Part seven of the Jurisdiction Spotlight series will focus on Vanuatu, one of the lesser known best known offshore jurisdictions. It is a jurisdiction that offers among the highest secrecy of all offshore jurisdiction, which is good and bad.

History helps us understand the present, so let’s start thousands of years ago (as of writing).

History

There are no historical records from Vanuatu prior to arrival of Europeans. What is known comes from archaeological findings. There are indications of the islands being populated as early as 4000 BC, with arrivals from Polynesia and Melanesia.

Portuguese explorer Pedro Fernández de Quirós made the first observation of the islands in 1606 and British navigator James Cook chartered them in 1774, naming the islands New Hebrides.

The trader Peter Dillon discovered sandalwood on the islands in the early 1800s. Trade was booming until a skirmish between indigenous Melanesians and immigrant Polynesian workers in 1830.

In the late 1830s and leading into the 1840s, Christianity (Presbyterianism) spread. While it initially faced hostility, it soon took over the islands.

France and Britain for long argued over ownership of Vanuatu, both having significant influence. Following an 1887 convention, both countries’ navies were responsible for the protection of its own citizens present in New Hebrides.

In 1906, the two nations decided to form a coalition government to rule the islands, called the British-French Condominium. The indigenous Melanesians were not granted French or British citizenship, instead remaining stateless.

It was said that the British rule had stricter but more humane prisons, while the French were unsanitary but with better food.

A movement for independence began in the 1940s, after the island has served as an important naval base during World War II. An important influence in this movement was the arrival of American soldiers and their day-to-day informal interaction with the Ni-Vanuatu people, who until then had been limited to British and French colonists.

The legend and subsequent cult of John Frum played a role in the Ni-Vanuatus’ rise for independence. John Frum is depicted as an American soldier who brings wealth and prosperity to his followers. John Frum is likely a mishmash of traditional stories and the stark contrast American soldiers had on the thitherto isolated Ni-Vanuatu people. The Americans brought a friendly, easy-going attitude along the power and wealth they portrayed by bringing enormous battleships and over 300,000 soldiers to the islands.

To this day, John Frum day is celebrated on the 15th of February, when the cult followers decorate a red cross with flowers and say prayers by the cross. There is also a flag raising ceremony followed by a military parade, where the participants carry rifles made of bamboo.

The British supported Vanuatu’s demand for independence, but France was initially reluctant, fearing it might spread to New Caledonia.

New Hebrides ultimately became independent on the 30th of July 1980, changing its name to the Republic of Vanuatu.

The independence came with a set of difficulties, in particular land ownership. A series of land reforms were enacted during 1980 until 1986 to deal with this. In the end, foreigners or non-indigenous citizens were not allowed to own land and many foreign land owners felt cheated after losing their land to Ni-Vanuatu people.

The book “The Politics of Land in Vanuatu: From Colony to Independence”, available for free on Google Books, goes much more in-depth on the topic until its publication in 1987.

Overview Data

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Vanuatu Offshore Company

The Vanuatu International Companies Act is very similar to other IBC legislations. It was written in 1992 and came into force the same year.

Companies are exempt capital controls and exchange controls.

Vanuatu has zero corporate tax, both for international and domestic/resident companies. This excludes it from criticism about ring-fencing or similar segregation.

Accounts must be kept but need not be filed and there are no auditing requirements. It is unknown how many (if any) Vanuatu IBCs actually keep accounts.

Vanuatu is presently not able to comply with TIEAs. While this looks bad internationally, it makes it attractive for privacy and secrecy reasons. Vanuatu does not have as big of an international profile as for example BVI, Belize, and the Seychelles.

This makes Vanuatu companies an interesting option for those seeking very high privacy and ease of use. On the flipside, because of its high secrecy, Vanuatu’s international reputation isn’t always the best.

Bearer shares are permitted, but must be deposited with a custodian, effectively immobilizing them.

The fees involved in forming and maintaining a Vanuatu company are low but due to limited competition, the actual cost from registered agents can be high, often exceeding 1,000 USD for incorporation.

Offshore Banking in Vanuatu

Banking in Vanuatu is relatively good, but the jurisdiction has had a long history of banks disappearing and licenses being revoked. This was cleaned up in the 1990s.

In 2002, the government enacted The International Banking Act. The purpose of this new law was to clean up so-called shoebox banks that had plagued the jurisdiction for a long time.

In December 2003, all the old licenses were revoked.

Banks are regulated by the Reserve Bank of Vanuatu.

It is still quite easy to form a bank in Vanuatu, with capital requirements of only 500,000 USD, which can be held in a bank account outside of Vanuatu.

The quality of the banks varies enormously. The most common bank with offshore companies are probably Bred Bank and Pacific Private.

Living in Vanuatu

It’s warm and it’s remote, but it’s a tax free tropical paradise.

Hostile feelings against westerns is almost entirely gone. There are virtually zero ethnical tensions in Vanuatu, which rightfully is referred to the as the “Happiest Place on the Planet.”

In addition to zero company tax, it also has zero income tax, capital gains tax, estate tax, wealth tax, or other personal income taxes.

Sales tax stands at 12.5%.

Costs of living are relatively low, but as with any other small island nation, it relies on import, which drives up prices a lot on items that cannot be produced locally.

Immigration can be arduous and difficult.

Directors of Vanuatu offshore companies, where the company has been operating for at least five years, can apply for residency in exchange for a deposit 300,000 VUV.

Citizenship is available after 10 years of residency or under the Capital Investment Immigration
Plan (CIIP), whereby a limited citizenship is issued in exchange for a deposit of circa 300,000 USD, of which 260,000 USD is set aside into a seven-year long deposit. As of writing, this is a relatively new programme.

Allegedly (I have been unable to confirm this) for the first 500 applicants, 50% of the required capital can be waived if paid directly to the government. This is essentially a cash-for-citizenship deal, without even so much as a pretext of investment into the country.

Citizens under CIIP will not be able to vote, for example. To enjoy full citizenship, applicants must live 10 years in Vanuatu.

Final Words

I always encourage those interested in Vanuatu to tread especially carefully. The government can be fickle, as history has shown.

In 2008, George Andrews of the Vanuatu Financial Services Commission (VFSU) said “The Vanuatu Government will scrap its secretive company law provisions within months as part of a legal overhaul aimed at abolishing the Pacific Nation’s reputation as an international tax haven.” Since then, precisely nothing has changed.

Vanuatu’s offshore sector wasn’t and still isn’t bringing in as much cash to stuff the government coffers. It is expected that CIIP will help that. What will Vanuatu do if CIIP fails?

“The plan (CIIP) will hopefully raise sufficient funds and generate revenue for the government,” said Deputy Prime Minister, Natapei.

However, it is unlikely that it will make any changes, let alone drastic changes, to its incorporation or banking acts.

Click here to see other posts in the Jurisdiction Spotlight series.