US VIRGIN ISLANDS Trends and Developments Contributed by: Marjorie (Jorie) Roberts, Sean E. Foster, David Bornn, Lisa M. Wisehart and Duncan J.J. Kessler, Marjorie Rawls Roberts PC
Doing Business in the US Virgin Islands: An Introduction Background The US Virgin Islands (USVI) is an unincorporated ter - ritory of the United States of America (USA) located approximately 1,100 miles south-east of Miami, Flori - da. Acquired from Denmark in 1917, the USVI is made up of the islands of St. Croix, St. John, St. Thomas and Water Island, plus numerous uninhabited cays, with a total population of approximately 85,000. The USVI uses US currency, and no exchange controls exist. The USVI’s prime natural resources include pristine beaches, crystal-clear seas, a mild year-round cli - mate, the natural harbour on St. Thomas, the Virgin Islands National Park on St. John, and the rainforest on St. Croix. These assets, combined with the invest - ment security of a US jurisdiction and a variety of fed - eral and local incentives, have cemented the territory as a stable place to do business, with tourism as the major local economic activity. Beyond tourism, the USVI attracts a growing number of consulting businesses and technology businesses owned by US citizens who have moved to the USVI to take advantage of its specialised economic incentive programmes for entrepreneurs who want to live and work in paradise. In 2020, the USVI completed a long- term economic strategy and action plan (Vision 2040), with goals that include diversifying the territory’s economic base through growth in target industries, including professional and technical services, renew - able energy, agribusiness, coastal/ocean resources and health sciences. The USVI is particularly well suited to attract and utilise all types of renewable energy, and is actively working with investors on a significant solar power expansion and implementation of wind power. The USVI also offers banks that are insured by the Federal Deposit Insurance Corporation and are cov - ered by the USA’s extensive network of bilateral invest - ment treaties (but not tax treaties). The USVI has two federal judges and is part of the Third Circuit Court of Appeals. Moreover, the USVI has a local court, the Superior Court of the Virgin Islands (which includes a
Magistrate Division), and its own local highest court, the Supreme Court of the Virgin Islands. With respect to transportation, the Virgin Islands Port Authority recently embarked on a public-private part - nership with the goal of redeveloping and modernis - ing the territory’s two airports: the Henry E. Rohlsen Airport on St. Croix, and the Cyril E. King Airport on St. Thomas. Among other goals, the project is intended to stimulate economic growth in the USVI by increasing the efficiency and safety of airport operations, expand - ing airport capacity and attracting private investment to the territory. The USVI has direct flights to many mainland cities and also attracts many yachts seek - ing a secure, well-located and attractive home base. Tax system overview The Internal Revenue Code of 1986, as amended (the “Code”), applies in the USVI under a “mirror” system whereby “USVI” is effectively substituted for “Unit - ed States” wherever the latter appears. This mirror system was created pursuant to the Naval Services Appropriation Act of 1922, 48 U.S.C. 1397, which stat - ed: “The income-tax laws in force in the United States of America and those which may hereafter be enacted shall be held to be likewise in force in the Virgin Islands of the United States, except that the proceeds of such taxes shall be paid into the treasuries of said islands.” Practically speaking, this means that bona fide USVI residents should pay income taxes on their worldwide income to the U.S. Virgin Islands Bureau of Internal Revenue (BIR) only, and not to the Internal Revenue Service (IRS). The income tax provisions of the Code, the Treasury Regulations promulgated thereunder, and revenue rulings and revenue procedures issued by the IRS are included in what is generally applicable in the USVI, with certain limitations. As a US territory, the USVI occupies a unique status: although it is part of the USA, it has been granted authority by the US Congress to enact special tax laws to encourage investment in business operations. See, for example, 26 U.S.C. Section 934 (b)(1). The USVI therefore offers many opportunities for investors, and especially entrepreneurs who seek a politically stable jurisdiction with targeted economic incentives, legitimate protection of their assets from taxes, and an enticing location with excellent telecommunica -
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