US VIRGIN ISLANDS LAW AND PRACTICE Contributed by: Marjorie Roberts, Sean Foster, Renée Marie André, Lisa Wisehart, David Bornn, Duncan J. J. Kessler and Jessica McKenney, Marjorie Rawls Roberts PC
USVI are reduced from 6% to 1%. Materials made in the United States are exempt from any customs duty. In addition, as with the excise tax, there are a number of customs duty exemptions. Although the foregoing exemptions and reductions are imposed at the entity level, as mentioned above, a beneficiary’s owners receive the income tax benefit on dividends and/or distributions if the owners are bona fide USVI residents. Businesses in the USVI can also qualify for tax bene - fits under the University of the Virgin Islands Research and Technology Park Protected Cell Corporation Act. RTPark and its subsidiary, the UVI Research and Tech - nology Park Protected Cell Corporation, are structured as public corporations and autonomous instrumentali - ties of the USVI government. The income tax benefits granted to beneficiaries of the RTPark Program are substantially similar to those received by beneficiaries of the EDC Program. A beneficiary under the RTPark Program receives a 90 percent tax credit against its income tax liability on income from the business for which benefits are grant - ed. Such income must be effectively connected with the conduct of a USVI trade or business under Code sections 934 (b)(1) and 937 and the Treasury Regula - tions promulgated thereunder. The reduction results in an effective tax rate of approximately 2.31% on income from the business. If the beneficiary’s owners are bona fide residents of the USVI, they receive the reduction on dividends and/or distributions. Salaries and other forms of compensation, such as guaranteed payments, however, are fully taxable. The other tax benefits granted to beneficiaries of the RTPark Program are essentially the same as those received by beneficiaries of the EDC Program. The one exception is that royalties under the RTPark Pro - gram are subject to the reduced withholding tax rate, which applies only to dividends paid under the EDC Program. EDC beneficiaries located on St. Thomas or St. John receive an initial 20 years of full benefits and EDC beneficiaries located on St. Croix receive an initial 30 years of full benefits. All beneficiaries can receive a
10-year extension and additional five-year extensions based on capital investment. RTPark Program benefi - ciaries receive an initial 15-year term of benefits, with an initial renewal period of ten years at full benefits, and subsequent renewal periods of five years at full benefits. Unlike the EDC Program (for which qualification requires business activities generally to fall within the hotel, manufacturing or service business categories), qualification under the RTPark Program requires the applicant’s business to meet certain technology- based or knowledge-based criteria. Specifically, an applicant’s business must be an Electronic Commerce Business or a Knowledge-Based Business. Pursu - ant to a Memorandum of Understanding between the RTPark and the EDC, the RTPark is given “first responder” status for all companies meeting one of the foregoing designations. Consequently, all Elec - tronic Commerce businesses and Knowledge-Based businesses must first apply for benefits under the RTPark Program rather than the EDC Program. USVI Exempt Companies and Foreign Investment Advantages Additionally, USVI exempt companies offer many of the benefits of other offshore jurisdictions’ interna - tional business companies, but with the added advan - tages of US flag protection, access to US courts, non- coverage of the Common Reporting Standard (CRS), and the ability to obtain an “N” registration number from the US Federal Aviation Administration (FAA) for foreign-owned aircraft. A USVI-exempt company offers substantial tax ben - efits to foreign investors. An exempt company is effectively exempt from tax on all income except for income derived from US sources and effectively con - nected with a US trade or business. A USVI exempt company is exempt from 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 inter - est 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 loss - es from the sale, exchange, or other disposition of the stock of another exempt company. Moreover, a
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