The Accounting and Tax Aspects of Doing Business in Cuba



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Doing-Business-in-Cuba
The recent thaw in U.S./Cuba relations has many U.S. businesses thinking about the potential for travel and hospitality in Cuba and providing consumer goods to Cuba's 11,000,000 people. Accountants and tax professionals serving this market should be knowledgeable about the Cuban business environment while providing advice to companies interested in accessing this newly opening market.



The many decades of U.S. trade embargo have had a major impact.  The Cuban per capita GDP is currently only $6,000 which doesn't create a strong local consumer market despite the pent up demand.  

A good example is the recent change in early 2014 permitting automobile sales in Cuba.   In January 2014, Cubans were afforded the right to buy new and used vehicles for the first time in 50 years, however, price increases of 400 percent or more quickly diminished their hopes. Despite the huge demand (nine out of ten Cuban households are without cars), the prices were so high very few Cubans could afford to buy a new car from any of the international brands. For example, one of the lowest priced cars is a 2005 Renault, which was on sale in Cuba for the equivalent of $25,000, yet available outside Cuba online for a mere $3,000. Another example is the 2009 Hyundai minivan that was listed at the astronomical price of $110,000. Since the average monthly wage in Cuba is $20, the majority of Cubans will not be able to purchase any cars.  Philip Peters, a longtime Cuba analyst and president of the Virginia-based Cuba Research Centre, pointed out that the exorbitant sticker prices on the cars would mean fewer sales and, as a result, the state leaving money on the table.

There are limited country resources and expertise for meeting today's construction project requirements for hotels and hospitality facilities.  National hotel brands have construction standards particularly for hurricane zones that require high engineering, design and skill levels. Although these skills are available in nearby Miami, Miami is experiencing its own construction boom.
Accountants preparing project budgets need to be cognizant of the cost of time delays related to resource limitations and permitting requirements.  For example, it took the recent production of the Broadway play Rent over a year to get the required permits to put on their show in Havana.

The type of recreational boating common to a major tourist market has been severely curtailed in an attempt to limit Cuban citizens from exiting the country. Cuba is not a party to many of the major North and South America free trade agreements, therefore cross border product transactions including import regulations, customs duties, and other trade processes are uncertain.  Note, however, that in 2013 Cuba did create its first free zone and there are select free trade agreements (primarily with nearby South American countries).

The Wharton School of the University of Pennsylvania will host a major conference in New York City on April 1st, 2015. Titled the “Cuba Opportunity Summit,” senior U.S. executives will have the opportunity to gain insight into the legal and business challenges of doing business in Cuba. Additionally, they are seeking to formulate a strategic roadmap for entry into the market. The conference series is targeted at U.S.-based and multinational companies formulating their board strategies on Cuba, in the wake of the President’s announcement that the United States will seek to forge diplomatic relations with Cuba.

Trade with Cuba has great potential; however, patience and planning are required to manage the transition from a 1960's economy to a 2015 business environment.

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Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Jennifer Reardon is a Project Coordinator with R&D Tax Savers.