and dealing with postfiling processes. This case scenario uses a set of financial Collecting information and computing the tax payable statements and assumptions about transactions made over the year. Information is also compiled on Completing tax return forms, filing with the frequency of filing and payments, time taken to proper agencies comply with tax laws, time taken to comply with the Arranging payment or withholding requirements of postfiling processes and time waiting for these processes to be completed. The Preparing separate tax accounting books, if required ranking of economies on the ease of paying taxes is determined by sorting their distance to frontier Total tax rate (% of profit before all taxes) scores on the ease of paying taxes. These scores are Profit or corporate income tax the simple average of the distance to frontier scores for each of the four component indicators – number Social contributions and labor taxes paid by of tax payments. time, total tax rate and postfiling the employer index – with a threshold and a nonlinear Property and property transfer taxes transformation applied to one of the component Dividend, capital gains and financial indicators, the total tax rate1. If both VAT (or GST) transactions taxes and corporate income tax apply, the postfiling index is the simple average of the distance to frontier Waste collection, vehicle, road and other taxes scores for each of the four components: the time to Postfiling Index comply with a VAT or GST refund, the time to obtain The time to comply with a VAT or GST refund a VAT or GST refund, the time to comply with a corporate income tax audit and the time to complete The time to receive a VAT or GST refund a corporate income tax audit. If only VAT (or GST) or The time to comply with a corporate income corporate income tax If onapplies, the postfiling tax audit index is the simple average of the scores for only the The time to complete a corporate income tax two components pertaining to the applicable tax. If audit neither VAT (or GST) nor corporate income tax 1 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. Doing Business 2017 Croatia 74 applies, the postfiling index is not included in the ranking of the ease of paying taxes. Assumptions about the corporate income tax audit process: Taxes and mandatory contributions include corporate income tax, turnover tax and all labor  An error in the calculation of the income tax taxes and contributions paid by the company. A liability (for example, use of incorrect tax range of standard deductions and exemptions are depreciation rates, or incorrectly treating an also recorded. expense as tax deductible) leads to an incorrect All financial statement variables are proportional to income tax return and consequently an 2012 income per capita. To make the data underpayment of corporate income tax. comparable across economies, several assumptions  TaxpayerCo. discovered the error and are used. voluntarily notified the tax authority of the error TaxpayerCo is a medium-size business that started in the corporate income tax return. operations on January 1, 2014. The business starts from the same financial position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. Taxes and mandatory contributions are measured at all levels of government. Assumptions about the VAT refund process:  In June 2015, TaxpayerCo. makes a large capital purchase: one additional machine for manufacturing pots.  The value of the machine is 65 times income per capita of the economy.  Sales are equally spread per month (that is, 1,050 times income per capita divided by 12).  Cost of goods sold are equally expensed per month (that is, 875 times income per capita divided by 12).  The seller of the machinery is registered for VAT or general sales tax (GST).  Excess input VAT incurred in June will be fully recovered after four consecutive months if the VAT or GST rate is the same for inputs, sales and the machine and the tax reporting period is every month. Doing Business 2017 Croatia 75 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with tax 8.3 the end of this chapter for details). Most indicator obligations and postfiling processes in Croatia—and how sets refer to a case scenario in the largest business city of much do firms pay in taxes? Globally, Croatia stands at an economy, except for 11 economies for which the data 49 in the ranking of 190 economies on the ease of are a population-weighted average of the 2 largest paying taxes (figure 8.1). The rankings for comparator business cities. See the chapter on distance to frontier economies and the regional average ranking provide and ease of doing business ranking at the end of this other useful information for assessing the tax compliance profile for more details. burden for businesses in Croatia (see table 8.2 and table . Figure 8.1 How Croatia and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2017 Croatia 76 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses —such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in Croatia (table 8.1)? Table 8.1 How has Croatia made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Croatia made paying taxes more difficult and costly for DB2011 companies by introducting a tourist fee. Croatia made paying taxes less costly for companies by DB2013 reducing the health insurance contribution rate. Croatia made paying taxes easier for companies by introducing an electronic system for social security contributions and by DB2014 reducing the rates for the forest and Chamber of Commerce contributions. Croatia made paying taxes more complicated for companies by raising the health insurance contribution rate, increasing the Croatian Chamber of Commerce fees and introducing more DB2015 detailed filing requirements for VAT. On the other hand, it abolished the contribution to the Croatian Chamber of Commerce. Croatia made paying taxes more complicated by introducing a DB2017 radio and television fee, and eliminating the reduction of the Chamber of Economy fee for new companies. