Key Takeaways
- Vanuatu applies VAT as a consumption tax, so foreign-owned businesses making taxable supplies there may fall within its scope.
- Registration is required once a business meets the threshold, with voluntary registration available, and registered persons must self-assess and file VAT returns.
- Supplies are treated differently depending on whether they are standard-rated, zero-rated, or exempt, which affects input tax credit entitlements.
- Non-resident, cross-border, and digital suppliers face specific VAT treatment alongside penalties, audits, and ongoing compliance obligations.
Introduction to VAT in Vanuatu
Vanuatu levies a Value Added Tax (VAT) at a standard rate of 15% on most goods and services supplied within its borders. The tax was introduced in 1998 under the financial reform element of the Comprehensive Reform Program and is administered by the Department of Customs and Inland Revenue. This matters for foreign owners because the country imposes no income tax, no corporate tax, and no capital gains tax, which makes VAT the government's primary source of revenue.
This article explains how the tax works, when registration becomes mandatory, what is zero-rated or exempt, how returns and payments operate, and how cross-border and offshore structures are treated. It is most relevant to non-resident business owners and their advisers weighing whether to trade through a Vanuatu entity, or assessing compliance obligations for a business already established there.
Legal Basis: The Value Added Tax Act and the DCIR's Role
The tax sits on two statutes. Substantive rules live in the Value Added Tax Act [Cap 247], while administration, assessment, and enforcement procedures were consolidated under the Tax Administration Act No. 37 of 2018, effective 1 January 2020.
The original framework was modelled on New Zealand's GST regime, opening at 12.5% with few exemptions. A rate increase in 2018 lifted the standard charge to 15%.
Day-to-day administration falls to the Department of Customs and Inland Revenue (DCIR), the agency that collects government revenue through taxes and licensing while overseeing risks tied to international trade. Enforcement is built into the legislation itself, with offences set out in Section 51(1) and the related penalty provisions in Sections 51(2) to 51(6).
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The Standard VAT Rate and How VAT Works as a Consumption Tax
VAT applies at a single rate of 15% on most goods and services supplied by registered persons in the course of a taxable activity. Imports into the country are taxed in the same way.
The system runs on a credit-offset basis. A registered business charges VAT on what it sells (output tax) and deducts VAT it has paid on purchases from other registered persons (input tax), so the real burden settles on the end consumer rather than on the business in the chain.
Two accounting methods are available. Under the invoice or accruals basis, output and input tax are recorded in the period the supply takes place; under the payments or cash basis, VAT is accounted for only when money actually changes hands.
The amount due for any taxable period is the difference between tax collected on sales and tax paid on purchases. Where input tax exceeds output tax, the business is entitled to a refund.
There is no intermediate or reduced rate. Supplies are taxed at either the standard 15% or, where they qualify, at 0%.
VAT Registration Threshold and Voluntary Registration
Registration becomes mandatory once a business carries on a taxable activity and its taxable supplies over any 12-month period exceed, or are expected to exceed, VT 4 million. The obligation can also arise at the start of a month if there are reasonable grounds to expect supplies will cross that figure in the coming year.
Certain amounts fall outside the calculation. Exempt supplies are disregarded, as are one-off receipts from ceasing or substantially scaling back an activity, or from replacing capital assets.
A business below the threshold may still register voluntarily, provided it carries on a taxable activity or intends to from a fixed date. The advantage is the ability to claim input tax credits on purchases, which can suit a firm with significant start-up or input costs.
The threshold exists to keep part-time traders, hobbyists, and small non-profit bodies outside the system, on the basis that their liabilities would be too small to justify the administrative cost.
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Taxable Activities and Who Must Register as a "Registered Person"
A taxable activity is any activity carried on continuously or regularly, profit-making or not, that involves supplying goods or services for consideration. Businesses, trades, professions, associations, clubs, and even public and local authorities all fall within the definition.
Several activities are deliberately left out. These include private hobbies and recreational pursuits, employment (including service as a company director), activities producing only exempt supplies, and, significantly for foreign investors, activities carried on by international companies.
A "registered person" is anyone registered or liable to be registered under the Act. Once registered, the entity, regardless of its legal form, must charge VAT on its supplies, collect it on the government's behalf, file returns, and account to the DCIR's Taxpayer Services Office.
The point for non-residents is straightforward: VAT is charged only on supplies made by registered persons, so the registration question determines whether your Vanuatu operation sits inside or outside the system.
Zero-Rated Supplies Under Vanuatu VAT
Zero-rating taxes a supply at 0% while preserving the supplier's right to recover input tax on related expenses. This is the more favourable of the two relief categories, because the business charges no VAT to its customer yet still reclaims VAT on its own costs.
The zero-rated list is where most export-oriented and cross-border activity lands:
- Exported goods, and goods not situated in the country at the time of supply
- A taxable activity sold as a going concern to another registered person
- International transportation of passengers and goods
- Services supplied to non-residents who are outside the country
- Services physically performed outside the country
- Goods or services supplied to approved educational institutions
- Goods or services supplied to aid donors for approved aid projects
For a foreign-owned business trading internationally, this treatment means most genuine export supplies carry no net VAT cost.
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Exempt Supplies and How They Differ from Zero-Rated Supplies
Exempt supplies are removed from the VAT system entirely. No VAT is charged on them, and, unlike zero-rated supplies, no input tax can be recovered on the costs of making them.
The exempt categories include financial services, education provided by an approved institution, donated goods and services sold by non-profit organisations, residential rental accommodation, and the sale of property used as residential rental for at least five years.
The distinction carries a real cost. A zero-rated supplier keeps its input tax credits; an exempt supplier loses them, which can make exemption a disadvantage for any business with heavy input expenditure.
