Economic overview
On November 15, 2021, Cuba witnessed two failures which, despite affecting different sectors – politics and tourism – have had the same result: the profound disappointment of the people, in the face of an expectation encouraged by the events of last summer and the decline in Covid infections.
In January 2021, the government approved an epochal reform, already announced in 2013, based essentially on two points:
1) The Cuc (convertible peso) that Cuba had adopted 27 years ago for tourist transactions, alongside the local currency to counteract the excessive power of the dollar, was abolished. Only the Cup remains in effect, the local peso with which the state pays wages and services, since last year also used by tourists who change dollars at a fixed rate of 25 Cups for $ 1.
2) The miserable salaries of workers, employees and professionals in place for decades and never adjusted, were increased by about 500%. The minimum wage went from 400 to 2100 pesos a month ($ 84, previously it was 16), the average wage from $ 37 to $ 185, and nearly $ 400 now for doctors, lawyers and state officials. But there is no shortage of side effects, which President Diaz-Canel foresaw on the day of the official announcement: first of all, a monstrous inflation, aggravated by the pandemic crisis, which the data report at 70%, however contradicted by press inquiries. foreign countries that report the prices of some primary goods tripled.
Main sectors of industry
The main sectors of the Cuban economy include energy production, agriculture, industry, services, foreign investment and trade. The country’s banking sector is not well developed and millions of people cannot access credit lines.
Energy production
At the start of the decade, Cuba depended entirely on fossil fuels for its electricity. About 90% of the electricity was produced by diesel generators. By 2015, Cuba consumed around 19.12 billion kWh, none of which was imported or exported. In the recent past, the government has promoted the home use of solar panels to cushion people from frequent blackouts and the high cost of electricity.
Agriculture
The agricultural sector represents the two largest exports from Cuba, sugar and rolled tobacco. Although the country produces other crops such as rice, coffee, potatoes and citrus fruits, it imports 70-80% of the food consumed by its citizens. Prior to 1960, Cuba produced enough food to feed its people, but population growth coupled with political instability, lack of investment and government neglect has led to the industry’s decline.
Industry
The industrial sector accounts for about 37% of the country’s GDP and employs 24% of the population. Sugar processing, oil refinery and pharmaceuticals lead the industrial sectors from industries nationalized by the government in 1968. Between 1989 and 2014 the manufacturing sector collapsed and minus the loss of jobs and severe economic depression.
Tourism
Tourism leads the service sector along with retail. For a long time, tourism has been centered on the economy since total collapse. In the mid-1990s, tourism was earning more exchange rates in Cuba than sugar. About 4.7 million tourists visited Cuba in 2017, a 16.5% increase over 2016. The country earned around $ 3.5 billion. In 2016 tourists broke the 4 million barrier for the first time after President Barrack Obama repaired US ties with the Caribbean nation. Since then American tourists have been sent to the country in large numbers, in 2017 over 650,000 visited Cuba.
Taxation for businesses in Cuba
Corporate income tax (Impuesto Sobre Utilidades)
The profits made by all legal persons operating in Cuban territory, resident and non-resident (in the latter case only the profits made in the Cuban territory are subject), regardless of the organizational form taken or the ownership structure, which they carry out are subject to this tax. in the Cuban territory any commercial, industrial, construction, financial, agricultural, fishing, mining or quarrying activity, and in general, any gainful activity. The ordinary rate is 15% of the net taxable income, while for companies operating in the exploitation of natural resources the rate is 22.5%.
Incentives and concessions
The main tax incentives provide for a 50% deduction from the operating profit if the company carries out activities of management of port infrastructures, exploitation of forest resources and natural parks, use of inland waters and contribution to local development, with the exclusion of supplies of services. Additional special regimes are envisaged for mining, for the agricultural and livestock sectors, as well as for cooperatives. The income produced by the latter, in particular, is divided by the number of members and taxed at progressive rates ranging between 10% (for income up to 10,000 CUP) and 45% (for income exceeding 50,000 CUP).
Foreign Investment Law
Companies with foreign capital falling within the scope of application of the law on foreign investments no. 118 of 29 March 2014, with the exclusion of hotels, enjoy the benefit of exemption from tax on profits for the first eight years of activity. After this period, the exemption remains only for income that is reinvested in the territory of the state in projects authorized by the Cuban government. If the companies are 100% owned by foreign subjects, the taxation is subject to a less favorable rate than that applicable in the case of companies owned by Cuban subjects or jointly with the State, for which the income tax of legal persons is calculated by applying a rate of 35%. In this case, however, there are no additional withdrawals on dividends brought abroad.
Investing in Cuba
Reasons to invest in Cuba:
Promotion of foreign investments.
The Cuban Government, in order to promote foreign investments, as an indispensable element for the sustainable development of the country, has issued legislation that favors the entry of foreign companies, with the relative contribution of capital, in order to undertake productive and commercial activities. and services.
Taxation and incentives.
Law 118/2014 provides for particular forms of investment protection and incentives for foreign companies that implement projects of fundamental interest for the Cuban nation (tourism is among them). Furthermore, this legislation allows to obtain, on the income produced in the country, reduced taxes or total tax exemption even for up to ten years.
Geographic location
Due to its geographical position, the island of Cuba is the obligatory point of access and transit from South America to North America and vice versa. Furthermore, Cuba is very close to the USA: Key West is less than 90 miles from Cuba.
Relocation of Companies
The Cuban government also looks to tourism as the source from which to draw to improve the skills and professionalism of the population;.
Open to tourism.
In confirmation of the Cuban government’s willingness to open up to foreign investments aimed at tourism, it would suffice to recall that the World Travel Awards 2018, considered the most prestigious worldwide recognition in the travel and tourism sector, has been awarded to three Cuban hotels: Princesa del Mar, in Varadero, the Gran Hotel Kempinski and the Nacional de Cuba, both in Havana.
At the same time, in the nautical field, the expansion and modernization program of the numerous and suggestive already existing marinas is in progress, proving the confidence that the Cuban government places in nautical tourism for the growth of the country.