Cuba Income Tax

Cuba income tax rates are progressive, the top rate being 50%.

Note: The new tax brackets below were announced by the Cuban Government in 2010, which, we hope will be come into force in 2011. We will check later if this applies only to new taxpayers or not.

Net Income (Cuban Pesos)   / Tax Rate %

CUP 5,000 - 10,000                     25%
CUP 10,000 - 20,000                    30%
CUP 20,000 - 30,000                    35%
CUP 30,000 - 40,000                    40%
CUP 40,000 - 50,000                    45%
Over CUP 50,000                         50%

Basis - Individuals that have a fiscal domicile in Cuba are subject to income tax on their worldwide income. Foreign individuals who are present in Cuba for at least 180 days in the tax period are subject to personal income tax on their 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 - Cuban individuals are generally taxed on their 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.

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 real estate companies or other authorised entities. Tax is also levied on 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 - Employers are 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.

Cuba Corporate Tax

Tax rate for resident companies: The SEM (Society of mixed economy) and the parties of a contract of international economic association are subjected to a special regime of levy, The tax is perceived at the rate of 30% of the taxable net profits, Concerning companies with totally foreign capital, the corporate tax rate is 35%, The executive committee can exempt the taxpayers from all or any of the net profit tax reinvested in the country, Similar exemptions can be obtained in case of implanting in a free-trade zone, A tax on salaries of 11% is added to the corporate tax and the Social Security contribution at the rate of 14%

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 organisation.

Taxable income - Profit tax is imposed on a company's operating profits, computed as the difference between total taxable income and deductible expenses and authorised 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.

Tax Rate - Joint venture companies and foreign and national investors that are parties to international economic association contracts 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

Tax Incentives - Licensees and operators in free zones are fully exempt from tax on profits for a period of 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 are also 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 Cuban parties or foreign parties to joint venture companies or parties to EACs are not subject to withholding tax.
Interest - Interest paid to Cuban or foreign parties in a joint venture company or that are part of an EAC are not subject to withholding tax.
Royalties - Royalties paid to Cuban or foreign parties in a joint venture company or that are part of an EAC are not subject to withholding tax.
Branch remittance tax - No

Other taxes on corporations:

Capital duty - No

Payroll tax - A tax of 11% or 25% is payable by employers that are legal persons, whether Cuban or foreign. The tax is calculated based on total wages, salaries, gratuities and other remuneration, including sales commissions.

Foreign investors must hire all labour through a designated Cuban employment agency, which pays each worker in national currency.

Joint ventures and wholly foreign capital companies pay the employment agency in convertible currency. The rate for joint ventures and EACs is 11%; the 25% rate applies to wholly foreign capital companies.

Real property tax - An annual 2% tax is levied on residential property sold by real estate companies or other authorised entities. Tax is also 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 currently 14%. Foreign investors in the form of wholly foreign capital companies must pay the rate determined annually in the State Budget Law (currently 14%). Parties to joint ventures and EACs always pay 14%.

Stamp duty - Stamp tax is levied on documents according to the taxable base and rates set by 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 capitalisation - No
Controlled foreign companies - 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 their 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 - Taxpayers may request a ruling on the tax consequences of a transaction in which they have a direct interest. A binding ruling must be issued by the Tax Administration.

Cuba Sales Tax

There is no Value Added Tax (VAT) in Cuba but there is a sales tax whose rate varies from 2.5% to 25% depending on the type of the product.

The taxed goods are those that are imported, partly produced in Cuba or goods that are bought for resale and are destined for consumption.

Taxable transactions - Cuba does not operate a VAT system. 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 varies depending on the goods, service sector and even currency of operations.

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.