Doing Business 2017 Georgia Economy Profile 2017 Georgia Doing Business 2017 Georgia 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 Georgia 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 17 Dealing with conustruction permits ........................................................................................ 23 Getting electricity ....................................................................................................................... 34 Registering property .................................................................................................................. 44 Getting credit .............................................................................................................................. 55 Protecting minority investors ................................................................................................... 61 Paying taxes ................................................................................................................................ 69 Trading across borders .............................................................................................................. 75 Enforcing contracts .................................................................................................................... 82 Resolving insolvency .................................................................................................................. 90 Labor market regulation ......................................................................................................... 100 Distance to frontier and ease of doing business ranking .................................................... 107 Resources on the Doing Business website ............................................................................ 110 Doing Business 2017 Georgia 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 Georgia. To allow useful comparison, it also Doing Business 2017 Georgia 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 Georgia 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: Upper middle income businesses through their life cycle. Economies are ranked from 1 to 190 by the ease of doing business ranking. Population: 3,679,000 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 4,160 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2017 rank: 16 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2016 rank: 23* 0 represents the worst performance and 100 the frontier. Change in rank: 7 (See the chapter on the distance to frontier and ease of doing business). DB 2017 DTF: 80.2 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2016 DTF: 77.72 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 2.48 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 Georgia 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 Georgia 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 Georgia 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 Georgia 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Georgia (Scale: Rank 190 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Georgia (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 Georgia 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 Georgia 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 Georgia 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 Georgia Best performer globally Azerbaijan DB2017 Romania DB2017 Armenia DB2017 Bulgaria DB2017 Georgia DB2017 Georgia DB2016 Belarus DB2017 Turkey DB2017 Indicator DB2017 Starting a Business 8 10 9 5 31 82 62 79 1 (New Zealand) (Rank) Starting a Business (DTF 96.13 96.04 96.07 97.74 92.91 86.82 89.48 86.98 99.96 (New Zealand) Score) Procedure – Men 3.0 3.0 3.0 2.0 5.0 6.0 6.0 7.0 1.0 (New Zealand) (number) Time – Men (days) 3.0 3.0 4.0 3.0 5.0 23.0 12.0 6.5 0.5 (New Zealand) Cost – Men (% of 2.4 3.1 0.9 1.3 0.6 1.3 2.0 16.4 0.0 (Slovenia) income per capita) Procedure – Women 3.0 3.0 3.0 2.0 5.0 6.0 6.0 7.0 1.0 (New Zealand) (number) Time – Women (days) 3.0 3.0 4.0 3.0 5.0 23.0 12.0 6.5 0.5 (New Zealand) Cost – Women (% of 2.4 3.1 0.9 1.3 0.6 1.3 2.0 16.4 0.0 (Slovenia) income per capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.6 10.2 0.0 (127 Economies*) of income per capita) Dealing with 8 9 81 127 28 48 95 102 1 (New Zealand) Construction Permits Doing Business 2017 Georgia 12 Best performer globally Azerbaijan DB2017 Romania DB2017 Armenia DB2017 Bulgaria DB2017 Georgia DB2017 Georgia DB2016 Belarus DB2017 Turkey DB2017 Indicator DB2017 (Rank) Dealing with Construction Permits 82.84 82.77 70.03 63.63 78.32 75.06 68.67 67.86 87.40 (New Zealand) (DTF Score) Procedures (number) 7.0 7.0 18.0 18.0 16.0 16.0 20.0 18.0 7.0 (4 Economies*) Time (days) 48.0 48.0 84.0 203.0 115.0 105.0 171.0 103.0 28.0 (Korea, Rep.) Cost (% of warehouse 0.1 (Trinidad and 0.2 0.2 0.9 4.5 0.7 3.9 2.0 3.5 value) Tobago) Building quality control 7.0 7.0 8.0 12.0 13.0 13.0 13.0 9.5 15.0 (Luxembourg*) index (0-15) Getting Electricity 39 65 76 105 24 104 134 58 1 (Korea, Rep.) (Rank) Getting Electricity (DTF 82.73 76.15 73.17 64.83 86.01 64.97 56.48 79.66 99.88 (Korea, Rep.) Score) Procedures (number) 4.0 4.0 4.0 7.0 4.0 6.0 8.0 4.0 3.0 (15 Economies*) Time (days) 71.0 71.0 138.0 69.0 105.0 130.0 182.0 63.0 18.0 (Korea, Rep.*) Cost (% of income per 354.0 461.8 80.3 150.4 119.3 318.3 561.1 617.3 0.0 (Japan) capita) Reliability of supply and transparency of tariff 6.0 4.0 5.0 4.0 8.0 5.0 7.0 5.0 8.0 (26 Economies*) index (0-8) Registering Property 3 3 13 22 5 60 57 54 1 (New Zealand) (Rank) Registering Property 92.85 91.16 87.36 82.52 92.19 70.19 71.11 73.01 94.46 (New Zealand) (DTF Score) Procedures (number) 1.0 1.0 3.0 3.0 2.0 8.0 7.0 7.0 1.0 (4 Economies*) Doing Business 2017 Georgia 13 Best performer globally Azerbaijan DB2017 Romania DB2017 Armenia DB2017 Bulgaria DB2017 Georgia DB2017 Georgia DB2016 Belarus DB2017 Turkey DB2017 Indicator DB2017 Time (days) 1.0 1.0 7.0 8.5 3.0 11.0 21.0 7.0 1.0 (3 Economies*) Cost (% of property 0.0 0.1 0.2 0.2 0.0 2.9 1.4 4.0 0.0 (Saudi Arabia) value) Quality of the land administration index (0- 21.5 19.5 21.0 15.5 23.5 19.0 16.0 21.5 29.0 (Singapore) 30) Getting Credit (Rank) 7 7 20 118 101 32 7 82 1 (New Zealand) Getting Credit (DTF 85.00 85.00 75.00 40.00 45.00 70.00 85.00 50.00 100.00 (New Zealand) Score) Strength of legal rights 9.0 9.0 7.0 2.0 2.0 9.0 10.0 3.0 12.0 (3 Economies*) index (0-12) Depth of credit 8.0 8.0 8.0 6.0 7.0 5.0 7.0 7.0 8.0 (30 Economies*) information index (0-8) Credit registry coverage 0.0 0.0 0.0 36.4 70.1 66.9 16.8 76.6 100.0 (3 Economies*) (% of adults) Credit bureau coverage 88.6 74.5 71.1 0.0 0.0 0.0 51.1 0.0 100.0 (23 Economies*) (% of adults) Protecting Minority 7 22 53 32 42 13 53 22 1 (New Zealand*) Investors (Rank) Protecting Minority 76.67 68.33 60.00 65.00 63.33 73.33 60.00 70.00 83.33 (New Zealand*) Investors (DTF Score) Strength of minority investor protection 7.7 6.8 6.0 6.5 6.3 7.3 6.0 7.0 8.3 (New Zealand) index (0-10) Extent of conflict of interest regulation 7.7 7.7 6.3 7.7 5.7 6.7 6.0 6.7 9.3 (New Zealand) index (0-10) Extent of shareholder 7.7 6.0 5.7 5.3 7.0 8.0 6.0 7.3 8.3 (Norway) governance index (0- Doing Business 2017 Georgia 14 Best performer globally Azerbaijan DB2017 Romania DB2017 Armenia DB2017 Bulgaria DB2017 Georgia DB2017 Georgia DB2016 Belarus DB2017 Turkey DB2017 Indicator DB2017 10) 1 (United Arab Paying Taxes (Rank) 22 35 88 40 99 83 50 128 Emirates) Paying Taxes (DTF 99.44 (United Arab 87.43 83.75 72.49 83.52 70.4 72.81 81.64 60.83 Score) Emirates) Payments (number per 3.0 (Hong Kong SAR, 5.0 5.0 14.0 6.0 7.0 14.0 14.0 11.0 year) China*) Time (hours per year) 270.0 362.0 313.0 195.0 176.0 453.0 161.0 216.5 55.0 (Luxembourg) Total tax rate (% of 16.4 16.4 18.5 39.8 54.8 27.0 38.4 41.1 26.1 (32 Economies*) profit) Postfiling index (0-100) 87.2 49.1 81.0 50.0 73.3 79.6 3.9 98.5 (Estonia) Trading across Borders 54 62 48 83 30 21 1 70 1 (10 Economies*) (Rank) Trading across Borders 100.00 (10 85.15 80.59 86.45 72.28 93.71 97.41 100.00 79.71 (DTF Score) Economies*) Time to export: