65433 Economy Profile: Nicaragua © 2012 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org All rights reserved. 1 2 3 4 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 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. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. 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ISBN: 978-0-8213-8833-4 E-ISBN: 978-0-8213-8834-1 DOI: 10.1596/978-0-8213-8833-4 ISSN: 1729-2638 Printed in the United States Doing Business 2012 Nicaragua 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 36 Registering property .................................................................................................................. 42 Getting credit .............................................................................................................................. 52 Protecting investors ................................................................................................................... 59 Paying taxes ................................................................................................................................ 69 Trading across borders .............................................................................................................. 77 Enforcing contracts .................................................................................................................... 86 Resolving insolvency .................................................................................................................. 93 Data notes ................................................................................................................................... 99 Resources on the Doing Business website ............................................................................ 104 Doing Business 2012 Nicaragua 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2010). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 10 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts and transparency of government procurement, resolving insolvency. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 183 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 32 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 18 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for Nicaragua. To allow useful comparison, it recommends regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2012, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2011 (except for http://www.doingbusiness.org. Doing Business 2012 Nicaragua 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: Latin America & Caribbean business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 5,822,265 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 1,080.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 118 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 122 investors, paying taxes, trading across borders, Change in rank: 4 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 Nicaragua 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2012 Nicaragua 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy’s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How Nicaragua and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 Nicaragua 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Nicaragua ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 Nicaragua 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the ―frontier,‖ a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy’s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy’s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy’s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has Nicaragua come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 Nicaragua 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Nicaragua Best performer globally El Salvador DB2012 Guatemala DB2012 Costa Rica DB2012 Nicaragua DB2012 Nicaragua DB2011 Honduras DB2012 Colombia DB2012 Mexico DB2012 Indicator DB2012 Starting a Business 130 121 65 122 136 165 150 75 New Zealand (1) (rank) Procedures (number) 8 8 9 12 8 12 13 6 Canada (1)* Time (days) 39 39 14 60 17 37 14 9 New Zealand (1) Cost (% of income per 107.9 111.5 8.0 11.1 45.1 52.5 46.7 11.2 Denmark (0.0)* capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 3.0 22.3 17.0 8.4 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 150 146 29 141 144 151 70 43 China (1) (rank) Procedures (number) 16 16 8 20 33 19 14 10 Denmark (5) Time (days) 218 218 46 188 157 165 94 81 Singapore (26)* Cost (% of income per 428.7 475.5 338.9 164.5 168.3 541.7 309.8 333.1 Qatar (1.1) capita) Doing Business 2012 Nicaragua 11 Best performer globally El Salvador DB2012 Guatemala DB2012 Costa Rica DB2012 Nicaragua DB2012 Nicaragua DB2011 Honduras DB2012 Colombia DB2012 Mexico DB2012 Indicator DB2012 Getting Electricity (rank) 136 133 134 43 130 30 114 142 Iceland (1) Procedures (number) 6 6 5 5 7 4 8 7 Germany (3)* Time (days) 70 70 165 62 78 39 33 114 Germany (17) Cost (% of income per 1653.8 1768.4 1081.3 299.5 533.3 624.9 1082.2 395.5 Japan (0.0) capita) Registering Property 122 151 51 46 54 23 94 140 New Zealand (3) (rank) Procedures (number) 8 8 7 5 5 4 7 7 Portugal (1)* Time (days) 49 124 15 20 31 23 23 74 Portugal (1) Cost (% of property 4.1 3.9 2.0 3.4 3.7 0.9 5.7 5.3 Slovak Republic (0.0) value) Getting Credit (rank) 98 96 67 98 48 8 8 40 United Kingdom (1)* Strength of legal rights 3 3 5 3 5 8 8 6 New Zealand (10)* index (0-10) Depth of credit 5 5 5 5 6 6 6 6 Japan (6)* information index (0-6) Public registry coverage 10.5 14.0 0.0 25.5 23.9 17.3 16.3 0.0 Portugal (86.2) (% of adults) Private bureau coverage 31.9 21.4 71.2 78.9 81.1 8.9 31.2 98.1 New Zealand (100.0)* (% of adults) Protecting Investors 97 93 5 166 166 133 166 46 New Zealand (1) (rank) Extent of disclosure 4 4 8 2 3 3 0 8 France (10)* index (0-10) Doing Business 2012 Nicaragua 12 Best performer globally El Salvador DB2012 Guatemala DB2012 Costa Rica DB2012 Nicaragua DB2012 Nicaragua DB2011 Honduras DB2012 Colombia DB2012 Mexico DB2012 Indicator DB2012 Extent of director 5 5 8 5 0 3 5 5 Singapore (9)* liability index (0-10) Ease of shareholder suits 6 6 9 2 6 6 4 5 New Zealand (10)* index (0-10) Strength of investor 5.0 5.0 8.3 3.0 3.0 4.0 3.0 6.0 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 155 158 95 138 146 124 140 109 Canada (8) Payments (number per 42 64 9 31 53 24 47 6 Norway (4) year) Time (hours per year) 207 222 193 246 320 344 224 347 Luxembourg (59) Trading Across Borders 83 85 87 73 69 119 103 59 Singapore (1) (rank) Documents to export 5 5 5 6 8 10 6 5 France (2) (number) Hong Kong SAR, Time to export (days) 24 26 14 13 14 17 18 12 China (5)* Cost to export (US$ per 1140 1140 2270 1190 845 1127 1242 1450 Malaysia (450) container) Documents to import 5 5 6 7 8 9 8 4 France (2) (number) Time to import (days) 23 25 13 15 10 17 22 12 Singapore (4) Cost to import (US$ per 1220 1220 2830 1190 845 1302 1420 1780 Malaysia (435) container) Enforcing Contracts 52 82 149 129 66 97 177 81 Luxembourg (1) (rank) Doing Business 2012 Nicaragua 13 Best performer globally El Salvador DB2012 Guatemala DB2012 Costa Rica DB2012 Nicaragua DB2012 Nicaragua DB2011 Honduras DB2012 Colombia DB2012 Mexico DB2012 Indicator DB2012 Time (days) 409 540 1346 852 786 1459 920 415 Singapore (150) Cost (% of claim) 26.8 26.8 47.9 24.3 19.2 26.5 35.2 32.0 Bhutan (0.1) Procedures (number) 37 37 34 40 34 31 47 38 Ireland (21)* Resolving Insolvency 78 80 12 121 88 101 131 24 Japan (1) (rank) Time (years) 2.2 2.2 1.3 3.5 4.0 3.0 3.8 1.8 Ireland (0.4) Cost (% of estate) 15 15 1 15 9 15 15 18 Singapore (1)* Recovery rate (cents on 35.1 33.7 82.8 22.2 31.5 27.9 19.2 67.1 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practice� marks, see the data notes for details. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2012 Nicaragua 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that all government and nongovernment entities involved in the process  Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business:  Does not qualify for any special benefits.  Is a limited liability company, located in the  Does not own real estate. largest business city.