45888 Country Profile for Philippines © 2008 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 e-mail feedback@worldbank.org All rights reserved. 1 2 3 4 08 07 06 05 A copublication of the World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. 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For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank 1818 H Street NW Washington, DC 20433, USA fax: 202-522-2422 e-mail: pubrights@worldbank.org Additional copies of Doing Business 2009, Doing Business 2008, Doing Business 2007 : How to Reform, Doing Business in 2006 : Creating Jobs, Doing Business in 2005 : Removing Obstacles to Growth and Doing Business in 2004 : Understanding Regulations may be purchased at www.doingbusiness.org ISBN: 978-0-8213-7609-6 E-ISBN: 978-0-8213-7610-2 DOI: 10.1596/978-0-8213-7609-6 Current features News on the Doing Business project www.doingbusiness.org Rankings How economies rank-from 1 to 181 www.doingbusiness.org/economyrankings Reformers Contents Short summaries of DB2009 reforms, lists of reformers since DB2004 and a ranking simulation tool www.doingbusiness.org/reformers Introduction 1 and Aggregate Rankings Data time series Customized data sets since DB2004 Starting a Business 5 www.doingbusiness.org/customquery Dealing with 10 Methodology and research Construction Permits The methodologies and research papers underlying Doing Business www.doingbusiness.org/MethodologySurveys Employing Workers 15 Blog Registering Property 19 Online journal focusing on business regulation reform http://blog.doingbusiness.org Getting Credit 24 Downloads Doing Business reports as well as subnational, country and regional Protecting Investors 28 reports and case studies www.doingbusiness.org/downloads Paying Taxes 32 Subnational projects Trading across Borders 36 Differences in business regulations at the subnational level www.doingbusiness.org/subnational Enforcing Contracts 40 Law library Closing a Business 44 Online collection of business laws and regulations www.doingbusiness.org/lawlibrary DB2009 Reforms 48 Local partners More than 6,700 specialists in 181 economies who participate www.doingbusiness.org/LocalPartners Reformers' Club Celebrating the top 10 Doing Business reformers www.reformersclub.org Business Planet Interactive map on the ease of doing business http://www.doingbusiness.org/map Doing Business 2009 is the sixth in a series of annual reports investigating regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 181 economies, from Afghanistan to Zimbabwe, over time. A set of regulations affecting 10 stages of a business's life are measured : starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Data in Doing Business 2009 are current as of June 1, 2008*. The indicators are used to analyze economic outcomes and identify what reforms have worked, where, and why. The Doing Business methodology has limitations. Other areas important to business such as an economy's proximity to large markets, the quality of its infrastructure services (other than those related to trading across borders), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions or the underlying strength of institutions, are not studied directly by Doing Business. To make the data comparable across economies, the indicators refer to a specific type of business, generally a local limited liability company operating in the largest business city. Because standard assumptions are used in the data collection, comparisons and benchmarks are valid across economies. The data not only highlight the extent of obstacles to doing business; they also help identify the source of those obstacles, supporting policymakers in designing reform. The data set covers 181 economies: 46 in Sub-Saharan Africa, 32 in Latin America and The Caribbean, 25 in Eastern Europe and Central Asia, 24 in East Asia and Pacific, 19 in the Middle East and North Africa and 8 in South Asia, as well as 27 OECD high-income economies as benchmarks. The following pages present the summary Doing Business indicators for Philippines. The data used for this country profile come from the Doing Business database and are summarized in graphs. These graphs allow a comparison of the economies in each region not only with one another but also with the "good practice" economy for each indicator. The good-practice economies are identified by their position in each indicator as well as their overall ranking and by their capacity to provide good examples of business regulation to other countries. These good-practice economies do not necessarily rank number 1 in the topic or indicator, but they are in the top 10. More information is available in the full report. Doing Business 2009 presents the indicators, analyzes their relationship with economic outcomes and recommends reforms. The data, along with information on ordering the report, are available on the Doing Business website (www.doingbusiness.org). * Except for the Paying Taxes indicator that refers to the period January to December of 2007. 1 Economy Rankings - Ease of Doing Business Philippines is ranked 140 out of 181 economies. Singapore is the top ranked economy in the Ease of Doing Business. Philippines - Compared to global good practice economy as well as selected economies: Philippines's ranking in Doing Business 2009 Rank Doing Business 2009 Ease of Doing Business 140 Starting a Business 155 Dealing with Construction Permits 105 Employing Workers 126 Registering Property 97 Getting Credit 123 Protecting Investors 126 Paying Taxes 129 Trading Across Borders 58 Enforcing Contracts 114 2 Closing a Business 151 Summary of Indicators - Philippines Starting a Business Procedures (number) 15 Duration (days) 52 Cost (% GNI per capita) 29.8 Paid in Min. Capital (% of GNI per capita) 6.0 Dealing with Construction Permits Procedures (number) 24 Duration (days) 203 Cost (% of income per capita) 90.1 Employing Workers Difficulty of Hiring Index 56 Rigidity of Hours Index 20 Difficulty of Firing Index 30 Rigidity of Employment Index 35 Firing costs (weeks of salary) 91 Registering Property Procedures (number) 8 Duration (days) 33 Cost (% of property value) 4.3 Getting Credit Legal Rights Index 3 Credit Information Index 3 Public registry coverage (% adults) 0.0 Private bureau coverage (% adults) 5.4 Protecting Investors Disclosure Index 2 3 Protecting Investors Director Liability Index 2 Shareholder Suits Index 8 Investor Protection Index 4.0 Paying Taxes Payments (number) 47 Time (hours) 195 Profit tax (%) 26.3 Labor tax and contributions (%) 10.3 Other taxes (%) 14.2 Total tax rate (% profit) 50.8 Trading Across Borders Documents for export (number) 8 Time for export (days) 16 Cost to export (US$ per container) 816 Documents for import (number) 8 Time for import (days) 16 Cost to import (US$ per container) 819 Enforcing Contracts Procedures (number) 37 Duration (days) 842 Cost (% of claim) 26.0 Closing a Business Time (years) 5.7 Cost (% of estate) 38 Recovery rate (cents on the dollar) 4.4 When entrepreneurs draw up a business plan and try to get under way, the first hurdles they face are the procedures required to incorporate and register the new firm before they can legally operate. Economies differ greatly in how they regulate the entry of new businesses. In some the process is straightforward and affordable. In others the procedures are so burdensome that entrepreneurs may have to bribe officials to speed the process or may decide to run their business informally. The data on starting a business is based on a survey and research investigating the procedures that a standard small to medium-size company needs to complete to start operations legally. These include obtaining all necessary permits and licenses and completing all required inscriptions, verifications and notifications with authorities to enable the company to formally operate. The time and cost required to complete each procedure under normal circumstances are calculated, as well as the minimum capital that must be paid in. It is assumed that all information is readily available to the entrepreneur, that there has been no prior contact with officials and that all government and nongovernment entities involved in the process function without corruption. To make the data comparable across economies, detailed assumptions about the type of business are used. Among these assumptions are the following: the business is a limited liability company conducting general commercial activities in the largest business city; it is 100% domestically owned, with a start-up capital of 10 times income per capita, a turnover of at least 100 times income per capita and between 10 and 50 employees; and it does not qualify for any special benefits, nor does it own real estate. Procedures are recorded only where interaction is required with an external party. It is assumed that the founders complete all procedures themselves unless professional services (such as by a notary or lawyer) are required by law. Voluntary procedures are not counted, nor are industry-specific requirements and utility hook-ups. Lawful shortcuts are counted. Cumbersome entry procedures are associated with more corruption, particularly in developing economies. Each procedure is a point of contact, a potential opportunity to extract a bribe. Analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices and fuel corruption. 5 1. Historical data: Starting a Business in Philippines Starting a Business data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 151 155 Procedures (number) 15 15 15 Duration (days) 58 58 52 Cost (% GNI per capita) 24.4 31.8 29.8 Paid in Min. Capital (% of GNI per capita) 1.8 6.9 6.0 2. The following graphs illustrates the Starting a Business indicators in Philippines over the past 3 years: 6 3. Steps to Starting a Business in Philippines It requires 15 procedures, takes 52 days, and costs 29.76 % GNI per capita to start a business in Philippines. List of Procedures: 1. Obtain bank certificate of deposit of the paid-in capital 11. Obtain the authority to print receipt/invoices with the Bureau of Internal Revenue (BIR) 2. Verify the availability of the company name with the Securities and Exchange Commission (SEC) 12. Print receipts and invoices at the print shops accredited by the BIR 3. Register incorporation with the Securities and Exchange Commission 13. Submit receipts and invoices to the BIR for approval, have receipts/invoices and books of accounts stamped 4. Obtain community tax certificate (CTC) by BIR 5. Apply for a Barangay (district) clearance 14. Register with the Social Security System (SSS) 6. Obtain mayor's permit/municipal license to operate at 15. Register with Philippines Health Insurance Company the Licensing Section of the Mayor's Office (PHIC) 7. Receive inspection from the Mayor's Office 8. Buy special books of account at bookstore 9. Register for VAT 10. Payment of documentary stamp taxes More detail is included in the appendix. 7 4. Benchmarking Starting a Business Regulations: Philippines is ranked 155 overall for Starting a Business. Ranking of Philippines in Starting a Business - Compared to good practice and selected economies: 8 The following table shows Starting a Business data for Philippines compared to good practice and comparator economies: Good Practice Procedures Duration Cost (% GNI Paid in Min. Economies (number) (days) per capita) Capital (% of GNI per capita) Denmark 0.0 New Zealand* 1 1 0.0 Selected Economy Philippines 15 52 29.8 6.0 Comparator Economies Indonesia 11 76 77.9 74.2 Lao PDR 8 103 14.1 0.0 Malaysia 9 13 14.7 0.0 Thailand 8 33 4.9 0.0 Timor-Leste 10 83 6.6 331.1 * The following economies are also good practice economies for : Procedures (number): Canada 9 Once entrepreneurs have registered a business, what regulations do they face in operating it? To measure such regulation, Doing Business focuses on the construction sector. Construction companies are under constant pressure; from government to comply with inspections and with licensing and safety regulations and from customers to be quick and cost-effective. These conflicting pressures point to the tradeoff in building regulation; the tradeoff between protecting people (construction workers, tenants, passersby) and keeping the cost of building affordable. Striking the right balance is a challenge when it comes to construction regulations. Good regulations ensure safety standards that protect the public while making the permitting process efficient, transparent and affordable for both building authorities and the private professionals who use it. If procedures are overly complicated or costly, builders build without a permit, leading to hazardous construction. The indicators on dealing with construction permits record all procedures officially required for an entrepreneur in the construction industry to build a warehouse. These include submitting project documents (building plans, site maps) to the authorities, obtaining all necessary licenses and permits, completing all required notifications and receiving all necessary inspections. They also include procedures for obtaining utility connections, such as electricity, telephone, water and sewerage. The time and cost to complete each procedure under normal circumstances are calculated. All official fees associated with legally completing the procedures are included (bribes not included). Time is recorded in calendar days. The survey assumes that the entrepreneur is aware of all existing regulations and does not use an intermediary to complete the procedures unless required to do so by law. To make the data comparable across economies, several assumptions about the business and its operations are used. The business is a small to medium-size limited liability company, located in the most populous city, domestically owned and operated, in the construction business, with 60 qualified employees. The warehouse to be built: · Is a new construction (there was no previous construction on the land). · Has 2 stories, both above ground, with a total surface of approximately 1,300.6 square meters (14,000 square feet). Each floor is 3 meters (9 feet, 10 inches) high · Has complete architectural