Input Tax Credits and the Credit-Offset Mechanism
The credit-offset mechanism is the engine of the whole system. Each registered business reports VAT on its taxable supplies and deducts VAT paid to other registered suppliers, leaving only the net amount payable to the DCIR.
A credit can be claimed only where the business holds a valid tax invoice. On request from a recipient who is also registered, the supplier must issue that invoice within 28 days, and it must carry the particulars set out in the prescribed form.
Where input tax exceeds output tax in a period, the balance is refundable rather than carried as a liability.
Record-keeping underpins every claim. A registered person must retain:
- Books of account, whether manual, mechanical, or electronic
- Tax invoices, credit notes, and debit notes
- Any other documents needed to verify entries
- Documentation describing the accounting system or software in use
VAT Returns, Taxable Periods, Payment Deadlines and Self-Assessment
VAT is self-assessed. You calculate the tax on your own return, pay accordingly, and the DCIR processes the figures you submit.
The standard taxable period is one month. A business whose annual taxable supplies fall below VT 8 million may apply to file quarterly instead, on a three-monthly cycle.
| Item | Rule |
|---|---|
| Standard filing and payment deadline | 27th day of the month after the taxable period ends |
| Return otherwise due 27 December | Not required until 5 January of the following year |
| Deadline on a weekend or public holiday | Moves to the first working day after |
| Standard taxable period | 1 month |
| Quarterly option | Available where annual supplies are below VT 8 million |
Returns may be lodged using the VAT return booklet issued by the DCIR or through its office in Port Vila. Where a return is incorrect or missing, the Inland Revenue issues an assessment, including a default assessment when no return is filed at all.
VAT Treatment of Non-Resident, Cross-Border and Digital Suppliers
Cross-border services generally fall outside the net through zero-rating. Services supplied to non-residents who are outside the country, and services physically performed abroad, are taxed at 0%, as is the international transport of passengers and goods.
International companies registered in the jurisdiction sit outside VAT by statute, because their activities are excluded from the definition of a taxable activity. An offshore company structured this way therefore has no VAT registration obligation arising from its excluded activities.
The DCIR does acknowledge the position of "a foreign resident doing business in Vanuatu or a local resident doing business overseas," so a non-resident with a genuine local taxable presence should test its position rather than assume exclusion.
No dedicated registration regime for non-resident digital-services suppliers, of the kind seen in Australia or the EU, was identified in official sources. Confirm the position directly with the DCIR or local counsel before relying on it.
Penalties, Audits and Compliance Obligations
Enforcement runs through the offence provisions in Section 51(1) of the Act, with penalties set out across Sections 51(2) to 51(6). The DCIR applies penalties for both late filing and late payment, and interest accrues on unpaid VAT from the due date.
The audit function is a standing part of the system. Because VAT is self-assessed in the first instance, the Director reviews the return, issues an assessment, and raises additional assessments where a return is false, missing, or otherwise inconsistent. A failure to file at all triggers a default assessment.
Beyond returns, a registered business must keep adequate records, issue tax invoices on request, and notify the VAT office of any change to, or cessation of, its taxable activity. The published offences and penalties guidance sets out the conduct that draws sanction, though the precise monetary scales and the late-payment interest rate should be confirmed against the full Act or current DCIR guidance.
Conclusion
For a foreign owner, the classification of each supply type sits at the heart of every VAT decision here, because that single variable determines whether input tax credits offset the cost of compliance or disappear entirely. Getting that classification wrong is where exposure accumulates, and it accumulates quietly under a self-assessment system that places the burden squarely on the registered person.
Non-resident and digital suppliers face obligations that exist regardless of whether a physical presence has been established in Vanuatu, so the next concrete step is a frank assessment of whether the business's specific supplies cross the registration threshold and how each of those supplies would be classified under the rules the article has set out.
How Expanship Can Help Your Business in Vanuatu
Expanship supports foreign-owned entities with VAT registration, return preparation, and ongoing filing, and extends that same support across the wider compliance demands of operating an entity in the jurisdiction. The aim is to keep your obligations met without requiring you to manage local procedure from abroad.
- Company formation and structuring advice
- Registered agent and registered office services
- VAT and tax registration, plus return filing
- Ongoing compliance management and statutory deadlines
- Accounting and bookkeeping aligned to record-keeping rules
- Introductions to local and international banking
To discuss your VAT position or a wider engagement, contact Expanship Vanuatu.
Frequently Asked Questions
Yes. While the jurisdiction levies no income tax, corporate tax, or capital gains tax, it does impose VAT at a standard rate of 15% on most goods and services. VAT is the government's primary source of revenue.
Registration is mandatory once your taxable supplies over any 12-month period exceed, or are expected to exceed, VT 4 million. The duty can also arise at the start of a month if there are reasonable grounds to expect that figure will be crossed in the coming year.
Exported goods and services supplied to non-residents outside the country are zero-rated, meaning VAT is charged at 0% while the supplier still recovers input tax on related costs. International transportation of passengers and goods is treated the same way.
No. The activities of international companies are specifically excluded from the definition of a taxable activity, which places such entities outside the VAT system by statute. A genuine local taxable presence, by contrast, should be assessed on its own facts.
A zero-rated supplier charges 0% but keeps the right to reclaim input tax on its expenses. An exempt supplier charges no VAT and cannot recover any input tax, which can be a disadvantage for a business with significant input costs.
Returns and payment are due by the 27th day of the month following the end of your taxable period, which is normally one month. Where annual supplies fall below VT 8 million, you may apply to file quarterly, and a deadline landing on a weekend or public holiday moves to the next working day.
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.
