42576 Iceland Doing Business 2008 Iceland A Project Benchmarking the Regulatory Cost of Doing Business in 178 Economies Doing Business Project World Bank Group © 2007 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 5 09 08 07 06 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. 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Contents Introduction......................1 Economy rankings.............2 Reforms...........................3 Summary of indicators........6 Starting a business.............8 Dealing with licenses.........13 Employing workers............18 Registering property...........22 Getting credit....................27 Protecting investors............31 Paying taxes.....................35 Trading across borders.......39 Enforcing contracts............43 Closing a business.............47 Topic details......................51 Introduction Doing Business 2008 is the fifth in a series of annual reports investigating the 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 178 economies-from Afghanistan to Zimbabwe-and over time. Regulations affecting 10 stages of a business's life are measured: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Data in Doing Business 2008 are current as of June 1, 2007. 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 a country'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, and the underlying strength of institutions -- are not studied directly by Doing Business. To make the data comparable across countries, the indicators refer to a specific type of business -- generally a 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 178 economies: 46 in Sub-Saharan Africa, 31 in Latin America and the Caribbean, 28 in Eastern Europe and Central Asia, 24 in East Asia and Pacific, 17 in the Middle East and North Africa and 8 in South Asia-as well as 24 OECD high-income economies as benchmarks. Some of the regions have been divided into subregions to generate a total of 13 regional profiles. The following pages present the summary Doing Business indicators for Iceland along with the comparator economies selected. The data used for this country profile come from the Doing Business database and are summarized in graphs and tables. This report allows a comparison of the economies not only with one another but also with the "best practice" economy for each indicator. The best-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 economies. These best-practice economies do not necessarily rank number 1 in the topic or indicator, but they are in the top 5. More information is available in the full report. Doing Business 2008 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 . http://www.doingbusiness.org 1 Economy Rankings - Ease of Doing Business Iceland is ranked 10 out of 178 economies. Singapore is the top ranked economy in the Ease of Doing Business. Iceland - Compared to Global Best / Selected Economies: Iceland's ranking in Doing Business 2008 Rank Doing Business 2008 Ease of Doing Business 10 Starting a Business 14 Dealing with Licenses 23 Employing Workers 42 Registering Property 8 Getting Credit 13 Protecting Investors 64 Paying Taxes 27 Trading Across Borders 11 Enforcing Contracts 4 Closing a Business 12 2 Reforms - Who is reforming? This year Egypt tops the list of reformers that are making it easier to do business. Egypt's reforms went deep with reforms in 5 of the 10 areas studied by Doing Business, and it greatly improved its position in the global rankings as a result. Besides Egypt, the other top 10 reformers are, in order, Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria. 1. Egypt, the top reformer in the region and worldwide, greatly improved its position in the global rankings on the ease of doing business. Its reforms went deep. Egypt cut the minimum capital required to start a business, from 50,000 Egyptian pounds to just 1,000 and halved the time and cost of start-up. It reduced fees for registering property from 3 percent of the property value to a low, fixed amount. It eased the bureaucracy that builders face in getting construction permits. It launched new one-stop shops for traders at Egyptian ports, cutting the time to import by seven days and the time to export by five. And it established a new private credit bureau that will soon be making it easier for borrowers to get credit. 2. Croatia reformed in four of the 10 areas studied by Doing Business. Two years ago, registering property in Croatia took 956 days. Now it takes 174. Company start-up also became faster, with procedures consolidated at a "one-stop shop" and pension and health services registration now online. Credit became easier to access: a new credit bureau was launched, and a unified registry now records charges against movable property in one place. In its first two months, 1.4 billion in credit was registered. In addition, amendments to the country's insolvency law introduced professional requirements for bankruptcy trustees and shorter timelines. 3. Ghana, a top 10 reformer for the second year running, continues to increase the efficiency of its public services. It cut bottlenecks in property registration, reducing delays from six months to one. Greater efficiency at the company registry and the environment agency cut the time for business start-up to 42 days. Changes in the port authority's operations sped up imports. New civil procedure rules and mandatory arbitration and mediation reduced the time it takes to enforce contracts. 4. FYR Macedonia eliminated the minimum capital requirement for business start-up, sped up the process for getting construction permits, lowered the corporate income tax rate to 12 percent (with another cut to 10 percent planned for 2008), and simplified tax payment procedures. Its ranking on the ease of doing business rose from 96 to 75. 5. Georgia reformed in six areas. It strengthened investor protections, including through amendments to its securities law that eliminate loopholes that had allowed corporate insiders to expropriate minority investors. It adopted a new insolvency law that shortens timelines for reorganization of a distressed company or disposition of a debtor's assets. Georgia sped up approvals for construction permits and simplified procedures for registering property. It made starting a business easier by eliminating the paid-in capital requirement. In addition, the country's private credit bureau added payment information from retailers, utilities, and trade creditors to the data it collects and distributes. 6. Colombia, the region's top reformer, has made great strides in easing trade. By extending port operating hours and adopting more selective customs inspections, it reduced the time for port and terminal handling activities by three days. The country strengthened investor protections by increasing disclosure requirements for related-party transactions. It introduced an electronic tax filing system, cutting the average time businesses must spend on tax compliance each year by 188 hours, or 41 percent. And it is progressively reducing the corporate income tax rate, from 35 to 34 percent in 2007 and 33 percent in 2008. 7. Saudi Arabia, the runner-up reformer in the region, eliminated the minimum capital requirement of 1,057 percent of income per capita and reduced the days needed for company start-up from 39 to 15. It launched a commercial credit bureau whose reports include the credit exposure of companies. It also sped up trade, reducing the number of documents required for importing and cutting the time needed for handling at ports and terminals by two days for both imports and exports. 