US VIRGIN ISLANDS Trends and Developments Contributed by: Marjorie “Jorie” Roberts, Sean Foster, Alexander Polinsky and Duncan J. J. Kessler, Marjorie Rawls Roberts P.C.
in a particular location begins from the moment it is established at that location. “Continuous residence” as used above does not necessarily mean continu - ous physical presence. At the time of submitting the application, or later, the applicant may be required to submit evidence of residence in the USVI for the three- month period preceding the application. USVI law exempts USVI residents from inheritance and gift taxes A resident of the USVI is exempt from USVI inheritance tax pursuant to Section 5, Chapter 1, Title 33 of the Virgin Islands Code. Specifically, Section 5 provides that “an inheritance is exempt from the payment of inheritance taxes if the decedent, when living, would have been considered a ‘non-resident not a citizen of the United States’ under 26 USC 2501 (c), or if the decedent was “a resident of the Virgin Islands... at the time of his death”. Similarly, a USVI resident is exempt from USVI gift tax under Section 31, Chapter 2, Title 33 of the Virgin Islands Code. Section 31 provides that a “person is exempt from the payment of gift taxes... if that per - son is considered a ‘non-resident not a citizen of the United States’ under 26 USC Section 2501 (c), or if the person was a resident of the Virgin Islands at the time the gift was made”. USVI exempt companies provide tax benefits for global operations The USVI’s exempt company programme has been in place for approximately 39 years. Exempt enti - ties offer the benefits of other offshore jurisdictions’ international business companies but with the added advantages of US flag protection, access to US courts and the ability to obtain an “N” registration number from the US Federal Aviation Administration (FAA) for foreign-owned aircraft. There are five requirements to establish and maintain a USVI exempt company. Specifically, the exempt company must: • not engage in active conduct of a trade or business in the USA; • not engage in active conduct of a trade or business in the USVI (with three exceptions);
• comply with the stock-ownership requirements set out in Section 934 (b)(3)(B) of the Code – ie, less than 10% of the total voting power and total value of the corporation’s stock can be owned by one or more US individuals or corporations; • comply with the stock-ownership requirements set out in the Virgin Islands Code – ie, less than 10% of the total voting power or the total value of an exempt company’s stock can be owned by one or more USVI persons; and • elect to be an exempt company at the time of incorporation, either in the articles of incorporation or through a separate election filed with the USVI Office of the Lieutenant Governor. Elaborating on these requirements, the company must not engage in the active conduct of a trade or busi - ness in the USA. However, a USVI exempt company can be actively engaged in a trade or business any - where else in the world. By way of example, a USVI exempt company can be the perfect entity for owning a factory in a newly industrialised nation, providing the investors with access to US courts for dispute resolution and protection from expropriation under the USA’s expansive network of Treaties of Friendship, Commerce and Navigation and Bilateral Investment Treaties. Second, a USVI exempt company cannot engage in the active conduct of a trade or business in the USVI, except for an exempt international insurer, an exempt international banking facility or an exempt mutual fund. Moreover, an exempt company can maintain one or more accounts in a USVI bank to invest its proceeds from its international operations and receive tax-free USVI source interest income. Third, a USVI exempt company cannot be owned by US persons beyond the limits set out above. How - ever, it can be owned by individuals or companies from any other country in the world. The US Congress authorised the USVI to eliminate the income tax liabil - ity of certain USVI companies in Section 934 (b)(3) of the Code. Under this authorisation, less than 10% of the total voting power and total value of a USVI com - pany’s stock can be owned by residents of the USA to receive the income tax exemption, and its income
581 CHAMBERS.COM
Powered by FlippingBook