and technical plans prepared by a licensed architect. · Will be connected to electricity, water, sewerage (sewage system, septic tank or their equivalent) and one land phone line. The connection to each utility network will be 32 feet, 10 inches (10 meters) long. · Will be used for general storage, such as of books or stationery. The warehouse will not be used for any goods requiring special conditions, such as food, chemicals or pharmaceuticals. · Will take 30 weeks to construct (excluding all delays due to administrative and regulatory requirements). Where the regulatory burden is large, entrepreneurs move their activity into the informal economy. There they operate with less concern for safety, leaving everyone worse off. 10 1. Historical data: Dealing with Construction Permits in Philippines Dealing with Construction Permits data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 102 105 Procedures (number) 24 24 24 Duration (days) 203 203 203 Cost (% of income per capita) 107.1 102.4 90.1 2. The following graphs illustrates the Dealing with Construction Permits indicators in Philippines over the past 3 years: 11 3. Steps to Building a Warehouse in Philippines It requires 24 procedures, takes 203 days, and costs 90.12 % GNI per capita to build a warehouse in Philippines. List of Procedures: 1. Obtain certified true copy of land title 12. Receive final electrical inspection 2. Obtain certified true copy of land title tax declaration 13. Obtain electrical inspection certificate of real property 14. Request certificate of occupancy 3. Obtain lot plan with site map 15. Receive final inspection from city building official 4. Obtain location clearances from Barangay 16. Obtain certificate of occupancy 5. Obtain location clearances from Mayor 17. Request electricity connection from MERALCO 6. Obtain building permit 18. Receive electricity inspection 7. Notarize building permit 19. Obtain electricity connection from MERALCO 8. Request fire safety inspection from Bureau of fire prevention 20. Request water and sewage connection from Maynilad Water Services, Inc (Maynilad) 9. Receive fire safety inspection 21. Receive inspection 10. Obtain fire safety inspection certificate 22. Obtain permanent water and sewage connection from 11. Request final electrical inspection from city electrical Maynilad Water Services, Inc (Maynilad) engineer 12 23. Obtain fixed telephone line 24. Submit tax declaration of improvement More detail is included in the appendix. 4. Benchmarking Dealing with Construction Permits Regulations: Philippines is ranked 105 overall for Dealing with Construction Permits. Ranking of Philippines in Dealing with Construction Permits - Compared to good practice and selected economies: * The following economies are also good practice economies for Building a Warehouse: Belize, New Zealand, St. Vincent and the Grenadines 13 The following table shows Dealing with Construction Permits data for Philippines compared to good practice and comparator economies: Good Practice Procedures Duration Cost (% of Economies (number) (days) income per capita) Denmark 6 Korea 34 Malaysia* 7.9 Selected Economy Philippines 24 203 90.1 Comparator Economies Indonesia 18 176 221.1 Lao PDR 24 172 172.1 Malaysia 25 261 7.9 Thailand 11 156 9.4 Timor-Leste 22 208 62.9 * The following economies are also good practice economies for : Cost (% of income per capita): Brunei, Palau, Qatar, St. Kitts and Nevis, Trinidad and Tobago, United Arab Emirates 14 Economies worldwide have established a system of laws and institutions intended to protect workers and guarantee a minimum standard of living for its population. This system generally encompasses four bodies of law: employment, industrial relations, social security and occupational health and safety laws. Doing Business examines government regulation in the area of employment. Two measures are presented: a rigidity of employment index and a firing cost measure. The rigidity of employment index is the average of three subindices: difficulty of hiring, rigidity of hours and difficulty of firing. Each index takes values between 0 and 100, with higher values indicating more rigid regulation. The difficulty of hiring index measures the flexibility of contracts and the ratio of the minimum wage to the value added per worker. The rigidity of hours index covers restrictions on weekend and night work, requirements relating to working time and the workweek, and mandated days of annual leave with pay. The difficulty of firing index covers workers' legal protections against dismissal, including the grounds permitted for dismissal and procedures for dismissal (individual and collective): notification and approval requirements, retraining or reassignment obligations and priority rules for dismissals and reemployment. The firing cost indicator measures the cost of advance notice requirements, severance payments and penalties due when terminating a redundant worker, expressed in weeks of salary. To make the data comparable across economies, a range of assumptions about the worker and the company are used. The company is assumed to be a limited liability manufacturing corporation that operates in the economy's most populous city, is 100% domestically owned and has 201 employees. The company is also assumed to be subject to collective bargaining agreements in economies where such agreements cover more than half the manufacturing sector and apply even to firms not party to them. Employment regulations are needed to allow efficient contracting between employers and workers and to protect workers from discriminatory or unfair treatment by employers. In its indicators on employing workers, Doing Business measures flexibility in the regulation of hiring, working hours and dismissal in a manner consistent with the conventions of the International Labour Organization (ILO). An economy can have the most flexible labor regulations as measured by Doing Business while ratifying and complying with all conventions directly relevant to the factors measured by Doing Business and with the ILO core labor standards. No economy can achieve a better score by failing to comply with these conventions. Governments all over the world face the challenge of finding the right balance between worker protection and labor market flexibility. But in developing countries especially, regulators often err to one extreme, pushing employers and workers into the informal sector. Analysis across economies shows that while employment regulation generally increases the tenure and wages of incumbent workers, overly rigid regulations may have undesirable side effects. These include less job creation, smaller company size, less investment in research and development, and longer spells of unemployment and thus the obsolescence of skills, all of which may reduce productivity growth. When economies err on the side of excessive rigidity, it is to the detriment of businesses and workers alike. 15 1. Historical data: Employing Workers in Philippines Employing Workers data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 123 126 Rigidity of Employment Index 35 35 35 Firing costs (weeks of salary) 91 91 91 2. The following graphs illustrates the Employing Workers indicators in Philippines over the past 3 years: 16 3. Benchmarking Employing Workers Regulations: Philippines is ranked 126 overall for Employing Workers. Ranking of Philippines in Employing Workers - Compared to good practice and selected economies: * The following economies are also good practice economies for Employing Workers: Marshall Islands, Singapore 17 The following table shows Employing Workers data for Philippines compared to good practice and comparator economies: Good Practice Rigidity of Firing costs Economies Employment (weeks of Index salary) Hong Kong, China* 0 New Zealand* 0 Selected Economy Philippines 35 91 Comparator Economies Indonesia 40 108 Lao PDR 34 19 Malaysia 10 75 Thailand 18 54 Timor-Leste 34 17 * The following economies are also good practice economies for : Rigidity of Employment Index: Maldives, Marshall Islands, Singapore, United States Firing costs (weeks of salary): Afghanistan, Denmark, Iraq, Marshall Islands, Micronesia, Palau, Puerto Rico, Tonga, United States 18 Formal property titles help promote the transfer of land, encourage investment and give entrepreneurs access to formal credit markets. But a large share of property in developing economies is not formally registered. Informal titles cannot be used as security in obtaining loans, which limits financing opportunities for businesses. Many governments have recognized this and started extensive property titling programs. But bringing assets into the formal sector is only part of the story. The more difficult and costly it is to formally transfer property, the greater the chances that formalized titles will quickly become informal again. Eliminating unnecessary obstacles to registering and transferring property is therefore important for economic development. Doing Business records the full sequence of procedures necessary for a business (buyer) to purchase a property from another business (seller) and to transfer the property title to the buyer's name. The property of land and building will be transferred in its entirety. The transaction is considered complete when the buyer can use the property as collateral for a bank loan. Local property lawyers and officials in property registries provide information on required procedures as well as the time and cost to complete each one. For most economies the data are based on responses from both. Based on the responses, three indicators are constructed. · Number of procedures to register property. · Time to register property (in calendar days). · Official costs to register property (as a percentage of the property value). Many titling programs in Africa were futile because people bought and sold property informally, neglecting to update the title records in the property registry. Why? Doing Business shows that completing a simple formal property transfer in the largest business city of an African economy cost 10% of the value of the property and takes on average 90 days. Worse, the property registries are so poorly organized that they provide little security of ownership. Efficient property registration reduces transaction costs and helps to formalize property titles. Simple procedures to register property are also associated with greater perceived security of property rights and less corruption. That benefits all entrepreneurs, especially women, the young and the poor. The rich have few problems protecting their property rights. They can afford to invest in security systems and other measures to defend their property. But small entrepreneurs cannot. Reform can change this. Twenty-four economies made it easier to register property in 2007/08. The most popular reform: lowering the cost of registration by reducing the property transfer tax, registration fees or stamp duty. 19 1. Historical data: Registering Property in Philippines Registering Property data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 88 97 Procedures (number) 8 8 8 Duration (days) 33 33 33 Cost (% of property value) 4.2 4.2 4.3 2. The following graphs illustrates the Registering Property indicators in Philippines over the past 3 years: 20 3. Steps to Registering Property in Philippines It requires 8 procedures, takes 33 days, and costs 4.26 % of property value to register the property in Philippines. List of Procedures: 1. Preparation of the deed of sale and ratification by notary public 2. Obtain a certified true copy of latest tax declaration from the Assessor's Office of Manila 3. Payment of Documentary Stamp Tax and Capital Gains Tax at an authorized bank 4. Obtain tax clearance (or Certificate Authorizing Registration) from the Bureau of Internal Revenue 5. Obtain a tax clearance certificate of Real Estate Taxes from the Treasurer's Office of Manila 6. Payment of transfer tax at the Treasurer's Office of Manila 7. Apply with the Assessor's Office of Manila for the issuance of a new tax declaration over the building in the name of buyer 8. Apply for registration with the Register of Deeds of Manila 21 More detail is included in the appendix. 4. Benchmarking Registering Property Regulations: Philippines is ranked 97 overall for Registering Property. Ranking of Philippines in Registering Property - Compared to good practice and selected economies: * The following economies are also good practice economies for Registering Property: Georgia, Saudi Arabia 22 The following table shows Registering Property data for Philippines compared to good practice and comparator economies: Good Practice Procedures Duration Cost (% of Economies (number) (days) property value) New Zealand* 2 Norway* 1 Saudi Arabia 0.0 Selected Economy Philippines 8 33 4.3 Comparator Economies Indonesia 6 39 10.7 Lao PDR 9 135 4.1 Malaysia 5 144 2.5 Thailand 2 2 1.1 Timor-Leste no practice no practice no practice * The following economies are also good practice economies for : Procedures (number): Sweden Duration (days): Saudi Arabia, Sweden, Thailand 23 Firms consistently rate access to credit as among the greatest barriers to their operation and growth. Doing Business constructs two sets of indicators of how well credit markets function: one on credit registries and the other on legal rights of borrowers and lenders. Credit registries, institutions that collect and distribute credit information on borrowers, can greatly expand access to credit. By sharing credit information, they help lenders assess risk and allocate credit more efficiently. And they free entrepreneurs from having to rely on personal connections alone when trying to obtain credit. Three indicators are constructed to measure the sharing of credit information: · Depth of credit information index, which measures the extent to which the rules of a credit information system facilitate lending based on the scope of information distributed, the ease of access to information and the quality of information. · Public registry coverage, which reports the number of individuals and firms covered by a public credit registry as a percentage of the adult population. · Private bureau coverage, which reports the number of individuals and firms, covered by a private credit bureau as a percentage of the adult population. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. This year, three main changes were made; first, a standardized case scenario with specific assumptions was introduced to bring this indicator into line with other Doing Business indicators. Second, the indicator now focuses not on tangible movable collateral, such as equipment, but on revolving movable collateral, such as accounts receivable and inventory. Third, the indicator no longer considers whether management remains in place during a reorganization procedure, better accommodating economies that adopt reorganization procedures. The strength of legal rights index includes 8 aspects related to legal rights in collateral law and 2 aspects in bankruptcy law: · Any business may use movable assets as collateral while keeping possession of the assets, and any financial institution may accept such assets as collateral. · The law allows a business to grant a non possessory security right in a single category of revolving movable assets, without requiring a specific description of the secured assets. · The law allows a business to grant a non possessory security right in substantially all of its assets, without requiring a specific description of the secured assets. · A security right may extend to future or after-acquired assets and may extend automatically to the products, proceeds or replacements of the original assets. · General description of debts and obligations is permitted in collateral agreements and in registration documents, so that all types of obligations and debts can be secured by stating a maximum rather than a specific amount between the parties. · A collateral registry is in operation that is unified geographically and by asset type and that is indexed by the name of the grantor of a security right. · Secured creditors are paid first when a debtor defaults outside an insolvency procedure or when a business is liquidated. · Secured creditors are not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure. · The law allows parties to agree in a collateral agreement that the lender may enforce its security right out of court. 24 1. Historical data: Getting Credit in Philippines Getting Credit data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 116 123 Legal Rights Index 3 3 3 Credit Information Index 3 3 3 Public registry coverage (% adults) 0.0 0.0 0.0 Private bureau coverage (% adults) 4.8 5.5 5.4 2. The following graphs illustrates the Getting Credit indicators in Philippines over the past 3 years: 25 3. Benchmarking Getting Credit Regulations: Philippines is ranked 123 overall for Getting Credit. Ranking of Philippines in Getting Credit - Compared to good practice and selected economies: 26 The following table shows Getting Credit data for Philippines compared to good practice and comparator economies: Good Practice Legal Rights Credit Public Private Economies Index Information registry bureau Index coverage (% coverage (% adults) adults) Malaysia* 10 New Zealand* 100.0 Portugal 76.4 United Kingdom 6 Selected Economy Philippines 3 3 0.0 5.4 Comparator Economies Indonesia 3 4 26.1 0.0 Lao PDR 4 0 0.0 0.0 Malaysia 10 6 52.9 not available Thailand 4 5 0.0 31.8 Timor-Leste 1 0 0.0 0.0 * The following economies are also good practice economies for : Legal Rights Index: Hong Kong, China, Kenya, Singapore Private bureau coverage (% adults): Argentina, Australia, Canada, Iceland, Ireland, Nicaragua, Norway, Sweden, United Kingdom, United States 24 countries have the highest credit information index. 27 Companies grow by raising capital, either through a bank loan or by attracting equity investors. Selling shares allows companies to expand without the need to provide collateral and repay bank loans. But investors worry about their money, and look for laws that protect them. A study finds that the presence of legal and regulatory protections for investors explains up to 73% of the decision to invest. In contrast, company characteristics explain only between 4% and 22%*. Good protections for minority shareholders are associated with larger and more active stock markets. Thus both governments and businesses have an interest in reforms strengthening investor protections. To document some of the protections investors have, Doing Business measures how economies regulate a standard case of self-dealing, use of corporate assets for personal gain. The case facts are straightforward. Mr. James, a director and the majority shareholder of a public company, proposes that the company purchase used trucks from another company he owns. The price is higher than the going price for used trucks. The transaction goes forward. All required approvals are obtained, and all required disclosures made, though the transaction is prejudicial to the purchasing company. Shareholders sue the interested parties and the members of the board of directors. Several questions arise. Who approves the transaction? What information must be disclosed? What company documents can investors access? What do minority shareholders have to prove to get the transaction stopped or to receive compensation from Mr. James? Three indices of investor protection are constructed based on the answers to these and other questions. All indices range from 0 to 10, with higher values indicating more protections or greater disclosure. · The extent of disclosure index covers approval procedures, requirements for immediate disclosure to the public and shareholders of proposed transactions, requirements for disclosure in periodic filings and reports and the availability of external review of transactions before they take place. · The extent of director liability index covers the ability of investors to hold Mr. James and the board of directors liable for damages, the ability to rescind the transaction, the availability of fines and jail time associated with self-dealing, the availability of direct or derivative suits and the ability to require Mr. James to pay back his personal profits from the transaction. · The ease of shareholder suits index covers the availability of documents that can be used during trial, the ability of the investor to examine the defendant and other witnesses, shareholders' access to internal documents of the company, the appointment of an inspector to investigate the transaction and the standard of proof applicable to a civil suit against the directors. These three indices are averaged to create the strength of investor protection index. This index ranges from 0 to 10, with higher values indicating better investor protection. *Doidge, Kardyi and Stulz (2007) 28 1. Historical data: Protecting Investors in Philippines Protecting Investors data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 125 126 Investor Protection Index 4.0 4.0 4.0 2. The following graph illustrates the Protecting Investors index in Philippines compared to best practice and selected Economies: 7.9 7.8 7.7 7.5 0.4 0.4 7.1 d sia te w Zealan lay iland nesia -Les ines PDR Ma Tha Indo lipp Lao Ne Timor Phi Note: The higher the score, the greater the investor protection. 29 3. Benchmarking Protecting Investors Regulations: Philippines is ranked 126 overall for Protecting Investors. Ranking of Philippines in Protecting Investors - Compared to good practice and selected economies: 30 The following table shows Protecting Investors data for Philippines compared to good practice and comparator economies: Good Practice Investor Economies Protection Index New Zealand 9.7 Selected Economy Philippines 4.0 Comparator Economies Indonesia 5.7 Lao PDR 1.7 Malaysia 8.7 Thailand 7.7 Timor-Leste 4.0 31 Taxes are essential. Without them there would be no money to provide public amenities, infrastructure and services which are crucial for a properly functioning economy. But particularly for small and medium size companies, they may opt out and choose to operate in the informal sector. One way to enhance tax compliance is to ease and simplify the process of paying taxes for such businesses. The Doing Business tax survey records the effective tax that a small and medium company must pay and the administrative costs of doing so. Imagine a medium-size business, TaxpayerCo, that started operations last year. Doing Business asks tax practitioners in 181 economies to review TaxpayerCo's financial statements and a standard list of transactions that the company completed during the year. Respondents are asked how much in taxes and mandatory contributions the business must pay and what the process is for doing so. The business starts from the same financial position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. Taxes and mandatory contributions are measured at all levels of government and include corporate income tax, turnover tax, all labor taxes and contributions paid by the company (including mandatory contributions paid to private pension or insurance funds), property tax, property transfer tax, dividend tax, capital gains tax, financial transactions tax, vehicle tax, sales tax and other small taxes (such as fuel tax, stamp duty and local taxes). A range of standard deductions and exemptions are also recorded. Three indicators are constructed: · Number of tax payments, which takes into account the method of payment, the frequency of payments and the number of agencies involved in our standardized case study. · Time, which measures the number of hours per year necessary to prepare and file tax returns and to pay the corporate income tax, value added tax, sales tax or goods and service tax and labor taxes and mandatory contributions. · Total tax rate, which measures the amount of taxes and mandatory contributions payable by the company during the second year of operation. This amount, expressed as a percentage of commercial profit, is the sum of all the different taxes payable after accounting for various deductions and exemptions. Businesses care about what they get for their taxes and contributions, such as the quality of infrastructure and social services. Efficient tax systems tend to have less complex tax arrangements, comprising of straightforward compliance procedures and clear laws. Taxpayers in such economies often get more from their taxes. Simple, moderate taxes and fast, cheap administration mean less hassle for businesses, and also more revenue collected and better public services. More burdensome tax regimes create an incentive to evade taxes. 32 1. Historical data: Paying Taxes in Philippines Paying Taxes data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 132 129 Time (hours) 195 195 195 Total tax rate (% profit) 51.5 52.8 50.8 Payments (number) 48 47 47 2. The following graphs illustrates the Paying Taxes indicators in Philippines over the past 3 years: 33 3. Benchmarking Paying Taxes Regulations: Philippines is ranked 129 overall for Paying Taxes. Ranking of Philippines in Paying Taxes - Compared to good practice and selected economies: * The following economies are also good practice economies for Paying Taxes: Maldives, Qatar 34 The following table shows Paying Taxes data for Philippines compared to good practice and comparator economies: Good Practice Payments Time (hours) Total tax rate Economies (number) (% profit) Luxembourg* 59 Sweden* 2 Vanuatu 8.4 Selected Economy Philippines 47 195 50.8 Comparator Economies Indonesia 51 266 37.3 Lao PDR 34 560 33.7 Malaysia 12 145 34.5 Thailand 23 264 37.8 Timor-Leste 15 640 28.3 * The following economies are also good practice economies for : Payments (number): Maldives, Qatar Time (hours): Bahamas, Bahrain, Maldives, Qatar, United Arab Emirates 35 The benefits of trade are well documented; as are the obstacles to trade. Tariffs, quotas and distance from large markets greatly increase the cost of goods or prevent trading altogether. But with bigger ships and faster planes, the world is shrinking. Global and regional trade agreements have reduced trade barriers. Yet Africa's share of global trade is smaller today than it was 25 years ago. So is the Middle East's, excluding oil exports. Many entrepreneurs face numerous hurdles to exporting or importing goods, including delays at the border. They often give up. Others never try. In fact, the potential gains from trade facilitation may be greater than those arising from only tariff reductions. Doing Business compiles procedural requirements for trading a standard shipment of goods by ocean transport. Every procedure and the associated documents, time and cost, for importing and exporting the goods is recorded, starting with the contractual agreement between the two parties and ending with delivery of the goods. For importing the goods, the procedures measured range from the vessel's arrival at the port of entry to the shipment's delivery at the importer's warehouse. For exporting the goods, the procedures measured range from the packing of the goods at the factory to their departure from the port of exit. Payment is by letter of credit and the time and cost for issuing or securing a letter of credit is taken into account. To make the data comparable across countries, several assumptions about the business and the traded goods are used. The business is of medium size, employs 60 people, and is located in the periurban area of the economy's most populous city. It is a private, limited liability company, domestically owned, formally registered and operating under commercial laws and regulations of the economy. The traded goods are ordinary, legally manufactured products transported in a dry-cargo, 20-foot FCL (full container load) container. Documents recorded include port filing documents, customs declaration and clearance documents, as well as official documents exchanged between the parties to the transaction. Time is recorded in calendar days, from the beginning to the end of each procedure. Cost includes the fees levied on a 20-foot container in U.S. dollars. All the fees associated with completing the procedures to export or import the goods are included, such as costs for documents, administrative fees for customs clearance and technical control, terminal handling charges and inland transport. The cost measure does not include tariffs or duties. Economies that have efficient customs, good transport networks and fewer document requirements, making compliance with export and import procedures faster and cheaper, are more competitive globally. That can lead to more exports; and exports are associated with faster growth and more jobs. Conversely, a need to file many documents is associated with more corruption in customs. Faced with long delays and frequent demands for bribes, many traders may avoid customs altogether. Instead, they smuggle goods across the border. This defeats the very purpose in having border control of trade to levy taxes and ensure high quality of goods. 