​U.S. Virgin Islands Economic Development Program 

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All US citizens are required to report, and pay taxes on, all revenues generated either domestically or abroad.  In an attempt to reduce their tax burden, many US citizens over the years have unknowingly resorted to unscrupulous tax schemes (both domestic and foreign) that merely resulted in audit, penalties, back taxes, and thousands of dollars spent on legal fees trying to defend themselves in tax court.  These individuals all learned an expensive lesson, namely:  there is a significant difference between a legally backed, legitimate tax minimization program that fully utilizes the Internal Revenue Code (IRC), and a tax scheme crafted by people who think they can beat the system.
 
There are 287 broad categories within the IRC intended for use in tax planning.  Due to the complexity of the IRC, there is a high likelihood that you are not fully utilizing parts of the code that might legally benefit your situation.  This document sets forth a program that squarely falls within the IRC guidelines for a select few individuals who meet the qualification requirements.
 
After extensively working with the United States and U.S. Virgin Island governments, Private Client Advisers can offer a domestic-based strategy that will allow a select group of individuals to reduce their federal income and capital gain taxes.  By law, qualifying participants receive a 90 percent exclusion from Federal Taxes and an exemption from local taxation.
 
U.S. Supreme Court Justice Louis D. Brandeis has been quoted as saying:  “I live in Alexandria, Virginia.  Near the Supreme Court chambers is a toll bridge across the Potomac.  When in a rush, I pay the dollar toll and get home early.  However, I usually drive outside the downtown section of the city and cross the Potomac on a free bridge. This bridge was placed outside the downtown Washington DC area to serve a useful social service; getting drivers to drive the extra mile to help alleviate congestion during rush hour. If I went over the toll bridge and through the barrier without paying the toll, I would be committing tax evasion.  If, however, I drive the extra mile outside the city of Washington and take the free bridge, I am using a legitimate, logical and suitable method of tax avoidance, and I am performing a useful social service by doing so. For my tax evasion, I should be punished.  For my tax avoidance, I should be commended. The tragedy of life is that so few people know that the free bridge even exists!”

There are significant economic benefits to doing business in the U.S. Virgin Islands (USVI). As a United States protectorate, the USVI is governed by the United States Congress and are subject to all applicable US laws. Federal mandate permits the USVI government the autonomy to collect all applicable business and personal taxes from companies and individual’s resident to the USVI through the Bureau of Internal Revenue (BIR).  The USVI tax code mirrors the U.S. tax code, including tax brackets and statutes in many ways.
 
The Virgin Islands BIR was created by Act No. 4473, August 1980, and was amended by Act No. 4479, September 1980. The bureau is a separate, independent agency of the Government of the Virgin Islands, and for budgetary purposes only, is included under the Office of the Governor.  The bureau is under the supervision of the Director of the Internal Revenue. A Deputy Director is in each district.  The bureau maintains its principal office on St. Thomas with a fully staffed branch office on St. Croix. Periodic visits, as needed, are made to St. John by bureau personnel.
 
Most importantly, the USVI government has also been permitted to create tax incentives to attract businesses and individuals to spur its own economy and therefore relieve the US government from its financial aid obligations.  Approximately $90 – 120 million in Federal Aid is sent to the USVI from the US government every year (Virgin Island Office of Management and Budget, 2001 Executive Budget, 407). More specifically, the US government pays the USVI in federal aid $2,230 per capita as of 2001 (Economic Recovery Taskforce, Five Year Operating and Strategic Financial Plan, xvi).   

The Program:

Private Client Advisers offers a unique program that was established to allow qualified individuals to take advantage of the tax incentive benefits offered by the USVI.   Most importantly however, Private Client Advisers allows individuals and companies to benefit from the USVI legislation who would not ordinarily qualify for such participation. 
 