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Croatia 77 PAYING TAXES What are the details? The indicators reported here for Croatia are based on LOCATION OF STANDARDIZED COMPANY the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Zagreb chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in table 8.2, completed during its 2nd year of operation. along with the associated number of payments, time Respondents are asked how much taxes and and tax rate. mandatory contributions the business must pay, how these taxes are filed and paid, how much time The postfiling index is based on four components—the taxpayers spend preparing, filing and paying three time to comply with a VAT or GST refund, the time to major taxes (profit taxes, labor taxes including obtain a VAT or GST refund, the time to comply with a mandatory contributions and consumption taxes) and corporate income tax audit and the time to complete a how much time taxpayers spend complying with corporate income tax audit. These components are postfiling processes and waiting for these processes based on expanded case study assumptions. If only VAT to be completed. (or GST) or corporate income tax applies for an economy, the postfiling index is the simple average of the scores for only the two components pertaining to the applicable tax. If neither VAT (or GST) nor corporate income tax applies, the postfiling index is not included in the ranking of the ease of paying taxes. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate gross Social security contributions 1 online 96 17.2% 19.40 salaries Tourist fee 1 online 0.04% turnover 0.71 total Forest contribution 1 0.0265% 0.47 income HRK 1,083 Chamber of Economy fee 12 fixed fee 0.29 per month each radio HRK 80 per Radio and Television fee 12 receiver in 0.02 month owned car Tax on company name 1 HRK 260 fixed fee 0.01 Doing Business 2017 Croatia 78 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online 58 20% 0.00 profit value not Value added tax (VAT) 1 online 52 25% 0.00 added included different Employee paid - Social security online and rates gross 0 0.00 withheld contributions jointly (13.5% - salaries 42.5%) included small Fuel tax 1 into fuel 0.00 amount price Totals 31.0 206.0 20.9 Source: Doing Business database. Doing Business 2017 Croatia 79 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE FOR IMPORT & EXPORT business. Excessive use of paper documents, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance to extra costs and delays for exporters and Obtaining, preparing and submitting documents importers, stifling trade potential. during transport, clearance, inspections and port or border handling in origin economy What do the indicators cover? Obtaining, preparing and submitting documents Doing Business records the time and cost required by destination economy and any transit associated with the logistical process of exporting economies and importing goods. Doing Business measures the Covers all documents required by law and in time and cost (excluding tariffs) associated with practice, including electronic submissions of three sets of procedures—documentary information as well as non-shipment-specific compliance, border compliance and domestic documents necessary to complete the trade transport—within the overall process of exporting Border compliance or importing a shipment of goods. The ranking of economies on the ease of trading across borders is Customs clearance and inspections determined by sorting their distance to frontier Inspections by other agencies (if applied to more scores for trading across borders. These scores are than 10% of shipments) the simple average of the distance to frontier Port or border handling scores for the time and cost for documentary compliance and border compliance to export and Processing of documents during clearance, import (domestic transport is not used for inspections and port or border handling. calculating the ranking). Domestic transport Loading and unloading of shipment at warehouse, To make the data comparable across economies, a dry port or border few assumptions are made about the traded goods and the transactions: Transport by most widely used mode between warehouse and terminal or dry port Time Traffic delays and road police checks while Time is measured in hours, and 1 day is 24 hours shipment is en route (for example, 22 days are recorded as 22 × 24 = 528 hours). If customs clearance takes 7.5 hours, the data are recorded as is. Alternatively, suppose Cost that documents are submitted to a customs Insurance cost and informal payments for which no receipt agency at 8:00 a.m., are processed overnight and is issued are excluded from the costs recorded. Costs are can be picked up at 8:00 a.m. the next day. In this reported in U.S. dollars. Contributors are asked to convert case the time for customs clearance would be local currency into U.S. dollars based on the exchange rate recorded as 24 hours because the actual procedure prevailing on the day they answer the questionnaire. took 24 hours. Doing Business 2017 Croatia 80 Assumptions of the case study  If government fees are determined by the value of the shipment, the value is assumed to be $50,000.  For each of the 190 economies covered by Doing Business, it is assumed that a shipment  The product is new, not secondhand or used travels from a warehouse in the largest merchandise. business city of the exporting economy to a  The exporting firm is responsible for hiring and paying warehouse in the largest business city of the for a freight forwarder or customs broker (or both) importing economy. For 11 economies the and pays for all costs related to international shipping, data are also collected, under the same case domestic transport, clearance and mandatory study assumptions, for the second largest inspections by customs and other government business city. agencies, port or border handling, documentary  The import and export case studies assume compliance fees and the like for exports. The different traded products. It is assumed that importing firm is responsible for the above costs for each economy imports a standardized imports. shipment of 15 metric tons of containerized  The mode of transport is the one most widely used for auto parts (HS 8708) from its natural import the chosen export or import product and the trading partner—the economy from which it imports partner, as is the seaport, airport or land border the largest value (price times quantity) of auto crossing. parts. It is assumed that each economy exports the product of its comparative advantage  All electronic submissions of information requested by (defined by the largest export value) to its any government agency in connection with the natural export partner—the economy that is shipment are considered to be documents obtained, the largest purchaser of this product. Special prepared and submitted during the export or import products, such as precious metal and gems, process. live animals and pharmaceuticals are excluded  A port or border is defined as a place (seaport, airport from the list of possible export products, or land border crossing) where merchandise can enter however, and the second largest product or leave an economy. category is considered as needed.  