General overview on foreign investments in Cuba Carlos López-Quiroga Lourdes Dávalos León June 12, 2017
1 Introduction
Updating the Cuban social and economic model Lineamientos (Guidelines) Approved in 2011 and updated in 2016 More than 300 principles Affects all the economic sectors Updating the Cuban social and economic model Reforms Summary of some of the legal reforms to reinforce internal market, commerce and foreign investment. 1. Distribution of undeveloped lands for agriculture (since 2008) 5. Authorization of the sale and purchase of housing (2011). 9. New regulations on commercial contracts (2012) 2. Easing of self-employment (2010-2014) 6. Liberalization of car sales (2011-2015) 10. Creation and regulation of the Mariel Special Development Zone (2013) 3. Extension of surface right. 7. Modernization of the tax system (2012) 11. New Foreign Investment Law and ancillary regulations (2014) 4. Reorganization and merger of Cuba s governmental institutions (2011-2012) 8. Regulation of non-agricultural cooperatives (2012) 12. New regulation on investment process and ancillary laws (2015)
Key sectors for investment 1. Tourism and real estate 2. Infrastructure and construction 3. Telecommunications and IT 4. Transport 5. Banking and Financial services 6. Agriculture / agro-food industry 7. Biotechnology and Pharmaceuticals 8. Energy (including renewable) and mining 9. Mechanical, chemicals, electronics and light industry Portfolio of opportunities for foreign investments launched in November 2014 and updated in 2016. Identifies opportunities in 350 projects in several economic sectors (including the Mariel Special Development Zone) aiming to attract around 10,000 million US dollars aprox. Serves as a general reference to facilitate portfolio business. By no means comprehensive, other business opportunities proposed by foreign investors are welcome.
Mariel Special Development Zone Characteristics Located 45 km west of Havana city 465 km2 approx A free-trade zone inside the domestic territory not delimited within the customs boundaries A very favorable location and logistical conditions, especially after the investment made in the Mariel Port General purposes Promoting sustainable economic development by attracting foreign investment. Technological innovation and industrial concentration. Increase exports. Replace imports. Generate new sources of employment and long-term financing Legal system Regulations for its creation and operation (Decree Law 313 and ancillary regulations, in force since November 11, 2013) 8 Special regimes apply: tax, monetary & banking, insurance, labor, customs, infringements & applicable measures, migration control & internal order Structure and operation Cuban and Brazilian governments (support in financing and the development of the construction works, $ 900 million approx.). First stage of the containers terminal was opened on January 27, 2014 (702 metre-long port). Constructed by a JVC with Odebrecht. PSA International from Singapore manages the port and terminals. Central Office headed by general manager. Single Window system to avoid bureaucracy. Receipt of applications for stablishment and investment.
2 Investment s vehicles, authorizations and main taxes
Vehicles to invest in Cuba 3 types of vehicles International Economic Association Contracts IAC Full Foreign Capital Company FFCC Joint Venture Company JVC
The International Economic Association Contract IAC General characteristics What is it? Formalities It is a contract. No new legal person is incorporated. Requires public deed. The contract is in force at the moment of its registration at the Commercial Registry Purpose The activities agreed by the parties as approved in the government authorization Content Parties are free to agree on the provisions they see fit for the project Contributions Parties make separate contributions A common fund is created in proportion to the parties contributions Except for hotel management and production or provision of services
Full Foreign Capital Company FFCC Form Natural person, acting on its behalf Legal person, by setting up a Cuban subsidiary of the foreign entity Legal person, by establishing a branch office of the foreign entity Prior registration with the Commercial Registry is required A FFCC incorporated as a Cuban subsidiary may set up offices, branches and other subsidiaries, both within Cuban territory and abroad
Joint Venture Companies JVC JVC s general corporate characteristics New legal entity distinct from its shareholders Incorporated as a public limited company (sociedad anónima cubana) At least one Cuban partner and a foreign investor (FI) are shareholders The Cuban partner is normally a stateowned company linked to the project s economic sector The joint venture agreement and bylaws are the main organizational documents Authorization of the Cuban government Incorporated by means of a public deed Registration with the Commercial Registry Must have a fixed time frame, linked to the project s business plan The initial time frame may be renewed, with the shareholders agreement and authorization of the Cuban government
