It turns out Cuba actually needs the rest of the world

It turns out Cuba actually needs the rest of the world

By Roberto A. Ferdman @robferdman March 28, 2014



The country's National Assembly is set to approve a piece of landmark

legislation over the weekend that will slash the country's tax on

foreign companies' corporate profits in half, to 15%, and allow them to

withhold those tax payments for as long as eight years, local news

outlet Juventud Rebelde first reported on Wednesday (link in Spanish).



The new corporate profits tax will actually be a good deal lower than

that of most every other industrialized country in the Organization for

Economic Cooperation and Development, including the US, where the

corporate income tax rate is 39%. The law will span every sector, aside

from health care and education, which is prohibited from privatization

by the country's constitution. The foreign investment law, as it has

become known, doesn't change Cuban laws that limit foreign ownership of

property to 49%, requiring that the other 51% remain controlled by the

state. But it is specifically designed to help lure private foreign

businesses to participate in the Cuban economy.



"This is the first time in decades that the Cuban government has opened

its doors," Christopher Sabatini, senior director at the Americas

Society and Council of the Americas, told Quartz. "In many ways, it's a

very direct philosophical challenge to the very foundations of the

revolution." Cuba last pivoted in the direction of capitalism when it

lowered the corporate profits tax for foreign firms to 30% in 1995.



The current shift signals something we've known for quite a while now:

Cuba is broke, and the 30% rate wasn't enough to attract the foreign

cash it desperately needs. The Cuban Revolution, which ended in 1959,

led to Fidel Castro's decades-long reign over the Cuban socialist state,

but a spiraling economy and impoverished population has forced the

country's hand. Since Fidel's brother, Raul, assumed power in 2008, he

has hinted at the need for reform. But that reform has been slow, and

the Cuban populous is growing impatient. Not only is the country

suffering from a severe housing shortage, but the poverty rate now

stands at approximately 26%.



Until now, that is. The new law will not, at least immediately, affect

the US—since its embargo on economic ties with Cuba still persists,

prohibiting American companies from doing business there. But it's a big

deal for virtually every other country—especially those interested in

expanding their foothold in the Cuban economy ahead of its slow but sure

exit from insularity. It's a longer-term bet, but there's an expectation

among foreign companies that even the US embargo is likely to be lifted

sooner or later, according to Sabatini.



Still, some obstacles persist. For one, there remains a hefty 20% labor

tax for foreign firms, which will make it difficult to efficiently hire

workers in the country. And there remains the possibility that Cuba's

government isn't as serious about opening up its economy as the

legislation suggests. The law, after all, will only apply to what are

called mixed companies—that is, firms either Cuban but foreign-owned, or

Cuban but funded entirely with foreign capital. And there's plenty of

skepticism about how much the new legislation will actually change

structurally. The devil will be in the details—that is, the law's actual

implementation.



But change is at least becoming more than just a talking point, and

that's pretty encouraging news for the 11-plus million people living on

the island. "There are people in the bureaucracy who find it

threatening, because it makes it more difficult for them to keep

control," Sarah Stephens, the executive director of the Center for

Democracy in the Americas, said. "But Cubans on the street are happy to

see these restrictions lifted. Instead of planning for their eventual

escape, they're now starting to envision a successful life at home, in

Cuba."



Source: It turns out Cuba actually needs the rest of the world - Quartz

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http://qz.com/193082/it-turns-out-cuba-actually-needs-the-rest-of-the-world/