Virgin Islands (U.S.)Tax Obligations Detailed

In the U.S. Virgin Islands, employers face several tax obligations, including income tax withholding, unemployment insurance contributions, and payroll taxes. As of February 5, 2025, these obligations encompass specific rates, deadlines, and reporting requirements. Please note that tax laws are subject to change, making it essential to stay updated on the latest regulations.

Income Tax Withholding

• Identical Tax Returns: Residents must file identical tax returns with both the IRS and the Virgin Islands Bureau of Internal Revenue (BIR) by April 15 for the preceding calendar year. IRS Form 8689 is used to determine the portion of income tax owed to the Virgin Islands.
• Form W-2VI and Form W-3SS: Employers must provide employees with Form W-2VI by January 31, detailing wages and taxes withheld for the previous year. Form W-3SS transmits copies of Form W-2VI to the Social Security Administration and the BIR.

Unemployment Insurance (UI) Tax

• Quarterly Contributions and Reports: Employers must submit UI contributions and wage reports each quarter, due on April 30, July 31, October 31, and January 31.
• 2025 UI Tax Rates: For 2025, the average UI contribution rate is 4.06%. Individual employer rates vary between 2.46% and 5.4% based on assigned interval groups. The taxable wage base is $31,100.
• FUTA Credit Reduction: Due to outstanding loan balances, the US Virgin Islands has a FUTA credit reduction of 4.2%, resulting in a net FUTA tax rate of 4.8% for 2024. This information is relevant for 2025 FUTA filings.

Payroll Taxes

• Rates and Thresholds: Payroll tax rates vary depending on the employer's classification. Class 1 employers pay 10% (8% employee, 2% employer), while Class 2 employers pay 14% (8% employee, 6% employer). The annual tax exemption for employees is $10,000.
• Monthly and Annual Returns: Payroll tax returns are typically due within 21 days of the month's end. An annual return is due within 120 days of the calendar year's end.

Gross Receipts Tax

• Annual Filing: Businesses with gross receipts of $225,000 or less annually file an annual gross receipts tax return (Form 720-B) by January 30. Businesses exempt from this tax must still file the return. Beneficiaries of the Economic Development Program file Form 720V.

Other Important Information

• Notification of Business Operations: Upon starting business operations in the U.S. Virgin Islands, employers must promptly notify the VIDOL to determine their tax status.
• Penalties and Interest: Penalties apply to delinquent wage, contribution reports, and tax payments. Interest accrues on unpaid UI contributions and other tax liabilities.

It is crucial to consult official government resources and tax professionals for detailed guidance tailored to specific circumstances. This overview provides a general understanding of employer tax obligations in the U.S. Virgin Islands as of February 5, 2025. Always verify the latest regulations and requirements with the appropriate authorities, including the VIDOL and BIR.

In the U.S. Virgin Islands, employee tax deductions and contributions encompass various areas, including income tax, social security, unemployment insurance, and specific programs like the Economic Development Commission (EDC) tax incentive program.

Income Tax

• Mirror Code: The U.S. Virgin Islands mirrors the U.S. Internal Revenue Code for income tax purposes, meaning residents generally follow similar rules and use comparable forms. However, income tax is paid to the Virgin Islands Bureau of Internal Revenue (BIR), not the IRS.
• Tax Rates: While the tax brackets and rules are mirrored, the effective tax rate can be significantly lower for participants in specific programs like the EDC. Under the EDC, personal income tax can be reduced by up to 90%.
• Standard Deductions and Exemptions: Residents generally claim standard deductions and personal exemptions similar to those under U.S. federal law. However, Earned Income Credit is not available to Puerto Rico residents working in the USVI.
• Form 8689: For allocation of income tax to the USVI, residents use Form 8689, following guidelines provided by the IRS.

Social Security and Medicare (FICA)

• Same Rates and Procedures: Social Security and Medicare taxes are withheld and remitted following the same procedures and rates as in the United States, using Circular E (Publication 15) for guidance.

Unemployment Insurance

• Employer and Employee Contributions: Both employers and employees contribute to the unemployment insurance fund.
• 2025 Rates: As of January 1, 2025:
  • Taxable Wage Base (TWB): $31,100
  • Maximum Weekly Benefit Amount (MWBA): $648
  • Average employer contribution rate: 4.06%, ranging from 2.46% to 5.4% based on the assigned interval group.
• FUTA Credit Reduction: For 2025, the U.S. Virgin Islands faces a potential FUTA credit reduction of 4.5%. This could increase employer costs.

Economic Development Commission (EDC) Tax Incentive Program

• Significant Tax Benefits: The EDC offers substantial tax incentives for eligible businesses and individuals:
  • Up to 90% reduction in personal and corporate income tax.
  • 100% exemption on excise, property, and gross receipts taxes.
  • Reduced customs duty (1% instead of the standard 6%).
• Eligibility Requirements: Requirements include:
  • Employing at least ten USVI residents full-time who have resided in the territory for at least one year.
  • Investing a minimum of $100,000 (excluding inventory) in a qualifying business.
  • Meeting specific requirements outlined in the Internal Revenue Code.

