Cuban Investment Laws

Cuba’s Investment Law presently focus on Law 118, established in 2011 and the Mariel Empowerment Zone (ZED)

LAW 118

Cuba’s investment laws have their genesis in Law 77, passed in 1995.  Law 77 was motivated by the Cuban Governments commitment to updating the Cuban economic model.

Motivated by the December 2010 speech by President Raul Castro at the last Party Congress, which outlined the focus of restructuring the economic model to solidify existing socialist culture and economic objectives, weed out corruption and inefficiency, Law 118 updated and modernized Law 77 to bring Cuban Investment Laws in line with the reasonable investment expectation of international investment prospects.

Objectives of Law 118

The focus of Law118 is to promote business opportunities for companies outside of Cuba looking to invest in the Republic of Cuba and to give certain legal security and guarantees. Control measures and conflict resolution is also covered in the document. This act, in other words, is a detailed document which transparently, is the model established by the Cuban government to drive socially appropriate investment into the country.  As highlighted in part herein, Important issues such as the regulation of taxes import and export rules, repatriation of profits, dispute resolution and insurance are all documented.

Law 118 abolished duty free zones and industrial parks while expanding areas for investment. Law 118 encourages and permits foreign investment in all economic sectors, including utilities, administrative concessions, real estate (purchase, sale and leasing of houses and offices), hotel management and professional services and even 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 allowed whatsoever in the public health, education sectors or in any institution of the armed forces other than their system of commercial enterprises such as Gaviota. The criteria for approval requires a conclusions that the foreign investment will not be detrimental to national defense and security, national resources or the environment.

Approval Process

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.  As of 2015, approval of MINSEC is also required.

To clarify the opportunities which Cuba prioritizes,  each year, the Ministry of Commerce 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 which can be considered.  The Portfolio is published during the FIHAV, the Havana Business Fair, generally held each year on the first week of November.

Type of Permitted Investment Structures

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.

Summary of Key Changes in the New Law

The following are some, but not all of the key changes which Law 118 made to former Law 77:

  1. Tax on profits are cut in half—from 30 percent to 15 percent for most industries—and eliminates the prior 25 percent tax on labor costs.
  2. 100% foreign ownership of an investment is permitted, which, though previously legal, was never allowed in practice.
  3. Investors in joint ventures get an eight-year exemption from all taxes on profits.
  4. Investments in real estate is permitted in private housing.
  5. Establishes new control measures to evaluate, inter alia, compliance with the legal provisions in force and the conditions approved for the establishment or implementation of every business. As the main entity in charge of controlling the investments, from both the financial and implementation viewpoints, MINCEX reviews all financial statements, balance sheets and annual results, all duly certified by independent entities.
  6. Stricter environmental controls for all investments are now required. The individuals or corporations responsible for environmental damages will be required to re-establish the previous environmental situation, repair the damage or pay the corresponding indemnification, as appropriate.
  7. Intellectual property rights and technological innovation of the foreign investor are specifically protected .
  8. All the forms of investments are officially registered by a public instrument before a notary and inscribed in the Trade Register Office. The prior inscription requirement in the Cuba Chamber of Commerce has been rescinded in many instances.


  1. Investor guarantees are re-validated in Law 118, from its predecessor in Law 77.  In summary,  the guarantees refer to the validity of the authorizations for the whole period of time granted, albeit the foreign investor’s assets may be expropriated solely for reasons of public utility or social interest, as declared by the Council of Ministers, contingent on indemnification based on the agreed commercial value of the assets based in objective world valuation standards.
  2. Subject to authorization, the investors may sell or transfer stocks and shares in any investment or any form of contract.
  3. The foreign investors may transfer abroad the net profits or dividends realized from their share investments, as well as the proceeds resulting from the liquidation or sale of shares, in convertible currency free from taxes, withholding or deductions.
  4. Foreign temporary residents who render services to a joint venture, the parties to an international economic association contract or a totally foreign capital company are entitled to transfer abroad 66 percent of their earned income.

Labor Force

  1. The labor force to be employed by joint ventures and fully owned foreign companies is provided by a government employment agency, which charges a fee for such services and pays the employee’s salary in Cuban pesos (CUP). This salary is negotiated with the foreign investor on the basis of the minimum pay equivalent to the national average salary, which currently amounts to 456.00 CUP (1 CUC=25 CUP; 1 CUC=1 U.S.$).
  2. No foreign investor can hire labor directly except for certain top management or technical positions to be held by non-permanent residents. These positions are stated in the authorization. In these cases, the foreign investor must note the relevant labor regulations, as well as the rights and duties of the said employees, who must comply with the current immigration legislation.
  3. The foreign investor may discharge the employees hired through the employment agency, but it is required to pay the agency the compensation amount established by the Ministry of Labor and Social Security.
  4. An enterprise may establish, subsequent to the approval by MINCEX, an economic incentive fund, a cash incentive, for both the Cuban workers and the foreign employees who reside permanently in Cuba. Any contribution to the economic incentive fund must stem from the profits made by the enterprise.
  5. All employees subject to international economic association contracts will be hired by the Cuban employment agency and must abide by the current Cuban legislation.

