INVESTMENT CONSIDERATIONS

GOVERNMENT POLICY

The economic goals and objectives of the Government of Tonga are outlined in a series of five year development plans. The Seventh Development Plan covers the period 1996 - 2001. The Tongan Government intends to focus on increasing employment and generating additional foreign exchange by increasing export earnings from goods and services and to encourage investment. Therefore, foreign investment is welcomed in Tonga and, while there is a range of Government regulations and procedures to be adhered to, each proposal is dealt with on its own merits.

A proposal is particularly welcomed where it has the potential to:

• bring in foreign capital;
• introduce technical expertise (management, engineering and technological) which would otherwise be unavailable;
• generate workforce skills;
• create employment for Tongans;
• generate and/or conserve foreign exchange through export, tourism and import substitution; and
• develop or create access to new export markets and/or the expansion of existing export markets.

Suggested areas of investment include tourism, or manufacture for exports of any items or products utilising local resources or imported raw materials. Joint ventures are encouraged in the areas where technology transfer is likely. Each project is considered on its own merit. 100% foreign owned companies are normally allowed for manufacturing activities for exports utilising imported raw materials. It is government policy to encourage joint ventures.

Infrastructure improvements such as the expansion of the Queen Salote Wharf and the expansion and upgrade of the International Fua'amotu Airport have been undertaken to encourage investment and private sector development.

RESTRICTIONS ON FOREIGN INVESTMENT

There are several sectors of the economy reserved for only Tongans. To date, there has not been a strict application of this policy. At present, the new government is reviewing these sectors so these restrictions may be lifted in the near future. Foreign investors cannot buy land in Tonga. The Government provides areas designated to small industry sectors and will help in negotiation for leasing of private lands between foreign investors and locals. Foreign investors are excluded from investment in infrastructure and road transportation.

REPATRIATION OF CAPITAL AND PROFITS

Repatriation of funds (including dividends, profits, capital gains, interest on capital and loan repayment and salaries) is permitted in accordance with the provisions of the Foreign Exchange Control Act, but with conditions attached.

For the purpose of conserving foreign exchange, the National Reserve Bank of Tonga exercises some control on foreign receipts and payments. Repatriation of funds, including dividends, profits, capital gains, interest on capital and loan repayment and salaries is permitted according to the provisions of the Foreign Exchange Control Act except:

1. where an industrial enterprise is partly financed by locally raised capital (including working capital), in which case the repatriation of funds will be related to the extent of foreign financing, that is, repatriation will be regulated on a pro rata basis;
2. in respect of capital gains, the amount eligible for repatriation will be restricted to the amount transferred in through the banking system or by other approved methods;
3. expatriate employees will be allowed to remit overseas their wages and salaries received in Tonga up to the amount on which income tax has been paid.

TAXATION

Sales tax, customs duty and port and service taxes are levied on most imported goods and commodities sold in Tonga (see under 'Investment Incentives' below for foreign investment exemptions and concessions to these imposts). There is no provisional tax, payroll tax, localgovernment tax, capital gains tax, export tax, probate tax or death duties.

Personal income tax is levied at the rate of 10 percent of assessable income. Incomes below US$1,807 per annum are exempt from tax.

Company income tax is levied according to company status, as follows:

• resident:
  • 15 percent for the first US$72,290;
  • 30 percent over US$72,290;
• non-resident:
  • 37.5 percent for the first US$36,145;
  • 42.5 percent over US$36,145.

INVESTMENT PROTECTION

Tonga is not a party to any international agreements relating to foreign investment protection and compensation...however the government ensures an independent and transparent judiciary system to settle disputes or protect the interests of foreign investors.

INVESTMENT INCENTIVES

For approved industrial and prime tourist enterprises a range of incentives is offered. They include:

Tax Holidays