The Republic of Vanuatu: A History of Financial Freedom
In the 70s, at the same time as the politics of independence started to gain significant ground against the colonial British and French governments, international businesses became interested in doing business on the islands because of the extremely friendly tax climate. The British colonial government quickly took advantage of this interest and passed business-friendly laws that established the country as an Offshore Financial Center (OFC). When the Republic of Vanuatu gained its independence in 1980, one of the principle strategies used to grow Vanuatu’s economy was to attract foreign businesses and continuing as an OFC.
Vanuatu has been among the Pacific Island nations that offer exceptionally low or now taxes, and its history as a tax haven pre-dates even its statehood. While the history of Vanuatu and other Pacific island tax havens has been of strict privacy and little regulation, efforts have been underway for the last several years to be sure that terrorist or criminal activity is discouraged. These efforts have been driven by international financial institutions like the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), and the Financial Action Task Force on Money Laundering (FATF) as well as unilateral actions from individual nations, particularly the United States. Vanuatu has adopted most of the recommendations of the international Financial Action Task Force and is not currently grey or black listed by that organization. Late in 2017, the country again updated legislation as necessary to comply with the demands of these international organizations and foreign states... although the efforts aren’t always without opponents. Many in Vanuatu express concern about a loss of sovereignty when international organizations that are dominated by large states demand cooperation in return for a seat at the international financial table. In spite of the forced nature of the reforms, Vanuatu has shown the political will necessary to enact the international requirements, and the future is bright for Vanuatu to continue to serve as a low cost, low regulation environment for years to come, and the Country of Vanuatu guarantees tax exemptions for newly formed businesses for 20 years, ensuring that even if the political and economic climate begins to shift, the economic benefits are locked in place for two decades. Past, present and future, Vanuatu is a profitable place to incorporate international businesses.
Vanuatu did not eliminate taxes in order to market itself as a tax haven. Instead, it is “naturally” tax-free. The country has had no direct taxation in its history. In about 1970, international business happened to notice, and Vanuatu’s history as a tax haven began. The colonial British and French administration passed laws regulating the financial industry and intentionally cemented its status as a tax haven and OFC. The 80s saw a series of setbacks to the industry, including political instability internally, unpopular dealings with Libya and the Soviet Union, and criminal activity linked to banks and companies that did business in Vanuatu. The criminal activity included drug and arms trafficking, and bank fraud. All of these activities were conducted in other places, but the organizations perpetrating the crimes had bank branches in Vanuatu or were using Vanuatu banks and businesses.
In the 90s, the adoption of the International Companies Act and other banking and insurance regulation stabilized the industry, and the facts about Vanuatu as a stable, reliable tax haven resulted in another upswing in the industry. In the late 90s, offshore financial services were responsible for 15% of the country’s GDP. The first decade of the new millennium saw GDP shrink for the first two years, but recover and grow quickly (over 5%) from 2003 to 2010. The teen years have been plagued by increasing international pressure on the FOC, a disastrous cyclone that destroyed most of the country’s infrastructure, followed by an aggressive and successful recovery effort. GDP did grow in 2011-2014 but at slower (1-2%) rate. In 2015, the Cyclone affected everything, and GDP dropped, but 2016 saw an increase back to 4%. The FOC industry continues to provide significant advantages and revenue to the country, bringing jobs, skills, revenue and business travel.
The Offshore Financial Center in Vanuatu continues to thrive. While international pressures abound to increase regulation, and there are some internal pressures to increase taxation, Vanuatu continues to be one of the most attractive international business and banking centers. Information about Vanuatu’s current government’s attempts to institutes some taxes is available in the international press, but even if enacted, the regulations would take years to implement.