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2012 Nicaragua 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Nicaragua? costs 107.9% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 0.0% of income per capita (figure a business there requires 8 procedures, takes 39 days, 2.1). Figure 2.1 What it takes to start a business in Nicaragua Paid-in minimum capital (% of income per capita): 0.0 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Nicaragua 16 STARTING A BUSINESS Globally, Nicaragua stands at 130 in the ranking of 183 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Nicaragua to start a business. Figure 2.2 How Nicaragua and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 Nicaragua 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in Nicaragua That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in Nicaragua over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 121 130 Procedures (number) 11 8 8 8 8 8 8 8 8 Time (days) 46 39 39 39 39 39 39 39 39 Cost (% of income per 160.3 156.2 139.7 123.6 113.7 105.1 95.0 111.5 107.9 capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Nicaragua 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by Nicaragua on ways to improve the ease of starting a the economies that today have the best performance business. And changes in regional averages can show regionally or globally on the procedures, time, cost or where Nicaragua is keeping up—and where it is falling paid-in minimum capital required to start a business behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 Nicaragua 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 21 economies in Latin America & Caribbean have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 Nicaragua 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Nicaragua (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Nicaragua made starting a business easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Nicaragua 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Nicaragua is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Managua firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Sociedad Anónima (S.A.) - Corporation professionals and the study of laws, regulations and Start-up capital: 10 times GNI per capita publicly available information on business entry in that economy. Following is a detailed summary of Paid-in minimum capital (% of income per those procedures, along with the associated time capita): 0.0 and cost. These procedures are those that apply to a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Nicaragua—and the time and cost Time to No. Procedure Cost to complete complete Sign the incorporation papers before a notary public The documents of incorporation and the company bylaws must be drafted by a notary public. It is customary to include the company 3 days USD 875 1 bylaws in the document of incorporation. Most notaries will also perform the remaining steps (explained in the following steps) in the incorporation process, for a fee of USD 200 (average). The notary cost is USD 750–1,000. Buy company accounting books and corporate books 2 All companies must keep four corporate books: two accounting books 1 day NIO 800 (diary and ledger) and two corporate books (minutes book and shares book). The cost of the books may vary from one bookstore to another. File incorporation statutes (Acta Constitutiva) with the Commercial Registry (Registro Comercial) at the one-stop shop (Ventanilla Unica) In January 2004, the government created in the Ministry of Commerce (Ministerio de Fomento, Industria y Comercio) a one-stop shop, the Unique Office for Investment (Ventanilla Unica de Inversiones), in which included in procedure 3 2 weeks companies can file commercial and tax registrations. The one-stop shop 4 cannot process any registrations but forwards the documentation daily to the relevant agencies. The one-stop shop provides information on four procedures and rationalizes them: (a) company registration; (b) tax registration at the Dirección General de Ingresos (DGI); (c) municipal registration; and (d) for foreign companies, the Foreign Secretary (Secretario Exterior). Doing Business 2012 Nicaragua 22 Time to No. Procedure Cost to complete complete The cost for commercial registration is 1% of capital (with a minimum of NIO 1,000, maximum of NIO 30,000) and the following fees: - Inscription of constitution of internal books: NIO 100. - Registration fee for books (diario, mayor, actas y acciones) NIO 350.00. - Application (inscripcion como comerciante): NIO 350. - Form for municipal license (matricula): NIO 5. - Municipal license: for social capital lower than NIO 50,000 is NIO 500; higher than NIO 50,000 is 1% of capital. - Municipal license document (constancia de matricula): 1% of license fee. The payment must be made in any bank, and the payment receipt must be presented at the one-stop shop. Regardless whether the company has income, it must declare before the Nicaraguan Tax Authority (Dirección General de Ingresos) each month. If the company has no sales, it will not pay any taxes. However, it will have to pay the fees for the services performed by their representative in Nicaragua before the DGI. 1% of capital (Commercial * Pay the inscription fees Registration) within a 1 day (simultaneous minimum of NIO 4 Fees must be paid into any bank and the receipt presented to the one- with previous 1,000 and a maximum stop shop (see Procedure 5). There is a commercial bank within the procedure) of NIO 30,000 + NIO Commercial Registry where the payment can be made. 100 (inscription of internal books) Register accounting books (sellado de libros) and register as a NIO 350 (registration trader (inscripcion como comerciante) with the Commerical of accounting books) 5 Registry at the one-stop shop (Ventanilla Unica) 16 days + NIO 300 (application as a trader) Register for general sales tax (Impuesto al Valor Agregado, IVA) and register company books at the local tax authority (Administración de Renta); Companies with an annual income higher than NIO 240,000 will be 2 days no charge 6 levied general sales tax (impuesto al valor agregado, IVA). The accounting books must be registered at the local office of the Tax Collector’s Office (Administración de Rentas). Then, the company obtains a unique tax identification number (RUC, Registro Unico del Contribuyente). 1% of capital Obtain a municipal licence (matrícula) (municipal license fee) 1 day + 1% of municipal 7 The entrepreneur must go to the Municipality to request and obtain the licence (matricula). The municipal licence is issued on the same day and license fee (municipal the fees can be paid at the municipality. license document)+ NIO 5 (form for Doing Business 2012 Nicaragua 23 Time to No. Procedure Cost to complete complete municipal license) Register for social security and public health with Instituto Nicaragüense de Seguridad Social (INSS) 2 days no charge 8 * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Nicaragua 24 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2012 Nicaragua 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 16 procedures, takes 218 days build a warehouse in Nicaragua? According to data and costs 428.7% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Nicaragua Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Nicaragua 26 DEALING WITH CONSTRUCTION PERMITS Globally, Nicaragua stands at 150 in the ranking of 183 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Nicaragua to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Nicaragua and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 Nicaragua 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to deal with construction permits (table 3.1). That can help identify where the potential in Nicaragua today, data over time show which aspects for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Nicaragua over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 146 150 Procedures (number) 16 16 16 16 16 16 16 Time (days) 218 218 218 218 218 218 218 Cost (% of income per 812.8 654.9 557.1 536.8 445.9 475.5 428.7 capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Nicaragua 28 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by on ways to improve the ease of dealing with the economies that today have the best performance construction permits. And changes in regional regionally or globally on the procedures, time or cost averages can show where Nicaragua is keeping up— required to deal with construction