This article will discuss how moving to the US Virgin Islands can help you lower your taxes and take one step closer to financial freedom. Everyone knows that you can reduce your taxes by moving to Puerto Rico, but the US Virgin Islands often get overlooked despite providing the same benefits.
Since the US Virgin Islands is a US territory, it’s an excellent starting point for US citizens looking to explore their offshore options and lower their taxes, but who are hesitant about taking a giant leap to a foreign country. The Virgin Islands offer opportunities and a life beyond the mainland US and can prepare you to go where you’re treated best.
Even if you’re not a US citizen, the islands have plenty to offer to the right person. Want to know if USVI is the right choice for you? Get in touch with Nomad Capitalist today. We don’t believe in a cookie-cutter approach. We’ll assess everything from your finances and lifestyle to your goals, and only then will we get you a tailored plan to get you right on track to your dream life.
United States Virgin Islands – Country Overview
The United States Virgin Islands, a US island territory, consists of several islands and cays in the northeastern Caribbean Sea. The country is located 1,100 miles (1,770 km) southeast of Florida, 600 miles (966 km) north of Venezuela, and 40 miles (64 km) east of Puerto Rico. It also directly borders the British Virgin Islands to the west and south.
USVI has a population of 104,032 – over 90% of which is urban. The official language of USVI is English, and the official currency is USD.
USVI has three major islands – St. Thomas, St. John, and St. Croix –the rest are small islets and cays. Water Island is also famous among locals and expats. The capital of USVI is Charlotte Amalie (located on St. Thomas).
People born in the USVI are US citizens. However, they can’t vote in the US presidential elections. Also, US citizens don’t need a passport to travel to the USVI.
USVI – Economy
USVI’s economy primarily relies on tourism, with the country receiving 2.5 to 3 million tourists yearly. Tourism, trade, and other service-oriented activities account for nearly 60% of the GDP.
The island nation is known for its white sand beaches and water activities like scuba diving.
USVI Tax System
The USVI uses a mirror system of taxation known as the “mirror code.” Under the mirror code, all the US tax laws are mirrored to the USVI. The US Congress has granted USVI the authority to allow a lowered tax rate to bona fide residents of the USVI. Any income related to a USVI business is also taxed at a lower rate. Bona fide USVI residents pay taxes to the Virgin Islands Bureau of Internal Revenue (BIR) instead of the IRS.
Why Choose USVI?
For decades, the US government has attracted investors and entrepreneurs to live and plant a business flag in the USVI through its lucrative tax incentives
USVI offers one of the most competitive tax packages in the Caribbean and is also fully recognized by the US government and the IRS.
As more and more US citizens grow concerned about taxes, the USVI represents an excellent middle ground for US citizens who want to relocate for tax purposes but don’t want to give up their US citizenship (or at least not yet).
It’s also a pretty great spot for individuals who don’t want to associate themselves with traditional tax havens but still want tax incentives for themselves and their businesses.
Let’s see what the USVI has to offer.
USVI Tax Incentives
The United States Virgin Islands Economic Development Authority (USVIEDA) is a government vehicle that regulates several economic programs like the highly renowned Economic Development Commission (EDC) tax program, USVI Hotel Development, and Finance Program, Enterprise Zone Tax Incentives (EZC) Program, etc.
The most significant and renowned among all the USVI tax programs is the Economic Development Commission (EDC) tax program.
The government developed the EDC program to create jobs, boost economic activity, and attract high-net-worth individuals to the islands.
The EZC program is almost similar to the EDC program in tax benefits. However, EZC offers those tax benefits to companies located in the historic towns of USVI. EZC was developed to revitalize the distressed communities of the islands.
Now that you know a bit about the USVIEDA and its projects, let’s talk about its most popular program – EDC.
Economic Development Commission (EDC) Tax Program
The EDC tax program is a brilliant tax package created by the USVIEDA that grants massive tax cuts to companies relocating to the USVI.
EDC Tax Benefits
Under EDC, USVI resident companies can expect the following key tax incentives:
- 90% reduction in corporate income tax
- 90% reduction in personal income tax
- 100% exemption on excise tax
- 100% exemption on property taxes
- 100% exemption on gross receipts tax
- 1% duty on imported goods
The top federal US income tax rate for 2023 is 37%, meaning that successful EDC applicants can enjoy a tax rate as low as 3.37% – quite a difference I’m sure you’ll agree.
Eligibility Criteria For EDC
To be eligible for the tax benefits, an EDC applicant must:
- Hire at least ten USVI residents as full-time employees. The employees must have resided in the Virgin Islands for at least one year before being hired.
- Invest at least $100,000 (exclusive of inventory) in a sector or business that boosts the economic state of the USVI.
- Meet the requirements of Sections 934 and 937 of the Internal Revenue Code.
- Be an actual investor in the business for which the tax benefits are sought (you can’t be merely related to the enterprise as a contractor, subcontractor, agent, etc.)
- Comply with all federal and local laws, including environmental regulations.
- Provide a right of way to the beach or shoreline (if doing business on shoreline property).
The official site of the USVIEDA states all the eligible activities for EDC applicants who want to do business in USVI. However, even if you don’t fall in any of the mentioned categories, you may still be given the tax benefits if the relevant authorities deem your investment or business to favor the USVI economy.
The tax benefits last for 20 to 30 years, depending on the amount and location of the investment.
The EDC program, so far, has created thousands of jobs and raised millions in charitable contributions by EDC beneficiaries. It has also resulted in generating over a billion dollars in salaries and wages (paid by EDC beneficiaries).
Should You Consider Moving To The USVI To Lower Your Tax Bill?
That depends; on your passport, assets, lifestyle, and any number of other factors.
If you are a US citizen who doesn’t mind the slow-paced Caribbean island life as long as you’re not paying a huge chunk of your wealth in taxes, you may well fall in love with the USVI.
As an American citizen, it’s tough to reduce your tax rate to zero, thanks to the US citizenship-based taxation model. In that case, a nearby US territory with the same language, same currency, and same tax laws may be the best bet for a lot of US citizens looking to cut their tax bill while still carrying a US passport.
However, your options grow tenfold if you’re not a US citizen. Since you don’t have to worry about the IRS chasing you to the ends of the earth, you can consider several second residencies or even second citizenship options that can potentially eliminate your tax bill, boost your lifestyle, and expand your travel freedom.
At Nomad Capitalist, we believe in curating a tailored holistic strategy that addresses all your problems and helps you go where you’re treated best.
If you want to know where that is, reach out and let us pave the way for you.
How To Lower Your Taxes By Moving To US Virgin Islands In 2023: The Ultimate Guide FAQ
USVI is a very safe destination to visit and relocate to. As with other countries in the region, standard precautions have to be exercised, like taking care of personal belongings, but overall the islands offer a safe environment for all locals and foreigners. The island has a tropical climate, but hurricane season runs from June to November – which is something you should keep in mind while traveling to the USVI.
No, US citizens can enter, live, and work in the USVI without a passport, work visa, or any similar document.