What The New Cuban Foreign Investment Law Means

Cuba adopted a new foreign investment law earlier this year that abolished duty-free zones and industrial parks while expanding areas for investment. Under the new law, investment is allowed in all economic sectors, including utilities, administrative concessions, real estate (purchase, sale and leasing of houses and offices), hotel management and professional services. The law also provides for investments in stocks and other securities or bonds, public or private, that do not fit the definition of direct investment. No foreign investment is authorized in the public health and education sectors or in any institution of the armed forces other than their system of enterprises. Likewise, foreign investment is not authorized if it will be detrimental to national defense and security, national resources or the environment. Any foreign investment must be approved by an "authorization" issued, depending on its content and extent, by the Council of State, the Council of Ministers or another authority appointed by the latter. The authorization is granted upon the submission of business proposals to the Ministry of Foreign Trade and Foreign Investment (MINCEX), which relies on a Business Evaluation Commission, made up of representatives from eight ministries and the Central Bank of Cuba, to assess the proposals. Every year, the state establishes a portfolio of foreign investment opportunities containing those opportunities identified by the Cuban government entities. This portfolio responds to the state's priorities. MINCEX outlined provisions regarding the format and content of the documents for both the investments and proposals to be registered in the portfolio. It also publishes and promotes the investments proposed in the portfolio, albeit without excluding the possibility that potential investors will make further proposals. Foreign investment must adopt one of the following three forms: joint venture, international economic association contract or totally foreign capital company. The international economic association contracts cover contracts for hotel, production or service management and contracts for the provision of professional services. Key Changes in the New Law

It cuts the tax on profits in half from 30 percent to 15 percent for most industries and eliminates the prior 25 percent tax on labor costs. It allows 100 percent foreign ownership, which, though previously legal, was never allowed in practice. Investors in joint ventures get...