Border 14 14 39 29 5 4 0 16 0 (18 Economies*) compliance (hours) Cost to export: Border 383 383 100 214 108 55 0 376 0 (18 Economies*) compliance (USD) Time to export: Documentary 2 48 2 33 4 2 1 5 1 (25 Economies*) compliance (hours) Cost to export: Documentary 35 35 150 300 140 52 0 87 0 (19 Economies*) compliance (USD) Time to import: Border 15 15 41 30 1 1 0 41 0 (25 Economies*) compliance (hours) Doing Business 2017 Georgia 15 Best performer globally Azerbaijan DB2017 Romania DB2017 Armenia DB2017 Bulgaria DB2017 Georgia DB2017 Georgia DB2016 Belarus DB2017 Turkey DB2017 Indicator DB2017 Cost to import: Border 396 396 100 423 0 0 0 655 0 (28 Economies*) compliance (USD) Time to import: Documentary 2 24 2 38 4 1 1 11 1 (29 Economies*) compliance (hours) Cost to import: Documentary 189 189 100 200 0 0 0 142 0 (30 Economies*) compliance (USD) Enforcing Contracts 16 17 28 44 27 49 26 33 1 (Korea, Rep.) (Rank) Enforcing Contracts 73.21 73.21 69.71 65.66 70.36 65.09 71.08 68.87 84.15 (Korea, Rep.) (DTF Score) Time (days) 285.0 285.0 570.0 277.0 275.0 564.0 512.0 580.0 164.0 (Singapore) Cost (% of claim) 29.9 29.9 16.0 18.5 23.4 23.8 28.9 24.9 9.0 (Iceland) Quality of judicial 12.0 12.0 11.5 5.5 9.0 10.5 14.0 13.0 15.5 (Australia) processes index (0-18) Resolving Insolvency 106 101 78 86 69 48 49 126 1 (Finland) (Rank) Resolving Insolvency 40.02 40.24 46.06 44.77 49.08 59.38 59.16 34.98 93.89 (Finland) (DTF Score) Recovery rate (cents on 39.5 39.9 36.2 39.6 33.1 34.9 34.4 18.5 92.9 (Norway) the dollar) Time (years) 2.0 2.0 1.9 1.5 1.5 3.3 3.3 4.5 0.4 (22 Economies*) Cost (% of estate) 10.0 10.0 11.0 12.0 20.0 9.0 10.5 14.5 1.0 (22 Economies*) Strength of insolvency 6.0 6.0 8.5 7.5 10.0 13.0 13.0 8.0 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 Georgia 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 Georgia 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 Georgia 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 Georgia 19 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Georgia? mandatory for both men and women. Most indicator sets According to data collected by Doing Business, starting a refer to a case scenario in the largest business city of an business there requires 3.0 procedures , takes 3.0 days, economy, except for 11 economies for which the data costs 2.4% of income per capita for men, and requires are a population-weighted average of the 2 largest 3.0 procedures , takes 3.0 days, costs 2.4% of income per business cities. See the chapter on distance to frontier capita for women. A requirement of paid-in minimum and ease of doing business ranking at the end of this capital of 0.0% of income per capita (figure 2.1) is legally profile for more details. Figure 2.1 What it takes to start a business in Georgia Paid-in minimum capital (% of income per capita): 0.0 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 Georgia 20 STARTING A BUSINESS Globally, Georgia stands at 8 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 Georgia to The rankings for comparator economies and the regional start a business. Figure 2.2 How Georgia and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2017 Georgia 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 Georgia (table 2.1)? Table 2.1 How has Georgia made starting a business easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Georgia simplified business start-up by eliminating the DB2012 requirement to visit a bank to pay the registration 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 Georgia 22 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Georgia 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 firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid-in minimum capital requirement: GEL 0 the study of laws, regulations and publicly available City: Tbilisi information on business entry in that economy. Following is a detailed summary of those procedures, Start-up Capital: 10 times GNI per capita along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Georgia Time to No. Procedure Cost to complete complete Register the company with the Entrepreneurial Register and obtain an identification number and certificate of state and tax registration Statutorily, the registration process of the LLC shall commence once the applicant submits the following documents: (a) Application for Registration and (b) Document evidencing payment of a registration fee. The application must be signed by all founding partners of the company. The information contained in the application may be included in the charter of the company or partners' agreement (in this case no separate application shall be required). The application (or charter/partners agreement) need to be executed before a public notary. In addition, GEL 100 (regular though not specifically required by law, in accordance with the registration) or GEL registration instruction, the applicant must submit a document 1 day 200 (expedited 1 confirming lawful occupation of the premises to be used as a legal registration) + GEL address of the company (lease agreement) and the written consent of 1 (bank charges) the appointed director (manager) to serve on this position. A signature sample may also be accepted instead of the said consent. Submission of application for registration may be carried out by one of the founding partners of the Company (in which case the documents must be certified by notary preliminarily), the appointed director or by a person appointed by the partner (or partners) by virtue of a duly issued and certified power of attorney. In such cases as well, all documents to be submitted to the registration agency must be certified by notary preliminarily (i.e. execution of the documents in the registration agency itself is not an option). According to the amendment on registration of a company NAPR Doing Business 2017 Georgia 23 Time to No. Procedure Cost to complete complete requires companies to provide e-mail and alternative address, which differs from company's legal address, in order to simplify formal contact with the company (e.g.: for Revenue Service, administrative agencies, Courts, creditors, etc.). This regulation is mandatory upon initial registration of a company, as well as for registration of changes in constituent documents. Georgian legislation provides for a possibility to open a bank account while registering the company at NAPR. Agency: NAPR Open a bank account and pay registration fees Since January 2011, NAPR offers the option to open a bank account with a selected group of banks. It currently locates 3 major bank branches in the same building offering the customers the convenience 1 day no charge 2 to open a bank account at the time of company registration. Agency: Commercial Bank Registration for VAT According to Article 157 of the Tax Code of Georgia, “A person/entity, which carries out an economic activity and the total amount of VAT taxable transactions carried out in any continuous period up to 12 calendar months exceeds GEL 100 000”, shall apply for a VAT registration to Revenue Service under Ministry of Finance of Georgia. A company can also perform voluntary registration. In both cases, the company representative makes an application with 3 the request to register the company as a VAT taxpayer. The application 1 day no charge is made at the Revenue Service territorial service center. The applicant is considered as a VAT taxpayer from the moment of a such request. VAT taxpayer number in Georgia is the same as the Identification Number of the company, which is obtained while registering the company with the NAPR. Agency: Revenue Service under Ministry of Finance of Georgia * 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 Georgia 24 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 Georgia 25 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 Georgia 26 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build economy, except for 11 economies for which the data a warehouse in Georgia? 