US VIRGIN ISLANDS Law and Practice Contributed by: George H.T. Dudley, G. Hunter Logan, Kurt Petri and Anna Vlasova, Dudley Newman Feuerzeig LLP
programme is administered by the USVI Economic Development Authority and permits qualifying appli- cants to use the future gains in the hotel occupancy tax and casino taxes to assist in the project financing for qualifying hotel projects. 8.2 Public-Private Partnership Transactions The government of the USVI does undertake public- private partnerships. Currently, the government is negotiating with private entities for the renovation and operation of the airport on St Thomas and the airport on St Croix. The government was also involved in the financing of the acquisition and renovation of the oil refinery and oil storage terminal, and construction of the Diageo Captain Morgan Rum Distillery. In both cases, the government provided a package of tax incentives. The Public Finance Authority also issued tax-exempt bonds secured by future revenue from the distillery to assist in the financing of the Diageo Rum Distillery. 8.3 Governing Law If the government is a party to an agreement, it gener- ally requires USVI law to govern and for disputes to be resolved in the USVI. Private parties are permitted to select the law of other jurisdictions to govern project documents and for dis- putes to be resolved outside of the USVI, including through international arbitration. 8.4 Foreign Ownership US federal laws apply to foreign ownership of assets in the USVI, including the Foreign Investment in Real Property Tax Act. USVI law does not restrict ownership of assets by foreign entities if the foreign entity complies with cer- tain registration and reporting requirements under the USVI Criminally Influenced and Corrupt Organizations Act (CICOA). The CICOA provides that “No alien cor- poration that fails to file a report as required by this section or fails to maintain a registered office and a registered agent as required by this section shall be entitled to own, purchase, or sell any personal or real property in the Territory of the Virgin Islands nor shall it be entitled to sue or defend in the courts of this Ter-
ritory until the requirements of this section have been complied with.” 8.5 Structuring Deals In general, the main issues that need to be considered when structuring the deal and the legal form of the project company in the USVI are the same as in the USA. We have corporations, limited liability compa- nies, partnerships and limited partnerships patterned after those entities in the USA. The USVI tax code operates on what is known as the mirror theory: it applies the US Internal Revenue Code (IRC), with “Virgin Islands” substituted for “United States” wherever necessary to give the IRC proper effect in the Virgin Islands, and vice versa. The USVI has the USVI Bureau of Internal Revenue, which is its version of the Internal Revenue Service, and it is responsible for the administration of the internal rev- enue laws of the Virgin Islands. The USVI does have the authority under the Internal Revenue Code to offer tax incentives to businesses doing business in the USVI on income that is effective- ly connected with a USVI trade or business and USVI source income. If the transaction involves a business that may qualify for or already has those tax incen- tives, then the tax incentive programme rules must be considered in the structure. 8.6 Common Financing Sources and Typical Structures Bank financing is the most common source of financ- ing in the USVI. For large projects, financing may include a combination of different sources of funding by banks, project bonds, and private equity. 8.7 Natural Resources The USVI has very few natural resources, other than its weather, the abundant sunshine, and the ocean. 8.8 Environmental, Health and Safety Laws Federal environmental, health and safety laws apply and federal regulatory bodies have jurisdiction to enforce them. Federal agencies include the Envi- ronmental Protection Agency and the Occupational Safety and Health Administration.
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