Economic and Business in cuban Review 2006 - TAXATION and reporting requirements

Resolution 10 - January 26, 2005

First: [Foreigners] who have established a branch or representation office within national territory [sic Cuba], and whose activity generates 'benefits' should maintain accounting books and records, registers and other documentation regarding their activities within the country, in accordance with the principals and norms currently in force within Cuba. They are obliged, in accordance with the pertinent legislation, to present a technical report showing the review performed of their annual financial statements, issued by an independent audit firm which has been authorized do so by the Ministry of Finance & Prices.

Second: [Foreigners] who have established a branch or representation office within national territory [Cuba] whose sole objective is to co-ordinate activities of the head office with Cuban entities are exempted from the preceding clause [above] except if the said activities generate 'benefits'.

Resolution 235 - 30 September, 2005

Accounting books and records must be maintained within Cuba, in Spanish and using the *Cuban Peso (CUP) as the presentation currency for the entity's financial statements.

[* Resolution 235 stipulates that for presentation purposes the Cuban Convertible Peso (CUC) should be translated into CUPs at the prevailing official corporate exchange rate of CUC 1: CUP 1]

Accounting records should be maintained in accordance with Cuban accounting standards. The name, classification and coding of accounts to be used in accounting systems are listed in detailed appendices to the resolution.

Financial results should be prepared within 10 days at the year end.

Cuba is currently establishing what will be in effect Cuban GAAP. The primary basis for these new accounting standards will be International Accounting Standards.

Taxation for Joint ventures
The corporate taxation rate is 30% for most joint ventures.Exemptions are common for an initial period, typically either 5 years or until profits generated exceed the initial investment.

A company's taxation calculation must be reviewed by a Cuban auditing firm. This should be prepared in accordance with ONAT's regulations.

Taxation for branch / rep offices
Liability to taxation of foreign companies which are registered in Cuba as a representation office / branch office is currently under review and was the subject of two recent resolutions (see box right). Taxation is payable at a rate of 35% on profits.

Most entities emphasize that since they are only facilitating and co-coordinatingsales from their head office they are exempt from these requirements.

Taxation for sales made to Cuban entities from overseas
Companies without a local office which make sales to Cuba are subject to a tax on gross sales of 4-8% under Resolution 379. The taxation to be paid is typically retained and paid to the authorities by the purchasing entity.

Personal taxation
Foreign employees who receive their salary from a Cuban source are liable to personal income taxation on a progressive basis, with rates up to 50%. There has been increased enforcement of this rule during 2004-2006, although it is still not entirely clear what constitutes a Cuban source.