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
9.5 Anti-Evasion Regimes The US tax law and regulations, as applicable in the USVI, contain numerous anti-abuse rules intended to prevent taxpayers from claiming inappropriate tax benefits. USVI taxpayers are also subject to numer - ous reporting requirements, including those related to interests in foreign assets and certain transactions that may involve tax avoidance or evasion. 10. Employment and Labour 10.1 Employment and Labour Framework The USVI rules governing the employment relationship are derived from US federal laws, such as the Fair Labor Standards Act, and territorial statutes, rules and regulations governing occupational health and safety, labor relations, and employment discrimination. The Virgin Islands Department of Labor (“DOL”) oversees non-union employer/employee relations in the USVI. Oversight of union relations is provided by the federal National Labor Relations Board, Region 12. The USVI does not follow the common law principle of at-will employment. An employee may terminate his or her employment relationship at any time without advance notice, and for any reason or no reason, but, absent a contract, an employer is subject to the USVI Wrongful Discharge Act. Employment may be limited by contracts, including collective bargaining agree - ments, and by laws that protect employees, such as the Virgin Islands Labor Relations Act, the Virgin Islands Plant Closing Act, and, as mentioned before, the Virgin Islands Wrongful Discharge Act. Addition - ally, some labour laws and tax incentive programs in the USVI provide for preferential hiring of qualified USVI residents before hiring qualified non-residents. 10.2 Employee Compensation Employers in the USVI must comply with minimum wage standards, unemployment and workers’ com - pensation insurance, fair employment, safe working environment, and equal opportunity employment practices. The USVI complies with the United States Fair Labor Standards Act (FLSA) with a few local vari - ations. For example, the federal hourly minimum wage in the United States is USD7.25. The minimum wage in the USVI is USD10.50 per hour. The USVI has a
USVI exempt company is exempt from all local USVI taxes, including the USVI five percent gross receipts tax. Shareholders of a USVI exempt company are not subject to any withholding tax, which is otherwise imposed at a 10 percent rate (for individual share - holders) or 11 percent (for corporate shareholders). Stock held by a nonresident alien individual in a USVI exempt company is not subject to federal estate tax or USVI inheritance tax, making a USVI exempt company a useful estate planning tool for foreign individuals. A USVI exempt company’s tax benefits are guaran - teed under a 20-year contract between the exempt company and the USVI government. USVI exempt companies are subject to annual filing requirements with the Division and are required to pay an annual franchise tax. 9.4 Tax on Sale or Other Dispositions of FDI Capital gains income is, under Code principles as mir - rored to the USVI, generally sourced to the situs of the owner of the capital asset and recipient of the gain. Thus, capital gains income received from the sale of a USVI-situs capital asset by a non-resident is not subject to USVI tax, other than a gain from the sale of USVI real estate, which is treated as effectively connected with the conduct of a USVI trade or busi - ness and thus subject to USVI tax. Code section 865 also contains a number of exceptions to the general rule that the source of income from the sale of per - sonal property is based on the residence of the seller. Exceptions exist for sales of inventory property, gains from the sale of depreciable personal property, intan - gibles, and sales of stock in an affiliate that is located in a foreign country (see Code sections 865 (b) (f)) In addition, Treasury Regulation § 1.937-2 (f) pro - vides special rules for gains from certain dispositions of property by former US residents. Specifically, if an asset is transferred to the USVI by a US resident who then moves to the USVI, any gain on the sale of the asset is all US source for ten years, or if an election is made the gain must be allocated based either on the value of the asset as of the date of the change in residency (if publicly traded), or on a formula of USVI days over total days in the holding period (if not pub - licly traded).
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