82858 Economy Profile: Honduras Doing Business 2014 Honduras 2 © 2013 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Cover design: The Word Express Doing Business 2014 Honduras 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 34 Registering property .................................................................................................................. 42 Getting credit .............................................................................................................................. 50 Protecting investors ................................................................................................................... 57 Paying taxes ................................................................................................................................ 66 Trading across borders .............................................................................................................. 73 Enforcing contracts .................................................................................................................... 81 Resolving insolvency .................................................................................................................. 91 Employing workers .................................................................................................................... 96 Data notes ................................................................................................................................. 103 Resources on the Doing Business website ............................................................................ 109 Doing Business 2014 Honduras 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2012). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 189 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 47 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 25 in East Asia and the Pacific, 25 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 20 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2014 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Honduras. To allow useful comparison, it business regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2014, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2013 (except for http://www.doingbusiness.org. Doing Business 2014 Honduras 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: Latin America & Caribbean business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of Population: 7,935,846 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 2,070 percentile rankings on each of the 10 topics included in the index in Doing Business 2014: starting a business, DB2014 rank: 127 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2013 rank: 125* investors, paying taxes, trading across borders, Change in rank: -2 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the DB 2014 DTF: 58.11 percentile rankings on its component indicators (see the data notes for more details). The employing workers DB 2013 DTF: 58.22 indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented Change in DTF: -0.09 in this year’s economy profile. The aggregate ranking on the ease of doing business * DB2013 ranking shown is not last year’s published benchmarks each economy’s performance on the ranking but a comparable ranking for DB2013 that indicators against that of all other economies in the captures the effects of such factors as data Doing Business sample (figure 1.1). While this ranking corrections and the addition of 4 economies (Libya, tells much about the business environment in an Myanmar, San Marino and South Sudan) to the economy, it does not tell the whole story. The ranking on sample this year. See the data notes for sources and the ease of doing business, and the underlying definitions. indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2014 Honduras 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2014 Honduras 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Honduras and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2014 Honduras 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Honduras ranks on Doing Business topics Source: Doing Business database. Doing Business 2014 Honduras 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far on average an Yearly movements in rankings can provide some indication economy is from the best performance achieved by any of changes in an economy’s regulatory environment for economy on each Doing Business indicator since 2005, firms, but they are always relative. except for the getting electricity indicators, which were introduced in 2009. Moreover, year-to-year changes in the overall rankings do not reflect how the business regulatory environment in an Comparing the measure for an economy at 2 points in economy has changed over time—or how it has changed time allows users to assess how much the economy’s in different areas. To aid in assessing such changes, regulatory environment as measured by Doing Business has changed over time—how far it has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.4). Figure 1.4 How far has Honduras come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 Honduras 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist — numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Honduras Best performer globally El Salvador DB2014 Guatemala DB2014 Costa Rica DB2014 Nicaragua DB2014 Honduras DB2014 Honduras DB2013 Colombia DB2014 Mexico DB2014 Indicator DB2014 Starting a Business 162 158 79 102 148 145 48 123 New Zealand (1) (rank) Procedures (number) 13 13 9 9 8 6 6 7 New Zealand (1)* Time (days) 14.0 14.0 15.0 24.0 16.5 19.5 6.0 36.0 New Zealand (0.5) Cost (% of income per 45.3 45.9 7.5 9.5 45.5 46.4 19.7 77.0 Slovenia (0.0) capita) Paid-in Min. Capital (% 15.2 15.7 0.0 0.0 2.8 19.6 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 83 60 24 82 144 61 40 152 China (1) (rank) Hong Kong SAR, Procedures (number) 13 13 8 14 24 11 11 16 China (6) Time (days) 109.0 94.0 54.0 123.0 144.0 107.0 82.0 208.0 Singapore (26.0) Doing Business 2014 Honduras 11 Best performer globally El Salvador DB2014 Guatemala DB2014 Costa Rica DB2014 Nicaragua DB2014 Honduras DB2014 Honduras DB2013 Colombia DB2014 Mexico DB2014 Indicator DB2014 Cost (% of income per 350.9 274.3 295.4 137.0 157.0 414.9 353.1 249.4 Qatar (1.1) capita) Getting Electricity 125 119 101 47 154 34 133 114 Iceland (1) (rank) Procedures (number) 8 8 5 5 8 4 7 6 10 Economies (3)* Time (days) 33 33 105 62 88 39 85 55 Germany (17) Cost (% of income per 968.5 997.9 541.6 226.9 563.1 548.8 369.1 1,082.5 Japan (0.0) capita) Registering Property 94 94 53 46 59 23 150 135 Georgia (1) (rank) Procedures (number) 7 7 7 5 5 4 7 8 4 Economies (1)* Time (days) 23.0 23.0 13.0 19.0 31.0 23.0 74.0 49.0 New Zealand (1.0)* Cost (% of property 5.7 5.7 2.0 3.4 3.8 0.8 5.3 5.0 5 Economies (0.0)* value) Getting Credit (rank) 13 11 73 86 55 13 42 109 Malaysia (1)* Strength of legal rights 8 8 5 3 5 8 6 3 10 Economies (10)* index (0-10) Depth of credit 6 6 5 6 6 6 6 5 31 Economies (6)* information index (0-6) Public registry coverage 21.1 20.7 0.0 25.4 27.3 19.1 0.0 16.0 Portugal (100.0)* (% of adults) Private bureau 31.9 32.9 83.8 100.0 83.3 8.6 100.0 32.3 22 Economies (100.0)* coverage (% of adults) Protecting Investors 170 169 6 170 170 157 68 138 New Zealand (1) (rank) Extent of disclosure 0 0 9 2 3 3 8 1 10 Economies (10)* Doing Business 2014 Honduras 12 Best performer globally El Salvador DB2014 Guatemala DB2014 Costa Rica DB2014 Nicaragua DB2014 Honduras DB2014 Honduras DB2013 Colombia DB2014 Mexico DB2014 Indicator DB2014 index (0-10) Extent of director 5 5 8 5 0 2 5 5 Cambodia (10) liability index (0-10) Ease of shareholder 4 4 8 2 6 5 4 6 3 Economies (10)* suits index (0-10) Strength of investor 3.0 3.0 8.3 3.0 3.0 3.3 5.7 4.0 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 144 143 104 136 165 85 118 163 (1) Payments (number per Hong Kong SAR, 47 47 10 22 53 7 6 42 year) China (3)* United Arab Emirates Time (hours per year) 224 224 203 226 320 326 334 207 (12) Trading Across Borders 84 83 94 44 64 116 59 82 Singapore (1) (rank) Documents to export 5 5 4 5 7 8 4 5 Ireland (2)* (number) Time to export (days) 12 12 14 13 13 17 11 21 5 Economies (6)* Cost to export (US$ per 1,345 1,342 2,355 1,015 980 1,435 1,450 1,140 Malaysia (450) container) Documents to import 7 7 6 5 7 7 4 5 Ireland (2)* (number) Time to import (days) 16 16 13 14 10 17 11 20 Singapore (4) Cost to import (US$ per 1,500 1,510 2,470 1,070 970 1,500 1,740 1,245 Singapore (440) container) Enforcing Contracts 182 182 155 130 68 97 71 47 Luxembourg (1) (rank) Doing Business 2014 Honduras 13 Best performer globally El Salvador DB2014 Guatemala DB2014 Costa Rica DB2014 Nicaragua DB2014 Honduras DB2014 Honduras DB2013 Colombia DB2014 Mexico DB2014 Indicator DB2014 Time (days) 920 920 1,288 852 786 1,402 400 409 Singapore (150) Cost (% of claim) 35.2 35.2 47.9 24.3 19.2 26.5 31.0 26.8 Bhutan (0.1) Procedures (number) 47 47 34 40 34 31 38 37 Singapore (21)* Resolving Insolvency 136 135 25 124 90 109 26 84 Japan (1) (rank) Time (years) 3.8 3.8 1.7 3.0 3.5 3.0 1.8 2.2 Ireland (0.4) Cost (% of estate) 15 15 6 15 12 15 18 15 Norway (1) Outcome (0 as piecemeal sale and 1 as 0 0 1 0 0 0 1 0 going concern) Recovery rate (cents on 19.5 19.4 70.3 24.5 32.8 27.7 67.6 34.9 Japan (92.8) the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Honduras 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s larg est companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day (2 business in an economy by recording all procedures cannot start on the same day). procedures officially required or commonly done in Procedures that can be fully completed practice by an entrepreneur to start up and online are an exception to this rule. formally operate an industrial or commercial Procedure completed once final document is business—as well as the time and cost required to received complete these procedures. It also records the paid-in minimum capital that companies must No prior contact with officials deposit before registration (or within 3 months). Cost required to complete each procedure The ranking on the ease of starting a business is (% of income per capita) the simple average of the percentile rankings on the 4 component indicators: procedures, time, cost Official costs only, no bribes and paid-in minimum capital requirement. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Has a start-up capital of 10 times income per  Is a limited liability company, located in the capita. largest business city and is 100% domestically  Has a turnover of at least 100 times income per owned. capita.  Has between 10 and 50 employees.  Does not qualify for any special benefits.  