permits (figure 3.3). and where it is falling behind. These economies may provide a model for Nicaragua Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 Nicaragua 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Nicaragua 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Nicaragua (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Nicaragua made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Nicaragua 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Nicaragua are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Managua information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers NIO 7,966,790 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Nicaragua —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain consultations with Municipality of Managua (Alcaldía de Managua - ALMA) over the Urban Plans 1 7 days no charge It is common practice to have an initial consultation with the Technical Urban Planning Committee (Comité Técnico Urbanístico) to verify all conditions before submitting any document. Request and obtain the land use certificate (constancia de uso de suelo) from the Municipality of Managua (Alcaldía de Managua – ALMA)) After the certificate is received, a record number is created (to be used for the following procedures until the project is approved). The 2 documents to be submitted at this stage are an application form, a 40 days NIO 500 copy of the location map, a site map, and the cadastral number of the property. If the applicant does not agree with the decision, an appeal may be filed with the Technical Urban Planning Committee (Comité Técnico Urbanístico). Request feasibility analysis from ENACAL and UNION FENOSA, at ALMA (One-Stop Shop) A feasibility analysis from the Union FENOSA is required to determine whether the site can be connected to the electrical network. The 3 following documents are needed: the (original) location map, a 15 days NIO 2,800 specification of the electrical capacity to be installed, and the estimated starting date of construction work. The feasibility analysis is done at no charge, while the pressure measurement costs NIO 500 and other costs come to NIO 2,800. Doing Business 2012 Nicaragua 32 Time to No. Procedure Cost to complete complete A feasibility analysis (ENACAL) is required to determine whether the site can be connected to water and sewerage services. If no sewage system exists, an alternative would be a treatment system approved by the MARENA (Environmental Impact Assessment, Ministry of the Environment and Natural Resources). The documents to be submitted are an application form, the land use certificate, a project description (physical modulation and activities), a plot plan on a scale of 1:10,000, the water demand and use statement, and specifications of the inflow rate and the sewage characteristics. Request and obtain preliminary design approval from ALMA The company must obtain an approval stating that the proposed preliminary designs conform to the Regulating Plan of the Municipality of Managua and to the land-use certificate. The required documents are the land-use certificate; a notarized deed 4 certifying ownership of the land; the feasibility analyses by the 25 days NIO 1,000 Nicaraguan Institute of Energy (INE) and the Nicaraguan Company of Water and Sewage (ENACAL); a local fault study endorsed by the Nicaraguan Institute of Territorial Studies INETER , if required by the land use certificate; and two sets of maps, each consisting of a location map on a scale of 1:10,000; a site map on a scale of 1:10,000, 1:500, or 1:200; a contour map; an architectural layout; exterior work drawings; and area frames. Request and obtain project approval ENACAL approval (water and sewage), all at ALMA (One-Stop Shop) A project approval is a decision stating that the project conforms to the Regulating Plan of the Municipality of Managua. The fee for obtaining the approval is NIO 3 per square meter, and payment can be made either in cash or in two equal installments. The required documents are three sets of plans and the approved preliminary designs. Union FENOSA provides a review, design approval, and authorization, and issues a decision stating that the proposed project conforms with the Manual of Norms of Construction of Distribution (Manual de Normas de Construcción de Distribución) of the Unión FENOSA, the 5 electrical power supply company. The following documents are 30 days NIO 9,212 required: - Design license. - Electrical specifications. - Stack-out sheet. - List of materials. - Project drawings. - Photocopy of the electrical power and light contract. - Photocopy of the feasibility certificate. The INE approves projects that involve heating system or the use of hydrocarbon materials for this purpose. The ENACAL approval certificate covers the project conceptualization Doing Business 2012 Nicaragua 33 Time to No. Procedure Cost to complete complete and indicates that the project is compliant with the standards and regulations. The required documents are a project identification title page, topographic maps, an urban development plan, an existing infrastructure plan, design drawings, detail drawings, and a descriptive report. Request and obtain approval from DGB (Dirección General de Bomberos) Indoor electrical layout drawings must be reviewed and be found to conform to all fire protection standards. For construction projects with commercial and service purposes, the fee is NIO 3 per square meter. 15 days NIO 3,902 6 The required documents are electrical installation layouts, fire protection system plans, safety measures, or plans provided for the construction work. Because the national firefighting system (SINACOI) no longer exists, the institution in charge of this procedure is now DGB (Dirección General de Bomberos). Request and obtain building permit from ALMA The building permit authorizes the start of construction. The cost of a building permit includes a tax of 1.1 % of the total market value of the construction (NIO 70,620.20, in this case). This tax must be paid in full at the start of construction work. Buildings are also subject to an inspection fee, as follows: - NIO 2 per square meter for areas between 100 and 200 sq. m. - NIO 3 per square meter for areas between 201 and 1,000 sq. m. (in the care considered here, NIO 3 x 1,300.6 = NIO 3,901.80). 7 20 days NIO 74,522 The required documents are a project approval, an annual real estate tax (solvencia de bienes inmuebles), the registration number with ALMA (the business registration), a tax clearance certificate (solvencia municipal) for the project owner and builder, a builder’s license granted by the Ministry of Transportation and Infrastructure (Ministerio de Transporte e Infraestructura, MTI), the builder's signature on the construction plans, bank guarantees, and official payment receipts. The building permit carries the same weight as a public deed. Inspections may occur during construction. However, these are rare due to a shortage of inspectors. Even if an inspection is carried out, the inspector would simply verify that the building permit is valid. Request fire inspection 8 The cost of a fire and electricity inspection is included in the inspection 1 day no charge fee, which is paid at the Dirección General de Bomberos (DGB). A site visit may be scheduled, but it is not a rigid procedure. * Receive fire inspection 9 1 day no charge * Request and connect to water and sewage services 10 45 days NIO 3,000 This cost covers the installation and can be higher or lower depending Doing Business 2012 Nicaragua 34 Time to No. Procedure Cost to complete complete on a possible rupture of pipelines. * Request and connect to a fixed telephone line For telephone service connection, the following steps must be taken: 1. Apply for a new telephone line at ENITEL (cell phone provider). 2. Submit an identity card. 3. Complete a form. 4. Pay USD 45 for the procedure, which may take up to a month. 