Since 1970, there has been a steady development in Port Vila of the financial sector, due to the discovery of Vanuatu as a tax-free area. There are no income, capital gains, corporate, net worth, property, gift, sales, death or inheritance taxes or duties, except for town rates, a flat tax of up to 12.5% on residential rentals and a value-added tax of 12.5% on local supplies of goods and services (except residential rentals).
Indirect taxation, in the form of import and export duties, rent tax hotels and licensed premises tax, stamp duty, port and airport, business licence, compny and land registration, and other fees, provides revenue for the government services.
The Government supports the development of the finance sector in Vanuatu.
Communications with Vanuatu are good, consisting of the internet, facsimile, e-mail, telephone, post, air and sea transport. Daily flights link Port Vila with Australia, New Zealand, New Caledonia, the Solomon Islands or Fiji, and from there connections can be made with flights to other parts of the world. The Republic has a controlling interest in an airline, “Air Vanuatu”, which is associated with Qantas Airlines. Cargo ships call frequently from Australia and New Zealand, and regularly from Asia, America and Europe.
Banking, legal, trustee and management, and accountancy services are plentiful, offering a full range of facilities, both domestic and international.
No monetary exchange controls are operative in Vanuatu and money is freely convertible. The local currency is the Vatu (VT), which is linked to a basket of currencies. Statutes for the prevention of money-laundering and terrorism, and for the seizure of the proceeds of serious crime, require banks and other financial service providers to know their customers, and report transactions above $US10,000 to a Government Financial Intelligence Unit.
Vanuatu is not a party to any tax treaties, and is therefore not obliged to disclose fiscal informtion to other governments.
A large number of companies and trusts have been set up to take advantage of the fiscal opportunities available locally. Two types of companies can be incorporated in Vanuatu – local and international. International companies are of most interest for offshore operations, and both have the benefit of secrecy laws for their records and business. But they are limited in the activities which they can conduct within Vanuatu, so if local business is to be conducted, it is necessary to incorporate a “local” company.
For more private offshore purposes “international” companes (I.C.’s) are the most suitable type. They became available in 1993 under the International Companies Act 1992 (similar to the I.B.C. – type legislation of other tax havens). They are flexible, and simple and cheap to establish and administer. They cannot however be used for banking, insurance, trustee business, nor to issue shares to the public.
Incorporation of an I.C. can be effected by the Registrar, in a day, as no permit application, or details of beneficial owners or operations, are required. A constitution (a model form is in the law) is lodged, signed by one “incorporator” and stating the company’s registered office and agent in Vanuatu. The name can be in any language, provided there is a reference to incorporation.
I.C.’s may be limited by shares by guarantee, or both, and there is no minimum capital requirement. They can re-purchase their own shares. They may have one or more directors (personal or corporate), who may reside and meet anywhere and do not have to be on public record. The government registration fee is $US300 per year, regardless of capital. I.C.’s do not have to hold an annual general meeting, nor file an annual return, report, or accounts. Their records can be kept anywhere in the world. Shares can be in bearer form, in any currency, and without par value.
An I.C. can deal with its assets as it requires, e.g. by gifts, or distributions, to any person, provided it remains solvent.
An I.C.’s records relating to ownership, management, and operations, are protected from disclosure, except for the purposes of the company’s business, or the administration of the I.C.’s Act, or to a competent Court.
Incorporation of these companies requires a permit from the Minister of Finance initially, involving for a “local” company a full (but confidential) disclosure of the particulars of its beneficial owners, and of its proposed operations. Incorporation takes one to two weeks.
The Companies Act 1986 governs local companies and is based on the 1948 and 1967 U.K. company legislation. There must be at least two shareholders, one director and a secretary (either or both of whom may be shareholders), in the case of a private company, seven shareholders and two directors being required for a public company. Memorandum and Articles of Association (analogous to U.S. Articles of Incorporation and By-laws) are required to be filed. At least one director has to be resident in Vanuatu.