8. Kenya, the region's other top 10 reformer, launched an ambitious licensing reform program. So far the program has eliminated 110 business licenses and simplified eight others. The changes have streamlined business start-up and cut both the time and cost of getting building permits. The program will eventually eliminate or simplify at least 900 more of the country's 1,300 licenses. Property registration is also faster now, thanks to the introduction of competition among land valuers. And the country's private credit bureau now collects a wider range of data. 3 9. In China, a new property law put private property rights on equal footing with state property rights. The law also expanded the range of assets that can be used as collateral to include inventory and accounts receivable. The new bankruptcy law gives secured creditors priority to the proceeds from their collateral. Construction also became easier, with electronic processing of building permits reducing delays by two weeks. 10. Bulgaria eased the tax burden on businesses and made it easier to pay taxes online. Bulgaria also introduced private bailiffs to improve efficiency in enforcing judgments. And it made building inspections less burdensome. Number of reforms in Doing Business 2008 Positive Reform Borders Licenses Workers Property Investors Total Negative Reform Business Contracts Business a with Credit Taxes Across a number of reforms Economy Starting Dealing Employing Registering Getting Protecting Paying Rank Trading Enforcing Closing 1 Egypt 5 2 Croatia 4 3 Ghana 5 4 Macedonia, FYR 3 5 Colombia 3 6 Georgia 6 7 Saudi Arabia 3 8 Kenya 4 9 China 3 10 Bulgaria 3 Iceland 1 Denmark 1 Finland 1 France 2 Germany 0 Norway 1 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 imporvement, the higher the ranking as a reformer. 5 Summary of Indicators - Iceland Starting a Business Procedures (number) 5 Duration (days) 5 Cost (% GNI per capita) 2.7 Paid in Min. Capital (% of GNI per capita) 14.1 Dealing with Licenses Procedures (number) 18 Duration (days) 76 Cost (% of income per capita) 13.9 Employing Workers Difficulty of Hiring Index 33 Rigidity of Hours Index 40 Difficulty of Firing Index 10 Rigidity of Employment Index 28 Nonwage labor cost (% of salary) 12 Firing costs (weeks of wages) 13 Registering Property Procedures (number) 3 Duration (days) 4 Cost (% of property value) 2.4 Getting Credit Legal Rights Index 7 Credit Information Index 5 Public registry coverage (% adults) 0.0 Private bureau coverage (% adults) 100.0 Protecting Investors Disclosure Index 5 Director Liability Index 5 Shareholder Suits Index 6 Investor Protection Index 5.3 Paying Taxes Payments (number) 31 Time (hours) 140 Profit tax (%) 8.4 Labor tax and contributions (%) 13.4 Other taxes (%) 5.4 Total tax rate (% profit) 27.2 6 Trading Across Borders Documents for export (number) 5 Time for export (days) 15 Cost to export (US$ per container) 469 Documents for import (number) 5 Time for import (days) 14 Cost to import (US$ per container) 443 Enforcing Contracts Procedures (number) 26 Duration (days) 393 Cost (% of claim) 6.1 Closing a Business Time (years) 1.0 Cost (% of estate) 4 Recovery rate (cents on the dollar) 80.3 Starting a Business in Iceland: Entry Regulation 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 are 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 start-up capital of 10 times income per capita, 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 countries. Each procedure is a point of contact--an 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. 8 1. Historical data: Starting a Business in Iceland Starting a Business data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 15 14 Procedures (number) 5 5 5 Duration (days) 5 5 5 Cost (% GNI per capita) 2.8 3.0 2.7 Paid in Min. Capital (% of GNI per capita) 17.1 15.9 14.1 2. The following graph illustrates the Starting a Business indicators in Iceland over the past 3 years: 1. 17 9. 15 1. 14 5 5 5 5 5 5 8.2 3 7.2 edures (number) s) ita) GNI (day r cap of ation pe (% .Capitalpita) Dur GNI (% ca Proc Cost Min in per 2005 2006 2007 Paid 9 3. Steps to Starting a Business in Iceland It requires 5 procedures, takes 5 days, and costs 2.66% GNI per capita to start a business in Iceland. List of Procedures: 1. Search for company name 2. Deposit capital in a bank 3. Apply for registration with Register 4. Obtain VAT number 5. Notify tax authorities of employment of workers More details are available in the appendix. 10 4. Benchmarking Starting a Business Regulations: Iceland is ranked 14 overall for Starting a Business. Australia is the top ranked economy followed by Canada, New Zealand and United States. Ranking of Iceland in Starting a Business - Compared to best practice and selected economies: 11 The following table shows Starting a Business data for Iceland compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% GNI Paid in Min. (number) (days) per capita) Capital (% of GNI per Australia* 2 2 0.0 Denmark 0.0 Selected Economy Iceland 5 5 2.7 14.1 Comparator Economies Denmark 4 6 0.0 40.7 Finland 3 14 1.0 7.7 France 5 7 1.1 0.0 Germany 9 18 5.7 42.8 Norway 6 10 2.3 23.4 * The following economies are also best practice economies for : Procedures (number): Canada, New Zealand Paid in Min. Capital (% of GNI per capita): Canada, Ireland, Israel, Mauritius, New Zealand, Puerto Rico, Thailand, Trinidad and Tobago, United Kingdom, United States 12 Dealing with Licenses in Iceland: Building a Warehouse 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. In many countries, especially poor ones, complying with building regulations is so costly in time and money that many builders opt out. Builders may pay bribes to pass inspections or simply build illegally--leading to hazardous construction. In other countries compliance is simple, straightforward and inexpensive--yielding better results. The indicators on dealing with licenses 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. 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 20 qualified employees. The warehouse to be built: · Is a new construction (there was no previous construction on the land). · 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. 13 1. Historical data: Dealing with Licenses in Iceland Dealing with Licenses data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 24 23 Procedures (number) 18 18 18 Duration (days) 91 76 76 Cost (% of income per capita) 17.2 15.7 13.9 2. The following graph illustrates the Dealing with Licenses indicators in Iceland over the past 3 years: 91 76 76 2. 7. 18 18 18 17 9. 15 13 edures (number) s) per (day ation income ) of Dur (% capita Proc Cost 2005 2006 2007 14 3. Steps to Building a Warehouse in Iceland It requires 18 procedures, takes 76 days, and costs 13.93% GNI per capita to build a warehouse in Iceland. List of Procedures: 1. Obtain design approval from the Reykjavik construction agency 2. Obtain approval of the site manager from the Reykjavik construction agency 3. Pay water and electricity connection fees to the Reyjavik power company 4. Pay telephone connection fees to Iceland's telecommunication company 5. Obtain approval of structural, electrical, and mechanical design drawings from the Reykjavik construction board 6. Obtain initial setout of building from the Reykjavik planning authority 7. Receive a foundation work inspection by the Reykjavik construction agency 8. Receive a concrete work inspection by the Reykjavik construction agency 9. Receive steel work for slabs inspection by the Reykjavik construction agency 10. Receive a frame inspection by the Reykjavik construction agency 11. Receive a drainage inspection by the Reykjavik construction agency 12. Receive a structural inspection by the Reykjavik construction agency 15 13. Receive a timber scaffolding inspection by the Reykjavik construction agency 14. Receive an electricity inspection by Reykjavik construction agency 15. Receive plumbing inspection by the Reykjavik construction agency 16. Obtain an occupancy permit and request an inspection 17. Receive final inspection by the Reykjavik construction agency 18. Obtain water meter and final water connection More details are available in the appendix. 