You might have heard of Vanuatu in your offshore adventure – it is often rated to be a tax haven with plenty of advantages for foreigners. However, most people have no clue where to locate it on the map, and it makes perfect sense – Vanuatu has become famous only recently.
A simple visit to Vanuatu will expose you to a different world. You will find interesting architecture and a different lifestyle, as well as a large expat community that can teach you a thing or two – most of it somehow related to the banking industry.
Vanuatu has recently ended up on many investors' radars, yet the expat community there has been established decades ago. There are entrepreneurs and professionals established in Vanuatu since the 1970s, and they still rock their businesses.
Some people choose Vanuatu based on the current standards they need to deal with – such as CRS, FATCA, or OECD. Some others have been there before the world even thought about these standards, and they have learned to adapt.
Back in the day, there were no Vanuatu taxes. The jurisdiction was advertised to be authentic tax heaven. There was no tax at all, no disclosures, and no tax treaties. It was the perfect jurisdiction to keep your money.
Things have obviously changed over the past decades. Vanuatu has also had to adhere to different standards and concepts, but somehow, the little nation has still managed to remain an attractive tax haven for those who seek tax optimization.
Now, what should you know about local Vanuatu taxes?
But first, a few words about Vanuatu
Located in the South Pacific, Vanuatu is a small archipelago country. It consists of 83 islands, and most of them are of volcanic origin. However, only 65 of them are inhabited – and of course, only a few of them actually boost a real community.
The tiny country is located between Fiji, New Guinea, New Caledonia, Solomon Islands, and Australia. The archipelago was initially colonized by the Spanish, but the English and French took over later on and split it.
Vanuatu became an independent country in 1980. The initial movement arose about a decade later. All in all, the new country has joined a few organizations as well, with the United Nations being the most important one.
Cruise ship tourism is the most popular form of tourism in Vanuatu. Despite its size, the country has its own cuisine too, as well as music, sports, and festivals. There are three official languages in there – Bislama, English, and French.
If you are interested in moving there, it is worth noting that Vanuatu has a well-structured and hierarchical village-based society. It is different from what you have in a western country, but it is definitely interesting. Now, moving on to offshore business, what should you know about Vanuatu taxes?
How things have changed over the past decades
Vanuatu gained notoriety as a tax haven as soon as it got its independence, despite many entrepreneurs moving there before this time. They have been through a series of changes, but they have also learned to adapt.
The local government realized early that the country was too isolated, so it needed an external source of income. It became a playground for those who wanted to hide money because Vanuatu was not part of any tax organizations.
No one had to pay anything – no taxes at all. Even if a foreign government asked for details about its citizens, Vanuatu refused to disclose any information. The message was fairly simple – bring your money here, and no one will ever know.
Now, developed neighboring countries disliked the idea. Sure, while there were also Americans and Europeans coming over to keep their money, most of the money came from countries like New Zealand and Australia.
At that point, Vanuatu had little to no choice. What could a tiny archipelago with no economy do after independence? Exactly – nothing. It was not very well linked to the rest of the world, and it was not the most attractive tourist destination out there.
The offshore sector became a primary source of income from abroad then. Compared to other similar countries – such as the ones in Caribbean, Vanuatu was more isolated and did not have all those beautiful landscapes, so tourism was out of the discussion.
For many years, Vanuatu was a well-kept hidden gem in the Pacific Ocean. It is easy to tell why – there was no Internet back then. The world was not so heavily interconnected. Information sharing was not a thing back then, and all of today's agreements meant nothing back then because they did not exist.
Unfortunately for Vanuatu, the government ended up a bit carried away with these rules. Vanuatu had no agreements and acted like a big player, but this attitude bothered other countries. This was when Australia and New Zealand kicked in.
Other countries – such as the USA or those from Europe – were not really bothered because most of their citizens were focused on other tax havens, such as the Cayman Islands. In other words, Vanuatu was an attractive option for nearby countries.
This is why Australia and New Zealand were the first countries to put pressure on the local government. They claimed that the banking sector had to be regulated no matter what. Things escalated pretty quickly then.
Vanuatu had to introduce its first VAT in 1998. It was set at 12.5%, which was still small compared to other countries. The VAT was part of the local CRP – Comprehensive Reform Program, which aimed to redefine the local economy.
The VAT was influenced by the system in New Zealand. Back then, New Zealand had the VAT at 12.5%. With time, New Zealand raised this tax, but Vanuatu has managed to keep it within the same limit – just 12.5%.
