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Seychelles has maintained a credit rating of ‘BB-‘ with a positive outlook from Fitch Ratings with key drivers being relatively high-income levels, strong World Bank Governance Indicators, and a stabilisation of the tourism industry. The Ratings, which came out on Friday, stated that tourist arrivals and tourism earnings increased by 5.7 percent and 5.8 percent respectively in 2023, reflecting a stabilisation after 82 percent and 59 percent increases in 2022. “Europe remains the top source of tourists, 73 percent share in 2023, with Germany and Russia topping arrivals since the start of 2024. The average expenditure per tourist remains above the authorities’ target of $2,800,” added the Ratings. According to the Ratings, the economy of Seychelles grew by 1.9 percent year-on-year over the first three quarters of 2023. Fitch estimates that “the economy grew by 2.5 percent in 2023 and will average 4 percent in 2024-25, driven by stable tourism and growth in the information and communication technology sector. Authorities have revised down their estimate of potential growth from 3.5 percent to 3 percent, given weak productivity growth in the large tourism sector, and limits to the expansion of tourism facilities in the medium term.” However, the island nation in the western Indian Ocean still has climate change vulnerabilities. “Seychelles is heavily exposed to risks from rising sea levels, with impacts already being felt primarily through rising intensity and frequency of storms that are rendering some coastal infrastructure unusable,” stated Fitch Ratings. It added that “In the short term, Seychelles’ tourism industry faces constraints in expansion due to the saturation of coastal infrastructure, which effectively acts as a cap on potential growth, currently estimated at 3 percent. Fitch foresees a strong likelihood of Seychelles continuing to receive multilateral technical and financial support for climate change adaptation in the medium term, which will result in an increase in budgetary spending on climate-related issues.

Ethiopia and Seychelles are poised to enhance their bilateral relations, with a focus on expanding trade, investments, and tourism. Leveraging the connectivity established by Ethiopian Airlines’ routes to Seychelles, the two nations see potential for increased business exchanges and collaboration in previously untapped areas. Since establishing diplomatic ties in April 1982, the island nation and the East African country continue to explore avenues for mutual growth and development. The diplomatic mission, which operates from Kampala, Uganda, underscores the commitment of both countries to strengthen their partnership.

The European Council has removed Seychelles from the EU’s list of non-cooperative jurisdictions for tax purposes. The Seychelles’ Finance Minister expressed satisfaction with this development, noting that it reflects Seychelles’ commitment to tax transparency. The country had been previously rated as “partially compliant” by the Global Forum but has since made progress in addressing the EU’s concerns. The removal from the blacklist is expected to alleviate pressures on Seychelles’ financial sector, especially concerning banking relationships. Seychelles has been actively urging for a review of the assessment methodology to ensure fair and current reflection of a country’s compliance. Seychelles’ efforts include a demonstration to the OECD of their progress in meeting transparency standards, which has resulted in the country moving from the blacklist to a watchlist. This watchlist is for jurisdictions that are enacting tax reforms and are monitored closely. The EU updates this list biannually, with Seychelles aiming for an improved compliance rating by 2025. The country is set to undergo a supplementary review in 2024. The previous blacklisting was partly due to issues with a single Registered Agent in 2018, which was linked to the Panama Papers. Seychelles is committed to ongoing reforms to meet international standards and is working towards ensuring its legal frameworks are robust and compliant with global norms. The Corruptions Perceptions Index 2023 issued by Transparency International on the 30th January 2024 placed Seychelles 20th worldwide, the same rank as the United Kingdom and France, and (still) top in the sub-Saharan Africa region. Links: https://www.consilium.europa.eu/en/policies/eu-list-of-non-cooperative-jurisdictions/?utm_source=x.com&utm_medium=social&utm_campaign=20240220-tax&utm_content=visual-cardhttps://www.transparency.org/en/cpi/2023/index/lva

