US VIRGIN ISLANDS Trends and Developments Contributed by: Marjorie “Jorie” Roberts, Sean Foster, Alexander Polinsky and Duncan J. J. Kessler, Marjorie Rawls Roberts PC
well as a property tax credit against taxes imposed due to any property tax increases assessed as a result of the construction, rehabilitation or improvement of the property. The STARS Act was enacted in 2011 and refined in 2015, and the rules and regulations governing it were finalised in 2017. The STARS Act is designed to highlight the USVI as an optimal location for produc - ing motion pictures, documentaries, television pro - grammes, commercials, music videos and magazine advertising by attracting major and minor film produc - ers and studios as well as music and audio recording projects. Tax incentives include up to a 17% trans - ferable tax credit and 29% cash rebate, as well as additional benefits for projects done on St Croix or for companies establishing a long-term business on the island. There are various qualifications for projects, such as the following: • minimum spending requirement of USD250,000; • minimum of 20% resident hires (including crew, extras, actors and a maximum of three paid interns); • inclusion in credits or other acknowledgements that it was “Made in the USVI” or “Portions Made in the USVI”; and • above-the-line crew member speaking engage - ment at local school or university. Tax benefits Benefits under the EDC and RTPark programmes include a credit equal to 90% of the otherwise appli - cable income tax, which applies to the income from the benefited business and to the USVI resident own - ers on their allocations or dividends. A USVI corpora - tion pays an effective tax rate of approximately 23.1% on its eligible income, and with the 90% tax credit the effective rate is 2.31% (salaries and other forms of compensation such as guaranteed payments are fully taxable). Beneficiaries are also exempt from the territory’s 5% tax on USVI source gross receipts, and from USVI property tax for the property occupied by the benefi - ciary for its approved business activities. No withhold - ing tax is imposed on payments to US corporations or US-resident individuals. Beneficiary companies with
foreign owners are exempt from withholding tax on interest payments and are subject to a reduced with - holding tax rate of 4.4% on dividend payments over - seas. Similarly, no income tax is withheld on interest paid to non-resident individuals, and the tax rate on dividends paid to non-resident individuals is 4%. 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 To qualify under the EDC programme, an applicant in a qualifying business must make a minimum capital investment of USD100,000 and meet certain employ - ment requirements. A designated service business, such as a financial or consulting firm serving clients outside the USVI, is required to employ five full-time employees; 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 evidence of good cause. imposed on US-made products. EDC programme requirements At least 80% of the beneficiary’s employees must be USVI residents, unless a waiver is granted. Beneficiar - ies must purchase goods and services locally when available, make certain contributions to scholarships and public education, and provide a plan for civic par - ticipation. Beneficiaries must also provide employee benefits and a management training programme. The application process is in-depth, and requires details of the beneficiary’s ownership, as well as finan - cial information and a background check for benefi - cial owners with more than a 5% interest. Submission of the application is followed by its presentation at a public hearing before the EDC commissioners and then a review by the EDC commissioners. Upon approval by the EDC, benefits are available for initial periods of 20 years for investments on the islands of St Thomas and St John, and 30 years on St Croix. Beneficiaries that invest in infrastructure, new construction or refurbishment in an aggregate amount of not less than USD1 million may be granted 100% of their existing benefits for an additional five years upon the expiration of their certificates. Also, prior to the expiration of a benefits term, a beneficiary may
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