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MICRONESIA
We have a team of professionals ready to handle all your business needs so you can focus on expanding in Micronesia—a unique Pacific Federation with distinct strategic advantages
WHY MICRONESIA?
• Strategic U.S. Partnership: The Federated States of Micronesia (FSM) operates under the Compact of Free Association with the United States, securing defense, economic, and technical aid from the U.S. through 2023—and beyond in amended forms.
• Low Tax Burden: Thanks to generous international aid, Micronesia maintains one of the lightest tax burdens in the region—around 11% of GDP, compared to 18–25% elsewhere.
• Fishing & Marine Licensing Revenue: Foreign fishing fleets contribute over $20 million annually through licensing fees—nearly 30% of government revenue—making the fishing sector a core economic pillar.
• Untapped Tourism Potential: Despite limited infrastructure, Micronesia offers incredible attractions—from WWII historic sites to pristine dive spots and the ancient city of Nan Madol. Tourism remains a high-growth opportunity.
ADVANTAGES
Financial Stability via U.S. Aid
The FSM benefits from decades of U.S. development support, providing stable funding for critical public services and enabling lower tax rates.
Simplified Tax Environment
Tourism, sustainable fisheries, marine resource management, and small-scale exports offer high-impact entry points for foreign investors
Opportunities in Niche Sectors
Tourism, sustainable fisheries, marine resource management, and small-scale exports offer high-impact entry points for foreign investors
Predictable Corporate Tax Framework
The corporate tax rate has remained consistently at 21%, offering clarity and financial predictability for businesses.
SIMPLE TAX REGIME
- Corporate (Gross Revenue) Tax: A flat rate of 21% on business income.
- Sales Tax: There’s a 5% sales tax in place.
- Social Security Contributions: Equally split—7.5% each for employer and employee (totalling 15%).
- Other Levies: FSM imposes import duties, excise taxes, and business license taxes—no VAT system in place.
TAX SLABS
- There’s no detailed public schedule of personal income tax rates, but taxation is relatively low due to the system’s simplicity and aid-dependence.
- Capital gains taxes generally do not apply.
- Base corporate tax: 21% flat—applies uniformly across sectors.
- Incentives for priority industries like tourism or agriculture may exist in Economic Development Zones (EDZs), potentially lowering effective tax rates—some sources suggest rates could fall as low as 5% under qualifying conditions.
MICRONESIA COMPANIES
Business Landscape:
Subsistence fishing and agriculture dominate, with limited industrial activity. Formal businesses center around marine licensing, local services, and small-scale exports.
Ease of Establishment:
Corporations must file annual income returns—due April 15 if on a calendar-year basis—and maintain proper financial documentation. Penalties apply for late or incorrect filings.
Land Ownership Restrictions
Foreigners cannot own land under FSM’s constitution—leasing is the only option.
STRATEGIC INSIGHTS
- High-Impact Niche Opportunities: Investors can tap into marine licensing, tourism development, or sustainable fisheries—areas where Micronesia offers distinct returns.
- Stable Fiscal Environment: U.S. assistance buffers economic volatility, allowing lower tax burdens and buffer for long-term planning.
- Local Partnerships Are Key: Navigating land access and administrative procedures typically requires trusted local partners.
- Offshore or Service-Based Models: Due to land and ownership restrictions, service-oriented or offshore-linked business structures may be more viable.
Contact Us
Get in touch with the right people to get the right help in setting up your business in Micronesia .
enquiries@chandrawatpartners.com.