Local companies may be formed as limited by guarantee, unlimited, or (most usually) as limited by shares. There is no minimum authorised capital requirement, and it s not necessary to issue or subscribe for the whole of the company’s capital. The maximum authorised capital permissible for the minimum registration fee is VT35 million for “local” companies – minimum registration fees are VT30,000 respectively, payable annually. There is a maximum registration fee of VT250,000. Local companies with power to redeem their own shares (“open-ended”) are not permitted, except in the case of a company with redeemable preference shares, which can be redeemed by resolution of the board. “No-par” value and bearer shares are not permissible.
Any company may transfer its domicile to another jurisdiction, with the consent of the Minister of Finance, and subject to the laws of the jurisdiction desired.
Foreign companies which wish to establish a place of business in Vanuatu are also required to apply for a permit to register, as an “oversea” company. An annual fee of VT30,000 is payable, and annual audited accounts have to be filed. A foreign company may also apply for a permit to transfer its place of incorporation to Vanuatu if not prohibited by its current legal system.
Forms of instructions for incorporation and idemnity to officers are attached, for completion and return if desired.
Company Records and Administration
Local companies are reqired to keep certain registers and books of account at a registered office in Vanuatu, have an Annual General Meeting, and file an annual return. A directors’ report and audited accounts are also required from a public company, or a local company if it has a turn-over of VT20 million or more per year. Charges secured on asets have to be registered.
International companies are free of all such requirements, except for registration of charges on assets.
A current schedule of our costs and expenses is attached. Every effort is made to keep them as economical as possible, and they compare well with those charged by the local trust companies.
To expedite the incorporation process an online form can be completed and sent or faxed to us.
The uses to which a Vanuatu company can be put to minimize income tax include international trade, insurance, banking, mutual funds, leasing, franchising and royalty arrangements, loans, option transactions, service contracts, investment holding, international projects, shipping and local investments. In each case, an appropriate arrangement would have to be made to minimize taxation levied in other parts of the world, and expert advice obtained from practitioners in the relevant tax laws.
Good tax planning requires arrangements that, even if disclosed, would not incur liability to tax, or would defer tax. This is usually effected by incorporating a company which is not resident in a jurisdiction where there is income tax. That company should also receive income from sources which are not in such jurisdictions. So the first step usually is to incorporate a company in Vanuatu. Its shares can also be held through a discretionery trust, to avoid any vested interest arising. The company can then make arrangements by which it receives income with a source in Vanuatu or some other country where it is not subject to income tax.
Advice on exchange controls operating in the countries involved is also necessary. Restrictions on remittances can be avoided by indirect routing of funds, or the purchase of foreign currency.
Imports and exports can be dealt with through a Vanuatu Company, which retains part of their price. This can be done either by a sale to the Vanuatu company, which then re-sells, or by the Vanuatu company acting as a buying or selling agent and receiving a commission. Consideration has to be given to any increase in import duty which may result, as well as to the minimum profit which can realistically be made in any taxing country involved.
For international operations, an international insurance company be formed in Vanuatu to underwrite the risks of a particular company or group. This reduces commissions and premiums, and enables accumulation of income free of tax (except for any withholding taxes in the originating country).
For international private operations, an international bank may be formed in Vanuatu. Advantages include the ability to obtain inter-bank rates, fewer restrictions on currency trading in international markets, and enabling customers to show deposits with banks in their balance-sheets. An interntional bank is not restricted in relation to reserves or loans, and does not have to lodge returns with the Reserve Bank, nor publish its accounts (see under “Bank Regulation” below for incorporation requirements), but cannot deal with the general public unless it has clear funds of $US500,000, and provides quarterly accounts and oprational reports.
Mutual Funds and Unit Trusts
Off-shore mutual funds can be save investors taxes on capital gains and transfers, and death duties. Private unit trusts can fulfil the same functions.
Leasing Franchising and Royalty Arrangements
Equipment can be leased, systems franchised, or intellectual property licensed, to a Vanuatu company, which then leases franchised to third parties, so that the income arising has its source in Vanuatu.
Debts can be assigned to a vanuatu company, which then collects them for an appropriate commercial factoring charge, giving rise to income with a Vanuatu source.
Dealings in options to acquire property can be carried out with Vanuatu companies, so that profits arise in Vanuatu.
A Vanuatu company can be formed to employ an internationally operating artist, sportsman or other professional, and hire him out, so that the source of his income is in Vanuatu.