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 7.0 procedures, takes 48.0 days and costs 0.2% and ease of doing business ranking at the end of this of the warehouse value (figure 3.1). Most indicator sets profile for more details. refer to a case scenario in the largest business city of an Figure 3.1 What it takes to comply with formalities to build a warehouse in Georgia 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 Georgia 27 DEALING WITH CONSTRUCTION PERMITS Globally, Georgia stands at 8 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 Georgia to legally build a warehouse. Figure 3.2 How Georgia and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2017 Georgia 28 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 Georgia (table 3.1)? Table 3.1 How has Georgia made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Georgia made dealing with construction permits easier by DB2016 reducing the time needed for issuing building permits. 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 Georgia 29 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Georgia 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 GEL 418,978 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Tbilisi 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 Georgia Time to No. Procedure Cost to complete complete Request and obtain terms of construction from Tbilisi Architecture at the Tbilisi Hall Governmental Decree # 57 of March 24, 2009 on the Procedures and Conditions of Issuance of Construction Permit established that the Legal Entity of Public Law - Tbilisi Architecture under Tbilisi Hall has been created on the basis of Tbilisi Urban 1 Planning Service. All applications regarding construction permits 15 days no charge shall be submitted with Tbilisi Architecture. The process of obtaining construction permit is facilitated due to the introduction of online application system. Agency: Tbilisi Architecture at the Tbilisi Hall Request and obtain building permit from Tbilisi Architecture The cost is determined by the project value. According to Tbilisi Government Resolution No 2-21, as of February 28, 2008, the fee has been increased to GEL 1.00 per sq. m. and only the ground floor space is counted. Thus, the breakdown in the case considered here is 1300.6/2 x GEL 1.00 = GEL 650.30. According to GOG Resolution No. 57 as of March 24 2009, construction projects are classified into risk-based categories. 2 Depending on the complexity of each category, different types of 5 days GEL 650 procedures are to be followed by applicants. The first category is the lowest risk, and the fifth is the most complex one. The Doing Business case study warehouse falls under category III, which does not require project expertise and entails a simplified process of approval that also excludes the need for approval of Architectural-Construction Design. Agency: Tbilisi Architecture Doing Business 2017 Georgia 30 Time to No. Procedure Cost to complete complete Receive an inspection during construction from the Tbilisi Supervisory Service Agency The Tbilisi Supervisory Service Agency will conduct inspections twice a year or at its discretion to check whether there are any 1 day no charge 3 deviation from the approved project. Agency: Tbilisi Supervisory Service Agency Receive final inspection from the Tbilisi Supervisory Service Agency The Tbilisi Supervisory Service Agency will conduct a final 4 inspection after the completion of construction. 1 day no charge Agency: Tbilisi Supervisory Service Agency Request and receive connection to water and sewage service Having obtained the conditions from the water authority, BuildCo starts building the water and sewage pipes to the main water pipeline. Once there is a connection to the main pipeline, 5 the inspector from private water company (Georgian Water and 10 days no charge Power) comes to confirm the connection and sign the protocol. Agency: Georgian Water and Power Request and obtain exploitation of building construction from Tbilisi Supervisory Service Agency After the completion of construction and prior to registration at the Public Registry, BuildCo submits a request to the Department of Supervision of Tbilisi for a decision on completion/occupancy permission. The list of documents required for the submission 15 days no charge 6 are approved by the Resolution of Government of Georgia № 57 on March 24, 2009 "On the Procedures and Conditions of Issuance of Construction Permits", Article 96, Paragraph 3. Agency: Tbilisi Supervisory Service Agency Register the building with the National Public Registry The company must submit the document obtained in the previous procedure and the exploitation permit. The time line is faster under the Georgian Law on Registration of Rights on 1 day GEL 150 7 Immovable Property (December 28, 2005). Agency: National Public Registry * Takes place simultaneously with another procedure. Doing Business 2017 Georgia 31 Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2017 Georgia 32 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 Georgia Answer Score Building quality control index (0-15) 7.0 Which third-party entities are required by law to verify that the building plans are in compliance with existing building Licensed architect. regulations? (0-1) Quality of building regulations index (0-2) 1.0 How accessible are building laws and regulations in your Available online; Free of 1.0 economy? (0-1) charge. Which requirements for obtaining a building permit are clearly List of required specified in the building regulations or on any accessible website, documents; Fees to be 0.0 brochure or pamphlet? (0-1) paid. Quality control before construction index (0-1) 1.0 Which third-party entities are required by law to verify that the building plans are in compliance with existing building Licensed architect. 1.0 regulations? (0-1) Quality control during construction index (0-3) 2.0 Inspections by in-house engineer; Unscheduled What types of inspections (if any) are required by law to be inspections; No 1.0 carried out during construction? (0-2) inspections are legally 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 Yes, final inspection is done by government Is there a final inspection required by law to verify that the agency; Yes, in-house building was built in accordance with the approved plans and 2.0 engineer submits regulations? (0-2) report for final inspection. Final inspection always Do legally mandated final inspections occur in practice? (0-1) 1.0 occurs in practice. Doing Business 2017 Georgia 33 Answer Score Liability and insurance regimes index (0-2) 0.0 Which parties (if any) are held liable by law for structural flaws or problems in the building once it is in use (Latent Defect Liability Owner or investor. 0.0 or Decennial Liability)? (0-1) 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) 0.0 What are the qualification requirements for the professional There are no specific responsible for verifying that the architectural plans or drawings 0.0 requirements. are in compliance with existing building regulations? (0-2) What are the qualification requirements for the professional who There are no specific 0.0 supervises the construction on the ground? (0-2) requirements. Source: Doing Business database. Doing Business 2017 Georgia 34 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 Georgia 35 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 Georgia 36 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 Georgia? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 4.0 procedures, which the data are a population-weighted average of the takes 71.0 days and costs 354.0% 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 Georgia 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 Georgia 37 GETTING ELECTRICITY Globally, Georgia stands at 39 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 Georgia to connect The rankings for comparator economies and the regional a warehouse to electricity. Figure 4.2 How Georgia and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2017 Georgia 38 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in practices and internal wiring installations. In an effort to Georgia (table 4.1)? Table 4.1 How has Georgia made getting electricity easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Georgia made getting electricity easier by simplifying the DB2013 process of connecting new customers to the distribution network and reducing connection fees. Georgia increased the reliability of power supply by rolling out an electricity network remote monitoring system for the DB2017 monitoring of outages and also introduced penalties on the Utility for excessive outages. Source: Doing Business database. Doing Business 2017 Georgia 39 GETTING ELECTRICITY What are the details? The indicators reported here for Georgia 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: Telasi JSC 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): 9.8 professionals such as electrical engineers, electrical contractors and construction companies. The electricity City: Tbilisi 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 Georgia Time to No. Procedure Cost to complete complete Submit application to Telasi and await technical conditions and project design The application for an electricity connection can be submitted online or in person. It includes the applicant's bank account in order for the Utility company to pay the 50% fine if the prescribed time is not met. The applicant also submits a document certifying property rights or lending rights for the space/buildings where applicant’s electrical installation is located is attached to the application; and a receipt of payment of the 50% of the connection fee. 1 In a few days after the application has been submitted, Telasi visits the 16 calendar days GEL 29,661.02 premises during which the preliminary specifications of the connection are discussed. After the inspection, the 50% of the connection fee has to be paid if it has been suggested that the connection is to be 380/220 V. After the inspection technical conditions related to the external connection only and a project design which outlines in detail specifications of the connection are issued and the connection contract is signed. The Technical conditions generally include instructions for construction of a new substation; lining of high-voltage and low-voltage cables; in a case of reconstruction works - participation of the customer in the required works. Doing Business 2017 Georgia 40 Time to No. Procedure Cost to complete complete Agency: Telasi Receive external site inspection by Telasi After the application is submitted in order to prepare the technical conditions, Telasi carries out an external review of the site. Somebody *2 from the applicant’s party is required to be present during the review. 7 calendar days GEL 0 Agency: Telasi Await completion of external works by Telasi After the technical conditions are issued the external connection works can be completed by an electrical contractor and/or Telasi. Before the contractor can start his work he needs to receive a number of 3 permits for his work: from water agency (Водоканал), telephone agency, 51 calendar days GEL 0 Mayor’s office and other institutions depending on the whether the connection passes any roads, etc. Agency: Telasi Await and receive meter installation and electricity flow After the external connection works are completed the electrical contractor submits to Telasi a document certifying that the electrical installation is ready to be connected (акта о готовности объекта (электроприемников)). Telasi employees come to the site to check internal wiring and external works. The inspection has to be requested by mail attaching a document certifying that the electrical installation is ready to be connected. Someone from the applicant’s party has to be present during the inspection. At this stage the meter is installed by Telasi. After this inspection if everything is in order a Telasi employee will 4 visit the site and fills out a document certifying that the completed works 4 calendar days GEL 0 are in accordance with technical conditions (акт о соответствии работ) and delivers it to the department of Telasi in charge of turning on the electricity (диспетчерская служба). The electricity starts flowing. It is a common practice that a supply contract is not signed as there is a verbal agreement between the applicant and Telasi after the connection contract has been signed that electricity will be supplied at certain rates from the utility. If the applicant wishes, he can ask for the contract. Agency: Telasi Doing Business 2017 Georgia 41 * Takes place simultaneously with previous procedure. Source: Doing Business database. Doing Business 2017 Georgia 42 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 Georgia Answer Score Reliability of supply and transparency of tariff index (0-8) 6.0 Total duration and frequency of outages per customer a year (0-3) 2.0 System average interruption duration index (SAIDI) 3.58 System average interruption frequency index (SAIFI) 1.98 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) 0.0 Does the distribution utility use automated tools to restore service? No 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) 1.0 Does the utility either pay compensation to customers or face fines by Yes 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://telasi.ge/ru Doing Business 2017 Georgia 43 Answer Score /customers/tariffs Are customers notified of a change in tariff ahead of the billing cycle? Yes Price of electricity (US cents per kWh) 9.8 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 Georgia 44 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 Georgia 45 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 Georgia? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 1.0 procedures, takes which the data are a population-weighted average of the 1.0 days and costs 0.0% of the property value (figure 5.1). 2 largest business cities. See the chapter on distance to The score on the quality of land administration index is frontier and ease of doing business ranking at the end of 21.5 this profile for more details. Figure 5.1 What it takes to register property in Georgia 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 Georgia 46 REGISTERING PROPERTY Globally, Georgia stands at 3 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 Georgia to transfer property. Figure 5.2 How Georgia and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2017 Georgia 47 REGISTERING PROPERTY Economies worldwide have been making it easier for the time required substantially—enabling buyers to use entrepreneurs to register and transfer property—such as or mortgage their property earlier. What property by computerizing land registries, introducing time limits registration reforms has Doing Business recorded in for procedures and setting low fixed fees. Many have cut Georgia (table 5.1)? Table 5.1 How has Georgia made registering property easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Georgia improved the quality of land administration by DB2017 increasing coverage of all maps for privately held land plots in the main business city. 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 Georgia 48 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: GEL 418,978 notaries and property registries. These procedures are those that apply to a transaction matching the City: Tbilisi 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 Georgia Time to No. Procedure Cost to complete complete Register the purchaser’s title with the district Public Registry Expedited procedure: Super The sale purchase agreement is not required to be notarized, as of the fast procedure (1 amended Civil Code of March 2007, clause 183. The extract can be calendar day) - obtained by following ways: GEL 200; a) online, 1 business day (1- 2 calendar days)- b) visit to the Registry and get it there, 150 GEL (including c) in case of registering property via authorized entities (banks, notaries VAT (18%); or real estate companies) extract can be received on the spot. Same day Regular procedure procedure - 1 (4 business days) is The new online registry of property was launched in 2007-2008. Online calendar day 50 GEL (including business registry was launched in 2010. Above-mentioned registers are 1 business day (1- VAT (18%). 