HAVANA – Cuba on Wednesday published the full language of a new law that seeks to make it more attractive for foreign investors to bring badly needed capital to the island, but provides less advantage for projects that are 100 per cent foreign-financed.
The law was approved by parliament and its broad outlines were aired in state media, and the text is now publicly available after being published in the government’s Official Gazette.
Havana is betting that the measure will make the country more attractive to the business community and bring in more foreign investment, which has been flat including in the years since President Raul Castro began a program of economic reforms.
The measure, which takes effect in late June, includes tax breaks for new investments and property guarantees for investors. It also outlines arbitration procedures and labour rules for foreign-financed projects.
Investments in mixed-ownership projects or in tandem with independent co-operatives will enjoy a tax holiday for the first eight years of operation and pay 15 per cent on profits after that — about half the current rate. Such operations will also be exempt from payroll taxes.
However, projects that are funded completely by foreign capital do not automatically qualify for those breaks, unless they are granted an exemption by the government.
Foreign companies will still be required to hire local employees through a Cuban employment agency instead of directly, something that many who have done business on the island have complained about for years.
The law allows for investors to work with independent co-operatives, but does not establish a mechanism for the same to happen with the small private sector that has been budding under Castro’s reforms.
The new rules replace a law from 1995.
Officials all the way up to Castro have said that getting more foreign investment is vital if they are to meet their economic goals in the coming years.
The law does not rule out investment by Cuban emigres overseas, although exiles in the United States would likely be barred from most if not all projects by the U.S. embargo, which restricts financial transactions with the Cuban government.
Authorities have said in recent weeks that they are not specifically targeting the Cuban diaspora for investment. They said projects will be approved on a case-by-case basis.
Arturo Lopez-Levy, a Cuban-born economist at the University of Denver, said Cuba will miss a big opportunity if it doesn’t look to emigrants who live in countries such as Spain or Mexico and are not affected by the U.S. embargo.
“There are certain luxuries that a country focused on development cannot take,” he said. “There is important investment potential among emigrants, and the rate of international reinvestment by these people tends to be higher than those who are entirely from somewhere else.”
Lopez-Levy said that the language of the law seems generally positive, but that how officials apply it in the coming months will provide more clues as to whether it is likely to succeed in attracting capital.