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The legal system of the United States Virgin Islands (“USVI”) is, in most respects, similar to the legal systems of the fifty states of the United States of America. Federal sources of law, such as the Constitution of the United States, statutes enacted by the US Congress, regulations promulgated by US administrative agencies, and executive orders issued by the President of the United States, are generally applicable in the USVI. However, because the USVI is an unincorporated territory of the United States, Congress may vary the applicability of most federal laws in the USVI in a way that deviates from the fifty states. For example, the USVI constitutes a separate customs zone with different tariff rates from the rest of the United States (based on the Danish customs law in effect when the United States purchased the USVI from Denmark in 1917), and Congress has authorised unique variations in the federal income tax laws in the USVI that differ from the uniform federal income tax laws in the fifty states.

Congress has, through the Revised Organic Act of 1954, as amended (and its predecessor Organic Act 1936), also established a territorial government for the USVI that includes a locally elected governor, a locally elected unicameral legislature, and locally created administrative agencies – as well as a judicial system discussed below. The Virgin Islands Legislature may enact general statutory laws for the territory (subject to the governor’s veto) to the extent they do not conflict with federal law. The legislature may also grant rule-making authority to the executive agencies, and the governor has the power to issue executive orders.

The judicial system in the USVI comprises both federal and territorial courts. The jurisdiction of the federal District Court of the Virgin Islands is substantially similar to the federal district courts in the fifty states. However, there are some important differences because Congress established the District Court of the USVI pursuant to its authority under Article IV of the US Constitution rather than Article III. For example, the District Court has exclusive jurisdiction over income tax questions in the USVI and may preside over some criminal cases based on local territorial law. Decisions of the District Court of the USVI are appealable to the US Court of Appeals for the Third Circuit (headquartered in Philadelphia, Pennsylvania) and, ultimately, to the Supreme Court of the United States, similar to cases arising from Delaware. 

A two-tier territorial judiciary is parallel with the federal District Court. The Superior Court of the USVI is the trial court of general jurisdiction that presides over both criminal and civil cases, appeals from territorial administrative agencies, and has a specialised division for family cases, including juvenile matters. The Superior Court also has a magistrate division that presides over probate matters, landlord-tenant disputes, small claims, traffic violations and certain misdemeanours. Decisions of the Superior Court are appealable to the USVI Supreme Court. Decisions of the USVI Supreme Court are appealable to the Supreme Court of the United States. Like most of the fifty states, the USVI follows the common law tradition in which judge-made case law informs legal decision-making.

The USVI is part of the United States, hence the Federal statutes governing foreign investment in the United States, such as the Foreign Investment Risk Review Modernization Act of 2018 and the Regulations promulgated thereunder, apply in the USVI.

Further, the USVI is included within the definition of “United States” in the United States’ extensive network of Treaties of Friendship, Commerce, and Navigation, and Bilateral Investment Treaties, officially known as Treaties Concerning the Encouragement and Reciprocal Protection of Investment. These treaties provide a number of important benefits, most notably protection in the case of expropriation. The US International Trade Administration lists Bilateral Investment Treaties currently in force between the United States and 40 countries. In addition, the International Trade Administration lists six treaties that have been concluded but have not yet entered into force. In contrast, the USVI is not included in the United States network of income tax treaties (nor are other US territories) and cannot enter into its own tax treaties. The USVI is included in certain of the United States’ agreements for the exchange of information relating to taxes.

Also, foreign investors in USVI real estate are subject to the Foreign Investment in Real Property Tax Act of 1980, codified in Sections 897 and 1445 of the Internal Revenue Code of 1986, as amended, as applicable to the USVI (“Code”).

Regarding foreign investment in the USVI, the USVI does not have separate legislation or other rules limiting foreign investment in the USVI. In fact, the USVI has enacted a number of economic incentive programs to attract investment in the USVI, and these programs specifically encourage investment by US residents and foreign investors. Examples of these incentive programs include the Economic Development Commission (EDC) and the University of the Virgin Islands Research and Technology Park (RTPark) programs. However, the USVI has local laws that may apply to foreign direct investments (FDI), as discussed further in this article.

On December 8, 1986, the USVI legislature enacted the exempt companies’ legislation, which subsequently went into effect on February 24, 1987, upon signing the Tax Implementation Agreement Between the United States of America and the USVI. On August 17, 1993, then-USVI Governor Alexander Farrelly signed into law the Exempt Company Amendments Act of 1993, which made significant changes to the USVI-exempt companies’ legislation to enhance the use of exempt companies by foreign investors.

The USVI has been actively seeking to promote FDI in the territory. For example, in May 2023, the Governor and Lieutenant Governor of the USVI and representatives of the territory’s tax incentive programs – including the Virgin Islands Economic Development Authority (EDA) and RTPark –represented the USVI at the SelectUSA Investment Summit, which is stated to be the highest-profile event in the United States dedicated to promoting FDI, and is hosted by the US Department of Commerce. The USVI representatives participated in panels and discussions during the summit, and EDA was also a platinum sponsor. The Governor of the USVI, Albert Bryan, is currently serving his second term. Governors in the USVI may run a third term, but not successively.

The USVI also hosts a Tech Beach Retreat (TBR) Summit through TBR’s partnership with RTPark, which is also hosted in Jamaica, Miami and other locales. This retreat program gathers entrepreneurs, C-suite executives from major tech companies, and government officials from around the Caribbean. It seeks to promote locales like the USVI as a flourishing hub for investment in the technology sector.

