Key Takeaways
- Foreign-owned companies that qualify as resident entities and carry on a relevant activity in Vanuatu may fall within the economic substance regime.
- Meeting the substance test generally depends on core income-generating activities, employees, premises, and expenditure, alongside being directed and managed within Vanuatu.
- Pure equity holding entities face reduced requirements, while high-risk intellectual property entities must meet enhanced substance standards.
- Failing the economic substance test carries consequences, though certain entities and situations fall outside the regime.
Understanding Economic Substance Regulations in Vanuatu
Economic substance regulations require certain companies to prove they conduct real business activity in the place where they are registered, rather than existing only on paper. In Vanuatu, this obligation sits in an unusual position: a Bill for the Resident Entity (Economic Substance) Act was tabled in Parliament during the Second Ordinary Session of 2024, but no enacted Act number, gazette notice, or commencement date has been publicly confirmed. That distinction matters, because Vanuatu remains on the European Union's list of non-cooperative jurisdictions, which is itself the clearest signal that a fully operational, recognised substance regime is not yet in place.
The proposed framework would apply to "resident entities carrying on certain business activities" in the country, with enforcement referenced to the Director of Customs and Inland Revenue. This article explains the origins of the regime, what the draft law would demand, who it would catch, and what foreign owners should do while its status remains unsettled. It is most relevant to non-resident owners of Vanuatu companies and the advisers who must keep those entities compliant as the rules take shape.
Why Vanuatu Introduced an Economic Substance Regime: EU and OECD Pressure
The drive behind Vanuatu's economic substance work is external, not domestic. On 12 March 2019, the EU's ECOFIN Council added the jurisdiction to Annex I of its blacklist, citing the absence of offshore structures backed by real economic activity, the failing measured under criterion 2.2.
The country was also flagged under criterion 1.2 after the OECD Global Forum rated it "Partially Compliant" on exchange of information in 2019. Technical assistance followed that year, and a first draft of substance legislation appeared in 2020, but it was judged insufficient.
This pressure traces back to the OECD's BEPS Action 5, which requires that substantial core income-generating activities take place in the jurisdiction granting a preferential tax regime. The EU's listing criteria apply that same standard.
The 2024 Bill is the direct legislative answer to a deficiency that has kept the country listed since 2019. The government has openly acknowledged the reputational and economic harm of remaining non-cooperative.
As of the February 2026 EU revision, Vanuatu remains among the listed jurisdictions. The presence of a tabled Bill has not yet satisfied the EU or removed the country from Annex I.
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The Legal Basis for Economic Substance in Vanuatu
The governing instrument is the Bill for the Resident Entity (Economic Substance) Act, described as an Act requiring resident entities carrying on certain business activities to meet substance requirements. It was tabled during the 2024 Second Ordinary Session and retrieved from the Parliament of Vanuatu's bills page as a draft.
No enacted Act number, gazette date, or commencement date has been publicly confirmed. This is the central fact a foreign owner must hold onto: a Bill is a proposal, not a binding obligation, until it is passed and brought into force.
The draft's table of contents shows it would cover interpretation, the meaning of a high-risk IP entity, the meaning of a resident entity, a reporting obligation, requirements to provide documents and information, record-keeping, and search warrant powers. A dedicated Part addresses penalties and sanctions, and a further provision deals with determining compliance.
The Bill names the Director of Customs and Inland Revenue as the enforcement officer, rather than the Vanuatu Financial Services Commission, which remains the principal registry for financial services. No subordinate regulations, filing forms, or official filing portal for substance returns have been publicly identified.
Because the law is unenacted, confirm its status directly with the Vanuatu Parliament or the Financial Services Commission before treating any substance obligation as live. Do not assume a deadline, a form, or a penalty exists yet.
Before this Bill, the jurisdiction had no operative domestic economic substance legislation. That absence was the precise reason for its continued EU listing.
Which Entities Are in Scope: The Meaning of a Resident Entity
The draft contains a dedicated section defining a "resident entity," which sets the boundary of the regime. The full operative wording of that definition was not retrievable beyond the table-of-contents level, so the exact test cannot be stated with certainty.
By the logic of comparable OECD-aligned regimes, a resident entity is generally any company incorporated or registered in the jurisdiction and tax-resident there, meaning it cannot demonstrate tax residence in another country that is itself outside the EU's list. Scope depends on two things together: the residency status of the entity and whether it carries on a defined "relevant activity."
No public data confirms which legal forms the Bill captures, such as International Companies, domestic companies, partnerships, or trusts. Pacific-region regimes of this type usually catch all locally registered corporate entities, while leaving individuals and sole traders outside, but the enacted Vanuatu text must be checked rather than assumed.