36 1. Historical data: Trading Across Borders in Philippines Trading Across Borders data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 58 58 Documents for export (number) 8 8 8 Time for export (days) 17 17 16 Cost to export (US$ per container) 800 800 816 Documents for import (number) 8 8 8 Time for import (days) 18 18 16 Cost to import (US$ per container) 800 800 819 2. The following graphs illustrates the Trading Across Borders indicators in Philippines over the past 3 years: 37 3. Benchmarking Trading Across Borders Regulations: Philippines is ranked 58 overall for Trading Across Borders. Ranking of Philippines in Trading Across Borders - Compared to good practice and selected economies: 38 The following table shows Trading Across Borders data for Philippines compared to good practice and comparator economies: Good Practice Documents Time for Cost to Documents Time for Cost to Economies for export export (days) export (US$ for import import (days) import (US$ (number) per (number) per container) container) Denmark* 5 France 2 2 Malaysia 450 Singapore 3 439 Selected Economy Philippines 8 16 816 8 16 819 Comparator Economies Indonesia 5 21 704 6 27 660 Lao PDR 9 50 1860 10 50 2040 Malaysia 7 18 450 7 14 450 Thailand 4 14 625 3 13 795 Timor-Leste 6 25 1010 7 26 1015 * The following economies are also good practice economies for : Time for export (days): Estonia, Singapore 39 Where contract enforcement is efficient, businesses are more likely to engage with new borrowers or customers. Doing Business tracks the efficiency of the judicial system in resolving a commercial dispute, following the step-by-step evolution of a commercial sale dispute before local courts. The data is collected through study of the codes of civil procedure and other court regulations as well as through surveys completed by local litigation lawyers (and, in a quarter of the countries, by judges as well). The dispute concerns a contract for the sale of goods between two businesses (the Seller and the Buyer) both located in the economy's largest business city. The Seller sells and delivers goods, worth 200% of the economy's income per capita, to the Buyer. The Buyer refuses to pay on the grounds that they were not of adequate quality. The Seller sues the Buyer to recover the amount under the sales agreement (200% of the economy's income per capita). The claim is filed before a court in the economy's largest business city with jurisdiction over commercial cases worth 200% of the income per capita and is disputed on the merits. Judgment is 100% in favor of the Seller and is not appealed. Seller enforces the judgment and the money is successfully collected through a public sale of Buyer's assets. Rankings on enforcing contracts are based on 3 sub-indicators: · Number of procedures, which are defined as any interaction between the parties or between them and the judge or court officer. This includes steps to file the case, steps for trial and judgment and steps necessary to enforce the judgment. · Time, which counts the number of calendar days from the moment the Seller files the lawsuit in court until payment is received. This includes both the days on which actions take place and the waiting periods in between. · Cost, which is recorded as a percentage of the claim (assumed to be equivalent to 200% of income per capita). Three types of costs are recorded: court costs (including expert fees), enforcement costs (including costs for a public sale of Buyer's assets) and attorney fees. Justice delayed is often justice denied. And in many economies only the rich can afford to go to court. For the rest, justice is out of reach. In the absence of efficient courts, firms undertake fewer investments or business transactions. And they prefer to involve only a small group of people who know each other from previous dealings. 40 1. Historical data: Enforcing Contracts in Philippines Enforcing Contracts data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 113 114 Procedures (number) 37 37 37 Duration (days) 842 842 842 Cost (% of claim) 26.0 26.0 26.0 2. The following graphs illustrates the Enforcing Contracts indicators in Philippines over the past 3 years: 41 3. Benchmarking Enforcing Contracts Regulations: Philippines is ranked 114 overall for Enforcing Contracts. Ranking of Philippines in Enforcing Contracts - Compared to good practice and selected economies: 42 The following table shows Enforcing Contracts data for Philippines compared to good practice and comparator economies: Good Practice Procedures Duration Cost (% of Economies (number) (days) claim) Iceland* 6.2 Ireland 20 Singapore 150 Selected Economy Philippines 37 842 26.0 Comparator Economies Indonesia 39 570 122.7 Lao PDR 42 443 31.6 Malaysia 30 600 27.5 Thailand 35 479 14.3 Timor-Leste 51 1800 163.2 * The following economies are also good practice economies for : Cost (% of claim): Bhutan 43 The economic crises of the 1990s in emerging markets--from East Asia to Latin America, from Russia to Mexico--raised concerns about the design of bankruptcy systems and the ability of such systems to help reorganize viable companies and close down unviable ones. In countries where bankruptcy is inefficient, unviable businesses linger for years, keeping assets and human capital from being reallocated to more productive uses. The Doing Business indicators identify weaknesses in the bankruptcy law as well as the main procedural and administrative bottlenecks in the bankruptcy process. In many developing countries bankruptcy is so inefficient that the parties hardly ever use it. In countries such as these, reform would best focus on improving contract enforcement outside bankruptcy. The data on closing a business are developed using a standard set of case assumptions to track a company going through the step-by-step procedures of the bankruptcy process. It is assumed that the company is a domestically owned, limited liability corporation operating a hotel in the country's most populous city. The company has 201 employees, 1 main secured creditor and 50 unsecured creditors. Assumptions are also made about the debt structure and future cash flows. The case is designed so that the company has a higher value as a going concern--that is, the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. The data are derived from questionnaires answered by attorneys at private law firms. Three measures are constructed from the survey responses: the time to go through the insolvency process, the cost to go through the process and the recovery rate--how much of the insolvency estate is recovered by stakeholders, taking into account the time, cost, depreciation of assets and the outcome of the insolvency proceeding. Bottlenecks in bankruptcy cut into the amount claimants can recover. In countries where bankruptcy laws are inefficient, this is a strong deterrent to investment. Access to credit shrinks, and nonperforming loans and financial risk grow because creditors cannot recover overdue loans. Conversely, efficient bankruptcy laws can encourage entrepreneurs. The freedom to fail, and to do so through an efficient process, puts people and capital to their most effective use. The result is more productive businesses and more jobs. 44 1. Historical data: Closing Business in Philippines Closing a Business data Doing Business 2007 Doing Business 2008 Doing Business 2009 Rank 150 151 Time (years) 5.7 5.7 5.7 Cost (% of estate) 38 38 38 Recovery rate (cents on the dollar) 4.0 4.2 4.4 2. The following graphs illustrates the Closing Business indicators in Philippines over the past 3 years: 45 3. Benchmarking Closing Business Regulations: Philippines is ranked 151 overall for Closing a Business. Ranking of Philippines in Closing Business - Compared to good practice and selected economies: 46 The following table shows Closing Business data for Philippines compared to good practice and comparator economies: Good Practice Recovery rate Time (years) Cost (% of Economies (cents on the estate) dollar) Ireland 0.4 Japan 92.5 Singapore* 1 Selected Economy Philippines 4.4 5.7 38 Comparator Economies Indonesia 13.7 5.5 18 Lao PDR 0.0 no practice no practice Malaysia 38.6 2.3 15 Thailand 42.4 2.7 36 Timor-Leste 0.0 no practice no practice * The following economies are also good practice economies for : Cost (% of estate): Colombia, Kuwait, Norway 47 Number of reforms in Doing Business 2009 Positive Reform Borders Negative Reform Construction Total Businessa Workers Property Investors number with Credit Across Contracts Taxes Businessa of reforms Rank Economy Starting Dealing Permits Employing Registering Getting Protecting Paying Trading Enforcing Closing 1 Azerbaijan 7 2 Albania 4 3 Kyrgyz Republic 3 4 Belarus 6 5 Senegal 3 6 Burkina Faso 4 7 Botswana 3 8 Colombia 5 9 Dominican Republic 4 10 Egypt 6 Philippines 1 Lao PDR Timor-Leste Indonesia 1 Malaysia 2 Thailand 4 Note: Economies are ranked on the number and impact of reforms, Doing Business selects the economies that reformed in 3 or more of the Doing Business topics. Second, it ranks these economies on the increase in rank in Ease of Doing Business from the previous year. The larger the improvement, the higher the ranking as a reformer. 48 Albania Albania, a top reformer globally and regionally, established a public credit registry allowing financial institutions to share credit information and covering 8.3 percent of the adult population. This reform allows banks to better evaluate the creditworthiness of potential borrowers, facilitating access to credit for firms and individuals. Albania also strengthened investor protections. A new company law requires that disinterested shareholders approve transactions between interested parties and obligates those parties to disclose all information on the transaction to the public. The law also reinforces directors' duties and requires directors, when found liable, to pay damages and return profits to the company. Starting a business became easier with online publication, reduction of the registration cost, and the consolidation of tax, health insurance, and labor registration into a single application. The corporate income tax rate was reduced from 20 percent to 10 percent effective January 1, 2008. Azerbaijan Azerbaijan, the top reformer globally and regionally, eliminated the minimum threshold for reporting loans to the public credit registry in September 2007. The public registry now records information on all loans made by the financial system, more than doubling the coverage of borrowers with a credit history. Substantial amendments to the labor code in May 2007 made hiring workers easier by allowing employers to use fixed-term contracts for permanent tasks, easing restrictions on night work, and reducing requirements for redundancy dismissals. Azerbaijan created a second commercial court in Baku, increasing the number of judges dealing with commercial cases from five to nine. The average time to enforce a contract through the courts fell from 267 days to 237. A new law strengthens investor protections by requiring that transactions between interested parties be approved by shareholders. Interested parties are allowed to vote on the matter. Other provisions protect investors because directors who are held liable must pay damages and disgorge profits. Azerbaijan introduced a new unified property registry, reducing the number of procedures required to register property from seven to four. In addition, the State Register Service introduced the option of expediting two of the four procedures, making it possible to register property in 11 days. Similarly, the country created a one-stop shop for company registration, cutting the number of procedures from 13 to six and reducing the time required by half. Azerbaijan reduced the tax burden by introducing an online filing and payment system with advanced accounting software for calculating taxes due. This saves more than 500 hours a year on average in dealing with paperwork. Belarus In Belarus, a top reformer globally and regionally, the public credit registry expanded credit information by eliminating the minimum threshold for loans recorded in its database. It also guaranteed the right of borrowers to review their data, improving accuracy. Starting a business became easier: a unified registry database was created, a time limit was introduced for registration, and the minimum capital requirement was cut by half. Belarus created a one-stop shop for property registration and introduced a broad administrative simplification program that set strict time limits at the registry and computerized its records. As a result, the time required to register property in Minsk fell from 231 days to 21. The time required for dealing with construction permits fell by 140 days, thanks to new statutory time limits for preapproval clearances and building permits. Belarus eased the tax burden by abolishing the "Chernobyl tax" (3 percent) and unemployment tax (1 percent) and amending the simplified tax system for small businesses. A new customs code and new banking regulations reduced the time to export Botswana Botswana improved its business environment by speeding the start-up process through computerization. A similar effort, which included training customs officers in using an electronic data interchange system, sped the processing of trade documents and reduced the time to export by two days and the time to import by a day. A new Company Act has come into force, requiring that shareholders approve related-party transactions and that directors repay damages and surrender profits if held liable. Finally, since January 2008, companies have been required to pay 0.2 percent of turnover for the training of workers. Burkina Faso Burkina Faso eliminated random inspections during construction. It also introduced a new one-stop shop for construction permits, which reduced approval fees and combined five separate payments into a single one. A new labor code, approved in May 2008, makes hiring workers easier by allowing employers to use fixed-term contracts for permanent tasks, removing the 48-month limit on the duration of such contracts, and easing restrictions on determining the weekly rest day. Requirements for redundancy dismissals were also eased: third-party notification and consent are no longer required for dismissal of a single worker, and priority rules for dismissals were abolished. Burkina Faso made it easier to transfer property by eliminating the requirement for authorization from the municipality, merging two taxes at the Land Registry (Conservation Foncière), and reducing the transfer tax. The changes reduced the time required by 46 days and the cost by 2 percent of the property value. Finally, Burkina Faso reduced the corporate income tax rate from 35 percent to 30 percent (effective January 1, 2008), and the tax on dividends from 15 percent to 12.5 percent. 