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Seychelles: New Indian Ocean Tax Haven

Introduction

The Seychelles are a string of 92 small islands that lie about 1,000 miles off the east coast of Africa in the middle of the Indian Ocean. The Seychelles islands have historically been a tourist destination. Devoid of human inhabitants until the early part of the 17th Century, when it was ruled by France, the Seychelles’ multi-lingual population today is made up of Indian, African, Chinese and Europeans, with English the official language. The Seychelles population numbers about 73,000, with most living on the main island of Mahé.

While the mainstay of the Seychelles economy is tourism, according to a recent article in The National Enquirer (March 12, 1996), recently the Seychelles government has taken measures to attract a less affable element – wealthy drug kingpins from around the world!

Controversial Citizenship Program

According to Philip Smith of the National Enquirer (largest circulation of any paper in America), mobsters and drug kingpins from the U.S. and other countries now have a safe haven where the long arm of the law can’t touch them.

The Seychelles Islands government – which gets $3 million a year in U.S. taxpayers’ money – is offering citizenship and immunity from prosecution to any thug who’ll fork over $10 million!

“We’re deeply concerned by this,” said Jonathan M. Winer, deputy assistant secretary of state for law enforcement at the U.S. State Department.

“It’s a very popular tourist spot for Europeans because of its beauty and climate,” said Sheri Sprigg of the U.S. State Department. “It’s very safe. There’s very little crime.”

Immunity from Prosecution

Last November, in an attempt to boost the country’s economy, President France-Albert René announced that for $10 million, the Seychelles would grant “immunity from prosecution for all criminal proceedings whatsoever.” That means well-heeled criminals won’t be extradited from the Seychelles to any foreign country for trial.

So far, four men suspected of extensive criminal activities in Europe are believed to have obtained citizenship there. The U.S., along with Britain and France, has lodged strong protests.

International Criticism

“It’s outrageous that the Seychelles government is doing this – and to think that American taxpayers are helping them!” said Mort Feldman, executive vice president of the National Association of Chiefs of Police. “Our government should stop sending them money. Unless we do something about this, every major drug dealer and organized crime figure is going to hightail it over there and bask in the sun – happy in the knowledge they can thumb their noses at the rest of the world!”

Heading in a New Direction

Seychelles gained its independence in 1976. Since then a number of major economic, social and political developments have taken place. In the early 1990s a major shift in policy was announced. In 1993, a new constitution was drafted and approved by national referendum based on multi-party democracy.

Following the new constitution, the new Government undertook a total reform of the economy and material policy decisions were announced with a number of steps taken to promote inward bound investment by the private sector. In 1994, the Seychelles announced its intention to turn the country into a full-fledged international business center (a.k.a. a tax haven), following a study which had been commissioned and implemented by foreign consultants.

New Laws and Regulations

The cornerstones of the jurisdiction’s new economic expansion was the setting up of a collection of modern business legislations modeled after other successful havens, including the British Virgin Islands, the Bahamas, the Cook Islands, Panama, and the Caymans. The new legislation include:

  • The International Business Companies Act, 1994
  • The International Trusts Act, 1994
  • The Seychelles International Business Authority Act
  • The Seychelles International Trade Zone Act

Seychelles International Business Authority (SIBA)

Aside from these legislations there was a necessity for a regulatory body. In early 1995, the Seychelles International Business Authority (SIBA) was set up to act as regulator for the new business legislation being introduced. Made up of both private sector members and Government Statutory members, the SIBA’s main role is to:

  • Advance the jurisdiction as a center for international business activity
  • Safeguard that international business transactions are conducted in a proper fashion
  • Carry out the function of an Authority or Registrar under the law

Building the International Business Center

Another pillar in the establishing of the nation as an offshore center has been the development within four main areas of the International Business Center. These include:

  • The incorporation of international businesses in the jurisdiction
  • The development of Seychelles as an international business center
  • The promotion of the registration and licensing of certain activities in the jurisdiction including those under the Merchant Shipping Act and the Air Navigation Act

Low and No Taxes Promised

If new legislation and the creation of an international trade center were to be the keys to converting the jurisdiction into a successful tax haven like the Cook Islands or BVI, then the need for a steady tax regime has been another. Recognizing this need, the Government has recently enacted the Investment Promotion Act 1994, which enables businesses to operate under a guaranteed taxation climate with special incentives.

