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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 Acts, also established a territorial government for the USVI that includes a locally elected governor, a locally elected unicameral legislature, locally created administrative agencies, and a judicial system discussed below. The Virgin Islands Legislature may enact general statutory laws for the territory (subject to the veto of the governor) 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 USVI judicial system comprises both federal and territorial courts. The jurisdiction of the federal District Court for the Virgin Islands is substantially similar to that of the federal district courts in the fifty states. However, because Congress established the District Court of the USVI pursuant to its authority under Article IV of the US Constitution, rather than Article III, there are some important differences. For example, the District Court has exclusive jurisdiction over income tax matters in the USVI and may preside over some criminal cases under 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.

In parallel with the federal District Court, there is a two-tier territorial judiciary. 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 a specialised family division, 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; therefore, 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. Consequently, transactions involving foreign investment in the USVI are subject to the same federal requirements as those on the US mainland.

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 against 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 it 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, which is 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, there is no separate legislation or other rules limiting it. 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 the signing of the Tax Implementation Agreement Between the United States of America and the US Virgin Islands. 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 promoting FDI in the territory. For example, in May 2023, the Governor and Lieutenant Governor of the USVI, along with representatives from the territory’s tax incentive programs, including the Virgin Islands Economic Development Authority (“VIEDA”) and RTPark, represented the USVI at the SelectUSA Investment Summit. Hosted by the US Department of Commerce, this summit is recognised as the highest-profile event in the United States dedicated to promoting FDI. During the event, USVI representatives participated in panels and discussions, and VIEDA served as a platinum sponsor. The Governor of the USVI, Albert Bryan, is currently serving his second term. Governors in the USVI may run for a third term, but not consecutively.

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

The USVI utilises the same range of business structures as on the mainland United States, including Limited Liability Corporations (“LLCs”), Limited Liability Partnerships (“LLPs”), C-Corps and S-Corps, and Professional Corporations. When choosing a business structure, it is important to consider not only the intended activities of the business – such as whether it will operate as a holding company or conduct business under its own name – but also whether the structure will seek benefits under one of the USVI’s tax incentive programs. Many of the statutes relating to corporate law in the USVI are based on those enacted in the state of Delaware.

Antitrust and Competition Law in the USVI

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.

M&A Regulations

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 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 consider statutory factors to determine whether an acquisition could substantially lessen competition in 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 USD25,000.00. Moreover, if the Commissioner’s order contains a cease-and-desist order and a person violates it, they could be subject to a USD1,000.00 daily penalty or license revocation after a hearing.

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

Finance Lenders and Franchise Law

The Virgin Islands Finance Lenders Law in the USVI is designed to ensure an adequate supply of credit for borrowers, streamline the laws governing finance lenders, promote competition among lenders, and protect borrowers from unfair lending practices. However, under Title 9, Section 775 of the VI Code, the law does not apply to loans made by franchisors to franchisees for activities such as acquisitions and mergers, provided certain statutory requirements are satisfied. 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 intended to diminish the application of other laws that protect borrowers, including those that address 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, the USVI antimonopoly laws.

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.

Additionally, the USVI has laws regarding mergers 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 regarding conversions and mergers under the Uniform Partnership Act (26 V.I.C.§§ 191-198).

Types of Legal Entities in the USVI

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, limited liability limited partnerships, and LLPs.

Limited liability companies

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 Organization 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 USD1,000.00.

Partnership structures

A foreign limited liability company (“FLLC”) is an entity that is organised under laws outside of the USVI and that 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, organization and liability for its members, managers and transferees are governed by the laws of the state or other jurisdiction where the FLLC was organised. An FLLC cannot be denied a statement of authority because of differences in law between the jurisdiction in which it 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 to a wide range of business activities and provides its members with governance flexibility. For example, LLCs do not require mandatory annual meetings, the appointment of directors or officers, or other than certain statutory fiduciary duties – duty of loyalty, duty of care, the obligation of good faith and fair dealing and access to books and records, and an LLC’s operating agreement may set forth provisions that differ from the provisions found 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 of which are subject to the Uniform Limited Partnership Act. All partnerships require at least two partners and, similar to LLCs, they provide governance flexibility: there are no statutory meeting requirements, and the appointment of directors and officers is not required.

