According to the Law No. 118 (Foreign Investment Act) from 2014, upon the registration of a company in the Business Register, foreign investors can settle inside the Cuban national territory as legal entities by opening a Cuban subsidiary office of a foreign company and by setting up a branch of a foreign business.
So, what are the main differences between a branch vs. subsidiary in Cuba? Firstly, let us take a look at what each of these entities mean.
What is a branch office?
The main difference between a branch vs. a subsidiary in Cuba is that a branch office is a location, different from the main office, where business is undertaken. The majority of branch offices consist of smaller divisions of various aspects of the business like human resources, accounting, marketing and so on. A branch office usually has a branch manager who reports directly to, and takes directions from, a management member of the main office.
Criteria for opening a branch office in Cuba
The main criteria required in order to open a branch in Cuba are:
• A social capital of the foreign business of minimum USD 50,000;
• The company must have been registered in its country of origin for at least five years prior to the date of registration in Cuba;
• The business must have been doing business in Cuba for minimum three consecutive years before attempting to open the branch office; and
• The business must present an annual business volume with Cuban entities or agencies of minimum USD 500,000.
Our Cuban lawyers can provide more details on the benefits of opening a branch office in Cuba.
What is a subsidiary?
A subsidiary represents a company whose voting shares are owned with more than 50% by another company, generally referred to as the holding or the parent company. It is a company which is partially or entirely owned by another company which holds controlling interest in the subsidiary. If the parent company has a subsidiary in a foreign country, the subsidiary company has to abide by the legislation of the country where the subsidiary activates. The parent company still carries the financials on its books of the foreign subsidiary. As about liability, taxation and regulation, subsidiaries represent distinct legal entities.
Rights of a Cuban subsidiary office
The foreign investor or company which opens the subsidiary in Cuba has the right to:
• manage the subsidiary;
• enjoy all rights resulting from managing the subsidiary;
• is liable for all the obligations according to the Authorization;
• open representations, offices, branches and subsidiaries in Cuba as well as abroad;
• have interests in businesses abroad. Our attorneys in Cuba can give you further details on this matter.
Differences between a branch and a subsidiary office
If we were to make an evaluation of a branch vs. a subsidiary in Cuba, it is important to note that the branch office is not a separate legal entity, with gains, losses and taxation which are supported by the head office, while the subsidiary office is a separate legal entity and, even though parent and subsidiary companies are not taxed separately, the after-tax gains of subsidiaries go to the shareholders who own the shares in the form of dividend distribution. Generally, the subsidiary can take advantage of more local governmental tax incentives and other business benefits. If the parent company incurred losses in its early stages of activity, then the branch could be a more favorable option because it reduces the tax burden of the company.
If you wish to know more information on the branch vs. subsidiary comparison in Cuba, please contact us.