4. Benchmarking Dealing with Licenses Regulations: Iceland is ranked 23 overall for Dealing with Licenses. St. Vincent and the Grenadines is the top ranked economy followed by New Zealand, Belize and Marshall Islands. Ranking of Iceland in Dealing with Licenses - Compared to best practice and selected economies: * The following economies are also best practice economies for Building a Warehouse: St. Vincent and the Grenadines 16 The following table shows Dealing with Licenses data for Iceland compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) income per capita) Denmark 6 Korea 34 United Arab Emirates 1.5 Selected Economy Iceland 18 76 13.9 Comparator Economies Denmark 6 69 61.8 Finland 18 38 122.3 France 13 137 24.9 Germany 12 100 63.1 Norway 14 252 46.2 17 Employing Workers in Iceland: Labor Regulations Every economy has established a complex system of laws and institutions intended to protect workers and guarantee a minimum standard of living for its population. This system 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 and social security laws. Three measures are presented: a rigidity of employment index, a nonwage labor cost measure 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). The nonwage labor cost covers all social security payments and payroll taxes associated with hiring an employee, expressed as a percentage of the worker's salary. 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. The indicators on employment regulations are based on a detailed study of employment laws. Data are also gathered on the specific constitutional provisions governing the two areas studied. To ensure accuracy, both the actual laws and the applicable collective bargaining agreements are used. Finally, all data are verified and completed by local law firms through a detailed survey of employment regulations. To make the data comparable across economies, a range of assumptions about the worker and the company are used. Assumptions about the worker include that he is a nonexecutive, full-time male employee who has worked in the same company for 20 years and is not a member of the labor union (unless membership is mandatory). The company is assumed to be a limited liability manufacturing corporation that operates in the country'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 countries where such agreements cover more than half the manufacturing sector and apply even to firms not party to them. Most employment regulations are enacted in response to market failures. But that does not mean that today's regulations are optimal. Analysis across countries shows that while employment regulation generally increases the tenure and wages of incumbent workers, rigid regulations have many 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. Many countries err on the side of excessive rigidity, to the detriment of businesses and workers alike. 18 1. Historical data: Employing Workers in Iceland Employing Workers data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 42 42 Rigidity of Employment Index 31 28 28 Nonwage labor cost (% of salary) 12 12 12 Firing costs (weeks of wages) 13 13 13 2. The following graph illustrates the Employing Workers indicators in Iceland over the past 3 years: 31 28 28 12 12 12 13 13 13 of oyment (% ks of cost of Emplx costs(wee) wages idity Inde wage labor salary) Firing Rig 2005 Non 2006 2007 19 3. Benchmarking Employing Workers Regulations: Iceland is ranked 42 overall for Employing Workers. Marshall Islands is the top ranked economy followed by Brunei, Georgia and Tonga. Ranking of Iceland in Employing Workers - Compared to best practice and selected economies: * The following economies are also best practice economies for Employing Workers: Marshall Islands, Singapore 20 The following table shows Employing Workers data for Iceland compared to best practice and comparator economies: Best Practice Economies Rigidity of Nonwage Firing costs Employment labor cost (% (weeks of Index of salary) wages) Bangladesh* 0 Denmark* 0 Hong Kong, China* 0 Selected Economy Iceland 28 12 13 Comparator Economies Denmark 10 1 0 Finland 48 26 26 France 56 47 32 Germany 44 19 69 Norway 47 14 13 * The following economies are also best practice economies for : Rigidity of Employment Index: Singapore, United States Nonwage labor cost (% of salary): Botswana, Ethiopia, Maldives Firing costs (weeks of wages): New Zealand, United States 21 Registering Property in Iceland: Regulation of Property Transfer Property registries were first developed to help raise tax revenue. Defining and publicizing property rights through registries has also proved to be good for entrepreneurs. Land and buildings account for between half and three-quarters of the wealth in most economies. Securing rights to this property strengthens incentives to invest and facilitates commerce. And with formal property titles, entrepreneurs can obtain mortgages on their home or land and start businesses. Doing Business measures the ease of registering property based on a standard case of an entrepreneur who wants to purchase land and a building in the largest business city. It is assumed that the property is already registered and free of title dispute. The data cover the full sequence of procedures necessary to transfer the property title from the seller to the buyer. Every required procedure is included, whether it is the responsibility of the seller or the buyer or must be completed by a third party on their behalf. 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 countries 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). A large share of the property in developing countries is not formally registered, limiting financing opportunities for businesses. Recognizing this constraint, some developing country governments have embarked on extensive property titling programs. Yet bringing assets into the formal sector is of little value unless they stay there. 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 country costs 12% of the value of the property and takes more than 100 days on average. Worse, the property registries are so poorly organized that they provide little security of ownership. For both reasons, formalized titles quickly go informal again. Efficient property registration reduces transaction costs and helps keep formal titles from slipping into informal status. 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. 22 1. Historical data: Registering Property in Iceland Registering Property data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 9 8 Procedures (number) 3 3 3 Duration (days) 4 4 4 Cost (% of property value) 2.4 2.4 2.4 2. The following graph illustrates the Registering Property indicators in Iceland over the past 3 years: 4 4 4 3 3 3 4.2 4.2 4.2 edures (number) s) y (day propert ation of ) (% Dur value Cost Proc 2005 2006 2007 23 3. Steps to Registering Property in Iceland It requires 3 procedures, takes 4 days, and costs 2.40% GNI per capita to register the property in Iceland. List of Procedures: 1. The buyer obtains a non-encumbrance certificate from the Land Registry 2. Authorized real estate agent prepares and executes the sale-purchase agreement 3. Transfer of title is prepared and registered at the Magistrates office More details are available in the appendix. 