The US Virgin Islands income tax system mirrors the US income tax system. The applicable law is the US Internal Revenue Code, with “US Virgin Islands” substituted for all references to the “United States.” For a description of the in come taxation of individuals who are bona fide residents of the US Virgin Islands, refer to the chapter in this book on the United States and substitute “US Virgin Islands” for each reference to the “United States.”
Bona fide residents of the US Virgin Islands are taxed on their worldwide income. The US Virgin Islands tax liability of other US citizens or residents with US Virgin Islands-source in come is based on the ratio of their adjusted gross income derived from US Virgin Islands sources to their adjusted gross income worldwide.
Under the American Jobs Creation Act of 2004 (AJCA), which was enacted on 22 October 2004, an individual is considered to be a bona fide resident of the US Virgin Islands if he or she satisfies all of the following conditions:
- He or she is present for at least 183 days during the year in the US Virgin Islands. This determination is made under the applicable rules under the substantial presence test.
- He or she does not have a tax home outside the US Virgin Islands during the tax year.
- He or she does not have a closer connection to the United States or a foreign country than to the US Virgin Islands.
The 183-day presence test applies for tax years beginning after 22 October 2004.
Individuals who are not US citizens or bona fide residents of either the United States or the US Virgin Islands must pay taxes on US Virgin Islands-source income and on income effectively connected with a US Virgin Islands trade or business. Under the AJCA, rules similar to the rules for determining whether income is income from sources within the United States or is effectively connected with the conduct of a trade or business within the United States apply for purposes of determining whether income is from sources within the US Virgin Islands. However, any income treated as income from sources within the United States or as effectively connected with the conduct of a trade or business within the United States may not be treated as income from sources within the US Virgin Islands or as effectively connected with the conduct of a trade or business within the US Virgin Islands.
The above sourcing rules apply for income earned after 22 Octo ber 2004.
Under Internal Revenue Code Section 937, which was added by the AJCA, and Treasury Regulation Section 1.937-1(h), effective from 2001, an individual with world wide gross income of more than USD75,000 must file Form 8898 for the tax year in which he or she becomes or ceases to be a bona fide resident of one of the US Virgin Islands, among other US possessions.
For married individuals, the USD75,000 filing threshold applies to each spouse separately.
Income subject to tax. Income tax provisions in the US Virgin Islands governing the computation of taxable income, including employment and business income, directors’ fees, investment income and capital gains, as well as the availability of deductible expenses and personal deductions and allowances, are the same as those in the United States. The taxation of employer-provided stock options in the US Virgin Islands is the same as in the United States.
The rules for the taxation of nonresidents are the same as the US rules for nonresidents of the United States, except that the withholding tax rate is 10% instead of 30%.
Rates. The income tax rates are the same as those in the United States.
Estate and gift taxes
US federal estate and gift taxes. The US federal estate tax applies in the US Virgin Islands and is administered by the US Internal Revenue Service (IRS). Federal estate tax returns are filed with the IRS in the United States. Federal estate tax is payable by all US Virgin Islands estates with a value that exceeds total ex emptions granted by the US Internal Revenue Code. Persons who are US citizens because they are born or naturalized in the US Virgin Islands and who are US Virgin Islands residents at the time of their death are treated as nonresidents, not as citizens of the United States, for federal estate tax purposes. These US Virgin Islands residents are subject to US estate tax on the part of their gross estate that is situated in the United States at the time of their death.
US citizens residing in the US Virgin Islands who make gifts ex ceeding the annual exclusion (generally USD14,000 for each recipient in 2016) must file a federal gift tax return with the IRS. A limited exemption may apply to gifts of US Virgin Islands assets made by persons naturalized or born in the US Virgin Islands.
US Virgin Islands inheritance and gift tax. The rates of US Virgin Islands inheritance and gift taxes vary, depending on the relationship of the beneficiary or donee to the deceased or donor. The rates range from 2.5% to 7.5%. The exemptions included in the law are so broad, however, that these taxes usually apply only to inheritances received in the US Virgin Islands from persons who neither reside in the US Virgin Islands nor own property in the US Virgin Islands, and to gifts of US Virgin Islands property made by persons who do not reside in the US Virgin Islands.
US social security (FICA) and self-employment taxes are imposed in the US Virgin Islands. Payments are remitted to the US mainland rather than to the Virgin Islands Bureau of Internal Revenue.
Tax filing and payment procedures
In general, the tax year for individuals in the US Virgin Islands is the calendar year. The US Virgin Islands system of tax administration is based on the principle of self-assessment. In general, taxpayers must file returns with the Virgin Islands Bureau of Internal Revenue or the IRS, depending on their residence status and the source of their income. Taxes are generally collected by employer withholding on wages and salaries and by individual pay ment of estimated taxes on income not subject to withholding. Normally, tax due in excess of amounts withheld and payments of estimated tax must be paid with the return when filed. Tax payers may claim refunds of overpayments of tax on annual returns. Sub stantial penalties and interest are usually imposed on taxpayers if returns are not filed on time or if tax payments, including estimated payments, are late.
Tax returns may be selected for audit at a later date by the Bureau of Internal Revenue. Failure to adequately support amounts claimed as deductions on a return may result in the disallowance of de ductions and in a greater tax liability, on which interest and penalties are levied from the original due date. In general, taxpayers must maintain supporting documentation for at least three years after a return is filed.
US Virgin Islands resident. A bona fide resident of the US Virgin Islands (as determined under the AJCA; see Section A) must file a US annual return (Form 1040) with the Virgin Islands Bureau of Internal Revenue. The return is due on or before the fifteenth day of the fourth month following the close of the tax year. A US Virgin Islands resident with income from sources outside the US Virgin Islands must also complete and attach Form 1040 INFO to their tax return to report such income to the US Virgin Islands Bureau of Internal Revenue. A person who is a bona fide resident of the US Virgin Islands on the last day of the year is not required to file a tax return with the IRS if the taxpayer reports and pays tax on income from all sources to the US Virgin Islands and identifies the sources of the income on the return.
