Seychelles

At a Glance

The Seychelles are a group of 115 islands in the centre of the Indian Ocean, about 2,000 km east of Africa and to the north of Madagascar, lying mostly between 4 and 5 degrees south of the equator. The archipelago lies outside the cyclone belt so the weather is stable all year round, with an average maximum daily temperature of 29 degrees. Rain falls most heavily in December and January.

There are two groups of islands: the 32 quite closely grouped Granitic islands include Mahe, the principal island, while the 83 Coraline islands are spread out over a wide area between the Granitic group and Madagascar. Mahe itself is 27km in length and 12 kms wide with a total area of 154 sq kms; it is mountainous, rising to a peak of 905 metres.

The Seychelles environment is one of the most unspoiled in the world with many species of birds, fish and rich flora, some of which are unique.

Victoria, the capital, on Mahe has the deepest port in the Indian ocean. The international airport on Mahe has direct flights to many cities in Africa, Europe, the Middle East, Australia and the Far East.

Population, Language and Culture

The population of the Seychelles is approximately 87,000, of whom about 70,000 live on Mahe. The indigenous population is a well-fused mixture of African, Malagasy and French strains; the official languages are a French-based Creole, English and French, with Creole being the most widely used. Business is conducted in French and English.

The islands were known to the Arabs from the 9th century, and after visits by the Portuguese, French and English, the French controlled them until 1814, when British ownership was confirmed. The islands became a British colony in 1903.

The abolition of slavery in 1835 was economically disastrous, but there was gradual progress over the next 100 years, with the population growing from 4,000 in 1840 to 44,000 in 1962. Independence was granted only in 1976, and the islands have developed rapidly since then under a stable government. 46% of the land area is demarcated as National Park or Nature Reserve.

Government

The Seychelles is an independent republic and a member of the Commonwealth. Under the constitution of 1979, a unicameral People's Assembly, comprising 34 seats (25 elected by popular vote, nine allocated on a proportional basis to parties winning at least 10% of the vote) is elected for a term of five years. Reforms to the constitution implemented in 1993 made way for a multiparty system after a long period of one-party rule. Currently the Assembly is dominated by the Progressive Front with 23 seats, while the National Party has 11.

The Executive President is elected for a five year term and may be re-elected three times. In 1996 the position of Vice President was created. In May, 2004, James Michel (previously Vice-President) became President, replacing France Albert Renee, who had been in office since 1977, and was last re-elected in 1998 with 59.5% of the vote. The Cabinet of 13 Ministers is appointed by the President.

The legal system originated from French civil law, but most modern criminal and business legislation is closer to Anglo-Saxon common law practice. There are magistrates' courts, a Supreme Court, and a Court of Appeal.

Seychelles is a member of the Commonwealth, the UN, the OAU, and the Non-Aligned Movement, as well as a large number of other international bodies.

Economy and Currency

Originally based on cotton-growing, the Seychelles' economy switched to coconut plantations after the abolition of slavery. In modern times, tourism and fishing have become economic mainstays. Services account for 72% of the economy, while tourism contributes over 70% of foreign exchange earnings. The international airport, opened in 1971, handles 250,000 passengers annually. GDP per head is USD18,00 (2008 est).

The islands lie on many international shipping routes, so that cruise liners are a growing source of tourist business; the Government has also opened the Seychelles Industrial Trade Zone (SITZ) which is successfully targetting trans-shipment and re-processing trade. In the last 20 years the Government has made a sustained effort to attract 'offshore' financial services, particularly in banking and insurance.

The official unit of currency is the Seychelles Rupee, divided into 100 cents. Prior to November 2008, the currency was pegged to the US dollar at a rate of USD1 -SYR5.5. The peg was removed as part of a package of economic reforms which included a loan from the International Monetary Fund to help pay the country's debt. After a sharp fall, by the spring of 2009 the Seychelles rupee had stabilized at a rate about 50% lower than 6 months previously.

After a reverse during the Gulf War, the economy rebounded, with growth averaging 4-5%. However, the artificially high exchange rate held back tourism, and growth in 2002-2004 averaged only 1.5%. Tourism was damaged by 9/11, and just as the islands were recovering in 2004, with economic reforms under the new president beginning to have an effect, the Asian tsunami dealt a very heavy blow to the Seychelles, severely damaging tourism, infrastructure and the fishing industry. GDP fell by 3% in 2005.

