Basically, we see Cuba as the greatest investment opportunity in the Caribbean, and the timing is just about right.  Our law firm has a handful of Cuba projects in which we are advising clients on how to do business in Cuba now (ahora mismo!), or to get into position to do business in the future as the political climate changes.  The opportunities to do both well and good are unlike many others in the world.

Of course, investing in Cuba can be risky until the political climate settles on an identity as the Castro influence and dogma starts to wane.  However, if you are an American company who wants to participate in one of the recognized categories that the U.S. government allows as an exception to the Office of Foreign Assets Controls (OFAC) regulations (including medical supplies, and food and agricultural commodities), or a company that wants to explore other business opportunities, it is best to participate in organized visits to the country, work with the relevant U.S. government and foreign governmental agencies, and consult advisers who have done it and are doing it.  The Victoria Law group stands ready to assist.

Why Invest in Cuba?

In a word: Opportunity! There is enormous potential in the Cuban market. Cuba is the largest Carribean Island and is a natural gateway to Latin America and the United States, lying just 90 miles off the coast of Florida. With its 3,700 km of coastline, Cuba presents unrivaled opportunities in tourism, real-estate, and related industries. Cuba has large tracts of arable land and contains a number of natural resources such as chromium, cobalt, copper, gold, iron ore, nickel, petroleum, salt, silica, and timber.  Additionally, there is a great need for improvements to Cuban infrastructure, and the Cuban population is the most skilled in the Region with a 97% literacy rate and offers highly trained technicians for technological industries.

What are the restrictions governing exports to and imports from Cuba?

Exports from the United States to Cuba are severly limited by the U.S. Embargo against Cuba and  subsequent “Cuban Assets Control Regulations” outlined by the U.S. Treasury’s Office of Foreign Assets Control. According to Title 31 Part 515 of the U.S. Code of Federal Regulations, no services, products, or technology may be exported to Cuba or any Cuban national from the United States. The assisting or brokering of these exports are also prohibited. This includes direct, as well as indirect exports. If the exported product, service, or technology is under U.S. jurisdiction, and/or if the person or company exporting is under U.S. Jurisdiction, they must comply with these regulations.

Additionally, any person under U.S. jurisdiction is prohibited from dealing in any property in which Cuba or any Cuban national has an interest. This includes purchasing Cuban products outside of the U.S. and entering into any business deal or contract that includes Cuba-related provisions. This also includes doing business with a Cuban national that, though not physically on the island, is acting on behalf of Cuba. For a list of these “Specially Designated Nationals” refer to the Federal Register, an unofficial U.S. government publication.

Finally, no goods or services may be imported from Cuba except for publications, artwork, and similar informational material.

What are the exceptions?

There are a few exceptions in which U.S. businesses may export to Cuba. Legal exports to Cuba include informational materials such as publications, CD’s, and works of art; some kinds of donated food; and certain goods licensed for export by the U.S. Dept. of Commerce, including medical supplies, and food and agricultural commodities. (Cuban Democracy Act of 1992, Trade Sanctions and Export Enhancement Act of 2000)

In addition, there is a small exception to indirect investments. OFAC has written that “Persons subject to the jurisdiction of the United States may invest in a third country company that has commercial activities in Cuba, provided that (i)such investment does not result in control in fact of the third country company, and (ii) the majority of the revenues of the third country company do not result from the commercial activities in Cuba”

What are the Cuban laws regarding investment?

In 1982 Decree Law 50 was enacted as Cuba’s first foreign investment act in order to promote investment in Cuba. However, Law 50 was very vague and did little to facilitate investment. After the fall of the Soviet Union the Cuban government worked toward increasing investment and in 1995 the National Assembly approved Law 77, or “Ley de la Inversion Extranjera” (The Foreign Investment Act). Under this law three kinds of foreign investments are allowed: international association contracts, joint ventures(which can be entirely foreign-owned), and totally foreign-owned companies. Foreign investments must be approved by a government commission of the Council of Ministers. Certain investments must be approved by the Council of Ministers’ Executive Committee, including Investments larger than $10 million US dollars, investments entirely under foreign ownership, investments that involve a foreign country, investments that use natural resources, and investments that involve government property or are in special sectors. Decisions for approval of foreign investments are given within 90 days.

Law 77 maintains that investors are guaranteed the ability to  transfer profits to foreign countries, the right to transfer or sell shares, and no expropriation unless under extreme circumstances in which case compensation would be given. Additionally, it provides protection against third party claims under Cuban law. Moreover, Law 77 approves the creation of duty-free zones and industrial parks open to foreign investment. Though law 77 set up a special system covering each aspect, Law 165, enacted in 1996, created more flexible investment rules for free trade zones and industrial parks. Finally, it enables foreigners to gain ownership and property rights over real estate in Cuba. However, the real estate investments are limited to the development of the tourism sector, foreign company housing or offices, and other living structures dedicated to private residences or private tourism activity for temporary residents.

Other relevant Cuban laws include Decree Law 124, which define Cuba’s tariff system by outlining the conditions for import permits, by establishing import tariffs and by creating the procedures for custom clearance as well as Decree Law 162, which discusses the functions of the customs system.

What are the main sectors of Cuba’s economy?

According to “Ley de la Inversion Extranjera” (The Foreign Investment Act) of 1995, Cuba allows foreign investment to all sectors of the economy with the exception of defense, public healthcare, and education. It also promotes investment by giving incentives for investment in tourism, manufacturing, nickel and mining, agriculture, information technology, pharmaceuticals, and telecommunication. The largest sector in Cuba’s market is tourism,  followed by manufacturing, construction, agriculture, and mining.

Although mining is final on the above list, there is much potential in the extraction of oil from Cuba’s untapped offshore reserves. According to estimates by U.S. geological surveys, there are undersea deposits containing 4.6 billion barrels of oil and 9.8 trillion cubic feet of natural gas off the northwest coast of Cuba. Geologists from Cuba claim that there may be quadruple the findings of U.S. surveys found in hydrocarbon pools within Cuban-regulated waters even further into the Gulf. Although the U.S. embargo against Cuba prohibits such business, the Castro government has invited foreign oil companies, including U.S.-owned companies, to sign deals with them.

Also, U.S. Treasury officials for the first time have given U.S. oil company representatives permission to travel to Cuba. The International Association of Drilling Contractors (IADC) had been previously denied permission by the Obama Administration to travel to Cuba, however, after the BP oil spill in the Gulf of Mexico, the Obama Administration licensed the houston-based IADC to travel to Cuba in order to aid in the prevention of future oil-related environmental catastrophes. Discussing safety measures of off-shore oil drilling is especially prioritized since, according to Reuters, there will be exploratory drilling as soon as the end of this year by the Spanish-owned Repsol YPF. The IADC plans to take a delegation of 5 officials who will discuss oil-spill prevention as well as the prospects of drilling in offshore Cuba.