Financing your tourism business in Vanuatu – part 2

Stapleton Pacific - Vanuatu tourism property

Welcome back to part 2 of the 3 part series – Financing your tourism business in Vanuatu.

In part 1, I talked about interest rates and the differences and reasons for borrowing in Australian dollars and the local currency, Vanuatu Vatu.

In this, part 2 of the series I will talk more about the dryer compliance aspects…specifically the foreign investment process and the costs…

Foreign Investment – what is the process?

Foreign investment in Tourism is encouraged in Vanuatu, subject to:
(a) the investment being of sufficient size to contribute to the Vanuatu economy
(b) the investment is outside the sectors specifically retained for Ni-Vanuatu
(c) there is a dedicated training plan to develop the skills of local Ni-Vanuatu

There is a quite detailed 6 step process required to formalise your business investment i.e.
1. Foreign Investment approval – Vanuatu Investment Promotion Authority (VIPA)
2. Residency permits
3. Work permits
4. Company incorporation / Business name registration – Vanuatu Financial Services Commission (VFSC)
5. Value-added Tax (VAT) – Department of Customs and Inland Revenue
6. Employer registration – Vanuatu National Provident Fund (VNPF)
7. Vanuatu Chamber of Commerce and Industry (VCCI)

The following websites provide comprehensive detail on these steps:
http://www.investvanuatu.org/DoingBusiness/
http://www.vfsc.vu/
http://www.vnpf.com.vu/
http://vcci.com.vu/

Whilst there is now the scope for ‘self-service’online access, I recommend that you invest in the services of accounting and legal professionals within Vanuatu. This is due to the many differences between investing in Australia vs Vanuatu and I believe your time is better spent planning the strategy for your business.

Land system

The land system used in Vanuatu is leasehold versus freehold in Australia. Maximum lease term is 75 years and the relevant land lease covers the specific conditions pertaining to your lease e.g. lease term, process for renewal of lease, lease rent, usage of land, timeframe to improve and lessor entitlements at the expiry of lease term.

Whilst the lease will typically include an option for renewal, any renewal will be subject to an additional payment to lessor (lease premium) and may include changes in lease conditions e.g. lease rent.

I recommend that as part of your business due diligence, satisfactory allowance is made for a commercial return on your investment within the residual lease term. Should the lease be for a period of less than 25 years, I suggest a renewal of lease is included in your sale & purchase contract conditions.

What are the costs

When considering your chosen investment, allow for costs of 10% which based on an investment of AUD1,500,000, I recommend you allow for additional $150,000 for these set-up costs.

These costs will include such items as Government fees, professional costs, valuation, insurance and finance costs and in prior to allowing for the necessary working capital.
Note: the majority of these costs are payable to government being registration and stamp duty on transfer (7% of purchase/contract price) and registration and stamp duty on lender mortgage (2.1% of loan amount).

Summary

We have now covered information on interest rates, the impact of currency, the process and the costs.

In our next blog, we will discuss borrowing ratios and I will introduce an alternate strategy for the financing of your tourism investment in Vanuatu…stay tuned…