24 4. Benchmarking Registering Property Regulations: Iceland is ranked 8 overall for Registering Property. New Zealand is the top ranked economy followed by Armenia, Saudi Arabia and Lithuania. Ranking of Iceland in Registering Property - Compared to best practice and selected economies: 25 The following table shows Registering Property data for Iceland compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) property value) New Zealand* 2 Norway* 1 Saudi Arabia* 0.0 Selected Economy Iceland 3 4 2.4 Comparator Economies Denmark 6 42 0.6 Finland 3 14 4.0 France 9 123 6.1 Germany 4 40 5.2 Norway 1 3 2.5 * The following economies are also best practice economies for : Procedures (number): Sweden Duration (days): Sweden, Thailand Cost (% of property value): Bhutan 26 Getting Credit in Iceland: Legal Rights and Credit Information 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: · 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. · 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. The data are from surveys of public registries and the largest private credit bureau in the country. Effective regulation of secured lending--through collateral and bankruptcy laws--can also ease credit constraints. By giving a lender the right to seize and sell a borrower's secured assets upon default, collateral limits the lender's potential losses and acts as a screening device for borrowers. The strength of legal rights index measures 10 aspects of the rights of borrowers and creditors in collateral and bankruptcy laws, including whether: · General rather than specific description of assets and debt is permitted in collateral agreements (expanding the scope of assets and debt covered). · Any legal or natural person may grant or take security in assets. · A unified registry operates that includes charges over movable property. · Secured creditors have priority both within bankruptcy and outside it. · Parties may agree on out-of-court enforcement of collateral by contract. · Creditors may both seize and sell collateral out of court, no automatic stay or "asset freeze" applies upon bankruptcy, and the bankrupt debtor does not retain control of the firm. The index ranges from 0 (weak legal rights) to 10 (strong legal rights). The data were obtained by examining collateral and bankruptcy laws and legal summaries and verified through a survey of financial lawyers. Where good-quality credit information is available and legal rights are stronger, more credit is extended. Benefits flow beyond those gaining access to credit. With better-functioning credit markets, unemployment is lower, and women and low-income people benefit the most. 27 1. Historical data: Getting Credit in Iceland Getting Credit data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 12 13 Legal Rights Index 7 7 7 Public registry coverage (% adults) 0.0 0.0 0.0 Private bureau coverage (% adults) 100.0 100.0 100.0 2. The following graph illustrates the Getting Credit indicators in Iceland over the past 3 years: 100 100 100 7 7 7 0 0 0 Index erage(% age (% Rights y covs) bureauadu cover) lt lts Legal registradu blic ate Pu Priv 2005 2006 2007 28 3. Benchmarking Getting Credit Regulations: Iceland is ranked 13 overall for Getting Credit. United Kingdom is the top ranked economy followed by Hong Kong, China, Germany and Australia. Ranking of Iceland in Getting Credit - Compared to best practice and selected economies: 29 The following table shows Getting Credit data for Iceland compared to best practice and comparator economies: Best Practice Economies Legal Rights Public Private Index registry bureau coverage (% coverage (% Argentina* 100.0 Hong Kong, China* 10 Portugal 67.1 Selected Economy Iceland 7 0.0 100.0 Comparator Economies Denmark 8 0.0 11.5 Finland 6 0.0 14.9 France 6 24.8 0.0 Germany 8 0.7 98.1 Norway 6 0.0 100.0 * The following economies are also best practice economies for : Legal Rights Index: United Kingdom Private bureau coverage (% adults): Australia, Canada, Iceland, Ireland, New Zealand, Nicaragua, Norway, Sweden, United States 30 Protecting Investors in Iceland Officials at Elf Aquitaine, France's largest oil company, awarded business deals in return for large side payments. Along with the extra cash, they got seven years in jail and a 2 million fine for abuse of power. Russian oil firm Gazprom purchased materials for new pipelines through intermediaries owned by company officers. The high cost raised eyebrows, but not court battles. Big cases make headlines. But looting by corporate insiders occurs every day on a smaller scale, and often goes unnoticed. To document the protections investors have, Doing Business measures how countries regulate a standard case of self-dealing--use of corporate assets for personal gain. The case facts are simple. 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 unfair 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. If the rights of investors are not protected, majority ownership in a business is the only way to eliminate expropriation. But then investors must devote more oversight attention to fewer investments. The result: entrepreneurship is suppressed, and fewer profitable investment projects are undertaken. Where self-dealing is curbed, equity investment is higher, ownership concentration lower and trust in the business sector deeper. Investors gain portfolio diversification, and entrepreneurs gain access to cash. 31 1. Historical data: Protecting Investors in Iceland Protecting Investors data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 81 64 Investor Protection Index 5.0 5.0 5.3 2. The following graph illustrates the Protecting Investors index in Iceland compared to best practice and selected Economies: 7.9 7.5 3.6 7.6 0.5 3.5 3.5 e d y many Iceland Franc Finlan Ger Denmark Norwa Zealand New Note: The higher the score, the greater the investor protection. 32 3. Benchmarking Protecting Investors Regulations: Iceland is ranked 64 overall for Protecting Investors. New Zealand is the top ranked economy followed by Singapore, Hong Kong, China and Malaysia. Ranking of Iceland in Protecting Investors - Compared to best practice and selected economies: 33 The following table shows Protecting Investors data for Iceland compared to best practice and comparator economies: Best Practice Economies Investor Protection Index New Zealand 9.7 Selected Economy Iceland 5.3 Comparator Economies Denmark 6.3 Finland 5.7 France 5.3 Germany 5.0 Norway 6.7 34 Paying Taxes: Tax Payable and Compliance in Iceland Taxes are essential. Without them there would be no money to fund schools, hospitals, courts, roads, water, waste collection and other public services that help businesses to be more productive. Still, there are good ways and bad ways to collect taxes. The Doing Business tax survey records the effective tax that a company must pay and the administrative costs of doing so. Imagine a medium-size business, TaxpayerCo, that started operations last year. Doing Business asked accountants in 178 economies to review TaxpayerCo's financial statements and a standard list of transactions the company completed during the year. Respondents were asked how much tax the business must pay and what the process is for doing so. The business starts from the same financial position in each country. All the taxes and contributions paid during the second year of operation are recorded. Taxes and contributions are measured at all levels of government and include corporate income tax, turnover tax, all labor 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 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 or withholding, the frequency of payment or withholding and the number of agencies involved for the standard case. · Time, which measures the hours per year necessary to prepare, file and pay the corporate income tax, value added or sales tax and labor taxes. · Total tax rate, which measures the amount of taxes 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. Poor countries tend to use businesses as a collection point for taxes. Rich countries tend to have lower tax rates and less complex tax systems. And rich countries 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. 