Conducts general commercial or industrial  Does not own real estate. activities. Doing Business 2014 Honduras 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Honduras? days, costs 45.3% of income per capita and requires According to data collected by Doing Business, starting paid-in minimum capital of 15.2% of income per capita a business there requires 13 procedures, takes 14.0 (figure 2.1). Figure 2.1 What it takes to start a business in Honduras Paid-in minimum capital (% of income per capita): 15.2 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. Source: Doing Business database. Doing Business 2014 Honduras 16 STARTING A BUSINESS Globally, Honduras stands at 162 in the ranking of 189 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Honduras to start a business. Figure 2.2 How Honduras and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 Honduras 17 STARTING A BUSINESS What are the changes over time? The benchmarks provided by the economies that over 2.3) can help show what is possible in making it easier time have had the best performance regionally or to start a business. And changes in regional averages globally on the procedures, time, cost or paid-in can show where Honduras is keeping up—and where it minimum capital required to start a business (figure is falling behind. Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2014 Honduras 18 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety economies globally have no paid-in minimum capital requirement. DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Honduras 19 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Honduras (table 2.1)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.1 How has Honduras made starting a business easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Honduras simplified business start up by improving the efficiency of the registration process at the one stop shop, DB2010 improving the registration for tax process and eliminating the need for lawyer services in order to obtain a municipal license. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Honduras 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Honduras is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Tegucigalpa firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Company professionals and the study of laws, regulations and Paid in Minimum Capital Requirement: HNL 6,250 publicly available information on business entry in that economy. Following is a detailed summary of Start-up Capital: 10 times GNI per capita those procedures, along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Honduras—and the time and cost Time to No. Procedure Cost to complete complete Pay the initial capital and obtain the certificate of the deposit at a local bank 1 The entrepreneurs need to pay the initial capital in a local bank and 1 day no charge obtain the certificate of the deposit. Establish the company before a notary public, who will draw up the articles of incorporation A company may be set up by public subscription or simultaneous foundation. The procedures described here are for simultaneous notary fees of 5% foundation (fundación simultánea). until Lps.25,000 and 2 2 days 3% over Lps.25,000 The constitution instrument should be written on stamped paper (papel of the capital. sellado). The notary uses this paper for the protocol (the original signed document in the notary’s custody) and for the first copy (testimonio) of the instrument of organization. Publish the registration notice in “La Gaceta”, the official journal or an ordinary newspaper US$35 for one advertisement in 3 The company needs to publish its registration in the official journal “La 1 day “La Gaceta”; $15 in Gaceta” or any other newspaper. a newspaper Doing Business 2014 Honduras 21 Time to No. Procedure Cost to complete complete Purchase the bar stamps from the Honduran Bar Association Official bar stamps (timbres del Colegio de Abogados), which vary in included in 4 1 day design and value, can be purchased from Honduran Bar Association. procedure 5 File the articles of incorporation with the Mercantile Registry at the Chamber of Commerce According to Decree 253-2005, company registration in Tegucigalpa was transferred from the Property Registry (Instituto de Propiedad) to the Chamber of Commerce. To register the Public Deed you must submit the following documents: 1) First copy (testimonio) of the instrument of Organization with a Photocopy; See procedure 5 2) Publication of the Registration Notice in The Gaceta with a 2 days details Photocopy; 3) Receipt of the Registration fees payment. Cost details: Lps.1.5 for each Lps.1, 000 of corporation capital (Derechos de registro/registration fees) + Lps.30 up to Lps.300, 000 of the capital and Lps.10 for each Lps.100, 000 after Lps.300, 000 (Bar stamps/Timbres del Colegio de Abogados). * Apply for the tax identification code (Registro Tributario Nacional, RTN) All natural or legal persons must apply for the tax identification code (Registro Tributario Nacional, RTN) at the Dirección Ejecutiva de 1 day Ingresos (DEI)- Ministry of Finance office. (simultaneous with 6 no charge previous To obtain it, the notary public who authorizes an incorporation deed procedure) must notify the administrative authority of the incorporation. Acquire accounting and minutes books The minute books can now be authorized as a separate bound sheet 1 day USD 180 7 and not necessarily as book. Register with local and national chambers of commerce The company needs to register with the local and national chambers of 1 day nominal fee 8 commerce. Doing Business 2014 Honduras 22 Time to No. Procedure Cost to complete complete Apply for an operational permit (Permiso de Operación) from the municipal authorities To obtain the operational permit, some or all of the following documents must be filed, depending on the type of industrial or commercial activity: - Personal identity card and municipality tax solvency of the general manager (copies). - Tax identification code (RTN) (copy). - Cadastral code (clave cadastral) corresponding to the corporation’s place of business. - Constitution instrument (escritura de constitución de la compañía) (copy). - Zoning constancy. - Tenancy agreement and constancy of income tax solvency corresponding to the owner of the premises in which the company will 9 do business. 1 day Lps. 1,250 - Environmental impact statement. - Cadastral inspection of the premises in which the corporation will do business. In addition, the company must pay the following taxes, which vary based on the company’s income: nomenclature tax, zoning tax, inspection tax, code tax, environmental tax, and taxes for fire fighting and waste management services (paid annually to the municipality). The applicable municipal taxes for obtaining the permit have changed in Tegucigalpa under the 2003 city tax regulation. Taxes now total HNL 1, 250 for the various taxes. A company can proceed to the following procedures with an official receipt issued upon submission of the operational permit application. * Register for Sales tax According to the Tax Code (Código Tributario), the company is obliged 2 days, to record the constitution instrument and the operation permit before simultaneous with 10 nominal fee the Minister of Finance, in order to pay sales tax on the sale of goods or previous services. procedure * Register at Social Security Institute (Instituto Hondureño de Seguridad Social, IHSS) Social Security Institute (Instituto Hondureño de Seguridad Social, IHSS) is the national social security hospital and outpatient care institution for 3 days, 11 workers and their dependants. The company is obliged to contribute simultaneous with no charge 5% of each employee’s salary for illness and maternity (enfermedad y procedure 9 maternidad, EM), plus 2% for disability, old age, and death (invalidez, vejez y muerte, IVM)—a total of 7% up to a maximum of HNL 7, 000. Doing Business 2014 Honduras 23 Time to No. Procedure Cost to complete complete * Register at the Professional Training Institute (Instituto Nacional de Formación Profesional, INFOP) 1 day, Employers are obliged to contribute 1% of the company’s total payroll simultaneous with 12 no charge to the Professional Training Institute (Instituto Nacional de Formación previous Profesional, INFOP) procedure * Register at Social Fund for Housing (Régimen de Aportación, (RAP) al Fondo Social de la Vivienda (FOSOVI)) 1 day, If the company has more than 10 employees, it is obliged to contribute simultaneous with 13 1.5% of each employee’s salary to the Social Fund for Housing no charge previous (Régimen de Aportación, RAP, and Fondo Social de la Vivienda, procedure FOSOVI). * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Honduras 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 PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Submitting all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a land telephone line cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a completion (if required for use as collateral or warehouse in the economy’s largest business city, for transfer of the warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day. percentile rankings on its component indicators: Procedures that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final Doing Business uses several assumptions about the document is received business and the warehouse, including the utility connections. No prior contact with officials The business: Cost required to complete each procedure (% of income per capita)  Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city.  Will be connected to water, sewerage (sewage system, septic tank or their  Is domestically owned and operated. equivalent) and a fixed telephone line. The  Has 60 builders and other employees. connection to each utility network will be 10 The warehouse: meters (32 feet, 10 inches) long.  Is a new construction (there was no  Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions).  Has complete architectural and technical plans prepared by a licensed architect or  Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 Honduras 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 13 procedures, takes 109.0 days build a warehouse in Honduras? According to data and costs 350.9% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Honduras 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. Source: Doing Business database. Doing Business 2014 Honduras 26 DEALING WITH CONSTRUCTION PERMITS Globally, Honduras stands at 83 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Honduras to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Honduras and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 Honduras 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to deal with time have had the best performance regionally or construction permits. And changes in regional globally on the procedures, time or cost required to averages can show where Honduras is keeping up— deal with construction permits (figure 3.3) help show and where it is falling behind. Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2014 Honduras 28 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Honduras 29 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Honduras (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How has Honduras made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Honduras eased the process of dealing with construction permits through various administrative reforms within the DB2010 Construction Control Department that led to a reduction of 19 days from the process. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Honduras 30 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Honduras are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Tegucigalpa information collected from experts in construction licensing, including architects, civil engineers, Estimated construction lawyers, construction firms, utility HNL 7,000,000 Warehouse Value : service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and that apply to a company and structure matching cost, are summarized below. the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Honduras —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain design guidelines and approval of drawings and designs from Urban Planning Office Every company planning to construct a new building must request 3 days HNL 900 1 design guidelines from the Urban Planning Office in the vicinity of the future construction site. * Request and obtain environmental approval from Office of Municipal Environmental Development and Management (GMDAM) BuildCo's case would be considered by the Office of Municipal Environmental Development and Management. Under a major government initiative, the National Competitiveness Program (Programa Nacional de Competitividad) the municipality (GMDAM) entered into an agreement with SERNA in 2007. Under the agreement, both entities have computerized all the offices responsible for processing the relevant documents and have also trained most of the 2 staff. This has increased the number of licenses issued from 30 per 60 days HNL 35,000 month in 2006 to 140 in 2007. However, more efficient service has also boosted the demand from the private sector. The government is considering ways to increase resources to meet the increased demand. As of September 4, 2008, Article 78 of the Law on Environment an inter- ministerial agreement (No. 635-2003) was approved, as well as other implementing regulations, on criteria for different categories of environmental approvals depending on project risks. Commercial warehouses that fit into Category 1 (Art. 5) are only subject to environmental control, not full scale study, at the local level by Office of Municipal Environmental Development and Management ('UGA' or Doing Business 2014 Honduras 31 Time to No. Procedure Cost to complete complete 'UMA'). The time required for such approval has reduced from 45 days to 1 week. It is planned that this requirement which is a precondition for obtaining building permit now will be moved as precondition for operation of the building, and to be complied after the building is completed and all permits are obtained. The fee for environmental approval, previously calculated as a function of 0.5% of overall project value, is now a fixed rate of HNL 350.00 (HNL150.00 for environmental approval and HNL 200.00 for inspection). * Request and obtain document attesting that the company has no unpaid fines Certification that BuildCo has no outstanding debts is required for 1 day no charge 3 projects financed by loans. BuildCo requests certification from the Registrar of Property. * Request and obtain approval for delivery of utility services - water and sewage from SANAA 4 The committee responsible for approving conditions of water and 15 days HNL 750 sewerage connections meets once a week. * Request and obtain rainwater drainage feasibility analysis The cost is included in the fee paid to the water company (SANAA) as 7 days no charge 5 part of Procedure 7. * Request and obtain approval of fixed line from HONDUTEL There are several telephone companies in Honduras, and the 7 days HNL 150 6 competition between them has resulted in faster services. * Request and obtain approval (constancia) from Public Works Secretary (SOPTRAVI) Approval from the Public Works Secretary (SOPTRAVI) is required for 7 days HNL 500 7 location clearance. A fee of HNL 300.00 is charged for approval and a fee of HNL 200.00 for inspection. Request and obtain location clearances (Uso de suelo y factibilidad vial) from the Municipal Authority The following documents must be presented to obtain a certificate of 2 days HNL 150 8 occupancy (Uso de Suelo y Factibilidad Vial) from the municipality: • Application • Proof of property registration • Designs and drawings Doing Business 2014 Honduras 32 Time to No. Procedure Cost to complete complete • Approvals from the SANAA and the ENEE, and others • Environmental license The new city zoning plan that was introduced in early 2008 is currently being operationalized. One of the main features of the plan is the change of zoning from residential to commercial and its further digitization based on maps from Cadastre and Management Engineering (Engenieria Gerencial). Further the land use regulations were amended in April 2008, introducing categories based on risk factors. This led to improvement of the process of obtaining the location clearance and time reduction from 15 days to 2 days. The application is checked in back office whether the new land use is compatible with land use regulations. Request and obtain Building Permit The permit application documents are reviewed by the Legal Department, the Technical Department, the Professional College, the Environmental Section, and the Chief of Construction Permits. After 9 having submitted the permit application and all other required 10 days HNL 70,000 documents, the applicant pays the application fee at TASA Municipal. Before starting construction, the company must notify the authority. * Receive connection to water and sewage from SANAA 10 15 days HNL 30,888 * Request telephone connection from HONDUTEL 11 1 day HNL 1,192 * Receive inspection and connection to fixed telephone line from HONDUTEL 12 5 days no charge Register building in real estate registry Reforms and optimization of electronic processing have significantly decreased the time to register property. However, in 2009 due to administrative backlog and delays with registration process the 13 procedure for registration of building is now taking on average 30 days, 30 days HNL 4,478 compared to previous 16 days. Additionally, the website of Institute of Property (Instituto de Propiedad) has been shutdown. * Takes place simultaneously with another procedure. Doing Business 2014 Honduras 33 Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Honduras 34 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is to either the low-voltage or the medium-  Is a new construction being connected to voltage distribution network and either overhead electricity for the first time. or underground, whichever is more common in the economy and area where the warehouse is  Has 2 stories, both above ground, with a located. The length of any connection in the total surface of about 1,300.6 square customer’s private domain is negligible. meters (14,000 square feet), and is built on a plot of 929 square meters (10,000 square  Requires crossing of a 10-meter road but all the feet). works are carried out in a public land, so there is no crossing into other people's private property. The electricity connection:  Involves installing one electricity meter. The  Is 150 meters long and is a 3-phase, 4-wire Y, monthly electricity consumption will be 0.07 140-kilovolt-ampere (kVA) (subscribed gigawatt-hour (GWh). The internal electrical capacity) connection. wiring has been completed. Doing Business 2014 Honduras 35 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 33 days and costs 968.5% of income connection in Honduras? According to data collected per capita (figure 4.1). by Doing Business, getting electricity there requires 8 Figure 4.1 What it takes to obtain an electricity connection in Honduras Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Honduras 36 GETTING ELECTRICITY Globally, Honduras stands at 125 in the ranking of 189 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Honduras to connect a warehouse to electricity. Figure 4.2 How Honduras and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 Honduras 37 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Honduras Best performer in Best performer Indicator Honduras DB2014 Honduras DB2013 Latin America & globally DB2014 Caribbean DB2014 Rank Trinidad and Tobago 125 119 Iceland (1) (10) Procedures (number) St. Vincent and the 8 8 10 Economies* (3) Grenadines (3) Time (days) 33 33 St. Kitts and Nevis (18) Germany (17) Cost (% of income per Trinidad and Tobago capita) 968.5 997.9 Japan (0.0) (7.0) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Honduras 38 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and Honduras (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Honduras made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Honduras 39 GETTING ELECTRICITY What are the details? The indicators reported here for Honduras are based OBTAINING AN ELECTRICITY CONNECTION on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Tegucigalpa utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Empresa Nacional de verified by electricity regulatory agencies and Energia Electrica (ENEE) independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Honduras—and the time and cost Time to No. Procedure Cost to complete complete The customer hires an electrical engineer certified by the College for Mechanical, Electrical and Chemical Engineers of Honduras (CIMEQH) to design the external connection according to the standards set by the College An electrical engineer employed by CIMEQH estimates the power needed for the project and designs the external connection. For loads greater than 1,000 kVA, the engineer should go first to Empresa Nacional de Energia Electrica (ENEE) to request a feasibility study. In a case where the load is 140kVA, this procedure is not necessary. The design and the process of obtaining ENEE's review can only be made by an electrical engineer authorized by the CIMEQH. The implementation of the design can be done by an electrician. The electrical engineer must 7 calendar days HNL 5,750.0 1 obtain a certificate by the College for each design that he files with ENEE. The certificate states that the engineer is a member of the College and has paid his contributions. It is recommended that the internal wiring installation be also done by a CIMEQH's electrical engineer. Although the internal installation plans are reviewed by the Municipality and the Firefighters, in the