San Marino plans mutual funds as it seeks new role

By Lisa Jucca

SAN MARINO, June 15 (Reuters) - Microstate San Marino is reinventing itself as modern financial centre, its central bank head said, trying to overcome a dubious reputation earned through its once opaque banking system.

The country of 30,000 people wants to regain ground against stronger rivals such as Luxembourg, Ireland, Switzerland or Liechtenstein, now that proximity and a monetary union with Italy are no longer enough to attract investors.

"Our aim is to expand outside our borders, otherwise we will remain constrained," Antonio Valentini, chairman of San Marino's central bank told Reuters in an interview, adding he hoped to see mutual funds launched as one measure.

"There are lots of variables at stake but we hope (to introduce the funds) in the short to medium term, that is in a couple of years."

The Most Serene Republic of San Marino, which claims to be the world's oldest, is a landlocked state inside Italy, whose pledge to secrecy and lenient taxation have acted as a magnet for funds from nearby regions since the 1970s.

In 2005, it introduced a central bank to oversee its financial sector, and last year approved rules to pave the way for the introduction of hedge and mutual funds that could compete with similar funds in Ireland and Luxembourg.

Mutual funds firms would be taxed 12 percent, in line with Luxembourg and Ireland, while individuals would have zero taxation on their gains, tax experts said. SILENT REVOLUTION