Employers receive an automatic entitlement to employ up to 25% of employees from overseas, at a concessional fee of SR. 500 per month per employee laid out in the legislation. In order to assist investors a ‘one stop shop’ IDEAS (Investment Development Advisory Service) has been set up in the Ministry of Finance and Communications.

Investment Promotion Act 1994

Applications for Certificate of Approval under the legislation have to be filed, and when approved will give the investor access to all the incentives for the category of investment. The legislation applies to both existing and potential investments, and both local and foreign owned businesses are eligible.

Investment Categories

Investments are classified as:

  • Agricultural and Marine Resources
  • Industrial and Manufacturing
  • Professional Services
  • Small Scale Industrial Investments
  • Tourism Development Investments

Common Law Trust Legislation

The jurisdiction’s legal system has been influenced by the principles of the Napoleonic civil code and common law. As such the trust concept, which is familiar to all English speaking jurisdictions, is not recognized by the Seychelles civil code. Nevertheless, in order to provide a strong legislative environment for international trusts, the International Trusts Act 1994 has been introduced recently by the Government.

International Trust Act 1994

For the most part, there are few restrictions as to what a trust can and cannot do in Seychelles.

Key Features

Trust Types and Flexibility:

  • Revocable and irrevocable trusts are permitted
  • Trusts cannot involve any land in Seychelles
  • Trusts may own and trade in shares, open bank accounts or even deal in Government securities in the country
  • An international trust may be charitable or non-charitable
  • An international trust may be created by an oral declaration or by an instrument in writing, a will or codicil

Asset Protection:

  • Neither the trust, nor the transfer or disposition by a person creating an international trust can be nullified by any foreign rule of forced heirship
  • There are no limitations on the accumulation of income

Privacy and Confidentiality:

  • No requirement to specify the name of the grantor or the name of the beneficiary, unless the latter is a Seychelles national or a body corporate resident in Seychelles
  • Confidentiality is maintained, and it is illegal to divulge or produce any information or certificate relating to an international trust, except under an injunction of the Seychelles
  • An international trust is valid and executable in Seychelles

Trust Applications

An international trust may be set up to:

  • Trade (commercial trust)
  • Deal with life insurance (life insurance trust)
  • Manage provident and pension funds or cash deposits

Parties and Governance

  • The grantors (i.e. trust creator or settlor) or the trustees can be named as beneficiaries under the trust
  • The grantor does not at any time during the duration of the trust have to be a resident of Seychelles, but at least one trustee must be so resident
  • The law governing an international trust is the law chosen by the grantor to be the proper law, expressed or implied, in the terms of the trust

Setting Up an International Trust

How can you form an International Trust in Seychelles, and what about taxation?

Formation Process

It is required that you apply through a licensed trustee incorporated in the jurisdiction. The licensed trustee would prepare the necessary documentation on your behalf and submit it to the SIBA, which would then register the trust.

Costs and Taxation

  • Standard fee for government registration: US$100
  • No taxes on international trusts
  • No stamp duty
  • No capital gains tax

The IBC Act 1994

The IBC Act 1994 states that no fee will affect an IBC incorporated under the Act before the coming into force of the fee increase. Accordingly, the fees paid by an IBC are fixed for life.

International Trade Zone

The current legislation proposes that most of the earnings of a Seychelles International Trade Zone (SITZ) company would have to originate from the re-export of goods through the jurisdiction.

Benefits for SITZ Companies

All companies who operate within the SITZ will enjoy the following:

  • Exemption from all trade tax and duties on imports and exports
  • Exemption from Business Tax and all Income and Corporate Taxes
  • Exemption from the payment of Social Security Contribution and Pension scheme
  • Exemption from payment of work permits for expatriate workers

Strategic Advantages

The success of the International Business Center revolves around maximizing the use of the strategic location of the Seychelles, and in particular the development of an International Trade Zone. A number of elements favor the jurisdiction in this regard:

Geographic and Infrastructure Advantages

  • Geographical location, centrally placed and surrounded by Africa, India and Australia in an area with perfect climate conditions
  • Modern airport and port are operational
  • Prime area land is available for development
  • 6 licensed banks operating in the country
  • 8 licensed management companies operating in the country

International Memberships and Protections

  • The Seychelles is a signatory to the Lomé IV convention benefiting from the provisions of the convention
  • Member state of the African Caribbean Pacific countries
  • Signatory to the Multilateral Investment Guarantee Agency, which protects all investors from expropriation

With extensive co-operation of neighboring countries, the region is coming to be known as the ‘Indian Pacific Rim.’