Corporate tax in United States Virgin Islands

Summary  
Corporate Income Tax Rate (%) 38.5 (a)
Capital Gains Tax Rate (%) 38.5 (a)
Branch Tax Rate (%) 38.5 (a)
Withholding Tax (%) (b)
Dividends
11 (c)
Interest 11 (c)
Royalties from Patents, Know-how, etc. 11 (c)
Branch Remittance Tax 11 (c)(d)
Net Operating Losses (Years) (e)  
Carryback 2
Carryforward 20

a) This is the maximum rate. The rate includes a 10% surcharge.

b) The statutory rate for each withholding tax is 10%. The US Virgin Islands Bureau of Internal Revenue has taken the position that the 10% surcharge also applies to each withholding tax, and consequently the withholding rate is 11%.

c) Under certain circumstances, these taxes may not apply to US corporations doing business in the US Virgin Islands. The US Virgin Islands Bureau of Internal Revenue has taken the position that a 10% withholding applies to dividend distributions to US corporations, despite the statutory provision stat­ing otherwise.

d) This is the branch profits tax, imposed on the earnings of a foreign corpora­tion attributable to its branch, reduced by earnings reinvested in the branch and increased by reinvested earnings withdrawn (see Section B).

e) These periods apply to losses incurred in tax years beginning after 5 August 1997. A three-year carryback period is available in certain circumstances. Small businesses may elect to carry back net operating losses incurred in 2008 for up to the five preceding years.

Taxes on corporate income and gains

Corporate income tax. The system of corporate income taxation in force in the US Virgin Islands is generally a mirror image of the US Internal Revenue Code (IRC). The applicable law is the IRC with “US Virgin Islands” substituted for all references to the “United States.” Significant differences between US and US Virgin Islands taxation are discussed below.

US Virgin Islands corporations are subject to income tax on their worldwide income. A foreign corporation, which is a corporation organized outside the US Virgin Islands, is subject to income tax only on its income from US Virgin Islands sources and on its income that is effectively connected with the conduct of a trade or business in the US Virgin Islands.

Under Section 937(b) of the IRC, rules similar to those for deter­mining US-source income or income effectively connected with the conduct of a trade or business in the United States must be used to determine if income is from sources within the US Virgin Islands or effectively connected with the conduct of a trade or business within the US Virgin Islands.

Rates of corporate income tax. Corporations are taxed at the rates specified in the IRC, except that the US Virgin Islands imposes an additional 10% surcharge on the tax liability of all domestic and foreign corporations. This increases the maximum effective income tax rate to 38.5%.

US Virgin Islands corporations may benefit from the tax exemp­tions and reductions indicated below.

Economic development program. Qualifying corporations are exempt from income tax on up to 90% of their income. In addi­tion, they are exempt from real property, gross receipts and cer­tain excise taxes. Other reductions in various taxes may apply.

Exempt companies. Qualifying corporations that are foreign-owned and do not carry on a trade or business in the United States or in the US Virgin Islands may elect a 20-year exemption from substantially all US Virgin Islands taxes.

Development of renewable and alternative energy-generation sources. Equipment or component parts brought into the US Virgin Islands for the purpose of manufacturing solar water heat­ers or wind or solar energy systems are exempt from the payment of custom duties and excise taxes. Also, revenues derived from the installation or construction of a renewable or alternative energy electric power or production plant or device are exempt from the gross receipts tax.

Alternative minimum tax. The alternative minimum tax rules in the US Virgin Islands are the same as those in the United States.

Branch profits tax and branch interest tax. The branch profits tax (BPT) and branch interest tax (BIT) rules in the US Virgin Islands are similar to those in the United States, except that the BPT and BIT rates are 11% (including the 10% surcharge) instead of 30%. Under certain circumstances, these taxes may not apply to US corporations doing business in the US Virgin Islands.

Capital gains and losses. The provisions applicable to capital gains and losses in the US Virgin Islands are the same as those in the United States.

Administration. The annual income tax return is due by the fif­teenth day of the third month after the close of the company’s fiscal year. On request, a corporation receives an automatic three-month extension to file its tax return. In general, 100% of a corporation’s tax liability must be paid through estimated tax installments dur­ing the year in which the income is earned.

Domestic and foreign corporations file their returns with the Bureau of Internal Revenue (BIR).

Foreign tax relief. The provisions related to foreign tax credits are similar to those in the United States.

Foreign Investment in Real Property Tax Act. The Foreign Invest­ment in Real Property Tax Act (FIRPTA) applies to corporations owning real property interests in the US Virgin Islands. Under this act, a foreign corporation (including a US corporation) pays tax attributable to its gain from the sale of US Virgin Islands property to the US Virgin Islands treasury.

Determination of trading income

General. The rules for determining trading income are the same as those in the United States.

Groups of companies. A US Virgin Islands corporation may not file a consolidated income tax return with a related US tax entity. However, a group of US Virgin Islands corporations may file a consolidated return with the BIR if they meet the requirements set by the IRC provisions for consolidated returns.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Gross receipts tax, on total business receipts 5
Excise tax, on imported goods, merchandise
and commodities for sale or for processing in
the US Virgin Islands unless exempt by law;
tax is computed on invoice value plus a 5%
mark-up
2 to 35
Real property tax; imposed on the assessed
value of the property as determined by the
tax assessor
Unimproved non-commercial property 0.49
Residential property 0.38
Commercial property 0.71
Timeshares 1.4
Franchise tax, imposed annually on capital
stock of domestic and foreign corporations
qualified to do business in the US Virgin
Islands; minimum tax is USD150
0.15
Stamp tax, on transfer of real or personal
property located in the US Virgin Islands
2 to 3.5
Payroll taxes
Federal unemployment insurance (FUTA),
imposed on first USD7,000 of wages
6
US Virgin Islands unemployment insurance (creditable against FUTA; each employer must pay USD25 annually per employee for interest accrued on the Virgin Islands
Federal Trust Fund Loan)
5.4
Workmen’s compensation insurance, varies
depending on classification of employee’s
activities
Various
Social security contributions; subject to the
same limitations as in the United States;
imposed on
Wages up to USD118,500 (for 2016); paid by
Employer 6.2
Employee 6.2
Medicare portion (hospital insurance; for 2016); paid by
Employer 1.45
Employee (subject to an additional 0.9% of
Medicare tax for wages in excess of
USD200,000; no employer matching
contribution for Medicare tax)
1.45
Insurance premium tax, on gross premiums
received by insurers for insurance policies
covering risks in the US Virgin Islands;
certain exceptions apply
5

Miscellaneous matters

Foreign-exchange controls. The US Virgin Islands has not enact­ed any specific foreign-exchange controls, but US laws concern­ing cash transaction reporting and other financial matters are applicable.

Debt-to-equity rules. The US Virgin Islands debt-to-equity rules are the same as those in the United States.

Treaty withholding tax rates

The US Virgin Islands does not have tax treaties with foreign governments.