US Virgin Islands Try To Re-Vivify Tax-Break Program

by Mike Godfrey, for LawAndTax-News.com, Washington

26 October 2006

Bloomberg reports that the US Virgin Islands is trying to encourage investment in high-tech companies after the Treasury extended the Islands' 90% tax break to businesses dealing in intellectual property in September.

The USVI program allows certain types of business with investment of at least US$100,000 and at least 10, mostly local employees, a 90% income tax deduction.

In 2004, the IRS and Congress clamped down on abuse of the program by US citizens falsely claiming to be resident in the USVI in order to claim the tax break on income received from local businesses, or on income attributed to them because of their ownership of such companies. Under the new rules, incorporated in the American Jobs Creation Act of 2004 (AJCA) a person has to be resident for at least six months of the year in order to claim the tax break.

Last February, the US Treasury Department and the IRS issued final regulations under the AJCA providing guidance for determining whether an individual is a bona fide resident of a number of US possessions including the US Virgin Islands.

The Treasury Department and IRS issued a comprehensive package of proposed and temporary regulations in April of 2005; the final regulations incorporate many of the comments received on the proposed and temporary regulations, including a number of revisions intended to better reflect the realities of life in the US possessions.

Bloomberg says that Michael Fields, a former top Oracle executive, is now re-marketing the tax-break program based on the Treasury's September ruling, and enormous bandwidth available in the USVI through traffic hubs operated by Global Crossing and AT&T.

The tax break program was instituted in 1986 and was highly successful until the 2004 clampdown. Since then, investment has slowed, and the IRS has imposed audits on many genuine USVI businesses.

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