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Taxation in US Virgin Islands


The tax system in the US Virgin Islands is unique even among the many tax havens in the Caribbean. It is the only tax free entity under the United States flag, but has some interesting exceptions. While most of the US tax code is in effect there are many major exemptions and incentive programs.

Income Tax

Generally, instead of filing returns and paying taxes to the IRS, residents of the USVI, and corporations formed in the USVI, file returns and pay income taxes directly the Virgin Islands Bureau of Internal Revenue. The taxes are at the same rates and use the same forms and rules as the federal income tax under what is called the "mirror system" of taxation.

The mirror system applies differently to corporations than to individuals. One of the differences is that in addition to the regular corporate tax rate, corporations are also subject to a 10% corporate tax surcharge which brings the maximum corporate graduated rate to 38.5%. There are no local income taxes or surcharges imposed on individuals over and above the mirror system rates so that the overall rate of income tax for individuals is equivalent to the rate that a resident of a state without a state income tax would pay.

One of the results of the mirror system is that a corporation incorporated in the US, along with a corporation incorporated elsewhere outside of the USVI, is considered foreign for USVI tax purposes.

US citizens and permanent residents with income from the USVI, but who are not resident there, pay the same total amount of tax as they would if all their income were from US sources, but the tax is apportioned between the US and the USVI. This is done on IRS form 8689. These individuals file their form 1040 returns, along with the form 8689, with the IRS and they file a copy with the Virgin Islands Bureau of Internal Revenue.

Other Taxes

There are no sales taxes in the USVI. There are several other taxes that do apply, however, including the following:

Real Property Tax;
Gross Receipts Tax;
Excise Tax and Customs Duty.

While all of the taxes described here generally apply to USVI businesses, there are exemptions from all of them for exempt companies and foreign sales corporations. In addition, beneficiaries of the Industrial Development Program are exempt from all of these taxes except for customs duties, where a special one percent rate applies.

Real Property Tax

USVI real property is subject to an annual tax at a rate of 1.25% of assessed value. Assessed value is defined by statute to be 60% of actual value.

Gross Receipts Tax

The USVI imposes a tax of 4% on the gross receipts of USVI businesses. Businesses with annual gross receipts of less than $150,000 are exempt from tax on their first $5,000 per month of gross receipts.

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