11 If no telephone line is available, the money is refunded. Otherwise, the 22 days NIO 2,920 remainder of the installation fee must be paid, which in this case would be USD 135. Thus, the total cost amounts to USD 180. Another option would be to buy a cellular phone or a cellular telephone plan, with either a post-payment plan (12 to 50 minutes, free equipment, pre-paid cards) or a pre-payment plan (coded cards costing between USD 5 and USD 50 and equipment costing from USD 99 to USD 300). Receive inspection from Municipality Municipal inspection is a random inspection that may occur at least 12 once during the 30-week construction period. Thus, no request is 1 day no charge needed. An inspection report is drafted and provided to the company. The construction work is not stopped during the inspection, and no costs are associated with this procedure. Receive inspection from Ministry of Labor Inspection by the Ministry of Labor is a random inspection that may 13 occur at least once during the 30-week construction period. Thus, no 1 day no charge request is needed. An inspection report is drafted and provided to the company. The construction work is not stopped during the inspection, and no costs are associated with this procedure. Receive inspection from National Commission of Hygiene and Occupational Security Inspection by the National Commission of Hygiene and Occupational 14 Safety is a random inspection that may occur at least once during the 1 day no charge 30-week construction period. Thus, no request is needed. An inspection report is drafted and provided to the company. The construction is not stopped during the inspection, and no costs are associated with this procedure. Receive inspection from National Social Security Institute Inspection by the National Social Security Institute is a random inspection that may occur at least once during the 30-week 1 day no charge 15 construction period. Thus, no request is needed. An inspection report is drafted and provided to the company. The construction work is not stopped during the inspection, and no costs are associated with this procedure. Register the building with the Real Estate Appraisal Office (Avalúo 16 de Bienes Inmuebles, ALMA) 15 days no charge Doing Business 2012 Nicaragua 35 Time to No. Procedure Cost to complete complete * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Nicaragua 36 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 Nicaragua 37 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 70 days and costs 1653.8% of connection in Nicaragua? According to data collected income per capita (figure 4.1). by Doing Business, getting electricity there requires 6 Figure 4.1 What it takes to obtain an electricity connection in Nicaragua Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Nicaragua 38 GETTING ELECTRICITY Globally, Nicaragua stands at 136 in the ranking of 183 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Nicaragua to connect a warehouse to electricity. Figure 4.2 How Nicaragua and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 Nicaragua 39 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for Nicaragua on ways to improve the ease of 4.1). If obtaining a new electricity connection requires getting electricity. Regional and global averages on fewer procedures, less time or less cost in other these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in Nicaragua and comparator economies Latin America & Global average El Salvador Guatemala Costa Rica Nicaragua Caribbean Honduras Colombia average Mexico Indicator Rank 136 134 43 130 30 114 142 72 .. Procedures (number) 6 5 5 7 4 8 7 5 5 Time (days) 70 165 62 78 39 33 114 65 111 Cost (% of income per capita) 1653.8 1081.3 299.5 533.3 624.9 1082.2 395.5 593.7 1,942.3 Source: Doing Business database. Doing Business 2012 Nicaragua 40 GETTING ELECTRICITY What are the details? The indicators reported here for Nicaragua are based OBTAINING AN ELECTRICITY CONNECTION on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Managua utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: DISNORTE - DISSUR verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Nicaragua—and the time and cost Time to No. Procedure Cost to complete complete The customer submits an informal application with DISNORTE- DISSUR to establish the feasibility of the project The customer submits a first informal application to DISNORTE-DISSUR indicating the required electricity load and the location of the business 7 calendar days no charge 1 that is to be connected. The Planning Department of the utility will prepare a feasibility study based on its own plans for the primary distribution lines in Managua and the existing demand in the system. No inspection of the site is necessary if the connection point is within 150 meters. The client obtains a compliance certificate regarding the internal wiring from the official or the voluntary Fire Department (Dirección General de Bomberos and Benemérito Cuerpo de Bomberos, respectively) The customer has to obtain a certification of the internal wiring 2 installations from the Fire Department. The Fire Department (Dirección 7 calendar days USD 86.3 General de Bomberos ) certifies that the internal wiring has been done in accordance with the relevant standards for buildings as specified by the ""Norma CIEN"" (Código de instalaciones Eléctricas de Nicaragua). This certification has to be obtained before applying for a new electricity connection with the utility. * The Fire Department (Dirección General de Bomberos or Benemérito Cuerpo de Bomberos) inspects the internal wiring 3 installation 1 calendar day no charge In order to prepare the certification of the internal wiring the Fire Doing Business 2012 Nicaragua 41 Time to No. Procedure Cost to complete complete Department (Dirección General de Bomberos ) will visit the site. The customer hires a private firm to prepare the design for the connection works and to carry out the actual works DISNORTE-DISSUR has a list of approved firms that will realize the design of the actual connection works. In order to be part of the list, firms have to be approved every year by the utility. In most cases the design is done by the same firm that also will later do the works. 4 The works are done according to the relevant standards. They can be 48 calendar days USD 17,025.0 done either by a construction firm or an approved electrical design firm. The customer can decide who he wants to delegate the works to. The works are supervised by the technical department of the utility. The utility will also approve the designs that have been prepared by the approved firm and work hand in hand with the executing firm. * The customer submits in person the design and the service application at DISNORTE-DISSUR and awaits that the utility approves the design plans The customer submits the service application together with the designs in person. The following documents have to accompany the application: • Name, address and telephone number of the applicant • Photocopy of national identity card or power of attorney 30 calendar days no charge 5 • Photocopy of the property title or rental contract • Inspection certificate from the Fire Department indicating that the internal wiring installation complies with the norms established by the CIEN (Código de instalaciones Eléctricas de Nicaragua). • Photocopy of the social security number or business registration number of the customer (RUC - Registro único del contribuyente) • Photocopy of the company registration of the firm (used to assess which electricity tariff is applicable). DISNORTE-DISSUR installs the meter and energizes the project Once the works are finalized, the meter and metering accessories are installed by the distribution utility and remain property of the utility. The meter is installed in a location that can be accessed from outside the premise of the customer for inspections and meter reading. Otherwise 6 the customer has to given a written consent that the distribution utility 14 calendar days NIO 15,851.8 can enter the premise. The customer has to deposit a security that is calculated on the basis of one month of the future consumption of the customer. The security deposit is returned with interest (average deposit rate in the country) after 18 months if the customer had no late payment in this period. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Nicaragua 42 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy’s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2012 Nicaragua 43 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 49 days and costs 4.1% of the Nicaragua? