US VIRGIN ISLANDS TRENDS AND DEVELOPMENTS Contributed by: Marjorie (Jorie) Roberts, Sean E Foster, Renée Marie André, David Bornn, Lisa M Wisehart and Duncan J J Kessler, Marjorie Rawls Roberts PC
business operations. The USVI therefore offers many opportunities for investors and especially entrepreneurs who seek a politically stable juris - diction with targeted economic incentives, legiti - mate protection of their assets from taxes, and an enticing location with excellent telecommuni - cations. The major USVI incentive programmes available to entrepreneurs are as follows. Economic Development Commission Program The infrastructure to support hotels and tour - ism businesses (among others) in the USVI has largely been in place for more than 64 years through the Economic Development Authority (EDA) and its various investment programmes and their predecessors. The Economic Develop - ment Commission (EDC) Program, administered by the EDA, offers tax exemptions and reduc - tions to entities qualified as EDC beneficiaries, and tax credits to direct and indirect owners of entities qualified as EDC beneficiaries if the owners are bona fide residents of the USVI (see discussion below). Benefits under the EDC Program include the fol - lowing. • A credit equal to 90% of the otherwise applicable income tax, which applies to the eligible income from the benefited business as distributed to bona fide USVI resident owners on their allocations or dividends. A USVI corporation pays an effective tax rate of approximately 23.1% on its eligible income; with the 90% tax credit, the effective rate is 2.31% (salaries and other forms of compen - sation, such as guaranteed payments, are fully taxable). • Beneficiaries are exempt from the terri - tory’s 5% tax on gross receipts on revenues received from the approved business activi - ties.
• Beneficiaries are exempt from USVI property tax for the property occupied by the benefi - ciary for its approved business activities. • Beneficiaries receive an exemption from USVI excise tax on building materials and machin - ery used in the construction of their business facilities and on raw materials brought into the USVI to produce goods. • In addition, 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 imposed on US-made products. No withholding tax is imposed on payments to US corporations or US-resident individuals. Beneficiary companies with foreign owners are exempt from withholding tax on interest pay - ments and are subject to a reduced withholding tax rate of 4.4% on dividend payments made overseas to corporate owners. Similarly, no income tax is withheld on interest paid to non- resident alien individuals, and the tax rate on dividends paid to non-resident individual own - ers is 4%. Finally, to be eligible for EDC Program ben - efits, the income must satisfy applicable fed - eral source and effectively connected income regulations, as set out in Section 937 (b) of the Code and the Treasury Regulations promulgated thereunder. To qualify under the EDC Program, an applicant in a qualifying business must generally make a minimum capital investment of USD100,000 (exclusive of inventory) and meet certain mini - mum employment requirements. Typically, a business must employ at least ten full-time employees, but “designated service businesses” – which are typically financial or consulting firms exclusively serving clients outside the USVI – are
884 CHAMBERS.COM
Powered by FlippingBook