Now, fast forward to our times, what should you know about Vanuatu taxes?
Before going forward, you should know there are normally two main taxes in Vanuatu. First, you have the corporate tax, which is paid by corporations or businesses. Then, you have the individual tax, which is paid by people.
Disclosing the personal income tax
The personal income tax in Vanuatu is nonexistent. This is one of the most exciting parts of Vanuatu. There is, indeed, a rental tax, but this can be described as something different. Basically, if you own property in Vanuatu and you rent it out, you will get taxed on that income.
Other than that, it makes no difference what you do or how you make money. You could run a massive corporation, a small business, get employed, have dividends, or a few pensions. No one will knock on your door to ask for income tax.
On the other hand, it is worth noting that Vanuatu is one of the few countries in the world that sells its citizenship. Unofficially, you can buy it. Officially, you have to make an investment in the country, and you will be granted citizenship.
It is not a random purchase, as a smart investment will also give you good returns in the long run.
The citizenship by investment program and the tax-free income are some of the main reasons wherefore many entrepreneurs and investors choose Vanuatu for a second passport. Apart from saving money, they also get to live in a beautiful country.
As if all these were not enough, its location is quite strategic too – close to China, Japan, New Zealand, Australia, and the USA. The local government does not even require you to come up with annual personal tax returns.
Becoming familiar with the corporate tax
If you thought the lack of a personal income tax is interesting, wait until you hear this – Vanuatu does not have a corporate tax either. In other words, it makes no difference if you have an international corporation or a local business – you will not be charged tax.
With these thoughts in mind, it is no surprise why so many high net worth people move their business operations to Vanuatu. It makes no difference where you come from or what type of business you run. As long as it is legal, you will not be charged a tax on your corporate income.
This is why so many large companies have their headquarters in Vanuatu and operate internationally. Incorporating a company in the island nation is fairly simple and will not require too much work. Plus, the banking system is just as attractive.
The lack of a corporate tax means you can easily safeguard your money and assets. Your profits are yours – after all, why would you pay for nothing? You can expand your wealth without worrying about corrupted governments trying to take a part of it. After all, what do they do to help your business?
Exactly… Nothing.
Running a company in Vanuatu is not totally free, though. According to local laws, you need to pay some fees for your employees. The cost of living and salaries are quite low, though, and the fee is only 6% of each employee's salary.
Payments are made to the Vanuatu National Provident Fund. They work just like in western countries, meaning they are used for social security, as well as personal pensions. While there is this fee, it is not really a tax because it does not go to the government.
Should you decide to relocate your business to this country, apart from Vanuatu taxes, you should also need the stamp duty if it is required. This stamp duty is set at 2%. It is one of the lowest rates in the world and less likely to affect business operations.
There are some duties and customs on things you may import from abroad, but they vary widely. Some assets are taxed at 0%, while others can go up to 50%. It depends on more things, such as the value of your goods or where they come from.
The most common things will be taxed at about 10%. With all these numbers in mind, it is no surprise why so many businesses are now relocated to Vanuatu, turning it into one of the hottest offshore countries for international trade.
The link between international companies and offshore banking
Vanuatu taxes represent the most attractive part of Vanuatu’s financial system. Vanuatu excels here, but international businesses will find it attractive from even more points of view. The whole setup of this country feels like it has been designed to support business growth in the long run.
Registering your business in Vanuatu is definitely a smart idea, but you also have to pair it with a flawless banking system. Nothing to be concerned about – you can do it locally without worrying about your money and assets.
At the moment, Vanuatu only has two offshore banks. Each of them is specialized in offshore services, so it makes no difference what you need – chances are one of these banks will provide it without causing any difficulties.
Opening your account in Vanuatu is a straightforward operation – some ID, a few other documents, and you are done. The whole process takes a few days only. Banks come with some deposit requirements, but there is a reason behind this rule.
Local banks do not want random people over. Instead, they are focused on high net worth individuals.
Furthermore, you should know that foreign companies can register locally as non resident companies. These entities will have even more benefits when it comes to their expenses – especially in terms of the VAT.
Despite being a small country and still under development, Vanuatu has a robust banking system and good anti money laundering rules. No matter how much money you bring into the country, it will be safe in banks, venture capitals, or other entities.
Understanding the VAT
Vanuatu is almost entirely tax free, but the VAT is there. The tax was introduced as a reform under the pressure of countries like Australia and New Zealand. Basically, you have to pay VAT on most domestic goods and services.
