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Jun 07, 2013

US Virgin Islands taxes are low


INDIVIDUAL TAXATION

The US Internal Revenue Code of 1986, as amended, applies in the US Virgin
Islands as the US Virgin Islands tax code through the use of a substitution scheme known as the “mirror” system.

Nonresident individuals are liable to pay tax on their income sourced in the US Virgin Islands. Nonresident married couples are taxed separately. Furthermore, nonresident foreigners cannot file as head of the household.

INCOME TAX

Income Not Effectively Connected

Nonresident individuals not electing to treat the rental income as effectively connected income are taxed on their gross income. The effective withholding tax rate is 10% (although the mirror code imposes a 30% withholding tax).

The tenant leasing the property is generally liable to withhold 10% from each rental payment, file Form 1042-S (Foreign Persons US Source Income Subject to Withholding), and make payment to the Bureau of Internal Revenue (BIR).

Effectively Connected Income

Nonresident individuals electing effectively connected treatment of income are taxed on their net income at progressive rates. Nonresident foreign couples are not allowed to file jointly.

Taxable income is computed by deducting income generating expenses from the gross income. Allowable deductions are insurance payments, commissions, management fees and expenses associated with rent collection, repairs and maintenance expenses.

FEDERAL INCOME TAX 2010 FOR SINGLE INDIVIDUALS

TAXABLE INCOME, US$ TAX RATE
Up to US$8,025 10%
US$8,025 - US$32,550 15% on band over US$8,025
US$32,550 - US$78,850 25% on band over US$32,550
US$78,850 - US$164,550 28% on band over US$78,850
US$164,550 - US$357,700 33% on band over US$164,550
Over US$357,700 35% on all income over US$357,700
Source: Global Property Guide

FEDERAL INCOME TAX 2010 FOR
MARRIED INDIVIDUALS FILING SEPARATELY

TAXABLE INCOME, US$ TAX RATE
Up to US$8,025 10%
US$8,025 - US$32,550 15% on band over US$8,025
US$32,550 - US$65,725 25% on band over US$32,550
US$65,725 - US$100,150 28% on band over US$65,725
US$100,150 - US$178,850 33% on band over US$100,150
Over US$178,850 35% on all income over US$178,850
Source: Global Property Guide

Nonresident foreign individuals electing effectively connected treatment should file Form 104NR (US Nonresident Alien Income Tax Return) with the BIR.

GROSS RECEIPTS TAX

Every individual doing business in the islands are liable to pay the 4% gross receipts tax in addition to the income tax. The first US$9,000 monthly income is exempted from gross receipts tax if annual gross receipts are less than US$225,000.

Capital gains on the sale of the rental property will not be subject to the gross receipts tax.

CAPITAL GAINS TAX
Income from the sale of real property is always considered “effectively connected income”. Capital gains on real property held for more than one year are generally taxed at a maximum rate of 15%.

Capital gains received by taxpayers within the 10% and 15% tax brackets are taxed at a flat rate of 10% as of 01 January 2011. For all other taxpayers, capital gains are taxed at a flat rate of 20%.

Taxable capital gains are calculated by deducting the “adjusted basis of the property” from the “amount realized from selling the property”. The amount realized from selling the property is computed by deducting selling expenses from the gross selling price. The adjusted basis of the property is the original cost of the property plus expenses deemed to have increased its value (i.e. capital improvements), less items which have notionally decreased its value (i.e. depreciation).

If the property seller is a non-resident foreigner, 10% of the selling price is withheld by the buyer as tax. The tax withheld amount is later credited as advance payment for capital gains tax.


PROPERTY TAX


Property Tax

The US Virgin Islands currently imposes a real property tax at 1.25% of the property’s assessed value. The property’s assessed value is 60% of its actual value or fair market value. Thus, the effective tax rate is 0.0075% of the property’s fair market value.

However, a new rate structure is being proposed wherein applicable tax rates vary depending on the classification of the property:

PROPOSED PROPERTY TAX

PROPERTY CLASSIFICATION
TAX RATE
Residential property
0.0036%
Vacant land
0.0046%
Commercial property
0.0065%
Timeshare property
0.0110%
   





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