International tax
Cuba Highlights 2013 Investment basics: Currency – There are two separate currency markets: the Cuban Peso (CUP) and the Cuban Convertible Peso (CUC). Foreign exchange control – The central bank maintains a fixed exchange rate of national currency against the U.S. dollar and also determines the percentage that foreign workers can remit abroad. Accounting principles/financial statements – Audited financial statements must be filed annually. IFRS applies. Principal business entities – The Foreign Investment Act requires that foreign investors use one of the following forms: joint venture (stock corporation), international economic association contract (EAC) or wholly foreign capital company. The investment may be with 100% foreign capital. Cooperative production and management contracts also are possible. Other types of companies with no foreign interests may be formed and there are state enterprises and companies 100% capitalized by the Cuban state. A cooperative is recognized as a private form of association in the agricultural sector. Corporate taxation: Residence – A legal person is liable to profit tax if it has a permanent establishment within the Republic of Cuba, a fixed place of business or a representation for the purpose of entering into agreements in its name and on its behalf. Joint venture companies are considered Cuban companies by law. Basis – A profit tax is imposed on the Cuban-source income of all legal persons, whether Cuban or foreign, whatever their form of organization. Taxable income – Profit tax is imposed on a company’s operating profits, computed as the difference between total taxable income and deductible expenses and authorized pretax reserves or funds. Taxation of dividends – Dividends paid by a Cuban company to another Cuban company are exempt. Foreign investors that are partners in a joint venture company or parties
to an EAC are exempt from personal income tax on dividends received from the profits of a business. Capital gains – Joint venture companies and foreign and national investors that are parties to EACs are subject to a 30% profit tax. Wholly foreign capital companies and any other entities are subject to a 35% rate under the general tax legislation. Losses – Losses arising in the current fiscal year are deductible from taxable income and may be carried forward for 5 fiscal years. The carryback of losses is not permitted. Rate – Joint venture companies and foreign and national investors that are parties to international EACs are subject to a 30% profits tax rate. Wholly foreign capital companies and other company forms are subject to a 35% rate under the general tax legislation. The rate can be increased up to 50% for profits from mining or the exploitation of natural resources. Surtax – No Alternative minimum tax – No Foreign tax credit – No Participation exemption – No Holding company regime – No Incentives – Licensees and operators in free zones are fully exempt from tax on profits for 5 to 12 years, depending on the activities carried out, and exempt from 50% of the tax on the use of the workforce (see below under “Payroll tax”) for 3 or 5 years, depending on the activities. They also are exempt from the payment of custom tariffs and duties. Additionally, the Foreign Investment Act provides for various incentives, including partial and full tax exemptions. Withholding tax: Dividends – Dividends paid to a Cuban party or foreign party in a joint venture company or an EAC are not subject to withholding tax. Interest – Interest paid to a Cuban party or a foreign party in a joint venture company or an EAC is not subject to withholding tax.
Royalties – Royalties paid to a Cuban or foreign party in a joint venture company or an EAC are not subject to withholding tax. Technical service fees – Technical service fees paid to a Cuban or foreign party in a joint venture company or an EAC are not subject to withholding tax. Branch remittance tax – No Other – No Other taxes on corporations: Capital duty – No Payroll tax – A tax of 11% or 25% is payable by an employer that is a legal person (whether Cuban or foreign). The tax is calculated based on total wages, salaries, gratuities and other remuneration, including sales commissions. A foreign investor must hire all labor through a designated Cuban employment agency, which pays each worker in national currency. A joint venture and a wholly foreign capital company pay the employment agency in convertible currency. The rate for joint ventures and EACs is 11%, with a 25% rate applying to wholly foreign capital companies. Real property tax – An annual 2% tax is levied on residential property sold by a real estate company or other authorized entity. Tax also is levied on owners of urban land, rural property and vessels located in Cuba. Social security – The social security contribution, determined annually in the state budget law, is 14%. A foreign investor in the form of a wholly foreign capital company must pay the rate determined annually in the budget law. A party to a joint venture or an EAC always pays 14%. Stamp duty – Stamp tax is levied on documents according to the taxable base and rates set by a resolution of the Minister of Finance and Prices. Transfer tax – No Other – Tax is levied on the use or exploitation of natural resources and for the protection of the environment.
