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Title: Deloitte%20BVI%20Hedge%20Fund%20Forum%20%20United%20States%20Virgin%20Islands%20EDC%20Program

Deloitte BVI Hedge Fund Forum United
States Virgin Islands EDC Program
  • Marjorie Rawls Roberts, Esq.
  • Tortola, British Virgin Islands
  • May 14, 2004

An Overview of the Economic Development Program
  • U.S. Unincorporated Territory
  • Acquired by U.S. from Denmark in 1917
  • Uses U.S. Currency and No Exchange Controls
  • Part of U.S. Court System Two Federal District
    Court Judges and Within the Third Circuit Court
    of Appeals

United States Virgin Islands
  • Five Banks - Bank of St. Croix, V.I. Community
    Bank, First Bank of Puerto Rico, Banco Popular,
    Bank of Nova Scotia (all FDIC or CDIC Insured)
  • Federally Chartered Land-Grant University
    University of the Virgin Islands with Campuses
    on St. Croix and St. Thomas
  • St. John 2/3rds National Park

Tax System
  • USVI Uses Internal Revenue Code under Mirror
    System Whereby USVI Substituted for United
  • USVI Residents file One Form 1040 with the Bureau
    of Internal Revenue, regardless of source of
    income-may be changed pending legislation

Tax System Cont.d
  • USVI Corporations File Form 1120 with the BIR and
    Foreign Corporations (Including US Corporations)
    File Form 1120F with the BIR
  • USVI is Foreign to the US for Corporate Tax
    Purposes, so the rules for Controlled Foreign
    Corporations, Passive Foreign Investment
    Companies, and Foreign Personal Holding Companies

United States Virgin Islands
  • Offers Economic Development Incentives to
    Targeted Businesses
  • Authorized by the U.S. Congress under Section 934
    of the Internal Revenue Code of 1986 (IRC)
  • USVI can reduce or remit so much of the tax
    liability incurred to the USVI as is
    attributable to income derived from sources
    within the Virgin Islands or income effectively
    connected with the conduct of a trade or business
    within the Virgin Islands.

United States Virgin Islands
  • IRS Not Yet Issued Regulations Defining what are
    sources within the Virgin Islands or effectively
    connected with the conduct of a trade or business
    within the Virgin Islands.
  • Under IRC, income connected with services
    performed in the USVI is sourced in the USVI

United States Virgin Islands
  • Under Federal Umbrella, USVI Has Enacted a Number
    of Economic Incentive Programs
  • Economic Development Program
  • Farmers Fishermen Act
  • Affordable Housing
  • Enterprise Zones

USVI Economic Development Program
  • Administered by Economic Development Commission,
    a Division of the Economic Development Authority
  • Recommends Grants of Benefits to Businesses to
  • Businesses Selected to Diversify Economy Create
    Good Jobs Provide More Customers for Local

USVI Economic Development Program
  • Targeted Businesses
  • Service Businesses Serving Clients Outside the
  • Hotels and Other Tourism Related Businesses
  • Manufacturing and Assembly, Especially Jewelry
    and Watches
  • Transportation
  • Marine Related Businesses
  • Others

Service Businesses Category IIA
  • In 2001, Legislation was Amended to Focus on
    Service Businesses
  • Category IIA Added to Statute (Section 708(a),
    Chapter 12, Title 29, VIC)
  • Reflected Legislatures and Executives Goal of
    Encouraging Investment Managers and Other Service
    Businesses to Relocate to USVI
  • Previously investment managers applied under
    old generic category of economic or management
    consulting services.

Service Businesses Category IIA
  • The Following Service Businesses Are Eligible
  • 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 Outside the
    Virgin Islands

USVI Economic Development Program
  • Employment Requirements
  • Hire at least 10 People, 80 of Whom Must be
    USVI Residents for at least a year
  • After third year of operations, 20 of
    management, supervisory, and/or technical
    positions must be filled by USVI residents
  • Must Each Work at Least 32 Hours a Week
  • Must Provide Health Care and Retirement Benefits
  • Must Provide Vacation and Sick Leave
  • Must Provide Management Training Program

USVI Economic Development Program
  • Capital Investment Requirements
  • Must Invest at Least 100,000
  • Must Specify Period of Investment
  • Must use Local Providers If Available
  • Must Meet Stringent Local Purchase Requirements
  • Generally Must Make Charitable Contributions,
    although not statutory
  • Internships are important

USVI Economic Development Program
  • Benefits
  • Available for 15 years in Frederiksted District
    of St. Croix
  • Available for 10 years in Eastern Half of St.
    Croix, St. Thomas, St. John, Water Island
  • Renewable for 10-year Period upon Application
  • 90 Percent Reduction in Otherwise Applicable
    Income Tax Rate for Beneficiary (if Taxable)
  • Also Applies to Allocations or Dividends to
    Investors who are Bona Fide USVI Residents On
    Their Personal Form 1040s (The USVI does not
    impose local income tax)
  • Other Income of Investors is Taxable at Regular
    Federal Rates