While the Seychelles Central Bank was optimistic on growth prospects for 2007 and 2008, the commodity price spike caused inflation to shoot up, and in combination with a shortage of currency reserves, the country defaulted on much of its debt and the economy faced crisis. In mid-2008 the government was forced to turn to the IMF for assistance. Discussions in July and September that year culminated in the abolition of all exchange restrictions and led to a tightening of fiscal policy, a broadening of the tax base and the introduction of a monetary policy.

Most of the country's debt with sovereign partners had been frozen as a result of a one-year moratorium announced by the Paris Club for countries affected by 2004 tsunami.

Seychelles President James Michel recently remarked: ”We requested support from the IMF to help solve these imbalances and safeguard the development goals we had achieved. This support was quickly granted. The Stand-By Arrangement is for us an example of how the instruments that govern the global economy can be adapted to meet the needs of a smaller partner.”

The authorities launched a public external debt restructuring initiative in late 2008 to put public debt on a sustainable path, by significantly reducing debt service obligations over the long term to levels consistent with the country’s limited payment capacity. A two-year SCR17.6 million (about US$27.3 million) Stand-By Arrangement for the Seychelles was approved on November 14, 2008.

In mid-April 2009, Paris Club creditors granted exceptional debt treatment to Seychelles under the 2003 Evian approach to debt relief, reducing the debt stock by 45 percent in nominal terms in two tranches, with the remainder rescheduled over 18 years with 5 years’ grace. Comparable treatment from other creditors is needed to close financing gaps over the medium term and secure public debt sustainability.

Entry and Residence

Short-stay visas are issued freely on arrival, although evidence of financial support may be required; the Seychelles does not encourage low-budget tourism. The permit can be extended for a maximum of three months from the date of issue and further successive three-month periods up to a maximum of 12 months.

For longer stays, it will be necessary to demonstrate adequate financial resources, or to acquire a Gainful Occupation Permit, normally costing SR24,000 per annum, plus a processing fee of SR1,000 (at the time of writing).

Business Environment

The Seychelles is politically stable, with good air and sea transport links and modern telecommunications. The Government has been consistently business-friendly over a long period, and has actively supported the development of the offshore sector. Inevitably, in a country this small, professional services do not have the breadth available in a larger jurisdiction, but there are adequate banking and legal facilities.

There is no discrimination against foreigners with a serious business purpose, except that they need official approval to own land. There are licensing regimes for financial institutions and trust managers. There is an adequate level of secrecy in professional transactions, but the Court can order disclosure under a number of international agreements. The Anti-Money Laundering Act 1996 allows the Central Bank to overturn suspect transactions.

Import of Foreign Capital

N.B. All restrictions on the trading of the Seychelles rupee were removed in November 2008 under an IMF-sponsored economic stabilization programme.

In 2001 the government amended exchange control and money and trade taxation laws to tackle the problem of growing black market activity. The amendments closed loopholes in laws such as the Exchange Control Act. Individuals who possess any foreign currency must show evidence that it is obtained from a registered dealer and the rules prohibit the buying and selling foreign currency by authorised dealers at rates above the maximum rate or below the minimum rate determined by the Central Bank as well as prohibiting the export and import of Seychelles currency notes and coins in excess of R2,000.

President Michel's 2005 budget speech included measures to lead to a more market-driven economy and reduce domestic costs with the purpose of improving the investment climate in the Seychelles: a series of incentives for the tourism industry; assistance to farmers and fishermen by reducing business tax on their activities and facilitating their access to vital equipment and resources; small businesses to be given better access to foreign exchange and an “open permit” system; everyone has the possibility of opening foreign exchange accounts locally; removal of the requirement for an import permit for most items, with the exception of a list of restricted items and items for resale; customs procedures at the ports to be streamlined and made more efficient and user-friendly; and reductions in the 'trades tax'.

In April, 2006, the Central Bank of Seychelles said it expected most of the existing controls on foreign exchange to have been removed by the end of 2006, in order to help quell black market activity and pull money into legal channels.

