Skip links

Tax Incentives: How Do They Work?

To demonstrate how the U.S. Virgin Islands’ tax exemptions apply, consider the hypothetical scenario of Sunseeker, Inc. Sunseeker, Inc. is a manufacturing company doing business exclusively in the USVI with annual sales of $1 million, which is a U.S. subsidiary of a U.S. corporation.

Sunseeker, Inc. exports its products to the United States and utilizes foreign components and parts. 

Sunseeker, Inc’s Benefits

1. Gross Receipts Tax Exemption

Annual Gross Sales

$1,000,000

Tax Due (at a 5% rate)

$50,000

100% Gross Receipts Exemption

$50,000

To demonstrate how the U.S. Virgin Islands’ tax exemptions apply, consider the hypothetical scenario of Sunseeker, Inc. Sunseeker, Inc. is a manufacturing company doing business exclusively in the USVI with annual sales of $1 million, which is a U.S. subsidiary of a U.S. corporation.  Sunseeker, Inc. exports its products to the United States and utilizes foreign components and parts. 

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 U.S. Virgin Islands Customs Duties

Landed Cost for Foreign (non-US) items

$150,000

U.S. 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 U.S. Virgin Islands from non-U.S. sources for the purpose of producing, creating or assembling an article. No customs duty applies to such materials and parts imported into the U.S. Virgin Islands from U.S. sources.

5. Duty-Free Imports into the United States

Landed Cost for Foreign (non-US) items

$150,000

US Customs Duty (assuming an avg. of 70%)

$10,500

US Customs Duty Reduction

$10,500

Under General Note 3(a)(iv) of the U.S. Customs Law, items manufactured or produced in the U.S. 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

Annual Gross Sales

$1,000,000

Deducted Business Expenses

$800,000

Taxable Income

$200,000

Tax on $200,000 Taxable Income

$42,000

Corporate Surcharge (10%)

$4,200

Total Tax

$46,200

90% Reduction

$41,580

Net Tax (Effective Tax Rate of 2.31%)

$4,620

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

6. Income Tax

Net Tax (effective tax rate of 2.31%)

$4,620

Gross Receipts Tax Exemption (100%)

$50,000

Property Tax Exemption (100%)

$2,250

Excise Tax Exemption (100%)

$12,600

U.S. Virgin Islands Customs Duty Reduction

$7,500

Duty Free Imports into the U.S. customs duty reduction

$10,500

U.S. Virgin Islands Income Tax Reduction (90%)

$41,580

Total

$124,430

NOTE: Corporate income tax rate reduced to 21% (from brackets with a maximum tax rate of 35%) and alternative minimum tax repealed from January 1, 2018.

 

How the Economic Development Authority
Can Help You

Unlock new horizons within the US Virgin Islands with the business potential our territory offers with the help of the USVI Economic Development Authority.
With tailored tax programs, incentives, financing options and more.

This website uses cookies to improve your web experience.