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Relevant Activities Caught by the Substance Rules
The exhaustive list of relevant activities in the Bill's operative sections is not publicly available. What the table of contents confirms is that the draft treats "holding business" and "high-risk IP entity" as distinct categories, which is consistent with the standard OECD framework.
Regimes built on the same criteria, such as the British Virgin Islands model, typically define nine relevant activities:
- Banking
- Insurance
- Fund management
- Finance and leasing
- Headquarters business
- Shipping
- Holding business
- Intellectual property
- Distribution and service centre business
Because the draft was written to meet the same OECD and EU standards, it is expected to follow a similar structure. That expectation is not a substitute for the enacted text; advisers should not assume the Vanuatu list matches any other jurisdiction's word for word.
The Economic Substance Test: Core Income-Generating Activities, Employees, Premises, and Expenditure
The exact wording of the substance test, including employee headcounts, premises requirements, and expenditure minimums, is not publicly available from the retrieved draft. What follows is the general principle these regimes share, not a statement of confirmed Vanuatu thresholds.
An in-scope entity carrying on a relevant activity is normally expected to be managed and controlled inside the jurisdiction, employ an adequate number of qualified full-time staff, incur adequate operating expenditure locally, and hold sufficient physical assets there. These four limbs translate the BEPS Action 5 requirement for "substantial core income-generating activities" into practical tests.
The Bill's reporting obligation section implies that entities would have to report on how they meet the test, in line with comparable frameworks. The specific core income-generating activities for each activity type, minimum employee numbers, and minimum expenditure figures for Vanuatu are not published and will appear only in the enacted Act and any subsidiary guidance.
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Directed and Managed Within Vanuatu
The precise "directed and managed" provisions are not confirmed in the publicly retrieved text. As a general matter, substance legislation treats management, control, operations, physical presence, and decision-making procedures as the core of what "substance" means.
OECD-aligned regimes require, as one limb of the test, that an entity be directed and controlled from within the jurisdiction itself. That usually points to board meetings held locally, decisions recorded there, and directors with the knowledge to make them.
The draft's structure is consistent with such a test, but the operational details, including any minimum number of board meetings, quorum rules, or requirements for resolutions to be kept in the country, are not confirmed. Treat the directed-and-managed limb as likely rather than settled until the enacted text is available.
Reduced Requirements for Pure Equity Holding Entities
The Bill includes a section on the "meaning of high-risk IP entity," which by inference marks that category for more demanding treatment and signals that ordinary holding entities sit under a lighter standard. The exact reduced requirements for pure equity holding entities are not set out in the retrieved draft.
Under BEPS Action 5, holding company regimes require, at a minimum, that companies meet all applicable corporate law filing obligations and have the people and premises needed to hold and manage equity participations. The aim is to exclude letter-box and brass-plate arrangements that exist only as a registered address.
In comparable regimes, a pure equity holding entity faces a reduced test relative to a trading entity, often satisfied by meeting filing requirements and maintaining a local registered agent. Whether that lighter route applies in the same way in Vanuatu must be confirmed from the enacted law.
High-Risk Intellectual Property Entities and Enhanced Substance
The draft confirms enhanced treatment for high-risk IP entities through its dedicated definitional section. The exact Vanuatu definition and the enhanced requirements attached to it are not in the retrieved text.
Across comparable regimes, a high-risk IP entity is a business that acquired intellectual property from a connected party or another jurisdiction and earns income from it without carrying out substantial development or risk-control work locally. Such entities are presumed to fail the substance test unless they can prove otherwise.
To rebut that presumption, these regimes typically demand strong evidence:
- A detailed business plan showing the commercial rationale for holding the IP in the jurisdiction
- Information on employees, including experience, qualifications, contract type, and duration
- Proof that the key decisions are taken within the jurisdiction
The Vanuatu standard for the rebuttable presumption and the evidence needed to overcome it remain to be confirmed from the enacted text. Owners of IP-rich structures should treat this category as the most exposed.
Entities and Situations That Fall Outside the Regime
The explicit carve-outs in the Bill's operative sections are not publicly available. As a general principle, an entity that carries on no relevant activity falls outside the substance test, though it may still face a lighter reporting duty to confirm that status.
Comparable regimes also exclude entities that can demonstrate tax residence in another jurisdiction not on the EU list. This is where Vanuatu's own position complicates matters.
Because the country itself remains on Annex I, the usual carve-out for entities tax-resident in an EU-cooperative jurisdiction operates differently here. An entity claiming residence elsewhere should confirm that the receiving country actually accepts that claim, rather than assuming it will.
