US Virgin Islands Taxes: Rules for Filing as a Resident

The U.S. Virgin Islands (USVI) has a “mirror code” tax system, meaning its income tax laws are structurally identical to the U.S. Internal Revenue Code, but “U.S. Virgin Islands” is substituted for “United States.” The local USVI Bureau of Internal Revenue (BIR), not the U.S. Internal Revenue Service (IRS), administers and collects these taxes. Unlike residents of the 50 states who file federal and state returns, USVI residents fulfill their primary income tax obligations by filing a single return with the BIR. This structure impacts how income is reported and tax liability is calculated, with the relationship between the IRS and the BIR governed by federal law.

Determining Bona Fide Residency

To be considered a bona fide resident of the U.S. Virgin Islands for tax purposes, an individual must satisfy three specific tests for the given tax year.

The Presence Test measures the time an individual physically spends in the territory. To meet this test, a person must satisfy one of several conditions, the most direct being presence in the USVI for at least 183 days during the tax year. Alternatives include being present for at least 549 days over a three-year period including the current tax year, being present in the U.S. for no more than 90 days during the tax year, or having $3,000 or less of U.S. source earned income while spending more days in the USVI than in the U.S.

An individual must also satisfy the Tax Home Test, which requires their tax home to be within the USVI for the entire taxable year. A tax home is the location of one’s principal place of business or employment. If a person does not have a regular place of business, their tax home may be where they regularly live. Maintaining a tax home outside the USVI during the year disqualifies a person from bona fide residency.

The final requirement is the Closer Connection Test, which examines personal and economic ties to determine if an individual has a closer connection to the USVI than to the U.S. or a foreign country. Factors considered include the location of one’s permanent home, family, and personal belongings like cars and furniture. The jurisdiction where one is registered to vote, holds a driver’s license, and conducts banking are also significant considerations.

Taxation of USVI Residents

When an individual qualifies as a bona fide resident, they must report their worldwide income to the BIR. This means all income, whether earned in the USVI, the mainland U.S., or a foreign country, is subject to Virgin Islands taxation. By filing a comprehensive return with the USVI and paying the tax due, the resident satisfies their U.S. federal income tax obligation for that year.

Beyond income tax, residents are subject to other local taxes, including the Gross Receipts Tax (GRT). This tax is imposed on the total gross revenues of most businesses at a rate of 5 percent. Businesses with annual gross receipts under $225,000 receive an exemption on the first $9,000 of gross receipts each month. Unlike a sales tax, the GRT is levied on the business’s receipts, though it is common for businesses to pass this cost on to consumers.

The Real Property Tax is levied annually on the assessed value of real estate. Tax rates are applied per $1,000 of assessed value and vary by property classification, such as residential or commercial. Property owners pay this tax to the Office of the Lieutenant Governor, which acts as the tax collector for property taxes.

The Economic Development Program

The U.S. Virgin Islands offers a tax incentive through its Economic Development Commission (EDC) Program. This initiative is designed to encourage investment and job creation by providing tax reductions to qualifying businesses. The program targets specific industries considered beneficial to the local economy, such as financial services, manufacturing, tourism-related ventures like hotels, and technology companies.

To be eligible for the EDC Program, a business must meet specific requirements. This involves a minimum capital investment and a commitment to hiring a certain number of local residents, with a high percentage of the workforce required to be from the USVI. The application process requires a detailed business plan and a public hearing, where the commission evaluates if the business will bring a net benefit to the territory’s economy before granting benefits.

Approved EDC beneficiaries receive numerous tax benefits. These benefits create a favorable environment for both the business and its owners. The primary benefits include:

• A 90% reduction in corporate income tax.
• A 90% reduction in personal income tax for owners on dividends from the company.
• A 100% exemption from the Gross Receipts Tax.
• A reduction in customs duties on raw materials and component parts to 1%.
• A 100% exemption from Real Property Tax on the commercial property used by the business.

Required Information for Filing

Properly filing a tax return as a U.S. Virgin Islands resident begins with gathering all necessary documentation. The central document is Form 1040, which is used to report worldwide income to the BIR and can be downloaded from its website. Filers must collect all income-reporting statements, such as Form W-2 from employers and any Form 1099s for miscellaneous income, from both USVI and non-USVI sources.

A comprehensive record of worldwide income is necessary, including wages, business profits, and investment income from any location. For residents with income from outside the Virgin Islands, Form 1040-INFO must be attached to the tax return. Alongside income records, documentation for potential deductions or credits, like receipts for business expenses, records of medical payments, and mortgage interest statements, must be organized.

Personal information, including Social Security numbers for the filer, spouse, and any dependents, is also required. Individuals who begin or end their bona fide residency in the USVI during the tax year must file Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession, with the IRS.

How to File with the Bureau of Internal Revenue

Returns can be submitted to the USVI Bureau of Internal Revenue (BIR) electronically or by mail. The BIR website provides online portals for filing and payment for both income tax and Gross Receipts Tax returns.

For those filing by mail, returns can be sent to the BIR offices. The mailing address for the St. Thomas office is 6115 Estate Smith Bay, Suite 225, St. Thomas, VI 00802. The address for the St. Croix office is 4008 Estate Diamond, Plot 7-B, Christiansted, VI 00820-4421. It is advisable to use certified mail to obtain a record of the submission.

If a tax payment is due, it must be submitted with the return. The BIR accepts payments by check or money order made payable to the “V.I. Bureau of Internal Revenue.” The taxpayer’s Social Security number and the tax year should be written on the memo line to ensure the payment is applied correctly. After submission, refunds are typically issued within several weeks to a few months, depending on the return’s complexity and the BIR’s processing volume.