The US Virgin Islands Tax Breaks You’ve Never Heard Of

Sovereign ManSovereign ManJanuary 14, 2022

Looking to optimize your taxes as a US citizen? Sovereign Man has been banging the table about Puerto Rico’s tax incentives for years – but other interesting options exist. We recently produced an exclusive 24-page report for our Total Access members on one such destination: The US Virgin Islands. 

Below, we provide you with a sneak-peak summary…

As we often say, savings on taxes is your best risk-adjusted return. 

If you save, say, 30% on taxes next year, that’s 30% more money in your pocket, absolutely risk-free.

And while non-Americans generally have many ways to achieve such tax savings, the toolset available to US taxpayers is very limited. 

But options still exist. We have written many times about ​​the Foreign Earned Income Exclusion (FEIE) and Puerto Rico, which offers generous tax breaks for Americans willing to move to the island. 

Many of our subscribers are based in PR, enjoying island living and super low tax rates.

But Puerto Rico is not the only option. There are four more US territories to choose from, including Puerto Rico’s immediate neighbor, the US Virgin Islands.

The US Virgin Islands: A Brief Overview

USVI is located just east of its much larger neighbor, Puerto Rico, and right next to the British Virgin Islands. It is a major tourist hotspot, especially for cruise ships, however its total population is only around 90,000 people.

United States Virgin Islands Map

The US Virgin Islands consists of three main islands: St. Thomas, St. John, St. Croix and an additional 50 smaller islands. 

Today, the largest source of income for the territory is tourism. Still, St. Croix is where USVI’s remaining manufacturing and rum production facilities are situated.

One of our team members traveled to the US Virgin Islands back in 2019 to research the programs.

Back then, we found the USVI incentives to be relatively restrictive, and they are more expensive to apply for and maintain than those in PR. As a result, small-scale businesses, which work so well under PR’s incentives, may not be able to benefit from the USVI incentives.

Still, for the right person (and for larger business operations), USVI can work very well. Their local incentives can slash your taxation by up to 90%certainly nothing to sneeze at.

The USVI Tax Breaks At A Glance…

USVI is not a state, but an unincorporated territory of the US. It can therefore largely enact its own tax laws for residents living in the territory…

USVI has two separate sets of incentives, governed by the Economic Development Authority (EDA), and the Research and Technology Park (RTPark), respectively.

The Economic Development Authority oversees several incentive programs, but its Economic Development Commission (EDC) Program is arguably the most relevant option for our readers.

Again, both EDC and RTPark are more restrictive than their Puerto Rican counterpart. They are centrally controlled and managed and MUCH more expensive.

They are also mostly geared towards businesses that would hire USVI residents (applies to EDC only) and/or can make a “real impact” in the territory (both EDC and RTPark).

Therefore, fewer people can take advantage of them.

Nonetheless, USVI incentives present an excellent opportunity for the right person (and their larger companies), as they can slash both your corporate and personal taxation to almost zero.

Now let’s have a look at the benefits that EDC can offer you. We will get to the RTPark’s benefits in the future installment of the series.  

The Economic Development Commission (EDC) Tax Break Program At A Glance

The Economic Development Commission (EDC) is the oldest tax incentive program in USVI.

The key program benefits for businesses include:

  • A reduction of up to 90% on corporate and personal income taxes (provided you’re a bonafide resident of the USVI) when compared to the US federal tax rates. Unlike Puerto Rican incentives, which set up its own tax rates, the USVI’s programs apply discounts to the current federal rates. 
  • A 100% exemption on local excise tax on raw and building materials. (Tax normally ranges from 2-25% on the fair market value of a range of items.)
  • A 100% exemption on property taxes. (The exemption applies where property is utilized for business – e.g., as office space or manufacturing facilities, but not for home offices.)
  • A 100% exemption from gross receipts taxation. (Normally, there is a 5% tax on the USVI sourced gross receipts of USVI businesses.)
  • A customs duty of only 1% on imported goods necessary for manufacturing, versus the standard 6%. 
  • A royalty income tax reduction for software developed in USVI and sold to non-US customers.

These tax breaks are generous. And in addition, there is no sales tax or Value Added Tax in USVI.

Provided that you become a bonafide resident and depending on the type of your entity (you are free to choose from all standard US entities), your maximum total tax rate — corporate plus individual — can be around 4.2%. And it could be even less, depending on your personal income bracket. 

Also, depending on the type of business you plan to conduct in USVI, your other taxes, such as property taxes or import duties, can go down as well. 

At the same time, any salaries the corporation pays are fully taxable in USVI. 

Eligibility and Requirements

But besides the great benefits, the EDC program also comes with serious conditions. As mentioned, the requirements are much more demanding than those in PR. 

You’ll have to:

  • Make an eligible, once-off capital investment of $100,000 within one year of operating, OR donate the money to an  approved charity.
  • Hire at least ten employees (five, if your business is in financial services), within the first year of operating. However, our contact on the ground reports that exceptions are possible, and, in fact, readily made when justified.

Want to learn more about tax incentives and how to make them work for you?

Our Total Access members benefit from regular deep-dive reporting on tax incentives like those in Puerto Rico and USVI, along with structures around the world that can help you mitigate your tax bill 100% legally. In addition, members enjoy access to a wealth of highly actionable intelligence and Plan B Strategies, and a dynamic, freedom-minded community.

Find out more about the benefits of Total Access membership here.

Yours in freedom,

Team Sovereign Man

PS: If you’d like to join Total Access – you’re in luck. We’ll be opening up a limited number of slots for the program at month-end. To sign up for the TA waiting list, click here.

Source

Source: Sovereign Man

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