Reforms in Eastern Europe and Central Asia, 2007-08
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Albania
Albania, a top reformer globally and regionally, established a public credit registry allowing financial institutions to share credit information and covering 8.3 percent of the adult population. This reform allows banks to better evaluate the creditworthiness of potential borrowers, facilitating access to credit for firms and individuals. Albania also strengthened investor protections. A new company law requires that disinterested shareholders approve transactions between interested parties and obligates those parties to disclose all information on the transaction to the public. The law also reinforces directors’ duties and requires directors, when found liable, to pay damages and return profits to the company. Starting a business became easier with online publication, reduction of the registration cost, and the consolidation of tax, health insurance, and labor registration into a single application. The corporate income tax rate was reduced from 20 percent to 10 percent effective January 1, 2008.Areas of Reform: Starting a Business, Getting Credit (Information), Protecting Investors, Paying Taxes
Armenia
Armenia reorganized its court system and overhauled the procedural code. New requirements to front-load evidence eased contract enforcement, removing 1 procedure and reducing the time required to resolve commercial disputes. Armenia also significantly reduced the cost to obtain construction permits in Yerevan by abolishing “mandatory charitable contributions” paid to obtain the right to design.Areas of Reform: Dealing with Construction Permits, Enforcing Contracts
Azerbaijan
Azerbaijan, the top reformer globally and regionally, eliminated the minimum threshold for reporting loans to the public credit registry in September 2007. The public registry now records information on all loans made by the financial system, more than doubling the coverage of borrowers with a credit history. Substantial amendments to the labor code in May 2007 made hiring workers easier by allowing employers to use fixed-term contracts for permanent tasks, easing restrictions on night work, and reducing requirements for redundancy dismissals. Azerbaijan created a second commercial court in Baku, increasing the number of judges dealing with commercial cases from five to nine. The average time to enforce a contract through the courts fell from 267 days to 237. A new law strengthens investor protections by requiring that transactions between interested parties be approved by shareholders. Interested parties are allowed to vote on the matter. Other provisions protect investors because directors who are held liable must pay damages and disgorge profits. Azerbaijan introduced a new unified property registry, reducing the number of procedures required to register property from seven to four. In addition, the State Register Service introduced the option of expediting two of the four procedures, making it possible to register property in 11 days. Similarly, the country created a one-stop shop for company registration, cutting the number of procedures from 13 to six and reducing the time required by half. Azerbaijan reduced the tax burden by introducing an online filing and payment system with advanced accounting software for calculating taxes due. This saves more than 500 hours a year on average in dealing with paperwork.Areas of Reform: Starting a Business, Employing Workers, Registering Property, Getting Credit (Information), Protecting Investors, Paying Taxes, Enforcing Contracts
Belarus
In Belarus, a top reformer globally and regionally, the public credit registry expanded credit information by eliminating the minimum threshold for loans recorded in its database. It also guaranteed the right of borrowers to review their data, improving accuracy. Starting a business became easier: a unified registry database was created, a time limit was introduced for registration, and the minimum capital requirement was cut by half. Belarus created a one-stop shop for property registration and introduced a broad administrative simplification program that set strict time limits at the registry and computerized its records. As a result, the time required to register property in Minsk fell from 231 days to 21. The time required for dealing with construction permits fell by 140 days, thanks to new statutory time limits for preapproval clearances and building permits. Belarus eased the tax burden by abolishing the “Chernobyl tax” (3 percent) and unemployment tax (1 percent) and amending the simplified tax system for small businesses. A new customs code and new banking regulations reduced the time to export.Areas of Reform: Starting a Business, Dealing with Construction Permits, Registering Property, Getting Credit (Information), Paying Taxes, Trading across Borders
Bosnia and Herzegovina
Bosnia and Herzegovina tightened professional requirements for trustees to speed bankruptcy procedures. The corporate income tax rate was reduced from 30 percent to 10 percent effective January 1, 2008. Profit distribution (including dividends) is now tax exempt, and tax losses can be carried forward for five years. The computerization of files at the Land Registry in Sarajevo has sped property registration. As a result, the time required to transfer a title dropped by 203 days. The reform at the Land Registry has also benefited entrepreneurs dealing with construction permits, reducing the time to obtain a cadastre excerpt before construction and to register the newly completed building in the cadastre and land book by 171 days.Areas of Reform: Dealing with Construction Permits, Registering Property, Paying Taxes, Closing a Business
Bulgaria
Bulgaria passed two new laws- the Civil Procedure Code and the Law for the Commercial Registry- which will speed the resolution of bankruptcy. The Civil Procedure Code removed the requirement for the Supreme Cassation Court to hear all cases. Now the court can decide whether or not to hear a case. Bulgaria made business start-up easier by creating a central electronic database for commercial registration. This reform consolidated and reduced the number of registration procedures and cut other registration formalities. Amendments to the civil procedural code have helped speed contract enforcement. They reformed rules for evidence and default judgments, raised the minimum threshold for cases in the lower courts, and empowered the civil court of last instance to decide which cases to hear, limiting abuse of the appeals process. Bulgaria introduced a new Corporate Income Tax Act and a new Value Added Tax Act to synchronize local tax legislation with EU legislation. Dealing with construction permits has become more difficult. The fees for obtaining construction permits were increased by about 16 percent in 2008. Stricter environmental requirements mean that companies in Sofia now have to obtain a certificate of energy efficiency before and after construction. This adds 2 steps and 8 days for dealing with construction permits.Areas of Reform: Starting a Business, Paying Taxes, Enforcing Contracts, Closing a Business, Dealing with Construction Permits (making it more difficult)