1 unified under the Georgian National Agency of Public Registry - NAPR 2 calendar days) (www.napr.gov.ge), which is widely used. Registration fees may be paid Regular at any commercial bank in Georgia. If registration is completed at the procedure (4 There is also an NAPR, the payment can be done with the bank representative, who is business days) option available to always presented at every NAPR office. Registration can be also apply for an conducted by an authorized users (all banks), notaries, real estate extract companies). In this registration fee is applied on the spot. Online payment of registration fee is also possible. electronically via the Georgian National Agency All properties in Tbilisi have been systematically transferred into the of Public Registry electronic database. All the system operations are fully computerized, (NAPR) website including Old Bureau of Technical Inventory files that have been with fees being as scanned. follows: 1 working day - 10 GEL (including VAT Doing Business 2017 Georgia 49 Time to No. Procedure Cost to complete complete The NAPR may conduct registration process and issue an Ownership (18%) and at the Certificate (exctract) at the same day of submission documents, in 1 day of application business day and in 4 days (ordinary registration procedure). - 40 GEL (including VAT (18%). The documentation shall include: (1) Sale and Purchase agreement (2) Copy of ID document of seller and buyer (3) Receipt confirming payment of Public Registry registration fee. It is also possible to submit the transaction at one of the 500 authorized users. These can be banks, notaries or real estate companies. These entities can verify the transaction and submit the purchase and sale agreement to the National Public Registry. The employees dealing with these transactions receive a training provided by the National Public Registry and a memorandum is signed between the National Public Registry and the entity. The most commonly used authorized users are banks. The authorized entity receiving the application will verify the identity of the buyer and seller, as well as the ownership of the property. Once the information is submitted though a specific software, the National public registry employee will verify again the ownership and the existence of the individuals (in the Civil registry database that they can access electronically) and process the transfer. Another software is used at this stage. Georgian legislation provides for the possibility of accelerated proceedings, therefore if the buyer wishes to register property transfer on the same day of submission of all necessary documents, the fee is respectively GEL 200. If registration is carried out on the day following the day of submission, the fee totals to GEL 150. GEL 50 is a fee paid for ordinary registration procedures, which take 4 business days following the submission of all required documents to the Public Registry. The payment is done at any commercial bank. There is also an option available to apply for an extract electronically via the Georgian National Agency of Public Registry (NAPR) website with fees being as follows: 1 working day - 10 GEL and at the day of application - 40 GEL. The 2% immovable property transfer tax has been abolished. A new Tax Code specifies “Income Tax” for physical persons and “Profit Tax” for Doing Business 2017 Georgia 50 Time to No. Procedure Cost to complete complete legal entities in case of property sale, only if sale of property takes place within 2 years after its purchase and equals to 20% (for physical persons) and 15% (for legal entities) of the difference between purchase and sale price. These are capital gains taxes. If the sale of property takes place after 2 years since its purchase, physical persons are exempted from paying "Income Tax". Agency: National Agency of Public Registry * 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 Georgia 51 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 Georgia Answer Score Quality of the land administration index (0-30) 21.5 Reliability of infrastructure index (0-8) 8.0 National Agency of Public Registry What is the institution in charge of immovable property registration? under Ministry of Justice of Georgia In what format are the majority of title or deed records kept in the Computer/Fully largest business city—in a paper format or in a computerized format 2.0 digital (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/Fully largest business city—in a paper format or in a computerized format 2.0 digital (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 agency and the cadastral or mapping agency kept in a single database, Single database 1.0 in different but linked databases or in separate databases? Do the immovable property registration agency and cadastral or Yes 1.0 mapping agency use the same identification number for properties? Transparency of information index (0–6) 4.5 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 Georgia 52 Answer Score http://napr.gov.g Link for online access: e/c/30 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://napr.gov.g Link for online access: e/p/455 Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property Yes, online 0.5 ownership within a specific time frame–and if so, how does it communicate the service standard? http://napr.gov.g Link for online access: e/c/30 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: 186 957 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://napr.gov.g Link for online access: e/p/455 Does the cadastral or mapping agency commit to delivering an updated map within a specific time frame—and if so, how does it Yes, online 0.5 communicate the service standard? http://napr.gov.g Link for online access: e/c/30 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) 2.0 Are all privately held land plots in the economy formally registered at No 0.0 the immovable property registry? Are all privately held land plots in the largest business city formally No 0.0 Doing Business 2017 Georgia 53 Answer Score registered at the immovable property registry? Are all privately held land plots in the economy mapped? No 0.0 Are all privately held land plots in the largest business city mapped? Yes 2.0 Land dispute resolution index (0–8) 7.0 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 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; Notary. 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 Yes 1.0 documents? For a standard land dispute between two local businesses over tenure rights of a property worth 50 times gross national income (GNI) per Tbilisi City Court capita and located in the largest business city, what court would be in charge of the case in the first instance? 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? Number of land disputes in the largest business city in 2015: 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? Doing Business 2017 Georgia 54 Source: Doing Business database. Doing Business 2017 Georgia 55 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 Georgia 56 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Georgia stands at 7 in the ranking of 190 and bankruptcy laws in Georgia facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 8.0 on the depth of rankings for comparator economies provide other useful credit information index and a score of 9.0 on the information for assessing how well regulations and strength of legal rights index (see the summary of institutions in Georgia support lending and borrowing. scoring at the end of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Georgia and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2017 Georgia 57 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Georgia 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 Georgia 58 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access 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 Georgia (table 6.1)? Table 6.1 How has Georgia made getting credit easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Georgia improved access to credit by implementing a central DB2011 collateral registry with an electronic database accessible online. Georgia expanded access to credit by amending its civil code to DB2012 broaden the range of assets that can be used as collateral. Georgia strengthened its secured transactions system through DB2013 an amendment to the civil code allowing a security interest to extend to the products, proceeds and replacement of collateral. Georgia improved its credit information system by DB2014 implementing a new law on personal data protection. 