Minister for Finance, Economic Planning & Trade Mr Naadir Hassan, earlier this month, presented the 2021 budget to the national assembly. Mr Hassan noted that the economy contracted by 13.5% (as opposed to the anticipated 10.8%) and runs a debt-to-GDP of 99.4% going into 2021. Planning for a similar year to last the proposed budget proposes a 2021 budget deficit of SCR3.417 billion (compared to SCR3.871 billion in 2020) pushing the debt-to-GDP to 108.4%. With IMF now looking over Seychelles’ shoulder, it was said the economy will need to go through macro-economic transformation in order to overcome the challenges ahead. Mr Hassan stressed on the Seychelles government’s renewed commitment to increase the ease of doing business and its focus on acting as a facilitator in the economy.

From a company perspective, included in the budget were tax reforms and changes to Corporate Social Responsibility (CSR) which we discuss briefly below. More positively, there will also be a new legal framework governing virtual asset providers and this may very well be a pronounced area for innovation in Seychelles.

This article will outline three topics – namely Tax Reform, the Financial Sector, and Ease of Doing Business.

TAX REFORM

Key features:

• Removal of CSR tax;
• Highest tax bracket business tax lowered

As of April 1^st the Government will do away with CSR tax because it is aimed at revenue as opposed to profit. CSR tax is currently 0.5% on turnover applicable to businesses whose turnover exceeds SCR1 million. This will not be replaced by a redrafted CSR as Hassan comments that they do not see this as the role of Government to force businesses to make donations.

Together with the lowering of the business tax, currently at 30% to 25% on profits in excess of SCR1million, will allow businesses to retain some of the capital it was having to pay as taxes. This decision by Government is in view of providing a more reasonable tax rate to businesses to utilise profits for operations and to encourage tax payment.

FINANCIAL SECTOR – FINTECH, DLT & CRYPTOCURRENCY 

• Focus on being removed off the correspondence banking Blacklist;
• Government to propose new legal framework for Virtual Assets Service Providers

With 2021 being the last year to bring the AML/CFT framework up to speed with FATF best practices there will continue to be reform in the financial sector. The purpose of the amendments and continued effort is to realise the financial sector’s full potential as a contributor to the economy.

Minister Hassan spoke of providing a new framework for “virtual asset providers” before July. This is likely to be aimed at providing licenses for the sizable number of enquiries largely thanks to the profound rise of distributed ledger technology (DLT) and the associated cryptocurrencies.  This indeed has the potential to be a major source of income for the country if the framework can meet the needs of the service providers in this industry. The framework will however need to be well scripted given the controversial nature of the industry.

Many of the Seychelles IBCs are already incorporated as cryptocurrency exchanges and licensed elsewhere, providing people access to these ‘virtual assets’ through Fiat or cryptocurrency itself. Our current laws provide for a Sandbox Exemption to be granted to these fintech companies so that the FSA can monitor and learn about their business and simultaneously ensure that the business environment remains safe for customers. This has not been overly successful as other jurisdictions already have more developed frameworks, offering more operational certainty to these companies.

BitMex lists its headquarters in Seychelles, Huobi is incorporated here and Binance (JEX) operate through a Seychelles IBC. To expand on the opportunity, Cipher Trace, the world’s leading digital forensics team, lists twenty-three (23) exchanges already linked to the Seychelles. Exchanges are involved in trading cryptocurrencies and the current volume of trade is astronomical and continues to rise. As an example, in the first quarter of 2020 20% of the worlds volume of Bitcoin passed through Seychelles IBCs. This is equivalent to more than US$2 billion over three months and one article is quoted as referring to Seychelles’ potential to become a Fintech Wakanda. This is achievable through expansion of the FSA basket beyond only offering incorporation products.

Prospects like this must be exploited. This presents an opportunity for the country to generate skilled work opportunities, infrastructure, and revenue from these enormous companies through allowing these companies to obtain licenses in Seychelles. Further benefits can follow as these companies can list on the Seychelles stock exchange, MERJ, and could consider having their actual headquarters in Seychelles. These are the various additional products the Government has available to offer large companies in addition to incorporation of an IBC and need to be considered as a basket of products. This will also enable Seychelles to diversify away from tourism into an industry that could potentially generate much more revenue and in foreign exchange.

Malta, Antigua, and Japan are already at the forefront of cryptocurrency framework and are reaping the rewards as seen in Malta. There is no reason why Seychelles cannot do the same, or even take a step further in the country’s vision to this opportunity and propel the country forward in technology with the implementation of DLT and smart contracts to provide widespread improvements to the systematic challenges felt in Seychelles. It is very likely that pursuing this route will bring educational benefits to Seychelles given the wide exposure to technology and the need for the new stakeholders to integrate into the community. This technology effectively takes away middlemen and has the potential to make systems, such as land registries, much faster and more transparent.

PROMOTING OPPORTUNITIES & EASE OF DOING BUSINESS

• Reform to the employment laws;
• Consolidated Ministry of Investment, Entrepreneurship, and Industry;
• Company Incorporation to be completed online.

There was a further commitment by Government that it would focus on increasing the ease of doing business in Seychelles and concentrate its efforts as facilitators and not competitors to the private sector.  Seychelles Trading Company (STC) is an example of this as it has grown from providing only essential food security to becoming the most prominent player in the retail market. The Government is now looking to scale back STC in order to realign its mandate to provide only the basic commodities at affordable prices.

The speed and efficiency of services rendered by government undoubtedly needs an overhaul as the mere task of accomplishing all the requirements to become an operationally compliant company (while running a business) can in itself be considered as innovative. With this deliberated the budget speech made it clear that the consolidated Ministry of Investment, Entrepreneurship, and Industry would be working to move the incorporation process online (similarly, will Customs services look to move online). This may not be the silver bullet to all the present issues but rather aids as a move in the right direction. Time will tell whether the new and improved Ministry will be successful in carrying out its mandate to facilitate business in the country.

As it stands now the Employment Act is, in practice, challenging to navigate and requires a number of mathematical puzzles to be solved. This also leads to a high number of disputes arriving at the Employment Department because of the lack of ease of use of the framework and leads to a desire from companies to have less staff. A modernisation of the employment laws will be well received by the private sector.

In conclusion, the Covid pandemic could well one day be regarded as the catalyst to a better and more productive Seychelles. The speech outlined many ambitions which will allow innovation to be galvanised for which has been lacking in recent times. Most certainly, if the ease of doing business improves the private sector can start focusing on more productive activities for which the public sector can benefit. So too can the government benefit from fairly implemented and utilised taxes and a growing financial sector. Whether these words from the Minister are to materialise or not are viewed in light of whether there is much choice given the ailing tourism sector and the number of businesses likely to fall into insolvency by the end of this year. The fallback will be to observe an unrewarding business environment in the medium to long term, focused on an uncertain tourism sector not likely to recover any time soon. Many may rightly reason there is not much cause for optimism but therein lies the opportunity to spark the masses.

The above comments are that of this author and do not reflect the views of the Government of Seychelles or any relevant regulatory body other than where stated in the 2021 Budget Speech. Any legal opinion contained herein is a very general one, each individual circumstance is different and even small differences often lead to different conclusions. 

Should you require any further information please contact Christen Chambers