US VIRGIN ISLANDS TRENDS AND DEVELOPMENTS Contributed by: Marjorie Roberts (“Jorie”), Sean Foster, Renée Marie André, Lisa Wisehart, David Bornn, Duncan J. J. Kessler and Jessica McKenney, Marjorie Rawls Roberts PC (St Thomas - HQ)
Economic Development Commission (EDC) Program The infrastructure to support businesses in the USVI has largely been in place for 60 years through the Economic Development Authority (EDA) and vari - ous investment programmes. The EDC Program is administered by the EDA and offers exemptions and reductions to entities qualified as EDC beneficiaries, as well as reductions to direct and indirect owners of these entities if the owners are bona fide residents of the USVI. The EDA is governed by a seven-member board that includes both public- and private-sector representation. EDC Program Benefits Benefits under the EDC Program include a credit equal to 90% of applicable income tax, which applies both to the income from the benefited business and to the USVI bona fide resident owners on their allocations or dividends. Salaries and other forms of compensation, though, such as guaranteed payments, are fully tax - able. A USVI corporation usually pays an effective tax rate of approximately 23.1% on eligible income, but with the 90% tax credit, the effective rate is 2.31%. EDC beneficiaries are also exempt from the territory’s 5% tax on the USVI source gross receipts of a busi - ness, and from USVI property tax for the real property occupied by the beneficiary for its approved business activities. In order to be eligible for EDC Program ben - efits, the income must satisfy the applicable federal source and effectively connected income regulations, as set out in Sections 934 and 937 (b) of the Code and the Treasury Regulations promulgated thereunder. No withholding tax is imposed on payments to US corporations or US-resident individuals. Further, EDC beneficiary companies with foreign owners are exempt from withholding tax on interest payments and are subject to a reduced withholding tax rate of 4.4% on dividend payments overseas. Similarly, no income tax is withheld on interest paid to non-resident alien individuals, and the tax rate on dividends paid to them is 4%. EDC beneficiaries receive an exemption from the USVI excise tax on building materials and machinery used in the construction or alteration of their facilities and on raw materials brought into the USVI to produce
The USVI combines the ability to grant tax incentives with its status as a Territory of the US. It offers banks that are insured by the Federal Deposit Insurance Corporation and are covered by the US’s extensive network of bilateral investment treaties (but not tax treaties). The USVI has a federal district court and is part of the Third Circuit Court of Appeals. The USVI also has a USVI Supreme Court as well as local Supe - rior Courts located on the islands of St. Croix and St. Thomas. The USVI recently completed a long-term economic strategy and action plan, US Virgin Islands Vision 2040, with goals that include diversifying the territory’s economic base through growth in target industries, including hospitality and tourism, coastal and ocean resources, research and development, renewable energy, professional and tech services, health sci - The United States Code of the Internal Revenue Code of 1986, as amended and as applicable in the US Vir - gin Islands pursuant to the Naval Services Appropria - tion Act of 1922, 48 USC. 1397 (the “Code”), applies in the USVI under a “mirror” system whereby the “USVI” is effectively substituted for “United States” wherever the latter appears. Consequently, the income tax pro - visions of the Code, the Treasury Regulations prom - ulgated thereunder, and revenue rulings and revenue procedures issued by the Internal Revenue Service (IRS) are generally applicable in the USVI, with certain limitations. As a US territory, the USVI maintains a unique status: although part of the US, it has been granted author - ity by the US Congress to enact special tax laws to encourage investment in business operations in the Territory. The USVI, therefore, offers many opportuni - ties for investors, especially entrepreneurs, seeking a politically stable jurisdiction with proven tax incen - tive programmes, legitimate asset protection, and an enticing location with excellent telecommunications. The four major USVI incentive programmes available to entrepreneurs are discussed below. ences and agribusiness. Tax System Overview
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