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 Georgia 59 GETTING CREDIT What are the details? The getting credit indicators reported here for Georgia 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: 9.0 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 1 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 1 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 information 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 1 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 1 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 Georgia 60 Strength of legal rights index (0–12) Index score: 9.0 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: 8.0 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 - Yes No 1 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 Yes No 1 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 2,181,969 0 Number of firms 56,540 0 Total 2,238,509 0 Total percentage of adult population 88.6 0.0 Source: Doing Business database. Doing Business 2017 Georgia 61 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 Georgia 62 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 Georgia 63 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 Georgia? The economy has a score of 7.7 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, Georgia stands at 7 in the ranking of 190 economies on the strength of minority investor Figure 7.1 How Georgia and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2017 Georgia 64 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 Georgia. Figure 7.2 Summary of the various minority investor protection indices for Georgia and comparator economies. Source: Doing Business database. Doing Business 2017 Georgia 65 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 Georgia (table 7.1)? Table 7.1 How has Georgia strengthened minority investor protections—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Georgia strengthened investor protections by allowing greater DB2011 access to corporate information during the trial. Georgia strengthened investor protections by introducing DB2012 requirements relating to the approval of transactions between interested parties. Georgia strengthened minority investor protections by increasing shareholder rights and role in major corporate DB2017 decisions and by clarifying ownership and control structures. 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 Georgia 66 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Georgia 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 Georgia. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Georgia Answer Score Strength of minority investor protection index (0-10) 7.7 Extent of conflict of interest regulation index (0-10) 7.7 Extent of disclosure index (0-10) 9.0 Which corporate body is legally sufficient to approve the Shareholders excluding interested 3.0 Buyer-Seller transaction? (0-3) 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 Disclosure on the transaction and 2.0 public and/or shareholders? (0-2) on the conflict of interest 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 unfair or prejudicial 2.0 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 Only in case of fraud or bad faith 0.0 shareholders? (0-2) Ease of shareholder suits index (0-10) 8.0 Before suing can shareholders representing 10% of Buyer's No 0.0 share capital inspect the transaction documents? (0-1) Can the plaintiff obtain any documents from the defendant Any relevant document 3.0 and witnesses at trial? (0-3) Can the plaintiff request categories of documents from the Yes 1.0 Doing Business 2017 Georgia 67 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) 7.0 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 No 0.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the No 0.0 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 Yes 1.0 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) 8.0 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 No 0.0 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 Yes 1.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer No 0.0 Doing Business 2017 Georgia 68 distribute profits within a maximum period set by law after the declaration date? Extent of corporate transparency index (0-10) 8.0 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 Yes 1.0 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 Yes 1.0 meet at least once a year? Assuming that Buyer is a limited company, can members Yes 1.0 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 No 0.0 auditor? Source: Doing Business database. Doing Business 2017 Georgia 69 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 Georgia 70 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 Georgia 71 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 Georgia—and sets refer to a case scenario in the largest business city of how much do firms pay in taxes? Globally, Georgia an economy, except for 11 economies for which the data stands at 22 in the ranking of 190 economies on the ease are a population-weighted average of the 2 largest of 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 Georgia (see table 8.2 and table . Figure 8.1 How Georgia and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2017 Georgia 72 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 Georgia (table 8.1)? Table 8.1 How has Georgia made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Georgia made paying taxes easier for firms by simplifying the DB2012 reporting for value added tax and introducing electronic filing and payment of taxes. Georgia made paying taxes easier for companies by enhancing DB2013 the use of electronic systems and providing more services to taxpayers. Georgia made paying taxes easier by abolishing additional DB2017 annex to corporate income tax returns and by improving the efficiency of the online system used for filing VAT returns. 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 Georgia 73 PAYING TAXES What are the details? The indicators reported here for Georgia are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Tbilisi 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 all fixed Property tax 1 online 1% assets 2.08 minus land taxable Corporate income tax 1 online 120 15% 14.28 profit GEL 0.24 per sq. Land tax 1 online meter of land area 0.04 nonagricult ural land value not Value added tax (VAT) 1 online 94 18% 0.00 added included Personal income tax 1 online 56 20% 0.00 withheld Doing Business 2017 Georgia 74 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 Totals 5.0 270.0 16.4 Source: Doing Business database. Doing Business 2017 Georgia 75 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 Georgia 76 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 Georgia 77 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Borders indicator refers to a case Globally, Georgia stands at 54 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 Georgia and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2017 Georgia 78 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 Georgia (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Georgia made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Georgia reduced the time to export and import by creating DB2013 customs clearance zones. Georgia made export and import documentary compliance faster by improving its electronic document processing DB2017 system, as well as, introduced an advanced electronic document submission option. 