Seychelles: Executive Summary

Seychelles Executive Summary

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 unspoiled. The main island, Mahe, has an airport and a very good port, Victoria. Most of the 89,000 inhabitants live on Mahe, and are a blended mixture of French and African, speaking Creole, but also English and French, especially in business. The British granted independence only in 1976; the Seychelles are an independent democratic republic with a presidential style of government. The 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 taken good notice of its competition.

Economy Dependent On Tourism

The service sector contributes 70% of the Seychelles's economy, which is based on tourism, fish processing and commerce. The International Trade Zone is successful, and the Seychelles are on the way towards becoming an Indian Ocean trading entrepot, which is their avowed goal. The Government is torn between Colbertian paternalism (very French) and economic liberalism (very English) and it is hard to say which is winning.

Until late 2004, when the 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 privately would 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 commodity price spike, 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, an Extended Fund Facility (EFF) of USD31m was approved by the IMF. Following a visit by an IMF mission in June, 2011 the Government of the Seychelles was praised for its' fiscal policies and the progress achieved in structural reforms.

The Seychelles' Lowtax Specialisations

The Seychelles have territorial taxation; thus 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 these being basically 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 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 18.75% for Seychellois and 10% for 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 2012, and there are import duties, but these have been reduced substantially 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.

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