Reforms in Eastern Europe and Central Asia, 2006-07
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Albania
Albania introduced a new fiscal package which reduced the tax burden on firms by lowering the corporate income tax by 3% and amending depreciation rates. Labor taxes and contributions were lowered by 9 percentage points.
Armenia
Armenia's new law introduces a number of important changes to the bankruptcy procedure, increasing the range of actions available to companies in reorganization. The law also excludes the debtor's founders, shareholders and partners from voting on a reorganization plan, and sets a two-day limit for the judge to decide whether to approve a plan. A private credit bureau started operating on February 1, 2007. It distributes credit information about firms and individuals, has no minimum loan requirement and guarantees all borrowers access to their credit reports. The implementation of an electronic data interchange system ("Direct Trader Input") allows customs brokers to submit declarations electronically to the customs offices. Still in its early stage, the new process already contributed to halving the time for document preparation to now 3 days. Electronic transmission also means less opportunity for corruption. Azerbaijan
Azerbaijan reduced company's profit tax by two points to 22% and social security contribution payable by the employer by 5 points to 22%, causing the Doing Business tax rate to fall by 1.2% points While new software now makes the filing of corporate income tax faster, more detailed reporting forms have increased the time to file for labor taxes. Azerbaijan abolished the requirement to obtain approval of the company seal design by the Ministry of Justice. The more efficient procedure results in a decrease in time from 52 to 30 days. Belarus
In an amendment, Belarus directly addressed approval and disclosure requirements for related-party transactions. The new law specifies the conditions for conducting joint-stock companies, limited liability companies, and added-liability companies and lays out the duties of its members. Therefore, Belrarus improved its score from 1 point to 5 in the disclosure index of the Doing Business' protecting investors indicator. Belarus implemented a one-stop combining company registration, seal design approval, and registrations with tax, statistical and social security authorities. This, together with a new notary fee schedule, results in a reduction in the number of procedures from 16 to 10, time from 69 to 48 days, and cost from 26% to 9% of GNIpc. Bosnia and Herzegovina
Bosnia and Herzegovina implemented a comprehensive customs reform project creating a new customs law and establishing a new customs administration which has lowered the time needed for trade. Bulgaria
Bulgaria lowered the tax burden on businesses by lowering corporate income tax, labor and one-off taxes, and through more widespread use of the online system. In the construction sector, inspections were made more transparent and liabilities are from now on more clearly defined after technical passports were introduced this year. Private bailiffs started working in May 2006 in Bulgaria, and it also amended its Judicial System Act in order to increase efficiency and transparency in the judicial system. Croatia
Croatia, the top reformer in the region, and second-ranked globally, significantly improved access to credit for businesses by implementing a unified system of securities registry and setting up a new private credit bureau, HROK. It also lowered the time and procedures for starting a business by enhancing the services through better implementation of the one-stop shop. Property registration time has been reduced gradually due to ongoing reforms at the Land Registry. Croatia also amended its Insolvency Act to set out professional requirements for bankruptcy trustees and reduce statutory time requirements.
Czech Republic
Czech Republic revised its labor code introducing changes in overtime work, wage premiums and minimum wage reducing time and difficulty of employing workers. It also reduced the time to obtain licenses by passing a new Building Act and implementing several regulations aimed at simplifying the building process. With the full implementation of the company registration reform, the time to register a new business decreased from 24 to 17 days. Estonia
Estonia amended its commercial code to introduce standard articles of association. If entrepreneurs use the model forms, company registration-done electronically and without notary involvement-can be completed in 1 day. A new, fixed fee schedule lowered registration costs. Overall implication: the number of procedure fell from 6 to 5, time from 35 to 7 days, and cost was more than halved. Georgia
Georgia's new law on insolvency procedure allots shorter time limits for the reorganization of a distressed company or the disposition of the debtor's assets, thus ensuring a more productive use of debtors' assets and an overall decrease in time. Georgia reformed the regulation of construction permits. The procedure for occupancy certificates was simplified (abandoning the need for a special commission), and time limits shortened (from 45 to 30). Water utility and electricity providers can now be approached as one administrative body, and project documentation was made easier. As a result, the time to obtain a construction license fell from 227 to 113 days. Adding retailers, utilities and trade creditors as suppliers of information, the private credit bureau now collects credit data from 17 out of Georgia 's 18 banks, microfinance institutions, cell phone and electricity companies, in addition to the courts. The Doing Business credit information index rose from 3 to 4. Georgia 's amended securities law now provides a definition of "interested parties in a transaction", and makes such transactions contingent on supervisory board or shareholder approval. Companies must disclose the transaction's information to the securities commission, as well as in the company's annual report. The law also requires all conflicts of interest to be disclosed to the supervisory board and improves ways for judicial redress. Pursuant to amendments to the Georgian law on entrepreneurs, tax authorities are now responsible for state and tax registration. In addition, the paid-in capital requirement was abolished. The revised Civil Code of Georgia , issued March 2007, in clause 183, states that notarization of a sales agreement is no longer necessary. The parties can register the agreement by simply signing it in person at the National Agency of Public Registry (NAPR). This option is already used in practice at NAPR as of July 2007. Therefore one procedure is cut, along with 3 days and a cost equal to 0.37% property value. In addition, another minor reform took place. The time needed to obtain an entrepreneurial registry excerpt of seller's/purchaser's registration from the district court has been reduced from 2-5 days to 2-3 days. Hungary
