US VIRGIN ISLANDS: An Introduction to General Business Law

The following Overview featured in Global 2023 and is awaiting update from the firm.

Overview and Current Economic Conditions 

The U.S. Virgin Islands is a United States territory consisting of three islands, St. Thomas, St. John and St. Croix with a total population of 105,000 lying approximately 50 miles east from Puerto Rico. St. Thomas has a longstanding reputation as one of the busiest cruise ship destinations in the world and has one of the best natural deep-water harbours in the Caribbean. Likewise, St. Croix has invested in infrastructure to support modern large-scale cruise ships. Hence, the territory has the largest ports for duty-free shopping in the Caribbean and continues to see an increase in cruise ship visitors exceeding pre-pandemic levels. The three main islands offer a number of hotels and guest houses to accommodate visitors with tourism serving as the largest industry. The territory continues to see an influx of affluent American retirees from the mainland choosing to become full or part-time residents.

As a United States territory, the U.S. Virgin Islands enjoys the rights and protections afforded under the United States Constitution and its laws making the investment climate unlike any other in the Caribbean. In addition to the idyllic setting and warm climate, investors are assured enforcement of laws under a stable and democratic government system. Regulation of banking, insurance, and financial services is governed by a combination of US federal and local territorial laws, which often mirror various state law systems in the continental United States. Although several tax incentive programmes are available, the territory is not a typical offshore tax haven and is committed to transparency in its tax practices while stimulating economic development through tax incentives. Modern infrastructure and technology provide the resources for stable investing. Tourism, financial services, research and technology, and green energy continue to be common investment opportunities.

The territory has committed to business investment by establishing the U.S. Virgin Islands Economic Development Authority, which strongly supports and encourages the growth of hotel tourism, financial services, light manufacturing, and other industries by providing tax incentives to businesses in these industries through the Economic Development Program. In addition, the University of the Virgin Islands Research and Technology Park promotes the growth of research, technology and other knowledge-based businesses by providing tax incentives to businesses in these areas through its programme. Moreover, the Virgin Islands Exempt Companies Act provides tax incentives to certain foreign investors. These programmes have had a substantial, positive impact on the investment climate in the U.S. Virgin Islands.

With its solid foundation of tourism, the U.S. Virgin Islands has a promising economic forecast as financial services, manufacturing, distilleries, research, technology and other knowledge-based businesses become more prevalent. The U.S. Virgin Island’s Vision 2040 is a long-term economic strategy and action plan with goals that include diversifying the territory’s economic base through growth in target industries, including professional and technical services, research and development, renewable energy, agribusiness, coastal/ocean resources, and health sciences. The combination of protection under United States laws, strong infrastructure, economic and tax incentives, and a picturesque setting creates an ideal investment and business climate in the U.S. Virgin Islands.

Trends & Developments 

Infrastructure 

Infrastructure continues to improve in the U.S. Virgin Islands as hi-tech telecommunications companies expand the availability and speed of broadband and DSL internet connectivity. Virgin Islands Next Generation Network installed and operates a “middle mile” fibre optic network. In 2022, Liberty Mobile USVI began its “last mile” fibre network construction project in an effort to bring fibre to all homes and businesses in the U.S. Virgin Islands. The territory is scheduled to receive substantial US federal funding as a result of the Bipartisan Infrastructure Law to rebuild the territory’s roads and improve public transportation and the power supply.

The Port Authority is pursuing large-scale public-private partnership (PPP) redevelopment projects for the airports on St. Thomas and St. Croix. The PPP projects will provide substantial opportunities for both local and US investors and contractors and is designed to enable the U.S. Virgin Islands to remain competitive in the global travel market, create a better experience for local and guest travellers and strengthen the territory’s vital tourism industry.

Real estate transactions 

The U.S. Virgin Islands has not been immune to the effects of financial market turbulence and rising interest rates, with reductions in both residential and commercial real estate transactions. The territory still provides opportunities in the real estate market for purchasers and investors and prices are generally well below comparable ocean front and view properties in other jurisdictions.

New Legislation 

Following the trends seen in US mainland jurisdictions, the current administration signed into law the Virgin Islands Cannabis Use Act, which hopes to provide a streamlined regulatory scheme for both medicinal and adult recreational use, enforcement powers for the Office of Cannabis Regulation, entrepreneurship and job opportunities for Virgin Islands residents, and the creation of a revenue stream to help fund critical government initiatives and operations.

The Tax Landscape  

Income Tax 

The U.S. Virgin Islands operates under a “mirror” system to that of the US federal tax system. The Virgin Islands Bureau of Internal Revenue is the taxing authority for the territory. Subject to certain exceptions, income tax rates are the same as US federal rates for residents of the US Virgin Islands.

Personal income tax 

Residents calculate and file their income taxes using US federal tax forms and rates, but then send payments to the Virgin Islands Bureau of Internal Revenue, such that the tax dollars remain in the territory and they have no tax liability to the federal government. The U.S. Virgin Islands has never enacted local income taxes.

Corporate income tax 

Like personal income taxes, U.S. Virgin Islands corporations pay income taxes on worldwide income to the U.S. Virgin Islands based on US federal rates plus a possible corporate surcharge. A foreign corporation is subject to income tax liability on income that is effectively connected with a U.S. Virgin Islands business and certain U.S. Virgin Islands source income. All corporations that are taxed as a “C” corporation with U.S. Virgin Islands tax liability are subject to a 10% surtax in the U.S. Virgin Islands. The surcharge does not apply to corporations taxed as an “S” corporation.

Sales tax 

There is no direct sales tax in the U.S. Virgin Islands.

Gross receipts tax and exemptions 

In general, every person and entity doing business in the U.S. Virgin Islands is subject to a 5% gross receipts tax. Though “doing business” is undefined by the governing territorial statute, courts have taken a liberal view and applied gross receipts taxes when the business (i) benefits from services and protections of the government, (ii) maintains offices or agents in the U.S. Virgin Islands, or (iii) conducts activities that have a sufficient connection to the U.S. Virgin Islands so long as the tax is fairly apportioned to the activities. Gross receipts include all receipts of business activity without deductions. The first USD9,000 of monthly gross receipts is exempt when annual gross receipts are less than USD225,000.

However, there are exemptions designed specifically to attract business to the territory. Businesses that are participants in the Economic Development Program or the Research and Technology Park Program are exempt from gross receipts tax on qualifying income. Other businesses may be also eligible for exemption.

Labour Considerations 

While the U.S. Virgin Islands operates under US federal labour laws, the local statutes relating to wrongful discharge are unique to the territory and differ from most of the equivalent legislation in the mainland United States. Rather than an “at will” jurisdiction, the U.S. Virgin Islands has a limited number of grounds for termination of an employee and failure to properly document and prove such grounds has resulted in liability for employers including backpay. Arbitration provisions in the employment context have been upheld as enforceable.

Summary  

The U.S. Virgin Islands offers the rights and protections afforded under the constitution and laws of the United States to provide an attractive investment and business climate. Its idyllic setting and temperate climate offer a wonderful place to live and work under a stable democratic government system.