Economy of Cuba

The economy of Cuba is a planned economy dominated by state-run enterprises. Most of the labor force is employed by the state. In the late 2010s, private property and free-market rights along with foreign direct investment were granted by the 2018 Cuban constitution. Foreign direct investment in various Cuban economic sectors increased before 2018. As of 2021, Cuba's private sector is allowed to operate in most sectors of the economy. In 2021, Cuba ranked 83rd out of 191 on the Human Development Index in the high human development category. As of 2012, the country's public debt comprised 35.3% of GDP, inflation (CDP) was 5.5%, and GDP growth was 3%. Housing and transportation costs are low. Cubans receive government-subsidized education, healthcare, and food subsidies.

Top Sectors in Cuba

Energy production in Cuba

As of 2011, 96% of electricity in Cuba was produced from fossil fuels. Solar panels were introduced in some rural areas to reduce blackouts, brownouts, and the use of kerosene. In 2017, Cuba produced and consumed an estimated 1,189 million cubic meters of natural gas and had 70.79 billion cubic meters of proved reserves; the nation did not export or import any natural gas.

Biotechnology in Cuba

Cuba's biotechnology sector developed in response to the limitations on technology transfer, international financing, and international trade resulting from the United States embargo. The Cuban biotechnology sector is entirely state-owned.

Cuba - Key Economic Indicators

Exports and Imports

Cuba's main exports are nickel, medical products, sugar, and tobacco. In 2023, exports were valued around $10.2 billion, while imports reached an estimated $15.4 billion. This trade deficit reflects Cuba's reliance on imported goods like food, fuel, and medicine.

Fiscal Policy

The Cuban government prioritizes social spending on education, healthcare, and basic necessities. However, these programs require significant resources, leading to a budget deficit.

Monetary Policy

Cuba has a dual-currency system with the Cuban Peso (CUP) for domestic transactions and the Convertible Peso (CUC) pegged to the US dollar, used primarily in tourism and some retail sectors. The Central Bank of Cuba manages monetary policy, aiming to control inflation (around 14% in 2023) and maintain the CUC's peg to the dollar.

Trade Agreements

Cuba seeks to diversify its trade partnerships beyond traditional allies like Venezuela. Recent agreements with Russia and China aim to boost trade and secure access to essential goods and investment. Cuba also participates in regional trade agreements like the Latin American Integration Association (ALADI).

Environmental Regulations

Cuba faces environmental challenges like deforestation and marine pollution. The government acknowledges the need for environmental protection and is taking steps to promote sustainable practices, such as increasing renewable energy use and combating deforestation. International cooperation plays a role in supporting these efforts.

Tax system

Capital gains tax: Capital gains are generally taxed as ordinary income in Cuba. The progressive tax rate for individuals ranges from 0% to 50%, depending on income level. This means profits from investments are taxed on the same scale as salary income.
Corporate tax rate: The standard corporate tax rate in Cuba is 35%. However, there are variations: (i) Special Economic Zones (SEZs): Businesses operating in designated SEZs may benefit from reduced corporate tax rates or tax holidays to attract foreign investment. Details and specific rates can vary depending on the zone and the investment.(ii) Strategic sectors: Specific industries deemed crucial for development (e.g., renewable energy, biotechnology) may receive preferential tax rates to encourage growth. Exact rates and qualifications are subject to negotiation with Cuban authorities.
Sales tax: Cuba has a single sales tax (impuesto sobre la venta) applied to goods destined for use and/or consumption. The tax rate varies depending on the type of good: (i) 2% for wholesale sales.(ii) 10% for retail sales.
Property tax: Property taxes in Cuba are relatively low. Rates typically range from 0.1% to 1.5% of the property's assessed value per year, depending on location, type (residential vs. commercial), and value.
Payroll tax: Cuba has a social security system funded by both employers and employees. The total contribution rate is around 30% of an employee's salary with employers contributing a larger share (around 23%) and employees contributing the rest (around 7%). This covers social security benefits like healthcare and pensions.
Tax deductions and credits: Cuba offers some tax deductions and credits to reduce tax liability for individuals and businesses. These can include deductions for: (i) Business expenses (ii) Some medical expenses (iii) Investment in certain government-approved sectors (e.g., tourism, renewable energy).
Tax compliance: Tax compliance in Cuba is improving as the government implements stricter regulations and utilizes technology for better tax administration (e.g., digital tax filing systems). However, challenges remain, particularly in the informal sector, which makes capturing tax revenue more difficult.
Tax burden: The overall tax burden in Cuba is considered moderate for individuals and businesses compared to some developed economies. The government is focusing on broadening the tax base and improving tax collection efficiency to generate sustainable revenue for social programs and development projects.