Reforming Foreign Investment Law In Cuba: What Does It Really Mean For Eager Investors?

K. M. PAPARELLI

Independent

October 1, 2015

Abstract:

This paper provides risk/reward evaluation and legal analysis of foreign investing under Cuban Law No. 118 (2014). Section I addresses dynamic changes in Cuba since 2008. Section II examines reforms of Cuban foreign investment laws. Section III explores investment options such as import/export, licensing, franchising, and foreign direct investments. There is also a discussion of Cuban currency, acceptable modes of foreign direct investing currently available in Cuba, and real estate development. Section IV pertains to dispute resolution. Section V concentrates on U.S. – Cuba relations. Section VI presents the American investor with legally permissible opportunities.

Reforming Foreign Investment Law In Cuba: What Does It Really Mean For Eager Investors? – Introduction

Ninety miles from Key West sits the island nation that time forgot, a nation that has survived against the odds. Cuba has learned to endure economic hardship and adjust accordingly from the early days of revolution and the United States embargo to the collapse of the Soviet bloc. Once again, Cuba is facing economic challenges, and now, just as before, adjustments are necessary. This time those adjustments include bolstering the present economy with greater foreign investor participation. To accommodate this end, Cuba has reformed its foreign investing laws.

Recent events in Latin America, as well as internal and external pressures, may have precipitated these reforms. While it is no secret that Cuba and Venezuela have shared an increasingly interdependent relationship since President Hugo Chávez took office in 1999, the oil-for-services trade has been less than equal. When the Soviet Union collapsed, Cuba shifted its primary trade to Venezuela.

While Cuba relies on Venezuela for goods and services including oil, Venezuela benefits largely from, and pays handsomely for, Cuba’s professional assistance, which provides doctors, teachers, intelligence, and military. The revenue that Cuba earns by providing these services has been greater than all of the goods exported from Cuba since 2005; however, the strongest growth has come from the Cienfuegos oil refinery, a Cuban–Venezuelan joint venture. The relationship offered both nations a measure of economic stability until the recent financial crisis in Venezuela that resulted in a crippling fiscal deficit with inflation greater than fifty percent and consumer goods’ shortages of nearly thirty percent. Suddenly, Venezuela’s support of Cuba became another strain on an already strained economy. For Cuba, the impending economic instability was another compelling reason to build a stronger independent national economy with the assistance of foreign capital.

Pressure from Brazil may have been another factor in the decision to implement the recent foreign investing laws. Negotiations between the two nations regarding Brazil’s investment in the Mariel trade zone had been well underway in early 2014.8 Stronger foreign investing laws certainly could not hurt, but only help, the Brazilian investment valued at nearly one billion dollars.9 Whatever the reasons, the need to concentrate efforts on reforming Cuba’s foreign investment law was necessary and timely, and so in April of 2014 the Cuban Legislature adopted Law No. 118 for foreign investing.

The revised law’s purpose is to provide stronger guarantees for investors as well as offer tax incentives in the form of credits and exemptions and allow for flexibility in customs procedures, elements not found in the former foreign investing law known as Law No. 77. Cuba is hoping to attract (and retain) foreign investors with these reforms, however, will Law No. 118 do enough to actually provide a more investor friendly environment?

Foreign investors and multi-national entrepreneurs hoping to exploit new business opportunities in Cuba will face many challenges. The inherent risk and potential reward should be carefully evaluated. The following report attempts to address some of the challenges and opportunities investors may find, first for all international investors and then specifically for American investors. Due to the ever-changing nature of this topic, sources include live consultations and discussions with recognized experts, recent periodicals, and news reports as well as Cuban law, law reviews, bar journals, and scholarly texts.

Cuba

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