Dear Honourable Members of Parliament,
We write to refer to a copy of our letter submitted to the then Minister of Finance in November 2024 in which we outlined our concerns regarding the “Bill for the Resident Entity (Economic Substance)”. We wish to reaffirm that those concerns remain fully valid and unresolved.
While the FCAV has since engaged in further discussions with the advisor responsible for drafting the bill, we regret to note that the key issues raised have not been adequately addressed. The consistent feedback we have received is that the deficiencies can be amended at a later date or addressed through supporting regulations. (The concerns/issues raised by FCAV were based on and supported by an extensive comparative review of five other jurisdictions that have implemented Economic Substance legislation acceptable to the EU: Mauritius, Seychelles, Cayman Islands, Bermuda, and the British Virgin Islands (BVI). This review has helped to inform our recommendations and ensure alignment with accepted international norms).
In our view –and in accordance with international best practice– it is far more prudent to resolve known legislative deficiencies before tabling a bill in Parliament, rather than proceeding with the intent to fix issues retrospectively via amendments or regulatory patchwork. Rushing the legislative process increases the risk of legal uncertainty, economic disruption, and reputational harm.
We also remain seriously concerned about the potential government revenue implications of the bill. It is clear that the legislation could adversely affect both existing and future investment in Vanuatu, thereby impacting overall economic activity and ultimately, government revenue.
We further note that Vanuatu has been on the EU tax list since 2017, and the practical implications of this designation have already been factored into our domestic and international operating environment. The EU is not a major trade or investment partner for Vanuatu, and we question whether this justifies urgent legislative intervention – particularly when such intervention will not deliver meaningful results in the short term. This includes any non-EU parties that take note of the EU Tax list.
From our perspective, the more significant and urgent issue is Vanuatu’s presence on the EU AML/CTF list, which poses far greater and more immediate risks to the country’s financial system, correspondent banking relationships, and international credibility.
To be clear, removal from the EU tax list is not a step toward removal from the AML/CTF list. These are entirely separate processes, governed by different frameworks, criteria, and stakeholders.
Given all of the above, we see no compelling urgency to pass the Economic Substance bill at this time. Vanuatu has managed its affairs under the current designation for over seven years. Passing flawed legislation will not yield immediate benefits—but getting it wrong could have long-term, negative consequences.
We therefore respectfully request that the bill be postponed, to allow for a more thorough review and resolution of the issues we have identified. We remain committed to supporting a consultative process that results in a coherent, enforceable, and internationally credible legal framework.
Yours sincerely,
James Hudson
Chair, Financial Centre Association of Vanuatu (FCAV)
[UPDATE MAY 8, 2025: the Bill was withdrawn by the Council of Ministers]