The USVI utilises the same range of structures for conducting business transactions as seen in the mainland United States, including limited liability companies (LLCs), limited liability partnerships (LLPs), C-corps and S-corps, and professional corporations. When considering what type of business structure, in addition to the functional work of the business (eg, is it a holding company vs will it be conducting business under its own name), it is also important to consider whether or not the structure intends to apply for benefits under one of the USVI’s tax incentive programs. Many of the statutes relating to corporate law in the USVI are based on the statutes enacted in the state of Delaware.

The Virgin Islands Antimonopoly Law (11 V.I.C. §§ 1501-1518) forbids agreements in restraint of trade between competitors, as discussed further in this article. Forbidden agreements include agreements to fix prices, fix levels of production or distribution, and allocate territories and customers. The law also forbids the use of monopoly power to exclude competition. The law is construed similarly to federal antitrust law. Moreover, Federal antitrust laws apply in the USVI.

The USVI further addresses mergers and acquisitions in different statutes. For instance, under the Virgin Islands Insurance Holding Company System Regulatory Act, Section 323, an acquisition or merger of a domestic insurer that results in control of the insurer may not occur without meeting certain requirements, including approval by the Commissioner of Insurance of the Virgin Islands. A statement to be submitted to the Commissioner – and copied to the insurer – for approval must be made under oath or affirmation and includes detailed information about the persons, including entities, that want to acquire or merge with the domestic insurer.

These persons are also required to file a pre-acquisition notification with the Commissioner and may be subject to penalties for failing to do so under Title 22 Section 324 of the Virgin Islands Code (VI Code). There are exceptions in Section 324, but a pre-acquisition notification must still be submitted. The pre-acquisition notification must contain the information and be in the form prescribed by the National Association of Insurance Commissioners. The Commissioner shall make statutory considerations to determine if an acquisition could substantially lessen competition of a line of insurance in the USVI and, if so, may file an order regarding the acquisition. However, an order may not be entered by the Commissioner until after a hearing has been granted. Persons who do not file required filings may be fined at least USD25,000. Moreover, if the Commissioner’s order contains a cease and desist, and a person violates it, they could be subject to a USD1,000 daily penalty or license revocation after a hearing.

Additionally, controlling persons of a domestic insurer wanting to divest their controlling interest must file a confidential notice regarding the proposed divestiture with the Commissioner and send a copy to the insurer.

The USVI also has the Virgin Islands Finance Lenders Law, which aims to:

• ensure an adequate supply of credit to borrowers;
• simplify laws governing loans by finance lenders;
• foster competition among finance lenders; and
• protect borrowers from unfair lender practices.

However, under Title 9 Section 775 of the VI Code, this law does not apply to loans made by franchisors to franchisees for activities, including acquisitions and mergers – if certain requirements are met. For example, the loan must comply with legal federal and state registration and disclosure requirements and the Federal Trade Commission Franchise Rule: Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures 16 CFR 436, as amended. However, Section 775 also states that this section is not meant to diminish the application of other laws that protect borrowers, including against unfair competition.

Similarly, the USVI Franchised Businesses law in Title 12A Section 137 of the VI Code states that the franchise law does not supersede, modify or repeal any provisions of the USVI antimonopoly laws and instead is supplementary to (although not a part of) them.

The USVI recently surveyed almost 500 businesses, and only about 2% were franchises. However, the USVI has goals to encourage the expansion of private businesses and employment – as evidenced in the published U.S. Virgin Islands Vision 2040 that the USVI recently completed.

Additionally, the USVI has laws regarding merger and consolidation under the General Corporation Law (13 V.I.C. §§ 251-256), regarding conversions and mergers under the Uniform Limited Liability Company Act (13 V.I.C. §§ 1901-1907) and for conversions and mergers under the Uniform Partnership Act (26 V.I.C.  §§ 191-198).

The USVI provides many options when choosing to form a legal entity within the jurisdiction, such as corporations, LLCs and partnerships, including general partnerships, limited partnerships and LLPs.

The USVI has adopted the Uniform Limited Liability Company Act (13 V.I.C. §§ 1101-2203), and the formation and governance of an LLC is similar to that imposed in the fifty states and the District of Columbia. An LLC is formed upon filing Articles of Organisation with the Office of the Lieutenant Governor of the USVI, Division of Corporations & Trademarks (the “Division”), requires at least one member and may be structured as member-managed or manager-managed. The minimum capital required for an LLC to conduct business in the USVI is USD1,000.

A foreign limited liability company (FLLC) is an entity organised under laws outside of the USVI and may transact business in the USVI after filing a certificate of authority with the Division. An FLLC is covered by Title 13 Sections 2001-2009 of the VI Code. An FLLC’s internal affairs, organisation, and liability for its members, managers and transferees are governed by the laws of the state or other jurisdiction in which the FLLC was organised. An FLLC cannot be denied a statement of authority because of differences in law between where the FLLC was organised and the USVI. However, an FLLC may not exercise powers or engage in business that an LLC cannot exercise or engage in the USVI. Title 13 Section 2003 of the VI Code lists activities of FLLCs that are not considered transacting business in the USVI, including dealing with actions or proceedings, holding meetings of managers or members – or other activities – regarding its internal affairs, maintaining bank accounts, selling through independent contractors, transacting business in interstate commerce, etc.

LLCs provide limited liability to their member(s) and manager(s). Thus, a member or manager is not personally liable for any debt, obligation, or liability of an LLC solely by reason of being or acting as a member or manager. The LLC is well-suited for a wide range of business activities and provides its members with flexibility in governance. Limited liability companies are not required to hold mandatory annual meetings, appoint directors or officers, or adhere to extensive statutory fiduciary duties beyond a few key responsibilities. These essential duties include the duty of loyalty, the duty of care, the obligation to act in good faith and deal fairly, and the right to access books and records. Additionally, an LLC’s operating agreement can include provisions that differ from those outlined in the LLC Act.