Capital and contributions to the JVC Share capital Shareholders must commit to initial share capital (based on the type of business) Neither a legal obligation of initial capital disbursement, nor a minimum share capital requirement The share capital is divided among registered shares (acciones nominativas) Types of contributions Freely convertible currency Machinery, equipment or other tangible assets Intellectual property rights Ownership rights over movable or immovable assets, and other in rem rights, including surface rights There is no legal impediment for a FI to hold the majority of a JVC s share capital Historically, in most of the JVCs the majority of the shares (<50%) has been owned by the Cuban partner. Today that trend is substantially changing. Requires the agreement of shareholders and authorization of the Cuban government
Governance of the JVC The JVC s governance is similar to the framework in Spain and Latin-American countries and is agreed in the joint venture agreement and the by-laws of the JVC Governing bodies General shareholders meeting General shareholders meeting approves the main decisions for the JVC s life and operation The scope of decisions reserved for shareholders is normally broader than that in Spain and other Latin-American jurisdictions Management Directors are appointed by the shareholders. No legal minimum or maximum number of directors. Board of directors is the most common management system FI may appoint directors in proportion to its stake in the share capital Executive committees, CEO, CFO and other executive positions may also be created
Key authorizations Levels of investment approval Filing request with the Ministry of Foreign Trade and Investments for authorization to invest in Cuba (5 days for review of documents + 15 days for assessment process) Approval is granted by the Council of Ministers or the Council of State, depending on the sector, form and characteristics of the specific investment project - The Council of State approves investments related with (i) exploitation of non-renewable natural resources and (ii) management of public services / administrative concessions - Final authorization resolution issued by the Council of Ministers (60 days) IAC for production, management and professional services are approved by the Ministry of Foreign Trade and Investments (45 days) IAC for hotel management are approved by the Ministry of Tourism (45 days) Authorization to make land or real estate contributions is approved by the Council of Ministers Environmental authorization is granted by the Ministry of the Environment
Main Taxes Law 118 Foreign Investment Mariel Special Development Zone Law 113 Taxation System 1. Profit tax 2. Labor tax - 0% for 8 years and exceptionally for a longer period - Subsequently 15%. Rate may be increased up to 50% for exploitation of natural resources (50% of 15%) - 0% on reinvested profits - 0% during 10 years and exceptionally for a longer period - Subsequently 12%. - 0% on reinvested profits - 35% - May be increased up to 50% for exploitation of natural resources Exempted Exempted Progressive reduction from 20 to 5% in 2017 3. Contributions to local development 4. Taxes on sales or services 5. Personal income taxes 6. Social security contribution 7. Customs tax 0% during investment recovery Exempted Is being established gradually in the State Budget Law 0% during first year of operations, subsequently 50% discount on wholesale sales and on services - 0% during the first year of operations. - Subsequently 1% - IAC for hotel management, production or services and the provision of professional services are exempted Investors and parties in IAC are exempted Law 118 applies 15% 14% of salary and other income of any nature received by employees, except income received as economic incentive Exempted during the investment process 14% of the salary and other income of any nature received by employees, except income received as economic incentive Resources, equipment and imported goods destined to the investment process are exempted. 2% on wholesale sales and 10% on services According to State Budget Law Taxable items are established in customs regulations
3 Levels of protection to foreign investments
Protection to FI (internal rules) Cuban law protects investments Non-expropriation Repatriation of dividends Liquidation proceeds Sale and purchase of Shares Non-expropriation, unless for reason of public utility or social interest Declaration made by the Council of Ministries Payment of due compensation in freely convertible currency in favor of the FI FI has the right to freely transfer abroad, without payment of any tax related to the transfer, of all profits, dividends, and proceeds of expropriation, liquidation, or sale relating to their stake in foreign investment vehicles Investment time frame can be renewed if requested by the parties and approved by Cuban authorities If not renewed, it will be liquidated Proceeds of liquidation are paid to the FI in freely convertible currency FI may sell or transfer (in full or in part) their stake in the JVC to the Cuban State, or to a third party with the Cuban government s authorization Transfer of shares may be limited in the JV agreement