49 Colombia Colombia, a top global and regional reformer, improved in five of the 10 Doing Business indicators. It reduced the time and cost to start a business by simplifying registration formalities, including speeding up processes at the registry and eliminating the need to obtain a certificate of compliance with zoning regulations. A silence-is-consent principle for building permits is now applied, reducing the total time for dealing with construction permits by 32 days. A new unified application form was introduced. Colombia made electronic social security contributions mandatory for companies with more than 30 employees and created unified electronic forms for filing taxes. Trading across borders was expedited: better banking services and the implementation of e-payments, electronic data interchange, and coordinated inspections in customs reduced the time to export by 10 days and the time to import by five. Authorities also introduced two new insolvency proceedings: a reorganization procedure to restructure insolvent companies and a mandatory liquidation procedure. Its new insolvency law tightens time limits for negotiating reorganization agreements. Before, the term allowed was six months, with a possible extension of eight months. The new law limits the term to four months, and the extension to two. Dominican Republic The Dominican Republic, a top global and regional reformer, sped up formalities in several areas by making them electronic. An online system for filing and paying taxes, piloted in 2006, is now fully operational. And entrepreneurs can complete several start-up formalities online, including name verification, and commercial and tax registration. The Dominican Republic also reduced the corporate income tax rate from 29% to 25%, and abolished several taxes, including the stamp duty. The cost of property registration fell, thanks to a reduction in the transfer tax from 4.3% to 3%. Transferring property now costs 3.8% of the property value, down from 5.1%. In addition, authorities reduced the time to export by three days by improving the online portal for customs documentation and payment. Egypt Egypt was once again among the top 10 global reformers--the third time in 4 years--and top regional reformer this year. Egypt made starting a business easier by reducing the paid-in minimum capital requirement by more than 80%, abolishing bar association fees, and automating tax registration. A new building code introduced in 2008 is aimed at reducing the procedures and time required to deal with construction permits by establishing a single window for processing construction-related approvals. Simplified administrative procedures for registering property and new time limits have reduced the time to transfer property in Cairo from 193 days to 72. The port of Alexandria continued to upgrade its facilities and sped customs clearance, reducing the time to export by 1 day and the time to import by 3. New listing rules for the Cairo Stock Exchange strengthened protections for minority shareholders: now an independent body must assess transactions between interested parties before they are approved. And thanks to new regulations issued by the Central Bank of Egypt, borrowers have the right to inspect their data in the private credit bureau. Indonesia Indonesia made getting credit easier by guaranteeing the right of borrowers to inspect their credit data at the Bank of Indonesia, helping to improve the quality and accuracy of the information financial institutions use in assessing the risk profiles of borrowers. Indonesia made business start-up faster but also almost doubled the minimum capital requirement. Kyrgyz Republic The Kyrgyz Republic, a top reformer globally and regionally, strengthened investor protections through legal amendments allowing minority investors to take legal actions as shareholders. The amendments also require an independent assessment of a related-party transaction before it is approved. Moreover, directors can be held liable for negligence if they harm minority shareholders and will be forced to pay damages and disgorge profits. A new one-stop shop made it easier to start a business by streamlining and simplifying business registration processes and eliminating certain requirements such as proof of residence. Obtaining a company seal became optional. Dealing with construction permits also became easier, thanks to a one-stop shop making it possible to obtain a designing permit, construction license, and occupancy permit at a single place. This reform eliminated nine steps, reduced the time required by almost 6 months, and lowered the cost from 759 percent of income per capita to 406 percent. Lao PDR In the Lao People's Democratic Republic no major reforms were recorded. Malaysia Malaysia abolished the real property gains tax and reduced the corporate income tax rate to 26 percent (the rate had previously been tiered). A further reduction to 25 percent is planned for next year. The reform also introduced a single-tier tax system, in which profits are taxed only after dividend payments are exempted. Amendments to the Companies Act simplified business registration and reduced the time required by introducing online filing of registration documents. Philippines The Philippines upgraded the risk management and electronic data interchange system for customs, reducing the time to import by a day. 50 Senegal Senegal's one-stop shop for business start-up became fully operational, merging more than half the procedures and speeding the process as a result. Similarly, the introduction of time limits at the Land Registry and the Directorate of Taxes and Property sped property registration. The top reformer globally in easing trade, Senegal introduced a single window for customs clearance, cutting document requirements in half. It also set up an electronic data interchange system, implemented risk-based inspections, extended the operating hours of customs, and improved port and road infrastructure. Thailand Thailand made paying taxes easier by reducing some fees and facilitating online filing and payments. In addition, it now exempts companies with taxable income not exceeding 1.2 million baht from corporate income tax and applies concessionary 25 percent rates for newly listed companies. Amendments to the Securities and Exchange Act strengthened minority shareholder rights. Directors now have greater duties with respect to transactions between interested parties. If held liable for using the company's assets for their own benefit, they will have to pay damages, disgorge profits, and pay fines--and may even go to jail. Provisional reductions of the property transfer fee and specific business tax have lowered the cost to transfer property from 6.3 percent of the property value to 1.13 percent. A new internet-based customs clearance system reduced the number of documents that must be submitted in hard copy from 9 to 3 for imports and from seven to four for exports. Timor-Leste In Timor-Leste no major reforms were recorded. 51 APPENDICES Starting a Business in Philippines This table summarizes the procedures and costs associated with setting up a business in Philippines. STANDARDIZED COMPANY Legal Form: Corporation Minimum Capital Requirement: City: Manila Registration Requirements: No: Procedure Time to complete Cost to complete 1 Obtain bank certificate of deposit of the paid-in capital 1 day no charge 2 Verify the availability of the company name with the Securities and 1 day PHP40 Exchange Commission (SEC) 3 Register incorporation with the Securities and Exchange Commission 3 days filing fee for articles of incorporation: 1/5 of 1% of the authorized capital stock, no less than PHP 1,000, plus Legal Research fee of 1% of filing fee, no less than PHP 10 + PHP 210 bylaws fee + PHP 150 - stock and transfer book registration fee + PHP 7 4 Obtain community tax certificate (CTC) 1 day PHP 500 5 Apply for a Barangay (district) clearance 2 days PHP 800 6 Obtain mayor's permit/municipal license to operate at the Licensing 11 days The fees vary Section of the Mayor's Office depending on the local government unit (city/municipality) issuing the mayor's permit (PHP 900, sanitary permit fee + 0.2% of capital for license fee + PHP 2000, permit fee for businesses engaged in retail + PHP 2,500 garbage collection fee 52 7 Receive inspection from the Mayor's Office 5 days no charge 8 Buy special books of account at bookstore 1 day PHP 400 9 Register for VAT 2 days PHP 500 (registration fee) + PHP 15 (certification fee) and PHP 15 (documentary stamp tax, in loose form to be attached to Form 2303) 10 Payment of documentary stamp taxes 1 day PHP1 for every PHP 200 of capital 11 Obtain the authority to print receipt/invoices with the Bureau of 1 day included in Internal Revenue (BIR) procedure 9 12 Print receipts and invoices at the print shops accredited by the BIR 14 days PHP 4,000 (between PHP 3,000 and PHP 5,000) 13 Submit receipts and invoices to the BIR for approval, have 1 day no charge receipts/invoices and books of accounts stamped by BIR 14 Register with the Social Security System (SSS) 1 week no charge 15 Register with Philippines Health Insurance Company (PHIC) 1 day no charge 53 Procedure 1 Obtain bank certificate of deposit of the paid-in capital Time to complete: 1 day Cost to complete: no charge Comment: Fees vary from bank to bank. Some banks in Manila do not charge any fee, but others charge up to PHP 105 for each certificate. Procedure 2 Verify the availability of the company name with the Securities and Exchange Commission (SEC) Time to complete: 1 day Cost to complete: PHP40 Comment: The uniqueness of the company name can be searched online at no charge. However, the Securities and Exchange Commission charges PHP 40 upon approving and reserving the company name. Procedure 3 Register incorporation with the Securities and Exchange Commission Time to complete: 3 days Cost to complete: filing fee for articles of incorporation: 1/5 of 1% of the authorized capital stock, no less than PHP 1,000, plus Legal Research fee of 1% of filing fee, no less than PHP 10 + PHP 210 bylaws fee + PHP 150 - stock and transfer book registration fee + PHP 7 Comment: To register an incorporated company with the Securities and Exchange Commission (SEC), the promoters must file the following documents: the corporate name verification slip; the articles of incorporation and bylaws; the treasurer's affidavit; the statement of assets and liabilities; the bank certificate of deposit; the authority to verify the bank account; the incorporator's tax identification number; the registration data sheet with particulars on directors, officers, stockholders, and so forth; and a written undertaking to comply with SEC reporting requirements. Through SEC i-Register, the SEC provides a Web-based, online company registration system and the option to reserve a company name. (Registration forms may be downloaded from the SEC Web site.) Even so, promoters must pay onsite at the SEC. Same-day payment is not offered. Whereas the company now obtains a temporary identification number (TIN), in the past, the company obtained the TIN from the Revenue District Office. To obtain the TIN, the company requires a Barangay (district) clearance, a mayor's permit, and a copy of the SEC-issued registration certificate (issued as part of this procedure). Other documents may be required (e.g., homeowner's clearance, lease contract). As authorized by the Bureau of Internal Revenue (BIR), the SEC now issues pre-generated TINs only if a company's application for registration or incorporation has been approved. Although the SEC issues the TIN, the company must still register with the BIR: this time, to identify applicable tax types, to pay an annual registration fee, to register and stamp the books of accounts, and to obtain sales invoices and receipts. Procedure 4 Obtain community tax certificate (CTC) Time to complete: 1 day 54 Cost to complete: PHP 500 Comment: To obtain a Barangay clearance, a company must obtain a community tax certificate. The company is assessed a basic and an additional community tax. The basic community tax rate depends on whether the company legal form is a corporation, partnership, or association (PHP 500 or lower). The additional community tax (not to exceed PHP 10,000) depends on the assessed value of real property the company owns in the Philippines (PHP 2 for every PHP 5,000) and on its gross receipts, including dividends or earnings, derived from business activities in the Philippines during the preceding year (PHP 9 for every PHP 5,000). To secure the community tax certificate, applicants