In his 2007 State of the Nation address, President Michel said that that liberalisation of foreign exchange remains "a fundamental element" of the government's economic reform agenda. "This reform will facilitate economic growth as businesses get more access to financial resources," he said. "Our economy has benefited considerably in the last two years with the implementation of these liberalisation policies. There is a rise of local investments and FDI and there has been increasing growth in tourism and fishing."

As a result of the global financial crisis in 2007/8, all restrictions on the trading of the Seychelles rupee were removed and the currency was allowed to float freely.

Foreign Investment Regime

The Seychelles government is keen to create a suitable environment for foreign investment. The Investment Promotion Act 1994 legislates inward investment Incentives are granted to approved projects in the domestic and export sectors, including tourism, agriculture, manufacturing and the service industries. Procedures for approval have been streamlined and the incentives include the following:

• Following the issue of a Certificate of Approval, subsequent tax changes cannot be to the detriment of the investor;
• Exemption from import duties on primary and intermediate inputs;
• Entitlement to employ 50% of foreign staff (first 25% at special rate of SR 500 per month; next 25% at the standard rate of SR 1,500 per month);
• Accelerated depreciation up to 150% for certain asset classes;
• Concessionary business tax rates of 15% (usually 40%) plus credits giving an effective rate of 9%.

For substantial investments, further incentives can be obtained from the Government on a negotiated basis.

The International Corporate Service Providers Act, 2003, substantially improved and simplify the regime for incoming investment. Previously, the Seychelles International Business Authority (SIBA) had power to issue a licence to offshore businesses, but entitlement to fiscal concessions depended on obtaining a certificate from the Ministry of Finance under the Investment Promotion Act.

The new Act streamlined the procedure for establishing an offshore business, avoiding the need for a separate IPA application to the Finance Ministry.

In June, 2004, the creation of the Seychelles Investment Bureau (SIB) brought the country’s promotion and facilitation of investments under one umbrella, offering a focal point of contact for all matters relating to investment in Seychelles. SIB has been mandated to coordinate the development of the Investment Code, an instrument that will allow a more transparent and stable investment environment.

In September, 2005, SIB launched a new website, which is intended to act as the main marketing tool and the first point of contact for domestic and foreign investors who are considering doing business in the country.

The SIB, established in 2004, is a semi-autonomous executive arm of the President's Office. Besides promoting the Seychelles as an investment and business centre, the SIB's other functions include:

• acting as the central agency of the Government dealing with matters relating to business and investment in Seychelles;
• facilitating investment projects and business activities;
• coordinating investment promotion policies, planning and marketing strategies to attract investments;
• facilitating and coordinating incentive schemes established by law to encourage investments;
• and advising the Government on investment policies and elimination of administrative and other barriers to the flow of investments.

In July, 2005, the Investment Bureau celebrated its first year of existence. During that period, the institution has approved more than 100 development projects valued at around R1 billion (US$192,600).

There are three major categories of investments: (i) tourism; (ii) residential and commercial projects, (iii) industrial projects. The tourism projects total some R800 million and these represent foreign direct investment (FDI), projects by Seychellois-foreign partnerships, or projects by Seychellois alone. In the other sectors of investment, the majority of promoters are Seychellois. The website can be found at www.sib.sc.

International Trade Zone

The International Trade Zone Act 1995 and the International Trade Zone Regulations 1995 provide for the establishment of free trade zones, which are delimited by a declaration of the Finance and Communications Minister, and can be for one company or many. The existing International Trade Zone (SITZ) on Mahe is established under the Act. Activities within the Zone are governed by the Seychelles International Business Authority (SIBA), which issues licenses to incoming companies.

The concessions available to licence holders in SITZ include:

• Exemption from customs duties on capital equipment to be used in SITZ;
• Exemption from Business Tax, Trades Tax and Withholding Tax;
• Exemption from social security contributions;
• Exemption from fees in respect of 'gainful occupation permits' (work permits);
• Entitlement to employ 100% foreign labour;
• A licence holder can apply for permission to sell within the domestic sector.

Companies established in the Free Zone are largely free of taxes.