Law

The income tax structure of the US Virgin Islands follows a "mirror code system" with the mainland United States. Under this approach, the income tax laws of the US Virgin Islands are generally identical to those of the U.S. except that residents of the US Virgin Islands remit their tax liabilities to the US Virgin Islands rather than to the U.S.

One key exception to the mirror code system is that, pursuant to Internal Revenue Code §934, the law of the US Virgin Islands is permitted to reduce income taxes in certain circumstances.  This allows the islands to provide a federal tax incentive to attract businesses to locate there.  The US Virgin Islands have implemented a regime that provides for a 90% reduction in its income tax rate for certain activities meeting the approval of the US Virgin Islands Economic Development Authority.

One of the provisions for the tax reduction under the US income tax laws is that income must be "income derived from sources within the Virgin Islands or income effectively connected with the conduct of a trade or business within the US Virgin Islands."

The US Virgin Islands Economic Development Program (USVI EDC Program) is designed for companies and resident individuals that "effectively connect" their income to the US Virgin Islands.  Because the determination of residency and whether income is properly effectively connected are both highly factual matters, we strongly suggest that any party interested in obtaining US Virgin Islands tax benefits consult with a highly-qualified tax attorney regarding these matters. We would be pleased to provide you with contact information for expert tax attorneys who can properly advise you regarding these matters.

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