• Threshold Concerns Regarding Doing Business in Cuba
  • August 8, 2017 | Author: Roger A. Klein
  • Law Firm: Shulman, Rogers, Gandal, Pordy & Ecker, P.A. - Potomac Office
  • For the first time in over 50 years, U.S. citizens have the ability to travel to Cuba as tourists subject to only limited restrictions. This opening of access to U.S. citizens has caused both U.S. and foreign companies to have an increased interest in potential business opportunities in Cuba.

    Set forth below is a list of threshold concerns related to a foreign company starting to do business in Cuba. Under current applicable U.S. law, including the Cuban Assets Control Regulations enforced by Office of Foreign Assets Control of the U.S. Department of Treasury, most business transactions between U.S. persons and Cuba continue to be prohibited. Therefore, this list assumes that the foreign company would not be U.S.-based or have any significant U.S. contacts.

    1. Full Foreign Ownership Discouraged. Cuban laws discourage businesses that are wholly owned by non-Cubans from doing business in Cuba by imposing higher taxes on Cuban-based income if earned by a company not jointly owned by foreign and Cuban equity holders. Therefore, many foreign-owned businesses in Cuba are established as joint ventures with significant Cuban ownership.
    2. Pervasive Government Control. The Cuban government owns most of the property in the country and has broad controls over many issues impacting commerce. Therefore, any development of business in Cuba will depend on obtaining necessary governmental approvals and support. This will apply to several aspects of a new business including obtaining entry visas, housing for employees and necessary governmental licenses for specific projects. (Note that the obtaining of such support may involve payment to government officials that could be restricted under foreign corrupt practices laws imposed by several countries).
    3. Inadequate Infrastructure. The infrastructure (and especially internet availability) is not fully developed in Cuba. This complicates the ability to transact normal business operations.
    4. Commercial Dispute Resolution. Resolution within the Cuban judiciary systems may not be quick or unbiased. All commercial contracts should provide for dispute resolution by arbitration outside Cuba through a recognized international organization such as the International Chamber of Commerce.
    5. Criminal Exposure. There have been news stories about officers of foreign corporations who experienced criminal prosecution as a means of benefiting competitors favored by the Cuban government. The Cuban criminal system is not transparent and therefore this risk is difficult to assess.
    6. Available Work Force. Cuba is known to have a high literacy rate (over 99%) and a substantial workforce available at relatively low wages. However, it is not clear if that available workforce would have the technical training necessary for sophisticated manufacturing or other business operations.
    7. Collection Concerns. To limit the risk of non-payment for goods and services provided, payment should be obtained in advance or secured by instruments that can be drawn against outside of Cuba.
    8. Ability to Repatriate Profits. The level of governmental control over company operations and the banking system may make it difficult to transfer profits outside of Cuba.
    Notwithstanding the challenges outlined above, Cuba’s educated workforce, growing customer market and proximity to major Western Hemisphere markets will likely continue to make Cuba an attractive new business location for European and Asian-based companies.