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.
from US sources or from conducting a US trade or business cannot receive the tax exemption. Fourth, up to 100% of the voting power of a USVI exempt company can be owned by a USVI trust if the beneficial interest of the exempt company’s stock is more than 90% foreign-owned. The trustees will not have a beneficial ownership interest in the exempt company. Fifth, a company must elect to be an exempt company at the time of incorporation. This election can be made in the company’s articles of incorporation or through a separate election in letter form filed with the Office of the Lieutenant Governor while the articles of incor - poration are filed. A foreign company can also establish an exempt branch in the USVI instead of a separately chartered USVI exempt company. An exempt branch receives the same benefits as a USVI exempt company and is exempt from the branch profits tax otherwise imposed under the Code. An exempt company is exempt from: • tax on all income except for income derived from US sources and some income from USVI sources; • interest income received on deposits with banks or savings institutions located in the USVI or abroad; and • amounts held by an insurance company under an agreement to pay interest on the amounts. A USVI exempt company is also exempt from tax on dividends and interest received from another exempt company and on gains or losses from the sale, exchange or other disposition of the stock of another exempt company. Moreover, a USVI exempt company is exempt from all local USVI taxes. Shareholders of a USVI exempt company are not subject to any withholding tax, which is otherwise imposed at a 10% rate. Stock held by a non-resident alien individual in a USVI exempt com - pany is not subject to federal estate tax, nor to USVI inheritance tax. Thus, an exempt company can be an important estate planning tool for foreign individuals,
who can place their worldwide assets in an exempt company to obtain the benefits provided by such an entity. A USVI exempt company provides an investor with a tax-exempt entity that can be used to hold assets, similar to an international business company that can be established in other offshore jurisdictions, but with unique advantages over such offshore holding com - panies. Along with access to the USA’s extensive net - work of Treaties of Friendship, Commerce and Navi - gation and Bilateral Investment Treaties, and to the US court system for dispute resolution, no licensing requirements exist for a USVI exempt company except for exempt international insurers, exempt international banking facilities and exempt mutual funds. A USVI exempt company must only file a short combined annual report and franchise tax report with the Office of the Lieutenant Governor’s Division of Corporations, and pay an annual franchise tax of USD1,000. A USVI exempt company’s tax benefits are guaranteed under a 20-year contract between the exempt company and the USVI government. In conclusion, a USVI exempt company offers inves - tors many benefits for establishing a company under the US flag to hold assets and to engage in business around the world. Other Benefits From OBBBA for USVI Residents OBBA includes a number of provisions that benefit high net wealth individual taxpayers, and the provi - sions are automatically “mirrored” for the USVI and for bona fide residents of the USVI. These include the following: • a permanent increase in the estate and gift tax exemption to USD15 million per person; • a more favourable capital gains structure for Quali - fied Small Business Stock; • a temporary boost to the State and Local Taxes deduction cap to USD40,000 for married persons filing jointly, and USD20,000 for married persons filing separately, with a minimum deduction of USD10,000; and • expansion of the definition of qualified education expenses on qualified post-secondary credential - ling expenses, to include tuition, fees, books, sup -
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