October 8, 2017
If you’re considering doing business in Cuba, there are many key differences in the regulations governing business there than anywhere else. In the hopes of saving new, as well as experienced entrepreneurs from some of the unexpected pitfalls that can arise from doing business there, here is a list of five of the most important rules that you must know before doing business in the Republic of Cuba.
By James Paine
Founder, West Realty Advisors
Originally published on July 3, 2017 on Inc.com
The Cuban trade embargo has been in effect in the United States since February 7, 1962. Since that time it has been extremely tough to do business with, let alone in the country. However, diplomatic tensions between the two nations have been easing over the past decade. While it’s uncertain how things will unfold during the Trump presidency, things seem to be looking up economically. The country has a thriving group of IT workers most notably and entrepreneurs in the US are starting to consider the potential.
If you’re considering doing business in Cuba, personally, I’d say go for it! But, do your research first. While it’s getting easier, there are many key differences in the regulations governing business in each country. In the hopes of saving new (and experienced) entrepreneurs from some of the unexpected pitfalls that can arise, I’ve put together this list of 5 of the most important rules that you must know before doing business in Cuba.
1. Businesses are not recognized as legal entities in Cuba.
Here in the US, companies are recognized as a separate legal entity, essentially their own person, with many guaranteed rights similar to you and I. This also means that a business itself and not its employees will be held liable in the event of a bankruptcy and certain illegal actions. In Cuba, things are entirely different. There is a way to set up a “corporation”, but liability falls squarely on the shoulders of the owners and employees.
2. A cooperative is the closest thing to a corporation in Cuba.
Cooperatives are a type of business structure that is worker-owned and retains legal standing in Cuba. Initially, cooperatives were allowed for agriculture businesses only, but, in recent years the government has gradually been reducing those restrictions and allowing a variety of new industries to register cooperatives.
The main benefit of setting up a coop is tax breaks. It does little to protect the owner or employees from liability. However, as the country continues to modernize and the economy becomes more decentralized, it’s possible that the laws governing liability and business structures will begin to change.
3. Legal defense for foreigners remains questionable at best.
Foreigners are entitled to legal defense in Cuba, however, that defense comes with a rather serious conflict of interest. The Cuban Constitution states that the interests of the State must be placed before the rights of the accused. In addition, most lawyers in the country work in government-run law firms called colectivas. That means it’s very likely that the lawyer you hire will be a government employee.
It is possible to hire a private lawyer to assist you in Cuba. Unfortunately, that lawyer can’t actually represent you in court, they may only advise you. Now, I’m not saying that it’s impossible to get a fair trial in Cuba nor am I saying you shouldn’t do business there. What I am saying is it’s extremely important that you do your research and discover any laws that may apply to you before they become an issue.
4. A US citizen can’t directly invest in Cuba
Despite Obama’s efforts towards the end of his presidency, the Cuban trade embargo is still very much in effect. Now, there are ways around it, namely investing through a third-party, but, it’s still considered an incredibly high-risk market to invest in with little to no protection offered to investors. At the risk of sounding repetitive, that may come to change over the next few years, but, any investment in Cuba must be made with meticulous research and planning.
5. Income inequality is still a very sensitive issue
In Cuba, the laws governing “unjust enrichment” can be a tricky and unexpected issue for foreign entrepreneurs. The concept comes from the Roman law, “nemo locupletari potest aliena iactura or nemo locupletari debet cum aliena iactura” or “no one should be benefited at another’s expense.” A Cuban entrepreneur found to be unjustly enriched can be held responsible regardless of any intentional wrongdoing. The law aside, income inequality is still a hot-button issue there culturally and any discussion of the topic should be handled delicately with the utmost care.
It’s very hard to say what the future has in store for US-Cuba relations. However, there is definitely a lot of untapped potential in the country. Like any new and expanding market, things will be riskiest for the initial wave of investors and entrepreneurs, but as we all know, with great risk comes great reward.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.