context of the process to obtain a building permit, the final internal installation is not reviewed. One way to ensure the quality of the internal installation is to hire an engineer authorized by CIMEQH for the installation. In the case of a fire due to a malfunctioning installation, it is easier to obtain legal satisfaction if it was performed by a member of CIMEQH. Doing Business 2014 Honduras 40 Time to No. Procedure Cost to complete complete The electrical engineer authorized by the College for Mechanical, Electrical and Chemical Engineers of Honduras (CIMEQH) obtains a certificate of approval ("solvency") from the college The electrical engineer must obtain a certificate by the College for each 1 calendar day HNL 360.0 2 design that he presents to the Empresa Nacional de Energia Electrica (ENEE). The certificate states that the engineer is a member of the College and has paid his contributions. The electrical engineer authorized by the College for Mechanical, Electrical and Chemical Engineers of Honduras (CIMEQH) sends the design and the certificate to Empresa Nacional de Energia Electrica (ENEE) for its approval 3 10 calendar days HNL 150.0 After having prepared the design, the engineer has to file the certificate with the Empresa Nacional de Energia Electrica (ENEE). ENEE reviews the certificate issued by the College to determine whether it meets ENEE's standards. ENEE also inspects the site. Finally, ENEE approves the design. Empresa Nacional de Energia Electrica (ENEE) inspects the terrain to inform the approval of the design 4 1 calendar day no charge To prepare the design a site visit is conducted. The electrical engineer authorized by College for Mechanical, Electrical and Chemical Engineers of Honduras (CIMEQH) performs the external connection according to the design approved by ENEE 5 7 calendar days HNL 359,625.0 Three transformers 50kVA or one transformer of 150kVA must be installed. The electrical engineer responsible for the design delivers the project to Empresa Nacional de Energia Electrica (ENEE) and seeks acceptance of the work 6 1 calendar day no charge Empresa Nacional de Energia Electrica conducts an inspection of the external connection to ensure that the implementation is according to Doing Business 2014 Honduras 41 Time to No. Procedure Cost to complete complete the approved design. If the reviewer disagrees with the implementation, the responsible electrician has to make the corrections. The client sends their application in person with Empresa Nacional de Energia Electrica (ENEE), pays the security deposit and requests the execution of the last step (the installation of the meter) The following documents are required with the application (no notarization of the documents is needed): • A copy of the company's by-laws; • photocopy of the ID of the person authorized by the by-laws; • Sketch / map of where is the warehouse (address). It is necessary to pay a deposit of guarantee or consumption (Article 32 of the Act that rules the electrical sector): Lps.845.96 per KVA. It may be in cash or bank guarantee. Reason: to ensure the payment of consumption ENEE charges after providing the service). The deposit is made via a certified check payable to ENEE and / or bank 1 calendar day HNL 15,861.8 7 guarantee in the name of ENEE and it is paid in ENEE's commercial division. The division issues a memorandum to the customer care unit for them to fill in the client's appropriate data to install the meter. At this time if the person authorized to submit the application has to submit the following additional information • To whose name the bills will be sent • The firm's company registration number • Copy of the property title or the lease agreement certified by the municipality. • Copy of the ID of the person that will sign the documents. • Document specifying that the person who will sign the documents is duly authorized by the board of directors. • The security deposit Empresa Nacional de Energia Electrica (ENEE) conducts a last inspection and installs the meter Once the application goes to the "Department of High Consumption", 7 calendar days HNL 15,700.0 8 the Department sends an engineer to the site to install the transformer and the meter. Once the meter is installed, the energy flows. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2014 Honduras 42 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day. time and cost. Procedures that can be fully completed online are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure (% of property value)  Are limited liability companies, 100% domestically and privately owned. Official costs only, no bribes  Are located in the economy’s largest No value added or capital gains taxes included business city. and no rezoning is required.  Have 50 employees each, all of whom are  Has no mortgages attached and has been nationals. under the same ownership for the past 10  Perform general commercial activities. years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story  Has a value of 50 times income per capita. warehouse of 929 square meters (10,000 The sale price equals the value. square feet). The warehouse is in good  Is registered in the land registry or cada- condition and complies with all safety stre, or both, and is free of title disputes. standards, building codes and legal requirements. There is no heating system. The  Is located in a periurban commercial zone, property will be transferred in its entirety. Doing Business 2014 Honduras 43 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 23.0 days and costs 5.7% of the Honduras? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 7 Figure 5.1 What it takes to register property in Honduras 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. Source: Doing Business database. Doing Business 2014 Honduras 44 REGISTERING PROPERTY Globally, Honduras stands at 94 in the ranking of 189 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 Honduras to transfer property. Figure 5.2 How Honduras and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2014 Honduras 45 REGISTERING PROPERTY What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to register time have had the best performance regionally or property. And changes in regional averages can show globally on the procedures, time or cost required to where Honduras is keeping up—and where it is falling complete a property transfer (figure 5.3) help show behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2014 Honduras 46 REGISTERING PROPERTY Cost (% of property value) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Honduras 47 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Honduras (table 5.1)? Table 5.1 How has Honduras made registering property easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Honduras 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 City: Tegucigalpa lawyers, notaries and property registries. These procedures are those that apply to a transaction Property Value: HNL 2,051,870 matching the standard assumptions used by Doing Business in collecting the data (see the section in The procedures, along with the associated time and this chapter on what the indicators cover). cost, are summarized below. Summary of procedures for registering property in Honduras—and the time and cost Time to No. Procedure Cost to complete complete HNL 500 (HNL 300 Verification of property background for full certificate It is necessary to have the previous registration numbers to see who are “certificación the owners and if there have been any mortgages or the property has integra” + HNL been sold. The buyer can verify the property background at the on-line 1 day 200 for non- 1 Unified Registry System (SURE): www.ip.hn. encumbrance However, in pratice there are many problems with the SURE, so users certificate tend to go to the registry. “certificado de libertad de gravamen”) Verification that the municipal taxes have been paid The municipal tax number of the property is needed to check who is the 2 days No cost 2 registered owner of the land in the cadastre. The notary issues the deed (preliminary) After getting the legal documentation from the parties, the notary issues the preliminary deed (“escritura matriz”). Notary’s fees are usually calculated based on the market value of the property according to 3-5% of 3 regulations setting minimum tariffs. For properties with a value below 2 days transaction price HNL 25,000, the rate cannot be below HNL 1000 while for properties (Notary’s fees) with a higher value, the fee cannot be below 3% of the property value. Fees are negotiated between the notary and parties. Doing Business 2014 Honduras 49 Time to No. Procedure Cost to complete complete Payment at the bank of taxes and fees The transfer tax (1.5% of value of property, for urban property with improvements) must be paid at a bank. The taxes are calculated based on either the official value of the property (determined by the Cadastre 1.5% of property 4 for tax purposes) or the insured value, whichever is higher. 1 day price (Transfer Tax) With the introduction of the Property Law in 2004, the transfer tax was cut from 3 to 1.5%, the registration rights and the stamps have been eliminated. Notary issues the final copy of the deed (“Testimonio”) After receiving the receipts of the payment of the taxes and fees in the 5 previous step, the notary issues the final copy of the deed ("testimonio"), 1 day no additional cost which should be presented later at the Property Office. HNL 200 for the Registration at the Property registry first HNL 1,000 of the property value, The new deed must be registered in the Property Office by the notary. and HNL 1.50 for 6 However, the notary might waive this right and leave to the responsibility 14 days each additional to the applicants. HNL 1,000 + HNL 200 for subscription Register the change of ownership in the Cadastre office The change of ownership must be registered in the Cadastre office ("Dirección General de Catastro y Geografía") by the notary or the buyer. 2 days HNL 250 7 The deed duly registered in Procedure 6 must be presented at the cadastre. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Honduras 50 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’ rights to view a potential borrower’s Strength of legal rights index (0–10) financial history (positive or negative)—valuable Rights of borrowers and lenders through information to consider when assessing risk. And collateral laws they permit borrowers to establish a good credit Protection of secured creditors’ rights through history that will allow easier access to credit. Sound bankruptcy laws collateral laws enable businesses to use their assets, especially movable property, as security to generate Depth of credit information index (0–6) capital—while strong creditors’ rights have been Scope and accessibility of credit information associated with higher ratios of private sector credit distributed by public credit registries and to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has up to 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, incorporated, limited liability the strength of legal rights index. company.  