Tax Structure

Vanuatu has a long history as a financial center.  A key to a successful financial center is that it has no income tax.  Many people get the impression that the lack of income tax means that Vanuatu has no tax to speak of.   this is very far from true.

For the average start-up company in Vanuatu the amount of tax they will pay in the first 3 years will be significantly higher than in a country with a more traditional tax system.

Vanuatu's tax system is based on consumption taxes and license fees.   These taxes are primarily import duties, Value Added Tax and fees on licenses and permits.  Most of these taxes are designed to most heavily tax the large business while having a minimal affect on the local population.  As most large businesses are owned by foreign investors this is where the tax burden falls.

The foreign investor will begin by paying the Vanuatu Investment Promotion Authority to grant permission to operate in Vanuatu.  VIPA approval does not ensure that other government agencies will make the necessary approvals for the business to operate.  The VIPA will charge a fee every year for their continued support.

After VIPA approval the foreign investor will seek residency and pay 20,000 vatu ($175 USD) per year for each expatriate investor resident and spouse.  They will pay 100,000 vatu ($900 USD) a year for each expatriate employee.  Most incorporated business will pay about 50,000 vatu ($450 USD) for their corporate filing fees and 100,000 vatu ($900 USD) per year for the business license.  The business license tariff is said to be changing and this will have a significant favorable impact on the cost of a start-up business.  The new tariff will be .5% of turnover (gross sales) with a minimum of 20,000 vatu and a maximum of 500,000 vatu and it will apply fairly to all businesses.

Value Added Tax is 12.5% but is only collected by businesses that have a turnover of 4,000,000 million vatu per year so, again, only large businesses must include this tax in their price.   Because there are few other reporting requirements, enforcement of VAT comes primarily through audits.   These audits are, at times, heavy handed but if the business pushes back the outcome is usually fair.

Duties on imported goods are quite high.  With the exception of food, most duties are at least 15% and many items are 25% or even 50%.  Duty is calculated based on the landed price so it includes shipping and handling.   It is not uncommon for goods to cost 50% to 100% more in Vanuatu than in Australia because of this system.  This needs to be factored into budgets for start-up businesses.  

New businesses can often get duty relief for up to 3 years on goods and materials that are necessary to set up the business.  This relief is usually 5% duty rather than the published rate.  It is important to secure this before anything is imported.  The problem with this system is that it usually requires that the benefactor must import the materials directly which reduces a lot of the benefit because of inefficient shipping and poor purchasing power.

A new tax introduced recently is the Debit Tax.  Bank accounts are taxed on withdrawals at a rate of about .1%.   This tax has create a great deal of controversy because it affects local citizens.   The government has been talking about the introduction of income tax.   Just the discussion of it driving a lot of the offshore money out of the country.  The implementation of income tax will likely be done without the removal of other taxes and will again have high thresholds so local citizens are unaffected.  The ever increasing tax burden has been sending Vanuatu businesses into slowly decline, shrinking the tax base.   It is unfortunate that the government seems to have difficulty seeing that increasing tax rates and the methods of taxation are actually reducing the potential for tax collection in the future.