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 Georgia 79 TRADING ACROSS BORDERS What are the details? The indicators reported here for Georgia are based LOCATION OF STANDARDIZED COMPANY on 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 City: Tbilisi combination of these). The information on the time and cost to complete export and import is collected The details on the predefined set of procedures, and the from local freight forwarders, customs brokers and associated time and cost, for exporting and importing a traders. 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 Georgia Georgia Europe & Central Asia Time to export: Border compliance (hours) 14 28 Cost to export: Border compliance (USD) 383 195 Time to export: Documentary compliance (hours) 2 27 Cost to export: Documentary compliance (USD) 35 111 Time to import: Border compliance (hours) 15 26 Cost to import: Border compliance (USD) 396 202 Time to import: Documentary compliance (hours) 2 26 Cost to import: Documentary compliance (USD) 189 91 Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Georgia Export Import HS 8708: Parts and accessories Product HS 72 : Iron and steel of motor vehicles Trade partner Turkey Germany Border Poti port Poti port Distance (km) 334 334 Domestic transport time (hours) 10 7 Domestic transport cost (USD) 460 464 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. Doing Business 2017 Georgia 80 Documents to export Commercial invoice Customs Export Declaration Bill of lading CMR waybill Delivery Order Documents to import Commercial invoice Bill of lading CMR waybill Customs Import Declaration TIR 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 Georgia 81 Figure 9.2 Summary of Georgia on the ease of trading across borders Export Import Source: Doing Business database. Doing Business 2017 Georgia 82 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 Georgia 83 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial frontier and ease of doing business ranking at the end of dispute through the courts in Georgia? According to this profile for more details. data collected by Doing Business, contract enforcement Globally, Georgia stands at 16 in the ranking of 190 takes 285.0 days and costs 29.9% of the value of the economies on the ease of enforcing contracts (figure claim. Most indicator sets refer to the largest business 10.1). The rankings for comparator economies and the city of an economy, except for 11 economies for which regional average provide other useful benchmarks for the data are a population-weighted average of the 2 assessing the efficiency of contract enforcement in largest business cities. See the chapter on distance to Georgia. Figure 10.1 How Georgia and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2017 Georgia 84 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 Georgia (table 10.1)? technology. Lower-income economies often work on Table 10.1 How has Georgia made enforcing contracts easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Georgia made the enforcement of contracts easier by streamlining the procedures for public auctions, introducing DB2011 private enforcement officers and modernizing its dispute resolution system. Georgia made enforcing contracts easier by simplifying and DB2013 speeding up the proceedings for commercial disputes. Georgia made enforcing contracts easier by introducing an DB2016 electronic filing system for court users. 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 Georgia 85 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for Georgia 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: GEL 12,846 10.2). The time and cost of resolving the standardized dispute are identified through study of Court name: Tbilisi Civil Court the codes of civil procedure and other court regulations, as well as through questionnaires City: Tbilisi 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 Georgia and comparator economies Source: Doing Business database. Doing Business 2017 Georgia 86 Table 10.2 Details on time and cost for enforcing contracts in Georgia Europe & Central Indicator Georgia Asia average Time (days) 285 486 Filing and service 35 Trial and judgment 100 Enforcement of judgment 150 Cost (% of claim) 29.9 26.6 Attorney fees 18.0 Court fees 5.0 Enforcement fees 6.9 Source: Doing Business database. Doing Business 2017 Georgia 87 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 Georgia (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 Georgia and comparator economies Doing Business 2017 Georgia 88 Source: Doing Business database. Table 10.3 Details of the quality of judicial processes index in Georgia Answer Score Quality of judicial processes index (0-18) 12.0 Court structure and proceedings (0-5) 3.0 1. Is there a court or division of a court dedicated solely to hearing No 0.0 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, but manual 0.5 5. Does a woman's testimony carry the same evidentiary weight in Yes 0.0 court as a man's? Case management (0-6) 4.5 1. Time standards 0.0 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? No 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 Georgia 89 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) 2.5 1. Can the initial complaint be filed electronically through a dedicated Yes 1.0 platform within the competent court? 2. Is it possible to carry out service of process electronically for claims Yes 1.0 filed before the competent court? 3. Can court fees be paid electronically within the competent court? No 0.0 4. Publication of judgments 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public through publication in official gazettes, No 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) 2.0 1. Arbitration 1.0 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 Yes 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 No 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 Yes court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2017 Georgia 90 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 Georgia 91 RESOLVING INSOLVENCY Where does the economy stand today? Globally, Georgia stands at 106 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 Georgia and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2017 Georgia 92 RESOLVING INSOLVENCY Recovery of debt in insolvency Data on the time, cost and outcome refer to the most average recovery rate is 39.5 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 2.0 years on average and costs 10.0% 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 Georgia 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 Georgia 93 Table 11.1 Details of data on efficiency of insolvency proceedings in Georgia Indicator Answer Explanation BizBank is most likely to initiate liquidation proceedings, because it would want to sell the assets as soon as possible. As a secured creditor, BizBank can Proceeding liquidation prevent the use of reorganization procedure. It also holds 74% of the debt, which would allow it to select a representative to the Conciliation Council - a body that decides whether liquidation or reorganization should be pursued. Hotel's assets will be sold at a public auction. At the first auction, the assets must be sold as a whole. If they are not sold at the first auction, the creditors may authorize a piecemeal sale during the second auction and the price will be Outcome piecemeal sale decreased (Article 38 of the Law on Insolvency Proceedings). It is likely to be difficult to find a buyer for the hotel as a going concern, therefore, the most likely outcome is a piecemeal sale. It takes 2 years to complete liquidation proceedings in Georgia, because statutory deadlines are not always complied with. In particular, it may take a year for the first meeting of the creditors to take place. As a first step, BizBank will commence liquidation