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
tions. While some programmes, such as the Sustain - able Tourism through Arts-based Revenue Streams (STARS) Act, remain underutilised, other major incen - tive programmes have proven a boon for entrepre - neurs, investors and the territory alike. The major USVI incentive programmes available to entrepreneurs are as follows. Economic Development Commission Program The infrastructure to support hotels and tourism busi - nesses (among others) in the USVI has largely been in place for more than 63 years through the Economic Development Authority (EDA) and its various invest - ment programmes and their predecessors. The Eco - nomic Development Commission (EDC) Program, administered by the EDA, offers exemptions and reductions to entities qualified as EDC Program ben - eficiaries, and reductions to direct and indirect owners of entities qualified as EDC Program beneficiaries if the owners are bona fide residents of the USVI (see discussion below). The EDC Program is available to a wide array of businesses – for example, public rela - tions services, international banking and insurance, business and management consulting, call centres, investment managers and advisers, family offices, technological businesses, medical services, and manufacturing and production businesses. See 29 V.I.C. Sections 703, 708. Moreover, in 2016, an Inter - national Financial Service Entity (IFSE) category was added to the list of businesses eligible for benefits. An IFSE must also be licensed as a bank pursuant to the International Financial Services Center Regulatory Act administered by the Division of Banking, Insurance and Financial Regulation in the Office of the Lieuten - ant Governor. Benefits under the EDC Program include the follow - ing: • A credit equal to 90% of the otherwise applicable income tax, which applies to the income from the benefited business as distributed to bona fide USVI resident owners on their allocations or dividends. A USVI corporation pays an effective tax rate of approximately 23.1% on its eligible income; with the 90% tax credit, the effective rate is 2.31%. (However, salaries and other forms of compensa -
tion, such as guaranteed payments, remain fully taxable.) • Beneficiaries are exempt from the territory’s 5% tax on gross receipts on revenue received from approved business activities. • Beneficiaries are exempt from USVI property tax for the property occupied by the beneficiary for its approved business activities. • Beneficiaries receive an exemption from USVI excise tax on building materials and machinery used in the construction of their business facili - ties and on raw materials brought into the USVI to produce goods. • A beneficiary’s customs duties are reduced from 6% to 1% on raw materials and component parts imported from outside the USA. No local customs duties are imposed on US-made products. No withholding tax is imposed on payments to US corporations or US-resident individuals. Beneficiary companies with foreign owners are exempt from with - holding tax on interest payments, and are subject to a reduced withholding tax rate of 4.4% on dividend payments made overseas to corporate owners. Simi - larly, no income tax is withheld on interest paid to non-resident alien individuals, and the tax rate on divi- dends paid to non-resident individual owners is 4%. To be eligible for EDC Program benefits, the income must satisfy applicable federal source and effectively connected income regulations, as set out in Section 937 (b) of the Code and Sections 1.937-2 and 1.937-3 of the Treasury Regulations promulgated thereunder, and the income must be sourced from or effectively connected to the USVI. To qualify under the EDC Program, an applicant in a qualifying business must generally make a minimum capital investment of USD100,000 (exclusive of inven - tory) and meet certain minimum employment require - ments. Typically, a business must employ at least ten full-time employees, but “designated service busi - nesses” – which are typically financial or consulting firms exclusively serving clients outside the USVI – are only required to employ five full-time employees, and the EDA has the authority to lower the five-employee minimum or permit a business to have several years to meet the five-employee minimum upon a showing
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