Doing Business Blog - The World Bank Group

German Company Law: It was Time for change

In its August 8, 2009 edition, The Economist article on Germany (Unbalanced Germany) urged the country to use the current crisis as an opportunity to embrace economic reform. The article highlights that “Germans struggle to create companies,” and that “[s]tart-up capital is scarcer than it is elsewhere.”

 

Citing the World Bank’s “Doing Business 2009” report, the article also notes that Germany ranked 102 of 181 economies on the ease of starting a business.  This year, Germany is expected to move up in the ranking thanks to new reforms of business regulation.

 

Although it took more than 100 years, last year Germany approved a new regulation to reform the 1892 GmbH Law (MoMiG) that regulates the functions and rules of establishing Limited Liability Companies (LLC) -the most widely used legal framework.

Germany Tax Stimulus

On November 5, 2008, the German Federal Cabinet adopted Bundesministerium für Wirtschaft, Beschäftigungssicherung (German, English) to safeguard prospects for economic growth in Germany. According to the package, the federal government will introduce declining balance depreciation at 25% for movable assets for 2 years. In addition, special depreciation allowances for small and medium enterprises will also be temporarily expanded.

On February 13, 2009, a second stimulus package, Der Gesetzentwurf zur Sicherung von Beschäftigung und Stabilität in Deutschland, was approved by the German Bundestag which would provide further tax cuts.

Germany ranks the 25th out of 181 economies on the Ease of Doing Business 2009 and the 80th in Paying Taxes. In 2007, Germany reduced the corporate income tax from 25% to 15%, introduced straight-line depreciation for fixed assets and reduced trade tax while no longer allowing a deduction of the tax for corporate income tax.

Canada Tax Stimulus

On March 12, 2009, the Canadian Bill C-10 received Royal Assent. The Bill is an essential part of the government’s Economic Action Plan, which aims to "stimulate economic growth, restore confidence and support Canadians and their families during the synchronized global recession".

The plan reduces the tax burden on Canadian individuals, families and businesses to provide C$20 billion in additional personal income tax relief over 2008-09 and the next five fiscal years. The government is also committed to "long-term business tax reductions with the general corporate tax rate reduced to 19% as of January 1, 2009".

Canada ranks the 8th out of 181 economies on the ease of Doing Business 2009 and the 28th in Paying Taxes. Just in 2007, Canada reduced the corporate income tax rate, abolished a surtax of 1.12% and increased the depreciation rate for various assets.

Australia Tax Stimulus

On February 13, 2009, the Australian parliament approved an A$42.5 billion ($27.06 billion) fiscal stimulus plan designed to retain jobs and protect the economy from the effects of the economic crisis.

Tax bonus and cash payment measures are contained in two Bills: Tax Bonus for Working Australians Bill 2009, and Household Stimulus Package Bill 2009. They provide A$950 bonuses to each low- and middle-income household/individual. The payments will also go to single-income families that currently receive certain tax benefits for families, as well as to farmers, students, and unemployed workers intending to receive education or retraining.

Under the Appropriation (Nation Building and Jobs) Bill (No. 1) 2008-09, tax breaks are also planned for small and general businesses to provide support against loss of jobs.

Australia ranks the 9th out of 181 economies in the Ease of Doing Business 2009 and the 48th on the Paying Taxes indicator.

Regulatory Reform – Lessons from the British BRE

The past few years have shown incredible convergence in how many governments implement regulatory reforms. Just between June 2007 and June 2008, 113 economies introduced 239 reforms as recorded by Doing Business, the most recorded in a single year since the project started.

On February 24, I attended a regulatory reform session of the Financial and Private Sector Development Forum 2009, in which Jitinder Kohli, Chief Executive of Better Regulation Executive (BRE), shared with us his experience as BRE leads the regulatory reform agenda across the British government.

Dutch Moving Forward

The Dutch government recently announced that it wants to continue its program of reducing the administrative burden for companies in the Netherlands by 25%. After a largely successful reduction of administrative compliance in the period 2002-2007, the Dutch government has set a new, more aggressive goal to further reduce this burden during the current administration. Compared to the first phase of reductions, the new program will focus on eliminating visible burdens for Dutch companies. As an element of this plan, the government has proposed to simplify taxation of labor.

In the Netherlands, the current system of labor tax and social security contributions is characterized by a large differentiation to cater many different interests. While this certainly has its advantages, it also leads to a high degree of complexity in the system. There are 6 separate taxes on labor, all of which use different tax rates and often also different tax bases. This results in a high compliance burden for companies, a fact that is supported by the Doing Business report.

Reforming France's Ports

On May 21st, the French Senate passed the government's port reform bill, which foresees the transfer of cargo handling activities at France's ports to the private sector. Initiated by President Sarkozy shortly after his inauguration, the port reform is part of the government's ambitious reform agenda. The objective of the reform, as announced by Prime Minister Fillon last January, is to triple container capacity at French ports by 2015 and create 30,000 new jobs.

In spite of the significant gains expected from the reform, not everyone is happy about it. Since April, France's ports have had to endure a series of 24-hour rolling strikes by port workers unhappy at the prospect of transferring to the private sector. Organized by the National Federation of Ports and Docks, part of the powerful Confédération Générale du Travail, the strikes have increased port congestion causing long delays.

Going Dutch

About 18 months ago the Doing Business team was asked to study the Dutch regulatory reform program and make some suggestions about its future focus. The resulting report listed several ideas. Most important among those: to conduct surveys of businesses and ask what their main constraints are; to combine the (then) four different units in the Ministries of Finance and Economy into one regulatory reform group; to study the costs of some existing regulations, not just of new regulation; and to communicate the reforms through the views of business people, not the minister or other government officials.

I visited the Dutch Ministry of Finance recently and was shocked to find that all these ideas were implemented. It's so rare!

On second thought, I shouldn't be so surprised. The Dutch are already leaders in regulatory reform in Western Europe. They mean business.

Privatization of Building Control Proceedings

The Dealing with Licenses indicator of Doing Business measures the administrative hurdles associated with building a new warehouse in the main economic center of 181 countries. Every year the Doing Business report records reforms in countries around the world that make it easier for builders to get their new constructions approved faster.

Over the last decade, building control systems in Europe have undergone significant changes. In the past, public building offices were the only ones allowed to establish building standards and issue building permits, perform inspections, and issue completion certificate if new constructions were in compliance with these standards. Fiscal constraints of municipalities and dissatisfaction with lengthy processes initiated a trend towards liberalization of aspects of building control proceedings.

Santa Claus Comes to Town

In a speech prior to the European Convention on the Future of Europe in 2002, the former Romanian Minister of Public Information commented that most Romanians viewed the European Union in four distinct ways: Santa Claus with his bag full of goodies; a museum with free movement; a big supermarket; or a rolling stone threatening to crash them.

As a result of European Union (EU) accession, Romania will receive a financial boost of approximately 19.667 billion Euros. This sum will be spent under the 2007-2013 program. The goal of this program is to pursue one of the Union’s enshrined missions, namely, to reduce disparities between levels of development in various EU regions.

Seven operational programs were set up last year including in economic competitiveness, regional development, transportation, environment, human resource performance, administrative capacity and technical assistance.