Cuba Opens Wide to Foreign Investment

By Progreso Weekly

A historic personality in Old Havana. Photo: Juan Suárez

HAVANA TIMES – A briefing to journalists by Cuban government officials on the proposed changes to the Foreign Investment Law was held Tuesday (March 26) at the National Assembly building, where the bill will be brought up for approval next Saturday (March 29).

The main speakers were José Luis Toledo Santander, chairman of the Assembly’s committee on Constitutional and Judicial Affairs, and Deborah Rivas Saavedra, director general for investment at the Ministry of Foreign Trade and Investment (MINCEX).

The following is a translation of the key portions of the text made available to Progreso Weekly by a reliable source.

Where and who?

Within Cuba’s national territory, the entities engaging in foreign investment will enjoy full legal protection and security.

As regards available areas for investment, all sectors are potential receptors except for the sectors of health and education to the population, and the military institutions, with the exception of their business systems.

Investment in real property and the purchase of property or other real rights will be permitted. The properties may be used for housing and buildings for private domicile or tourism; or used as homes or offices for legal foreign persons, or for the purpose of tourism development.

The investments may be made through the following modalities:

a) Mixed enterprise [joint venture];

b) International economic partnership contract (Risk contract for the exploration of nonrenewable natural resources; construction; agricultural production; construction and management of hotels; production or services and contracts for the procurement of national services.)

c) Enterprises with totally foreign capital.

Joint ventures may create offices, branches and subsidiaries both on Cuban territory and outside it, and may participate in entities abroad.

In the case of an enterprise with totally foreign capital, the investor exercises the management, enjoys all the rights and answers for all the obligations.

Tourism is one of the attractive sectors for foreign investment. Photo: Juan Suárez

A foreign investor is understood to be the “natural or legal person with domicile and capital abroad who participates as a shareholder in a joint venture, or participates in an enterprise with totally foreign capital, or appears as a party in an international economic partnership contract.”

There is no distinction due to nationality or citizenship. Cubans who live outside the country may be contemplated in the category of “foreign investor.”

A national investor is the “legal person of Cuban nationality living in the national territory, who participates as a shareholder in a joint venture or is party to an international economic partnership contract.”

Cubans, as natural persons, may not be investors. Nor are individual, self-employed workers, who are not considered to be legal persons because there is no way to record private individual enterprises or partnerships. However, farm cooperatives, as legal persons, may be investors.

The entrance door

Authorization to engage in foreign investment will be granted regarding sector, modality and characteristics by the following State organizations:

• Council of State (when nonrenewable natural resources are explored or exploited, except under risk contracts of international economic partnership; when made for the management of public services such as transportation, communications, aqueducts, electricity, public works or exploitation of property in the public domain.)

• Council of Ministers (real estate development; enterprises with totally foreign capital; transfer of State property or other real rights on State property; international economic partnership risk contracts for the exploitation of nonrenewable natural resources and their production; takeover of a foreign enterprise that utilizes public capital;  use of renewable sources of energy; entrepreneurial systems of the sectors of health care, education and the military institutions; other foreign investments that do not require the approval of the Council of State.)

• Chief of the State’s Central Administration

To set up a joint venture or a totally foreign capital venture, and to execute an international economic partnership contract, applicants must go to the Minister of Foreign Trade and Foreign Investment.

Possibilities and rights

The collections and payments generated by the operation of joint ventures, national investors and foreign investors, according to the existing monetary regimen, are made through accounts in any bank in the national banking system. Investors will also have access to the financial institutions in this country.

Joint ventures and national investors who are party to international economic partnerships may open and operate accounts in freely convertible currency in foreign banks, with previous authorization from the Central Bank of Cuba.

New hotel being built in Varadero. Photo: Juan Suarez

The joint ventures, national and foreign investors who are party to international economic partnership contracts, and enterprises with totally foreign capital have the right to export and import directly everything they need for their purposes. They may also be authorized by the Ministry of Foreign Trade and Foreign Investment to create an economic stimulus fund for the Cuban workers and permanent foreign residents.

Industrial, tourism or other installations, or the land leased by state enterprises or other national organizations will be insured by the lessee to the benefit of the lessor.

Hiring of personnel

The Cuban or foreign personnel residing permanently in Cuba providing services in joint ventures, except as directors and managers, will be hired by an employment agency under the Ministry of Foreign Trade and Foreign Investment and will be authorized by the Ministry of Labor and Social Security.

Payment to the Cuban and foreign workers living permanently in Cuba will be made in Cuban pesos, although the funds of provenance must be acquired in freely convertible currency.

