AVANA (Reuters) – Cuba published rules and regulations yesterday governing its first special development zone, touting new port facilities in Mariel Bay in a bid to attract investors and take advantage of a renovated Panama Canal.
The decree establishing the zone and related rules takes effect on November 1 and includes significant tax and customs breaks for foreign and Cuban companies while maintaining restrictive policies, including for labour.
Cuba hopes the zone, and others it plans for the future, will “increase exports, the effective substitution of imports, (spur) high-technology and local development projects, as well as contribute to the creation of new jobs,” according to reform plans issued by the ruling Communist Party in 2011.
The plan spoke positively of foreign investment, promised a review of the cumbersome approval process and said special economic zones, joint venture golf courses, marinas and new manufacturing projects were planned.
Most experts believe large flows of direct investment will be needed for development and to create jobs if the government follows through with plans to lay off up to a million workers in an attempt to lift the country out of its economic malaise.
The Mariel special development zone covers 180 square miles (466 square km) west of Havana and is centered around a new container terminal under construction in Mariel Bay, 28 miles (45 km) from the Cuban capital.
The zone will be administered by a new state entity under the Council of Ministers, and investors will be given up to 50-year contracts, compared with the current 25 years, with the possibility of renewal.
They can have up to 100 per cent ownership during the contract, according to Cuba’s foreign investment law.
Investors will be charged virtually no labour or local taxes and will be granted a 10-year reprieve from paying a 12 per cent tax on profits. They will, however, pay a 14 per cent social security tax, a 1 per cent sales or service tax for local transactions, and 0.5 per cent of income to a zone maintenance and development fund.
Foreign managers and technicians will be subject to local income taxes.
All equipment and materials brought in to set up shop will be duty free, with low import and export rates for material brought in to produce for export.
However, one of the main complaints of foreign investors in Cuba has not changed: that they must hire and fire through a state-run labour company which pays employees in near worthless pesos while investors pay the company in hard currency.
Investors complain they have little control over their labour force and must find ways to stimulate their workers, who often receive the equivalent of around $20 a month for services that the labour company charges up to 20 times more for.