proceedings with the Tbilisi City Court. The court will review the materials and accept the case for consideration. Once the case is accepted, the National Enforcement Bureau will be appointed as a trustee/supervisor (Article 26 of the Law on Insolvency Proceedings) and the date for the first meeting of the creditors is set (Article 21 of the Law on Insolvency Proceedings). The trustee will inform the creditors about the opening of the insolvency proceedings by publication, will assume control over the management of the debtor company, examine its financials and prepare a Time (in 2.0 report on the insolvency of the debtor (Article 26 of the Law on Insolvency years) Proceedings). Creditors submit their claims, and then present them at the first meeting of the creditors. The judge makes a decision whether to accept or reject the claim after consulting with the trustee (Article 29 of the Law on Insolvency Proceedings). Conciliation Council will be appointed (the debtor and the creditors will each appoint one member and the two will elect the third member) (Article 32 of the Law on Insolvency Proceedings). The Conciliation Council will decide whether to proceed with liquidation or with reorganization (Article 33 of the Law on Insolvency Proceedings). Once the decision to liquidate the debtor is made, the creditors will appoint a liquidation manager (Article 37 of the Law on Insolvency Proceedings). Debtor's assets will be sold at an auction organized by the National Enforcement Bureau. Around 7% of the value of the estate will be paid to the National Bureau of Enforcement for their service as an insolvency trustee and 1% of the value of the estate will be paid to the National Bureau of Enforcement acting as an Cost (% of 10.0 auctioneer (Article 9 of the Order No 144 of the Minister of Justice, dated July estate) 30, 2010). Other expenses will include attorneys' fees and remuneration of the bankruptcy manager, if someone other than the National Bureau of Enforcement is appointed. Recovery rate: 39.5 Source: Doing Business database. Doing Business 2017 Georgia 94 Doing Business 2017 Georgia 95 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. Georgia’s score on the index, reorganization proceedings index and creditor strength of insolvency framework index is 6.0 out of 16. participation index. The index ranges from 0 to 16, Data on 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 Georgia and comparator economies Source: Doing Business database. Doing Business 2017 Georgia 96 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 Georgia 97 Table 11.2 Summary of data for the strength of insolvency framework index in Georgia Answer Score Strength of insolvency framework index (0-16) 6.0 Commencement of proceedings index (0-3) 1.5 (b) Debtor may What procedures are available to a DEBTOR when commencing insolvency file for liquidation 0.5 proceedings? only Does the insolvency framework allow a CREDITOR to file for insolvency of N/A 0.0 the debtor? (a) Debtor is What basis for commencement of the insolvency proceedings is allowed generally unable 1.0 under the insolvency framework? to pay its debts as they mature Management of debtor's assets index (0-6) 3.5 Does the insolvency framework allow the continuation of contracts No 0.0 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 No 0.0 transactions? Does the insolvency framework provide for the possibility of the debtor Yes 1.0 obtaining credit after commencement of insolvency proceedings? (a) Yes over all pre- Does the insolvency framework assign priority to post-commencement commencement 0.5 credit? creditors, secured or unsecured Reorganization proceedings index (0-3) 0.0 (c) Other, please Which creditors vote on the proposed reorganization plan? 0.0 specify Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as what they would obtain in a No 0.0 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 No 0.0 the same class treated equally? Doing Business 2017 Georgia 98 Answer Score Creditor participation index (0-4) 1.0 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 No 0.0 object to decisions accepting or rejecting creditors' claims? Source: Doing Business database. Doing Business 2017 Georgia 99 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 Georgia (table 11.3)? even viable businesses are liquidated. This is starting to Table 11.3 How has Georgia made resolving insolvency easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Georgia improved insolvency proceedings by streamlining the DB2011 regulation of auction sales. Georgia expedited the process of resolving insolvency by DB2013 establishing or tightening time limits for all insolvency-related procedures, including auctions. 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 Georgia 100 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 Georgia 101 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 Georgia 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 Georgia make in terms of labor market regulation? DB year Reform Georgia reduced the maximum duration of fixed-term DB2015 contracts and introduced a notice period for redundancy dismissals. Source: Doing Business database. Doing Business 2017 Georgia 102 LABOR MARKET REGULATION What are the details? The data reported here for Georgia 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? No 30 months - but if the next fixed term labour agreement is concluded after 60 days after the initial agreement expires it should be considered as fixed term agreement. At the same time, this Maximum length of a single fixed-term contract (months) regulation does not apply to company during 48 month of its registration (it is considered as a newly established company) (Labour Code of Georgia Art. 6, Par1 prim 3 and prim 4) Maximum length of fixed-term contracts, including renewals (months) 30.0 Minimum wage applicable to the worker assumed in the case study 19.9 (US$/month) Ratio of minimum wage to value added per worker 0.0 Source: Doing Business database. Doing Business 2017 Georgia 103 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 7.0 Premium for night work (% of hourly pay) 0.0 Premium for work on weekly rest day (% of hourly pay) 0.0 Premium for overtime work (% of hourly pay) 0.0 Restrictions on night work? No Whether nonpregnant and nonnursing women can work the same night Yes hours as men Restrictions on weekly holiday? No Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 24.0 Paid annual leave for a worker with 5 years of tenure (working days) 24.0 Paid annual leave for a worker with 10 years of tenure (working days) 24.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 24.0 working days) Source: Doing Business database. Doing Business 2017 Georgia 104 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? No Third-party approval if one worker is dismissed? No Third-party notification if nine workers are dismissed? No Third-party approval if nine workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2017 Georgia 105 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 4.3 Notice period for redundancy dismissal for a worker with 10 years of tenure 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure 4.3 Severance pay for redundancy dismissal for a worker with 10 years of tenure 4.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Source: Doing Business database. Doing Business 2017 Georgia 106 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? No Gender nondiscrimination in hiring? No Paid or unpaid maternity leave mandated by law? Yes Minimum length of maternity leave (calendar days)? 183.0 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? No Minimum contribution period for unemployment protection (months)? n.a. Source: Doing Business database. Doing Business 2017 Georgia 107 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 Georgia 108 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 Georgia 109 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 Georgia 110 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 Georgia 111