Seychelles’ emergence as a global crypto hub

Seychelles, a small nation in Africa known for its pristine beaches and vibrant coral reefs, has emerged as a significant crypto player and pivotal hub to trading digital assets. This transformation is attributed to the country’s minimal regulatory oversight and favourable tax policies, which have attracted a large number of crypto exchanges seeking a hospitable environment for their operations.

Welcome to the crypto archipelago

The International Monetary Fund (IMF) released a working paper analysing cross-border bitcoin flows. The findings revealed a remarkable trend: Seychelles’ on-chain bitcoin inflows from 2019 to 2022 amounted to nearly 2.5 percent of its Gross Domestic Product (GDP). This figure starkly contrasts with the global average, where most countries’ inflows don’t exceed 0.1 percent of GDP. The “Seychelles effect” describes the nation’s outsized influence in the crypto sphere, dwarfing the contributions of larger economies like Venezuela and Moldova.

The allure of tax havens is not unique to the crypto industry; traditional finance also capitalizes on these countries. However, Seychelles stands out due to the intense international scrutiny faced by many of its crypto operators. The local regulatory body estimates that around 50 unlicensed virtual-asset service providers operate within its jurisdiction—a conservative count, by all accounts.

Several high-profile crypto exchanges have called Seychelles home, including Bybit and OKX. These platforms have leveraged the country’s lax regulations to facilitate their growth, although not without controversy. Incidents involving legal challenges and accusations of anti-money-laundering violations have marred the reputation of some Seychelles-based exchanges. Moreover, the country has been implicated in various scandals, ranging from the OneCoin pyramid scheme to the pursuit of infamous figures in the crypto world.

Despite these challenges, Seychelles remains very attractive for crypto traders, with its impact on the industry undeniable. As the integration of cryptocurrencies into the mainstream financial system develops, Seychelles’ role as a crypto archipelago continues to evolve, shaping the future of digital assets on a global scale.

Tax policy in Seychelles

A unique tax system operates in Seychelles, playing a crucial role in its economic structure. The system is composed of several elements, each serving a distinct purpose.

Historically, Seychelles operated under a territorial tax regime, taxing only income sourced within its borders. However, in September 2021, the law was revised for covered companies, adopting an economic substance test for passive income received from a non-resident.

The Corporate Tax, for instance, varies in its application, with rates oscillating between 0 percent  and 33 percent. This tax is designed to ensure that corporations contribute their fair share to the nation’s coffers. On the other hand, the Personal Income Tax, which stands at a standard rate of 16 percent, is levied on the income of individuals and employees, providing a significant source of revenue for the government.

The Value Added Tax, commonly known as VAT, is another integral part of the system. Applied at a standard rate of 15 percent, it adheres to principles that are common to VAT systems worldwide. This tax is imposed at each stage of the supply chain, from production to the point of sale, ensuring a steady stream of revenue.

In December 2017, Seychelles introduced the Income and Non-Monetary Benefits Tax. This tax is levied on the personal emoluments of an individual, payable by employees or their employer. Additionally, employers are required to pay the Non-Monetary Benefits Tax on any benefits provided to an employee, such as accommodation, meals, transport, and insurance.

The Seychelles Revenue Commission, or SRC, oversees the administration of these revenue laws. It mandates that all new businesses register with the SRC within 28 days of commencing trade. Furthermore, businesses are required to maintain records, including books, sales ledgers, expenses, assets, cash receipts, purchases, and banking records, for a period of seven years.

It’s worth noting that tax laws are subject to change, and the specifics can vary based on circumstances. Therefore, it’s always advisable to consult with a tax professional or the Seychelles Revenue Commission for the most accurate and up-to-date information.