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 8 Figure 5.1 What it takes to register property in Nicaragua Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Nicaragua 44 REGISTERING PROPERTY Globally, Nicaragua stands at 122 in the ranking of 183 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Nicaragua to transfer property. Figure 5.2 How Nicaragua and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 Nicaragua 45 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in Nicaragua That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in Nicaragua over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 151 122 Procedures (number) 8 8 8 8 8 8 8 8 Time (days) 124 124 124 124 124 124 124 49 Cost (% of property value) 6.6 6.6 3.5 3.5 3.5 3.8 3.9 4.1 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Nicaragua 46 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by on ways to improve the ease of registering property. the economies that today have the best performance And changes in regional averages can show where regionally or globally on the procedures, time or cost Nicaragua is keeping up—and where it is falling required to complete a property transfer (figure 5.3). behind. These economies may provide a model for Nicaragua Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 Nicaragua 47 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Nicaragua 48 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Nicaragua (table 5.2)? Table 5.2 How has Nicaragua made registering property easier—or not? By Doing Business report year DB Year Reform Nicaragua made transferring property more efficient by DB2012 introducing a fast-track procedure for registration. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Nicaragua 49 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business City: Managua through information collected from local property Property Value: 1,141,327.0 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Nicaragua—and the time and cost Time to No. Procedure Cost to complete complete * Obtain a non-encumbrance certificate ("Libertad de gravamen") from Land registry The non-encumbrance certificate is an official document that shows all the owners of the real property since its first annotation or since the time that the interested person wants to know. The certificate must be 5 days 1 obtained by the seller before starting the transaction formally. The (simultaneous with NIO 50 "certificado a manera de titulo" (cost of NIO 100) can also be obtained procedure 2) from the registry, if the original title has been lost. The "certificado de historia registral" (cost NIO 100 + NIO 50 for every additional past transaction) that list all previous transactions related to the property can also be obtained. * Obtain tax clearance from the Municipality (Solvencia Municipal) A tax clearance certificate (Municipal Solvency) must be obtained by the seller from the municipality. The timing of 1 day assumes that the seller 1 day (simultaneous NIO 20 2 is up-to-date with tax payments on the property, and that he pays a fee with procedure 1) of NIO 20. If he were to wait till the next business day to obtain it, it would be free of charge. A notary prepares and signs the public deed A notary public prepares and notarizes the public deed of purchase and sell between seller and buyer. The preparation of the deed is an exclusive act of the notary. The notary will review all past transactions 1.5 – 2.0% of 3 from the record book on the Land Registry with the documents obtained 2 days property value above, to verify the ownership of the property. In practice, the notaries (notary’s fees) estimate their fees for this type of contract based on a percent, which varies between 1.5 and 2% of the property value according to agreement between the parties and notary. Doing Business 2012 Nicaragua 50 Time to No. Procedure Cost to complete complete Obtain the Cadastre Certificate and valuation at the Cadastre Parties must obtain the Cadastre Certificate and request a valuation from an inspector. In practice, the Cadastre requires a special power granted to notaries or any other person when the interested parties cannot Cadastre Certificate realize this procedure. The parties can go to the Cadastre directly, in NIO 360 + Cadastral 4 14 – 21 days which case they do not need to present a special power. The Cadastre valuation constancy requests to see original property title (of the Seller). NIO 100 In case a special power is needed, the costs rise about C$ 2,000 as the fees for the person who will go to the Cadastre, and C$ 1,000 for the notary who will previously authorize and issue the special power. Inspector visits property to assess value no cost (but must After the cadastral certificate is obtained, an inspector visits the property provide 5 7 days to assess the value. In practice, one picks up the inspector and drives transportation to him/her to the property. It will take the inspector about one week to inspector) write the report on the value. Payment of Income/Transfer Tax Payment of Income/Transfer Tax at the Tax Administration Office, an agency of the Treasury Ministry. This percent is established depending on the Cadastre Value. sliding scale: 1% for The Cadastre value generally is not the same as the market price. For the properties with a payment of the transfer taxes, the fiscal authority takes as a base of calculation the highest value between the sale price in the public deed of value between purchase and Cadastral value. USD1.00 and USD Fees of NIO 4 + 2 stamps of NIO 10 need to be paid to make the 50,000.00, 2% for 6 1 day payment. values between USD The transfer tax rate of 1% was established by an injunction ("amparo") 50,000.01 and USD declaring the increase of the 2003 Ley de Queda Fiscal unconstitutional. 100,000.00 and 3% An amendment to the Nicaraguan fiscal law entered into force on for values above January 1st, 2010 (Law 712 published in the official Gazette No. 241 of USD 100,000.01 December 21st 2009), changing the tax according to the following sliding scale, from 1% of the value of the property to the following percentages: 1% for properties with a value between US$1.00 and US$50,000.00, 2% for values between US$50,000.01 and US$100,000.00 and 3% for values above US$100,000.01. The documents obtained from the Office of Cadastre are inserted in the public deed NIO 200 (Notary’s 7 1 day fees) A notary will insert the documents obtained from the Offices of Cadastre in the public deed. Apply for registration of the public deed at the Land Registry 1% of cadastral value (registration fee) + Parties file the public deed at the Land Registry for its proper 15 days (expedited NIO 500 (Notary’s 8 registration. The amount is calculated based on 1% of the cadastral procedure) fees) + 20% of the value, with a maximum fee of NIO 30,000. This payment is made directly in the branch of a commercial bank that is located inside the Land registration fee for Registry Office. The notary applying for registration will charge C$500 as the expedited Doing Business 2012 Nicaragua 51 Time to No. Procedure Cost to complete complete fees. procedure At submission, the request for transfer is recorded, signaling priority rights over the property. The registration of property transfers is very slow and can take longer than 90 days. When finalized, the Land registry will write in the original deed, the book and page where the transfer was recorded. This document is then returned to the notary with all the other certificates provided. The Land registry operates with paper documents. However, the sale deeds are scanned and almost all past records are digitalized in Managua. In the rest of the departments in the country, records are not always accessible digitally. Newer transactions (less than 1 year) are not always digitalized. Any person can access past deeds with computers at the Land registry at no cost. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Nicaragua 52 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine  Has 100 employees. the scope of the secured transactions system,  Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index  Is a private, limited liability company. (weighted at 62.5%).  