Government agencies considered relevant are  A shipment is a unit of trade. Export shipments agencies such as customs, port authorities, road do not necessarily need to be containerized, police, border guards, standardization agencies, while import shipments of auto parts are ministries or departments of agriculture or industry, assumed to be containerized. national security agencies and any other government authorities. Doing Business 2017 Croatia 81 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Borders indicator refers to a case Globally, Croatia stands at 1 in the ranking of 190 study scenario of a warehouse in the largest business city economies on the ease of trading across borders (figure of an economy (except for 11 economies for which the 9.1). data are a population-weighted average of the 2 largest While not included in the distance to frontier or ease of business cities) trading with the main import and export doing business ranking, data on domestic transportation partner through the economy’s main border crossing. is also recorded for all economies and provided in Table 9.3. Figure 9.1 How Croatia and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2017 Croatia 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 Business tools to facilitate trade—including single windows, risk- recorded in Croatia (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Croatia made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Croatia made trading across borders easier by improving the physical and information system infrastructure at the port of DB2014 Rijeka and by streamlining export customs procedures in preparation for accession to the Common Transit Convention of the European Union. Croatia made trading across borders easier by implementing a DB2015 new electronic customs system. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Croatia 83 TRADING ACROSS BORDERS What are the details? The indicators reported here for Croatia are based on LOCATION OF STANDARDIZED COMPANY a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea or land or some combination City: Zagreb of these). The information on the time and cost to complete export and import is collected from local The details on the predefined set of procedures, and the freight forwarders, customs brokers and traders. associated time and cost, for exporting and importing a shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in Croatia Croatia Europe & Central Asia Time to export: Border compliance (hours) 0 28 Cost to export: Border compliance (USD) 0 195 Time to export: Documentary compliance (hours) 1 27 Cost to export: Documentary compliance (USD) 0 111 Time to import: Border compliance (hours) 0 26 Cost to import: Border compliance (USD) 0 202 Time to import: Documentary compliance (hours) 1 26 Cost to import: Documentary compliance (USD) 0 91 Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Croatia Export Import HS 85 : Electrical machinery and equipment and parts thereof; sound recorders and HS 8708: Parts and accessories Product reproducers, television image of motor vehicles and sound recorders and reproducers, and parts and accessories of such articles Trade partner Austria Germany Croatia- Slovenia border Croatia-Slovenia border Border crossing crossing Distance (km) 76 76 Domestic transport time (hours) 2 2 Doing Business 2017 Croatia 84 Export Import Domestic transport cost (USD) 135 135 Source: Doing Business database. Note: Although Doing Business collects and publishes data on the time and cost for domestic transport, it does not use these data in calculating the distance to frontier score for trading across borders or the ranking on the ease of trading across borders. Documents to export CMR waybill Commercial invoice Packing list Intrastat Documents to import CMR waybill Commercial invoice Packing list Intrastat Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2017 Croatia 85 Figure 9.2 Summary of Croatia on the ease of trading across borders Export Import Source: Doing Business database. Doing Business 2017 Croatia 86 ENFORCING CONTRACTS WHAT THE ENFORCING CONTRACTS Effective commercial dispute resolution has many benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Time required to enforce a contract through courts encourage new business relationships because the courts (calendar days) businesses know they can rely on the courts if a new customer fails to pay. Speedy trials are essential for Time to file and serve the case small enterprises, which may lack the resources to Time for trial and to obtain the judgment stay in business while awaiting the outcome of a long Time to enforce the judgment court dispute. Cost required to enforce a contract through What do the indicators cover? the courts (% of claim) Doing Business measures the time and cost for Attorney fees resolving a standardized commercial dispute through a local first-instance court. In addition, Doing Court fees Business measures the quality of judicial processes Enforcement fees index, evaluating whether each economy has Quality of judicial processes index (0-18) adopted a series of good practices that promote quality and efficiency in the court system. The Court structure and proceedings (0-5) ranking of economies on the ease of enforcing Case management (0-6) contracts is determined by sorting their distance to frontier scores. These scores are the simple average Court automation (0-4) of the distance to frontier scores for each of the Alternative dispute resolution (0-3) component indicators. The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The  The seller sues the buyer before the court with case study assumes that the court hears an expert on jurisdiction over commercial cases worth 200% of the quality of the goods in dispute. This distinguishes income per capita or $5,000. the case from simple debt enforcement. To make the  The seller requests a pretrial attachment to secure data comparable across economies, Doing Business the claim. uses several assumptions about the case:  The dispute on the quality of the goods requires an expert opinion.  