More than 50 percent 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., or 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 percent of the amount of corporate income taxes collected by the Department of Finance; the remaining 60 percent is a direct revenue source for the national government.
To continue the stimulation of registrations of Japanese corporations with the FSM Registrar, the FSM Congress approved in May 2010, and President Manny Mori signed into law, an amendment to Section 321 of the FSM Tax Code: lowering the current corporate tax rate from 25.5 to 21 percent.
This amendment was proposed by Mori in order to address recent new Japanese legislation which now categorizes any country with a corporate tax rate of 20 percent or less as a tax haven, a rate previously at 25 percent. The new FSM tax rate of 21 percent will allow the FSM to remain competitive and still be above the tax haven threshold.
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.