Has its headquarters and only base of operations in the largest business city. Doing Business 2014 Honduras 51 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Honduras stands at 13 in the ranking of 189 collateral and bankruptcy laws in Honduras facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 6 on the The rankings for comparator economies and the depth of credit information index and a score of 8 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Honduras support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How Honduras and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 Honduras 52 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened — well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Honduras support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Honduras over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. .. 11 13 Strength of legal rights 6 6 6 6 6 6 6 8 8 8 index (0-10) Depth of credit 3 4 5 6 6 6 6 6 6 6 information index (0-6) Public registry coverage 6.1 11.2 8.3 12.7 11.3 21.7 22.7 16.3 20.7 21.1 (% of adults) Private bureau 0.0 18.7 18.7 58.0 60.5 58.7 100.0 31.2 32.9 31.9 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Honduras 53 GETTING CREDIT One way to put an economy’s score on the getting shows the number of economies with this score in credit indicators into context is to see where the 2013 as well as the regional average score. Figure 6.3 economy stands in the distribution of scores across shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for Honduras in 2013 and Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2013 information index (0–6), 2013 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. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Source: Doing Business database. Doing Business 2014 Honduras 54 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Honduras (table 6.2)? Table 6.2 How has Honduras made getting credit easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Honduras passed a resolution that enhances the operations of DB2010 the public credit bureau; it classifies debtors into several categories by history and is meant to help banks manage risk. DB2011 No reform as measured by Doing Business. Honduras strengthened its secured transactions system through a new decree establishing a centralized and computerized DB2012 collateral registry and providing for out-of-court enforcement of collateral upon default. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Honduras 55 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders Honduras are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a credit well as public sources of information on collateral and registry and/or credit bureau (if one exists). To bankruptcy laws. For the strength of legal rights index, construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in credit registry or credit bureau (see summary of bankruptcy law. scoring below). Summary of scoring for the getting credit indicators in Honduras Latin America & OECD high income Indicator Honduras Caribbean average average Strength of legal rights index (0-10) 8 6 7 Depth of credit information index (0-6) 6 5 5 Public registry coverage (% of adults) 21.1 31.5 42.9 Private bureau coverage (% of adults) 31.9 63.1 73.9 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Regional averages for the credit registry coverage exclude economies with no credit registry. Regional averages for the credit bureau coverage exclude economies with no credit bureau. Strength of legal rights index (0–10) Index score: 8 Can any business use movable assets as collateral while keeping possession of the assets; and Yes any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically Yes to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Doing Business 2014 Honduras 56 Strength of legal rights index (0–10) Index score: 8 Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor No defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is No liquidated? Are secured creditors either not subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure, or does the law provide secured Yes creditors with grounds for relief from an automatic stay or/and sets a time limit to it? Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Depth of credit information index (0–6) Credit bureau Credit registry Index score: 6 Are data on both firms and individuals distributed? Yes Yes 1 Are both positive and negative data distributed? Yes Yes 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as Yes No 1 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes Yes 1 distributed? Is it guaranteed by law that borrowers can inspect Yes Yes 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 30,852 35,952 Number of individuals 1,485,422 968,961 Source: Doing Business database. Doing Business 2014 Honduras 57 PROTECTING INVESTORS Protecting investors matters for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not protect minority shareholders, investors may be reluctant to provide funding to companies through Extent of disclosure index (0–10) the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor protections: transparency of related-party Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission transactions (extent of disclosure index), liability for of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to evidence before and Ease of shareholder suits index (0–10) during trial (ease of shareholder suits index). The Access to internal corporate documents ranking on the strength of investor protection index is (directly or through a government inspector) the simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of  Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). the company purchase used trucks from another company he owns.  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of  The price is higher than the going price for used Buyer where permitted, even if this is not trucks, but the transaction goes forward. specifically required by law.  All required approvals are obtained, and all The transaction involves the following details: required disclosures made, though the transaction is prejudicial to Buyer.  Mr. James, a director and the majority shareholder of the company, proposes that  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2014 Honduras 58 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections against self- index (figure 7.1). While the indicator does not dealing in Honduras? The economy has a score of 3.0 measure all aspects related to the protection of on the strength of investor protection index, with a minority investors, a higher ranking does indicate that higher score indicating stronger protections (see the an economy’s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, Honduras stands at 170 in the ranking of 189 economies on the strength of investor protection Figure 7.1 How Honduras and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 Honduras 59 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how ranking on the strength of investor protection index well regulations in Honduras protect minority investors over time shows whether the economy is slipping today, data over time show whether the protections behind other economies in investor protections—or have been strengthened (table 7.1). And the global surpassing them. Table 7.1 The strength of investor protections in Honduras over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. 169 170 Extent of disclosure 0 0 0 0 0 0 0 0 0 index (0-10) Extent of director 5 5 5 5 5 5 5 5 5 liability index (0-10) Ease of shareholder 4 4 4 4 4 4 4 4 4 suits index (0-10) Strength of investor protection index (0- 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Honduras 60 PROTECTING INVESTORS One way to put an economy’s scores on the protecting shows the number of economies with this score in investors indicators into context is to see where the 2013 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across applies to the extent of director liability index, and economies. Figure 7.2 highlights the score on the figure 7.4 to the ease of shareholder suits index. extent of disclosure index for Honduras in 2013 and Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on the extent of Number of economies with each score on the extent of director liability index (0–10), 2013 disclosure index (0–10), 2013 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 Honduras 61 PROTECTING INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Number of economies with each score on the ease of shareholder suits index (0–10), 2013 Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2014 Honduras 62 PROTECTING INVESTORS The scores recorded over time for Honduras on the changes over time in the regional average score on strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the protections. Source: Doing Business database. Doing Business 2014 Honduras 63 PROTECTING INVESTORS Economies with the strongest protections of minority reasonable time. As a result, reforms to strengthen investors from self-dealing require detailed disclosure investor protections may move ahead on different and define clear duties for directors. They also have fronts—such as through new or amended company well-functioning courts and up-to-date procedural laws, securities regulations or civil procedure rules. rules that give minority shareholders the means to What investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in Honduras (table 7.2)? Table 7.2 How has Honduras strengthened investor protections—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Honduras 64 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for ease of shareholder suits indices, scores are assigned Honduras are based on detailed information collected to each based on a range of conditions relating to through a survey of corporate and securities lawyers disclosure, director liability and shareholder suits in a about securities regulations, company laws and court standard case study transaction (see the data notes at rules of evidence and procedure. To construct the the end of this chapter). The summary below shows extent of disclosure, extent of director liability and the details underlying the scores for Honduras. Summary of scoring for the protecting investors indicators in Honduras Latin America & OECD high income Indicator Honduras Caribbean average average Extent of disclosure index (0-10) 0 4 7 Extent of director liability index (0-10) 5 5 5 Ease of shareholder suits index (0-10) 4 6 7 Strength of investor protection index (0-10) 3.0 4.9 6.2 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 0 What corporate body provides legally sufficient 0 CEO approval for the transaction? Whether disclosure of the conflict of interest by Mr. 0 No disclosure obligation James to the board of directors is required? Whether immediate disclosure of the transaction to 0 No disclosure obligation the public and/or shareholders is required? Whether disclosure of the transaction in published 0 No disclosure obligation periodic filings (annual reports) is required? Whether an external body must review the terms of 0 No the transaction before it takes place? Extent of director liability index (0-10) 5 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 0 No causes to the company? Whether shareholders can hold Mr. James liable for Liable for negligence or influencing the damage that the Buyer-Seller transaction causes 1 the approval of the transaction to the company? Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 1 Liable for negligence Seller transaction causes to the company? Doing Business 2014 Honduras 65 Score Score description Whether a court can void the transaction upon a Not possible or only in case of Seller's 0 successful claim by a shareholder plaintiff? fraud or bad faith Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 1 Yes the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 Yes shareholder plaintiff? Whether fines and imprisonment can be applied 1 Yes against Mr. James? Ease of shareholder suits index (0-10) 4 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 0 No filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 0 No transaction? Whether the plaintiff can obtain any documents from Any information that is relevant to the 3 the defendant and witnesses during trial? subject matter of the claim Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 1 Yes defendant and witnesses during trial? Whether the level of proof required for civil suits is 0 No lower than that of criminal cases? Strength of investor protection index (0-10) 3.0 Source: Doing Business database. Doing Business 2014 Honduras 66 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic and joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2011. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.5%. Doing Business 2014 Honduras 67 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Honduras stands at 144 in the ranking of 189 taxes in Honduras—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 47 tax payments a year, rankings for comparator economies and the regional spend 224 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 39.2% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Honduras. details). Figure 8.1 How Honduras and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2014 Honduras 68 PAYING TAXES What are the changes over time? The benchmarks provided by the economies that over show what is possible in easing the administrative time have had the best performance regionally or burden of tax compliance. And changes in regional globally on the number of payments or the time averages can show where Honduras is keeping up— required to prepare and file taxes (figure 8.2) help and where it is falling behind. Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2014 Honduras 69 PAYING TAXES Total tax rate (% of profit) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 Honduras 70 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Honduras (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Honduras made paying taxes easier—or not? By Doing Business report year DB year Reform DB2009 Electronic filing and tax payment commonly used in Honduras. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Honduras made paying taxes costlier for firms by raising the DB2012 solidarity tax rate. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Honduras 71 PAYING TAXES What are the details? The indicators reported here for Honduras are LOCATION OF STANDARDIZED COMPANY based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the data (see City: Tegucigalpa the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company completed The taxes and contributions paid are listed in the during the year. Respondents are asked how much summary below, along with the associated number of in taxes and mandatory contributions the business payments, time and tax rate. must pay and what the process is for doing so. Summary of tax rates and administrative burden in Honduras Latin America & OECD high income Indicator Honduras Caribbean average average Payments (number per year) 47 30 12 Time (hours per year) 224 369 175 Profit tax (%) 26.1 20.5 16.1 Labor tax and contributions (%) 5.1 14.7 23.1 Other taxes (%) 8.0 12.1 2.0 Total tax rate (% profit) 39.2 47.3 41.3 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 4 35 25% 23.9 profit Municipal tax on industry 1 0 0.4% sales 7.1 and commerce Employer paid - Social gross 12 93 7.2% 2.3 security contributions salaries Doing Business 2014 Honduras 72 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 Employer paid - Pension gross 0 0 1.5% 1.7 contribution - RAP salaries taxable profit over Solidarity tax 0 paid jointly 0 6% 1.1 Lps 1,000,000 Employer paid - gross Professional training tax - 1 0 1% 1.1 salaries INFOP capital Capital gains tax 1 0 10% 1 gains Lps 3.5 per property Municipal property tax 12 0 0.5 1,000 value 1% over assets Fixed assets tax 1 0 Lps 0.2 value 3,000,000 Vehicle tax 1 0 Lps 2,200 fixed fee 0.2 fuel $0.6106 Fuel tax 1 0 consumpti 0 per gallon on value not Value added tax (VAT) 12 96 12% 0 added included Lps 200 for contracts with a value less than small Stamp duty 1 0 1,000 and transactio 0 amount Lps 1.5 per n value 1,000 of value of transaction Totals 47 224 39.2 Source: Doing Business database. Doing Business 2014 Honduras 73 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: military items.  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include Doing Business 2014 Honduras 74 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Honduras? Globally, Honduras stands at 84 in the ranking of 189 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 5 (figure 9.1). The rankings for comparator economies documents, takes 12 days and costs $1345. Importing and the regional average ranking provide other useful the same container of goods requires 7 documents, information for assessing how easy it is for a business takes 16 days and costs $1500 (see the summary of in Honduras to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Honduras and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 Honduras 75 TRADING ACROSS BORDERS What are the changes over time? The benchmarks provided by the economies that over possible in making it easier to trade across borders. time have had the best performance regionally or And changes in regional averages can show where globally on the documents, time or cost required to Honduras is keeping up—and where it is falling export or import (figure 9.2) help show what is behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2014 Honduras 76 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2014 Honduras 77 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Honduras 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 tools to facilitate trade—including single windows, Business recorded in Honduras (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How has Honduras made trading across borders easier—or not? By Doing Business report year DB year Reform Consular legalization for trade documents was abolished DB2009 which led to a reduction of one document for import DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Honduras made trading across borders faster by implementing DB2012 a web-based electronic data interchange system and X-ray machines at the port of Puerto Cortes. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Honduras 79 TRADING ACROSS BORDERS What are the details? The indicators reported here for Honduras are LOCATION OF STANDARDIZED COMPANY based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this chapter on what City: Tegucigalpa the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each procedure is The procedural requirements, and the associated time collected from local freight forwarders, shipping and cost, for exporting and importing a standard lines, customs brokers, port officials and banks. shipment of goods are listed in the summary below, along with the required documents. Summary of procedures and documents for trading across borders in Honduras Latin America & OECD high income Indicator Honduras Caribbean average average Documents to export (number) 5 6 4 Time to export (days) 12 17 11 Cost to export (US$ per container) 1,345 1,283 1,070 Documents to import (number) 7 7 4 Time to import (days) 16 19 10 Cost to import (US$ per container) 1,500 1,676 1,090 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 8 260 Customs clearance and technical control 2 135 Ports and terminal handling 1 50 Inland transportation and handling 1 900 Totals 12 1,345 Procedures to import Time (days) Cost (US$) Documents preparation 8 255 Doing Business 2014 Honduras 80 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 4 130 Ports and terminal handling 2 215 Inland transportation and handling 2 900 Totals 16 1,500 Documents to export Documents to import Bill of lading Bill of lading Commercial Invoice Cargo release order Customs export declaration Commercial invoice Foreign exchange authorization Customs import declaration Packing List Packing list Source: Doing Business database. Tax certificate Terminal handling receipts Doing Business 2014 Honduras 81 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment Time required to complete procedures What do the indicators cover? (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city.  The dispute on the quality of the goods requires an expert opinion.  The buyer orders custom-made goods, then fails to pay.  The judge decides in favor of the seller; there is no appeal.  The seller sues the buyer before a competent court.  The seller enforces the judgment through a public sale of the buyer’s movable assets.  The value of the claim is 200% of income per capita.  The seller requests a pretrial attachment to secure the claim. Doing Business 2014 Honduras 82 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Honduras stands at 182 in the ranking of 189 dispute through the courts in Honduras? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, contract enforcement 10.1). The rankings for comparator economies and the takes 920 days, costs 35.2% of the value of the claim regional average ranking provide other useful and requires 47 procedures (see the summary at the benchmarks for assessing the efficiency of contract end of this chapter for details). enforcement in Honduras. Figure 10.1 How Honduras and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 Honduras 83 ENFORCING CONTRACTS What are the changes over time? The benchmarks provided by the economies that over help show what is possible in improving the efficiency time have had the best performance regionally or of contract enforcement. And changes in regional globally on the number of steps, time or cost required averages can show where Honduras is keeping up— to enforce a contract through the courts (figure 10.2) and where it is falling behind. Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2014 Honduras 84 ENFORCING CONTRACTS Procedures (number) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Honduras 85 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Honduras (table 10.1)? Table 10.1 How has Honduras made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Honduras adopted a new civil procedure code that modified DB2012 litigation procedures for enforcing a contract. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Honduras 86 ENFORCING CONTRACTS What are the details? The indicators reported here for Honduras are COURT NAME based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this City: Tegucigalpa chapter on what the indicators cover). These procedures, and the time and cost of completing Claim Value LCU: 79657 them, are identified through study of the codes of civil procedure and other court regulations, as well Unified Civil District as through surveys completed by local litigation Court Name: Court of Francisco lawyers (and, in a quarter of the economies Morazán covered by Doing Business, by judges as well). The procedures for resolving a commercial lawsuit, and the associated time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in Honduras—and the time and cost Latin America & OECD high income Indicator Honduras Caribbean average average Time (days) 920 734 529 Filing and service 60 Trial and judgment 680 Enforcement of judgment 180 Cost (% of claim) 35.2 31.0 21.0 Attorney cost (% of claim) 25.0 Court cost (% of claim) 2.1 Enforcement Cost (% of claim) 8.1 Procedures (number) 47 40 31 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Doing Business 2014 Honduras 87 ENFORCING CONTRACTS No. Procedure Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. A third person formally notifies Defendant: A person other than the Plaintiff or his lawyer, such as a notary 2 public, formally notifies Defendant of Plaintiff’s request for payment. 3 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally * or in writing. Registration of court case: The court administration registers the lawsuit or court case. This includes 4 assigning a reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random * procedure, automated system, ruling of an administrative judge, court officer, etc. Court scrutiny of summons and complaint: A judge examines Plaintiff's summons and complaint for 5 formal requirements. Judge admits summons and complaint: After verifying the formal requirements, the judge decides to * admit Plaintiff’s summons and complaint. Plaintiff’s request for service: Plaintiff makes a written request to the court that process be served on 6 Defendant. 7 Court order for service: Upon Plaintiff’s request, judge orders process be served on Defendant. Delivery of summons and complaint to person authorized to perform service of process on Defendant: 8 The judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. First attempt at physical delivery: A first attempt to physically deliver summons and complaint to 9 Defendant is successful in the majority of cases. Second attempt at physical delivery: If a first attempt was not successful, a second attempt to physically 10 deliver the summons and complaint to Defendant is required by law or standard practice. Application for substituted service: Because physical delivery is not successful in the majority of cases, 11 Plaintiff applies for substituted service. Substituted service can include, but is not limited to, service by publication in newspapers or affixing of a notice in court or on public bul Court order regarding substituted service: The judge in a court order defines acceptable means for 12 substituted service. Substituted service: Substituted service is accomplished by publication in newspapers, by affixing a notice 13 in court or on public bulletin boards, etc. Doing Business 2014 Honduras 88 No. Procedure * Proof of service: Plaintiff submits proof of service to court. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. This step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Guarantees securing attached property: Plaintiff typically submits guarantees or bonds to secure 14 Defendant against possible damages to attached property. (see assumption 5) Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either 15 physical or achieved by registering, marking, debiting or separating assets. (see assumption 5) Custody of assets attached prior to judgment: Defendant's attached assets are put under enforcement 16 officer's or (private) bailiff's care. (see assumption 5) Report on pre-judgment attachment: Court enforcement officer or (private) bailiff issues and delivers a 17 report on the attachment of Defendant’s property to the judge. (see assumption 5) Hearing on pre-judgment attachment: A hearing takes place to resolve the question of whether 18 Defendant’s assets can be attached prior to judgment. This process may include the submission of separate summons and petitions. (see assumption 5) Trial and judgment: Defendant’s filing of preliminary exemptions: Defendant presents preliminary exemptions to the court. * Preliminary exemptions differ from answers on the merits of the claim. Examples of preliminary exemptions are statute of limitations, jurisdictions, etc. Plaintiff’s answer to preliminary exemptions: Plaintiff responds to the preliminary exemptions raised by * Defendant. Judge’s resolution on preliminary exemptions: Judge decides on preliminary exemptions separately from 19 the merits of the case. Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his defense or answer on the merits of the case. Defendant's written answer may or may not 20 include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Deadline for Plaintiff to answer Defendant's defense or answer: Judge sets the deadline by which Plaintiff 21 will be allowed to answer Defendant's defense or answer. Plaintiff’s written response to Defendant's defense or answer: Plaintiff responds to Defendant’s defense or 22 answer with a written pleading. Plaintiff's answer may or may not include a witness statements or expert (witness) statements. Filing of pleadings: Plaintiff and Defendant file written pleadings and submissions with the court and 23 transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Doing Business 2014 Honduras 89 No. Procedure Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 6-b of this case) Notification of court-appointment of independent expert: The court notifies both parties that the court is 24 appointing an independent expert. (see assumption 6-b of this case) Delivery of expert report by court-appointed expert: The independent expert appointed by the court * delivers his or her expert report to the court. (see assumption 6-b of this case) Setting of date for mediation hearing: The judge sets a date for a mediation hearing, sometimes also * called a 'pre-trial conference,' and notifies the parties of the hearing date. Mediation hearing: The judge during this informal meeting with the parties encourages them to settle the 25 case. The judge acts as mediator. If the case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judg * Setting of date(s) for oral hearing or trial: The judge sets the date(s) for the oral hearing or trial. * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court. (see assumption 6-a) Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 26 hearing or trial. (see assumption 6-a) Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 27 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Request for closing of the evidence period: Plaintiff or Defendant requests the judge to close the evidence * period. 28 Closing of the evidence period: The court makes the formal decision to close the evidence period. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 29 Judgment date: The judge sets a date for delivery of the judgment. 30 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 31 judgment. 32 Plaintiff's receipt of a copy of written judgment: Plaintiff receives a copy of the written judgment. Notification of Defendant of judgment: Plaintiff or court formally notifies the Defendant of the judgment. 33 The appeal period starts to run the day the Defendant is formally notified of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in 34 the law. Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Enforcement of judgment: Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented * by a lawyer during the enforcement of judgment phase. Doing Business 2014 Honduras 90 No. Procedure Plaintiff's approaching of court enforcement officer or (private) bailiff to enforce the judgment: To enforce 35 the judgment, Plaintiff approaches a court enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff’s request for enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 36 judgment. Plaintiff’s request for physical enforcement: As Plaintiff fears that Defendant might physically resist the * attachment of its movable goods, Plaintiff addresses a request to the judge or to the police authorities to obtain police assistance during the attachment of Defendant's movable goods. Judge's order for physical enforcement: The judge orders the police to assist with the physical 37 enforcement of the attachment of Defendant's movable goods. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 38 (private) bailiff requests Defendant to voluntarily comply with the judgment, giving Defendant a last chance to comply voluntarily with the judgment. Plaintiff’s identification of Defendant's assets for attachment: Plaintiff identifies Defendant's assets for 39 attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 40 assets). Report on execution of attachment: A court enforcement officer or private process server delivers a report 41 on the attachment of Defendant's movable goods to the judge. Valuation or appraisal of attached movable goods: The court or court appointed valuation expert 42 evaluates the attached goods. Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 43 newspapers. 44 Sale through public auction: The Defendant’s movable property is sold at public auction. 45 Judge's decision on bids: The judge determines the adequacy of the bids presented at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to various creditors (including 46 Plaintiff), according to the rules of priority. 