US citizen or resident alien. A US citizen or resident alien who is not a bona fide resident of the US Virgin Islands and who has income from sources in the US Virgin Islands or income effectively connected with the conduct of a trade or business in the US Virgin Islands, must file identical returns with the United States and the US Virgin Islands. The amount of tax that must be paid to the US Virgin Islands is computed using Form 8689. The tax is calculated by multiplying the total tax on the US return (after certain adjustments) by a decimal, which is computed by dividing the adjusted gross in come from the US Virgin Islands by worldwide adjusted gross income. Tax due is paid to the US Virgin Islands.
Individuals not US citizens, US Virgin Island residents, or US residents. Individuals who are not US citizens or residents of the United States or US Virgin Islands must file Form 1040 NR with the US Virgin Islands and pay taxes to the US Virgin Islands on Virgin Islands-source income.
Double tax relief and tax treaties
A foreign tax credit is available to US Virgin Islands residents. It is computed using the rules under the US Internal Revenue Code.
Double tax treaties entered into by the United States are inapplicable in the US Virgin Islands. The US Virgin Islands may not enter into separate tax treaties with foreign governments.
The IRS and the Virgin Islands Bureau of Internal Revenue have established a mutual agreement procedure to resolve inconsistent treatment of tax items. Requests for assistance under this procedure should be addressed to the Tax Treaty Division of the IRS.
The rules concerning eligibility for visas that allow foreign nationals to work in the US Virgin Islands are identical to those of the continental United States. For more detailed information, including information regarding the duration of visas, please see the chapter on the United States in this book.
The visas most often obtained by foreign nationals are described briefly below.
Immigrant visas. An immigrant visa entitles a foreign national to enter the United States or the US Virgin Islands as a permanent resident. The identity card issued to a permanent resident is commonly referred to as a “green card.”
Non-immigrant visas. Various non-immigrant visas allowing foreign nationals to enter the United States and the US Virgin Islands are described below.
B-1 visa—temporary business visitor. The B-1 visa is issued to aliens visiting the United States or the US Virgin Islands temporarily for business purposes on behalf of a foreign employer. B-1 visa holders may not be employed in the United States or in the US Virgin Islands or receive remuneration from a US or US Virgin Islands source, other than reimbursement for incidental expenses.
E-1 visa—treaty trader. The E-1 visa is issued pursuant to a treaty of commerce and navigation to employees of foreign-owned companies that are involved predominantly in international trade between the United States or the US Virgin Islands and the country of common nationality of the employers and the E-1 employees.
E-2 visa—treaty investor. E-2 visas are issued pursuant to a treaty of commerce and navigation to nationals of the treaty country so that they may develop and direct the operations of businesses in the United States or the US Virgin Islands that are majority-owned by nationals of the treaty country and in which a substantial amount of capital has been invested, and to nationals of the treaty country who are employed by such businesses in executive, managerial or specialist capacities.
H-1B visa—specialty occupations. H-1B visas are issued to professionals and other specialty-occupation workers entering the United States or the US Virgin Islands to perform services that require their particular skills.
H-2A visa—temporary agricultural worker. H-2A visas allow individuals to perform temporary agricultural jobs in the United States or the US Virgin Islands if unemployed individuals in the United States cannot be found to render the services.
H-3 visa—trainee. The H-3 visa is issued to allow an individual to receive training in the United States or the US Virgin Islands that is unavailable in the individual’s home country.
J-1 visa—exchange visitor. J-1 visas are issued to aliens under a program approved by the US State Department for the purpose of teaching, studying, conducting research, training or demonstrating special skills. The US State Department designates sponsors and approves the terms for each exchange visitor program. J-1 status is generally authorized for the program’s duration as approved by the US State Department.
L-1A visa—intracompany transferee executive or manager. The L-1A visa is issued to executives or managerial employees or employees with specialized knowledge who have been employed abroad for at least one of the preceding three years, so that they may perform services in the United States or the US Virgin Islands for the same or an affiliated employer. Employees with specialized knowledge may remain in the United States or the US Virgin Islands under the L-1A classification only for a total of seven years.
Family and personal considerations
Family members. Please refer to the US chapter of this publication for information on the procedures and requirements necessary to obtain a visa for family members of visa holders.
Marital property regime. In general, the US Virgin Islands recognizes that property acquired during marriage is subject to division and equitable distribution, and therefore, constitutes marital property. The US Virgin Islands recognizes as separate property, distinguishable from marital property, any property acquired prior to marriage and all property derived by either of the spouses during the marriage through inheritance, gift or devise.
Forced heirship. Under the forced heirship rules in effect in the US Virgin Islands, the real estate of a deceased person, not de vised, and the surplus of his or her personal property after payment of debts and legacies, if not bequeathed, is distributed to the surviving spouse and children as follows: one-third to the surviving spouse, and the residue in equal portions to the children, or to the legal representatives of the children if any of them predeceased the parent. Different rules apply if the heirs are other than the surviving spouse and children.
Driver’s permits. If a person holds a valid driver’s license issued by a state, a territory or a possession of the United States, he or she may drive legally in the US Virgin Islands with that license for 90 days. If the person holds a license from a foreign country, the police commissioner may issue a temporary permit for 30 days on payment of a fee prescribed by law.
The following are the basic requirements to obtain a driver’s license in the US Virgin Islands:
- Completed application form
- Two photos
- Medical exam
- The original and a copy of the home country driver’s license