The U.S. Virgin Islands has recently begun to offer significant corporate tax breaks to small businesses in an attempt to encourage job creation and diversity within the territory’s economy, currently valued at $4.2 billion.
In early March, Governor John P. deJongh toured New York with regional economic development officials to meet with investors and interested business owners. The tour was also an opportunity to promote the U.S. Virgin Islands’ 90 percent cut in federal income taxes to manufacturing organizations, financial firms and other businesses. The territory is also offering a 90 percent cut in personal income tax, along with significant exemptions for property, excise and import taxes.
The need for the Virgin Islands tax incentive program has been highlighted, in part, by the territory’s loss of its largest taxpayer and employer, the HOVENSA oil refinery. When the refinery shut down in 2012, the U.S. Virgin Islands lost approximately 2,000 jobs and $100 million in revenue, worsening an economy already struggling to recover from the global recession.
The tax incentive program is sanctioned by the U.S. Congress and Treasury, distinguishing it from other well-known corporate tax havens like the Cayman Islands and Bermuda and making the U.S. Virgin Islands a legally secure environment for businesses to operate. For a company to take advantage of these tax incentives, it must commit to hiring at least 5 local residents and invest at least $100,000 in the proposed venture. This requirement is designed to help offset any lost tax revenue. So far, the program has attracted at least 85 corporate beneficiaries, with another 15 applications pending.
These types of tax incentives have been shown to be effective in attracting new businesses to specific geographical areas, as demonstrated by the United States Empowerment Zone (EZ) program designed to create jobs and business opportunities by providing tax credits and cash incentives in economically distressed areas. Overall, the EZ program has had a positive and statistically significant impact on attracting new companies, particularly in the retail and service industries.
The Government of the Virgin Islands is working to attract small businesses rather than large public companies in an attempt to avoid any controversy surrounding alleged corporate tax evasion.
As the U.S. Virgin Islands faces a sluggish economic recovery, a program like this could be a tremendous incentive for more job-creating organizations to relocate to the territory.
BoltNagi is a well-established and widely respected business and corporate law firm serving clients throughout the U.S. Virgin Islands.