Are you affected by the Foreign Exchange Control Act of 2018? This is a question we should all ask.
You are affected if you are a “person resident in Tonga” which includes: 1) a person residing in Tonga for more than one year; or 2) incorporated in Tonga; or 3) a person licensed to do business in Tonga; or 4) an office, branch or agency in Tonga owned or controlled by a person resident outside of Tonga; or 5) an office, branch or agency outside Tonga owned or controlled by a person resident in Tonga.
That covers just about everyone in Tonga and everyone (Tongan or non-Tongan) investing in or planning to invest in a business or property in Tonga. If you think this won’t have an effect on investment in Tonga once the word is spread on this Act, then you are in a dream world.
So what can you and can’t you do as a “person resident in Tonga”?
Section 5 of the Act provides that “…… no person resident in Tonga shall acquire, hold, take, possess or transfer any gold, foreign exchange, foreign security or any immovable property situated outside Tonga.” Foreign security is defined as shares, stocks, bonds, debentures or any other instrument denominated in foreign currency and immovable property includes land and buildings.
See where this is going all of us residents of Tonga? It appears that existing investments are protected but it seems to clearly state that residents cannot, in the future, acquire or hold shares in foreign companies or land and buildings outside of Tonga. And if you do violate this you are subject to heavy fines, possible imprisonment, and the possibility of forfeiture of the property held overseas.
Section 6 of the Act goes on to say that ”A person resident outside Tonga may hold, own, transfer or invest in gold, Tongan currency, security or any immovable property situated in Tonga if such gold, currency, security or property was acquired, held or owned by such person when he was resident in Tonga or inherited from a person who was resident in Tonga.”
So can a non-resident setup a new company in Tonga? Or buy into an existing company? And does this not apply to both foreigners and Tongans living overseas? Let’s say that a non-resident through one year in Tonga becomes a resident – then they are now prohibited from acquiring property in any other country. How could a foreign investor make an investment in Tonga with this possibility along with the accompanying potential penalties?
There is always the possibility that this Act was intended to stifle foreign investment in Tonga. But even if this is the intent, why put the severe restrictions on what the residents of Tonga can or cannot do with their money? As to the Reserve Bank Governor’s statement that the act will not be strictly enforced – if that was the case then why was the Act drafted and passed in the first place?
This Act needs to be repealed and its replacement limited to managing foreign exchange and gold.