Croatia
In Croatia a new building code came into force in October 2007 and made it easier to deal with construction permits by eliminating five procedures. Even so, the reform led to an administrative backlog for building and occupancy permits, increasing the overall time required by 20 days. Ongoing improvements to port infrastructure sped terminal handling for exports by two days.Areas of Reform: Dealing with Construction Permits, Trading across Borders
Estonia
In Estonia no major reforms were recorded.Georgia
Georgia’s private credit bureau now distributes a full range of information, including on-time repayment patterns and outstanding loan amounts. Coverage increased 20-fold, and banks can now have a better understanding of the payment patterns of potential borrowers. In addition, new regulations guarantee the right of borrowers to inspect their data at the private credit bureau, helping to improve the quality and accuracy of credit information. Amendments to the civil code, effective in December 2007, address secured transactions, allowing parties to a security agreement to agree to out-of-court enforcement of the creditor’s security right at the time the parties sign the security agreement. The corporate income tax rate was reduced from 20 percent to 15 percent, and the social tax abolished. A new online business registry makes it easier to register property by eliminating the requirement for legal entities to obtain several preregistration documents. This reform reduced the number of procedures required to transfer a title from five to two, and the time from five days to three. Registration fees were also reduced. Finally, amendments to the Law on Entrepreneurs made it easier to start a company by eliminating the requirements for a minimum capital, a company seal, and a company charter and by making the use of notaries optional.Areas of Reform: Starting a Business, Registering Property, Getting Credit, Paying Taxes
Kazakhstan
Kazakhstan’s private credit bureau is adding two new suppliers of information a month, including retailers (such as furniture companies) and utilities (such as the gas company). Borrower coverage increased by 80 percent in the past year. A new law introduced substantial changes to the property registration system, creating a unified registry for all land and buildings and establishing public service centers to handle property transactions in major cities. The law also eliminated requirements, cutting the number of procedures from eight to five and the time from 52 days to 40. A new labor law, adopted in May 2007, now obligates employers to reassign a worker before making the worker redundant.Areas of Reform: Registering Property, Getting Credit (Information), Employing Workers (making it more difficult)
Kyrgyz Republic
The Kyrgyz Republic, a top reformer globally and regionally, strengthened investor protections through legal amendments allowing minority investors to take legal actions as shareholders. The amendments also require an independent assessment of a related-party transaction before it is approved. Moreover, directors can be held liable for negligence if they harm minority shareholders and will be forced to pay damages and disgorge profits. A new one-stop shop made it easier to start a business by streamlining and simplifying business registration processes and eliminating certain requirements such as proof of residence. Obtaining a company seal became optional. Dealing with construction permits also became easier, thanks to a one-stop shop making it possible to obtain a designing permit, construction license, and occupancy permit at a single place. This reform eliminated nine steps, reduced the time required by almost 6 months, and lowered the cost from 759 percent of income per capita to 406 percent.Areas of Reform: Starting a Business, Dealing with Construction Permits, Protecting Investors
Latvia
Latvia’s new insolvency law made it possible for the first time for financially distressed companies to continue operating by pursuing reorganization. The reform also tightened the qualification standards for bankruptcy administrators. The State Land Service sped the registration of property by introducing an online database that allows registry employees to check the cadastral value of the real estate. That reduced the number of procedures from eight to seven, and the total time to register property from 54 days to 50.Areas of Reform: Registering Property, Closing a Business
Lithuania
Lithuania made it easier to register property by merging the procedure for obtaining the certificate of transaction with the notarization procedure. The reform reduced the number of procedures from three to two.Areas of Reform: Registering Property
Macedonia, former Yugoslav Republic
In the former Yugoslav Republic of Macedonia a new law on personal data protection allows borrowers to check their information at the credit registry, improving its quality and accuracy. The government continued to systematically equip courts with electronic case management systems, and the commercial court in Skopje became operational, speeding contract enforcement in commercial matters. The corporate income tax was reduced to 10 percent effective January 1, 2008. A new cadastre law and a staff increase at the cadastre office helped to reduce the time needed to register property from 98 days to 66. The one-stop shop system was updated to carry out the full range of business start-up processes, reducing both the number of procedures and the time required. The time required to export fell from 19 to 17 days and the time to import from 17 to 15 days, thanks to rationalization of the customs fee schedule and permit structure, improved risk-based inspections, simplification of a customs procedure, and the elimination of a document requirement.