The business and affairs of an LP and an LLLP are controlled by a general partner, whereas the limited partners are passive investors and do not have the right to manage or control the partnership’s business operations. With an LP, the general partner has unlimited liability and, as long as they do not engage in 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, LLLPs provide limited liability protection to both the general partner(s) and the limited partner(s).

If all partners of a partnership wish to manage and control the partnership’s business operations and seek limited liability protection, an LLP is the preferred entity. LLPs are subject to the Uniform Partnership Act under title 26 sections 1-274 of the V.I. Code and are formed by filing a Statement of Qualification with the Division.

A FLLP is formed and has status as 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, the partnership, and the partners’ liabilities for partnership obligations are governed by the laws of the jurisdiction in which 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 cannot be exercised or engaged in by LLPs. Title 26 section 244 lists FLLP activities that are not considered transacting business in the USVI and include essentially the same activities as for FLLCs.

Each form of partnership discussed above must file an annual report and pay an annual fee of USD150.00 to 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 formed by agreement among the partners; thus, no filings with the Division are required to form a General Partnership.

Corporations and governance

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 USD1,000.00. Corporations must file an annual report with the Division and pay an annual franchise tax to the Division, set at a statutory minimum of USD300.00 per year. It is important to note that the USVI also imposes a 10 percent surcharge on the total USVI income tax liability of all corporations, both domestic and foreign.

In terms of governance obligations and formalities, corporations are the least flexible of the entity choices available in the USVI, similar to 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 USVI publicly traded company and it is a case study for some of the regulations with which USVI publicly traded companies must comply. Additionally, the USVI recently surveyed almost 500 businesses and found that 36 of them planned to go public in the next 5 years. This could create opportunities for minor investors. There are also a number of publicly traded companies’ subsidiaries established in the USVI.

Altisource has been a USVI publicly traded 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 from the NYSE regarding the corporation’s stockholders’ equity and losses/net losses. The corporation’s noncompliance was due to 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.

If a business entity wants to use certain tax incentives in the USVI, as discussed in section 9.3 Tax Mitigation Strategies, a detailed application must be submitted for review. The EDC tax incentive program application, for instance, requires disclosure of all persons and entities – names and addresses – owning at least 5 percent of stock or equity interest in the entity filing the application. Depending on the entity, directors and principal officers, partners or members must be disclosed, as applicable. The Director of the Economic Development Authority conducts research and investigations on submitted applications. If the entity becomes a beneficiary of the program, then 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 percent of 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 3 full-service commercial banks in the USVI that are affiliated with banks based in Puerto Rico and 2 locally chartered banks in the USVI. USVI banks offer different types of loans, such as business and mortgage loans.

The Economic Development Bank for the United States Virgin Islands (“EDB”) – formerly the Government Development Bank and the Small Business Development Agency – under title 29 sections 901-915b – is part of the Economic Development Authority, 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 of the financing options offered through the EDB require five to ten years of USVI residency and/or a business location in the USVI.

Further, beneficiaries of the EDC tax incentive program, discussed in more detail elsewhere in this article, are incentivised to make capital contributions of USD1,000,000.00 or more to USVI business entities or to business entities in the USVI.

USVI businesses also use loan options outside the USVI, such as mortgage 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 for 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 V.I. 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 organizations of securities regulators and self-regulatory organizations.

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 to:

• minimise business of capital formation burdens – without negatively impacting investor protections;
• maximise protection of investors regulation effectiveness and federal and state regulatory standards uniformity;
• develop uniform forms;
• conduct joint examinations, investigations and administrative hearings; and
• commence joint civil and administrative proceedings.

This matter is fact-specific. Dependent 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 tax incentive 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 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 or acquiring 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 complaints 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 identical to the Federal Antitrust law, the USVI District Court shall follow the construction given to the federal law by federal courts in construing the Virgin Islands Antimonopoly law.