Anti-avoidance rules: Transfer pricing – No Thin capitalization – No Controlled foreign companies – No Other – No Disclosure requirements – Enterprises are required to disclose all international transfers and domestic cash transactions that exceed USD 10,000. Administration and compliance: Tax year – The tax year is a 12-month period, the start date of which is determined by the start of commercial activities giving rise to the tax obligation. Consolidated returns – In exceptional cases, a group of companies may pay tax on a consolidated basis, with the group treated as a single taxpayer. Application for consolidated filing must be made annually and approved by the Ministry of Finance. Filing requirements – An annual income tax declaration must be submitted before the close of the tax period. The calculation of tax liability and the annual payment must be made by 31 March of the year following the end of the taxable year. Advance payments of tax must be made in the first 3 quarters of the fiscal year within 15 working days of the end of the period to which the payment relates. The advance tax is calculated on the basis of 25% of the tax liability of the previous fiscal year. Penalties – Penalties are imposed for late filing, failure to file, under-reporting or tax avoidance/evasion. Rulings – A taxpayer may request a ruling on the tax consequences of a transaction in which it has a direct interest. A binding ruling must be issued by the tax administration. Personal taxation: Basis – An individual that has a fiscal domicile in Cuba is subject to income tax on his/her worldwide income. A foreign individual who is present in Cuba for at least 180 days in the tax period is subject to personal income tax on his/her Cuban-source income. “Cuban source” for these purposes refers to income paid by a Cuban company. Residence – Cuba does not have a “residence” concept for individuals.
Filing status – Every individual must file a return. Joint filing is not permitted. Taxable income – A Cuban individual is generally taxed on his/her worldwide income from all sources, e.g. income from employment, income from commercial activities, income from rentals, passive income such as royalties, etc. Capital gains – There is no separate capital gains tax; capital gains are subject to tax at the taxpayer’s normal rate. Deductions and allowances – Various deductions may be taken in computing taxable income and certain categories of income are exempt. Rates – The personal tax rate is progressive, ranging from 10% to 50%. Other taxes on individuals: Capital duty – No Stamp duty – Stamp tax is levied on documents according to the taxable base and rates set by the Minister of Finance and Prices. Capital acquisitions tax – No Real property tax – An annual 2% tax is levied on residential property sold by a real estate company or other authorized entity. Tax is also levied on the owners of urban land, rural property and vessels located in Cuba. Inheritance/estate tax – A 4% tax is levied on the transfer of movable or immovable property subject to public registration or notarial deed, rights, adjudications, donations and inheritances. A 2% rate applies for exchanges of residential property, calculated on the value of the property acquired by each party. Inheritances, legacies, improvements or donations of goods or rights are subject to progressive tax rates, depending on the degree of relationship. Net wealth/net worth tax – No Social security – The employer is required to make a special contribution on behalf of workers who are beneficiaries of social security. Legislation that will establish the taxable base and rates is currently in progress. Administration and compliance: Tax year – The tax year is a period of 12
months that may or may not coincide with the calendar year. Filing and payment – Personal income tax is levied either via withholding at source or under a self-assessment system when the individual files his/her annual tax return. Payment of any tax due must be made at the time the return is filed. A portion of the tax on employment income is withheld at source. The payer will withhold 70% of the individual’s tax liability, according to the established tax rate, based on each monthly payment. The return must be submitted to the local municipal tax administration office within 60 days after the end of the tax year. Penalties – Penalties are imposed for late filing, failure to file, under-reporting or tax avoidance/evasion. Value added tax: Taxable transactions – Cuba does not operate a VAT system; instead, a sales tax applies to most goods destined for use and consumption. Tax also is levied on public telephone services, cable and telecommunications, electricity, water, transportation, food, lodging and recreation services rendered in Cuba. Rates – The tax rate ranges from 2.5% to 25%, depending on the goods, service sector, etc. Registration – Registration for sales tax purposes is generally required at the time of incorporation. Filing and payment – Entities are required to make monthly payments of sales tax. Source of tax law: Law 73/1994 (On the System of Taxation), MFP Resolution 379/2003 (Profit Tax Regulation), MFP Resolution 24/1995 (Personal Income Tax Regulation), Foreign Investment Act (Law 77/1995). Tax treaties: Cuba has concluded 7 tax treaties. Tax authorities: National Tax Administration International organizations: WTO Deloitte contact Horacio Navas E-mail: hnavas@deloittemx.com
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