Foreign Investment in Vanuatu and the new ‘VIPA’ Act
By Francesca Grillo, Waterfront Real Estate Vanuatu.
On 15 January 2020 the new Foreign Investment Act no. 25 of 2019 was gazetted, repealing the Vanuatu Promotion Investment Act Cap .
The Act is to establish the Foreign Investment Promotion Agency (replacing the Vanuatu Investment Promotion Authority – VIPA) which is composed by the Board, the Chief Executive Officer and other staff, to implement the functions and activities provided by the Act.
Main functions of the Agency include:
- (a) advising the Minister (of Trade and Industry) and Council of Ministers on all matters relating to foreign investment in Vanuatu, including the approval of a national investment policy and the scope and appropriateness of any amendment to the Reserved List and Restricted List.
- (b) advising the Minister on the development and maintenance of an efficient, effective and timely regulatory environment for investment in Vanuatu;
- (c) providing relevant and accurate information on obtaining permits, licences and approvals by foreign investors from any State department or agency;
- (d) establishing methods to assist foreign investors in obtaining permits, licences and approvals from any State department or agency;
- (e) Undertaking the registration and monitoring of foreign investors in Vanuatu; and others.
The functions of the Agency are performed by the Board and by the CEO. The new Board is composed by four (4) DGs (including Trade and Industry (Chairperson of the Board), Strategic Policy Planning, Local Authorities and
Agriculture, Livestock, Forestry, Fisheries and Biosecurity) three (3) members from the Private Sector nominated respectively by the Vanuatu Chamber of Commerce and Industry (VCCI), the Vanuatu Financial Centre Association (VFCA) and the Vanuatu Hotel & Resorts Association (VHRO).
The Board meets four times per year and it has a policy making, reporting and supervision role, while the Chief Executive Officer is in charge of all new foreign business application for registration and to administer the day to day operation of the Agency.
He or she must have at least 5 years’ experience in investment promotion related work with preferable background in economics or management or similar fields.
The Board is to determine the terms and conditions of the CEO appointment.
Vanuatu is welcoming foreign investment however it has a list of activities ‘Reserved’ to ni-Vanuatu Citizens and a list of Activities ‘Restricted’ to foreign investors in terms of type and size of the proposed investment.
The lists of ‘Reserved’ and ‘Restricted’ activities have not been changed from the previous Act, however under the new Act, both lists may be reviewed and there are provision for public consultations on the process and for individuals to recommend a review based on specified reasons.
The Act now provides for the Registration of Investment Activities rather than an application for a permit to conduct the activities.
All foreign investments must be registered and provide an annual survey of their business by 28th February of each year, rather than submitting an application for their permit renewal. This is indeed a welcomed provision to simplify the life of business operators and guarantee the continuity of their activities.
The Chief Executive Officer is to register the Investment in the Register and an activity cannot be carried out without a valid Certificate of Registration.
Main elements to be included in the application for registration are:
- Indication of the main investment activity and related activities and their description;
- Name of the foreign investor;
- Business name;
- Address of the foreign investor and address for service in Vanuatu;
- Other elements as specified in the application form
The Chief Executive Officer must assess the application, verify that the proposed activity is not a prohibited or reserved activity or that the requirement to approve a restricted activity are satisfied. The CEO can ask for further information and when satisfied the application received is complete, issue a receipt to the applicant.
The Investment must be registered within 15 days from the issuing of the receipt and applicants have the right to apply to the Board for a revision, in the event the registration is denied.
This is a simplified and clear process which represents a great step forward to incentive foreign investor to apply and start their new business in Vanuatu.
The certificate of Registration of a Foreign Investment includes all details of the Investment as specified in the application.
The investor must apply for a Variation of the certificate in the event of changes occurring to the:
- (a) investment activity; or
- (b) ownership structure of the activity; or
- (c) any other details as may be prescribed.
This provision is to apply only to Investors who have been issued an approval certificate before the commencement of the Act, however it is likely its interpretation will apply to all registered foreign investments who wish to undergo the above relevant changes.
