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Legal Focus

JULY 2014

Business Law

We take a look at Business Law in Cuba by speaking to Miguel Julian Mateos Cuesta from the law firm J. Mateos Cuesta.

What are the main issues with business tax in your jurisdiction?

There is certainly the taxation of business in Cuba, the issue of care and main source of difficulty for international business in Cuba. However, it is appropriate to emphasize that the new Law on Foreign Investment in Cuba, passed last 29/03/2014, and its complementary regulations, introduced as one of the major developments concerning the legislation previously in force, beneficial tax treatment for foreign investors, which may include:

• Exemption from tax on profits for the first 8 years and tax rate of 15% after, although if reinvested,

the rate shall be 0% • Tax Exemption applied to recruitment.

• Exemption of Local Property Tax during the period of payback.

• Exemption from personal income tax of foreign partners.

• Exemption for the first year of sales and services tax, and deduction of 50% for next year.

• Exemption from customs tax during the investment process.

• 50% Bonus Tax on the Use of Natural Resources. How do you overcome these challenges?

Prosecutors are not the main problems of foreign investment in Cuba.

The challenges that must cope a foreign company interested in investing in Cuba, are many and negligible, the result mainly of the political-economic system prevailing in the country and the concept that political power has investment foreign.

In short, foreign investment conceived in Cuba, until now, almost as a “necessary evil” that help to sustain centralized economic planning, in addition to it. For explicit expressions of the Cuban authorities, foreign investment will be allowed in accordance with the needs of the country, not the interests of the investor. It attempts to cover only those sectors of the economy that the Cuban State deems necessary but inatendibles

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their own. This means that eligible investment projects, in practice, it will be only those for prioritized by the Cuban government sectors, in which the investor provides a large sum of capital - at least 250.00 million USD, according to statements latest-competent authorities and, as appropriate, technology transfers and foreign markets.

Therefore, the possibility of investing in Cuba is subject by law to obtain a temporary express authorization of the Minister; determined case by case, after a long negotiation and administrative processing, before various governmental agencies, developed, all the way, with no guarantee of results. There is no free space open to foreign investment without the prior administrative decision.

The first and best service we can offer to our firm interested in investing in Cuba, is the analysis, testing and counseling, pre and preventive, the real possibilities of approval of the investment in question. This avoids wasting time and resources unnecessarily. In the phases of negotiation, processing and approval of the investment project, advise and participate as investor advocates, based on past experience and a deep and current knowledge of the Cuban law and, above all, of the operating guidelines in force in the practice in the process of making economic decisions.

Is there anything else that you would like to add?

The advantages of investing in Cuba, currently, are those of a country on the verge of a major transformation in all its structures: social, political and especially economic; which also is in dire need of USD 2,500 million a year in foreign investment to sustain its economy. This gives the investor a pioneering and strategic position, while, in the Cuban economy.

As added benefits also may be noted: the lack of real competition in Cuban domestic economy, which places foreign investment installed in a very favorable position in the relevant market, if not pure monopoly or oligopoly; and geographical and cultural proximity to the U.S., face a future normalization of relations that increasingly close guess.

But for now, the opening of business by individuals, is only open on priced ranges to Cuban citizens living as autonomous, micro, or cooperatives. Law expressly prohibits this type of partnering with foreign companies; and more you sell the business; notwithstanding that, in practice, also guess that many micro-businesses really belong to non-residents or foreign persons.

The global recession that began in 2008 took to Cuba immersed in their own endogenous recession drags at least since 1990. Yet, Cuba suffered and is suffering serious consequences in the form of constraints and diminished international financial credit available to , decreasing number of tourists and remittances, and decreased flow of foreigners interested in investing and trading in Cuba, mainly originating from European countries.

Once the conditions in Cuba are normalized, what we mean is doomed in the short / medium term, it will become an interesting field for investment, as it will be an exhausted state financially, in which almost everything will be done. The size of the country, a population with well-formed and a spirit of entrepreneurship contrast, the western culture, and proximity to the USA with a population of over 2 million Cuban Americans, strongly suggests that the investment process in this framework will be very profitable and diversified. We should not lose sight.24 de Mayo de 2014. LM

Contact:

Miguel Julian Mateos Cuesta J. Mateos Cuesta c/ Orense nº 6- pl 12 28020 MADRID -ESPAÑA- Tlf: + 34 914 260576 +34 947 546525. Fax:+34 914 174676 Website: www.hispajuris.es