Protection to FI (international conventions) Broad network of international treaties to protect investors Agreements for the Reciprocal Promotion and Protection of Investment ( APPRI ) with 63 foreign states, including Spain (1994) Bilateral Treaties for the Avoidance of Double Taxation with 12 foreign states, including Spain (1999) Convention on the Recognition and Enforcement of Foreign Arbitral Awards approved in New York (1958). Foreign arbitration awards are enforceable in Cuba European Convention on International Commercial Arbitration approved in Geneva (1961)
Protection to FI (governing law and dispute resolution) Choice of law Parties may choose the law applicable to the contracts related to the project and joint venture (e.g. the joint venture agreement) If no choice is made, the law of the place of the execution of the contract applies Cuban law is preferred by the Cuban partner and the Cuban government, but they may accept neutral law (e.g. Spanish law) as the applicable law Dispute resolution Parties may submit commercial controversies to the jurisdiction of Cuban courts or to arbitration (domestic or international) Cuban courts have jurisdiction in any dispute related to: - the dissolution or liquidation of a JVC; or - the relationship between the shareholders of a JVC which corporate purpose is related to natural resources or public concessions Consolidated arbitration practice in Cuba: Cuban International Commercial Arbitration Court (CCACI) Investors prefer international arbitration (institutional (e.g. ICC) or ad hoc)
Profiles Cuban Desk
Carlos López-Quiroga Partner +34 91 586 07 68 carlos.lopez-quiroga@uria.com Carlos López-Quiroga has been a partner of the firm since 2002. He joined Uría Menéndez in January 2000 when the boutique maritime and transport law firm Figaredo & Asociados merged with Uría Menéndez. Carlos has over 20 years of experience and specialises in M&A and corporate restructuring transactions in the transport sector. He advises on the financial and tax aspects of the acquisition of ships and aircraft and on ship acquisition, leasing, construction, repair and insurance contracts. He also specialises in M&A, banking and finance transactions in the transport sector, especially in shipping and aviation, advising on all kinds of complex structures for the acquisition, leasing, construction, insurance and securitisation of assets. Carlos has been recommended for shipping finance by Chambers Europe 2008-2016 and Best Lawyers in Spain 2013-2016. EDUCATION Law Degree, Universidad Pontificia Comillas- ICADE (E-1), Madrid, 1991 Prize for Special Achievement in the Master in Maritime Law (LL. M.), European Institute of Maritime Studies (I. E. E. M.), Gijón, 1992 MEMBERSHIP OF PROFESSIONAL ASSOCIATIONS - Madrid Bar Association LANGUAGES - English
Lourdes Dávalos León Senior Associate +34 689 59 43 50 lourdes.davalos@uria.com Lourdes Dávalos works in the Corporate Department of Uría Menéndez in the Madrid office since 2011. Born in Havana (Cuba), double qualified Cuban-Spanish lawyer who graduated Summa Cum Laude in Law at the University of Havana (Cuba), has a Law Degree from the Complutense University (Madrid, Spain). Master in International Business Law & Arbitration by the Complutense University in Madrid. Her area of expertise are international corporate law, M&A, project finance, debt restructuring and foreign investments, with particular emphasis in cross border investments involving Spain, Cuba, and other Latin American countries. She advise foreign investors from several jurisdictions (both private and state-owned entities) in cross-border transactions, international contracts, project finance and establishing joint venture companies in Cuba (including for establishment of businesses in the Mariel Special Development Zone) related to different economic sectors, particularly those related to banking and finance, the tourism and leisure industry, construction, real estate, energy, infrastructures, textile industry, food and beverage, among others. She also has experience advising European financial institutions in financing investments in Cuba. Lourdes is a member of the Spanish Arbitration Club (CEA), the Madrid Bar Association, the ICC Young Arbitrators Forum, and the Organization for the Harmonization of Business Law in the Caribbean (OHADAC). She speaks Spanish and English. Lourdes has been ranked by Chambers Latin America, 2015, 2016 and 2017 Editions as Star Associate in the Cuba, Corporate/Commercial Section.
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