U.S. Virgin Islands Tax Incentive Programs: Transforming Business Outlooks
The U.S. Virgin Islands (USVI) is renowned for its tropical beauty, tourism and hospitality, welcoming visitors worldwide, and dazzling them with pristine beaches and virgin island culture. This spirit of the islands extends even further to those looking to relocate; since the 1970s, the USVI’s Tax Incentive program has lured people and businesses to the islands with benefits such as reductions in corporate and personal income taxes.
The Government maximizes the tax system to collaborate with the business sector on economic development projects and initiatives. Tax breaks, in particular, are an important element of many economic development programs. They are used to achieve objectives such as job creation, optimizing high-value industries, advancing specialized EDC projects while distributing economic activity across the territory.
Thanks to this impressive Incentive, beneficiaries enjoy net tax rates as low as 3.37%. The 90% exemption additionally applies to USVI resident stockholders on income derived from a corporation’s dividends and partnership or S corporation distributions.
For approved companies, those that are in the USVI, and earn their income in the Virgin Islands may qualify for many of the following incentives:
- 90% reduction in corporate income tax
- 90% reduction in personal income tax
- 100% exemption on gross receipt tax
- 100% exemption on business property tax
- 100% exemption on excise tax payments
- Reduction in the customs duty from the standard 6% to 1%
- Tax reduction on royalty income from software developed in the USVI and sold to non-US customers
- Availability of rental space at below-market rates in the St. Croix and St. Thomas Industrial Parks
Corporate Income Tax Reduction
The U.S. Treasury and Congress extend these benefits to corporations, a 90% reduction in corporate income tax, 100% exemption on the excise tax, gross receipt tax, and business property tax, effectively allowing some businesses to pay a rate of just 2.31%. To qualify, however, businesses must be willing to give back. The USVI Economic Development Commission requires that eligible businesses invest $100,000 into business activities that bolster the Islands’ local economy.
A company must also meet the requirement of employing 10 VI residents on a full-time basis. This means that before benefiting from a significantly lower tax rate, a branch or office must be opened in the islands for no less than 12 months. Firms that provide financial services only need to provide full-time employment to five residents.
Additional Incentives for Corporations
Corporations can also take advantage of 100% exemption on the excise tax, business property tax, gross receipts tax, reduction in the customs duty from the standard 6% to 1%, and rental space availability at below-market rates the Industrial Park programs on St. Croix and St. Thomas. Other cost savings from not having to pay state or territory (local) taxes. Applicable businesses may also be eligible to receive a tax reduction on royalty income from software developed in the USVI and sold to non-US customers.
The underlying goal is to attract high-value businesses and jobs to the territory while spurring economic growth cross-industry. The USVI relies heavily on its tourism and production industry, which historically brought in an average of just $4.2 billion annually. This amount can fluctuate due to market and seasonal weather factors, particularly during the annual hurricane season.
A pillar of the U.S. Virgin Islands’ long-term economic plan consists of attracting companies with valuable finance, pharmaceuticals, biotech, and technology services.
While other eligibility requirements exist and must be met to qualify to become a beneficiary of these lucrative incentives, the bottom line is that saving money, and enjoying a relaxed lifestyle with second-to-none beach views, is possible.
For information on how to apply for one of our Tax Incentive Programs, business formation, entity management, compliance in the U.S. Virgin Islands, and learning more about the tax incentive program, contact USVI LAW, LLC, a full-service Virgin Islands law firm, today.