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Changes have always generated controversy or sceptical views, and Cuba’s attempts to improve its socio-economic situation are no exception.
The Foreign Investment Act (law 118/2014) has been approved 29th March 2014 and is in force as of 28th June 2014. Compared to the old law (77/95), it establishes substantial and remarkable changes we like to discuss in this blog.
Article 4.1 – “Foreign investments within the national territory of Cuba will enjoy all-out protection and legal security and could not be expropriated, unless such action is executed for reasons of public or social interest”. Followed by article 4.2, which stipulates the legal proceedings: “If an agreement on the commercial value of investments fails to be reached, parties involved have the right to go to court”. For Cuban law this is a paradigm shift which is unprecedented.
The old law (77/95 article 3) limited the resolution of conflicts between two parties to the decision of an agency authorized and contracted by the ministry of finance.
Article 13.2 – now allows private farming cooperatives to sign into international economic association agreements.
Article 17.1 – in conformity with the modalities established in this Act, foreign investments in real estate are allowed, as well as the ownership of real estate or other property.
Worth to remember, in 2011 the Raul Castro government recognized the right to transfer the ownership of property to a third party. Therefore – as it seems to me – this is a significant achievement for the Cuban society. 4 years ago this was unthinkable!
We note that the now permitted ownership of property by foreigners had to be preceded by this internal change to the right of ownership.
Article 36.1 – decreased the profit tax from previous 30% to 15% of the net taxable profit. Joint ventures and parties to international economic association agreements shall be exempt from paying taxes for a period of 8 years as from its constitution.
Article 39 – the new law exempts foreign investors from paying tax on labour and social security contributions. Before this new act the applied tax rate has been 11% and 14% respectively.
For Cubans this new regulation for foreign investment signals a genuine attempt to revive Cuba’s economy.