Vicari, Andrea: Republic Of San Marino: The End Of The Best-Kept Secret Of Europe And The Vernissage Of A New European Financial Center

COGNITI NOBISQUE INCOGNTI ALIIS (i.e. known to ourselves and unknown to others): for centuries this Latin motto has been the guiding principle for the politic of the Republic of San Marino in international relations. This politic of discretion granted the Republic independency for more than 1700 years, since its foundation in 301 A.D., and allowed it to “win” the prize for the world’s oldest Republic and for the Europe’s oldest existing state. This was possible even if its location exposed San Marino to all major shocking events occurring in European history during this long period of time and even if San Marino was (and is) only a small mountain in the Italian peninsula, in the Apennines near the Adriatic Sea, with no army.

The constant application of a politic of discretion produced positive effects on the economy as well, especially in the last three decades. Although it shared with many small countries of the world limited needs for the state budget, San Marino did not participate in the international run to the bottom for tax rates ran by off-centers. Companies are subject to a fairly 19% (15% from the next year) ordinary tax rate. However, in practice, tax rate may be even lower in case of application of the special regimes for holding companies, for companies holding intellectual property and for companies providing intra-group services. In these cases, the effective tax rate can be either 6.5 % or 0%. No withholding tax is applied to dividends. While not appealing to “extreme” tax planners, the tax treatment of companies in San Marino was and is interesting to operators desiring substantial tax savings without the inconvenience of dealing with an overexposed off-shore center and with the advantage of a company located in the center of Europe. This produced a good amount of foreign investments but not a “run” to San Marino.

Furthermore, the flow of foreign investors toward San Marino was not a “free” flow. Incorporating a company in San Marino was not easy up to the enactment of the 2004 Company law reform. An authorization by the Government, given after a close scrutiny of the applicant, was required for the incorporation of a Sammarinian company. Hence, instead of being known and employed by many, San Marino was chosen by few, distinguished. Over-exposure in the international tax planning practice, hence, was not a problem for Republic of San Marino.
Therefore, nobody could tell that the Republic of San Marino declared a “tax war” against onshore countries and tax administrations of many on-shore countries did not even took notice of San Marino and did not treated it as an off-shore center.

Up to a couple of years ago, the financial sector was not much developed either. This was due to the lacking of an adequate legal frame to be employed for the most advanced financial operations. The Banking sector, on the contrary, flourished because of the traditional bank secrecy applicable to Sammarinian banks. However, San Marino could not be called a financial center at the turn of the century.
A fundamental choice was faced by the government when, at the beginning of the new millennium, the decision about the future of the Sammarinian economy was to be taken: financial center or off-shore center. The choice was clear: financial center.

Since the turn of the XXI century, San Marino legal scene became very exiting. Law commissions flourished. Many new laws were enacted: the trust law, the company law, the new law on banking and financial sector, the aircraft and boat registry law. Regulations of insurance and investment funds were issued. All this occurred in short time: from the decisions to actions only months passed.