Seychelles, situated in the Indian Ocean, is an independent country which gained independence from the UK in 1976. Over the last ten years, the Seychelles offshore financial services industry has experienced a significant increase in business depth, volumes and international profile. A central factor in Seychelles’ rise as an international financial centre has been its strategy of striking an effective balance between sound regulatory practice and pleasing the market-place.
The tax - exempt Seychelles International Business Company (IBC) has enjoyed substantial success, as evidenced by surging registrations over the last five years - 7,097 new incorporations in 2005, 8,238 new incorporations in 2006, and on track for a new record in 2007 (making it now one of the most popular IBC entities worldwide). Seychelles IBCs are exempt from Seychelles taxation on their income, and also exempt from Seychelles stamp duty and withholding tax. Value for money has been an important reason for the success of the Seychelles IBC. Another factor which has impressed the market is the very fast speed of incorporations and name approvals. Seychelles IBCs also offer ease of administration, including no requirement to prepare or file audited accounts, and no requirement to file an annual company return. Another Seychelles IBC benefit is enhanced privacy, including no requirement to file details of the directors, shareholders or beneficial owners with any Seychelles Government registry or department. Such information is required to be held by or accessible to the company’s licensed registered agent.
The popularity of the Seychelles IBC and increased global profile of Seychelles as a serious offshore financial centre has paved the way for development into more value-added areas, including trusts, limited partnerships, mutual funds, and the “CSL” (Company Special Licence). A CSL is a tax resident of Seychelles, and may access Seychelles’ growing network of Double Taxation Avoidance Agreements (DTA s). A CSL is liable for Seychelles business tax at the rate of 1.5 per cent on its world-wide taxable income (which can often be avoided in full in cases where the company is accessing a Seychelles DTA). In particular, CSLs are increasingly being used (in conjunction with the Seychelles/China DTA ), for intermediary holding company purposes for medium to large investments into China (resulting in reduced exposure to Chinese withholding tax and, in applicable cases, avoidance of Chinese tax on gains).
IBC Amendment Bill, 2007
Seychelles has not ‘stood still’, and stays alert to the ever-changing needs of the market place. “Product improvement” amendments to the International Business Companies Act, 1994, anticipated to be enacted within the next few months include:
The annual Government licence fee will be US$100, irrespective of an IBC’s authorized capital (presently, an annual fee of US$1,000 applies for IBCs with an authorised capital exceeding US$100,000);
Expressly providing for companies limited by guarantee and hybrid companies limited by both shares and guarantee (as well as for companies limited by shares);
Formally allowing for country names in IBC names;
Improving the provisions relating to a change of registered agent;
Adding the ability for CSLs to convert into IBCs (presently an IBC can convert/continue as a CSL, but not vice-versa);
Increasing the post striking-off restoration period from three years to ten years;
Adding new sections providing for optional ‘registration’ of mortgages and charges, and providing for an optional register of charges;
Adding a specific provision for an official search.
The Mutual Fund and Hedge Fund Bill, 2007
Another exciting new Seychelles financial services development is the recent gazetting of the new Mutual Fund and Hedge Fund Bill, 2007 (the new Act), which will replace the existing Mutual Fund Act, 1997. As at the time of writing, it is anticipated that the new Act will be enacted around the end of October, 2007. The new Act provides for four types of mutual funds:
Professional Funds - these enjoy a lighter regulatory touch, as they are only open to professional or ‘sophisticated’ investors, in respect of which the initial minimum investment per investor is not less than US$100,000 (or its equivalent in any other convertible currency);
Private Funds - under the new Act, “Private Fund” is defined as a mutual fund: (a) the constitutional documents of which specify that it will have no more than 50 investors; or (b) the constitutional documents of which specify that an invitation to the public to subscribe for or purchase equity interests in the mutual fund is prohibited;
Public Funds - under the new Act, “Public Fund” means any mutual fund which is not a private mutual fund or a professional fund (such as ‘retail’ funds offered to the general public);
Exempt Foreign Funds - the new Act allows for foreign funds to operate from Seychelles without a Seychelles
Fund Licence if the fund is: (a) already licensed as a mutual fund in a recognized jurisdiction; and (b) administered by a Seychelles licensed fund administrator; and (c) is either listed on a stock exchange, or the minimum investment amount is not less than US$100,000.
Fund Administration Flexibility
Under the new Act, Seychelles mutual funds may be administered:
in or from Seychelles by a Seychelles licensed fund administrator; or
outside of Seychelles by an approved foreign administrator (namely, an entity licensed as a fund administrator in a “recognised jurisdiction”.
Wide Fund Vehicle Options
The new Act enables the following wide range of entities to be used as fund vehicles:
Seychelles tax-exempt IBCs (making for fast fund formation and, notwithstanding use of an IBC, the funds and their operators will be transparent as comprehensive public filings are required by the International Business Authority);
CSLs - as indicated above, these are tax-resident companies which may access Seychelles DTA s, such as the favourable Seychelles/China DTA;
Seychelles tax- exempt limited partnerships;
Seychelles international trusts (unit trusts); or
companies, unit trusts, or limited partnerships constituted in a recognised jurisdiction.
Under the new Act, the accounts of Seychelles funds and fund administrators may be audited by approved overseas auditors (including auditors qualified in Hong Kong and Singapore as well as UK, USA, Canada and Australia);
Under the new Act, Seychelles licensed funds and exempt foreign funds will enjoy (among other fiscal concessions) full exemption from Seychelles business tax on the fund’s income (except for funds wishing to use a CSL structure so as to benefit from tax relief available under a Seychelles DTA), as well as exemption from Seychelles withholding tax and stamp duty (on most transactions);
Reduced costs and value for money - Seychelles funds may be established and operated more cost-effectively than in many other jurisdictions;
Favourable time zone - Seychelles’ time zone (GMT+4) enables same-day servicing of and communications with Europe, Asia, Africa and the Middle East.
Seychelles has maximised its appeal and effectiveness as an offshore financial services centre by striking an effective balance between sound regulatory practice and attractive financial services products. With Seychelles’ financial services industry’s continuing momentum, it is well placed to make an increasingly significant impact on the international market!
Simon Mitchell, Seychelles Attorney-at-Law and Consultant to Mayfair Trust Group Limited, Seychelles