Foreign Investment - Is Cuba Ready?

January 28th 2015

For over five decades, Cuba has been economically isolated from the U.S. and much of Western Europe. A throwback to the 50s, Cuba’s capital and metropolitan hub, Havana boasts classic American cars and cobbled roads, a place frozen in a tell-tale snap-shot of events that led to the U.S. embargo.

In December 2014, President Obama announced that the embargo on Cuba will be lifted. The announcement has naturally gotten everyone extremely excited on both ends. Companies eager to access Cuba’s highly educated and skilled work force are straining at the leash, and the university- educated yet under-utilized Cubans anticipate jobs worthy of their skill-set.

The biggest attraction for U.S. businesses in Cuba is this skilled workforce. Bloomberg Business Week calls Cuba the best-educated workforce in Latin America. And it wouldn’t be handy just for assembly plants. The country made sure that its workforce was not only educated but educated in highly desirable fields; hence the large number of engineers and doctors on this Caribbean island with a population of 11million.

At this point, the embargo lift only applies to travel and certain businesses however, investors expect that lobbying pressure will wear down Congress and get the embargo completely repealed and open Cuba up to foreign businesses.

However, specialists caution the over-eager to slow down. Cuba is not ready to handle the rush quite yet and must work toward rebuilding economic relations with the U.S. and getting a solid infrastructure in place. In addition, the U.S. would have to implement laws that meet the needs of this new market.

It is obvious that Cuba is shyly but surely opening its doors to the world. In March 2014, Cuba passed a new foreign investment policy some of which are included below:

Cuba will allow foreign investment in all sectors excluding – education, health and ‘armed institutions’.
Cuba will offer tax exemptions to foreign companies
100% of ownership by foreign companies will be permitted; however, these companies will not have the same tax benefits as joint ventures between foreign and Cuban owners
Investors will be exempted from paying profit taxes for eight years on signing an agreement
Investors will be exempted from income tax

This picture points to a rosy future and an effort to reach across the channels towards economic reconciliation. But it is important to remember that as promising (and it is promising) the investment landscape on this Caribbean island is, the key word to investing in Cuba is PATIENCE PATIENCE PATIENCE.

Klueger & Stein, LLP works with many individual investors and multinational businesses with interests across the world. We remain diligent in observing trends and new markets that may benefit our clients.