Seychelles: Country and Foreign Investment
The Very Model Of A Modern Archipelago
The Seychelles are a byword for tropical beauty. The 115 islands, near the equator and outside the cyclone belt, are indeed unspoilt. The capital, Victoria, on the main island, Mahé, is an excellent port and has an airport. Most of the country's 95,000 inhabitants live on Mahé, and are ethnically a blend of European, African and Southeast Asian. They speak their own French Creole as a first langauge, but use English and French in business.
The British granted independence to the Seychelles in 1976. It is an independent democratic republic with a presidential style of government. President from 1977 until 2004, Albert Renee oversaw the conversion of a ‘fishing and bananas’ type of economy into a modern tourist Mecca, alongside a carefully created offshore financial centre which has astutely taken notice of its competition.
Economy Dependent On Tourism
About 70% of the Seychellois economy is in the service sector. Main activities are tourism, fish processing and commerce. The Seychelles has an International Trade Zone, which has been very successful. The country is on its way to becoming an Indian Ocean trading entrepôt, which is their avowed intention. The Government is torn between Colbert-style paternalism (very French) and economic liberalism (very English) and it is hard to say which is winning.
Until late December 2004, when the Indian Ocean tsunami did substantial damage, there was growth but also unemployment and a deficit. The local population is not always willing to be cast in the role of economic superstars, to the despair of the Government, which would privately like the Seychelles to be a new Singapore. A macro-economic programme under the acronym MERP, launched in 2004, aimed to correct fiscal and economic imbalances with increased taxation and government retrenchment.
The jump in commodity prices, a shortage of currency reserves and high inflation has prompted a further round of fiscal tightening after the country defaulted on much of its debt in mid-2008, when the government turned to the IMF for financial assistance. By the end of 2009, the IMF had approved an Extended Fund Facility (EFF) of US$31m. Following a visit by an IMF mission in June 2011 the Seychellois Government was praised for its fiscal policies and the progress achieved in structural reforms.
The Seychelles has territorial taxation, meaning that only locally-sourced income is taxed. There is recent, well-formed legislation for international business companies, offshore banks, insurance companies, mutual funds, trusts, and extensive programmes of investment incentives, as well as the International Trade Zone, all of which are virtually free of taxes. In 2003, the government legislated for additional types of company: special licence companies, protected cell companies and limited partnerships.
It is easy to form corporations, and privacy is reasonably assured. There are tax treaties with a number of countries, including China. Banking and shipping are the Seychelles' two main 'offshore' industries. The Seychelles started to create an International Offshore Financial Centre (IOFC) only quite recently, but by 2008, more than 50,000 companies had already been registered. The Trade Zone is probably the most successful aspect of the offshore initiative, and that has more to do with trade than tax.
Moderate Taxation For Local Business
Locally-sourced profits are taxed at up to 33%, and the income and non-monetary tax of 15% for Seychellois and non-Seychellois individuals applies in all sectors other than the Trade Zone. A tax of 20% is payable by employers on non-monetary employee benefits. There are no other taxes to speak of. There is a small withholding tax for some types of payment. All foreign-source income is tax-free. VAT will be introduced in 2013 (postponed from 2012), and there are import duties, but these have been substantially reduced in recent years. The Government's extensive investment incentive programmes give substantial tax benefits to incoming investors in many sectors and the free zones are ideal for locating regional distribution centres. No company with exclusively external assets and commercial operations will pay tax.