Special tax regimen for investors

Exempt from the payment of taxes on personal income are the foreign investors who are partners in joint ventures or partners in international economic association contracts (a union of national and foreign investors within the national territory for the production of goods, the provision of services, or both, for profit; this includes joint ventures and international economic association contracts) for the revenue obtained from dividends or business earnings.

An exemption will be granted from the payment of taxes on earnings, net earnings or other benefits suitable for reinvestment, in those cases where a competent authority approves the reinvestment of such earnings or benefits.

Exempt from the payment of taxes for the use of the labor force are the joint ventures and the national and foreign investors who are party to international economic partnership contracts.

Exempt from the payment of Customs fees are the joint ventures, national and foreign investors who are party to international economic partnership contracts, for the importation of equipment, machinery and other media during the investment process, in accordance with the rules of the Ministry of Finance and Prices.

Exempt from the payment of territorial taxes for the local development are the joint ventures, national and foreign investors who are party to international economic development contracts during the investment recovery period.

Excluded from this exemption are the national and foreign investors who are party to international economic partnership contracts who are involved in hotel management, products or services and the provision of professional services who pay taxes according to the Law on the Tax System and the regulations that complement it. Foreign investors are exempt from the taxes on sales and services.

The General Customs of the Republic may grant to natural and legal persons specific and special facilities regarding the formalities and the Customs regimen, in accordance with the existing legislation.

The Ministry of Finance and Prices […] may grant total or partial exemptions, temporal or permanent, or grant other fiscal benefits in accordance with the existing tax law, to any of the modalities of foreign investment recognized by the law.

In the special development zones, the law will be applied with the adjustments provided by the special regulations dictated for them. Notwithstanding this, the special regimens granted in this law will apply to those investments when they result more beneficial.

The tax on earnings is paid by the joint ventures, the national investors and the foreign investors who are party to international economic partnership contracts. A new tax of 15 percent of the taxable net earnings will be applied.

Joint ventures that are party to international economic partnership contracts will be exempt from the payment of taxes on earnings for a period of 8 years, starting from their constitution. The Council of Ministers may extend that period.

53 thoughts on “Cuba Opens Wide to Foreign Investment

  • March 30, 2014 at 2:27 am

    Here’s the rub….I believe in more freedom for the Cuban people, of course, but that won’t come until the US government ends their war on the Cuban government and acknowledges Cuba’s right to sovereignty as a nation. I don’t think that democracy (as we know it) is entirely essential to realize more freedom and prosperity in Cuba. What is essential is a prompt and complete removal of the economic embargo that was and is, by all accounts, meant to bring so much hardship to the Cuban people that they are incited to rise up and over-throw their government. We all know about the economic hardship in Cuba….in that capacity, America has succeeded. But the Cuban government won’t consider adopting any other form of political system until the embargo has been completely dismantled. There lies the paradox.

    Griffin, I must apologize…I truly thought you were American. Given that you are Canadian, I find your hardline views on Cuba even more confusing. If I can add…you mentioned “the perks, power & money controlled by the ruling elite.” Considering the old-boys-club privileges that our Canadian government and military brass enjoy, both legitimately and through back-room deals, I’m surprised that you’re appalled that the Cuban government and military elite might also be doing better than the average bear. Need I mention American politicians? They’re pros at selling their influence for millions…they’ve turned collusion into an art form.

  • March 30, 2014 at 1:43 am

    Griffin, the Cuban government currently can’t afford to pay their people more. Take the embargo away, give them a few years free of your government’s tyranny, and let’s see what Cuba can do without America holding them back.

  • March 29, 2014 at 10:52 pm

    Terry, you are not listening (or reading). Cuba’s buying power is non-existent. OK, sure, for a few thousand Cuban exiles in Miami who wax nostalgic for the homeland, the opportunity to do business in Cuba is more that balance sheet arithmetic. But if Google, Yahoo and Facebook were to lose every Cuban customer tomorrow, stock analysts wouldn’t blink. Doing or not doing business in Cuba has no (repeat NO) effect on the US bottom line. If China wants Cuba, let ’em have it.

  • March 29, 2014 at 9:30 pm

    You really need to do your homework, rama. There is no such thing as a “Chamber of Commerce” in Cuba. It is crucial you learn why before you attempt to do business in Cuba.

    By the way, what sort of products do you hope to export from Cuba?

  • March 29, 2014 at 7:15 pm

    If I may ask, what exactly are you “researching” in Cuba? Have you published any papers on your research? What are the conclusions of your research? After 83 trips, what more do you need to research on your next trip?

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