Vanuatu, a group of 80 inhabited islands situated in the southwest Pacific - three and a half hours east of Australia and one hour west of Fiji - has been making a name for itself as a financial centre and tax haven for offshore financial services. Thin Lei Win lists the advantages of incorporating in Vanuatu.

The French and British jointly ruled the Republic of Vanuatu, formerly the Condominium of the New Hebrides, till its independence in 1980. During this time, the British government passed special legislation providing for banking, trust and insurance companies, and company laws that include provisions for exempted companies covered by strict secrecy provisions. Thus, in 1971, the Offshore Finance Centre in Vanuatu was born, together with the Financial Centre Association (FCA) of Vanuatu.

"The FCA represents its members and forms opinion on a number of matters, working closely with the government in developing new legislation that relates to the activities of the Offshore Financial Centre," says Mark Stafford, chairman of FCA and a partner at BDO Vanuatu. Services available from Association members - including banking, insurance, trusts, accounting and law - are also of world standard, he adds.

After more than three decades offering financial, investment, banking, accounting and legal expertise, the Association members believe Port Vila, the commercial centre of Vanuatu, is better positioned to deal with offshore financial services than its Pacific competitors. A tax haven, it is said, is nothing if there is a lack of government support, expertise and infrastructure. And Vanuatu has all of the above, and more.

One of the advantages of Vanuatu is the legislation, tailored to attract and promote its standing as a financial centre. The Trust Companies Act, the Banking Act and other commercial laws are based on English law. And the 1992 International Companies Act is a more flexible version of the British Virgin Islands International Business Companies Ordinance and the New Zealand Companies Act.

A special Banking Supervision Unit was set up in 1997, under Vanuatu's Financial Services Commission (VFSC) - the body which regulates the activities of the offshore finance centre - to supervise exempted banks. Bills have been updated, and new legislation passed, such as the Financial Institutions Act, the Interactive Gaming Act and the Electronic Transactions Act.

And there are also of course no taxes: no income tax, withholding tax, capital gains tax, gift, death, estate or succession duties, only a VAT (value-added tax) of 12.5%. There are no tax treaties, and companies have a 20-year guarantee against taxes, duties and exchange controls under the International companies Act. The government also introduced two pieces of legislation in 1990 to help prevent money laundering activity so that a tax haven does not become a laundering heaven.

Says Stafford: "The Vanuatu Government has worked closely with organizations such as FATF and others to ensure that the regulatory framework in Vanuatu has been strengthened in recent years to ensure that money launderers, criminals and terrorists have every chance of being detected and prosecuted if they are stupid enough to try and use Vanuatu's Offshore Centre. Vanuatu was the first country in the Pacific to establish a Financial Intelligence Unit."

The lack of exchange controls means any currency in the world can be held in Vanuatu and earn interest from deposits. Depositors can also change currencies by simple direction to their banker or representative. In addition, it allows re-domiciliation - acts of a company incorporated in one jurisdiction continuing life in another without having to wind up and re-incorporate elsewhere. All of these cost savings, ease of transactions and flexible rules, make Vanuatu an attractive offshore alternative for firms.

Already, there are said to be more than 1,500 companies incorporated in Vanuatu, including some 100 banks (such as ANZ Bank, European Bank, National Bank of Vanuatu), about 75% of which do not conduct business locally. There are also numerous accounting firms such as BDO, KPMG and Moores Rowland, as well as trust companies.

This all translates to billions of dollars being domiciled in Vanuatu. But for many of those who choose to use the Vanuatu flag, it is not only the fiscal incentives that attract them to this grouping of islands but also by a host of other facilities.

These include the sophisticated communications system - Port Vila has its own satellite. Vanuatu also sits in an advantageous time zone, an important consideration for a financial centre. A business day in Vanuatu starts at 7.30am, just in time to catch the close of play in New York. The financial centres of Hong Kong and Singapore start business three hours later, which means transactions completed in Singapore can be communicated and carried out in Vanuatu within hours. Before Vanuatu closes for the day the London and European markets open, allowing operators in Vanuatu to monitor developments across all the critical centres in different time zones.

One fast growing area is Vanuatu's international shipping industry, offering shipping registration to ships of any nation. Vanuatu's legislation sets high standards in safety and compliance, but fees are low and that there are no nationality restrictions on officers or crew. Reportedly, there are more than 500 vessels registered under Vanuatu with maritime offices located in the major shipping ports such as London, Athens and Singapore, and Port Vila.

Gaining recognition as well is the island's funds management service. The unique time zone and location allows fund mangers to have real-time information of the market. In addition, the industry's conservative strategy in Vanuatu results in steady growth, as opposed to high-risk investments where growth trends are more unpredictable. Funds incorporated in other jurisdictions, Canada for example, are also managed in Vanuatu.

Promotional efforts, especially targeting Asia, have also increased, with Asia becoming a prime market for Vanuatu's services. For example, the Vanuatu Government appointed law firm Deacons as Deputy Registrar of Companies earlier this year, to act on behalf of the VFSC. And there are plans for firms to lobby the Government to do the same in Singapore.

With an established track record and supportive legislation, Vanuatu is poised to be a centre for offshore financial services for years to come.

Services provided by FCA members in Vanuatu
International Company Formation; Investment Advice; Trustee Services; Offshore Bank Formation; Captive Insurance Companies; Trust Formation; Asset Management; Interactive Gaming Licences; Funds Management; Estate Management; Private bank; Share trading; Accounting services; Insurance Bonds.

Financial Centre Association (FCA) of Vanuatu
Contact: Mark Stafford, partner - BDO Vanuatu, chairman - FCA, tel: +678 22280, fax: +678 22317, email: bdo@vanuatu.com.vu, website: www.bdo.com.vu

I.F. Trustees (NZ) Limited
tel: +678 25798, fax: +678 25796, email: iftrustees@co.nz, website: www.iftrustees.co.nz

Asian Corporate Services Group
Asian Corporate Services in Singapore, Hong Kong and Shanghai, the European Bank Ltd, Vanuatu, and the Vanuatu Maritime Services Limited, are all members of the worldwide Bayer Financial Group. The Group head office, established in 1972, is situated in the Offshore Financial Centre of Vanuatu. The Singapore, Hong Kong and Shanghai offices provide company formations and administration, corporate advisory and secretarial services, shelf companies, trustee and corporate management services, directorship for qualifying clients, nominee shareholders and trade support services.

The European Bank Ltd
The European Bank Ltd is one of four fully licensed local banks in Vanuatu and does not have a parent bank / holding company ownership onshore anywhere. It accepts deposits, provides international private banking and fiduciary services, and funds and asset management as well as foreign exchange services in major currencies to corporations and high net worth individuals (in major currencies). For further information refer to the advertisement 'Offshore Services Made Easy' and our website: www.offshoreforme.com.