Areas of Reform: Starting a Business, Registering Property, Getting Credit (Information), Paying Taxes, Trading across Borders, Enforcing Contracts
Moldova
Moldova passed a new law facilitating the creation of a private credit bureau. New laws on limited liability companies and company registration sped business registration by introducing statutory time limits. The time required to file an application with the State Registration Chamber fell from 15 days to 7, reducing the total time to start a company from 23 days to 15.Areas of Reform: Starting a Business, Getting Credit (Information)
Montenegro
Montenegro created a new public credit registry, increasing the coverage of borrowers from 0 to 26 percent of the adult population. The new registry will facilitate access to credit by providing lenders with credit information on potential borrowers. Obtaining construction permits takes longer compared to last year. Stricter compliance requirements introduced to conform with EU best practices led to an administrative backlog, increasing the time by 51 days.Areas of Reform: Getting Credit (Information), Dealing with Construction Permits (making it more difficult)
Poland
Poland strengthened bankruptcy procedures through a new law on trustee licensing that tightens professional requirements for administrators. Obtaining a trustee’s license now requires passing an exam in economics, law, finance, and management. The reform also limits trustees’ pay to maximum 3 percent of the bankrupt estate’s value, down from maximum 5 percent, increasing the recovery rate from 28 to 30 cents on the dollar.Areas of Reform: Closing a Business
Romania
Romania simplified the enforcement of judgments by eliminating the need for a separate enforcement order and allowing the attachment of credit balances and accounts receivable. The reform reduced the time to enforce contracts by a month from 537 days to 512 days.Areas of Reform: Enforcing Contracts
Russian Federation
In the Russian Federation no major reforms were recorded.Serbia
Serbia reduced the property transfer tax from 5 percent of the property value to 2.5 percent. The total cost to register a property fell from 5.37 percent of the property value to 2.85 percent. An administrative backlog at the Belgrade Municipality’s Construction Department added 75 days to the time for obtaining construction permits.Areas of Reform: Registering Property, Dealing with Construction Permits (making it more difficult)
Slovenia
In Slovenia the Employment Relationship Act of 2007 lowered the cost of redundancy dismissals by reducing the notice period from 75 days to 60 and made hiring workers easier by extending the maximum duration of fixed-term contracts. Another new law protects minority investors by allowing them to sue directors on behalf of the company. Slovenia also eased business start-up through single-access points that reduced the cost to establish limited liability companies and simplified administrative procedures. The number of procedures required to start a company fell from nine to five, and the time from 60 days to 19.Areas of Reform: Starting a Business, Employing Workers, Protecting Investors
Tajikistan
Tajikistan enhanced investor protections through a new law requiring that transactions between interested parties be approved by a shareholders meeting at which interested directors cannot vote. In addition, the transaction must be disclosed to the board of directors. The new law allows minority shareholders to sue directors on behalf of the company. Administrative backlogs in obtaining location permits added 160 days to the overall time for dealing with construction permits.Areas of Reform: Protecting Investors, Dealing with Construction Permits (making it more difficult)
Turkey
Turkey further strengthened investor protections through a new law requiring that an independent auditor assess transactions between interested parties before the transactions are approved.Areas of Reform: Protecting Investors
Ukraine
In Ukraine a new private credit bureau has made it easier to get credit by sharing credit information among financial institutions. Now banks can better assess the creditworthiness of potential borrowers. Ukraine eased the tax burden on businesses by reducing several social security tax rates including: pension fund, social security fund, and social insurance for accidents at work. Thanks to electronic tax filing systems, the time to pay taxes was reduced by 1237 hours per year. In trade, improvements to port infrastructure and services reduced the time to import by three days. The cost and time for dealing with construction permits increased. All new construction projects are now subject to an infrastructure tax. And an administrative backlog has added 42 days to the time.Areas of Reform: Getting Credit (Information), Paying Taxes, Trading across Borders, Dealing with Construction Permits (making it more difficult)
Uzbekistan
Uzbekistan established a private credit bureau and a public credit registry to share credit information among financial institutions. The credit registries will enable banks to better assess the creditworthiness of potential borrowers.Areas of Reform: Getting Credit (Information)