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A domestic corporation, which is organized under the laws of the United States Virgin Islands, pays income taxes on its worldwide income to the USVI treasury (not to the US Internal Revenue Service), taking a foreign tax credit where applicable. A foreign corporation, defined as any corporation organized outside the United States Virgin Islands, pays USVI income taxes only on its USVI source income or on income effectively connected with a USVI trade or business. With certain exceptions, the USVI uses the US Internal Revenue Code as its tax code. A 10 percent surtax applies to corporations, so corporate taxes amount to 110 percent of what they would be under the Internal Revenue Code. In general, this means that the effective maximum tax rate is 38.5% (35% + 3.5%) for a corporation engaged in a USVI business and 11% (10% + 1%) for a corporation with passive income. Now for some good news. Corporations qualifying for USVI Industrial Development Commission (IDC) benefits may pay substantially less in taxes. For example, IDC beneficiaries receive up to an 89% exemption from local corporation income tax payments (after taking the surtax into accounts), and their USVI resident stockholders receive up to a 90% exemption from income taxes paid on the company's dividends. IDC Benefits and eligibility requirements are detailed in the Business Incentives section of this handbook. Individual Income Taxes US and foreign citizens who are USVI residents are taxed in the United States Virgin Islands on all worldwide income. US and foreign citizens who are not USVI residents are taxed only on USVI source income. An individual is considered a USVI resident if he or she was a permanent resident on the final day of his or her tax year (generally December 31) and is not merely a transient. The income tax rates are the same as those in the United States. Withholding Taxes On Income Paid to Nonresidents If USVI source income is paid by a USVI resident or corporation to a nonresident corporation or partnership or a nonresident individual other than a US individual, a tax of 11% is imposed on the gross amount of the payment. The payer is responsible for withholding and paying this tax to the USVI Bureau of Internal Revenue. IDC beneficiaries are exempted from the withholding requirements on interest payments and may reduce the withholding rate on dividends from 10% to 4%. Customary withholding rates apply on other forms of passive income, such as royalties and rental income.
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