Cuba, present and future: main legislative reforms adopted in 2020 Information Alert October 2020 NEW LEGISLATION Introduction Introduction 1. Exports As soon as COVID-19 appeared in the world, the The aim is to reduce t he ba la nce of trade deficit Cuban G overnme nt a pprove d a Plan for the and to attract foreign currency by stimulating Preve ntion and Cont rol of Coronavirus, cov ering and giving priority to export s and t heir linkage all sectors of society. with farmers and the domestic industry. Similarly, Cuba ha s bee n working on t he post- 2. Foreign investment COVID-19 recovery phase, as well as on the Guide lines for the 2021 Economic Plan and State Cuba seek s to incre ase foreign direc t inve stm ent Budget, whic h are part of the country's overall to: 1) develop tourism facilities, 2) pre pare the strat egy. According to the Specia l Tabloid: Cuba industry to me et domestic dem and, and 3) and its Ec onom ic and Soc ial Cha lle nge: “In order modernize the infrastructure and develop to achieve an economic rec overy and to face a technological capacity. long-term situa tion of world crisis in an To this e nd, a more flexible and expeditious organized m anner, it is e ssent ial to have an procedure for investment approval is essential. economic and socia l strate gy that contains the key actions on which efforts should be focused.” 3. Non-state forms of management Principles underlying the strategy One of the pillars of t he plan lie s in the dy nam ic and se lf-sustaining role for the economy of non- The two principle s underlying t his rec overy state form s of manageme nt (private sect or), i.e. strategy are: self-employed workers and cooperatives. 1. Regulating the market 4. Capturing new sources of foreign a) Regulat ing the marke t prim arily through indirect methods. currency to the country b) Implementing key area s, especia lly in One of the effect s of the slum p in tourism as a term s of form s of manage ment and result of the Covid-19 global pande mic is the lack ownership, restructuring t he Stat e of foreign curre ncy inflow, which is lea ding to a business sector, the priv ate sect or and the complex situation. relationship between the two. In orde r to remedy this situation, mea sures are c) Taking advant age of the complementarity being implemented to restructure t he economy's between economic actors. foreign curre ncy fina ncing sy stem , moving towards a system tha t ensure s that businesses 2. Encouraging competitiveness and innovation are enc ourage d to obtain fore ign currency. In a) Defending dome stic production and addition, t he m easures a re inte nde d to st imulate banishing the import mentality. foreign excha nge savings through import substitution. b) Prov iding the Stat e busine ss sector wit h greater managerial autonomy. Current situation c) Dynam izing role of dome stic dem and for During 2020, a serie s of legislative mea sures the economy. relat ed to the four are as ide ntified a bov e have been enact ed to boost the Cuba n economy. These d) Enhancing state-owned companies. measure s are a nalyze d in great er de tail in the Pillars of the strategy following pages. These principle s have materialized in a serie s of legislative reforms of whic h we have ident ified four major areas, each with its own objectives. 2 Key legislative reforms in 2020 3 NEW LEGISLATION Key legislative reforms (1/2) TITLE OBJECT NARRATIVE ► Allows self-employed workers to sell their products and services to both Cuban and foreign natural and legal persons. Decree Law Commercial 383/2019 relations with ► Grants the Ministry of Labor and Social Security the responsibility of 1 regulating the scope and name of the activities as well as making the Council of self-employed necessary adjustments. State workers ► Regulates two control mechanisms: the Central Bank of Cuba on unusual transactions and municipal authorities on prices. Resolution Imports and ► Establishes the terms and conditions for the private sector (cooperatives 315/2020 exports by non- and self-employed workers) to carry out imports and exports through 2 Ministry of State forms of authorized entities. Foreign management Trade ► Regulates the procedure for both imports and exports. ► Regulates payments by Cuban and foreign legal entities to self-employed Resolution Payments to workers and cooperatives. 280/2019 self-employed 3 ► Payments to self-employed workers and cooperatives are made in CUC Central Bank workers and and CUP. A maximum of 500 CUP or 20 CUC can be paid in cash. STATE FORMS OF MANAGEMENT OF FORMS STATE - of Cuba cooperatives ► In the case of farmers with land tenure, agricultural cooperatives, and credit and service cooperatives, payment remains in CUP. NON Resolution Contractual ► Allows Cuban legal entities to hire products and services from self- 236/2019 e relations with employed workers. 