US VIRGIN ISLANDS Law and Practice Contributed by: Marjorie (Jorie) Roberts, Duncan J.J. Kessler and Jessica McKenney, Marjorie Rawls Roberts PC
ments . While there are a variety of programmes, such as the SSTZ, the Enterprise Zone Act, and the Sustainable Tourism through Arts-based Revenue Streams (STARS) Act programmes, the primary tax incentive programmes for FDI are the EDC Program and the RTPark Program. Each programme has gen - eral requirements consistent with their applications requiring notification to relevant agencies such as the Department of Labor, background checks, board approvals, compliance obligations and charitable con - tribution obligations. EDC Tax Benefits Under the USVI economic development laws, quali - fying businesses (corporations, partnerships, limited liability companies, trusts and sole proprietorships) receive tax benefits if they meet certain investment criteria. The tax benefits are granted by the territory’s seven-member EDC. As of June 2020, approximately 105 businesses received tax benefits under the EDC Program, including hotels and other tourism-related businesses, goods-producing businesses, and busi - nesses serving customers outside the territory. In order to meet the minimum qualifications for tax benefits, an applicant must invest at least USD100,000 (exclusive of inventory) in an eligible business, and employ a certain amount of USVI residents depend - ing on the business category. The minimum invest - ment and employment numbers may be reduced by the EDC in specified circumstances. Beneficiaries are also required to purchase from local vendors meeting certain requirements imposed by the EDC. The EDC grants tax benefits for 20 years for invest - ments on the islands of St. Thomas and St. John, and for 30 years on St. Croix. In addition, beneficiaries that invest more than USD10 million are eligible to receive an additional ten years of benefits, and benefi - ciaries that invest between USD1 million and USD10 million are eligible for an additional five-year term of benefits. Benefits packages may be extended upon proper application and review. However, benefits packages may not be extended for more than ten years at 100% of benefits. Historically, the Governor of the USVI had to approve all benefi - ciaries. However, in December 2017, the Legislature
Such income from the USVI would be USVI source income not effectively connected with a USVI trade or business (assuming it is not related to a USVI trade or business) and taxed under Code Section 871 (a). The tax imposed by Code Section 871 (a)(1) and its attendant withholding under Code Section 1441 are reduced to 10% by the USVI with regard to non-res - ident aliens. The 3.8% Net Investment Income Tax found in Section 1411 of the Internal Revenue Code is not applicable to bona fide residents of the USVI per Treasury Regula - tion Section 1.1411-2 (a)(2)(vi)(A). Capital Gains Income Capital gains income is, under Code principles as mir - rored to the USVI, generally sourced to the situs of the owner of the capital asset and recipient of the gain. Thus, capital gains income received from the sale of a USVI-situs capital asset by a non-resident is not subject to USVI tax, other than a gain from the sale of USVI real estate, as property is considered sourced from where it is located. Code Section 865 also con - tains a number of exceptions to the general rule that the source of income from the sale of personal prop - erty is based on the residence of the seller. Exceptions exist for sales of inventory property, gain from the sale of depreciable personal property, intan - gibles, and sales of stock in an affiliate that is located in a foreign country. See Code Sections 865 (b)–(f). In addition, Treasury Regulation Section 1.937-2 (f) provides special rules for gains from certain disposi - tions of property by former US residents. Specifically, if an asset is transferred to the USVI by a US resident who then moves to the USVI, any gain on the sale of the asset is all US source for ten years, or if an elec - tion is made, the gain must be allocated based either on the value of the asset as of the date of the indi- vidual’s change in residency (if publicly traded), or on a formula of USVI days over total days in the holding period (if not publicly traded). 5.3 Available Tax Credits/Incentives The USVI offers a variety of tax incentive programmes under either the EDA or the RTPark in the industries that were indicated in 2.1 Approval of Foreign Invest-
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