must supply only their name and other personal circumstances. Procedure 5 Apply for a Barangay (district) clearance Time to complete: 2 days Cost to complete: PHP 800 Comment: No city or municipality may issue any license or permit for any business or activity unless a clearance is first obtained from the Barangay (district) where the business or activity is located or conducted. Some Barangays collect a fee to issue a Barangay clearance. The fee is based on the location and the area (size in square meters) of the place of business. The fee charged by the Barangay depends on the company's paid-up capital and the land area it occupies--a PHP 500 minimum plus PHP 300 for the Barangay clearance plate. Procedure 6 Obtain mayor's permit/municipal license to operate at the Licensing Section of the Mayor's Office Time to complete: 11 days Cost to complete: The fees vary depending on the local government unit (city/municipality) issuing the mayor's permit (PHP 900, sanitary permit fee + 0.2% of capital for license fee + PHP 2000, permit fee for businesses engaged in retail + PHP 2,500 garbage collection fee Comment: To obtain a mayor's permit or municipal license to operate, the promoters must file the following required documents at the Licensing Section of the Mayor's Office: a completed application for business permits and licenses (duplicate copies), with a sketch of the location of the building at the back; a certification, issued by the corporate secretary, that the company has been duly authorized to engaged in the business; the amount of paid-up capital; the certificate of registration; receipts of fee payment; lease contract(s); the Barangay clearance; comprehensive general liability insurance (usually based on the area size of the office space); and the community tax certificate (usually based on the paid-up capital). Procedure 7 Receive inspection from the Mayor's Office Time to complete: 5 days Cost to complete: no charge Comment: The Mayor's Office conducts an inspection to verify that the company will conduct the activity stated in the application for business permit. There is no need to set an appointment for this inspection. The inspection generally occurs within the first 5 days of filing the application for the operating permit. Procedure 8 Buy special books of account at bookstore Time to complete: 1 day Cost to complete: PHP 400 55 Comment: To register for VAT, promoters must purchase special books of account, available at bookstores nationwide. One set (of four books, the cash receipts account, the disbursements account, the ledger, and the general journal) may cost about PHP 400. Procedure 9 Register for VAT Time to complete: 2 days Cost to complete: PHP 500 (registration fee) + PHP 15 (certification fee) and PHP 15 (documentary stamp tax, in loose form to be attached to Form 2303) Comment: After the taxpayer obtains the TIN, the company must pay the annual registration fee of PHP 500 at any duly accredited bank, using payment form BIR Form 0605). In the Philippines, companies may be assessed various taxes: VAT, a community tax, a local tax, and income tax. When a company registers as a taxpayer, it must indicate in the application the types of taxes it expects to be liable for, including VAT. Before printing the sales invoices or receipts, the printer must obtain the authority to print the receipt or invoices. However, Philippine law does not require a company to have its official invoice forms printed at designated print shops. If a company has secured an "authority to print receipts and invoices," it can ask any authorized printing company to print its official invoice forms. However, the company must obtain a special permit from the Bureau of Internal Revenue for in-house printing of invoice forms or for use of a computerized accounting system or loose-leaf book of accounts. Procedure 10 Payment of documentary stamp taxes Time to complete: 1 day Cost to complete: PHP1 for every PHP 200 of capital Comment: Section 174 of the National Internal Revenue Code, as amended, requires the payment of documentary stamp taxes on the original issuance of shares of stock at the rate of PHP1 on each PHP 200 or a fractional part thereof of the par value of the shares of stock. This payment must be made within 5 days of the close of the month in which the SEC issues the registration certificate or the corporation issues the shares. Procedure 11 Obtain the authority to print receipt/invoices with the Bureau of Internal Revenue (BIR) Time to complete: 1 day Cost to complete: included in procedure 9 Comment: The authority to print receipts or invoices must be secured by the printer before the sales invoices or receipts may be printed. Philippine law does not require a company to print its official invoice forms at designated print shops. If a company has secured the authority to print receipts and invoices, it can ask any authorized printing company to print its official invoice forms. However, if a company wants to print its own invoice forms (as detailed in Procedure 9), the company must obtain a special permit from the Bureau of Internal Revenue. According to requirements stipulated by the Large Taxpayer Service, new taxpayers must submit the following documents to the Revenue District Office or the office with jurisdiction over the taxpayer's head office: - Duly completed application for authority to print receipts and invoices (BIR Form 1906) - Job order. - Final and clear sample of receipts and invoices (machine-printed). - Application for registration (BIR Forms 1901 or 1903). - TRU form or photocopy of TIN card. - Proof of payment of annual registration fee (BIR Form 0605). 56 Procedure 12 Print receipts and invoices at the print shops accredited by the BIR Time to complete: 14 days Cost to complete: PHP 4,000 (between PHP 3,000 and PHP 5,000) Comment: The minimum print number is 25 booklets. Procedure 13 Submit receipts and invoices to the BIR for approval, have receipts/invoices and books of accounts stamped by BIR Time to complete: 1 day Cost to complete: no charge Comment: In practice, the books of accounts are presented for stamping upon filing the application. These books can be obtained from Bureau of Internal Revenue (BIR). To register books of account and invoices, founders must present the following documents: - All required books of accounts. - VAT registration certificate. - SEC registration certificate. - BIR Form W-5. Procedure 14 Register with the Social Security System (SSS) Time to complete: 1 week Cost to complete: no charge Comment: To enroll for membership with the Social Security System (SSS), the founders must file the following: - SSS Forms R-1(Employer Registration) and R-1A (Employment Report) signed by its President or any of the corporate officers and submit these forms together with an original copy of the Articles of Incorporation for authentication purposes as well as the company bylaws and the certificate of registration with either the Securities and Exchange Commission (SEC) or the Department of Trade and Industry (DTI). . in addition o list of employees, specifying their birth dates, positions, monthly salary, and date of employment. Upon submission of the requisite documents, the employees must attend a seminar, which must be scheduled within a week. At the end of the seminar, the certificate of membership will be released. Although it is not mandatory to enroll for housing security with the Pag-Ibig Fund, Fund members may make use of a housing loan offered by this agency. Procedure 15 Register with Philippines Health Insurance Company (PHIC) Time to complete: 1 day Cost to complete: no charge Comment: Upon enrolling with the SSS, founders may register with the Philippines Health Insurance Company.Procedures in registering with PhilHealth are as follows: 1. If employees are not members of PhilHealth yet, each should complete form M1-A (Member Data Record - For Employed Sector) then forms ER1 (Employer Data Record) and ER2 (Report of Employee-Members). All forms may be downloaded from the PhilHealth Website. 57 2. Employees and employer should submit all forms and other requirements (SEC and BIR Registration as well as Copy of Business Permit) for processing at Membership Window. Employer shall get the receiving copy of all the forms as proof of submission of all necessary documents. -It takes 3 months before PhilHealth Numbers are released to the employer and its employees, but once the employer has submitted all the necessary supporting documents and forms, they are already considered members of PhilHealth during the 3-month waiting period but they only get to enjoy the PhilHealth Benefits (e.g. confinement) after the end of the 3-months. 58 Dealing with Construction Permits in Philippines The table below summarizes the procedures, time, and costs to build a warehouse in Philippines. BUILDING A WAREHOUSE Date as of: January 2,008 Estimated Warehouse Value: City: Manila Registration Requirements: No: Procedure Time to complete Cost to complete 1 Obtain certified true copy of land title 5 days PHP 72 2 * Obtain certified true copy of land title tax declaration of real property 1 day PHP 60 3 * Obtain lot plan with site map 3 days PHP 1,000 4 Obtain location clearances from Barangay 2 days PHP 100 5 Obtain location clearances from Mayor 20 days PHP 2,296 6 Obtain building permit 65 days PHP 39,733 7 Notarize building permit 1 day PHP 200 8 Request fire satey inspection from Bureau of fire prevention 1 day no charge 9 Receive fire safety inspection 1 day no charge 10 Obtain fire safety inspection certificate 14 days PHP 19,500 11 * Request final electrical inspection from city electrical engineer 1 day no charge 12 * Receive final electrical inspection 1 day no charge 13 * Obtain electrical inspection certificate 1 day PHP 600 14 * Request certificate of occupancy 1 day no charge 15 * Receive final inspection from city building official 1 day no charge 59 16 * Obtain certificate of occupancy 10 days PHP 3,122 17 Request electricity connection from MERALCO 1 day no charge 18 Receive electricity inspection 1 day no charge 19 Obtain electricity connection from MERALCO 90 days no charge 20 Request water and sewage connection from Maynilad Water Services, Inc 1 day PHP 6,411 (Maynilad) 21 Receive inspection 1 day no charge 22 * Obtain permanent water and sewage connection from Maynilad Water 30 days no charge Services, Inc (Maynilad) 23 * Obtain fixed telephone line 5 days PHP 1,500 24 Submit tax declaration of improvement 1 day no charge * Takes place simultaneously with another procedure. 60 Procedure 1 Obtain certified true copy of land title Time to complete: 5 days Cost to complete: PHP 72 Comment: The company must obtain a certified true copy of the land title (transfer certificate of title) as proof of ownership of the land on which the warehouse is to be built. This document can be obtained at the Register of Deeds. Procedure 2 Obtain certified true copy of land title tax declaration of real property Time to complete: 1 day Cost to complete: PHP 60 Comment: The company must obtain a certified true copy of the land title (tax declaration of real property) so that it can identify the property by its index number. This document can be obtained from the Assessor's Office. Procedure 3 Obtain lot plan with site map Time to complete: 3 days Cost to complete: PHP 1,000 Comment: The company must obtain the lot plan with site map from a geodetic engineer to confirm that the bearings and location of the land are as specified in the land title. A lot plan with site map is signed, sealed, and prepared after a meticulous geodetic survey, or at least after an analysis of the lot technical description appearing on the title, has been conducted. The associated cost is PHP 1,000 per geodetic lot plan with site map. Procedure 4 Obtain location clearances from Barangay Time to complete: 2 days Cost to complete: PHP 100 Comment: These clearances are needed to confirm that the intended land use is compliant with the barangay's zoning ordinances. Procedure 5 Obtain location clearances from Mayor Time to complete: 20 days Cost to complete: PHP 2,296 Comment: Location clearances are needed to confirm that the intended land use conforms to the local government's zoning ordinances. The time to complete the construction may be shorter if the warehouse is built in an industrial area. The cost of the clearances may vary from one local government unit to the other. Under the Quezon City Revenue Code, the charges would include (according to Section 138): - An application (filing) fee of PHP 45. - A zoning and land use verification fee of PHP 300. - A processing fee of PHP 1.50 per sq. m., or a total of PHP 1,950 for an area of 1,300 sq. m., in the case considered here. 61 Procedure 6 Obtain building permit Time to complete: 65 days Cost to complete: PHP 39,733 Comment: The company must obtain the building permit along with the electrical, sanitary, and mechanical permits, all issued by the building official who would have approved the design, plans, and technical specifications of the project and ensured that they are compliant with the design codes, and safety laws and regulations. To obtain the building permit, the company must submit all required documentation. When submitting the application, BuildCo must ensure (by checking at each desk) that all documents have been included. If not, the application cannot be filed. Otherwise, if the file is complete, obtaining a building permit would take no longer than a week after the submission date. The building official has discretionary power and can delay the application if they liked. According to the Quezon City Revenue Code, the costs of obtaining a building permit are as follows: - A nonrefundable filing fee of PHP 600 for projects costing more than PHP 1 million (Section 100). - A location-with-respect-to-abutment-to-street-specific charge for establishment of line and grade, ranging from nothing to about PHP 115 (Section 101). - An inspection fee of PHP 200. - A design-specific fee for excavation for foundation, such as footing, of PHP 2 per cubic meter. - A construction fee of PHP 18 per square meter f floor area for projects with areas ranging from 20 sq. m. to 6,000 sq. m. (that is, a total construction fee of PHP 23,000 for a 1,300 sq. m. area in this case) (Section 102). Procedure 7 Notarize building permit Time to complete: 1 day Cost to complete: PHP 200 Comment: The applications mentioned in the previous procedure should be duly notarized. While submitting the application itself may be free of charge, the notarization could cost about PHP 200, fixed and based on a Supreme Court circular strictly regulating the practice of notaries. Procedure 8 Request fire satey inspection from Bureau of fire prevention Time to complete: 1 day Cost to complete: no charge Comment: In the City of Manila, a fire safety clearance is also required. However, no fee is assessed based on the building plans and no payment is required yet at the time of submission of the application for a building permit. The City of Manila issues the building permit with only a notation that the construction covered by such permit shall be subject to a fire safety inspection later on after the building/structure has been completed. Thus, the evaluation/inspection by the responsible officer of the Bureau of Fire Protection unit in the city is done only after the construction has been completed and at the time the owner is already applying for the certificate of occupancy or occupancy permit. The fee to be paid for the fire safety clearance is 0.1% of the total construction cost of the building, or in this case, of the warehouse. 