Examples of other violations listed in Title 11 Section 1503 of the Virgin Islands Antimonopoly Law include:

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

Exceptions to the Virgin Islands Antimonopoly law are listed in Title 11 Section 1505 and include, for example:

• 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; and
• 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 Securities Exchange Act of 1934 in the course of their trading in or underwriting securities as a principal, broker or agent.

Certain exceptions for labour organizations, cooperative organizations, public utilities, nonprofits, state or national banks and territorial or federal savings and loan associations.

Under title 11 section 1507 of the V.I. 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 effects of the violation and to 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; and
• domestic associations or corporations dissolution; 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 6 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).

Also under Title 11 Section 1507 of the VI Code, if it is found that a domestic or foreign USVI corporation violated the Virgin Islands Antimonopoly Law or any related injunction, the Attorney General of the USVI can petition the District Court to forfeit, suspend or revoke the charter, certificate of authority or privileges, or franchise of any corporation operating under the laws of the USVI. The Attorney General of the USVI 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.

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 for prosecuting or bringing 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 1 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 – for example, 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, US Department of the Treasury and US Department of Homeland Security. CFIUS reviews certain foreign purchases – such as 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 the United States in Title 50 Section 4565 of the United States Code, the statutory provision under which CFIUS falls. In addition, Title 31 Section 800.251 of the Code of Federal Regulations 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 a denial is the attempted acquisition of 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.

This is not applicable in the USVI.

This is not applicable in the USVI.

This is not applicable in 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 USD300.00 per year. However, for capital-intensive corporations and LLCs, the annual franchise tax can be higher.

For corporations (formed as corporations), the franchise tax is the greater of USD300 a year or 15 basis points of the entity’s capital used in the USVI trade or business, with an annual cap of USD150,000.00. For LLCs, the franchise tax is similarly the greater of USD300 a year or 15 basis points of the entity’s capital used in the USVI trade or business, without an annual cap. Partnerships are subject to an annual fee of USD150.00.

Also, it is important to file Form 8832, Entity Classification Election, for entities formed in the USVI – which file 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 a Form 1120F for foreign corporations, which includes US corporations;
• gross receipts tax – filed monthly if USVI source receipts are more than USD225,000.00 annually or filed annually if USVI source receipts are less than USD225,000.00 annually; and
• employee taxes – including USVI and federal unemployment insurance, USVI workers’ compensation, and federal social security and Medicare tax.

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

A non-resident 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 non-resident 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 percent withholding tax, which is 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, then no withholding tax is due.

Cash or property received as employment compensation by a non-resident 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 USD3,000.00; and
• the employer is either (i) a foreign person not engaged in a business in the USVI or (ii) a foreign office of a USVI person.

If income meets these four requirements, it is exempt 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 of the property that gives rise to them.

Such income from the USVI would be USVI source income not effectively connected with a USVI trade or business (assuming it is not related 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 are reduced to 10 percent by the USVI with regard to non-resident aliens.

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 Code. This statute imposes a 15% withholding tax on the disposition of a USVI real property interest by a foreign person, unless one of several statutory exceptions applies, such as when the property is not sold for a gain.

Overview of Tax Reduction Opportunities

There are ways for entities and individuals to reduce the taxes they owe in the USVI. For instance, a business that plans to be capital-intensive can owe up to USD150,000.00 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 USD150.00.

EDC and RTPark Program Benefits

Moreover, a beneficiary under the EDC Program receives a 90 percent 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 or from USVI sources. The reduction results in an effective tax rate of approximately 2.31% on income from the business. Tax benefits also extend to passive income from certain 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% rate (or 11% rate for corporations). However, no withholding tax is imposed on payments to US entities.

Exemptions and Incentives for Businesses

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 the 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, if a beneficiary rents an office, the property tax exemption does not pass through to the beneficiary’s landlord.