Partnerships are another entity form often utilised in the USVI. The USVI has adopted the Uniform Partnership Act and the Uniform Limited Partnership Act. The most common forms of partnerships used in the USVI are limited partnerships (LPs) and limited liability limited partnerships (LLLPs), both subject to the Uniform Limited Partnership Act. All partnerships require at least two partners, and, similar to LLCs, partnerships provide governance flexibility in that there are no statutory meeting requirements and the appointment of directors and officers is not required. 

A general partner controls the business and affairs of an LP and an LLLP, whereas the limited partners are passive investors and do not have rights in the management and control of the business operations of the partnership. With an LP, the general partner has unlimited liability, and so long as they do not engage in the management and control of an LP, the limited partners have limited liability and are not liable for the debts and obligations of the LP solely by reason of being a limited partner. LPs are formed by filing a Certificate of Limited Partnership with the Division.

Once formed, an LP may elect to qualify as an LLLP. In order to make the election, a statement of qualification must be filed with the Division. Unlike LPs, the LLLPs provide limited liability protection to both the general partner(s) and the limited partner(s).

In the event that all partners of a partnership desire to engage in the management and control of the business operations of the partnership and seek limited liability protection, an LLP is the desirable entity. LLPs are subject to the Uniform Partnership Act under Title 26 Sections 1-274 of the VI Code and are formed by filing a Statement of Qualification with the Division.

A foreign limited liability partnership (FLLP) is formed and has the status of an LLP under laws outside the USVI, and can transact business in the USVI by filing a statement of foreign qualification. An FLLP is covered under Title 26, Sections 241-245 of the VI Code. The relations among and between the partners and the partnership and partner liabilities for partnership obligations are governed by the laws where the FLLP was formed. An FLLP cannot be denied a statement of foreign qualification because of differences in law between where the FLLP was formed and the USVI. However, an FLLP may not exercise powers or engage in business that LLPs cannot exercise or engage in. Title 26, Section 244 lists FLLP activities that are not considered transacting business in the USVI, and it includes essentially the same activities as FLLCs.

Each form of partnership discussed above must file an annual report and pay an annual fee of USD150 with the Division.

The last of the partnership formats for doing business is the general partnership, which is seldom used since all partners have unlimited liability. General partnerships are simply formed by agreement among the partners; thus, no filings with the Division are required to form a general partnership. 

Another form of entity available in the USVI is the corporation. Corporations are formed upon filing Articles of Incorporation with the Division. The minimum capital required for a Corporation to conduct business is USD1,000. Corporations must file an annual report with the Division and pay an annual franchise tax to the Division, which is set at a statutory minimum of USD300 per year. It is important to note that the USVI also imposes a 10% surcharge on all domestic and foreign corporations’ total USVI income tax liability.

In terms of governance obligations and formalities, corporations are the least flexible of the entity choices available in the USVI, similar to those in the US. Pursuant to the General Corporation Law of the USVI, there must be a minimum of one director for every shareholder of the corporation when there are three or fewer shareholders; otherwise, the minimum number of directors is three. A minimum of three officers (president, treasurer, and secretary) is also required. The president must be a director, and the roles of president and secretary cannot be simultaneously held by the same individual.

Altisource Asset Management Corporation (Altisource) is a publicly traded USVI company, and it is a case study of some of the regulations with which USVI publicly traded companies must comply. Additionally, the USVI recently surveyed almost 500 businesses in Vision 2040 and found that 36 of those businesses had plans to go public in the next five years; consequently, this could create opportunities for minor investors. There are also several subsidiaries of publicly traded companies established in the USVI.

Altisource is a publicly traded USVI company on the NYSE American LLC. However, the corporation recently announced that it will voluntarily delist from the NYSE and deregister its common stock under the Securities Exchange Act of 1934. This decision was due, at least in part, to a noncompliance notification letter sent by NYSE regarding the corporation’s stockholders’ equity and losses/net losses. The corporation’s noncompliance was based on provisions in the NYSE American Company Guide. In the announcement, the corporation noted that this delisting and deregistering was believed to be beneficial in freeing up management and employees’ time from SEC requirements to focus more on management.

A detailed application must be submitted for review if a business entity wants to utilise certain tax incentives in the USVI, as discussed in section 9.3 Tax Mitigation Strategies below. For instance, the EDC tax incentive program application requires disclosure of all persons and entities – names and addresses – owning at least 5% of stock or equity interest in the entity filing the application. Depending on the entity, directors, principal officers, partners, or members must be disclosed. The Director of the EDA conducts research and investigations on submitted applications. If the entity becomes a beneficiary of the program, it is required to file an annual report (authenticated by the beneficiary’s president, vice president or other officer or employee) listing the names and addresses of all persons owning at least 5% of the stock or equitable ownership in the beneficiary entity. EDC beneficiaries are also required to submit other documentation annually, including names and addresses of legal or equitable owners who claim EDC benefits as bona fide USVI residents, employee reporting, etc.

There are three full-service commercial banks in the USVI that are affiliated with banks based in Puerto Rico and two locally chartered banks in the USVI. USVI banks offer different types of loans, such as business or mortgage loans.

