This article focuses on certain aspects related to the development of companies and business in Cuba, such as the legal instruments through which this investment can be developed and the different taxation that the referred investment activity can be subject to, depending on the vehicle used for its development.

We have already mentioned the favorable business environment in Cuba as a result of the approval of Law No. 118 of Foreign Investment and its complementary regulations. Law No. 118 establishes the modalities that businesses with foreign investment can adopt. These modalities are:

  1. I) Mixed company, understood as the Cuban mercantile company that adopts the form of a corporation for registered shares in which one or more national investors and one or more foreign investors participate as shareholders.
  2. II) Contracts of international economic association, by virtue of which the union of national and foreign investors takes place within the national territory for the production of goods, the rendering of services or both, for profit, which includes joint ventures and international economic association contracts. It includes, among others: hotel administration contracts, productive or service management, professional services provision, exploration of non-renewable natural resources, construction and agricultural production.

III) Companies with totally foreign capital. The foreign investor can be established within the national territory as:

  1. A natural person acting by himself;
  2. A legal person constituting a Cuban subsidiary of the foreign entity;
  3. A legal person establishing a branch of a foreign entity.

Regarding the taxation applicable to joint ventures and some economic association contracts, we will start from the provisions contained in Law no. 113 of the Tax System, of general application, to refer later to the specific considerations applied to the special regime provided by Law 118 for foreign investment cases and the particular provisions applicable to those that benefit from the special regime of the Mariel Special Development Zone.

The regime of general application provided by Law no. 113 of the Tax System implies the establishment of the tax on profits of 35% that can be raised up to 50%; the tax for the use of the labor force has been reduced from 20% to the current 5%; the local development contribution tax is gradually established by the annual budget law, as is the tax for the use of natural resources; the tax on sales or services is 2% for wholesale sales and 10% on services; the personal income tax on partners or parties is 15%; and finally, the Customs Tariff will be applicable.

On the other hand, the privileged regime of the Law no. 118 and the ZED Mariel is reflected in the following tax advantages:

– Tax on profits: 0% for a period of 8 years or exceptionally higher, and 15% afterwards according to Law no. 118; 0% for a period of 10 years or exceptionally higher, and 12% later as the regime of the ZED Mariel.

– Tax for the use of labor power: exempt according to the regime of Law no. 118 and for the ZED Mariel.

– Contribution tax to social development: 0% during the recovery of the investment according to Law no. 118, and exempt for the ZED Mariel.

– Tax on sales or services: 0% during the first year in both cases, subsequent 50% bonus according to Law no. 118, and 1% rate for the ZED Mariel.

– Tax on personal income to partners or parties: exempt in both cases.

– Tax for the use of natural resources: 50% bonus during the recovery of the investment in both cases.

– Custom tax: exempt during the investment process according to the regime of Law no. 118, and exempt in terms of means, equipment and assets of the investment process in the regime of the Mariel ZED.

Finally, we come to taxation in the case of companies with totally foreign capital. These entities will be entitled to: tax on profits of between 35 and 50%; labor tax of 5%; sales tax of 5% for majority sales and 10% for retail sales; tax on services of 10%; environmental tax and the territorial tax are gradually established by the annual budget law; the Customs Tariff being also applicable.

In light of the above, we have shown that there are clear advantages which can be enjoyed by any foreign investor, derived from the regime provided by Law no. 118, as well as the one applicable in the Mariel Special Development Zone.