35 1. Historical data: Paying Taxes in Iceland Paying Taxes data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 25 27 Time (hours) 140 140 140 Total tax rate (% profit) 27.5 27.5 27.2 Payments (number) 31 31 31 2. The following graph illustrates the Paying Taxes indicators in Iceland over the past 3 years: 140 140 140 5. 5. 31 31 31 2. 27 27 27 (number) Time (hours) it) prof (% yments Pa Totaltax rate 2005 2006 2007 36 3. Benchmarking Paying Taxes Regulations: Iceland is ranked 27 overall for Paying Taxes. Maldives is the top ranked economy followed by Singapore, Hong Kong, China and United Arab Emirates. Ranking of Iceland in Paying Taxes - Compared to best practice and selected economies: * The following economies are also best practice economies for Paying Taxes: Maldives 37 The following table shows Paying Taxes data for Iceland compared to best practice and comparator economies: Best Practice Economies Payments Time (hours) Total tax (number) rate (% profit) Sweden* 2 United Arab Emirates* 12 Vanuatu 8.4 Selected Economy Iceland 31 140 27.2 Comparator Economies Denmark 9 135 33.3 Finland 20 269 47.8 France 23 132 66.3 Germany 16 196 50.8 Norway 4 87 42.0 * The following economies are also best practice economies for : Payments (number): Maldives Time (hours): Maldives 38 Trading Across Borders: Importing and Exporting from Iceland 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 faster ships and bigger planes, the world is shrinking. Global and regional agreements have brought down 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. The reason is simple: many entrepreneurs face numerous hurdles to exporting or importing goods. They often give up. Others never try. Doing Business compiles procedural requirements for trading a standard shipment of goods by ocean transport. Every official 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 factory 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. To make the data comparable across countries, several assumptions about the business and the traded goods are used. The business is of medium size, with 100 or more employees, and is located in the periurban area of the country's most populous city. It is a private, limited liability company, domestically owned, formally registered and operating under commercial laws and regulations of the country. The traded goods are ordinary, legally manufactured products, and they travel in a dry-cargo, 20-foot FCL (full container load) container. Documents recorded include port filing documents, customs declaration and clearance documents, and official documents exchanged between the concerned parties. Time is recorded in calendar days, from start to finish of each procedure. Cost measures 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 trade taxes. Countries 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 leads 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 avoid customs altogether. Instead, they smuggle goods across the border. That defeats the very purpose in having border control of trade--to levy taxes and ensure high quality of goods. 39 1. Historical data: Trading Across Borders in Iceland Trading Across Borders data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 11 11 Documents for export (number) 5 5 5 Time for export (days) 15 15 15 Cost to export (US$ per container) 469 469 469 Documents for import (number) 5 5 5 Time for import (days) 14 14 14 Cost to import (US$ per container) 443 443 443 2. The following graph illustrates the Trading Across Borders indicators in Iceland over the past 3 years: 469 469 469 443 443 443 5 5 5 15 15 15 5 5 5 14 14 14 r export s) ort s) r (US imp (day $ pe entsumber) for ort (day $ pe ort (US exp ner) ents forber) ner) (n import Docum Time for exp to contai (num Cost Docum Time for import to contai Cost 2005 2006 2007 40 3. Benchmarking Trading Across Borders Regulations: Iceland is ranked 11 overall for Trading Across Borders. Singapore is the top ranked economy followed by Denmark, Hong Kong, China and Norway. Ranking of Iceland in Trading Across Borders - Compared to best practice and selected economies: 41 The following table shows Trading Across Borders data for Iceland compared to best practice and comparator economies: Best Practice Economies Documents Time for Cost to Documents Time for Cost to for export export (days) export (US$ for import import (days) import (US$ (number) per (number) per Canada* 3 China 390 Denmark* 5 3 Singapore 3 367 Selected Economy Iceland 5 15 469 5 14 443 Comparator Economies Denmark 4 5 540 3 5 540 Finland 4 8 420 5 8 420 France 4 11 1028 5 12 1148 Germany 4 7 740 5 7 765 Norway 4 7 518 4 7 468 * The following economies are also best practice economies for : Documents for export (number): Estonia, Micronesia, Panama Time for export (days): Estonia, Singapore Documents for import (number): Sweden 42 Enforcing Contracts: Court Efficiency in Iceland 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 are collected through study of the codes of civil procedure and other court regulations as well as surveys completed by local litigation lawyers (and, in a quarter of the countries, by judges as well). The dispute, between two businesses (the Seller and the Buyer) located in the country's most populous city, concerns a contract for the sale of goods. The Seller agrees to deliver the goods, worth 200% of the country's income per capita, to the Buyer. After receiving and inspecting the goods, the Buyer concludes that their quality is inadequate. The Buyer sends the goods back without paying for them. The Seller disagrees and argues that their quality is adequate. The Seller seeks full payment from the Buyer, arguing that the goods cannot be sold to a third party because they were custom-made for the Buyer. The Seller sues the Buyer before the court in the most populous city to recover the amount due under the sales agreement (200% of the country's income per capita). Three indicators of the efficiency of commercial contract enforcement are developed: · Number of procedures, which includes all those that demand interaction between the parties or between them and the judge or court officer. · Time, which counts the number of days from the moment the plaintiff files the lawsuit in court until the moment of payment. This measure includes both the days on which actions take place and the waiting periods between actions. · Cost, which measures the official cost of going through court procedures, expressed as a percentage of the claim (assumed to be equivalent to 200% of income per capita). The cost includes court costs, enforcement costs and attorney fees where the use of attorneys is mandatory or common. Businesses that have little or no access to efficient courts must rely on other mechanisms, both formal and informal--such as trade associations, social networks, credit bureaus or private information channels--to decide whom to do business with and under what conditions. Or they might adopt a conservative approach to business, dealing only with a small group of people linked through kinship, ethnic origin or previous dealings and structuring transactions to forestall disputes. In either case economic and social value may be lost. The main reason to regulate procedures in commercial dispute resolution is that informal justice is vulnerable to subversion by the rich and powerful. But heavy regulation of dispute resolution backfires. Across countries, the more procedures it takes to enforce a contract, the longer the delays and the higher the cost. The result: less wealth is created. 