62 Procedure 9 Receive fire safety inspection Time to complete: 1 day Cost to complete: no charge Comment: see procedure 8 comment Procedure 10 Obtain fire safety inspection certificate Time to complete: 14 days Cost to complete: PHP 19,500 Comment: see procedure 8 comment Procedure 11 Request final electrical inspection from city electrical engineer Time to complete: 1 day Cost to complete: no charge Comment: In the City of Manila, the electrical inspection certificate is one of the documents required to be submitted when one applies for the issuance of a certificate of occupancy or occupancy permit. Thus, this means that the electrical inspection has to be conducted first in order to determine whether or not the electrical installation in a building or structure has been completed in accordance with the approved plans and specification on file with the Building Official and that the same is in accordance with the Philippine Electrical Code provisions. For the electrical inspection, the electrical engineer of the city government concerned usually conducts theinspection Procedure 12 Receive final electrical inspection Time to complete: 1 day Cost to complete: no charge Comment: see procedure 11 comment Procedure 13 Obtain electrical inspection certificate Time to complete: 1 day Cost to complete: PHP 600 Comment: see procedure 11 comment Procedure 14 Request certificate of occupancy Time to complete: 1 day 63 Cost to complete: no charge Comment: Upon completion of the construction, BuildCo's licensed architect or civil engineer shall submit the logbook kept throughout construction (required by section 308, 4 of the Building Code), duly signed and sealed, to the Building Official. The architect must prepare and submit a "duly notarized" Certificate of Completion of the project stating that the construction of building conforms to the provisions of the Code as well as with the approved plans and specifications. Procedure 15 Receive final inspection from city building official Time to complete: 1 day Cost to complete: no charge Comment: The OBO undertakes the final inspection, verification and/or review of the building/structure based on the Certificate of Completion, construction logbook, building inspection sheets, original and as-built plans and specifications, as the case may be and specifications on the prescribed standard form according to the requirements set forth under Section 303. Procedure 16 Obtain certificate of occupancy Time to complete: 10 days Cost to complete: PHP 3,122 Comment: Procedure 17 Request electricity connection from MERALCO Time to complete: 1 day Cost to complete: no charge Comment: Upon application for electricity with Manila Electric Railroad and Light Company or MERALCO, the electrical engineer of MERALCO will conduct inspection and review the electrical plans of the proposed warehouse. Application to actual inspection would take 2 weeks with no cost. The cost reflected above is only the installation cost and service deposit. This amount, however, is refunded upon termination of contract. BuildCo must purchas 3 50 KVA transformers at a cost of PHP 106,850 per transformer (three needed) and is refunded upon termination of contract. The service deposit of PHP 138,580 is refundable after the first year through monthly deductions to the electricity bill computed at 25% of the applicant's annual gross distribution revenue. Procedure 18 Receive electricity inspection Time to complete: 1 day Cost to complete: no charge Comment: Procedure 19 Obtain electricity connection from MERALCO 64 Time to complete: 90 days Cost to complete: no charge Comment: The electric company is Manila Electric Company (Meralco). The company visits Meralco to request the connection and submit the certificate of electrical inspection and electrical plans. Meralco conducts an inspection of the warehouse and in the following weeks the technical staff visit the site for the electricity connection. The cost of the transformers is PHP 106,850 per transformer (two needed). The service deposit is PHP 138,580. Both the transformer and service deposit are refundable after the first year through annual deductions to the electricity bill or through checks computed at 25% of the applicant's annual gross distribution revenue. Procedure 20 Request water and sewage connection from Maynilad Water Services, Inc (Maynilad) Time to complete: 1 day Cost to complete: PHP 6,411 Comment: The electricity company installs permanent power (meter included) upon submission by BuildCo of the certificate of occupancy. Procedure 21 Receive inspection Time to complete: 1 day Cost to complete: no charge Comment: Procedure 22 Obtain permanent water and sewage connection from Maynilad Water Services, Inc (Maynilad) Time to complete: 30 days Cost to complete: no charge Comment: The water company installs a permanent water connection (meter included) upon submission by BuildCo of the certificate of occupancy. Procedure 23 Obtain fixed telephone line Time to complete: 5 days Cost to complete: PHP 1,500 Comment: Utility companies install a permanent telephone connection upon submission of the certificate of occupancy. Procedure 24 Submit tax declaration of improvement Time to complete: 1 day 65 Cost to complete: no charge Comment: BuildCo must update the land plot entry in the official records to include the newly built warehouse for tax purposes. No inspection takes place; the assessor relies on the valuation of the building listed in the certificate of occupancy. 66 Employing Workers in Philippines Employing workers indices are based on responses to survey questions. The table below shows these responses in Philippines. Employing Workers Indicators (2008) Answer Score Rigidity of Employment Index 35.2 Difficulty of Hiring Index 55.6 Are fixed-term contracts prohibited for permanent tasks? Yes 1 What is the maximum duration of fixed-term contracts (including renewals)? (in months) No limit 0.0 What is the ratio of mandated minimum wage to the average value added per worker? 0.62 0.67 Rigidity of Hours Index 20.0 Can the workweek extend to 50 hours (including overtime) for 2 months per year to Yes 0 respond to a seasonal increase in production? What is the maximum number of working days per week? 6 0 Are there restrictions on night work? Yes 1 Are there restrictions on "weekly holiday" work? No 0 What is the paid annual vacation (in working days) for an employee with 20 years of 5 0 service? Difficulty of Firing Index 30.0 Is the termination of workers due to redundancy legally authorized? Yes 0 Must the employer notify a third party before terminating one redundant worker? Yes 1 Does the employer need the approval of a third party to terminate one redundant worker? No 0 Must the employer notify a third party before terminating a group of 25 redundant Yes 1 workers? Does the employer need the approval of a third party to terminate a group of 25 redundant No 0 workers? Is there a retraining or reassignment obligation before an employer can make a worker No 0 redundant? Are there priority rules applying to redundancies? Yes 1 Are there priority rules applying to re-employment? No 0 67 Firing costs (weeks of salary) 91.0 What is the notice period for redundancy dismissal after 20 years of continuous 4.3 employment? (weeks of salary) What is the severance pay for redundancy dismissal after 20 years of employment? (weeks of 86.7 salary) What is the legally mandated penalty for redundancy dismissal? (weeks of salary) 0.0 Note: The first three indices measure how difficult it is to hire a new worker, how rigid the regulations are on working hours, and how difficult it is to dismiss a redundant worker. Each index assigns values between 0 and 100, with higher values representing more rigid regulations. The overall Rigidity of Employment Index is an average of the three indices. 68 Registering Property in Philippines This topic examines the steps, time, and cost involved in registering property in Philippines. STANDARDIZED PROPERTY Property Value: 4,138,404.13 City: Manila Registration Requirements: No: Procedure Time to complete Cost to complete 1 Preparation of the deed of sale and ratification by notary 1 day 1.5% property value, public including PHP 100 for notarization alone 2 Obtain a certified true copy of latest tax declaration from 1 day PHP 100 the Assessor's Office of Manila 3 Payment of Documentary Stamp Tax and Capital Gains Tax 1 day 1.5% of property value at an authorized bank (Documentary Stamp Tax) + 6% of capital gains (Capital Gains Tax) 4 Obtain tax clearance (or Certificate Authorizing Up to 14 days PHP 115 Registration) from the Bureau of Internal Revenue 5 Obtain a tax clearance certificate of Real Estate Taxes from 1-3 days PHP 75 the Treasurer's Office of Manila 6 Payment of transfer tax at the Treasurer's Office of Manila 1 day 0.75% of property price (transfer tax) + PHP 125 (certificate of payment) 7 Apply with the Assessor's Office of Manila for the issuance 3 days no cost of a new tax declaration over the building in the name of buyer 69 8 Apply for registration with the Register of Deeds of Manila About 10 days PHP 8,796 for properties with a value up to PHP 1,700,000 + PHP 90 for every PHP 20,000 (or fraction thereof) in excess of PHP 1,700,000 + PHP 30.00 (Registry Entry Fee) + PHP 60.00 (transfer certificate of title) + PHP240 for submission of secretary's certificates of the buyer and seller + PHP240 for submission of the articles of incorporation and by-laws of the buyer only + + PHP177 legal research fee 70 Procedure 1 Preparation of the deed of sale and ratification by notary public Time to complete: 1 day Cost to complete: 1.5% property value, including PHP 100 for notarization alone Comment: Anyone can prepare the document, however, the deed of sale must be ratified before the notary public and it is common for him to draft it and conduct the whole process on behalf of the parties. Procedure 2 Obtain a certified true copy of latest tax declaration from the Assessor's Office of Manila Time to complete: 1 day Cost to complete: PHP 100 Comment: The seller obtains a certified true copy of the latest tax declaration from the Assessor's Office of Manila. Procedure 3 Payment of Documentary Stamp Tax and Capital Gains Tax at an authorized bank Time to complete: 1 day Cost to complete: 1.5% of property value (Documentary Stamp Tax) + 6% of capital gains (Capital Gains Tax) Comment: The seller files the Documentary Stamp Tax return and Capital Gains Tax return with the authorized agent bank in the Revenue District of Manila. This is done within 5 days after the close of the month when the taxable document was signed or within 30 days after the sale, whichever is earlier. The taxes are paid at the authorized bank to the account of the Bureau of Internal Revenue. The Capital Gains Tax is 6% of capital gains based on selling price, fair market value or zonal value, whichever is higher. The Documentary Stamp Tax is 1.5% based on selling price or fair market value, whichever is higher. The documentation shall include: Original copy and photocopy of notarized deed of sale of building (obtained in Procedure 1) Certified true copy of transfer certificate of title (in the name of seller) Certified true copy of latest tax declaration (in the name of seller) (obtained in Procedure 2) Photocopy of the latest realty tax receipt Letter-request Identification card of the person requesting Procedure 4 Obtain tax clearance (or Certificate Authorizing Registration) from the Bureau of Internal Revenue Time to complete: Up to 14 days Cost to complete: PHP 115 Comment: After paying the taxes in Procedure 3, the seller must obtain a tax clearance (or Certificate Authorizing Registration) from the Bureau of Internal Revenue. This certificate will authorize the registration of the property. 