US VIRGIN ISLANDS Trends and Developments Contributed by: Marjorie “Jorie” Roberts, Sean Foster, Alexander Polinsky and Duncan J. J. Kessler, Marjorie Rawls Roberts PC
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 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, and is exempt on interest income received on deposits with banks or savings institutions located in the USVI or abroad, as well as on 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 com - pany. 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.
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