The USVI is outside the US customs zone, and as such, it has its own customs law that imposes a 6% duty on items not manufactured in the United States. An EDC beneficiary’s customs duties on raw materials and component parts imported from outside the USVI are reduced from 6% to 1%. 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 percent 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. The reduction results in an effective tax rate of approximately 2.31% on income from the business. If the beneficiary’s owners are bona fide residents of the USVI, they receive the 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 are subject to the reduced withholding tax rate, which applies only 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 beneficiaries can receive a 10-year extension and additional five-year extensions 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 (for which qualification requires business activities generally to fall within the hotel, manufacturing or service business categories), qualification under the RTPark Program requires the applicant’s business to meet certain technology-based or knowledge-based criteria. Specifically, an applicant’s business must be an Electronic Commerce Business or a Knowledge-Based Business. 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 businesses and Knowledge-Based businesses must first apply for benefits under the RTPark Program rather than the EDC Program.

USVI Exempt Companies and Foreign Investment Advantages

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 substantial tax benefits to foreign investors. An exempt company is effectively exempt from tax on all income except for income derived from US sources and effectively connected with a US trade or business. A USVI exempt company is exempt from 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 five percent gross receipts tax. Shareholders of a USVI exempt company are not subject to any withholding tax, which is otherwise imposed at a 10 percent rate (for individual shareholders) or 11 percent (for corporate shareholders). Stock held by a nonresident alien individual in a USVI exempt company is not subject to federal estate tax or USVI inheritance tax, making a USVI exempt company a useful 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.

Capital gains income is, under Code principles as mirrored to the USVI, 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 non-resident 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 a number of exceptions to the general rule that the source of income from the sale of personal property is based on the residence of the seller. Exceptions exist for sales of inventory property, gains from the sale of depreciable personal property, intangibles, and sales of stock in an affiliate that is 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 intended to prevent taxpayers from claiming inappropriate tax benefits. USVI taxpayers are also subject to numerous reporting requirements, including those related to interests in foreign assets and certain transactions that may involve tax avoidance or evasion.

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

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 or no 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 laws that protect employees, 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 USVI residents before hiring qualified non-residents.

Employers in the USVI must comply with minimum wage standards, unemployment and workers’ compensation insurance, fair employment, safe working environment, and equal opportunity employment practices. The USVI complies with the United States Fair Labor Standards Act (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 one and a half times the regular rate at which an employee is employed for hours worked in excess of 40. 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 eight hours, unless the employee is compensated at a rate not less than one and a half 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 of whom are 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 a 90% credit on income taxes for the benefiting business and dividends paid to resident owners.

The USVI Plant Closing Act requires an employer with fewer than 1,000 employees who is closing a facility or planning a relocation or any other action resulting in an employment loss to provide a 90-day advance written notification to the DOL and to the affected employees, and their union, as applicable. In the case of a mass layoff, at least 30 days’ advance notification must be given to employees and their union, as applicable, and at least 10 days’ advance notification to the DOL. For an employer with more than 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 days’ advance notification of the mass layoff to any affected employees and their respective labour unions, and at least 10 days’ advance notification 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, 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 of 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 due to a business closing or layoffs resulting from economic hardship.

Moreover, the DOL requires employers to list their open positions on a DOL website to advertise to USVI residents. Employers are also required to pay into the USVI workers’ 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, and 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.

Patent Protection

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 twenty 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.

To apply for a provisional or a non-provisional patent, an inventor may file a paper or online application. 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, with evidence showing that use. If this declaration is not filed, the registration is cancelled.

The Madrid Protocol is a filing treaty that provides trademark protection in multiple countries by filing a single 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 organizations (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 office of indirect filing. Industrial design patents have a 15-year term from the date of issuance.

Copyright Law

The 1976 Copyright Act generally gives the owner of copyright the exclusive right to reproduce the copyrighted work, to prepare derivative works, to distribute copies or phonorecords of the copyrighted work, to perform the copyrighted work publicly or to 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 1 January 1978, a copyright lasts 70 years after the author’s death.

A person, association or entity doing business in the USVI under any name other than its own, whether they are 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 the tradename 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 does not have territorial statutes or regulations governing data protection generally. Contracts and common law tort doctrine may provide some remedies for data protection injuries, but case law in this area is underdeveloped. Additionally, the USVI does not have a territorial agency responsible for enforcing data protection rules in general. The Bureau of Information Technology within the Office of the Governor is responsible for data protection policy across and within territorial government agencies.