US VIRGIN ISLANDS Law and Practice Contributed by: Marjorie (Jorie) Roberts, Duncan J.J. Kessler and Jessica McKenney, Marjorie Rawls Roberts PC
Other tax benefits The other tax benefits granted to beneficiaries of the RTPark Program are also essentially the same as those received by beneficiaries of the EDC Program. The one exception is that royalties under the RTPark Program receive the reduced withholding tax rate that is only applicable to dividends paid under the EDC Program. 5.4 Tax Consolidation The US tax system allows eligible corporate groups to elect to file consolidated returns for federal income tax purposes in lieu of separate returns. As the USVI follows the mirror system, corporations organised in the USVI are also eligible to elect to file consolidated returns for USVI income tax purposes with the BIR in lieu of filing separate tax returns. However, USVI corporations that elect to file a consolidated return may not include corporations organised in the United States and vice versa. A “consolidated group” is an affiliated group that files a taxable year consolidated return. An affiliated group is a group of “includible corporations”, which are connected through stock ownership with a common parent that is an includible corporation. Generally, all corporations are includible corporations, except those that are specifically excluded. Such excluded entities that may not file consolidated returns include: • tax-exempt corporations; • life insurance corporations; • foreign corporations (which includes corporations formed in the United States); • regulated investment companies; • real estate investment trusts; • domestic international sales corporations; and • “S” corporations. 5.5 Thin Capitalisation Rules and Other Limitations While many foreign jurisdictions combat perceived thin capitalisation abuse by mandating specific debt- to-equity ratios and by disallowing interest expense deductions on excess indebtedness, the United States (and thereby the USVI through the adoption
(RTPark), are structured as public corporations and autonomous instrumentalities of the USVI govern - ment. The purposes of the RTPark include developing a technology sector in the USVI in order to promote the growth, development and diversification of the USVI economy and, more broadly, to promote a sector focused on developing knowledge-based businesses. Further, the RTPark exists to broaden the capabilities of UVI by training students and creating a supportive research environment that combines the resources of UVI with those of the public sector and private indus - try. Oversight of the RTPark Program is vested with the seven-member RTPark board of directors (the “Board”). The Board has the authority to approve or disapprove applications by potential beneficiaries, referred to under the RTPark Program as “Protected Cells”. Income tax benefits The income tax benefits granted to beneficiaries of the RTPark Program are substantially similar to those received by beneficiaries of the EDC Program. A ben - eficiary under the RTPark Program receives a 90% tax credit against its income tax liability on income from the business for which benefits are granted. Such income must be sourced from or effectively connect - ed with the conduct of a USVI trade or business under Code Sections 934 (b)(1) and 937 and the Treasury Regulations promulgated thereunder. The reduction results in an effective tax rate of approx - imately 2.31% on income from the business. If the beneficiary’s owners are bona fide residents of the USVI, they receive the reduction on dividends and/or distributions. Salaries and other forms of compensa - tion such as guaranteed payments, however, are fully taxable. With respect to income tax benefits, the main dif - ference between the RTPark Program and the EDC Program concerns the duration of benefits granted to each programme’s beneficiaries. RTPark Program beneficiaries receive an initial 15-year term of benefits, with an initial renewal period of ten years at full ben - efits, and subsequent renewal periods of five years at full benefits.
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