Analytics, Business, EU – Baltic States, Law and Regulations

In the recent publication by the World Bank and the International Finance Corporation experts have analyzed 178 global economies providing a visible picture of differences in doing business *). In our article we have chosen only figures for countries around the Baltic Sea in order to show some common features that enhance business activity in the Baltic region as well as those that constrain it. Thus, the general table below is followed by our comments on entrepreneurial features in the Baltics.     

Starting business

Starting a business is never easy, but in Europe it seems better than in other places regarding the number of procedures, days and costs needed. It is still regarded as a men’s business and only 18% of businesses in the world are run by women.

Eastern Europe made 11 reforms in making business arrangements easy and better during 2006-07 (e.g. Belarus and Georgia, Hungary and Croatia). Since 2003, almost all 28 countries of the European region (24, in total) simplified start-up procedures. Finland reduced its minimum capital requirement by almost 70%. The best in the Baltics are Estonia, Finland and Denmark.   

Registering property

Making is easier to transfer property is good for business, where land and buildings account for major share of wealth (no wander, banks prefer land and real estate as collateral). Easier property registration leads to greater access to finance and greater opportunities to invest. Poland, Hungary, Croatia and Georgia made most in registering reforms. There is a strong trend to transfer registering records from paper to electronic form. Notaries made registration costs about 33% higher than average (and perform the same tasks as registry officials).

Best in this rubric in the Baltics are Sweden, Finland and Lithuania.   

Getting credit

In the global top ten economies credit to private sector exceeds 130% of GDP; that means how well credit registries and collateral laws facilitate credit market. 

France was the top reformer in getting credit since 2005-06, launching a nationwide online registry of movable collateral. 

Protecting investors

European countries continued during last years to strengthen investors’ protection due to the EU Directive 2004/109/EC. Main directions for reform are: open company activities to investor scrutiny; requirement for disinterested shareholder approval; helping investors in bringing suit (where courts are strong).

European Commission opened consultations on one-stop shops for company information on prospectus, annual report and ownership levels in the member states. At the same time, more that 50 rules have been issues in the US (by the Securities & Exchange Commission) in the past 3 years.

The UK and Denmark are best in the Baltic Sea region; other states are lagging far behind.  

Paying taxes

By “taxes” in the report are meant various “taxes and mandatory contributions – tamc” within 5 main categories: income tax (both profit and corporate), property taxes, turnover taxes, social contributions and labour taxes paid by employer, and other small taxes (municipal fees, vehicle and fuel taxes, etc.).

In several EU states people already pay taxes online making it easier to pay taxes and not hurting small businesses, e.g. in Sweden and Estonia thus making tax administration costs only 0,6% of revenue. The trend in the EU is towards simplifying taxes and making them competitive, simplify tax administration, reduce tax rates and broaden the base. Thus, Holland reduced top rate for corporate income tax from 31,5% in 2005 to 29,6% in 2006 and 25,3% in 2007. Bulgaria cut corporate tax from 15 to 10%, Slovenia –from 25 to 23%, Moldova from 18 to 15%.     

The leaders in the Baltic region in this category are Denmark, the UK and Latvia.

Trading across borders

The most popular reform last year – electronic data interchange; among main trading directions are: limit physical inspections, go online, shorten inland delays, shift from cutting tariffs to cutting delays. Trading Europe is easier with Denmark, Sweden, Finland and Estonia. However, the cost of 20-foot container is quite different in the European states.

Enforcing contracts

In many countries it is both difficult and expensive to resolve disputes through the courts. The primary role of judiciary is to enhance justice, fairness and equity; at the same time, courts help business and economy. In 2006 Slovenia adopted a law obliging the government to pay plaintiffs up to 5 th euro per case as a fine for delayed justice.

Latvia and Finland are uncontested leaders in that category both in the Baltic region and Europe as a whole.