Introduction
Vanuatu, officially the Republic of Vanuatu, is an island nation located in the South Pacific Ocean. The archipelago, which is of volcanic origin, is some 1,750 km east of northern Australia, 500 km north-east of New Caledonia, west of Fiji, and south of the Solomon Islands, near New Zealand. The total land area is 11,830 sq. km. There is an estimated (2007) 218,000, Bislama, English and French speaking Vanuatuans.
Vanuatu was first inhabited by Melanesian people. Europeans began to settle in the area in the late 18th century. In the 1880s France and the United Kingdom claimed parts of the country and in 1906 they agreed on a framework for jointly managing the archipelago through a British-French Condominium as the New Hebrides. An independence movement was established in the 1970s, and the Republic of Vanuatu was created in 1980.
Business Environment
Vanuatu offers a politically stable environment with no direct taxes or exchange controls. Indirect taxes and fees are minimal. The legislative environment in Vanuatu is directed toward the offshore business market and includes good confidentiality provisions. Support for the offshore business sector was strengthened in 1993 with the passage of the International Companies Act, which made Vanuatu an attractive and competitive financial centre. An international company can normally be set up in a day.
Foreigners may conduct business in Vanuatu, provided they do so through a “local” company (see Forms of Company).
Businesses conducted in Vanuatu must obtain a Business License. Every Business license is issued annually and may be subject to certain conditions. The license is transferable and is subject to an annual fee which has been standardized to a principal sum of VT20, 000 plus VT90, 000 for each non-citizen employee, principal or partner engaged in the business. Other businesses in the financial and monetary institutions including insurance companies and agents are charged on the basis of 2% of estimated turnover.
Economic Environment
The economy is based primarily on subsistence or small-scale agriculture, which provides a living for 65% of the population. Especially production of copra and kava create a major revenue. At present, kava cultivation even brings in so much money for villagers that they are abandoning cultivation of food crops. Instead, they cultivate kava and use the earnings gained from it to buy food. Cattle farming, offshore financial services (being a tax haven), and tourism (with about 50,000 visitors in 1997) are other mainstays of the economy. Mineral deposits and Fishing creates only negligible revenue. The country has no known petroleum deposits. A small light-industry sector caters to the local market. Tax revenues come mainly from import duties and a 12.5 percent VAT on goods and services. Economic development is hindered by dependence on relatively few commodity exports, vulnerability to natural disasters, and long distances between constituent islands and from main markets.
Taxation
Vanuatu is a tax haven that until 2008 did not release account information to other governments or law-enforcement agencies. International pressure, mainly from Australia, influenced the Vanuatu government to begin adhering to international norms to improve transparency. In Vanuatu, there are no income tax, no withholding tax, no capital gains tax, no inheritance taxes, or exchange controls. A disproportionately large number of ship-management companies choose to flag their ships under the Vanuatu flag, because of the tax benefits and favorable labor laws.
Banking
The International Banking Act of 2002
The new International Banking Act No.4 of 2002 allows companies to set up and operate offshore banks in Vanuatu. The law is consistent with current international requirements and provides an improved regulatory framework for offshore banks in Vanuatu.
The new banking law makes Vanuatu more attractive to corporate business and financial institutions that require a well-regulated banking environment but it also provides for a complex and exact set of requirements that must be complied with to verify that the applicant is trustworthy and will not engage in illicit activities.
Some of the key features of the International Banking Act include:
• The Offshore Bank will be supervised by the Reserve Bank of Vanuatu.
• Appointment of Directors and Managers is subject to review by the Reserve Bank.
• Minimum capital requirements are suited to the proposed banking activity.
• The Offshore Bank must maintain a physical presence in Vanuatu.
• Existing Exempt Banks must re-apply for a license prior to 1 August 2003.
• Licensees are subject to restrictions of large exposures and aggregate investments in shares issued by other companies.
• Audits by external, qualified auditors are required.
Offshore
The Official Secrets Act and the various companies acts assure the secrecy of information relating to offshore entities. Because Vanuatu has no income tax and there are no double taxation treaties there is no legislation for the exchange of information. Internal legislation, including the Mutual Assistance in Criminal Matters Act and the Serious Offences Act are, however, directed to the prevention of money laundering activities within the jurisdiction. There is also a Financial Information Unit forming part of the Egmont Group.
The “International Company” is the most commonly used offshore entity in Vanuatu. The law governing International Companies is set out in the International Companies Act No 32 of 1992. With the passage of this Act, most offshore companies elect to be ‘International Companies’ and most exempted companies have now converted to International Companies. International Companies are administered by the Vanuatu Financial Services Commission. Companies that offer their shares to the public, hold banking, trust or insurance licenses, or operate within Vanuatu may not be registered as International Companies and must register under the Companies Act.
An International Company may not conduct business in Vanuatu, own an interest in real estate in Vanuatu except the lease of premises from where it conducts its international business, offer shares to the public, hold a banking, trust or insurance license, or solicit the public to deposit with or lend money to the company.