Other exclusions seen in similar regimes, such as for regulated entities already under separate substance oversight, investment funds, or companies in liquidation, are not confirmed for Vanuatu and should not be relied on without the enacted wording.
Consequences of Failing the Economic Substance Test
The Bill contains a dedicated Penalties and Sanctions Part, and it allows the Director to determine that a person has committed an offence under the Act, with penalty notices served personally or by post. The actual monetary amounts, escalation schedules, and any imprisonment terms are not retrievable beyond the section headings.
In comparable enacted regimes, the consequences run beyond fines. A non-compliant entity's information is exchanged with the jurisdictions where its immediate parent, ultimate parent, and ultimate beneficial owner reside, and persistent failure can end in strike-off from the register.
| Element | Status under the Vanuatu Bill |
|---|---|
| Penalties and Sanctions Part exists | Confirmed in the draft |
| Director may determine an offence | Confirmed in the draft |
| Specific fine amounts | Not publicly available |
| Escalating penalty schedule | Not publicly available |
| Strike-off trigger | Not publicly available |
Until the enacted Act and any penalty regulations are published, the financial exposure of getting this wrong in Vanuatu cannot be stated with precision. Plan on the assumption that information-exchange and strike-off risk will exist once the regime is live.
Conclusion
The honest position is that Vanuatu has the intention of an economic substance regime but not yet a binding one: the law exists as a tabled Bill, with no confirmed enactment, commencement date, forms, or portal, and the country's continued place on the EU blacklist confirms the gap has not closed. A foreign owner should not act as though live substance obligations apply, nor ignore the direction of travel.
The sensible next step is to confirm enactment status directly with the Financial Services Commission or Parliament before each compliance cycle, and to assess now whether your structure would meet a substance test built on local management, staff, premises, and spending if and when the rules take force. Owners of holding or IP-heavy entities have the most to weigh.
How Expanship Can Help Your Business in Vanuatu
Expanship tracks the status of the Resident Entity (Economic Substance) Bill and the position taken by the Financial Services Commission, so that you know whether a substance obligation has become live and what it would require of your structure. Alongside that, the firm handles the wider compliance needs of a foreign-owned entity in the jurisdiction.
- Company formation and registration for non-resident owners
- Registered agent and registered office services
- Ongoing compliance monitoring and management of statutory filings
- Accounting and bookkeeping support
- Economic-substance readiness reviews and beneficial-ownership assistance
- Introductions to banking providers
To discuss how the proposed substance regime affects your entity, contact Expanship Vanuatu.
Frequently Asked Questions
Not in a confirmed sense. A Bill for the Resident Entity (Economic Substance) Act was tabled in Parliament during the 2024 Second Ordinary Session, but no enacted Act number, gazette notice, or commencement date has been publicly confirmed, so the obligation should be treated as proposed rather than binding until verified.
The country was added to the EU's list of non-cooperative jurisdictions on 12 March 2019 for the absence of offshore structures backed by real economic activity, and it remains listed as of February 2026. The 2024 Bill is the direct legislative response to that pressure and to the OECD's BEPS Action 5 standard.
The draft applies to "resident entities carrying on certain business activities" in the jurisdiction, so scope depends on both the entity's residency and whether it conducts a defined relevant activity. The exact list of legal forms and activities is not yet public and must be confirmed from the enacted text.
The Bill names the Director of Customs and Inland Revenue as the enforcement officer, with power to determine offences and serve penalty notices, rather than the Financial Services Commission. The Commission remains the principal financial-services registry, so the precise supervisory split should be confirmed once the law is enacted.
The draft contains a dedicated Penalties and Sanctions Part, but the specific fine amounts, escalation, and any strike-off trigger are not publicly available. In comparable regimes, non-compliance leads to information being exchanged with the jurisdictions of the parent and ultimate beneficial owner, and ultimately to possible strike-off.
Verify the Bill's status directly with the Vanuatu Parliament or the Financial Services Commission before each compliance cycle, since a tabled Bill carries no binding deadline. At the same time, assess whether your structure could satisfy a substance test based on local management, staff, premises, and expenditure if the regime comes into force.
Legal Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While we strive to ensure the accuracy and timeliness of the content, laws and regulations are subject to change, and the application of laws can vary widely based on specific facts and circumstances.
Readers should not act upon this information without seeking professional counsel tailored to their individual situation. Expanship and its authors disclaim any liability for actions taken or not taken based on the content of this article.
For specific advice regarding your business setup, compliance requirements, or any legal matters, please consult with qualified legal and tax professionals in the relevant jurisdiction.