The Economic Development Bank for the United States Virgin Islands (EDB) – formerly the Government Development Bank and the Small Business Development Agency (29 V.I.C. §§ 901-915b) – is part of the EDA and offers several loan options:

• Development Loan Program;
• Micro-Credit Loans;
• Frederiksted Loan Program;
• Intermediary Relending Program;
• Farmers and Fishermen Loan Program;
• State Small Business Credit Initiative;
• Small Business Development Loan; and
• Economic Development Administration Loan.

Most financing options offered through the EDB have USVI residency of five to ten years and/or business location requirements.

Further, beneficiaries of the EDC tax incentive program, discussed in more detail elsewhere in this article, are incentivised to provide capital contributions of over USD1,000,000 to USVI business entities or foreign entities based in the USVI.

USVI businesses also use loan options outside the USVI, such as mortgage loans or auto loans. Given the many Virgin Islanders who serve or have served in the US Military, the United Services Automobile Association (USAA) is a popular loan provider for individuals.

The USVI enacted the Uniform Securities Act (9 V.I.C. §§ 601-691) in 2004. The Act provides registration requirements for securities, broker-dealers, agents, investment advisers, and investment adviser representatives transacting business in the USVI. The Act also lists exempt securities and transactions.

The Administrator under the Act is the Lieutenant Governor of the USVI. Under Title 9 Section 668 of the VI Code, the Administrator can cooperate, consult, or coordinate with states and foreign jurisdictions, governmental law enforcement agencies, federal or state banking and insurance regulators, national or international organisations of securities regulators and self-regulatory organisations. The Act also specifically states that the Administrator can cooperate, consult or coordinate with the Securities Investor Protection Corporation, the Federal Trade Commission, the Commodity Futures Trading Commission, the United States Department of Justice and the Securities and Exchange Commission. Examples of cooperating, consulting or coordinating include:

• minimising business of capital formation burdens (without negatively impacting investor protections);
• maximising protection of investors’ regulation effectiveness and federal and state regulatory standards uniformity;
• developing uniform forms; conducting joint examinations, investigations and administrative hearings; and
• commencing joint civil and administrative proceedings.

This matter is fact-specific. Depending on the nature and structure of the investment fund, it may be subject to additional regulatory review if connected to one of the USVI tax incentive programs, such as the EDC program or RTPark program – particularly if a beneficiary is seeking tax incentive benefits. Chiefly, EDC beneficiaries are regularly reviewed by the EDC to ensure compliance with the program. Likewise, RTPark exercises a review of entities established under it to ensure program compliance.

If the investment fund were engaged in banking, securities trading or insurance, it may be subject to oversight by the USVI Banking, Insurance, and Financial Regulation Division. Lastly, the USVI Bureau of Internal Revenue (BIR) may subject investment funds to regulatory review for the purpose of tax enforcement.

The USVI added the Virgin Islands Antimonopoly Law (11 V.I.C. §§ 1501-1518) in 1973. The law lists several ways violations can occur, including by attempting to acquire monopoly power in any substantial part of trade or commerce in the USVI to exclude competition or to maintain, control or fix prices in that trade or commerce. The law also addresses exceptions, prosecutions, civil actions, service, investigations, etc.

The law specifically states that an action is not barred because the complaint of conduct or activities affect or involve interstate or foreign commerce in any way. Additionally, the law states that where its language is similar or the same as the Federal Antitrust law, the USVI District Court shall follow the construction given to the federal law by federal courts in constructing the Virgin Islands Antimonopoly law.

Examples of other violations listed in Title 11 Section 1503 of the Virgin Islands Antimonopoly Law are listed below.

• Conspiring or contracting with would-be competitors to control or fix prices/service charges or controlling commodities and services for the same reason.
• Conspiring or contracting with would-be competitors to control, allocate or divide customers, supplies, etc, for a commodity or service.
• Conspiring or contracting with other persons to unreasonably restrain commerce or trade.

Some exceptions to the Virgin Islands Antimonopoly law are listed in Title 11 Section 1505, which you can find below.

• Formal agreements of small entrepreneurs of similar commodities for buying those commodities to meet, in good faith, competition of businesses that have substantially higher sales volumes – a small entrepreneur, in this instance, means not reasonably expected to have gross receipts over USD250,000 in any year and who will not employ more than 12 persons.
• Activities of a securities dealer or a member of the National Association of Securities Dealers or any National Securities Exchange registered with the SEC under the Security Exchange Act of 1934 in the course of their trading in or underwriting securities as a principal, broker or agent.
• There are certain exceptions for labour organisations, cooperative organisations, public utilities, nonprofits, state or national banks and territorial or federal savings and loan associations.

Under Title 11 Section 1507 of the VI Code, the Attorney General of the USVI can commence civil proceedings in the District Court of the Virgin Islands to restrain or prevent violations of the Virgin Islands Antimonopoly Law. The District Court judge determines if there is a violation of the law, and if so, the judge will use all necessary equitable powers to enter a decree or judgment to remove the violation’s effects and prevent the violation from continuing or occurring again in the future. Examples of powers the judge may exercise include:

injunction;

divestiture of property;

divorcement of business units;

dissolution of domestic associations or corporations; and

termination or suspension of foreign associations’ or corporations’ right to do business in the USVI.

The Attorney General of the USVI may investigate and commence criminal prosecutions under Title 11 Section 1506 of the VI Code. However, the USVI Attorney General may not commence a prosecution against a person who is a defendant in a case filed by the United States under the provisions of the Federal Anti-Trust Statutes. Certain violations of the Virgin Islands Antimonopoly Law are misdemeanours punishable with a fine of USD50,000.00 max and/or six months imprisonment max.