A simple notification to the Agency within 25 days is instead required for the following changes:
- (a) the business name (if any) under which the foreign investor carries out the investment activity;
- or (b) if the specified investment activity is on the Restricted List – the address of a premises where the foreign investor carries out a restricted activity;
- or (c) the address for service of notices and other documents on the foreign investor;
- or (d) any other details as may be prescribed.
It is not clear the reason why failing to notify the Agency for the above changes may be punished with imprisonment up to 3 years and fined up to 2 M VT, while failure to present a Variation regarding the core activity or the ownership structure has much lesser penalties of fines up to 1 M VT.
However the most controversial provision, concerns clause 45 (9) of the Act:
“If the business activities of a foreign investor are expanded more than 3 times in the form of a variation, the foreign investor must enter into joint partnership with a citizen of Vanuatu.”
Questions have been raised by concerned investors regarding these provisions: will foreign business operators risk to expand and grow their business given the compelling obligation to acquire an imposed partner to suddenly gain the profits of his investment and hard work? How will they find a trusted joint venture partner? Will the new partner have to make any contribution of any kind to the business?
Representatives of the Private Sector had strongly advised for the removal of this provision during the revision of the Act. The advice was not followed and only time will tell how this small insert will assist in promoting Vanuatu as an investment destination.
The Certificate of Registration is subject to cancellation by the CEO in the event of the investor:
- (a) Carrying out prohibited or reserved activities;
- (b) Carrying out restricted activities other than within approved limits;
- (c) Failing to commence the activity within the specified period (12 to 18 months depending on the size of the investment);
- (d) Failing to comply with other registration conditions;
And other offences.
The Cancellation must be notified to the Investor who has the right to apply to the Board for a review of the Cancellation.
A final and important part of the Act covers the Investment Guarantees, which must be promoted by both the Board and the CEO of the Agency.
- (a) Guarantee against expropriation by the Government if not in accordance to the Constitution or the Law of Vanuatu in the events of public purpose or National interest;
- (b) Guarantee of no less favourable treatment than that accorded to a citizen foreign investor for a comparable activity (leaving the door open for a less favourable treatment than that accorded to a citizen ‘non foreign’ investor);
- (c) Guarantee of free transfer of funds in and out of Vanuatu within the respect of any other legal requirement
- (d) Guarantee of equal treatment with regard to disputes.
Summarising, the new Act does not bring dramatic changes to the existing system of approval of Foreign Investment activities in Vanuatu.
What is does is mainly simplifying the process of approval through a straight forward 15 days assessment and registration of the new activities.
The new CEO is vested with greater responsibilities and powers, while the Board has been given a policy maker, supervisory and advisory role.
It will be interesting to see how these changes in functions and roles between the CEO and the Board will positively reflect on the activity of the Agency, without allowing for unlimited discretion, power of delegation and potential conflict of interest.
Another positive aspect is the possibility to review the lists of ‘Reserved’ and ‘Restricted’ activities through public consultation and individual’s initiative. Given the fast changing business environment in Vanuatu and the imminent graduation from the LDC list in December 2020, it is a good avenue to adjust the legal requirements to what is best for the Country’s economy and its people at any given year in time.
Foreign direct investment is critical for developing and emerging market countries. Economic growth depends on the growth of resources such as labour force, bringing new land under cultivation, setting up of new factories or power plants, or constructing new roads and infrastructure as well as technologi¬cal progress and access to new markets.
Vanuatu has a lot to offer to new investors from other countries as it is a fabulous place, it has a good climate, it is full of opportunities and good people, it is not over regulated, it is close to Australia and New Zealand and above all, it has a favourable taxation regime and freedom of capital circulation.
With the addition of good infrastructures and transport means, good telecommunication and internet access, good banking and finance system, a simplified and welcoming business environment, good education for the work force supply and certainty and guarantees within the land and business law, Vanuatu has great potential to achieve a prosperous economic development for the immediate present and the future.
Foreign capital inflows bring new jobs, new opportunities, healthy competition and ultimately more money circulating into the economy generating more VAT and other Government revenue.
Francesca Grillo, Principal Waterfront Real Estate Vanuatu, Member of the PPP for the revision of the Foreign Investment Act and Newly appoint member of the Foreign Investment Promotion Agency Board nominated by the VFSC.