Increasing its attractiveness to offshore business and banking, in addition to the individual and business tax advantages, Vanuatu offers relatively low fees, a 20-year tax-exempt guarantee, relatively low regulation, and a high degree of freedom regarding where business is conducted, as well as who conducts it (foreigners are able to be named as officers and shareholders). Privacy is still a primary concern, and Vanuatu’s regulations support as much privacy as international pressure allows. Vanuatu has adopted reforms suggested by the international Financial Action Task Force, which means that the country is not on that organization’s black or grey lists. Presence on those lists would hurt the offshore financial industry in Vanuatu as the countries banks would be hobbled. They would not be able to freely trade in foreign currencies, and international banks would be unable to operate on the islands. Trade, treaties, import and export, tourism, and many other sectors would also be detrimentally affected.
International business incorporation, international banking, and Merchant and Oil shipping registration have recently been joined by an easy fast-track citizenship program that enables individuals to change their citizenship to Vanuatu (or obtain dual citizenship) in about a month. Vanuatu’s tax freedom isn’t just all about Vanuatu’s businesses. Citizens benefit from Vanuatu’s tax-free environment as well. Citizens enjoy a largely tax-free existence as well, with no income, estate, or capital gains taxes.
In addition to the ability to pass legislation keeping the country current with international financial standards, the government’s response to the devastation of Tropical Cyclone Pam also shows that the government has the ability to plan, provision and complete large projects. In 2015, the storm hit Vanuatu hard, and almost all of the buildings and infrastructure were damaged or destroyed (about 90%). Two years later, the island has rebuilt almost all of its infrastructure and most of its buildings and it’s even improved its communications infrastructure with a new undersea cable and cellular network.
The Country of Vanuatu: Life and business
The business climate is not the only open and welcoming thing about Vanuatu, the people and environment are spectacular. The country has an astonishingly diverse population, more than 170 languages and dialects are spoken on the 83 islands. The nation is proud of its diversity, the cooperative nature of its village culture, and its natural resources. For those looking to live in the country, or those just visiting, the variety of leisure activities is large enough to offer opportunities to anyone.
The only industry bigger than the FOC in Vanuatu is tourism (and it’s a lot bigger – accounting for more than 52% of GDP most years). This means that Vanuatu is home to world-class resorts, dining, and a communication infrastructure that supports both business and tourist travelers. For the more adventurous, hiking, diving, camping, boating and other exploration is available throughout the archipelago. Many villages that are near particularly amazing natural wonders have made an industry of organizing and leading tours (as well as supporting the tourists with local food and shopping venues). The country is home to the most accessible active volcano in the world (you can stand on the rim and look down into the magma cauldron), the most accessible large wreck diving in the world (the SS President Coolidge, a WWII troop carrier), and 83 islands worth of beaches, snorkeling scuba diving and boating. The volcanic geology offers spectacular caves to land and water explorers, and active geothermal activity offers natural hot springs.
For individuals interested in living in Vanuatu, there is the fast-track citizenship option (which requires about US$200,000 in donations, fees, and other charges), or the resident visa option. Those choosing a self-funded resident visa, any income (retirement, investment or salary) of US$2,250 per month or more will qualify you for a resident visa. There are other kinds of resident visas too, but self-funded is the most common for foreigners without any family ties on the islands. If you stay for 10 years, you can apply for citizenship through naturalization, which doesn’t carry the same cost as the fast-track.
Vanuatu is a Republic with an incredibly interesting and diverse history, a welcoming people and climate, a beautiful environment, and long-standing status as an offshore financial center. As international pressures mount, Vanuatu continues to offer as much freedom as possible, while staying compliant with international demands. The FOC is a valuable source of funds, jobs, skills, and foreign investment, and has strong business and political support in country. International shipping, banking, and business have long found a friendly environment here, and since 2015, anyone interested in personal financial freedom has also been able to find it through Vanuatu’s fast-track citizenship program. The combination of the thriving tourist trade and significant foreign business presence thanks to the FOC, the country’s communication infrastructure is robust, with 4G cellular and an undersea cable connection to Fiji. Vanuatu is a fantastic choice for a business, pleasure, or residence destination in the South Pacific.