The dispute concerns a lawful transaction  The judge decides in favor of the seller; there is no between two businesses (Seller and Buyer), both appeal. located in the economy’s largest business city. For 11 economies the data are also collected for  The seller enforces the judgment through a public the second largest business city. sale of the buyer’s movable assets.  The buyer orders custom-made goods, then fails to pay.  The value of the dispute is 200% of the income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2017 Croatia 87 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial and ease of doing business ranking at the end of this dispute through the courts in Croatia? According to data profile for more details. collected by Doing Business, contract enforcement takes Globally, Croatia stands at 7 in the ranking of 190 572.0 days and costs 16.7% of the value of the claim. economies on the ease of enforcing contracts (figure Most indicator sets refer to the largest business city of an 10.1). The rankings for comparator economies and the economy, except for 11 economies for which the data regional average provide other useful benchmarks for are a population-weighted average of the 2 largest assessing the efficiency of contract enforcement in business cities. See the chapter on distance to frontier Croatia. Figure 10.1 How Croatia and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2017 Croatia 88 ENFORCING CONTRACTS reducing backlogs by introducing periodic reviews to Economies in all regions have improved contract clear inactive cases from the docket and by making enforcement in recent years. A judiciary can be improved procedures faster. What reforms making it easier (or in different ways. Higher-income economies tend to look more difficult) to enforce contracts has Doing Business for ways to enhance efficiency by introducing new recorded in Croatia (table 10.1)? technology. Lower-income economies often work on Table 10.1 How has Croatia made enforcing contracts easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Croatia made enforcing contracts easier by streamlining DB2014 litigation proceedings and transferring certain enforcement procedures from the courts to state agencies. Croatia made enforcing contracts easier by introducing an DB2016 electronic system to handle public sales of movable assets and by streamlining the enforcement process as a whole. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Croatia 89 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for Croatia ECONOMY DETAILS are built by following the step-by-step evolution of a commercial sale dispute within the court, under the assumptions about the case described above (figure Claim value: HRK 150,249 10.2). The time and cost of resolving the standardized dispute are identified through study of Court name: Zagreb Commercial Court the codes of civil procedure and other court regulations, as well as through questionnaires City: Zagreb completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Figure 10.2 Time and cost of contract enforcement in Croatia and comparator economies Source: Doing Business database. Doing Business 2017 Croatia 90 Table 10.2 Details on time and cost for enforcing contracts in Croatia Europe & Central Indicator Croatia Asia average Time (days) 572 486 Filing and service 32 Trial and judgment 365 Enforcement of judgment 175 Cost (% of claim) 16.7 26.6 Attorney fees 8.6 Court fees 5.5 Enforcement fees 2.6 Source: Doing Business database. Doing Business 2017 Croatia 91 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in Croatia (figure 10.3). practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating more efficient judicial processes. Figure 10.3 Quality of judicial processes index in Croatia and comparator economies Doing Business 2017 Croatia 92 Source: Doing Business database. Table 10.3 Details of the quality of judicial processes index in Croatia Answer Score Quality of judicial processes index (0-18) 15.0 Court structure and proceedings (0-5) 5.0 1. Is there a court or division of a court dedicated solely to hearing Yes 1.5 commercial cases? 2. Small claims court 1.5 2.a. Is there a small claims court or a fast-track procedure for small Yes claims? 2.b. If yes, is self-representation allowed? Yes 3. Is pretrial attachment available? Yes 1.0 4. Are new cases assigned randomly to judges? Yes, automatic 1.0 5. Does a woman's testimony carry the same evidentiary weight in Yes 0.0 court as a man's? Case management (0-6) 5.5 1. Time standards 1.0 1.a. Are there laws setting overall time standards for key court events in Yes a civil case? 1.b. If yes, are the time standards set for at least three court events? Yes 1.c. Are these time standards respected in more than 50% of cases? Yes 2. Adjournments 0.5 2.a. Does the law regulate the maximum number of adjournments that No can be granted? 2.b. Are adjournments limited to unforeseen and exceptional Yes circumstances? 2.c. If rules on adjournments exist, are they respected in more than 50% Yes of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; Yes 1.0 (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques Yes 1.0 used before the competent court? 5. Are there any electronic case management tools in place within the Yes 1.0 competent court for use by judges? Doing Business 2017 Croatia 93 Answer Score 6. Are there any electronic case management tools in place within the Yes 1.0 competent court for use by lawyers? Court automation (0-4) 2.0 1. Can the initial complaint be filed electronically through a dedicated No 0.0 platform within the competent court? 2. Is it possible to carry out service of process electronically for claims No 0.0 filed before the competent court? 3. Can court fees be paid electronically within the competent court? Yes 1.0 4. Publication of judgments 1.0 4.a Are judgments rendered in commercial cases at all levels made available to the general public through publication in official gazettes, Yes in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through Yes publication in official gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 1. Arbitration 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy—that cannot be submitted to No arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the Yes courts? 2. Mediation/Conciliation 1.0 2.a. Is voluntary mediation or conciliation available? Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or conciliation is successful, a refund of No court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2017 Croatia 94 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the Lawyers’ fees recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recovered by secured creditors through Other related fees reorganization, liquidation or debt enforcement Outcome (foreclosure or receivership) proceedings. To determine the present value of the amount Whether business continues operating as a recovered by creditors, Doing Business uses the going concern or business assets are sold lending rates from the International Monetary Fund, piecemeal supplemented with data from central banks and the Recovery rate for creditors Economist Intelligence Unit. Measures the cents on the dollar recovered To make the data on the time, cost and outcome by secured creditors comparable across economies, several assumptions Outcome for the business (survival or not) about the business and the case are used: determines the maximum value that can be  A hotel located in the largest city (or cities) has recovered 201 employees and 50 suppliers. The hotel Official costs of the insolvency proceedings experiences financial difficulties. are deducted  The value of the hotel is 100% of the income per Depreciation of furniture is taken into capita or the equivalent in local currency of USD account 200,000, whichever is greater. Present value of debt recovered  The hotel has a loan from a domestic bank, Strength of insolvency framework index (0- secured by a mortgage over the hotel’s real 16) estate. The hotel cannot pay back the loan, but makes enough money to operate otherwise. Sum of the scores of four component indices: Commencement of proceedings index (0-3) In addition, Doing Business evaluates the adequacy and integrity of the existing legal framework Management of debtor’s assets index (0-6) applicable to liquidation and reorganization Reorganization proceedings index (0-3) proceedings through the strength of insolvency Creditor participation index (0-4) framework index. The index tests whether economies adopted internationally accepted good practices in management of debtor’s assets, reorganization four areas: commencement of proceedings, proceedings and creditor participation. Doing Business 2017 Croatia 95 RESOLVING INSOLVENCY Where does the economy stand today? Globally, Croatia stands at 54 in the ranking of 190 not measure insolvency proceedings of individuals and economies on the ease of resolving insolvency (figure financial institutions. The data are derived from 11.1). The ranking of economies on the ease of resolving questionnaire responses by local insolvency practitioners insolvency is determined by sorting their distance to and verified through a study of laws and regulations as frontier scores for resolving insolvency. These scores are well as public information on bankruptcy systems. the simple average of the distance to frontier scores for the recovery rate and the strength of insolvency framework index. The resolving insolvency indicator does Figure 11.1 How Croatia and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2017 Croatia 96 RESOLVING INSOLVENCY Recovery of debt in insolvency Data on the time, cost and outcome refer to the most average recovery rate is 33.7 cents on the dollar. Most likely in-court insolvency procedure applicable under indicator sets refer to a case scenario in the largest specific case study assumptions. business city of an economy, except for 11 economies for which the data are a population-weighted average of the According to data collected by Doing Business, resolving 2 largest business cities. insolvency takes 3.1 years on average and costs 14.5% of the debtor’s estate, with the most likely outcome being that the company will be sold as piecemeal sale. The Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Croatia and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2015 lending rates. Doing Business 2017 Croatia 97 Table 11.1 Details of data on efficiency of insolvency proceedings in Croatia Indicator Answer Explanation Mirage will apply for the pre-bankruptcy settlement procedure under the Bankruptcy Act. But, it is likely that BizBank would not be interested to reach a settlement on restructuring in that procedure, because, if agreement is settled, Bizbank would not get the payment for, at least, few years. As Bizbank owns 74% of Mirage's debt, the agreement on restructuring plan depends only on Proceeding foreclosure the BizBank decision. Instead of agreeing with the Miracle's plan of reorganization in pre-bankruptcy procedure, it is likely that BizBank will initiate foreclosure proceedings requiring sale of the hotel property As a creditor with a registered pledge, BizBank could enforce its interest in separated foreclosure process, even if Insolvency proceedings is opened. Even if Mirage management initiates pre-insolvency or insolvency proceedings, the hotel will not be able to operate if its acts would be done at the expense of the bankruptcy estate. It will have to reduce its working power and cut Outcome piecemeal sale expenses. And after the bank enforces its security interest, and it can do that outside the insolvency proceedings framework, the hotel will stop operating and its assets will be sold piecemeal. It will take 37 months to complete an unsuccessful pre-bankruptcy settlement Time (in 3.1 procedure, which is followed by foreclosure, when BizBank enforces its security years) interest in Mirage's assets. Major expenses in foreclosure include attorneys' fees (8%) and fees of Cost (% of 14.5 accountants and other professionals involved in the proceedings (5%), the rest estate) will cover court fees and sale of the assets. Recovery rate: 33.7 Source: Doing Business database. Doing Business 2017 Croatia 98 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the with higher values indicating insolvency legislation that is sum of the scores on the commencement of better designed for rehabilitating viable firms and proceedings index, management of debtor’s assets liquidating nonviable ones. Croatia’s score on the strength index, reorganization proceedings index and creditor of insolvency framework index is 12.0 out of 16. Data on participation index. The index ranges from 0 to 16, provisions applicable to judicial liquidation and reorganization