Cuba’s foreign investment law - ‘New’ indeed, but barely

Cuba's foreign investment law: 'New' indeed, but barely
By José Manuel Pallí, esq.

Now we can comment on Cuba's new foreign investment law — Ley 118/ 2014
— since its "official version" is now published at the Gaceta Oficial de
Cuba, together with a Reglamento or regulatory law and other companion
governmental resolutions that should further help in interpreting its
significance and clarify its intent.

If you put a copy of Ley 77/95, the old foreign investment law which
this new one supersedes, alongside Law 118/ 2014, you'll probably think
they are twins. The language is almost the same in a huge percentage of
the provisions contained in both laws, which are essentially, well, the
same. And there is a very good reason for these similarities: The 'old'
law was not a bad law at all, in terms of the protection it afforded
(affords, since the new one will not be in force until late June) to
foreign investors.

Of course, that protection can only be effective to the extent the
attitude of those enforcing the law leads them to do so enthusiastically
and fairly, without arbitrariness of any kind. Whether that will be the
case with the implementation of this new foreign investment law in Cuba,
only time will tell. But I do sense that there is a generalized
conviction among decision makers in Cuba that they do need the tool
foreign investment could be, in terms of helping the Cuban economy grow
and develop, and they need it now, and I believe that conviction should
prod their enthusiasm.

There is one area where the new law may well open an entirely new world
of opportunity to foreign investment in Cuba, while at the same time
improving dramatically the quality of life of Cubans in the island (and
Cubans, el cubano de a pie, are the main constituents any Cuban law
should serve and please, even if a foreign investment law should also
please foreign investors): Foreign capital may now be used to build (and
repair) housing units — viviendas — to be used as such by José Q Cuban
citizen, which is to say the majority of natural persons who reside
permanently in Cuba.

Chapter VI in the old law dealt with investments in real property
(Inversiones en bienes inmuebles), and, in article 16, it allowed such
investments, provided the real property in question is used to house
"natural persons who were not permanent residents in Cuba" (Article
16.2(a)), thus keeping the Cuban people right to housing out of reach to
foreign capital, and away from the benefits foreign investment could
bring to the quality of their houses (and safety: no more crumbling
buildings).

Chapter VI of the new law has one section, Article 17, that reads
exactly the same as article 16 of the old law, but it omits the
provision (restriction) whereby foreign investment was ruled out if the
real property in play was used to house everyday Cubans. Article 17.2(a)
now says foreign investment is possible in housing and buildings
(viviendas y edificaciones) that are private domiciles (dedicadas a
domicilio particular) or for touristic ends, period.

It does not say flatly that someone can, as a builder who wants to be a
foreign investor in Cuba, build (or improve by way of urgent structural
repairs) housing for the consumption of the Cuban people in general. But
I read in the deletion of the condition (only if the real estate is used
to house those who are not permanent residents in Cuba) found in the
equivalent article of the old law as a strong indication that that is
the case, assuming the approval of the governmental entity who will have
to authorize the investment in question is obtained.

In future columns I will go into some murky aspects regarding how that
real estate asset (the land) where the housing is to be emplaced finds
its way into the entity or vehicle of choice of the foreign investor,
the enterprise that actually makes the investment, when that entity is
capitalized. I will also delve into what's new (mostly the changes in
tax treatment and the use of incentives) in this foreign investment law,
and what smacks of "old" (the persistence in controlling Cuban employees
of foreign investors by meddling into their relationship with those who
want to hire them).

José Manuel Pallí is president of Miami-based World Wide Title. He can
be reached at jpalli@wwti.net; you can find his blog at
http://cubargiejoe.com

Source: Analysis: Cuba's foreign investment law: 'New' indeed, but
barely « Cuba Standard, your best source for Cuban business news -
http://www.cubastandard.com/2014/04/19/analysis-cubas-foreign-investment-law-new-indeed-but-barely/