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The Most Serene Republic of San Marino is a country in theApennine Mountains. It is a landlocked enclave, completely surrounded by Italy.The climate is Mediterranean, with warm summers and mild winters. One of the Europeanmicrostates, San Marino has the smallest population of all the members of the Councilof Europe and the 3rd highest GDP per capita in the world. The state has apopulation of approximately 29,000, including 1,000 foreigners, most of whomare Italians. About 5,000 Sammarinese live in foreign countries, predominantlyin Italy. The language spoken is Italian; Emiliano-Romagnolo is widely spoken,too. Roman Catholicism is the predominant religion.

The tourist sector contributes over 50% of GDP. In 2006 morethan 2.1 million tourists visited San Marino. The key industries are banking,clothing and apparel, electronics, and ceramics. Main agricultural products arewine and cheeses. The per capita level of output and standard of living arecomparable to those of the most prosperous regions of Italy, which suppliesmuch of its food. Although San Marino is not a European Union member, it isallowed to use the euro as its currency by arrangement with the council of the EuropeanUnion; it is also granted the right to use its own designs on the national sideof the euro coins.

In 1972, a valued added taxation (VAT)system was introduced in Italy, and was applied in San Marino, in accordancewith the 1939 friendship treaty. In addition, a tax on imported goods, to belevied by San Marino, was established. Such taxes, however, were not, and arenot, applied to national products. Until 1996, goods manufactured and sold inSan Marino were not subject to indirect taxation. The corporate profits taxrate in San Marino is 19 percent. Capital gains are subject to a five percenttax; interest is subject to a 13 percent withholding tax.