Because of obvious roadblocks, it appears that the government's economic vision for Tonga is not welcoming to outside ideas and investment.
Let’s say you are living outside of Tonga today and wanted to start/purchase a business here in Tonga (you can be either Tongan or non-Tongan for this example). You have a thriving business now, own a home where you live and have several other investments to help secure the future of your family. Through friends you see a good business opportunity in Tonga that complements your current business and will be able to employ a sizeable number of locals and bring new money into the Tongan economy as well as make a profit for yourself.
Before you do this, it’s time to take a hard look at the business climate in Tonga.
First you check to see if you are able to operate the business you have in mind in Tonga. Although the most recent Foreign Investment Act seems not applicable due to pressure by Tonga’s foreign aid donors, you still find that the Ministry of Trade and Economic Development will apply a list of reserved and restricted businesses when considering your business license (you think that is reasonable for Tonga is a developing economy and needs to protect its own).
You find that your business is outside the reserved and restricted list, so you check out the process of setting up a business in Tonga. It appears reasonably straight forward – obtain a Foreign Investment Certificate, apply for a business name, register as either a foreign corporation doing business in Tonga or register as a Tongan corporation, get a tax identification number (TIN), apply for a tax clearance from Revenue Services, and then apply for a business license.
Note that getting a business license for certain activities such as tourism has additional requirements such as a business plan and inspection by the Ministry of Tourism. It is only after getting the business license that you can open a company bank account at one of the local banks. The system works although each step takes some time and is dependent on the previous step being completed (which sometimes can be slowed down by frustrating delays and visits to numerous government offices).
Another prime consideration is your personal status if you come to Tonga to run the business. Resident visas are not given. You can apply for and get a business visa (although you can’t apply while you are in Tonga on a visitor’s visa without a penalty). Business visas can be for a number of years and there appears to be no problem is renewing them multiple times, so your personal status seems secure.
Foreign Exchange Act
It is at this point that you hear of the current Foreign Exchange Act, which you find will apply to you once you have been in Tonga for twelve months (either consecutively or in total). So,
- Are you now prohibited from acquiring property in any other country and if you do are you subject to heavy penalties?
- What restrictions are there on my investments in Tonga?
- If I lend money from my overseas assets to set up my Tongan business will I be able to pay this back by sending money overseas (the Reserve Bank says yes but have made it difficult in practice)?
So you take all of this and compare it against an investment somewhere else and ask yourself – why should I take the risk caused by Tonga’s Foreign Exchange Act and experience the currently obvious roadblocks to doing business in Tonga? Maybe somewhere else will be better.
It appears that while we don’t yet know the full version of the government’s economic vision for Tonga we seem to know at least one thing that it is not. It's not welcoming to outside ideas and investment.