In February 1987, the Tax Implementation Agreement was signed between the United States and the Virgin Islands. Therefore, The US Virgin Islands Exempt Companies Act of 1986 became functional a year later. This act is located in Chapter 14, Title 13 of the VI Code and authorized under the United States Internal Revenue Code – § 934 (b)(1) and §934(b)(3). Under this Act, foreign-owned companies that are not traded or operated in the United States or the US Virgin Islands may opt for a 20-year local exemption from all taxes.
USVI companies are similar to companies established in Delaware and Nevada and are based on an earlier version of Delaware corporate law which is one of the best and respected jurisdictions across the globe.
When it comes to taxation of exempt companies, we should clearly say that an authorized exempt company is exempt from all US Virgin Islands gross receipts, islands, license requirements and withholding tax. The only requirement is to pay an annual franchise tax of $1,000 per year to the US Virgin Islands Government. Also, there is no payment for taxes on interest or dividends even in case of generation in the US Virgin Islands through banking or investment activities. Because it is considered a passive activity. You are also not subject to pay withholding tax as an EC. Besides, exemption companies’ – owned by non-US tax residents- shares are not subject to US or US Virgin Islands gift or estate taxes. After the incorporation, the US Virgin Islands Government signs a 20-year contract guaranteeing the company’s tax exemption.
Those who can be qualified for the Exempt Company Status are only majority foreign-owned entities.
According to the US Virgin Islands Legislature, a company is qualified as an Exemption Company only if less than 10% of the total voting power of the stock or the total value of the stock of such corporation belongs to one or more US and US Virgin Islands individuals. If the Company issues bearer shares, it shall be deemed to belong to the US or US Virgin Islands persons.
Tax Treaties Application and Information Exchange Agreements
The US Virgin Islands is not included in any tax treaty to which the United States is a party. The US Virgin Islands government has no legal authority to enter tax treaties with foreign countries on its behalf. In particular, all FATCA Model 1 and Model 2 Intergovernmental Agreements exclude the reporting of the US Virgin Islands and Financial Institutions located within the US Virgin Islands.
Neither the US nor the US Virgin Islands has adopted the OECD’s Common Reporting Standards (CRS), so there is no need to report ownership of accounts or beneficial ownership of companies in this context.
Let’s Have a Look at Summary Benefits
- No FATCA
- No CRS
- No US Heritage Tax
- Taxation as a US Exempt Entity
- Federal US Id Number
- If Required, US Tax Residency Certificate
- If Required, Certified Copies of Tax Returns
- If the Person is Outside, No Individual Tax Requirement
- Bookkeeping and Records for the Purpose of Compliance in the USA
- Access to All Banks Anywhere in the USA