Under Title 11 Section 1507(2) of the VI Code, any person whose property or business is injured (or threatened to be injured) by violation of the Virgin Islands Antimonopoly Law can bring an action for injunction and/or damages in the District Court of the Virgin Islands. The Attorney General of the USVI can bring an action for damages on behalf of the Government of the USVI (GVI) or any of its political subdivisions under Section 1507 or comparable federal law. GVI and the US are considered persons under Section 1507(2).

Under Title 11 Section 1507 of the VI Code, if a domestic or foreign USVI corporation is found to have violated the Virgin Islands Antimonopoly Law or any related injunction, the Attorney General of the USVI has the authority to petition the District Court. This petition may seek to forfeit, suspend, or revoke the corporation’s charter, certificate of authority, privileges or franchise. Additionally, the Attorney General may also petition for the dissolution of these domestic or foreign USVI corporations.

The USVI Attorney General may decide to bring an action on behalf of the people of the USVI against any agent, officer, manager, director, trustee or person of a domestic or foreign corporation, or against the corporation itself, for recovery of a penalty of USD50,000.00 max for a violation of the Virgin Islands Antimonopoly Law done in the USVI.

The USVI Attorney General can further bring civil actions for equitable relief, as discussed in section 6.3 Remedies and Commitments above.

The USVI Anti-Monopoly Law under Title 11 Section 1508 states that personal service for actions under this law can be made to any person outside of the USVI if that person engaged in conduct that violates this law in the USVI, as that person will be deemed to have submitted themselves to the USVI courts, jurisdiction.

The statute of limitations to prosecute or bring a civil case under the USVI Anti-Monopoly Law is four years. However, if an action for damages by a person is based on a matter in an action by the Attorney General of the USVI, then the statute of limitations is extended until one year after the pendency of the Attorney General’s case.

As a territory of the United States, the USVI is subject to the same national security review regime applicable in the United States. There is no jurisdiction-specific entity involved. Therefore, scrutiny would be subject to either an interceding Executive Branch entity, eg, the US President through an Executive Order (possibly on the advisement of a national security entity such as the National Security Agency, Federal Bureau of Investigation, Central Intelligence Agency, etc) or through Congress, namely through the Committee on Foreign Investment in the United States (CFIUS).

CFIUS is composed of a committee of members from across federal government agencies, such as the US Department of Defence, the US Department of the Treasury and the US Department of Homeland Security. CFIUS reviews certain foreign purchases (ie, mergers or acquisitions) of US businesses for possible national security-related issues. CFIUS maintains indefinite jurisdiction over transactions that are not reported to it. The USVI, as a US territory, is included in the definition of United States in Title 50 Section 4565 of the United States Code, which is the statutory provision under which CFIUS falls. In addition, Title 31 Section 800.251 of the Code of Federal Regulations (CFR) states that for purposes of the regulations and examples, entities organised under the laws of US territories are entities organised “in the United States.” 

Most transactions submitted to CFIUS are approved without issue. However, a notable example of denial includes the attempted acquisition of a US tech company, Sourcefire, Inc., which counted numerous intelligence agencies among its clients, by Israeli tech firm Check Point Software Technologies, Ltd. Upon further scrutiny by CFIUS, the deal was called off.

There are no specific criteria for the review of foreign investments in the USVI.

The USVI is covered under the definition of the United States in CFIUS, and therefore, the regulatory provisions for remedies, penalties, etc. apply to the USVI.

The USVI is covered under the definition of the United States in CFIUS, and therefore, the regulatory enforcement provisions for CFIUS apply to the USVI.

The USVI does not have exchange controls on remittances of USD to overseas recipients.

Corporations and LLCs must file an Annual Report with the Division and pay an annual franchise tax to the Division, set at a statutory minimum of USD300 per year. However, the annual franchise tax can be higher for capital-intensive corporations and LLCs.

For corporations (formed as corporations), the franchise tax is either USD300 a year or 15 basis points of the entity’s capital used in the USVI trade or business, with an annual cap of USD150,000, whichever is greater. There is no annual cap for LLCs, and the franchise tax is similarly either USD300 a year or 15 basis points of the entity’s capital used in the USVI trade or business, whichever is greater. Partnerships are subject to an annual fee of USD150. 

Also, it is important to file Form 8832, Entity Classification Election, for entities formed in the USVI (filing as domestic entities) and entities formed elsewhere (which file in the USVI as foreign entities).

Moreover, a business in the USVI may be subject to, among others, the following taxes:

• Form 1120 tax return for USVI corporations or Form 1120F for foreign corporations (this includes US corporations);
• Gross receipts tax – filed monthly if USVI source receipts exceed USD225,000 annually or filed annually if USVI source receipts are less than USD225,000 annually; and
• Employee taxes – including USVI and federal unemployment insurance, USVI worker’s compensation, as well as federal Social Security and Medicare taxes.

In the USVI, it is recommended to hand-file any returns with the BIR and retain a stamped copy of each filing.

A nonresident of both the USVI and the United States who is engaged in a trade or business in the USVI must pay tax on the income effectively connected with that USVI trade or business. The person must file a return with and pay tax on that income to the BIR. A nonresident of both the USVI and the United States who is not engaged in a trade or business in the USVI but who has USVI source income is generally subject to a 10% withholding tax to be paid to the BIR by the USVI payor of the income. However, if the income is interest on a loan secured by USVI real property with a value equal to or greater than the loan, no withholding tax is due.