Hungary sped up the process for registering property by opening a second registry office in Budapest. The time needed to submit an application to the Land Registry Office and register the title decreased from 60-90 days to 30-90 days. It also amended the Bankruptcy Act to give secured creditors greater priority over their pledged security. Hungary introduced a new Company Act and a new Corporate Procedure Act introducing standardized forms, a "silent-is-consent" rule, and electronic registration. Kazakhstan
While Kazakhstan increased the environmental pollution fee on fuel and waste and flattened personal income tax at 10%, the country also increased depreciation rates and cut VAT by one point to 14%. It intends to reduce VAT further to 13% (2008) and 12% (2009). For this year's DB report, the total tax rate decreased by 2.8% points. Kyrgyz Republic
In Kyrgyz Republic corporate income tax was cut from 20% to 10% in 2006, social security contributions were abolished in 2006. Pension contributions dropped from 21% to 19% in 2006. In 2007, a new tax code will reduce VAT to 14% (as well as apply the flat rate of 10% to personal income tax.) . Although the Kyrgyz government reduced the cost for property registration in March 2006 by introducing a fixed fee for notarization of the sale agreement (as opposed to a percentage of property value,) a decree of the Council of Ministers increased this fee fourfold to KZS 40,000. In result, cost increased from 1.9% to 4.61% of property value. Macedonia FYR
Macedonia FYR decreased time to obtain a construction license through administrative reform of the Real Estate Registry. It lowered the corporate tax rate to 12% (with further reduction to 10% planned for 2008) and introduced a new e-tax service. Macedonia FYR also eliminated paid-in minimum capital requirement and is working on online registration system for business start-up. Moldova
Moldova revised its Code of Civil Procedure, Law on the Status of Judges, Law on the Judiciary and Law on the Supreme Judicial Counsel. It increased judges' salaries and introduced randomly assigning court cases to increase judicial independence. Moldova also decreased several taxes, including corporate income and labor taxes paid by businesses. Poland
Poland decreased the cost for registering property by passing and implementing a Law on Registry fees which changed the fee scheme from a variable rate to a fixed fee schedule. Poland changed the Code of Civil Procedure with the aim of increasing speed and efficiency of court proceedings. Poland also reformed its enforcement of judgment laws. Romania
Romania lowered several labor taxes paid by the employer, including social security, unemployment and health fund contributions. It also amended provisions of the Civil Procedure Code regarding enforcement. These regulatory changes have a positive impact on because management's control of company's assets is now suspended during reorganization and the parties may agree to an out-of -court enforcement. In addition, property registration was effected by a January 2007 law that abolished the authentication tax for transfers of immovable property (amounting to 0.5% property value in our case), but replaced it with another ‘income' tax on a scale. According to our hypothetical case, the applicable rate is RON 4000 plus 1% property value over RON 200,000. The overall result is an increase in total cost to transfer property. Furthermore, after implementing the order number 752/2006 of the Ministry of Finance, the time needed to obtain a fiscal certificate from the local fiscal authority has decreased from 2-30 days to 7-11 days. However, because this procedure is simultaneous with others, the overall effect on time is nil. Russian Federation
Since July 2006, the Moscow Committee for State Construction supervision is responsible for both construction permits and technical compliance. A new law requires the building authority to issue permits within 10 days from the receipt of all documents. A simple notification replaced the former requirement of a second formal authorization to begin construction after the construction permit has been granted. Companies are now required to purchase a license for connection to the electricity network, a measure to offset high demand, but resulted in a substantial increase in cost (by 3500 % of GNI). A private bureau, National Bureau of Credit Histories (NBKI), started operations in March 2006. A draft of the law dates back to 1992, but only increased consumer lending and the requirement for banks to submit credit data, made the reform possible. This afforded Russia to climb from 0 to 4 in DB's credit information index rose from 0 to 4. Slovenia
Slovenia lowered payroll taxes aiming to abolish them completely by 2009. It also lowered the corporate tax rate by 2%, with a plan to reduce by 1% every year until 2010. It also amended a provision of the Companies Act which requires a company to obtain a prior approval of the shareholders in case of 25% or more of the company's assets would be alienated. The public credit registry decreased the scope of the credit information collected, by increasing the minimum loan requirement from 0 to 500 Euros. Tajikistan
Tajikistan simplified the license regime, reducing the number of business activities subject to government approval from 114 to 66. One procedure was cut and time fell from 67 to 49 days. Turkey
Turkey lowered its interest tax and corporate income tax to 20%, and introduced and implemented online filing. It also reduced the time required for preparing trade documentation by implementing a Customs Modernization Project. Uzbekistan
In Uzbekistan a presidential decree for a special procedure for the voluntary liquidation of private companies was signed into force in April 2007. The decree specifies the state bodies required to participate in the procedure as well as all necessary documents; it also introduces a “one window”-concept to the procedure. Uzbekistan reduced corporate income tax further to 10% (effective January 2007), following its path from 18% (in 2004), 15% (in 2005) and 12% (in 2006;) CIT can now be paid quarterly, rather than monthly. The social security contribution payable by employers was reduced from 33% in 2004 to 24% in 2007 and the single tax payment rate applicable to micro-firms and small businesses was decreased from 13% to 10%. This reform decreased the DB total tax rate by 22.7% and the number of payments by 12. Following a decree, published June 7, 2006, the fee to notarize a property sale agreement is now calculated through a formula that takes into account the minimum wage. This results in a figure around 1% property value, a stark reduction compared to the former 10%. Uzbekistan eliminated substantive review at the registry, simplified internal proceedings and established clear rules for refusal of registration. Social insurance registration can now be done in a one-stop shop within 1 working day. Reforms save entrepreneurs 13 days.