Special Taxation System

Joint ventures and national and foreign investors who are parties to an international economic association contract are subject to tax obligations and exemptions:

  1. Foreign investors are exempt from payment of income taxes on net profits for business.
  2. Exemption from payment of profits taxes during eight years following the establishment of the enterprise. That period may be extended by the Council of Ministers. Once the time is over, the tax shall be levied at 15 percent of the net profits. When natural resources (renewable or not) are used, the Council of Ministers may decide to raise the rate up to 50 percent. (The tax law provides for the payment of taxes for up to 35 percent of the profits.)
  3. Exemption from payment of net profits taxes and other taxes authorized by the relevant authority for re-investment in the country.
  4. Exemption from payment of wholesale and service taxes during the first year of operation of the investment. A 50 percent tax deduction, equivalent to two percent of the total wholesale of goods and 10 percent for services, will be levied in the following years.
  5. Exemption from payment of taxes for the sales of goods and services in the case of contracts for hotel, production and service management and for the provision of professional services.
  6. Exemption from payment of labor taxes. (The Tax Law provides for the payment of five to 15 percent of the total payroll.)
  7. A 50 percent tax deduction during the period of return on investment for:
  8. The use and exploitation of harbors. (This tax, which adds up to 0.25 USD per linear meter per day, is being levied only on the harbor of Havana.)
  9. The use and exploitation of forest and wildlife resources. (The tax law provides for a scale of rates that fluctuates between 13.00 CUP and 45.50 CUP depending on the type of wood.)
  10. The right to use inland waterways. (The tax rate depends on the budget law.)
  11. Territorial contributions to local development, except in the cases of contracts for hotel, production and service management and contracts for the provision of professional services. (The tax rate depends on the budget law.); and
  12. Exemption from paying customs taxes (tariffs) for the importation of equipment, machinery and other assets during the investment process, according to provisions established by the Ministry of Finance and

Resolution of Conflicts

Any conflict that may arise in the relations between partners of a joint venture, or between foreign and national investors who are party to an international economic association contract, or between partners in a totally foreign capital company established in the form of a nominal share corporation, must be resolved in accordance with the provisions stipulated in the corporate documents. The same rule applies when conflicts arise between one or more partners and the joint venture or the full foreign ownership company to which they belong.  Options for such resolutions in most instances permit contracting for arbitration before the Internal Court of Commerce of the Intl Chamber of Commerce, or Cuban Court of Arbitration.

The Cuban Courts have jurisdiction over disputes arising from the following:

  1. Inactivity on the part of the top management of any form of foreign investment envisaged in the legislation or situations conducive to the dissolution or termination/liquidation of the investment.
  2. Relations between the partners to a joint venture or a totally foreign capital company or between national and foreign investors who are party to an international economic association contract who have been authorized to carry out activities involving the use of natural resources and public utilities and the execution of public works.
  3. Any dispute regarding the implementation of economic contracts that may arise within the context of the various forms of foreign investment envisaged in the legislation or between the said forms and Cuban legal entities or individuals.

Cuba has over 22,000 private attorneys, and Courts of Commercial Claims, as well as several law firm chartered specifically to represent Foreign Investors in corporate, contractual and litigation matters.


The port of Mariel is poised to play an important part in Cuba’s development with a new deep water container port and a special economic zone (not a free-trade) zone built on the site of a former submarine base, a project that aims to exploit the planned expansion of the Panama canal by providing the best facilities in the region for giant vessels and converting Cuba to a producer of good for consumption which are presently being imported as well as a net importer of goods.

Following an agreement reached in 2009 between the governments of Brazil and Cuba, the Brazilian engineering group Grupo Odebrecht built a new port, including a major container terminal, in partnership with the Cuban company “Zona de Desarrollo Integral de Mariel”, (ZED) a subsidiary of the Cuban company Almacenes Universal S.A.

Port Operations

The Mariel port has been dredged to 60 feet (18 m), enabling it to be used by Super-panamax vessels.

Various Cuban and international media (such as Reuters) have reported that the future Port of

Mariel is designed to have an initial 700 metres (770 yards) of berth length, enabling it to receive simultaneously two large ocean vessels. Plans through 2022 call for Mariel to house logistics facilities for offshore oil exploration and development, the new container terminal, general cargo, bulk and refrigerated handling and storage facilities and a Special Economic Development Zone for light manufacturing and storage.

The new Mariel Port can handle deeper vessels than Havana Bay, where a tunnel under the channel restricts depths to 11 metres (36 feet). The Mariel container terminal would have an annual capacity of 850,000 to 1 million containers, compared with Havana’s 350,000. These developments should enable Mariel to accommodate the very large container ships which will transit from Asia through the Panama Canal once the enlargement of the latter is completed in the summer of 2014.

Mariel is ideally situated to handle U.S. cargoes when the American trade blockade on Cuba is eventually lifted, and will receive U.S. food exports already flowing into the country under a 2000 amendment to the US sanctions. The Mariel container terminal operations are contemplated to become a major hub ports of the Caribbean region, competing against the existing hub ports of Freeport, Bahamas, Kingston, Jamaica, Multimodal, Caucedo Port,Dominican Republic,Port of Spain,Trinidad & Tobago, and Panama, which receive very large container ships with cargo containers originating or bound to multiple regional origins and destinations, including US ports.

The new port, with improved highway, railroad, and communications infrastructure, began operating in January 2014. The special economic zone was still under construction.

Mariel Special Economic Zone (ZED)

The objective for Mariel and the free zone is to expand infrastructure, increase exports, reduce imports and develop high-tech projects that will create jobs.  In essence, the government has identified development and industrial projects that convert Cuba from a Net Importer to either a self sustained producer and/or Net Exporter, all in important sectors, such as tires, batteries, construction material, food products and most goods presently imported but which Cuba could produce, including those goods, such as pharmaceuticals, specifically for export.

The assembly of imported parts for computers, cars, etc. are typical of other opportunities.

Specific tax, employment and other incentives are provided to spur substantial Foreign Investment.