71 The documentation shall include: Certified true copy of transfer certificate of title (in the name of seller) Certified true copy of latest tax declaration (in the name of seller) (obtained in Procedure 2) Tax identification numbers Procedure 5 Obtain a tax clearance certificate of Real Estate Taxes from the Treasurer's Office of Manila Time to complete: 1-3 days Cost to complete: PHP 75 Comment: The seller, after paying any due amounts, obtains a tax clearance certificate from the Treasurer's Office of the Local Government Unit (Manila). The documentation shall include: an original of the official receipt evidencing payment by seller of realty taxes. Procedure 6 Payment of transfer tax at the Treasurer's Office of Manila Time to complete: 1 day Cost to complete: 0.75% of property price (transfer tax) + PHP 125 (certificate of payment) Comment: The transfer tax must be paid at the Treasurer's Office of Manila. The documentation shall include: Certificate Authorizing Registration from the Bureau of Internal Revenue (obtained in Procedure 4) Realty tax clearance from the Treasurer's Office of Manila (obtained in Procedure 5) Official receipt of the Bureau of Internal Revenue (for documentary stamp tax) (obtained in Procedure 4) Procedure 7 Apply with the Assessor's Office of Manila for the issuance of a new tax declaration over the building in the name of buyer Time to complete: 3 days Cost to complete: no cost Comment: The buyer applies with the Assessor's Office of Manila for the issuance of a new tax declaration over the building in his name. The documentation shall include: Photocopy of notarized deed of sale of building (obtained in Procedure 1) Certified true copy of latest tax declaration (in the name of seller) (obtained in Procedure 2) Certificate authorizing registration from the Bureau of Internal Revenue (obtained in Procedure 4) Realty tax clearance from the Treasurer's Office of Manila (obtained in Procedure 5) Photocopy of official receipt of transfer tax payment (original copy to be presented) (obtained in Procedure 6) Procedure 8 Apply for registration with the Register of Deeds of Manila 72 Time to complete: About 10 days Cost to complete: PHP 8,796 for properties with a value up to PHP 1,700,000 + PHP 90 for every PHP 20,000 (or fraction thereof) in excess of PHP 1,700,000 + PHP 30.00 (Registry Entry Fee) + PHP 60.00 (transfer certificate of title) + PHP240 for submission of secretary's certificates of the buyer and seller + PHP240 for submission of the articles of incorporation and by-laws of the buyer only + + PHP177 legal research fee Comment: The buyer applies for registration with the Register of Deeds of Manila. The following internal steps take place after the application is submitted: 1. The Entry clerk receives and enters all documents in the primary Entry Book (Judicial form No. 39) and notes therein the day, hour and minute of reception of all instrument in the order in which they are received. 2. Documents are then brought to the Registrar of Deeds (RD) or Deputy Register of Deeds for assignment. 3. Documents/Titles are assigned by the RD to the Land Registration Examiner (LRE) who prepares computation and order of payment of registration fees. 4. Pay registration fee to the cashier, who shall issue official receipt. Fixed fees are computed based on a schedule of Fees approved by the Department of Justice. 5. Upon the payment of the fees, the document is forwarded to the LRE who reviews the same and determines whether or not it is ready to register. The owner's copy of the title is compared to the title on file, produced by Records Officer/Vault keeper. 6. If the instrument is not ready to be registered, the LRE recommends its denial to the RD. If the instrument is ready, the LRE likewise recommends to the RD the registration of the document through a routing slip. 7. RD reviews examination, and once same is approved, assigns documents to clerk for action, with instruction on the route slip. 8. If the transaction involves issuance of title, Records Officer/Judicial Form Custodian records the transaction in the logbook releases sets of title forms (judicial form) and assigns the corresponding title control number to the set of titles issued to the action clerk. 9. Assigned employee acts on the documents, as instructed. 10. Final registration ­ RD signs titles and documents. 11. Release of documents ­ by the releasing clerk to the buyer who should be ready with ID and copies of official receipts of the registration fees. The documentation shall include: Articles of incorporation and by-laws of the buyer Secretary's certificate containing the resolution of the board of directors of buyer approving the sale Original copy of owner's duplicate of the transfer certificate of title (in the name of seller) Certificate authorizing registration from the Bureau of Internal Revenue (obtained in Procedure 4) Realty tax clearance from the Treasurer's Office of Manila (obtained in Procedure 5) Official receipt of transfer tax payment (obtained in Procedure 6) Official receipts of the Bureau of Internal Revenue (for capital gains tax and documentary stamp tax) (obtained in Procedure 3) 73 Getting Credit in Philippines The following table summarize legal rights of borrowers and lenders, and the availability and legal framework of credit registries in Philippines. Getting Credit Indicators (2008) Indicator score Private credit Public credit Private bureau coverage (% adults) 3 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? No No 0 Does the registry distribute credit information from retailers, trade No No 0 creditors or utility companies as well as financial institutions? Are more than 2 years of historical credit information distributed? Yes No 1 Is data on all loans below 1% of income per capita distributed? Yes No 1 Is it guaranteed by law that borrowers can inspect their data in the No No 0 largest credit registry? Coverage 5.4 0.0 Number of individuals .. .. Number of firms .. .. Legal Rights Index 3 Can any business use movable assets as collateral while keeping possession of the assets; and any financial Yes institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of revolving movable No assets, without requiring a specific description of the secured assets ? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without No requiring a specific description of the secured assets ? May a security right extend to future or after-acquired assets, and may it extend automatically to the products, No proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements, so that all types of obligations No and debts can be secured by stating a maximum amount rather than a specific amount between the parties ? Is a collateral registry in operation, that is unified georgraphically and by asset type, as well as indexed by the No grantor's name of a security right ? Do secured creditors have absolute priority to their collateral outside bankruptcy procedures? Yes Do secured creditors have absolute priority to their collateral in bankruptcy procedures? No 74 During reorganization, are secured creditors' claims exempt from an automatic stay on enforcement? No Does the law authorize parties to agree on out of court enforcement? Yes 75 Protecting Investors in Philippines The table below provides a full breakdown of how the disclosure, director liability, and shareholder suits indexes are calculated in Philippines. Protecting Investors Data (2008) Indicator Disclosure Index 2 What corporate body provides legally sufficient approval for the transaction? (0-3; see notes) 0 Immediate disclosure to the public and/or shareholders (0-2; see notes) 1 Disclosures in published periodic filings (0-2; see notes) 1 Disclosures by Mr. James to board of directors (0-2; see notes) 0 Requirement that an external body review the transaction before it takes place (0=no, 1=yes) 0 Director Liability Index 2 Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller 0 transaction causes to the company. (0-2; see notes) Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) 0 liable for for damage to the company. (0-2; see notes) Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 (0-2; see notes) Whether Mr. James pays damages for the harm caused to the company upon a successful 1 claim by the shareholder plaintiff (0=no, 1=yes) Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff (0=no, 1=yes) Whether fines and imprisonment can be applied against Mr. James (0=no, 1=yes) 0 Shareholder plaintiff's ability to sue directly or derivatively for damage the transaction 1 causes to the company (0-1; see notes) Shareholder Suits Index 8 Documents available to the plaintiff from the defendant and witnesses during trial (0-4; see 3 notes) Ability of plaintiffs to directly question the defendant and witnesses during trial (0-2; see 2 notes) Plaintiff can request categories of documents from the defendant without identifying specific 0 ones (0=no, 1=yes) Shareholders owning 10% or less of Buyer's shares can request an inspector investigate the 1 transaction (0=no, 1=yes) 76 Level of proof required for civil suits is lower than that for criminal cases (0=no, 1=yes) 1 Shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 1 filing suit (0=no, 1=yes) Investor Protection Index 4.0 Notes: Extent of Disclosure Index What corporate body provides legally sufficient approval for the transaction? 0=CEO or managing director alone; 1=shareholders or board of directors vote and Mr. James can vote; 2=board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote Immediate disclosure to the public and/or shareholders 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures in published periodic filings 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures by Mr. James to board of directors 0=none; 1=existence of a conflict without any specifics; 2= full disclosure of all material facts Director Liability Index Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company 0= Mr. James is not liable or liable only if he acted fraudulently or in bad faith; 1= Mr. James is liable if he influenced the approval or was negligent; 2= Mr. James is liable if the transaction was unfair, oppressive or prejudicial to minority shareholders Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for damage to the company 0=members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1=liable for negligence in the approval of the transaction; 2=liable if the transaction is unfair, oppressive, or prejudicial to minority shareholders Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0=rescission is unavailable or available only in case of Seller's fraud or bad faith; 1=available when the transaction is oppressive or prejudicial to minority shareholders; 2=available when the transaction is unfair or entails a conflict of interest Shareholder plaintiffs' ability to sue directly or derivatively for damage the transaction causes to the company 0=not available; 1=direct or derivative suit available for shareholders holding 10% of share capital or less Shareholder Suits Index Documents available to the plaintiff from the defendant and witnesses during trail Score 1 each for (1) information that the defendant has indicated he intends to rely on for his defense; (2) information that directly proves specific facts in the plaintiff's claim; (3) any information that is relevant to the subject matter of the claim; and (4) any information that may lead to the discovery of relevant information. Ability of plaintiffs to directly question the defendant and witnesses during trial 0=no; 1=yes, with prior approval by the court of the questions posed; 2=yes, without prior approval 77 Paying Taxes in Philippines The table below addresses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year in Philippines, as well as measures of administrative burden in paying taxes. Tax or mandatory Payments Notes on Time Statutory tax Tax Totaltax rate Notes on contribution (number) Payments (hours) rate base (% profit) TTR tax on insurance 1 insurance contracts premium Stamp duty 1 contract value Value added tax (VAT) 1 online 120 12.0% value added filing Tax on check 1 per check 0.01 transactions BIR certificate 0 paid jointly fixed fee 0.01 Vehicle tax 1 vehicle's 0.13 weight Employer's 0 paid jointly per employee 0.17 compensation per month Environmental tax 1 fixed fee 0.24 community tax certificate 1 fixed fee 0.25 Tax on interest 1 20.0% interest 0.51 income Health insurance 12 gross salaries 1.74 contribution Housing development 12 gross salaries 1.74 fund Real property tax 1 2.0% assessed 4.24 property value Social security 12 38 gross salaries 6.62 contributions local business tax 1 0.5% previous year 8.84 turnover Corporate income tax 1 online 36 35.0% taxable profit 26.32 filing Totals 47 195 50.8 78 Notes: a) data not collected b) VAT is not included in the total tax rate because it is a tax levied on consumers c) very small amount d) included in other taxes e) Withheld tax f) electronic filling available g) paid jointly with another tax Name of taxes have been standardized. For instance income tax, profit tax, tax on company's income are all named corporate income tax in this table. When there is more than one statutory tax rate, the one applicable to TaxpayerCo is reported. The hours for VAT include all the VAT and sales taxes applicable. The hours for Social Security include all the hours for labor taxes and mandatory contributions in general. 79 Trading Across Borders in Philippines These tables list the procedures necessary to import and exports a standardized cargo of goods in Philippines. The documents required to export and import the goods are also shown. Nature of Export Procedures (2008) Duration (days) US$ Cost Documents preparation 9 189 Customs clearance and technical control 2 187 Ports and terminal handling 3 270 Inland transportation and handling 2 170 Totals 16 816 Nature of Import Procedures (2008) Duration (days) US$ Cost Documents preparation 8 187 Customs clearance and technical control 3 187 Ports and terminal handling 4 270 Inland transportation and handling 1 175 Totals 16 819 Export Bill of lading Cargo release order Certificate of origin Commercial invoice Customs export declaration Packing list Technical standard/health certificate Terminal handling receipts Import Bill of lading Cargo release order Certificate of origin 80 Commercial invoice Customs import declaration Packing list Technical standard/health certificate Terminal handling receipts Enforcing Contracts in Philippines This topic looks at the efficiency of contract enforcement in Philippines. Nature of Procedure (2008) Indicator Procedures (number) 37 Duration (days) 842 Filing and service 58.0 Trial and judgment 580.0 Enforcement of judgment 204.0 Cost (% of claim)* 26.00 Attorney cost (% of claim) 10.0 Court cost (% of claim) 6.0 Enforcement Cost (% of claim) 10.0 Court information: Manila Metropolitan Trial Court * Claim assumed to be equivalent to 200% of income per capita. 81 82 83