U.S. Virgin Islands Tax Advantages and How to Qualify

The U.S. Virgin Islands (USVI) offers tax incentives to individuals and businesses that meet specific requirements. These programs are designed to attract specific types of investment and contribute to the territory’s economic goals. As a U.S. territory, it uses a “mirror tax system” based on the U.S. Internal Revenue Code but with a distinct structure. To qualify, participants must first establish bona fide residency, which involves meeting strict presence and economic connection tests.

The U.S. Virgin Islands Tax Framework

The tax system in the U.S. Virgin Islands operates as a “mirror” of the United States’ federal tax system. The USVI has adopted the Internal Revenue Code (IRC) as its territorial income tax law, substituting “U.S. Virgin Islands” wherever “United States” appears. This structure allows bona fide residents to pay taxes on their worldwide income to the territory’s government rather than the federal government. Consequently, residents file tax returns, such as Form 1040, directly with the USVI Bureau of Internal Revenue (BIR).

To access these tax advantages, an individual must qualify as a bona fide resident by meeting three tests outlined in Section 937 of the Internal Revenue Code. The first is the presence test, which requires an individual to be physically present in the USVI for at least 183 days during the tax year. Alternatives include being present for 549 days over a three-year period, with at least 60 days in each of those years.

The second requirement is the tax home test, which mandates that an individual’s primary place of business or employment be in the U.S. Virgin Islands for the entire year. The final requirement is the closer connection test, which examines personal and economic ties. An individual must demonstrate a closer connection to the USVI than to the U.S. mainland or any foreign country.

Factors for the closer connection test include the location of a permanent home, family, and personal belongings. An individual must file Form 8898 with the IRS in the year they begin or end bona fide residency.

The Economic Development Commission Program

The Economic Development Commission (EDC) Program is a primary tool for investment in the U.S. Virgin Islands, offering tax relief to qualifying businesses. Benefits are granted for an initial period of 20 years for businesses on St. Thomas and St. John, and 30 years for those on St. Croix.

Beneficiaries of the EDC program receive:

• A 90% reduction on corporate income tax liability.
• A 90% reduction on personal income tax for resident owners on dividends from the business.
• A 100% exemption from the gross receipts tax.
• A 100% exemption from business property taxes.
• A 100% exemption from excise taxes on raw materials and components.
• A reduction in customs duties from 6% to 1% on imported goods.

Eligibility for the EDC program is targeted toward industries such as financial services, investment management, manufacturing, high-tech development, and tourism-related businesses like hotels. The USVI Economic Development Authority may grant benefits to other businesses that can demonstrate a positive impact on the local economy.

To qualify, a business must make a minimum capital investment of $100,000, not including inventory. The program also requires hiring at least 10 full-time employees who have been USVI residents for at least one year. Certain designated service businesses, such as financial services firms, must hire a minimum of five full-time employees.

The Research and Technology Park Program

The Research and Technology Park (RTPark) Program offers tax incentives for knowledge-based and technology-focused companies. Like the EDC program, RTPark provides a 90% reduction in corporate and personal income tax liability for the business and its resident owners. It also offers exemptions from gross receipts and property taxes.

The program’s defining feature is its required link to the University of the Virgin Islands (UVI). To be eligible, a business must affiliate with and support the university’s mission. The affiliation aims to provide opportunities for UVI students and faculty and enhance the university’s research capabilities.

This partnership can include financial contributions, creating student internship programs, providing guest lecturers, or collaborating on research projects. Eligible businesses for the RTPark program operate in fields such as health technology, energy research, marine science, software development, and data analytics. The program is administered by the RTPark’s board of directors, which includes representation from the university.

Application and Ongoing Compliance

The process for obtaining benefits under either program requires a formal application with detailed business plans, financial projections, and information on the company’s owners. The EDC application process involves submitting documentation to the U.S. Virgin Islands Economic Development Authority (USVIEDA) and includes a public hearing. During this hearing, the applicant presents their proposal to the EDC commissioners and the public.

For the RTPark program, a non-refundable application fee of $2,500 is required, along with a background check fee of $2,500. Successful RTPark applicants also negotiate a one-time initial certificate fee of at least $50,000. The RTPark application undergoes a detailed review and due diligence process by its board.

Securing tax benefits requires continuous adherence to compliance obligations. Beneficiaries of both programs must file annual compliance reports with the respective authorities. These reports must show that the business continues to meet all program requirements, including mandated levels of investment, employment, and paying annual fees.

For RTPark tenants, this also includes fulfilling the university partnership commitments made in their application. Failure to meet these ongoing obligations can result in the reduction or complete revocation of tax benefits, as authorities regularly review beneficiaries for compliance.