43 1. Historical data: Enforcing Contracts in Iceland Enforcing Contracts data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 4 4 Procedures (number) 26 26 26 Duration (days) 393 393 393 Cost (% of claim) 6.1 6.1 6.1 2. The following graph illustrates the Enforcing Contracts indicators in Iceland over the past 3 years: 393 393 393 26 26 26 1.6 1.6 1.6 edures (number) s) (day claim) of ation (% Dur Cost Proc 2005 2006 2007 44 3. Benchmarking Enforcing Contracts Regulations: Iceland is ranked 4 overall for Enforcing Contracts. Hong Kong, China is the top ranked economy followed by Luxembourg, Latvia and Singapore. Ranking of Iceland in Enforcing Contracts - Compared to best practice and selected economies: 45 The following table shows Enforcing Contracts data for Iceland compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) claim) Bhutan 0.1 Ireland 20 Singapore 120 Selected Economy Iceland 26 393 6.1 Comparator Economies Denmark 34 380 23.3 Finland 33 235 10.4 France 30 331 17.4 Germany 33 394 11.8 Norway 33 310 9.9 46 Closing Business in Iceland: Bankruptcy 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 creditors 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 is used, 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. 47 1. Historical data: Closing Business in Iceland Closing a Business data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 13 12 Time (years) 1.0 1.0 1.0 Cost (% of estate) 4 4 4 Recovery rate (cents on the dollar) 82 80 80.3 2. The following graph illustrates the Closing Business indicators in Iceland over the past 3 years: 3. 82 80 80 1 1 1 4 4 4 the (cent) s on Time (years) e) estat of (% ry ratedollar Cost Recove 2005 2006 2007 48 3. Benchmarking Closing Business Regulations: Iceland is ranked 12 overall for Closing a Business. Japan is the top ranked economy followed by Singapore, Norway and Canada. Ranking of Iceland in Closing Business - Compared to best practice and selected economies: 49 The following table shows Closing Business data for Iceland compared to best practice and comparator economies: Best Practice Economies Recovery Time (years) Cost (% of rate (cents estate) on the Colombia 1 Ireland* 0.4 Japan 92.6 Selected Economy Iceland 80.3 1.0 4 Comparator Economies Denmark 87.0 1.1 4 Finland 88.2 0.9 4 France 47.4 1.9 9 Germany 53.4 1.2 8 Norway 90.7 0.9 1 * The following economies are also best practice economies for : Time (years): Cape Verde 50 APPENDICES Starting a Business in Iceland This table summarizes the procedures and costs associated with setting up a business in Iceland. STANDARDIZED COMPANY Legal Form: Private Limited Liability Company Minimum Capital Requirement: ISK 500,000 City: Reykjavik Registration Requirements: No: Procedure Time to complete Cost to complete 1 Search for company name 1 day no charge 2 Deposit initial capital in bank account 1 day no charge 3 Apply for registration with Register of Limited Companies 1 day ISK 94,500 (Director of Internal Revenue) 4 Obtain VAT number from Director of Taxes 1 day no charge 5 Notify tax authorities of employment of workers 1 day no charge 51 Procedure 1 Search for company name Time to complete: 1 day Cost to complete: no charge Comment: The company name database can be accessed at the Internal Revenue Web site (www.rsk.is). Procedure 2 Deposit initial capital in bank account Time to complete: 1 day Cost to complete: no charge Comment: Procedure 3 Apply for registration with Register of Limited Companies (Director of Internal Revenue) Time to complete: 1 day Cost to complete: ISK 94,500 Comment: To apply for registration with the Register of Limited Companies, the company must provide five documents: 1. Notification of incorporation form. 2. Agreement of incorporation. 3. Record of the meeting of incorporation. 4. Articles of association. 5. Affidavit on payment of share capital, issued by a certified public account. The register is also in charge of advertising the incorporation notice in the Official Gazette, the official journal. The registration fee is ISK 88,500, the company identification number ISK 5,000, and the fee for publishing the notification in the Official Gazette is ISK 1,000, including VAT. Model incorporation documents and forms (in Icelandic) can be found on the Ministry of Industry and Commerce Web site (www.ivr.is). The notification of incorporation form can be downloaded at no cost from the Internal Revenue Office Web site (www.rsk.is). Procedure 4 Obtain VAT number from Director of Taxes Time to complete: 1 day Cost to complete: no charge Comment: Companies that plan to sell goods or services valued at more than ISK 500,000 a year are required to collect and report VAT. Procedure 5 Notify tax authorities of employment of workers Time to complete: 1 day Cost to complete: no charge Comment: 52 Dealing with Licenses in Iceland The table below summarizes the procedures, time, and costs to build a warehouse in Iceland. BUILDING A WAREHOUSE Date as of: January 2,007 Estimated Warehouse Value: City: Reykjavik Registration Requirements: No: Procedure Time to complete Cost to complete 1 Obtain design approval from the Reykjavik construction agency 21 days ISK 6,800 2 Obtain approval of the site manager from the Reykjavik construction 3 days ISK 200,000 agency 3 Pay water and electricity connection fees to the Reyjavik power 1 day ISK 210,000 company 4 Pay telephone connection fees to Iceland's telecommunication 1 day ISK 2,900 company 5 Obtain approval of structural, electrical, and mechanical design 30 days ISK 75,000 drawings from the Reykjavik construction board 6 Obtain initial setout of building from the Reykjavik planning authority 5 days no charge 7 Receive a foundation work inspection by the Reykjavik construction 1 day no charge agency 8 Receive a concrete work inspection by the Reykjavik construction 1 day no charge agency 9 Receive steel work for slabs inspection by the Reykjavik construction 1 day no charge agency 10 Receive a frame inspection by the Reykjavik construction agency 1 day no charge 11 Receive a drainage inspection by the Reykjavik construction agency 1 day no charge 12 Receive a structural inspection by the Reykjavik construction agency 1 day no charge 13 Receive a timber scaffolding inspection by the Reykjavik construction 1 day no charge agency 14 Receive an electricity inspection by Reykjavik construction agency 1 day no charge 15 Receive plumbing inspection by the Reykjavik construction agency 1 day no charge 53 16 Obtain an occupancy permit and request an inspection 21 days no charge 17 * Receive final inspection by the Reykjavik construction agency 7 days no charge 18 Obtain water meter and final water connection 7 days no charge * Takes place simultaneously with another procedure. 