Cuba Business

Cuba to start collecting income tax on joint venture laborers

Posted December 08, 2007 by publisher in Cuba Business.

Anthony Boadle | Reuters

Cuba on Friday said it will allow foreign companies to pay Cuban employees with hard currency, a move that legalizes widespread “under the table” payments and requires workers to declare and pay tax on that income.

Representatives of 698 foreign companies registered with Cuba’s Chamber of Commerce were told by Finance Ministry officials this week that as of January 1, 2008, they must also record in their books all hard currency payments to staff.

Foreign businesses in communist Cuba employ staff through government agencies, which are paid in hard currency and, in turn, pay the employees in Cuban pesos worth 24 times less.

To supplement low wages, companies often pay Cuban staff an additional amount under the table in hard currency, and authorities have turned a blind eye, until now.

“This will normalize relations between foreign investors and Cuba,” said Foreign Investment Minister Marta Lomas.

“Cuban workers receive their salary in pesos, and it is known that they receive another payment. We are adjusting the taxes to the circumstances,” she said.

Multinational companies have long urged Cuba to allow hard currency payments, and joint ventures between foreign firms and the state already pay results-based bonuses to some Cuban staff in hard currency, about $30 a month on average.

“This will allow us to legally pay all our workers in hard currency,” said a manager of a major foreign company in Cuba. “The bonus is, in effect, a wage.”

Cuba wants to make the hidden payments above-board so that they can be taxed, said another foreign businessman.

Western diplomats said allowing foreign companies to pay in hard currency was a break with Cuba’s egalitarian socialist system, and attributed the change to the less ideological rule of acting President Raul Castro, who took over when his elder brother Fidel Castro fell ill 16 months ago.

“This recognizes that some people are more equal than others in Cuba,” said one diplomat.

Cubans have lived virtually free of taxes for three decades, so for many of those employed by foreign companies, filing annual income tax returns will come as a shock.

The National Tax Office was set up in 1995 and the next year began taxing the hard currency income of self-employed Cubans, mainly family restaurants known as “paladares,” the closest thing to a small private business in Cuba.

Their taxes must be paid in hard currency according to a scale that rises as high as 40 percent.

(Reporting by Anthony Boadle and Esteban Israel; Edited by Xavier Briand)

Member Comments

On December 08, 2007, publisher wrote:

The original title of this article is:

Cuba allows foreign firms to pay in hard currency

I find that rather odd since the Cuban government is not doing this for the benefit of the laborers or foreign business partners but simply to collect taxes on the laborers. And, if the taxes are anything like those paid by paladar and casa particular owners, this will be a substantial tax resulting in MUCH lower take home pay for the laborers.

I would LOVE to see a general strike by all Cuba joint venture workers to protest this tax.

Seems like Raul just might be catching onto this capitalism thing after all… tax tax tax.

On December 08, 2007, HavanAndrew wrote:

Welcome to the real world Cuba, you will be paying the piper like the rest of us. There are two things in life that are sure, death and taxes. As for a strike, the hotel workers well find it hard to do so as there are so many Cubans that will be willing to replace them, taxes or not.

On December 08, 2007, manfredz wrote:

agree with HavanAndrew
there is just such a difference in what you buy in the peso stores and in those in which you must pay in CUC that those that get paid in CUC wont risk losing that.

Don’t necessarily agree with your conclusions though publisher -
1.  unknown what the tax rate will be so may or may not be as crippling as you suggest.
2.  So far foreign companies have been paying a small part of the wages under the table - understand its in the neighbourhod of 30 CUC/month for many.  To improve production, maybe there’ll be a higher percentage or even all in CUC which may leave the workers with more and also leave employers with a way of rewarding those better producers.  May end up being a good thing. May also accelerate the move to a single (hard) currency.  Lets see how this goes.
Yes, it may be seen as a cash grab for the Cuban government, but may also be a step in economic reform.  Definitely a situation worth keeping an eye on.

On December 08, 2007, publisher wrote:

I don’t see any way that this is a positive development for the Cuban people, but what else is new. It’s certainly not being done to aid the foreign investors so who’s left? Right. The Cuban government.

So, instead of taking home $30, they will not be taking home $20 or probably more like $15 and have NOTHING to show for it.

If this is a sign of Raul’s reforms, good luck to the Cuban people. Don’t forget that Raul recently allowed for private ownership of aircraft… another benefit to the Cuban people.

I still maintain my prediction from many months ago that Raul will not be able to manage Cuba after the death of Fidel. People just aren’t going to put up with this kind of bullshit anymore.