is based on the current law governing insolvency proceedings in each economy. Figure 11.3 Strength of insolvency framework index (0-16) in Croatia and comparator economies Source: Doing Business database. Doing Business 2017 Croatia 99 Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice”. Doing Business 2017 Croatia 100 Table 11.2 Summary of data for the strength of insolvency framework index in Croatia Answer Score Strength of insolvency framework index (0-16) 12.0 Commencement of proceedings index (0-3) 3.0 (a) Debtor may What procedures are available to a DEBTOR when commencing insolvency file for both 1.0 proceedings? liquidation and reorganization (a) Yes, a creditor Does the insolvency framework allow a CREDITOR to file for insolvency of may file for both 1.0 the debtor? liquidation and reorganization (c) Both (a) and (b) options are What basis for commencement of the insolvency proceedings is allowed available, but 1.0 under the insolvency framework? only one of them needs to be complied with Management of debtor's assets index (0-6) 4.0 Does the insolvency framework allow the continuation of contracts Yes 1.0 supplying essential goods and services to the debtor? Does the insolvency framework allow the rejection by the debtor of overly Yes 1.0 burdensome contracts? Does the insolvency framework allow avoidance of preferential Yes 1.0 transactions? Does the insolvency framework allow avoidance of undervalued Yes 1.0 transactions? Does the insolvency framework provide for the possibility of the debtor No 0.0 obtaining credit after commencement of insolvency proceedings? (c) No priority is Does the insolvency framework assign priority to post-commencement assigned to post- 0.0 credit? commencement creditors Reorganization proceedings index (0-3) 3.0 (b) Only creditors whose rights are Which creditors vote on the proposed reorganization plan? 1.0 affected by the proposed plan Does the insolvency framework require that dissenting creditors in Yes 1.0 reorganization receive at least as much as what they would obtain in a Doing Business 2017 Croatia 101 Answer Score liquidation? Are the creditors devided into classes for the purposes of voting on the reorganization plan, does each class vote separately and are creditors in Yes 1.0 the same class treated equally? Creditor participation index (0-4) 2.0 Does the insolvency framework require approval by the creditors for Yes 1.0 selection or appointment of the insolvency representative? Does the insolvency framework require approval by the creditors for sale No 0.0 of substantial assets of the debtor? Does the insolvency framework provide that a creditor has the right to No 0.0 request information from the insolvency representative? Does the insolvency framework provide that a creditor has the right to Yes 1.0 object to decisions accepting or rejecting creditors' claims? Source: Doing Business database. Doing Business 2017 Croatia 102 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 Croatia (table 11.3)? even viable businesses are liquidated. This is starting to Table 11.3 How has Croatia made resolving insolvency easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Croatia made resolving insolvency easier by introducing an DB2014 expedited out-of-court restructuring procedure. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Croatia 103 LABOR MARKET REGULATION Doing Business studies the flexibility of regulation of food retail sector and they apply even to firms employment, specifically as it relates to the areas of that are not party to them. hiring, working hours and redundancy. Doing Business  Abides by every law and regulation but does not also measures several aspects of job quality such as the grant workers more benefits than those availability of maternity leave, paid sick leave and the mandated by law, regulation or (if applicable) equal treatment of men and women at the workplace. collective bargaining agreements. Doing Business 2017 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and regulations as well as secondary sources are reviewed to ensure accuracy. To make the data comparable across economies, several assumptions about the worker and the business are used. The worker:  Is a cashier in a supermarket or grocery store, age 19, with one year of work experience.  Is a full-time employee.  Is not a member of the labor union, unless membership is mandatory. The business:  Is a limited liability company (or the equivalent in the economy).  Operates a supermarket or grocery store in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  Has 60 employees.  Is subject to collective bargaining agreements if such agreements cover more than 50% of the Doing Business 2017 Croatia 104 LABOR MARKET REGULATION Employment laws are needed to protect workers from the past 5 years did so in ways that increased labor arbitrary or unfair treatment and to ensure efficient market flexibility. What changes did Croatia adopt that contracting between employers and workers. Many affected the Doing Business indicators on labor market economies that changed their labor market regulation in regulation (table 12.1)? Table 12.1 What changes did Croatia make in terms of labor market regulation? DB year Reform DB2011 Croatia increased the mandatory paid annual leave. Croatia lifted the 3-year limit on the duration of first-time DB2015 fixed-term contracts. 1) Croatia eliminated the requirement to retrain or reassign employees before they can be made redundant. 2) In accordance with the Minimal Wage Act, Art. 1, published DB2016 in Official Gazette No.151/2014, the minimum wage has been increased from 3.017,61 Kuna/month to 3.029,55 Croatian Kuna/month gross salary, in force for the period of January 1, 2015 to December 31, 2015. Source: Doing Business database. Doing Business 2017 Croatia 105 LABOR MARKET REGULATION What are the details? The data reported here for Croatia are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Hiring Data on hiring cover five areas: (i) whether fixed-term minimum wage to the average value added per worker contracts are prohibited for permanent tasks; (ii) the (the ratio of an economy’s GNI per capita to the maximum cumulative duration of fixed-term contracts; working-age population as a percentage of the total (iii) the minimum wage for a cashier, age 19, with one population). year of work experience; and (iv) the ratio of the Hiring Data Fixed-term contracts prohibited for permanent tasks? Yes Pursuant to Article 12 (3) of Labour Act, there is no maximum duration of the first Maximum length of a single fixed-term contract (months) fixed-term contract that a worker concludes with an employer. Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 504.0 (US$/month) Ratio of minimum wage to value added per worker 0.3 Source: Doing Business database. Doing Business 2017 Croatia 106 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men*; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work; and (ix) the average paid annual leave for percentage of hourly pay); (iv) the premium for overtime workers with 1 year of tenure, 5 years of tenure, and 10 work (as a percentage of hourly pay); (v) whether there years of tenure. are restrictions on night work; (vi) whether nonpregnant Working Hours Data Maximum number of working days per week 6.0 Premium for night work (% of hourly pay) 10.0 Premium for work on weekly rest day (% of hourly pay) 35.0 Premium for overtime work (% of hourly pay) 50.0 Restrictions on night work? Yes Whether nonpregnant and nonnursing women can work the same night Yes hours as men Restrictions on weekly holiday? Yes Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 20.0 Paid annual leave for a worker with 5 years of tenure (working days) 20.0 Paid annual leave for a worker with 10 years of tenure (working days) 20.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 20.0 working days) Source: Doing Business database. Doing Business 2017 Croatia 107 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Redundancy rules Data Maximum length of probationary period (months) 6.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if one worker is dismissed? Yes Third-party approval if one worker is dismissed? No Third-party notification if nine workers are dismissed? Yes Third-party approval if nine workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? Yes Priority rules for reemployment? Yes Source: Doing Business database. Doing Business 2017 Croatia 108 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year of requirements and severance payments due when tenure, a worker with 5 years and a worker with 10 years terminating a redundant worker, expressed in weeks of is considered. One month is recorded as 4 and 1/3 salary. The average value of notice requirements and weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure 8.7 Notice period for redundancy dismissal for a worker with 10 years of tenure 10.7 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 7.9 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 0.0 Severance pay for redundancy dismissal for a worker with 5 years of tenure 7.2 Severance pay for redundancy dismissal for a worker with 10 years of tenure 14.4 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 7.2 of tenure) Source: Doing Business database. Doing Business 2017 Croatia 109 LABOR MARKET REGULATION Job quality Doing Business introduced new data on job quality in leave receive 100% of wages; (vi) the availability of five 2015. Doing Business 2017 covers eight questions on job fully paid days of sick leave a year; (vii) whether a worker quality (i) whether the law mandates equal remuneration is eligible for an unemployment protection scheme after for work of equal value; (ii) whether the law mandates one year of service; and (viii) the minimum duration of nondiscrimination based on gender in hiring; (iii) the contribution period (in months) required for whether the law mandates paid or unpaid maternity unemployment protection. leave; (iv) the minimum length of paid maternity leave (in . calendar days); (v) whether employees on maternity Job Quality Data Equal remuneration for work of equal value? Yes Gender nondiscrimination in hiring? No Paid or unpaid maternity leave mandated by law? Yes Minimum length of maternity leave (calendar days)? 208.0 Receive 100% of wages on maternity leave? Yes Five fully paid days of sick leave a year? Yes Unemployment protection after one year of employment? Yes Minimum contribution period for unemployment protection (months)? 9.0 Source: Doing Business database. Doing Business 2017 Croatia 110 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate even though it is no longer at the frontier in a measures: the distance to frontier score and the ease of subsequent year. doing business ranking, which is based on the distance For scores such as those on the strength of legal rights to frontier score. The ease of doing business ranking index or the quality of land administration index, the compares economies with one another; the distance to frontier is set at the highest possible value. For the total frontier score benchmarks economies with respect to tax rate, consistent with the use of a threshold in regulatory best practice, showing the absolute distance calculating the rankings on this indicator, the frontier is to the best performance on each Doing Business defined as the total tax rate at the 15th percentile of the indicator. When compared across years, the distance to overall distribution for all years included in the analysis frontier score shows how much the regulatory up to and including Doing Business 2015. For the time to environment for local entrepreneurs in an economy has pay taxes the frontier is defined as the lowest time changed over time in absolute terms, while the ease of recorded among all economies that levy the three major doing business ranking can show only how much the taxes: profit tax, labor taxes and mandatory regulatory environment has changed relative to that in contributions, and value added tax (VAT) or sales tax. For other economies. the different times to trade across borders, the frontier is Distance to Frontier defined as 1 hour even though in many economies the time is less than that. The distance to frontier score captures the gap between an economy’s performance and a measure of best In the same formulation, to mitigate the effects of practice across the entire sample of 41 indicators for 10 extreme outliers in the distributions of the rescaled data Doing Business topics (the labor market regulation for most component indicators (very few economies indicators are excluded). For starting a business, for need 700 days to complete the procedures to start a example, New Zealand has the smallest number of business, but many need 9 days), the worst performance procedures required (1), and New Zealand