The US Virgin Islands (USVI) is the only place in the world where non-U.S. individuals or businesses can establish a tax-exempt entity while still operating under the jurisdiction of the United States. A company based in the U.S. Virgin Islands that is considered “exempt”, offers significant tax advantages for businesses transacting globally. However, such a company must conform with certain requirements. Exempt companies are not required to pay any taxes in the U.S. or U.S. Virgin Islands on income earned internationally, except for a yearly franchise fee of $1,000 to the U.S. Virgin Islands government. Additionally, the stock of such a company is not subject to estate, gift, or inheritance taxes from the United States government or U.S. Virgin Islands government, if the decedent or donor of the stocks is not a resident or citizen of the United States.
USVI exempt companies are commonly utilized as holding companies for portfolio investments, as well as for the ownership yachts and aircrafts. The US government imposes a 30% withholding tax on U.S. source passive income earned by a USVI exempt company, such as dividends, interest and royalties, and is the same as that imposed on payments of such income to companies incorporated in other countries that the US does not have a tax treaty with. However, the USVI government does not impose any withholding tax on passive income earned by a USVI exempt company. Additionally, capital gains made by a USVI exempt company from selling U.S. stocks or other securities are not subject to taxes in either jurisdiction.
What are the requirements of a USVI Exempt Company?
Forming a USVI exempt company is a relatively straightforward process and can be accomplished quickly and inexpensively. The company must file the articles of incorporation with the office of the USVI lieutenant governor, which bears a fee of $400. The incorporation process can be done online in just a few hours. When filing, the company must elect to be treated as an exempt company.
When filing, an exempt company must appoint a local resident agent for service of process and address use. It must also have a minimum of three members. These members do not have to be residents of the USVI. Additionally, the president, secretary, and treasurer must be different individuals and a person can hold no more than two managerial positions. The annual filing requirements for a USVI exempt company are relatively easy to comply with. Because it is tax exempt, there is no need to file a tax return, however, a franchise tax return is required to be submitted on June 30th of each year, which must be signed by the resident agent, officer, or director. The return must include the names of the current officers and directors, but the identity of the shareholders is not required to be disclosed.
Furthermore, the USVI exempt company is designed to provide a tax-efficient structure for non-U.S. businesses and individuals, so it is generally not suitable for U.S. persons. The exempt company can, however, have less than 10% stock ownership by a US individual or entity. This type of company must have a capital investment of at least $1,000. Bearer shares are not allowed. It’s important to note that one additional USVI requirement is that an exempt company cannot engage in the active conduct of a trade or business in either the United States or the USVI. This means that the company cannot have a physical presence or conduct regular business activities in either of these jurisdictions.
In conclusion, a USVI exempt company is a valuable option for non-U.S. businesses and individuals looking to minimize their tax liability. The formation process is relatively simple and inexpensive, and the annual filing requirements are minimal. However, it is important to understand that a USVI exempt company cannot engage in the active conduct of a trade or business in either the United States or the USVI and is not suitable for U.S. persons.
If you are thinking about creating a USVI exempt company, please speak to one of our attorneys by calling the number provided below.