Cuba Highlights 2013 Investment basics: Currency – There are two separate currency markets: the Cuban Peso (CUP) and the Cuban Convertible Peso (CUC). Foreign exchange control – The central bank maintains a fixed exchange rate of national currency against the U.S. dollar and also determines the percentage that foreign workers can remit abroad. Accounting principles/financial statements – Audited financial statements must be filed annually. IFRS applies. Principal business entities – The Foreign Investment Act requires that foreign investors use one of the following forms: joint venture (stock corporation), international economic association contract (EAC) or wholly foreign capital company. The investment may be with 100% foreign capital. Cooperative production and management contracts also are possible. Other types of companies with no foreign interests may be formed and there are state enterprises and companies 100% capitalized by the Cuban state. A cooperative is recognized as a private form of association in the agricultural sector. Corporate taxation: Residence – A legal person is liable to profit tax if it has a permanent establishment within the Republic of Cuba, a fixed place of business or a representation for the purpose of entering into agreements in its name and on its behalf. Joint venture companies are considered Cuban companies by law. Basis – A profit tax is imposed on the Cuban-source income of all legal persons, whether Cuban or foreign, whatever their form of organization. Taxable income – Profit tax is imposed on a company’s operating profits, computed as the difference between total taxable income and deductible expenses and authorized pretax reserves or funds. Taxation of dividends – Dividends paid by a Cuban company to another Cuban company are exempt. Foreign investors that are partners in a joint venture company or parties
to an EAC are exempt from personal income tax on dividends received from the profits of a business. Capital gains – Joint venture companies and foreign and national investors that are parties to EACs are subject to a 30% profit tax. Wholly foreign capital companies and any other entities are subject to a 35% rate under the general tax legislation. Losses – Losses arising in the current fiscal year are deductible from taxable income and may be carried forward for 5 fiscal years. The carryback of losses is not permitted. Rate – Joint venture companies and foreign and national investors that are parties to international EACs are subject to a 30% profits tax rate. Wholly foreign capital companies and other company forms are subject to a 35% rate under the general tax legislation. The rate can be increased up to 50% for profits from mining or the exploitation of natural resources. Surtax – No Alternative minimum tax – No Foreign tax credit – No Participation exemption – No Holding company regime – No Incentives – Licensees and operators in free zones are fully exempt from tax on profits for 5 to 12 years, depending on the activities carried out, and exempt from 50% of the tax on the use of the workforce (see below under “Payroll tax”) for 3 or 5 years, depending on the activities. They also are exempt from the payment of custom tariffs and duties. Additionally, the Foreign Investment Act provides for various incentives, including partial and full tax exemptions. Withholding tax: Dividends – Dividends paid to a Cuban party or foreign party in a joint venture company or an EAC are not subject to withholding tax. Interest – Interest paid to a Cuban party or a foreign party in a joint venture company or an EAC is not subject to withholding tax.
Royalties – Royalties paid to a Cuban or foreign party in a joint venture company or an EAC are not subject to withholding tax. Technical service fees – Technical service fees paid to a Cuban or foreign party in a joint venture company or an EAC are not subject to withholding tax. Branch remittance tax – No Other – No Other taxes on corporations: Capital duty – No Payroll tax – A tax of 11% or 25% is payable by an employer that is a legal person (whether Cuban or foreign). The tax is calculated based on total wages, salaries, gratuities and other remuneration, including sales commissions. A foreign investor must hire all labor through a designated Cuban employment agency, which pays each worker in national currency. A joint venture and a wholly foreign capital company pay the employment agency in convertible currency. The rate for joint ventures and EACs is 11%, with a 25% rate applying to wholly foreign capital companies. Real property tax – An annual 2% tax is levied on residential property sold by a real estate company or other authorized entity. Tax also is levied on owners of urban land, rural property and vessels located in Cuba. Social security – The social security contribution, determined annually in the state budget law, is 14%. A foreign investor in the form of a wholly foreign capital company must pay the rate determined annually in the budget law. A party to a joint venture or an EAC always pays 14%. Stamp duty – Stamp tax is levied on documents according to the taxable base and rates set by a resolution of the Minister of Finance and Prices. Transfer tax – No Other – Tax is levied on the use or exploitation of natural resources and for the protection of the environment.