54 Procedure 1 Obtain design approval from the Reykjavik construction agency Time to complete: 21 days Cost to complete: ISK 6,800 Comment: The architectural drawings must be drawn to a scale of 1:100. Procedure 2 Obtain approval of the site manager from the Reykjavik construction agency Time to complete: 3 days Cost to complete: ISK 200,000 Comment: The site manager must be a professional engineer or a master builder. The application for this approval should include an application form, curriculum vitae, education certificate, and the liability insurance payment. Procedure 3 Pay water and electricity connection fees to the Reyjavik power company Time to complete: 1 day Cost to complete: ISK 210,000 Comment: Procedure 4 Pay telephone connection fees to Iceland's telecommunication company Time to complete: 1 day Cost to complete: ISK 2,900 Comment: Procedure 5 Obtain approval of structural, electrical, and mechanical design drawings from the Reykjavik construction board Time to complete: 30 days Cost to complete: ISK 75,000 Comment: The company can present these design drawings all at once or separately. The mechanical design drawings include the potable water system, heating and ventilation, and sewerage system. Procedure 6 Obtain initial setout of building from the Reykjavik planning authority Time to complete: 5 days Cost to complete: no charge Comment: Procedure 7 Receive a foundation work inspection by the Reykjavik construction agency 55 Time to complete: 1 day Cost to complete: no charge Comment: At each stage of construction before the work is covered, an inspection must be conducted by the municipality. These inspections must be requested with ­a day's notice, and no stoppage in construction may take place. The actual inspection takes 2 hours on average. Procedure 8 Receive a concrete work inspection by the Reykjavik construction agency Time to complete: 1 day Cost to complete: no charge Comment: Procedure 9 Receive steel work for slabs inspection by the Reykjavik construction agency Time to complete: 1 day Cost to complete: no charge Comment: Procedure 10 Receive a frame inspection by the Reykjavik construction agency Time to complete: 1 day Cost to complete: no charge Comment: Procedure 11 Receive a drainage inspection by the Reykjavik construction agency Time to complete: 1 day Cost to complete: no charge Comment: Procedure 12 Receive a structural inspection by the Reykjavik construction agency Time to complete: 1 day Cost to complete: no charge Comment: Procedure 13 Receive a timber scaffolding inspection by the Reykjavik construction agency Time to complete: 1 day 56 Cost to complete: no charge Comment: The procedure is carried out by Occupational Safety And Health (OSHA). Procedure 14 Receive an electricity inspection by Reykjavik construction agency Time to complete: 1 day Cost to complete: no charge Comment: The procedure is carried out by a private company under the consumer agency's supervision. Procedure 15 Receive plumbing inspection by the Reykjavik construction agency Time to complete: 1 day Cost to complete: no charge Comment: Procedure 16 Obtain an occupancy permit and request an inspection Time to complete: 21 days Cost to complete: no charge Comment: The Reykjavik construction authority contacts all the other agencies that should inspect the building. The number of inspections depends on the size and purpose of the building. For a small warehouse, only the fire, health, and labor inspections are necessary. The municipality coordinates these inspections. Procedure 17 Receive final inspection by the Reykjavik construction agency Time to complete: 7 days Cost to complete: no charge Comment: The final inspection includes inspections of employee facilities by Icelandic OSHA, inspection of hygienic conditions by the Reykjavik environmental and hygiene agency, and the fire system inspection. Procedure 18 Obtain water meter and final water connection Time to complete: 7 days Cost to complete: no charge Comment: 57 Employing Workers in Iceland Employing workers indices are based on responses to survey questions. The table below shows these responses in Iceland. Employing Workers Indicators (2007) Answer Score Rigidity of Employment Index 27.8 Difficulty of Hiring Index 33.3 Are fixed-term contracts prohibited for permanent tasks? No 0 What is the maximum duration of fixed-term contracts (including renewals)? (in months) 24 1.0 What is the ratio of mandated minimum wage to the average value added per worker? 0.21 0.00 Rigidity of Hours Index 40.0 Can the workweek extend to 50 hours (including overtime) for 2 months per year to respond to a Yes 0 seasonal increase in production? What is the maximum number of working days per week? 6 0 Are there restrictions on night work? No 0 Are there restrictions on "weekly holiday" work? Yes 1 What is the paid annual vacation (in working days) for an employee with 20 years of service? 28 1 Difficulty of Firing Index 10.0 Is the termination of workers due to redundancy legally authorized? Yes 0 Must the employer notify a third party before terminating one redundant worker? No 0 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 workers? Yes 1 Does the employer need the approval of a third party to terminate a group of 25 redundant No 0 workers? Can an employer make redundant a worker only if the worker could not have been reassigned or No 0 retrained? Are there priority rules applying to redundancies? No 0 Are there priority rules applying to re-employment? No 0 Firing costs (weeks of wages) 13.0 What is the notice period for redundancy dismissal after 20 years of continuous employment? 13.0 (weeks of salary) 58 What is the severance pay for redundancy dismissal after 20 years of employment? (weeks of 0.0 salary) What is the legally mandated penalty for redundancy dismissal? (weeks of salary) 0.0 Nonwage labor cost (% of salary) 11.8 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. 59 Registering Property in Iceland This topic examines the steps, time, and cost involved in registering property in Iceland. STANDARDIZED PROPERTY Property Value: 2,529,000.00 City: Reykjavik Registration Requirements: No: Procedure Time to complete Cost to complete 1 The buyer obtains a non-encumbrance certificate from 1 day ISK 1,000 each certificate the Land Registry if completed at the Magistrates office 2 Authorized real estate agent prepares and executes 1 day 1.5-2.5% of property value the sale-purchase agreement (real estate agent fees) 3 Transfer of title is prepared and registered at the 1-2 days ISK 1,350 + 0.4% of the Magistrates office official real estate valuation (usually lower than purchase price) for Stamp Duty 60 Procedure 1 The buyer obtains a non-encumbrance certificate from the Land Registry Time to complete: 1 day Cost to complete: ISK 1,000 each certificate if completed at the Magistrates office Comment: The buyer would usually demand to receive a certificate of mortgages and other possible rights and obligations in relation to the property. Anyone can request a certificate in writing. It costs ISK 1.000 and is takes one visit to the District Magistrate (Land Registry). Real-estate agencies have on-line access to this information (Landskra Fasteigna) at a cost of ISK 550 per certificate. Landskra Fasteigna is a data and information system operated by real estate valuation authorities. Procedure 2 Authorized real estate agent prepares and executes the sale-purchase agreement Time to complete: 1 day Cost to complete: 1.5-2.5% of property value (real estate agent fees) Comment: It is not mandatory to use an authorized real estate agent, but almost everyone does. The agent's fees will be around 1.5% and 2.5% of the property value. The sale-purchase agreement is usually registered at the District Magistrate if the property is not paid in full at the time of the agreement. The deed is first signed when the property is paid in full. Registration of the sale-purchase agreement protects the rights of the purchaser. The total extra cost of registering the sale-purchase