TRANSFER PRICING DEFINED As stated in Section 2 (g) of the Business Tax (Amendment) Act, 2022 “Transfer pricing” is defined as the determination of prices charged in transactions between associates. Furthermore, Business Tax Act describes two persons as associates if the relationship between them is such that one may reasonably be expected to act in accordance with the intentions of the other, or both persons may reasonably be expected to act in accordance with the intentions of a third person. Note that associate is not just about ownership, they are relationships and activities in conducting business, commercial and financial relations. REVENUE Where an arrangement exists between associates, different businesses of a person, businesses and other activities of a person, a person and a permanent establishment of that person, a person may not benefit from transfer pricing in Seychelles under actual circumstances that are at arm’s length or that are not in accordance with the arm’s length principle. (Section 54 of Business Tax (Amendment) Act, 2022). The arm’s length principle refers to the idea that transactions between associates must be the same as to those formed through a similar transaction between parties who are not associates. A person shall not conduct Commercial or financial relations” with another person that will result them in getting a transfer price benefit. Transfer pricing benefit means a benefit accruing to a person as a result of a difference between the actual conditions and the arm’s length conditions. COMMISSION A person is considered to have obtained transfer pricing benefit if the actual conditions are different from the arm’s length conditions the actual circumstances led to one or more of the following outcomes. If the arm’s-length criteria had been in place: – the person’s taxable income for a tax year would have been greater;– the amount of the person’s loss for a tax year would have been less;– the amount of the person’s tax concessions for a tax year would have been less;– the amount of withholding tax that the person would have had to pay in relation to interest or royalties would have been higher. When conducting a transfer pricing audit, the Commissioner General shall determine the transfer pricing benefit by calculating the difference in the actual and arm’s length amounts in; – the taxable income of the person for a tax year– the tax loss of the person for a tax year This short post is not intended as an exhaustive explanation of the law. If you require detailed information about Transfer Pricing please contact the Seychelles Revenue Commission at: Seychelles Revenue Commission Maison Collet, 3rd FloorPO Box 50 Victoria, MahePhone: 4293737E-mail: [email protected]: www.src.gov.sc

The Seychelles has been upgraded on five recommendations by the Financial Action Task Force (FATF) following the 45th meeting of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). The upgrade shows progress in strengthening measures to tackle money laundering and terrorist financing. Seychelles has made progress in addressing deficiencies against recommendations 5, 19, 25, 28, and 34, relating to terrorist financing offense, higher-risk countries, transparency and beneficial ownership of legal persons, regulation and supervision of designated non-financial business or professions, and guidance and feedback. Seychelles is now compliant or largely compliant with 34 of the 40 FATF recommendations. The Seychelles delegation attended the task force meeting to build on bilateral and multilateral relationships with international partners and counterparts to increase efforts in the international fight against money laundering and terrorist financing. The delegation also took part in sub-committee meetings, with the deputy director of the Seychelles Financial Intelligence Unit presenting a national risk assessment on virtual assets and virtual assets service providers done in the island nation. The ESAAMLG meeting also included briefings on ongoing preparations for the third round of mutual evaluations, which will start in June 2025.

Seychelles has been assessed as having a low risk of non-profit organisations (NPOs) being used to finance terrorist activities, according to a national risk assessment report. The report was validated at a workshop at the Eden Bleu hotel, and is part of the National Risk Assessment for Non-Profit Organisations (NPOs) launched in 2022. The assessment is intended to identify and understand the risks to the NPO sector and to determine whether Seychelles is compliant with international standards set by the Financial Action Task Force (FATF). The validation of the report showed that Seychelles has a very low risk of NPOs being misused for terrorist financing, but certain laws and policies may still need to be revised to maintain this status. The report will be finalised in the next two months and will be used to identify any technical deficiencies that need to be resolved before the third round of evaluation. The aim is to ensure that all laws and policies are up to date and in line with the recommendations of FATF when it comes to anti-money laundering and counter-terrorism financing measures.

Fitch Ratings has announced that Seychelles’ credit ratings remain at ‘BB-‘ with a stable outlook in 2023. The ratings reflect the country’s solid tourism recovery, stable growth prospects, low inflation, and a stable economic framework. The Seychelles tourism sector had a solid recovery in 2022, with tourist arrivals surging by 82% YoY, reaching 86.4% of 2019 levels. However, Fitch warned that global economic uncertainty and competition from other high-end tourism destinations may lead to a slowdown in visitor growth to an estimated 5% in 2023-2024. Despite continued visitor growth, Fitch expects tourism receipts to decline by about 14% in 2023 and 7% in 2024, reaching 41.3% of GDP, given the expected tapering in arrivals of high-spending tourists from Russia and other countries.

Seychelles is developing a national policy on virtual assets in response to an increasing number of complaints regarding activities using cryptocurrency. The country’s finance minister, Naadir Hassan, revealed that a report on a national risk assessment done by the Financial Services Authority (FSA) had prompted the move. The policy will aim to provide a legal framework for virtual asset activities to be better regulated in Seychelles and to safeguard the public. The objectives of the framework will be to establish legal provisions to register virtual asset businesses and provide licenses depending on the activities allowed in the country.