The tax is 12.5%, yet there are a few exceptions out there. Since the system is mostly based on the one in New Zealand, you will find a lot of similarities. For example, some goods are taxed at 0%, yet they are still VAT eligible.
To help you get an idea about what requires 0%, here are some sectors:
- Exported goods
- Domestic exchange services are given to foreigners
- Aid project sector
- International transportation of goods
- International transportation of people
- Service exchanges outside of the country
- Services for educational institutions
Get involved with some of these services, and you can forget about the VAT.
Other sectors that can ditch the VAT include financial services, the education sector, donations, and services offered by nonprofit organizations registered locally. Domestic rentals and property sales (used for rental services for five or more years) will pay 0% VAT too.
Nothing changes for international companies. There is no VAT they need to deal with.
Now, if you do need to pay VAT, it is normally paid annually. Also, you have to register with the respective department upfront. There is a limit to consider too – four million VUV. To be eligible for VAT, you must exceed this limit in financial turnover.
Figuring out the property tax and other Vanuatu taxes
Now, in terms of real estate, there is no property tax in Vanuatu, yet there are a few taxes you might be eligible for in certain circumstances. Basically, if you rent out properties, you will need to pay a tax on the income. This tax is paid twice a year.
You become eligible for tax if you rent out at least one property – more properties, more tax.
This rental tax – just like the VAT – is limited to 12.5% only. Now, the total earnings will also affect the tax. For instance, if your gross rental earnings over six months are under 200,000 VUV, you will be taxed at 0% – basically, nothing.
On the other hand, there is no upper limit. You could rent properties for hundreds of millions – you will only pay 12.5%. Other than that, a stamp duty also applies if you make transactions with properties – maximum of 1%, but it has to be at least 2,500 VUV.
Moving on to other Vanuatu taxes, the local government is extremely friendly to both locals and foreigners. All the islands in the country benefit from the same system, so there are no higher taxes in one place or another.
Many taxes miss completely and do not even exist in local regulations – withholding, inheritance, wealth, or capital gains taxes, just to give you a few ideas. Without a government trying to rob you blind, it is easy to understand why so many people choose Vanuatu.
Most investors can agree that the lack of a capital gains tax is the most attractive benefit for companies willing to do business internationally. Besides, the country is known for its stable political system, so your business should be fine.
Learning more about the offshore banking system in Vanuatu
Offshore banking is one of the most prolific industries in Vanuatu and a top source of income for the tiny country. Therefore, it is well established and provides access to a professional experience, despite the lack of too many banks.
You can have bank accounts in Vanuatu in all kinds of currencies – plus, there are no exchange controls.
Many company owners and entrepreneurs choose to bank in Vanuatu over other similar jurisdictions – such as the Cayman Islands, for example – because Vanuatu allows doing business with the local community.
The government allows interactions between residents and foreigners – no restrictions at all.
Now, again, there are only two offshore banks in Vanuatu.
The Vanuatu National Bank is managed by the Ni-Vanuatus. It was established in the 1990s and has about 25 branches. They are spread over more islands – depending on the population. There are no special features or benefits associated with it.
However, you can get an account opened without too much hassle.
The Pacific Private Bank has European origins. Established a couple of decades ago, it has a limited amount of customers and charges high fees. Get ready to pay around 250 euros a month for maintenance and about 500 euros to get a business bank account.
Despite these fees, the bank offers more flexibility. It does take you through a classic KYC procedure and has some disclosure contracts, but overall, it makes a good choice if you cannot open a business bank account somewhere else.
Vanuatu is surprising with just two offshore banks. At the end of the day, you do not even need the fortune to run your own bank there. Sometimes, opening a bank could be more profitable than just storing money in Vanuatu.
With all these, a couple of banks have proven that they can successfully handle business customers and foreigners for decades already. They have proven that they have the infrastructure and stability to store money and provide different options for your banking experience.
Conclusion
In the end, Vanuatu taxes make this jurisdiction an exciting opportunity. Indeed, different business people have different needs and deal with different circumstances, but overall, Vanuatu makes a great choice for people from all over the world.
Compared to other countries, Vanuatu is not given as much pressure, yet influences from New Zealand and Australia can make it difficult. However, if you are not from these countries, Vanuatu is a better choice than countries in the Caribbean, for instance.
Vanuatu provides the right level of privacy and plenty of freedom – things that you cannot find in other countries. It is excellent for those interested in an offshore adventure, especially if they struggle with other countries.
Furthermore, life in Vanuatu can be good, given the fact that the cost of living is insignificant.