agreement is ISK 1.350. The process takes about 2 days. In this case there is no need to register the sale-purchase agreement and it is not a formal requirement. The conditions for registry of the sale purchase agreement are that it contains the following information: the name of the property as officially registered by the municipal authorities, unique property reference number of the land and the property, the legal description set forth by the planning and building authorities and the land and the building's number which has direct reference to its coordinates. This information can be obtained from the magistrate office in the property's district or from Landskra fasteigna (cadastre). If an authorized real estate agent handles the sale this information is available to him via an electronic data and information system. It is common that the buyer notifies the insurance company. Insurance companies have electronic access to the data base at the Real Estate Valuation Authorities and there is a daily processing of the title of transfers. The title of the fire-insurance changes the same day as the transfer of title is registered. Procedure 3 Transfer of title is prepared and registered at the Magistrates office Time to complete: 1-2 days Cost to complete: ISK 1,350 + 0.4% of the official real estate valuation (usually lower than purchase price) for Stamp Duty Comment: When the buyer has fulfilled his obligations in relation to the sale purchase agreement and the conditions for registrations, the transfer of title is prepared and registered at the Magistrates office. The deed shall be delivered in two signed copies (including one copy on a special accredited paper. The documentation should include the deed signed by the seller and the purchaser and certified by a notary public, or an attorney, a certified real-estate agent or two 61 witnesses. In practice a notary public is hardly ever used. 62 Getting Credit in Iceland The following table summarize legal rights of borrowers and lenders, and the availability and legal framework of credit registries in Iceland. Getting Credit Indicators (2007) Indicator Private credit Public credit Private bureau coverage (% adults) 5 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or Yes No 1 utility companies as well as financial institutions? Are more than 2 years of historical credit information distributed? No No 0 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 largest Yes No 1 credit registry? Coverage 100.0 0.0 Number of individuals .. 0 Number of firms .. 0 Legal Rights Index 7 Does the law allow all natural and legal persons to be party to collateral agreements? Yes Does the law allow for general descriptions of assets, so that all types of assets can be used as collateral? Yes Does the law allow for general descriptions of debt, so that all types of obligations can be secured? Yes Does a unified registry exist for all security rights in movable property? No 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? Yes During reorganization, are secured creditors' claims exempt from an automatic stay on enforcement? Yes During reorganization, is management's control of the company's assets suspended? Yes Does the law authorize parties to agree on out of court enforcement? No May parties have recourse to out of court enforcement without restrictions? No 63 Protecting Investors in Iceland The table below provides a full breakdown of how the disclosure, director liability, and shareholder suits indexes are calculated in Iceland. Protecting Investors Data (2007) Indicator Disclosure Index 5 What corporate body provides legally sufficient approval for the transaction? (0-3; see notes) 2 Immediate disclosure to the public and/or shareholders (0-2; see notes) 2 Disclosures in published periodic filings (0-2; see notes) 0 Disclosures by Mr. James to board of directors (0-2; see notes) 1 Requirement that an external body review the transaction before it takes place (0=no, 1=yes) 0 Director Liability Index 5 Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to 1 the company. (0-2; see notes) Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for 1 damage to the company. (0-2; see notes) Whether a court can void the transaction upon a successful claim by a shareholder plaintiff (0-2; see 1 notes) Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the 1 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 causes to the 1 company (0-1; see notes) Shareholder Suits Index 6 Documents available to the plaintiff from the defendant and witnesses during trial (0-4; see notes) 2 Ability of plaintiffs to directly question the defendant and witnesses during trial (0-2; see notes) 2 Plaintiff can request categories of documents from the defendant without identifying specific ones (0=no, 1 1=yes) Shareholders owning 10% or less of Buyer's shares can request an inspector investigate the transaction 0 (0=no, 1=yes) 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 filing suit 0 (0=no, 1=yes) 64 Investor Protection Index 5.3 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 65 Paying Taxes in Iceland The table below addresses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year in Iceland, 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 Property transfer tax 1 0.4% transaction small amount (stamp duty) value Tax on interest 0 withheld 10.0% interest not included income Value added tax (VAT) 1 online filing 40 24.5% value added not included Vehicle tax 2 ISK 6,83 for vehicle 0.04 the first weight 1.000 kg., ISK 9,21 for the next 2.000 kg and ISK 2.277 for each ton above 3.000 kg. This is paid jointly with disposal charge of ISK 350 per truck per each 6 month period. Market fee 1 online filing 0.1% gross 0.06 salaries Municipal tax 6 ISK 102/m2 building area 0.06 + ISK 2.637 + 11.374 Weight distance tax 3 ISK 3.29 pr. KM driven 0.14 Km per year Fuel tax 1 included in 1.16 fuel price Industrial fee 1 online filing 0.1% turnover 1.41 Property tax 1 online filing 1.65% + assessed 2.60 0.115% property value 66 Social security 1 online filing 60 5.8% gross 6.53 contributions salaries Pension contribution 12 6.0% 6.77 Corporate income tax 1 online filing 40 18.0% taxable 8.45 profits Totals 31 140 27.2 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. 67 Trading Across Borders in Iceland These tables list the procedures necessary to import and exports a standardized cargo of goods in Iceland. The documents required to export and import the goods are also shown. Nature of Export Procedures (2007) Duration (days) US$ Cost Documents preparation 10 78 Customs clearance and technical control 1 52 Ports and terminal handling 3 315 Inland transportation and handling 1 24 Totals 15 469 Nature of Import Procedures (2007) Duration (days) US$ Cost Documents preparation 10 52 Customs clearance and technical control 1 52 Ports and terminal handling 2 315 Inland transportation and handling 1 24 Totals 14 443 Export Bill of lading Certificate of origin Commercial invoice Customs export declaration Packing list Import Bill of lading Cargo release order Commercial invoice Customs import declaration Packing list 68 Enforcing Contracts in Iceland This topic looks at the efficiency of contract enforcement in Iceland. Nature of Procedure (2007) Indicator Procedures (number) 26.00 Duration (days) 393.00 Filing and service 45.0 Trial and judgment 268.0 Enforcement of judgment 80.0 Cost (% of claim)* 6.06 Attorney cost (% of claim) 5.9 Court cost (% of claim) 0.1 Enforcement Cost (% of claim) 0.1 Court information: Reykjavík Court of First ("Heradsdomur Reykjavikur") Instance * Claim assumed to be equivalent to 200% of income per capita. 69