Cash or property received as employment compensation by a nonresident of the USVI will not be USVI source income under mirrored Code Section 861(a)(3) if:

• the compensation is earned while the individual is temporarily present in the USVI;
• the taxpayer is not present in the USVI for more than 90 days during the taxable year;
• the compensation does not exceed USD3,000; and
• the employer is either:
1. a foreign person not engaged in a business in the USVI; or
2. a foreign office of a USVI person.

If income meets these four requirements, it is exempted from USVI taxation.

If income does not meet these four requirements, it is subject to USVI withholding tax at a rate of 10%.

Investment income consisting of interest and dividends is, under Code principles as mirrored to the USVI, generally sourced to the situs of the payor. Rents and royalties are generally sourced to the location where the property giving rise to the rents and royalties is located.

Such income from the USVI would be USVI source income not effectively connected with a USVI trade or business (assuming it is unrelated to a USVI trade or business) and taxed under Code Section 871(a). The tax imposed by Code Section 871(a)(1) and its attendant withholding under Code Section 1441 is reduced to 10% by the USVI with regard to nonresident aliens.

Foreign investors in USVI real estate are subject to the Foreign Investment in Real Property Tax Act of 1980, which is codified in Sections 897 and 1445 of the Code. This statute imposes a withholding tax of 15% on a foreign person’s disposition of a USVI real property interest unless one of several statutory exceptions applies, such as that the property is not being sold for a gain.

There are ways that entities and individuals can mitigate the amount of taxes they owe in the USVI. For instance, a business that plans to be capital intensive can owe up to USD150,000 or more a year in franchise tax if organised as a corporation or LLC; however, an LLP offers similar liability protection and has a flat annual fee of USD150.

Moreover, a beneficiary under the EDC Program receives a 90% tax credit against its income tax liability on income from the business for which benefits are granted. Such income must be effectively connected with a USVI trade or business conduct under Code Sections 934(b)(1) and 937 and the Treasury Regulations promulgated thereunder or from USVI sources. The reduction results in an effective tax rate of approximately 2.31% on income from the business. Tax benefits extend to passive income from qualifying investments, such as USVI government obligations.

Additionally, beneficiaries of the EDC Program are exempt from withholding tax on interest payments and are subject to a reduced withholding tax rate of 4% on dividends. Other forms of passive income payments (such as royalties) are subject to withholding tax at a 10% (or 11% if a corporation) rate. However, no withholding tax is imposed on payments to US entities.

Beneficiaries also receive an exemption from the USVI gross receipts tax on their receipts from their approved activities, which is otherwise imposed at a 5% rate on the gross receipts of a business, with no deductions. 

Beneficiaries receive an exemption from USVI excise tax on building materials and machinery used in the construction of their facilities and on raw materials brought into the USVI to produce articles. Otherwise, a tax ranging from 2% to 25% applies to the fair market value of many items. A number of excise tax exemptions exist, including exemptions for steel, concrete and lumber.

Beneficiaries receive an exemption from the USVI property tax. However, the personal homes of the owners of a beneficiary do not receive the property tax exemption, even if the respective owner maintains a home office. Moreover, the property tax exemption does not pass through to the beneficiary’s landlord if a beneficiary rents an office.

Because the USVI is outside the US customs zone, it has enacted its own customs law, imposing a 6% duty on items that are not manufactured in the United States. An EDC beneficiary’s customs duties are reduced from 6% to 1% on raw materials and component parts imported from outside the USVI. Materials made in the United States are exempt from any customs duty. In addition, as with the excise tax, there are a number of customs duty exemptions.

Although the foregoing exemptions and reductions are imposed at the entity level, as mentioned above, a beneficiary’s owners receive the income tax benefit on dividends and/or distributions if the owners are bona fide USVI residents.

Businesses in the USVI can also qualify for tax benefits under the University of the Virgin Islands Research and Technology Park Protected Cell Corporation Act. RTPark and its subsidiary, the UVI Research and Technology Park Protected Cell Corporation, are structured as public corporations and autonomous instrumentalities of the USVI government. 

The income tax benefits granted to beneficiaries of the RTPark Program are substantially similar to those received by beneficiaries of the EDC Program. A beneficiary under the RTPark Program receives a 90% tax credit against its income tax liability on income from the business for which benefits are granted. Such income must be effectively connected with the conduct of a USVI trade or business under Code Sections 934(b)(1) and 937 and the Treasury Regulations promulgated thereunder, and the reduction results in an effective tax rate of approximately 2.31%. If the beneficiary’s owners are bona fide residents of the USVI, they receive a reduction on dividends and/or distributions. Salaries and other forms of compensation (such as guaranteed payments), however, are fully taxable.

The other tax benefits granted to beneficiaries of the RTPark Program are essentially the same as those received by beneficiaries of the EDC Program. The one exception is that royalties under the RTPark Program receive the reduced withholding tax rate, which is only applicable to dividends paid under the EDC Program.

EDC beneficiaries located on St. Thomas or St. John receive an initial 20 years of full benefits, and EDC beneficiaries located on St. Croix receive an initial 30 years of full benefits. All EDC beneficiaries can receive a ten-year extension and additional extensions of five years based on capital investment. RTPark Program beneficiaries receive an initial 15-year term of benefits, with an initial renewal period of ten years at full benefits and subsequent renewal periods of five years at full benefits.

Unlike the EDC Program (qualification generally requires business activities to fall within the hotel, manufacturing or service business categories), the RTPark Program requires the applicant’s business to meet certain technology-based or knowledge-based criteria. Specifically, an applicant’s business must be electronic commerce or knowledge-based. Pursuant to a Memorandum of Understanding between the RTPark and the EDC, the RTPark is given “first responder” status for all companies meeting one of the foregoing designations. Consequently, all Electronic Commerce and Knowledge-Based businesses must first apply for benefits under the RTPark Program rather than the EDC Program. 

