Earlier this week, Vanuatu became the first sovereign nation to accept bitcoins in return for granting citizenship through its DSP Citizenship Program.
The Chairman of the Vanuatu Information Center (VIC) – which oversees Vanuatu citizenship applications - Geoffrey Bond, had sent an official request earlier this month seeking permission to accept bitcoin as a form of payment. Andrew Solomon Napuat MP, the Parliamentary Secretary to the Prime Minister of Vanuatu, affirmed the decision last week.
In a statement to news media, Bond stated that “While attempts have been made in the past to effect payments for citizenship by investment programs via Bitcoin, these efforts never had government approval, and were shut down as a consequence. However, in this case, the Government of Vanuatu has explicitly expressed a desire to be at the forefront of adopting new technologies, officially encouraging the VIC to receive payments in Bitcoin.”
The Chairman added that an unnamed Australian bitcoin exchange, which follows Australian KYC and AML regulations, would handle the bitcoin transaction at the time of payment, which occurs at the end of the application process.
“crypto-currency exists in a fully traceable ledger, where the entire history of its creation and trading is visible."
— James Harris, Managing Director, Vanuatu Information Center
The Managing Director of the VIC, James Harris, explained that there was initially some concern and suspicion about cryptocurrencies due to bitcoin’s reputed use in black markets and other undesirable activities. “In fact, the opposite is true,” he stated, “as crypto-currency exists in a fully traceable ledger, where the entire history of its creation and trading is visible.” Harris added that the use of bitcoin would greatly improve the flexibility of international financial transactions.
Vanuatu has a population of about 286,000 residents, and is composed of 82 relatively small islands in the south Pacific, nestled between Australia and Fiji. The 810-mile (1,300 kilometer) archipelago has 65 inhabited islands among eight active volcanoes. The country has its own money, the Vatu, but is relatively poor with few natural resources. The country’s primary industry is fishing. Roughly one-third of the residents speak English, an official language of the country along with Bislama and French.
The islands of Vanuatu have been reeling under several natural disasters in recent history such as volcanic eruptions, earthquakes, and cyclones. In March 2015, Vanuatu suffered a direct hit from category five cyclone Pam, which reduced its infrastructure considerably. More recently, the 11,000 residents of the island of Ambae had to be evacuated when its volcano erupted with little warning.
Perhaps to offset the costs of these disasters, the country has made a concerted effort to attract affluent investors as residents and citizens. The VIC states that Vanuatu has zero corporate tax, no income tax, no capital gains tax, no estate tax, no wealth tax, no withholding tax, no gift tax and no other personal income taxes.
According to the World Bank, Vanuatu has the lowest tax rate for businesses, recorded globally at 8.5% of a company’s annual profit. Often praised for being one of the world’s leading tax havens, Singapore’s tax rate is nearly double that of Vanuatu. Most other countries tax their businesses at a much higher rate, some as high as 108% of profits, according to the World Bank.
Within the 8.5% tax rate of Vanuatu, there is a mandatory 4.51% social security tax program for employees, a 3% business license, and approximately 1% for land, developed property, and vehicle taxes in the country. Apart from that, even residents without a business pay no other taxes to Vanuatu outside of a single 12.5% VAT tax that is locally applied, according to the VIC website.
Being a British Commonwealth nation, Vanuatu has a very desirable passport due to the visa-free travel to other commonwealth nations. Additionally, it has signed mutual visa waiver agreements with Russia and the European Schengen area countries in the last couple of years.
While the number of countries that a Vanuatu passport grants access to changes often, as of January this year the VIC states that they allow citizens visa-free travel to 125 countries including the UK, the whole of Europe, Russia, Hong Kong, and Singapore. This ranks the passport 45th in terms of travel freedom according to the Henley visa restrictions index.
The cost to become a lifetime, hereditary, Vanuatu citizen through the VIC’s program is US$200,000 per individual or $235,000 for a family of up to four. At the time of writing, that places the cost of an individual citizenship at just under 42 bitcoins. Additional family members can be added for $10,000 each, and only $5,000 each if they are under the age of 18.
Applying for the citizenship plan is a six-step process that begins with an initial $5,000 deposit at the time of application. The process lasts between 30 and 90 days, with the balance amount due at completion. There is no requirement for the new citizen to visit Vanuatu, according to the VIC. Although the country has other residency options, they currently do not accept bitcoin as a payment method.
Christian Nesheim, an investment migration specialist who advised VIC officials to accept bitcoin, is optimistic about the move. He asserts that accepting bitcoin will give Vanuatu a competitive advantage in the citizenship market, as investors in Bitcoin would be able to realize some of their earnings without incurring large capital gains taxes.