Has its headquarters and only base of operations in the largest business city. Doing Business 2012 Nicaragua 53 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Nicaragua stands at 98 in the ranking of 183 collateral and bankruptcy laws in Nicaragua facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 5 on the The rankings for comparator economies and the depth of credit information index and a score of 3 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Nicaragua support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How Nicaragua and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 Nicaragua 54 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Nicaragua support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Nicaragua over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 96 98 Strength of legal rights 3 3 3 3 3 3 3 3 index (0-10) Depth of credit 3 4 5 5 5 5 5 5 information index (0-6) Public registry coverage 6.2 8.1 12.5 14.8 13.4 16.0 14.0 10.5 (% of adults) Private bureau 0.0 0.0 3.4 100.0 27.9 28.4 21.4 31.9 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Nicaragua 55 GETTING CREDIT One way to put an economy’s getting credit indicators index for Nicaragua in 2011 and shows the number of into context is to see where the economy stands in the other economies having the same score in 2011. distribution of scores across other economies. Figure Figure 6.3 shows the same thing for the depth of credit 6.2 highlights the score on the strength of legal rights information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 Nicaragua 56 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Nicaragua (table 6.2)? Table 6.2 How has Nicaragua made getting credit easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Nicaragua 57 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders Nicaragua are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a public well as public sources of information on collateral and credit registry or private credit bureau (if one exists). bankruptcy laws. For the strength of legal rights index, To construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Nicaragua Latin America & Indicator Nicaragua OECD high income Caribbean Strength of legal rights index (0-10) 3 6 7 Depth of credit information index (0-6) 5 3 5 Public registry coverage (% of adults) 10.5 10.1 9.5 Private bureau coverage (% of adults) 31.9 34.2 63.9 Strength of legal rights index (0–10) Index score: 3 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of No movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of No its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend No automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement No include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an No electronic database indexed by debtor's names? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Doing Business 2012 Nicaragua 58 Strength of legal rights index (0–10) Index score: 3 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its No security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 5 bureau registry Are data on both firms and individuals distributed? Yes Yes 1 Are both positive and negative data distributed? Yes Yes 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as Yes No 1 financial institutions? Are more than 2 years of historical credit information No No 0 distributed? Is data on all loans below 1% of income per capita Yes Yes 1 distributed? Is it guaranteed by law that borrowers can inspect Yes Yes 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 4,286 2,497 Number of individuals 1,127,965 368,393 Source: Doing Business database. Doing Business 2012 Nicaragua 59 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2012 Nicaragua 60 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Nicaragua? The index (figure 7.1). While the indicator does not economy has a score of 5.0 on the strength of investor measure all aspects related to the protection of protection index, with a higher score indicating minority investors, a higher ranking does indicate that stronger protections (see the summary of scoring at an economy’s regulations offer stronger investor the end of this chapter for details). protections against self-dealing in the areas measured. Globally, Nicaragua stands at 97 in the ranking of 183 economies on the strength of investor protection Figure 7.1 How Nicaragua and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 Nicaragua 61 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in Nicaragua protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in Nicaragua over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 93 97 Extent of disclosure 4 4 4 4 4 4 4 index (0-10) Extent of director 5 5 5 5 5 5 5 liability index (0-10) Ease of shareholder 6 6 6 6 6 6 6 suits index (0-10) Strength of investor 5.0 5.0 5.0 5.0 5.0 5.0 5.0 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Nicaragua 62 PROTECTING INVESTORS But the overall ranking on the strength of investor and ease of shareholder suits indices may also be protection index tells only part of the story. Economies revealing (figure 7.2). Equally interesting may be the may offer strong protections in some areas but not changes over time in the regional average scores for others. So the scores recorded over time for Nicaragua those indices. on the extent of disclosure, extent of director liability Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 Nicaragua 63 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Nicaragua 64 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Nicaragua (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Nicaragua strengthened investor protections—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Nicaragua 65 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for shareholder suits indices, a score is assigned for each Nicaragua are based on detailed information collected of a range of conditions relating to disclosure, director through a survey of corporate and securities lawyers liability and shareholder suits in a standard case study and are based on securities regulations, company laws transaction (see the notes at the end of this chapter). and court rules of evidence. To construct the extent of The summary below shows the details underlying the disclosure, extent of director liability and ease of scores for Nicaragua. Summary of scoring for the protecting investors indicators in Nicaragua Latin America & Indicator Nicaragua OECD high income Caribbean Extent of disclosure index (0-10) 4 4 6 Extent of director liability index (0-10) 5 5 5 Ease of shareholder suits index (0-10) 6 6 7 Strength of investor protection index (0-10) 5.0 5.1 6.0 Score Extent of disclosure index (0-10) 4 What corporate body provides legally sufficient approval for the transaction? 2 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 0 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 0 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 2 required? Whether an external body must review the terms of the transaction before it takes place? 0 Extent of director liability index (0-10) 5 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 1 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 1 Doing Business 2012 Nicaragua 66 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 1 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 0 Ease of shareholder suits index (0-10) 6 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 1 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 1 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 3 trial? Whether the plaintiff can request categories of documents from the defendant without 0 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 0 Whether the level of proof required for civil suits is lower than that of criminal cases? 1 Strength of investor protection index (0-10) 5.0 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide 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. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Doing Business 2012 Nicaragua 67 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company’s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is 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 is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes 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 or prejudicial to the other 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 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff’s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 Nicaragua 68 Whether the plaintiff can directly examine 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. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 Nicaragua 69 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 2 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2009. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded.  Taxes and mandatory contributions include  Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company.  A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 Nicaragua 70 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Nicaragua stands at 155 in the ranking of 183 taxes in Nicaragua—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 42 tax payments a year, rankings for comparator economies and the regional spend 207 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 24.5% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Nicaragua. details). Figure 8.1 How Nicaragua and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Nicaragua 71 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how the process have changed — and which have not easy (or difficult) it is to comply with tax rules in (table 8.1). That can help identify where the potential Nicaragua today, data over time show which aspects of for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Nicaragua over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 158 155 Payments (number per 64 64 64 64 64 64 42 year) Time (hours per year) 240 240 240 240 240 222 207 Total tax rate (% profit) 63.5 63.5 63.5 63.2 63.2 63.2 66.8 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Nicaragua 72 PAYING TAXES Equally helpful may be the benchmarks provided by on ways to ease the administrative burden of tax the economies that today have the best performance compliance. And changes in regional averages can regionally or globally on the number of payments or show where Nicaragua is keeping up—and where it is the time required to prepare and file taxes (figure 8.2). falling behind. These economies may provide a model for Nicaragua Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 Nicaragua 73 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Nicaragua 74 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Nicaragua (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Nicaragua made paying taxes easier—or not? By Doing Business report year DB Year Reform Nicaragua made paying taxes easier for companies by DB2012 promoting electronic filing and payment of the major taxes, an option now used by the majority of taxpayers. Nicaragua increased taxes on firms by raising social security contribution rates and introducing a 10% withholding tax on DB2011 the gross interest accrued from deposits. It also improved electronic payment of taxes through bank transfer. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Nicaragua 75 PAYING TAXES What are the details? The indicators reported here for Nicaragua are based that the company completed during the year. on a standard set of taxes and contributions that Respondents are asked how much in taxes and would be paid by the case study company used by mandatory contributions the business must pay and Doing Business in collecting the data (see the section in what the process is for doing so. The taxes and this chapter on what the indicators cover). Tax contributions paid are listed in the summary below, practitioners are asked to review standard financial along with the associated number of payments, time statements as well as a standard list of transactions and tax rate. Summary of tax rates and administrative burden in Nicaragua Latin America & Indicator Nicaragua OECD high income Caribbean Payments (number per year) 42 32 13 Time (hours per year) 207 382 186 Profit tax (%) 24.5 19.9 15.4 Labor tax and contributions (%) 20.3 14.6 24.0 Other taxes (%) 22.0 13.2 3.2 Total tax rate (% profit) 66.8 47.7 42.7 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online filing 67 24.8% 24.5 income Social security gross 12 76 16.92% 18 contributions salaries sales Turnover tax 12 0 17.68% (purchase 17.7 cost) assessed included in Assets tax 1 0 4.8% total asset 4.8 other taxes value distributed Profit tax 1 0 10% 2.9 profits gross Training tax 12 0 2.3% 2.3 salaries Doing Business 2012 Nicaragua 76 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate property Real estate tax 1 0 1.48% 1.5 value Value added tax (VAT) 1 online filing 64 value added 0 not included included in fuel tax 1 0 fixed fee 0 fuel price Totals 42 207 66.8 Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Nicaragua 77 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other  Is located in the periurban area of the special environment. economy’s largest business city.  Do not require any special phytosanitary or  Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy.  Are one of the economy’s leading export or import products. The traded goods:  Are transported in a dry-cargo, 20-foot full  Are not hazardous nor do they include container load. military items. Doing Business 2012 Nicaragua 78 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Nicaragua? Globally, Nicaragua stands at 83 in the ranking of 183 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 5 (figure 9.1). The rankings for comparator economies documents, takes 24 days and costs $1140. Importing and the regional average ranking provide other useful the same container of goods requires 5 documents, information for assessing how easy it is for a business takes 23 days and costs $1220 (see the summary of in Nicaragua to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Nicaragua and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 Nicaragua 79 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in Nicaragua That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in Nicaragua over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 85 83 Documents to export 6 5 5 5 5 5 5 (number) Time to export (days) 38 36 36 29 29 26 24 Cost to export (US$ per 1,020 1,021 1,021 1,300 1,340 1,140 1,140 container) Documents to import 7 5 5 5 5 5 5 (number) Time to import (days) 37 37 37 28 28 25 23 Cost to import (US$ per 1,020 1,054 1,054 1,420 1,420 1,220 1,220 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by ways to improve the ease of trading across borders. the economies that today have the best performance And changes in regional averages can show where regionally or globally on the documents, time or cost Nicaragua is keeping up—and where it is falling required to export or import (figure 9.2). These behind. economies may provide a model for Nicaragua on Doing Business 2012 Nicaragua 80 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 Nicaragua 81 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 Nicaragua 82 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Nicaragua 83 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Nicaragua (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Nicaragua made trading across borders easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. Nicaragua expedited trade by migrating to a new electronic data interchange system for customs, setting up a physical DB2011 one-stop shop for exports and investing in new equipment at the port of Corinto. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Nicaragua 84 TRADING ACROSS BORDERS What are the details? The indicators reported here for Nicaragua are based freight forwarders, shipping lines, customs brokers, on a set of specific procedural requirements for port officials and banks. The procedural requirements, trading a standard shipment of goods by ocean and the associated time and cost, for exporting and transport (see the section in this chapter on what the importing a standard shipment of goods are listed in indicators cover). Information on the procedures as the summary below, along with the required well as the required documents and the time and cost documents. to complete each procedure is collected from local Summary of procedures and documents for trading across borders in Nicaragua Latin America & Indicator Nicaragua OECD high income Caribbean Documents to export (number) 5 6 4 Time to export (days) 24 18 10 Cost to export (US$ per container) 1140 1,257 1,032 Documents to import (number) 5 7 5 Time to import (days) 23 20 11 Cost to import (US$ per container) 1220 1,546 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 10 340 Customs clearance and technical control 3 80 Ports and terminal handling 6 120 Inland transportation and handling 5 600 Totals 24 1140 Procedures to import Time (days) Cost (US$) Documents preparation 11 300 Customs clearance and technical control 7 200 Ports and terminal handling 3 120 Inland transportation and handling 2 600 Totals 23 1220 Doing Business 2012 Nicaragua 85 TRADING ACROSS BORDERS Documents to export Documents to import Bill of lading Packing list Customs export declaration Bill of lading Commercial invoice Certificate of origin Certificate of origin Commercial invoice Quality Certificate Fiscal Solvency Doing Business 2012 Nicaragua 86 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs, including expert fees assumptions about the case: Enforcement costs  The seller and buyer are located in the economy’s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2012 Nicaragua 87 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Nicaragua stands at 52 in the ranking of 183 dispute through the courts in Nicaragua? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, enforcing a contract 10.1). The rankings for comparator economies and the requires 37 procedures, takes 409 days and costs regional average ranking provide other useful 26.8% of the value of the claim (see the summary at benchmarks for assessing the efficiency of contract the end of this chapter for details). enforcement in Nicaragua. Figure 10.1 How Nicaragua and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 Nicaragua 88 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how over time help identify which areas have changed and easy (or difficult) it is to enforce a contract in where the potential for improvement is greatest (table Nicaragua today, data on the underlying indicators 10.1). Table 10.1 The ease of enforcing contracts in Nicaragua over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 82 52 Time (days) 590 540 540 540 540 540 540 540 409 Cost (% of claim) 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 Procedures (number) 37 37 37 37 37 37 37 37 37 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Nicaragua 89 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for Nicaragua on ways to improve the efficiency of the economies that today have the best performance contract enforcement. And changes in regional regionally or globally on the number of steps, time or averages can show where Nicaragua is keeping up— cost required to enforce a contract through the courts and where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 Nicaragua 90 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Nicaragua 91 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Nicaragua (table 10.2)? Table 10.2 How has Nicaragua made enforcing contracts easier—or not? By Doing Business report year DB Year Reform Nicaragua raised the monetary threshold for commercial claims that can be brought to the Managua local civil court, DB2012 leaving lower-value claims in the local courts, where proceedings are simpler and faster. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Nicaragua 92 ENFORCING CONTRACTS What are the details? The indicators reported here for Nicaragua are based regulations, as well as through surveys completed by on a set of specific procedural steps required to local litigation lawyers (and, in a quarter of the resolve a standardized commercial dispute through economies covered by Doing Business, by judges as the courts (see the section in this chapter on what the well). The procedures for resolving a commercial indicators cover). These procedures, and the time and lawsuit, and the associated time and cost, are listed in cost of completing them, are identified through study the summary below. of the codes of civil procedure and other court Summary of procedures for enforcing a contract in Nicaragua—and the time and cost Latin America & Indicator Nicaragua OECD high income Caribbean Time (days) 409 707.78 518.03 Filing and service 89 Trial and judgment 230 Enforcement of judgment 90 Cost (% of claim) 26.8 31.21 19.71 Attorney cost (% of claim) 16.3 Court cost (% of claim) 5.5 Enforcement Cost (% of claim) 5 Procedures (number) 37 40.03 31.42 Source: Doing Business database. Doing Business 2012 Nicaragua 93 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be business and the case. It assumes that the recovered company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy’s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 Nicaragua 94 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, Nicaragua stands at 78 in the ranking of 183 characterize the top-performing economies. How economies on the ease of resolving insolvency (figure efficient are insolvency proceedings in Nicaragua? 11.1). The rankings for comparator economies and the According to data collected by Doing Business, regional average ranking provide other useful resolving insolvency takes 2.2 years on average and benchmarks for assessing the efficiency of insolvency costs 15% of the debtor’s estate. The average recovery proceedings in Nicaragua. rate is 35.1 cents on the dollar. Figure 11.1 How Nicaragua and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 Nicaragua 95 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in Nicaragua help identify where the potential for improvement is today, data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in Nicaragua over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 80 78 Time (years) 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 Cost (% of estate) 15 15 15 15 15 15 15 15 15 Recovery rate (cents on 31.5 33.4 34.0 34.5 34.6 34.3 34.3 33.7 35.1 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2012 Nicaragua 96 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by on ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where Nicaragua is keeping up—and where it is proceedings or on the recovery rate (figure 11.2). falling behind. These economies may provide a model for Nicaragua Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 Nicaragua 97 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Nicaragua 98 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Nicaragua (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Nicaragua made resolving insolvency easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Nicaragua 99 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2011. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund’s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the ―regional‖ classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 Nicaragua 100 Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy’s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 Nicaragua 101 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year’s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year’s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea’s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website’s ―Ask a Question‖ on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year’s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the ―distance to frontier.‖ Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 Nicaragua 102 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is ―no practice‖ mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree ―no practice‖ or ―not possible‖ mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a ―no ability of different government agencies to deliver practice‖ mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy’s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year’s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It‖ (World Bank, Washington, DC, 2005). Principal components This year’s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the ―frontier‖ and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 Nicaragua 103 the extent to which the economy has closed this gap The difference between an economy’s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many th are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95 the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy’s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 Nicaragua 104 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 Nicaragua 105