Additionally, USVI-exempt companies offer many of the benefits of other offshore jurisdictions’ international business companies but with the added advantages of US flag protection, access to US courts, non-coverage of the Common Reporting Standard (CRS), and the ability to obtain an “N” registration number from the US Federal Aviation Administration (FAA) for foreign-owned aircraft. 

A USVI-exempt company offers foreign investors substantial tax benefits. An exempt company is effectively exempt from tax on all income except income derived from US sources and effectively connected with a US trade or business. A USVI-exempt company is exempt on interest income received on deposits with banks or savings institutions located in the USVI or abroad, as well as on amounts held by an insurance company under an agreement to pay interest on the amounts. A USVI-exempt company is also exempt from tax on dividends and interest received from another exempt company and on gains or losses from the sale, exchange, or other disposition of the stock of another exempt company. Moreover, a USVI-exempt company is exempt from all local USVI taxes, including the USVI 5% gross receipts tax (with the exception of the annual franchise tax). Shareholders of a USVI-exempt company are not subject to any withholding tax, which is otherwise imposed at a 10% rate (for individual shareholders) or 11% (for corporate shareholders). The stock owned by a nonresident alien in a USVI-exempt company is not subject to federal estate tax or USVI inheritance tax. Therefore, utilising a USVI-exempt company can be aa valuable estate planning tool for foreign individuals.

A USVI-exempt company’s tax benefits are guaranteed under a 20-year contract between the exempt company and the USVI government. USVI-exempt companies are subject to annual filing requirements with the Division and are required to pay an annual franchise tax. 

Under Code principles, as mirrored in the USVI, capital gains income is generally sourced to the situs of the owner of the capital asset and recipient of the gain. Thus, capital gains income received from the sale of a USVI-situs capital asset by a nonresident is not subject to USVI tax, other than a gain from the sale of USVI real estate, which is treated as effectively connected with the conduct of a USVI trade or business and thus subject to USVI tax. Code Section 865 also contains several exceptions to the general rule that the source of income from the sale of personal property is based on the seller’s residence. Exceptions exist for sales of inventory property, gain from the sale of depreciable personal property, intangibles, and stock sales in an affiliate located in a foreign country (see Code Sections 865(b)—(f)). In addition, Treasury Regulation § 1.937-2(f) provides special rules for gains from certain dispositions of property by former US residents. Specifically, if an asset is transferred to the USVI by a US resident who then moves to the USVI, any gain on the sale of the asset is all US source for ten years, or if an election is made, the gain must be allocated based either on the value of the asset as of the date of the change in residency (if publicly traded), or on a formula of USVI days over total days in the holding period (if not publicly traded).

The US tax law and regulations, as applicable in the USVI, contain numerous anti-abuse rules that are intended to prevent taxpayers from claiming inappropriate tax benefits. USVI taxpayers are also subject to numerous reporting requirements, including those regarding interests in foreign assets and certain transactions that have the potential for tax avoidance or evasion.

The USVI rules governing the employment relationship are derived from US federal laws, such as the Fair Labor Standards Act (FLSA) and territorial statutes, rules and regulations governing occupational health and safety, labour relations, and employment discrimination. The Virgin Islands Department of Labor (“DOL”) oversees non-union employer/employee relations in the USVI. The federal National Labor Relations Board, Region 12, provides oversight of union relations.

The USVI does not follow the common law principle of at-will employment. An employee may terminate his or her employment relationship at any time without advance notice and for any reason, but absent a contract, an employer is subject to the USVI Wrongful Discharge Act. Employment may be limited by contracts (including collective bargaining agreements) and by the laws to protect the employee, such as the Virgin Islands Labor Relations Act, the Virgin Islands Plant Closing Act and, as mentioned before, the Virgin Islands Wrongful Discharge Act. Additionally, some labour laws and tax incentive programs in the USVI provide for preferential hiring of qualified residents of the USVI before hiring qualified nonresidents.

Employers in the USVI must comply with minimum wage standards, unemployment and workers’ compensation insurance, fair employment, a safe working environment and equal opportunity employment practices. The USVI follows the requirements of the FLSA with a few local variations. For example, the federal hourly minimum wage in the United States is USD7,25. The minimum wage in the USVI is USD10,50 per hour. The USVI has a maximum workweek of 40 hours for five consecutive days worked and compensation at a rate of 1 1/2 times the regular rate at which an employee is employed in excess of 40 hours. Due to the USVI’s economic dependency on tourism, there is an exception for an employer in either a tourist service or a restaurant industry where they may employ an employee for more than five consecutive days provided that the employee is employed for not less than 40 hours a week and a workday may not exceed 8 hours unless the employee is compensated at a rate not less than 1 ½ times the regular rate.

Under certain tax incentive programs in the USVI, for example, the EDC tax incentive program, EDC beneficiaries must hire a certain number of employees, most being USVI residents, and must provide an array of benefits. These benefits include health insurance and retirement plans, vacation or paid time off, management training and other benefits. Although the benefits provided to employees are comprehensive, so are the tax benefits offered, such as 90% credit on income taxes for the benefitted business and dividends paid to USVI resident owners.