The United States has granted authority to the USVI to reduce or rebate income taxes by the United States Congress, pursuant to Section 934 of the Internal Revenue Code, as amended by the Tax Reform Act of 1986.  Code Section 934(b)(2) provides that the U.S. Virgin Islands cannot reduce or rebate the income tax liability of U.S. residents who are taxable under Code Section 932(b).  However, Code Section 934 does not prevent the USVI from reducing the income tax liability of USVI residents, non-resident aliens, Virgin Island entities and foreign entities.  In other words, the USVI has the right to offer certain tax incentives to qualified organizations that elect to do business in the USVI.  One such incentive package falls under the Economic Development Commission.  Pursuant to Section 934 of the Internal Revenue Code of 1986, as amended, the Virgin Islands Legislature has enacted the Economic Development Program, which, as amended, is now codified in Chapter 12, Title 29, Virgin Islands Code. Section 704(a) of Chapter 12 creates the Virgin Islands Economic Development Commission.  Companies which qualify under its guidelines are given the following benefits:
 
1)Exemption from real property taxes.
2)Exemption from gross receipt taxes.
3)Exemption from excise taxes on certain items and activities.
4)Exemption on taxes on interest and dividends.
5)And up to 90% exemption on income taxes. Income tax exemptions apply to dividends of corporations and partnership distributions (whether to individuals corporations, or LLCs).
 
Moreover, the EDC benefits may apply to active as well as passive income, so long as the passive income is part of the business for which the benefits are granted. 
 
Using a USVI Serial LLC,Private Client Advisers offers its qualifying clients the EDC benefits without requiring the client to meet the costly and time-consuming EDC qualifications. 
 
A Serial Limited Liability Company is an llc which has broken its business down into a number of parts, and has given each part its own operating agreement and system of management. One would create a Serial LLC in the same manner of filing as one would a regular LLC, except that the Certificate of Formation would indicate that there are several components to the limited liability company. The real difference comes with the drafting of the LLC's Operating Agreement(s) and the strategy as to how to divide the assets and liabilities. Liabilities from one Serial LLC do not carry over to another Serial LLC.  Among the jurisdictions currently recognizing Serial LLCs are Delaware (Limited Liability Company Act of the Delaware Code, Title 6, Section 18-215; Series of members, managers or limited liability company interests), and the USVI.  Each Serial LLC may have its own EIN, bank account, records, liability, etc.
 
The client forms a USVI Serial LLC under Private Client Advisers.  The client’s company will have its own separate EIN, bank account, financials, liability, etc and will be isolated from the other Serial LLCs under the Management Umbrella.
 
Because Private Client Advisers will be qualified under the Economic Development Commission, and because Private Client Advisers will own 7 percent of the Serial LLC, the Serial LLC companies formed under Private Client Advisers will also enjoy the EDC tax benefits.  This is even more beneficial for those clients whose business net income is passed through to their personal tax returns.  NOTE:  The client, not Private Client Advisers, is the sole signer on the bank account and exercises sole control over the funds of the Serial LLC.
 
Ten percent of the USVI Serial LLC’s income will be taxed at the applicable US tax rate.  If it is determined beneficial, the client can elect to have the LLC taxed as a corporation by filing form 8832 – Entity Classification with the IRS.  A single member llc can also elect to be taxed as a corporation, if so desired.

How does the USVI Serial LLC Generate Revenue?

​Once formed, the client’s USVI Serial LLC can offer management, accounting, factoring or other services to the client’s U.S.- based company.  The fees paid to the Serial LLC are tax deductible as a general business expense.  Therefore, the client receives a tax deduction at the corporate level and shifts those dollars into a tax favorable tax jurisdiction.
 
The intent of this program is to allow clients who wish to participate in the EDC program and receive its tax benefits who do not yet qualify for this program on their own.  It is anticipated that the client’s Serial LLC will eventually qualify for EDC benefits at which time the relationship between the client’s Serial LLC and McKenzie Finch Management Company will terminate.
 
NOTE:  The aforementioned EDC program results from Federal legislation between the U.S. and the USVI.  Individual states do not participate in this program.  Therefore, you will most likely still be required to pay applicable state income taxes.