47 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2014 Honduras 91 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through Recovery rate for creditors (cents on the reorganization, liquidation or debt enforcement dollar) (foreclosure) proceedings. The recovery rate is a Measures the cents on the dollar recovered function of time, cost and other factors, such as by creditors lending rate and the likelihood of the company continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account  Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered  Operates in the economy’s largest business city.  Has 201 employees, 1 main secured  Has a higher value as a going concern—and creditor and 50 unsecured creditors. the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 Honduras 92 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses piecemeal sale. The average recovery rate is 19.5 cents characterize the top-performing economies. How on the dollar. efficient are insolvency proceedings in Honduras? Globally, Honduras stands at 136 in the ranking of 189 According to data collected by Doing Business, economies on the ease of resolving insolvency (figure resolving insolvency takes 3.8 years on average and 11.1). The rankings for comparator economies and the costs 15% of the debtor’s estate, with the most likely regional average ranking provide other useful outcome being that the company will be sold as benchmarks for assessing the efficiency of insolvency proceedings in Honduras. Figure 11.1 How Honduras and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 Honduras 93 RESOLVING INSOLVENCY What are the changes over time? The benchmarks provided by the economies that over possible in improving the efficiency of insolvency time have had the best performance regionally or proceedings. And changes in regional averages can globally on the time or cost of insolvency proceedings show where Honduras is keeping up—and where it is or on the recovery rate (figure 11.2) help show what is falling behind. Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2014 Honduras 94 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. “No practice” indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for “no practice” economies is 0. Regional averages on time and cost exclude economies with a “no practice” mark. Source: Doing Business database. Doing Business 2014 Honduras 95 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 Honduras (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Honduras made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Honduras 96 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of employing workers methodology proposed by the employment, specifically as it affects the hiring and consultative group are available on the Doing Business redundancy of workers and the rigidity of working website (http://www.doingbusiness.org). The data on hours. Over the period from 2007 to 2011 employing workers are based on a detailed survey of improvements were made to align the methodology employment regulations that is completed by local for the employing workers indicators with the letter lawyers and public officials. Employment laws and and spirit of the International Labour Organization regulations as well as secondary sources are reviewed (ILO) conventions. Only 4 of the 188 ILO conventions to ensure accuracy. cover areas measured by Doing Business: employee To make the data comparable across economies, termination, weekend work, holiday with pay and night several assumptions about the worker and the work. The Doing Business methodology is fully business are used. consistent with these 4 conventions. The ILO conventions covering areas related to the Employing The worker: Workers indicators do not include the ILO core labor  Earns a salary plus benefits equal to the standards—8 conventions covering the right to economy’s average wage during the entire collective bargaining, the elimination of forced labor, period of his employment. the abolition of child labor and equitable treatment in  Has a pay period that is the most common for workers in the economy. employment practices.  Is a lawful citizen who belongs to the same race and religion as the majority of the Between 2009 and 2011 the World Bank Group worked economy’s population. with a consultative group—including labor lawyers,  Resides in the economy’s largest business city. employer and employee representatives, and experts  Is not a member of a labor union, unless from the ILO, OECD, civil society and the private membership is mandatory. sector—to review the employing workers methodology and explore future areas of research. A i The business:  Is a limited liability company. full report with the conclusions of the consultative  Operates in the economy’s largest business group is available at city. http://www.doingbusiness.org/methodology/employin  Is 100% domestically owned. g-workers.  Operates in the manufacturing sector.  Has 60 employees. This year Doing Business continued research collecting  Is subject to collective bargaining agreements additional data on regulations covering the in economies where such agreements cover probationary period for new employees. more than half the manufacturing sector and apply even to firms not party to them. Doing Business 2014 presents the data on the  Abides by every law and regulation but does not grant workers more benefits than employing workers indicators in an annex. The report mandated by law, regulation or (if applicable) does not present rankings of economies on the collective bargaining agreement. employing workers indicators nor include the topic in the aggregate ranking on the ease of doing business. Detailed data collected on labor regulations and the Doing Business 2014 Honduras 97 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Honduras other things, the minimum wage for a 19-year-old (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2014 Honduras 98 EMPLOYING WORKERS Employment laws are needed to protect workers from past 5 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Honduras adopt that contracting between employers and workers. Many affected the Doing Business indicators on employing economies that changed their labor regulations in the workers (table 12.1)? Table 12.1 What changes did Honduras make in employing workers in 2013? DB year Reform DB2009 No reform as measured by Doing Business. Honduras increased the severance payments applicable in DB2010 redundancy dismissals. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Honduras 99 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and Honduras are based on a detailed survey of regulations as well as secondary sources are reviewed employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? Yes 12 months in general; 60 months for work requiring special technical preparation; however, a longer term can only be found Maximum length of a single fixed-term contract (months) to be in violation of the law on the express request of the worker (Art. 47 and 48) Maximum length of fixed-term contracts, including renewals (months) 24 Minimum wage for a 19-year old worker or an apprentice (US$/month) 430.1 Ratio of minimum wage to value added per worker 1.49 Source: Doing Business database. Doing Business 2014 Honduras 100 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data 8 hours (day); 7 hours (mixed); 6 hours Standard workday in manufacturing (hours) (night) -- Art. 321 and 322 of Labor Code. 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 25% operations Premium for work on weekly rest day (% of hourly pay) in case of 100% continuous operations Major restrictions on night work in case of continuous operations? Yes Major restrictions on weekly holiday in case of continuous operations? No Paid annual leave for a worker with 1 year of tenure (in working days) 10.0 Paid annual leave for a worker with 5 years of tenure (in working days) 20.0 Paid annual leave for a worker with 10 years of tenure (in working days) 20.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 16.7 working days) Source: Doing Business database. Doing Business 2014 Honduras 101 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? Yes Third-party approval if 1 worker is dismissed? Yes Third-party notification if 9 workers are dismissed? Yes Third-party approval if 9 workers are dismissed? Yes Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? Yes Priority rules for reemployment? No Source: Doing Business database. Doing Business 2014 Honduras 102 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 4.3 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 8.7 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 8.7 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 7.2 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 4.3 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 21.7 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 43.3 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 23.1 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2014 Honduras 103 DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information about what laws and regulations say and allowing 2 The data for paying taxes refer to January – December 2012. multiple interactions with local respondents to clarify Doing Business 2014 Honduras 104 potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation —as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified Changes in what is measured size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully reasons the time delays reported in Doing Business completed online in just a few hours. This change 2014 would differ from the recollection of affects the time indicator for starting a business, Doing Business 2014 Honduras 105 dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business and the distance to frontier measure. The business. ease of doing business ranking compares economies More complex aggregation methods—such as 3 For getting electricity the rule that each procedure must take a principal components and unobserved components— minimum of 1 day still applies because in practice there are no yield a ranking nearly identical to the simple average cases in which procedures can be fully completed online in less than a day. For example, even though in some cases it is possible to apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 Honduras 106 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly since 2003 or the first year the indicator was collected. 5 identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of 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 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 Honduras 107 the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. Doing Business 2014 Honduras 109 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2014 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/ iphone Doing Business 2014 Honduras 110