Filing and Payment Deadlines

Due to the impact of Tropical Storm Ernesto, various tax filing and payment deadlines between August 13, 2024, and February 3, 2025, were extended to February 3, 2025, for eligible individuals and businesses in the U.S. Virgin Islands. This includes estimated tax payments, payroll tax returns, and extensions for 2023 tax returns. As of today, February 5, 2025, this deadline has passed. Always confirm the most up-to-date information and deadlines with official sources.

The U.S. Virgin Islands does not have a Value Added Tax (VAT) or Goods and Services Tax (GST). Instead, it utilizes other tax systems, including income tax, excise tax, property tax, gross receipts tax, and customs duties. Businesses operating in the USVI may qualify for substantial tax incentives through programs like the Economic Development Commission (EDC) program.

Tax Incentives: Economic Development Commission (EDC) Program

The EDC program offers significant tax benefits to eligible businesses that relocate to or operate within the U.S. Virgin Islands. These benefits can include:

• 90% reduction in corporate income tax
• 90% reduction in personal income tax
• 100% exemption from excise tax
• 100% exemption from business property tax
• 100% exemption from gross receipts tax
• Reduction in customs duty from the standard 6% to 1%

Other Taxes in the U.S. Virgin Islands

While there is no VAT or GST, businesses in the USVI should be aware of the following taxes:

• Income Tax: Both corporations and individuals are subject to income tax, although rates can be significantly reduced through the EDC program.
• Excise Tax: This tax applies to specific goods, but EDC beneficiaries may receive a 100% exemption.
• Property Tax: Businesses owning property in the USVI typically pay property taxes, however, EDC participants may be exempt.
• Gross Receipts Tax: This tax is levied on businesses based on their gross revenue. EDC-qualified businesses can be fully exempt from this tax.
• Customs Duties: Imported goods are subject to customs duties. The standard rate is 6%, but the EDC program can reduce this to 1% for eligible businesses.

It is important to note that tax laws and regulations are subject to change. Therefore, businesses operating in or considering relocating to the USVI should consult with a tax advisor for the most current and personalized guidance.

The U.S. Virgin Islands offers several tax incentives for businesses and residents. These programs aim to stimulate economic growth, create jobs, and encourage investment in specific sectors.

Economic Development Commission (EDC) Tax Program

This program offers significant tax benefits to businesses operating within the USVI.

• Eligibility: Businesses must meet certain requirements, including substantial investments, job creation for USVI residents, and conducting business activities that benefit the local economy.
• Benefits: Qualifying businesses can receive a reduction of up to 90% on corporate and personal income tax. Exemptions from excise, property, and gross receipts taxes are also available. Import duties can be reduced to 1%.

Qualified Opportunity Zones

Fourteen designated zones in St. Thomas and St. Croix offer federal tax benefits to investors.

• Eligibility: Investors who reinvest capital gains into qualified properties or businesses within these zones.
• Benefits: Tax deferral on capital gains for up to seven years, a potential reduction of capital gains by up to 15%, and zero federal capital gains tax on the appreciation of the new investment.

University of the Virgin Islands Research and Technology Park (RTPark)

This program provides incentives for technology-based businesses.

• Eligibility: Technology companies that conduct research and development activities within the RTPark.
• Benefits: Similar benefits to the EDC program, including significant reductions in income tax, exemptions from various taxes, and reduced customs duties.

Sustainable Tourism through Arts-based Revenue Stream (S.T.A.R.S.) Program

This initiative supports the film industry and other art-based businesses.

• Eligibility: Businesses involved in motion picture production and other art-related activities.
• Benefits: The specific benefits of this program can vary depending on the nature of the project. Please consult the program guidelines for detailed information.

Enterprise Zone Tax Incentives (EZC)

Designed to revitalize distressed communities.

• Eligibility: Businesses operating in designated enterprise zones.
• Benefits: Tax benefits similar to those offered by the EDC, with a focus on businesses in historic towns. Businesses that qualify as museums, art galleries, and those involved in experiential tourism, restaurants, and the production or retail of local cultural products can also qualify for tax benefits within specific areas.

Other Tax Incentives

Additional tax benefits may be available for specific industries or activities. The Virgin Islands government also uses a "mirror tax" system, meaning it generally conforms to the U.S. Internal Revenue Code but taxes are paid to the Virgin Islands Bureau of Internal Revenue. Bona fide residents of the USVI file taxes within the territory and may not be subject to U.S. federal income tax. Homestead credits are also available to eligible property owners in the Virgin Islands, providing several categories of property tax credits, including a General Homestead credit and additional credits for specific qualifications. Specific eligibility criteria and maximum benefit amounts vary for each category. Please consult official government resources and tax professionals for the most up-to-date and comprehensive details on these and other tax incentives in the U.S. Virgin Islands. Note that tax laws and regulations are subject to change. This information is valid as of February 5, 2025.