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).