USVI Economic Development Program
  • USVI Residency
  • Owners of Business Must be Bona Fide Residents of
    USVI to Enjoy Benefits on Their Personal Returns
  • How is Residency Determined?
  • IRC Section 932 Sets out Rules for USVI Resident
  • Facts and Circumstances Test
  • Substantial Presence Test
  • IRS Working on Regulations on Territorial
  • Until Such Regulations, Look to Standards in
    Old Section 871 and 911 Tests and Cases

USVI Economic Development Program
  • How is Residency Determined (Continued)
  • Full-Time Residence Available for Residents
    Exclusive Use (Not Time-Share or Home in Villa
    Rental Program)
  • Voters Registration and Drivers License (Three
    Months Test in Drivers License Handbook)
  • Regular Time in USVI
  • Closer Connection to USVI than Anywhere Else
    Church, Clubs, Civic Participation, Medical,
    Other Investments, Family, Other Factors
  • Advise IRS Form 8822
  • Although Clients Outside USVI, Must Perform as
    Many Services for Clients as Possible Inside USVI

USVI Economic Development Program
  • Substantial Presence Test
  • Amendment 3143 to S. 1637, as passed by US Senate
    on May 11, 2004 provides bona fide resident'
    means a person who satisfies a test, determined
    by the Secretary, similar to the substantial
    presence test under section 7701(b)(3) with
    respect to Guam, American Samoa, the Northern
    Mariana Islands, Puerto Rico, or the Virgin
    Islands, as the case may be.'
  • Additional legislative changes expected prior to

USVI Economic Development Program
  • Substantial Presence Test (cont.)
  • Individual has substantial presence in the USVI
    if present in the USVI on at least 31 days
    during the calendar year and sum of the number of
    days on which such individual was present in the
    US during the current year and 2 preceding
    calendar tearsequals or exceeds 183 days.
  • Uses a weighted average, such that residency
    established at 122 days per year, over a three
    year period.

USVI Economic Development Program
  • Additional Benefits
  • Gross Receipts Tax Exemption- otherwise 4
  • Property Tax Exemption- otherwise .75 of value
  • Customs Duty and Excise Tax Benefits

Application to Investment Managers
  • Possibility of Relocation of Business and Owners
  • Application Submitted to EDC
  • 8-9 Public Hearings Each Year
  • Executive Session
  • Governors Review and Formal Approval
  • Certificate Commencement of Benefits (Binding
  • Must Provide Physical and Mailing Address and
    Telephone and Fax Numbers to Request Certificate

Application to Investment Managers
  • Benefits Five Years to Activate
  • Different Benefits -- Different Dates
  • IRS Filing Gift and Estate Tax Benefits
  • IRS Filing Social Security and Self Employment

Other U.S. Virgin Islands Tax Benefits
  • Exempt International Insurance Companies
  • Estate and Gift Tax Benefits for People Born or
    Naturalized in a US Territory
  • Exempt Companies Tax-Free Holding Companies
    for Non-US Owners
  • Research and Technology Park

Tax Facts
  • USVI Not Covered by US Tax Treaties
  • Covered by US Treaties of Friendship, Commerce
    Navigation and Bilateral Investment Treaties
  • Special Competent Authority Procedure for
    Territorial-IRS Disputes Rev. Proc. 89-8,
    1989-1 CB 778
  • Tax Implementation Agreement Feb. 24, 1987
    Governs Exchange of Information Between USVI and

Facts for Investment Managers
  • Securities and Exchange Commission and Commodity
    Futures Trading Commission Authority Over USVI
  • Registered Investment Advisors and Broker-Dealers
    Subject to Oversight from SEC Miami Office
  • USVI has no Blue Sky Laws (but lots of blue
    sky) and no local investment advisor registration
  • Business License Categories Investment Advisory
    Service (200), Investment Brokerage (400),
    Business and Management Consultant (300)

Securities Law Issues
  • Uniform Securities Act-still pending before
    committee. A hearing date has not yet been set in
    regard to this matter.
  • This Act would require filing a notice and
    consent to service of process with the USVI Lt.
    Gov. or his designee.
  • 200 for the initial notice fee and 100 annually

Telecommunications in the USVI
  • Undersea Cables
  • Global Crossing
  • AT T
  • DSL (Wireless and wired)
  • Mostly used by businesses
  • Dial-up Modem
  • Most widely used form of telecommunications for

For More Information Contact
  • Marjorie Roberts, Esq.
  • Marjorie Rawls Roberts, P.C.
  • One Hibiscus Alley
  • St. Thomas, USVI 00802
  • (340) 776-7235 (Telephone)
  • (340) 776-7951 (Fax)