Government of the Federated States of Micronesia

Two Million US Dollars of Revenue Reported by the Department of Finance

Palikir, Pohnpei (FSM Information Services): July 5, 2010 - A report issued by the FSM Department of Finance and Administration (the "Department of Finance") indicates that for the period from 2005, to May 25, 2010, a total of approximately U.S. $2,000,000.00 of corporate income taxes has been collected by the Department of Finance from 14 Major Japanese Corporations registered with the FSM Registrar. More than 50% of this revenue was paid for by two Japanese captive insurance companies licensed in FSM.

Effectively, in 2005, the FSM Government entered into an Agreement with Micronesia Registration Advisors, Inc. (MRA) to encourage corporations, which are taxpayers in Japan, in establishing their corporation in the FSM by registering with the FSM Registrar. Such corporations do not typically have a physical business presence in the FSM, but pursuant to their registration in the FSM, pay their corporate income taxes to the Department of Finance. Pursuant to the MRA Agreement, MRA perceives 40% of the amount of corporate income taxes collected by the Department of Finance; the remaining 60% is a direct revenue source for the National Government.

To continue the stimulation of registrations of Japanese corporations with the FSM Registrar, Congress approved, during its Fourth Regular Session in May 2010, and President Mori signed into law, a note-worthy amendment to Section 321 of the FSM Tax Code: lowering the current corporate tax rate from 25.5% to 21%. This amendment was proposed by President Mori in order to address recent new Japanese legislation which now categorizes any country with a corporate tax rate of 20% or less as a tax haven, a rate previously at 25%. The new FSM tax rate of 21% will allow the FSM to remain competitive and still be above the tax haven threshold.

President Mori is considering investing part of this revenue generated by the FSM Registrar, into the FSM Trust Fund, the national fund running parallel to the Compact Trust Fund. Another portion of the revenue will be used to support Social Services and MiCare Health Insurance.

In the wake of the FSM Registrar's success in producing revenue from its corporate registry, especially from the captive insurance licensing regime; the government is eager to pursue the establishment of an International Open Ship Registry to create another source of revenue for FSM. The President's Administration is striving to create revenue sources to progressively replace the decreasing amounts received by the FSM under the Compact of Free Association Agreement.