A variation application form – a growth strategy?

September 16, 2016 11:45 am | Posted in Opinions | Share now TwitterFacebook

In this edition, we take a closer look at the “Variation Certificate” we issue, especially the different types and their implications to VIPA’s mission. We focus our discussing on the following topics:

• A definition of variation from VIPA’s perspective, it’s relevance to the different types of foreign direct investment and how this compares to the treatment used by other institutions such as the Reserve Bank of Vanuatu (RBV)
• Can anyone apply for a variation or is it limited to some people meeting certain criteria?
• Is Variation application a growth strategy to your business?
• The extent Variation is taking place to date and a summary outlook – particularly how this will impact on the mission of VIPA.

From our previous discussion, we briefly touched on the types of foreign investment application certificates (FIAC) we issue – New, Renewal and Variation. While the first two types are straight forward applications, the third type can be considered a special category. From an entrepreneurial perspective, the ability to adapt to the dynamic market environment is not a choice but a responsibility. This is where a variation certificate becomes useful particularly for any investor after establishing a successful business in Vanuatu.

What is it?

Variation is one type of foreign investment certificate the VIPA BOD issues to a foreign investor. From the VIPA Act, a variation certificate is awarded to an existing investor wishing to expand its business activity. Expansion here refers to four different categories of change to an existing business:

1. Change of business activity – When an existing business intends to begin operation of new business activity or selling new products in the production line.

2. Change of business location – Refers to a shift of an existing business to a different or new location

3. Change of Ownership – When an existing business sells all or part of the business to new investors (local or foreign) or adding or deleting shareholders

4. Change in Business Name – While change is common, entrepreneurs have their own reasons to take the move VIPA does not take for granted its existing customers. That is why it is taking its “Aftercare Service” program very seriously by helping those who wanted to expand their businesses in order to achieve their business diversification plans.

Who is entitled and how does it work?

By default, all approved foreign certificate holders (FIAC) are entitled to a variation certificate. If your business is already established and successful, and have decided to introduce another shop in a new location, all you need to do is apply for a variation certificate with us. And like wise if you need to collaborate in order to bring in new skills and experience into your business with those of another complementary business that has a similar customer base to yours, VIPA is making this possible for you.

Whatever change you intend to do once you have your first business in operation, all you need to do is come and talk with us.

Variation a growth strategy to our business?

If you are unsure whether a variation certificate is a good direction to take, the answer is it could be an opportunity for you to achieve a greener pasture. It is the very reason why VIPA has this option available as part of its strategies to deliver on its mission.

Saying it sounds very simple, but in reality it is not. For example, when we talk about relocating to a new location, in general we are referring to a successful establishment in location A and decided to move to location B. In some cases a business decides to relocate to point B because its first choice of location was not the right choice.

According to a recent survey, 26% of small and medium-sized businesses are diversifying to give themselves a competitive edge in the market. And provided that you are convinced of the next move to take and inform us accordingly, we will always be on your side to see your new plans achieved.

A variation is indeed a strategy where a lot of existing business are making use of. This is demonstrated by chart 1.0 below.

Current state

While the trend on the number of variation is uneven during the past five years, the overall trend shows a gradual increase with an annual average of 2.4 percent.

On average, the number of new foreign certificates granted by the VIPA BOD per year is 100. This implies (from the above chart) all registered investors during the previous year are applying for a variation certificate in the current year, confirming the fact about being a real entrepreneur – the endless challenge seeker.

Outlook

While we tend to look at a variation certificate from an entrepreneur’s perspective and conclude that it is indeed a growth strategy, there are also real benefits to the community or host country. For every variation an existing business undertakes, there is a guarantee that 1 or 2 employment opportunities for local will be offered. Further there will be additional revenues generated for the Government. For example, variation certificates approved by the VIPA BOD during the five year period have generated on overage close to 2 Billion vatu with 100 jobs created for the locals.

But the challenge is “will this impressive trend shown in fig 1.0 be sustained over the medium to long term? Well, business are able to expand their operations and activities because they are currently not paying any income tax. This is the amount of month they saved and used to gain competitive edge. With the new tax initiative introduced by the Government, to what extent this will impact on this growth strategy remains unknown.

The fact that the benefits of foreign direct investment are not automatic; appropriate policies and mechanisms need to be in place in order to realise such benefits, VIPA will ensure its aftercare service program is a priority for the coming years through a coordinated approach with its key partners.