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
Benefits under the RTPark Program are initially avail - able for 15 years and can be renewed for an initial period of ten years, followed by subsequent renewal periods of five years, subject to Board approval. As with the benefits under the EDC Program, the RTPark offers numerous tax exemptions and reductions, the most notable of which is a 90% reduction on tax liabil - ity for the business and also for owners of beneficiar - ies if the owners are bona fide residents of the USVI. Specifically, a Protected Cell in the RTPark receives a 90% tax credit against its income tax liability on income from the business for which benefits are granted. For a corporate Protected Cell, the reduc - tion results in an effective tax rate of approximately 2.31% on eligible income. If the beneficiary’s owners are individual residents of the USVI, they will receive a reduction on their dividends or allocations. Sala - ries, however, remain fully taxable. To be eligible for the reduction, such income must be sourced from or effectively connected to conducting a trade or busi - ness in the USVI in accordance with Sections 934 (b) (1) and 937 of the Code (and the relevant Treasury Regulations promulgated thereunder). No withholding tax is imposed on payments to US corporations or individual residents. Furthermore, beneficiaries of the RTPark with foreign corporate owners are exempt from withholding tax on inter - est payments and enjoy a reduced withholding rate of 4.4% on dividend payments overseas (while the withholding rate on non-resident individuals is 4%). The tax withholdings on royalties paid to non-resident individuals or foreign corporations are 4% and 4.4%, respectively. The withholding tax is paid by the with - holding agent (typically the RTPark beneficiary) to the BIR on Form 8109 and then reconciled annually on Form 1042. As with the EDC Program, beneficiaries receive an exemption from USVI gross receipts tax, otherwise imposed at 5% on the gross receipts of a business, with no deductions. The BIR requires each beneficiary to report its gross receipts (monthly, assuming annual gross receipts of more than USD225,000) on Form 720 VI and to indicate that the beneficiary is exempt from payment of the tax pursuant to its status as an RTPark beneficiary. This exemption does not apply to gross receipts from business activities that are not
covered by a beneficiary’s grant of RTPark benefits, including income that is not sourced from or effec - tively connected to a trade or business in the USVI. Beneficiaries receive an exemption from USVI excise tax on building materials and machinery used in the construction of their facilities, and on raw materials brought into the USVI to produce articles. Otherwise, a tax ranging from 2% to 25% applies to the fair mar - ket value of many items. In addition, several other statutory exemptions from excise tax apply, regard - less of beneficiary status. Beneficiaries receive an exemption from the USVI property tax, although the personal homes of benefi - ciary owners do not receive the property tax exemp - tion, even if the respective owners maintain home offices. Moreover, if a beneficiary rents an office, the property tax exemption does not pass through to the landlord. Because the USVI is outside the US customs zone, it has enacted its own customs law, imposing a 6% duty on items not manufactured in the USA. An RTPark beneficiary’s customs duties are reduced from 6% to 1% on raw materials and component parts imported from outside the USVI. Materials made in the USA are exempt from any customs duty. As with the excise tax, several statutory exemptions from customs duties apply, regardless of beneficiary status. Manufacturing and agriculture as growth sectors The USVI legislature has provided for a number of tax benefits and economic incentives to encourage agriculture, including the Farmers, Fishermen and Consumers Assistance Act, which gives certain tax exemptions to the farming and fishing industry, includ - ing an exemption from gross receipts tax on sales of products derived from the agricultural business. Additionally, the EDC Program includes agriculture, food processing, product assembly and manufac - turing as eligible activities. Moreover, the USVI Eco - nomic Development Bank, administered by the EDA, provides low-interest loans and micro-credit for USVI farmers and fishers, and farmers can qualify for prop - erty tax exemptions on agricultural land.
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