Funds can be borrowed from a Vanuatu company, directly or indirectly, and a tax deduction obtained. Interest payments, after deduction of any withholding taxes, accumulate tax-free in Vanuatu.
A Vanuatu company (or trust) can hold overseas investments, and receive dividends and interest from them tax-free, except for withholding taxes in the country of origin.
A Vanuatu company can be formed to own or charter ships, which may be registered either in Vanuatu, or in Liberia, Panama, or elsewhere. Transactions are arranged so that income arises in tax-free areas.
Companies (or trusts) can be formed to hold investments in Vanuatu itself, such as bank deposits, property, and commercial undertakings. Income from property rents is subject to tax of up to 15% on the gross rental.
Companies operating internationally can form a Vanuatu Company to carry out projects outside their countries of residence. The Vanuatu company would sub-contract with the parent companies, reserving some tax-free profits for itself.
A Trust is often established to hold the shares in a Vanuatu Company. Usually a discretionary trust is used, so that no person has to disclose in a tax return that they have a vested or contingent interest. Powers of changing the trustee and beneficiaries may be retained, and a memorandum of wishes provided to the trustee for guidance. The use of a company may be dispensed with where there is to be no trading, and it is only required that some investments be held and income received.
With a trust, the vesting of property can be postponed for at least eighty years without infringing the English law rule against perpetuities. Accumulation of income for up to twenty-one years is possible.
Patents and Trade-Marks Register
Patents and trade-marks can be registered in vanuatu, in a fresh (not re-registration) process.
Banking business in or from within Vanuatu can only be carried on by a licensed bank or financial institution. Licences are issued by the Minister of Finance, at his discretion, and subject to capital and accounting requirements. “Banking” is defined as accepting deposits and lending them on, and includes arranging, discounting or underwriting loans for profit. A “bank” is a financial institution which provides cheque accounts. A principal office and agent in Vanuatu have to be designated. Only licensed banks may used “bank”, or any derivaties, in their names.
A bank or financial institution not connected with a major bank is required to have at least $US500,000 paid-up capital, shareholders of good character and proven substantial assets, and managment with banking expertise. If it is to deal with, or advertise to, the general public, it must have $US500,000 in clear funds (which may be kept in an account outside Vanuatu), and furnish quarterly accounts and reports. If it is not to deal with public, its owners must undertake that it will not do so.
No insurance business may be carrried on in or from within Vanuatu except by a registered insurer, underwriter, broker or agent. Registration is at the discretion of the Minister of Finance, and is subject to capital and accounting requirements.
Trust Companies Regulation
To operate in Vanuatu as a trustee, executor or administrator, for specified clients, or the general public, a company has to be licensed by the Minister of Finance, and meet capital and accounting requirements.
However, this does not prevent the use of a company to act as the trustee of one trust, or a number of related trusts, without charging a fee.
An international open register was established in 1981. The legislation is modelled on LIberian lines, and incorporates the non-statutory maritime law of the U.S.A. There is an office of the registry in New York, at which any business can be conducted.
Vessels should be owned by a national or company of Vanuatu, though this may be waived. They should also be less than 20 years old on first registraton (unless in good condition), and be in current classification. The authorized classification societies are-
American Bureau of Shipping, Bureau Veritas, Det Norske Veritas, Germanischer-Lloyd’s Register, Nippon Kaiji Kyokai, Registro Italiano Navale, China Classification Society and Poski Rejestr Statkow.
Also applicable are the International Labour Organisation Conventions: No. 53 – Minimum Professional Capacity 1936; No. 55-owners’ Liability 1936; No. 58 – Minimum Age 1936; Nos 92 and 133 – Accommodiation of Crew.
The registry fees are – $US
Registration fees – up to 5,000 net tons – 1.05 a net ton
– from 5,000 – 25,000 net tons – 0.87 a net ton
– from 25,000 net tons – 0.70 a net ton
Annual tonnage fees – 0.25 a net ton
Mortgage registration – 425.00
Marine investigations and international – 725.00 plus
participations (annual) – .04 a net ton
Marine inspection (annual)
– fishing boat of less than – 525.00
500 tons – 350.00
Certificate of registry (permanent or provisional) – 200.00 each
Temporary radio authority – 50.00
Transfer from another registry – 1250.00
Cancellation of registration – 250.00