By José Manuel Pallí
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
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