4 Ministry of self-employed Economy and ► Regulates the contractual relations governing these relations as well as workers Planning the forms of payment (in CUP or CUC, or in both currencies). Resolution ► Expands the scope of import activities through authorized entities with Cuban and foreign natural and legal persons, foreign branches and 300/2020 Imports by legal representative offices, diplomatic missions, consular offices and 5 Ministry of entities international organizations accredited in Cuba, except for state-owned Foreign companies and corporations of 100% Cuban capital. IMPORTS Trade ► Regulates the import process and its phases. ► Provides for implementing a deduction on profit tax, or, if applicable, on personal income tax, based on the percentage increase of sales for Resolution export or to ZED Mariel. Includes a reduction of 5%-10% on profit tax for 222/2020 Tax incentives companies that are first-time exporters and have no previous records on 6 Ministry of for exports this type of transaction. Finance and ► Includes a 5% deduction for companies that do not produce goods or EXPORTS Prices provide exportable services, provided that exported goods or services grow with respect to the previous year. 4 NEW LEGISLATION Key legislative reforms (2/2) NORM OBJECT NARRATIVE ► Changes the mechanism for transferring and using foreign currency by different actors of the economy by granting state-owned entities greater autonomy in capturing and using foreign currency. Resolution Regulation on 115/2020 ► State-owned companies will no longer need to wait for authorization the liquidity from the central government to use foreign currencies backed by CL Ministry of 7 allocation (liquidity capacity) as long as they have revenues originating in such Economy and system currencies. Planning ► Sets certain limits for the use of foreign currencies obtained from CL- backed transactions. Amounts exceeding such limits will be transferred to the central authorities. ► Establishes the liberty to import freely convertible currency (FCC) by natural persons although there is an obligation to declare cash amounts greater than US$5,000 or its equivalent in other foreign currencies to Resolution Imports and the General Customs of the Republic. 124/2020 exports in FCC ► Establishes a freely exportable limit of US$5,000 or its equivalent in 8 Central Bank by natural other FCC. The Central Bank of Cuba may authorize the export of larger of Cuba persons amounts. ► Cases in which the lawful origin of funds is not declared or proven shall be penalized with confiscation, without prejudice to any possible further civil and criminal actions. CAPTURING FOREIGN CURRENCY FOREIGN CAPTURING ► Allows foreign legal entities based in Cuba to make payments for retail Resolution purchases and import activities in FCC from the accounts in foreign Payments in 125/2020 currency of which they are holders. FCC by foreign 9 Central Bank legal entities ► These entities may request the issuance of magnetic cards associated of Cuba with the accounts they hold in order to pay for the transactions indicated above. ► Regulates the One-Stop Shop, which is designed to encourage foreign investment and to speed up the procedures related to it. Functions: 1) promoting foreign investment opportunities, 2) providing Regulation on Decree guidance and assistance to companies in the steps prior to and after the One-Stop 15/2020 their establishment in Cuba, 3) processing and managing the Shop for 10 Council of documentation that investors require both before and after their Foreign Ministers establishment in Cuba, 4) shortening processing times for the Investment establishment of investors, 5) centralizing the required permits and licenses, 6) creating a computer system to report on the state of the procedures conducted through the One-Stop Shop, 7) processing fees FOREIGN INVESTMENT FOREIGN for services rendered. 5 Regulation of non-state forms of management 6 NEW LEGISLATION Regulation of non-state forms of management 1. Regulation regarding self-employed 3. Accepting offer: Private businesses identify the best option of offers submitted in order to proceed workers with the sales contract. One of the pillars of the new strategy are the non-state 4. Selling price: Customers and authorized entities forms of management. This year saw the approval of the agree on the market price. regulation for selling products, importing and exporting, and the forms of payment. 5. Deductions to selling price: Authorized entities deduct from the sales price local transportation, 1.1 Scope of action for self-employed insurance, customs operations costs and other workers expenses incurred until delivery to the customer. Decree Law 383/2019 of the Council of State and 6.