the shortest is calculated after the removal of outliers. The definition time to fulfill them (0.5 days). Slovenia has the lowest of outliers is based on the distribution for each cost (0.0), and Australia, Colombia and 111 other component indicator. To simplify the process two rules economies have no paid-in minimum capital were defined: the 95th percentile is used for the requirement (table 14.1 in the Doing Business 2017 indicators with the most dispersed distributions report). (including minimum capital, number of payments to pay taxes, and the time and cost indicators), and the 99th Calculation of the distance to frontier score percentile is used for number of procedures. No outlier is Calculating the distance to frontier score for each removed for component indicators bound by definition economy involves two main steps. In the first step or construction, including legal index scores (such as the individual component indicators are normalized to a depth of credit information index, extent of conflict of common unit where each of the 41 component interest regulation index and strength of insolvency indicators y (except for the total tax rate) is rescaled framework index) and the recovery rate (figure 14.1 in using the linear transformation (worst − y)/(worst − the Doing Business 2017 report). frontier). In this formulation the frontier represents the In the second step for calculating the distance to frontier best performance on the indicator across all economies score, the scores obtained for individual indicators for since 2005 or the third year in which data for the each economy are aggregated through simple averaging indicator were collected. Both the best performance and into one distance to frontier score, first for each topic the worst performance are established every five years and then across all 10 topics: starting a business, dealing based on the Doing Business data for the year in which with construction permits, getting electricity, registering they are established, and remain at that level for the five property, getting credit, protecting minority investors, years regardless of any changes in data in interim years. paying taxes, trading across borders, enforcing contracts Thus an economy may set the frontier for an indicator and resolving insolvency. More complex aggregation methods—such as principal components and unobserved components—yield a ranking nearly Doing Business 2017 Croatia 111 identical to the simple average used by Doing Business2. The nonlinear transformation is not based on any Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components 3. overall tax system. Instead, it is mainly empirical in nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2017 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 of the Doing Business 2017 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 of the Doing Business 2017 report). 2 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 3 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights Doing Business 2017 Croatia 112 Table 13.1 Weights used in calculating the distance to the most. First, it selects the economies that in 2015/16 frontier scores for economies with 2 cities covered implemented regulatory reforms making it easier to do business in 3 or more of the 10 topics included in this Economy City Weight (%) year’s aggregate distance to frontier score. Twenty-nine Dhaka 78 Bangladesh economies meet this criterion: Algeria; Azerbaijan; Chittagong 22 São Paulo 61 Bahrain; Belarus; Brazil; Brunei Darussalam; Burkina Faso; Brazil Rio de Janeiro 39 Côte d’Ivoire; Georgia; India; Indonesia; Kazakhstan; Shanghai 55 Kenya; Madagascar; Mali; Mauritania; Morocco; Niger; China Beijing 45 Pakistan; Poland; Senegal; Serbia; Singapore; Thailand; Mumbai 47 Togo; Uganda; the United Arab Emirates; Uzbekistan and India Delhi 53 Vanuatu. Second, Doing Business sorts these economies Jakarta 78 Indonesia on the increase in their distance to frontier score from Surabaya 22 Tokyo 65 the previous year using comparable data. Japan Osaka 35 Mexico City 83 Selecting the economies that implemented regulatory Mexico Monterrey 17 reforms in at least three topics and had the biggest Lagos 77 improvements in their distance to frontier scores is Nigeria Kano 23 intended to highlight economies with ongoing, broad- Karachi 65 based reform programs. The improvement in the Pakistan Lahore 35 distance to frontier score is used to identify the top Moscow 70 Russian Federation improvers because this allows a focus on the absolute St. Petersburg 30 improvement—in contrast with the relative improvement New York 60 United States Los Angeles 40 shown by a change in rankings—that economies have made in their regulatory environment for business. Source: United Nations, Department of Economic and Social Affairs, Population Division, World Urbanization Prospects, 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking The ease of doing business ranking ranges from 1 to 190. Economies that improved the most across 3 or more The ranking of economies is determined by sorting the Doing Business topics in 2015/16 aggregate distance to frontier scores, rounded to 2 Doing Business 2017 uses a simple method to calculate decimals. which economies improved the ease of doing business Doing Business 2017 Croatia 113 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 190 Contributors http://www.doingbusiness.org/rankings More than 12,500 specialists in 190 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 190 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 136 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, case studies and repreneurship customized economy and regional profiles http://www.doingbusiness.org/reports Distance to frontier Data benchmarking 190 economies to the frontier in Methodology regulatory practice and a distance to frontier The methodologies and research papers underlying calculator Doing Business http://www.doingbusiness.org/data/distance-to- http://www.doingbusiness.org/methodology frontier Research Information on good practices Abstracts of papers on Doing Business topics and Showing where the many good practices identified related policy issues by Doing Business have been adopted http://www.doingbusiness.org/research http://www.doingbusiness.org/data/good-practice Doing Business reforms Short summaries of DB2017 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2017 Croatia 114