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Virgin Island EDC Tax Information


Benefits & How It Works
General Information - Tax Incentives: How Do They Work?

To demonstrate how the Virgin Islands' tax exemptions and other investment incentives apply, consider the hypothetical scenario of Sunseeker, Inc. Sunseeker, Inc. is a manufacturing company doing business exclusively in the Virgin Islands with annual sales of $1 million, which is a U.S. subsidiary of a U.S. corporation and has made an election to be a qualifying possession corporation with the Internal Revenue Service under section 936 of the IRC. Sunseeker, Inc. exports its products to the United States and utilizes foreign components and parts. 

Sunseeker, Inc.'s Benefits for Tax Year 2007
1. Gross Receipts Tax Exemption:
 
Annual gross sales $1,000,000
Tax Due (at a percent rate)  $40,000
100% gross receipts exemption $40,000
 
This exemption does not extend to the gross receipts of businesses operated by concessions on the premises of beneficiaries, and may be further narrowed in a beneficiary's contract with the Economic Development Commission (EDC).
 
2. Property Tax Exemption:
 
Real property market value (land,  buildings) $300,000
Assessed value (60% market value) $180,000
Tax due (1.25% assessed value)  $2,250
100% property tax exemption $2,250
 
The real property tax exemption applies only to the property owned by the beneficiary and used in the specific business or industry for which an Economic Development Contract has been granted.
 
3. Excise Tax Exemption:
 
Value of imported materials, components
 
$300,000
Excise tax assessed on 1.05% market value $315,000
Excise tax imposed (4% for most items) $12,600
100% excise tax exemption $12,600
 
The excise tax exemption applies to equipment, raw materials and component parts used for manufacturing or assembling a product and to building materials, machinery and equipment for use in constructing the beneficiary's physical plant. Other items used by a beneficiary, such as hotel furnishings, are not exempt from excise tax.
 
4. Reduction of Virgin Islands Customs Duties:
 
Landed cost for foreign (non-U.S.) items $150,000
Virgin Islands customs duties due (6%) $9,000
Beneficiary's liability at 1% rate $1,500
Virgin Islands customs duty reduction $7,500
 
The Customs duty reduction applies to raw materials and component parts imported into the Virgin Islands from non-U.S. sources for thc purpose of producing, creating or assembling an article. No customs duty applies to such materials and parts imported into the Virgin Islands from U.S. sources.
 
5. Duty-Free Imports into the United States
 
Landed cost for foreign (non-U.S.) items $150,000
U.S. customs duty (assuming an avg of 70%) $10,500

U.S. customs duty reduction
$10,500
 
Under General Note 3(a)(iv) of the U.S. Customs Law, items manufactured or produced in the Virgin Islands for export to the United States may contain up to 70% of the finished product (50% for textiles, apparel and leather) on foreign materials, components, or parts and avoid U.S. customs duties.
 
6. Income Tax:
 
U.S. customs duty reduction $10,500
Annual gross sales $1,000,000
Deducted business expenses $800,000
Tax on $200,000 taxable income $61,250
Corporate surcharge(10%) $6,125
Total tax $67,375
90% reduction $60,638
Net tax (Effective tax rate of 3.37%) $6,737
 
A 90% exemption also applies to the individual income tax liability of V.I. resident stockholders on income derived from dividends of the corporation or, for S corporation or partnership distributions.
 
How the Sunseeker Scenario Adds Up
 
Virgin Islands Benefits:
 
Net tax (Effective tax rate of 3.37%) $6,737
Gross receipts tax exemption (100%) $40,000
Property tax exemption (100%) $2,250
Excise tax exemption (100%) $12,600
Virgin Islands customs duty reduction $7,500
Virgin Islands income tax exemption (90%) $60,638
Total   $122,988
 
U.S. Benefits:
 
U.S. customs duty exemption $10,500
IRC Section 936 reduction in U.S.
Corporate Income Taxes (2007 )
$25,975
Total $36,475
 

Note:

Calculated on $193,263 in net income after taxes, minus 4% withholding tax (or $7,730) on dividends paid to U.S. parent corporation with 35% corporate income tax bracket.

 

Eligibility

BASIC REQUIREMENTS FOR BENEFITS

In order to receive benefits from the V.I. Economic Development Commission, an applicant must:

  • Provide full-time employment for at least 10 residents of the U.S. Virgin Islands who have resided in the V.I. at least one year prior to being hired by the tax beneficiary.
  • Invest at least $100,000, exclusive of inventory, in an industry or business that advances the economic well-being of the USVI.
  • Meet the requirements of Section 934 of the Internal Revenue Code in the case of a USVI corporation, individual or partnership, or Section 936 of the U.S. Internal Revenue Code in terms of a V.I. Subsidiary of a U.S. Corporation.
  • Be an actual investor in the enterprise for which industrial development benefits are sought, not a contractor, subcontractor or other person or corporation acting as an agent.
  • Comply with all federal and local laws and regulations, including environmental laws.
  • Provide an easement for free access to the beach or shoreline, if the applicant will be doing business on property that adjoins the shoreline.

General Information - Eligible Activities

Eligible activities generally fall within several categories, although the EDC has the authority to grant benefits to any business that will advance the economic well-being of the Virgin Islands and its people:

Category I:

  • Rum Production
  • Milk/Dairy Production
  • Watch and Jewelry Manufacturing and Assembly

Category II:

  • Product Assembly, Manufacturing (other than Jewelry and Watch Manufacturing and Assembly)
  • Agriculture/Food Processing
  • Mariculture/Food Processing
  • Marine Industry
  • Raw Materials Processing
  • Hotels/Guesthouses
  • Transportation and Telecommunications

Category IIA - Service Businesses, not limited to, but including:

  • International Commercial Distribution and Trading Services.
  • International Public Relations Services.
  • Publicity firms.
  • Economic, Scientific or Management Consulting Services.
  • Public Auditing.
  • Processing, Editing and Dubbing of Cinematographic Films.
  • Commercial and Graphic Art Services.
  • News Syndicates.
  • Mail Order Firms.
  • Assembly, Bottling and/or Export Packing Operations.
  • Computer Service Centers.
  • Maritime Vessels and Aircraft Repair and Maintenance Services.
  • Machinery and Heavy Equipment Repair Services, including but not limited to Agriculture, Industrial, Construction, Mining and Transportation Equipment and Machinery.
  • Electrical and Electronic Equipment and Watch Repair Services.
  • The Production of Engineering and Architectural Blueprints and Plans to be used in the construction of projects to be located outside of the Virgin Islands.
  • Photographic Laboratories, including Film Processing.
  • Dental Laboratories.
  • Optical and Ophthalmological Laboratories.
  • Prefabricated Houses of any type of material.
  • Investment Managers and Advisors.
  • Research and Development.
  • Business and Management Consultants.
  • Software Developers.
  • E-Commerce Businesses.
  • Call Centers.
  • High Tech Businesses.
  • International Public Relations Firms.
  • International Trading and Distribution.
  • Any other businesses serving clients located outside the Virgin Islands.

Category III:

  • Utilities
  • Health Care Facilities
  • Recreation Facilities

 


For more information visit: USVIEDC.com


 This site is great for information! http://www.usviedc.com

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