The USVI Plant Closing Act mandates that employers with fewer than 1,000 employees must provide a written notification at least 90 days in advance if they are closing a facility, planning to relocate or taking any action that will lead to job losses. This notification must be sent to the DOL, as well as to the affected employees and their union, if applicable. In the case of a mass layoff, at least 30-day advance notification must be given to employees and their union, as applicable, and at least 10-day advance notification must be given to the DOL. For an employer with over 1,000 employees, 180 days’ advance notification must be given. In case of a mass layoff that will not result in a plant closing, the employer shall give at least 30-day advance notifications of the mass layoff to any affected employees and their respective labour unions and at least 10-day advance notifications to the DOL. An employer is not required to provide notice of a mass layoff, relocation or employment loss if it results from a physical calamity or an act of terrorism or war. Severance pay to the affected employees must equal one week’s pay for every year of service with the employer in addition to any final wage payment owed to the employee. Unions may negotiate for additional benefits for their membership. Employees affected by a plant closing must be given permanent preference in hiring and employment at other work locations that belong to the employer..

Additionally, the USVI has a Wrongful Discharge statute under which, unless modified by a union contract, an employer may dismiss any employee only for nine enumerated reasons. Any employee discharged for reasons other than those listed in the statute is considered to have been wrongfully discharged. The statute does not prohibit an employer from terminating an employee as a result of a business closing or layoffs due to economic hardship.

Moreover, the DOL requires employers to list their open employment positions on a DOL website to advertise to USVI residents. Employers are also required to pay into USVI worker’s compensation and unemployment insurance programs, which may be in addition to paying into similar federal programs.

The laws of the United States relating to patents, trademarks, and copyrights, as well as the enforcement of rights arising thereunder, have the same force and effect in the USVI as in the continental United States. The District Court of the Virgin Islands has the same jurisdiction in causes arising under such law as is exercised by United States district courts.

Patents are issued by the United States Patent and Trademark Office (“USPTO”). The three types of patents are utility, design and plant patents. An inventor may apply for a provisional patent before a non-provisional patent, providing the means to establish an early effective filing date and permit the use of the term “Patent Pending” before filing a non-provisional patent application. The term of a provisional patent is 12 months. The term of a non-provisional, new patent is generally 20 years from the date on which the application for the patent was filed in the United States or from the date an earlier related application was filed in special cases, subject to the payment of maintenance fees. US patent grants are effective only within the United States, US territories, and US possessions.

An inventor may file a paper or online application to apply for a provisional or a non-provisional patent. Once a patent is issued, the patentee must enforce the patent without the aid of the USPTO.

A trademark is a device, name, symbol or word used with goods to designate the source of the goods and to distinguish them from the goods of others. A servicemark identifies and distinguishes the source of a service rather than goods. Trademark registrations can be filed by paper or online.

A registered trademark requires regular maintenance. Six years after the registration date, a declaration of use or excusable non-use must be filed with applicable fees and evidence showing that use. If this declaration is not filed, the registration is cancelled.

The Madrid Protocol is a filing treaty that ensures the protection of trademarks in multiple countries by filing one application. It is the right of each country whether or not trademark protection is granted. If granted, the trademark is protected in that country.

The Hague Agreement is an international registration system which offers the possibility of obtaining protection for up to 100 industrial designs in designated member countries and intergovernmental organisations (referred to as “contracting parties”) by filing a single international application in a single language either directly with the International Bureau of the World Intellectual Property Organization (WIPO) or indirectly through the office of applicant’s contracting party.

Applicants can file international design applications through the USPTO as an indirect filing office. Industrial design patents have a 15-year term from issuance.

The 1976 Copyright Act generally gives the copyright owner the exclusive right to reproduce the copyrighted work, prepare derivative works, distribute copies or phonorecords of the copyrighted work, perform the copyrighted work publicly or display the copyrighted work publicly. The copyright protects the form of expression rather than the subject matter of the writing. Copyrights are registered by the Copyright Office of the Library of Congress, and applicants may file paper or online applications. For works created after January 1, 1978, a copyright is good for 70 years after the death of the author.

A person, association or entity doing business in the USVI under any name other than its own – whether a resident or nonresident – must have their tradename approved, file an application for the tradename and pay a USD50 fee to the Division. A certificate of tradename is issued for a period of two years and is renewable. If the party or parties fail to renew its tradename within six months of the expiration date, the tradename becomes available to anyone who files for it and pays the required fee.

If a person, association or entity doing business in the USVI fails to or refuses to obtain a tradename certificate, the USVI Attorney General may institute an action in the Virgin Islands District Court to enjoin the conduct of the business. Further, the violating entity may not commence or maintain any court action in the USVI.

The USVI enacted the Uniform Trade Secrets Act in 2005. The Act defines a trade secret as information, including a process, technique, method, device, program, compilation, pattern or formula that derives actual or potential economic value by not being generally known to or readily ascertainable by other persons who could obtain economic value from its use or disclosure, and which is the subject of reasonable efforts to maintain its secrecy. The Act provides for injunctive relief and damages.

The USVI has a requirement under Title 14 Sections 2208 and 2209 of the VI Code for businesses and agencies conducting business in the USVI to disclose security breaches of persons’ personal information to affected USVI residents. Personal information is defined as a person’s first name (or their first initial) and their last name along with that person’s social security number, driver’s license number or account, credit or debit card number (with the password, access code or security code that would allow access to financial accounts) - if either the name or the other information is not encrypted. Persons harmed by a violation of this requirement may bring a civil action for damages and businesses may be enjoined.

Additionally, contracts and common law tort doctrine may provide some legal remedies for data protection injuries, but case law is underdeveloped in this area. The USVI generally does not have a territorial agency in charge of enforcing data protection rules. However, the Bureau of Information Technology within the Office of the Governor is responsible for data protection policy across and within territorial government agencies.