In the USVI, employers have several tax responsibilities. These include federal income tax withholding, Social Security and Medicare (FICA) taxes, and the Federal Unemployment Tax Act (FUTA) tax.

Federal Income Tax Withholding

Employers must withhold federal income taxes from employee wages. The amount depends on the employee's earnings and filing status.

Social Security and Medicare (FICA) Taxes

Employers and employees share responsibility for FICA taxes. Employers should withhold the appropriate amounts for Social Security (OASDI) and Medicare taxes from employee wages, and match these amounts with an equal employer contribution.

Federal Unemployment Tax Act (FUTA) Tax

Employers solely pay FUTA tax, which is used to fund unemployment benefits.

USVI Income Tax Withholding

Similar to federal withholding, employers should withhold income taxes for the Virgin Islands from employee paychecks.

USVI Unemployment Insurance (UI) Tax

Employers contribute to the USVI Unemployment Insurance fund.

Reporting and Filing

Federal

Form 941 (or 944)

Employers should file this form quarterly to report withheld income, Social Security, and Medicare taxes.

Form 940

This form should be filed annually for Federal Unemployment (FUTA) tax liabilities.

Virgin Islands (USVI)

Form W-2VI and W-3SS

Employers should furnish annual wage statements to employees (W-2VI) and transmit these to the relevant authorities (W-3SS).

Forms for UI Contributions

Employers should file reports and payments for Virgin Islands Unemployment Insurance as stipulated by VIDOL.

Employees in the US Virgin Islands (USVI) are subject to several tax deductions. These deductions are made from their wages and contribute to various federal and local programs.

Federal Income Tax Withholding

Employees in the USVI are subject to federal income tax withholding. The amount withheld varies based on factors such as income, filing status, and the number of allowances claimed on Form W-4.

Social Security (OASDI) Tax

Employees contribute a portion of their wages towards Social Security. This program provides retirement, disability, and survivor benefits. The current Social Security tax rate is 6.2% on earnings up to the annual wage base limit.

Medicare Tax

A portion of wages goes towards Medicare, which provides health insurance for those aged 65 and over and certain younger individuals with disabilities. The current Medicare tax rate is 1.45%.

USVI Income Tax Withholding

The USVI has a "mirrored" income tax system aligned with the U.S. Internal Revenue Code. Employees have USVI income tax withheld from their paychecks according to rates and allowances determined by the Virgin Islands Bureau of Internal Revenue (BIR).

Payroll Tax Under the Virgin Islands Social Security Act

Employees may have additional Social Security deductions under the Virgin Islands Social Security Act. These contributions operate similarly to federal Social Security but provide benefits under the Virgin Islands system.

The United States Virgin Islands does not currently have a Value-Added Tax (VAT). Instead, the USVI utilizes a Gross Receipts Tax (GRT). While there are similarities between a VAT and a GRT, there are also important distinctions.

Gross Receipts Tax (GRT)

The Gross Receipts Tax (GRT) is a tax on business turnover (revenue), not solely on the value added at each stage of the supply chain as with a VAT. Businesses in the USVI generally pay GRT based on a percentage of their gross income. The percentage varies depending on the type of business activity. Many services provided in the USVI are subject to GRT.

Key Considerations for Service Providers in the USVI

Businesses providing taxable services in the Virgin Islands are generally required to register for GRT purposes. GRT returns must be filed on a regular basis (typically monthly or quarterly), along with the payment of any tax due. Invoices for taxable services should generally include the GRT amount being charged.

The Economic Development Commission (EDC) is a key provider of tax benefits for businesses in the US Virgin Islands (USVI). These incentives are part of the Economic Development Authority (EDA) program.

Substantial Tax Reductions

Businesses can benefit from a 90% reduction in both corporate and personal income tax.

Exemptions

The EDA program offers a 100% exemption on excise tax, business property tax, and gross receipts tax.

Reduced Customs Duty

Businesses can enjoy a 1% duty rate on imported goods, a significant reduction from the standard 6% rate.

Eligibility

The EDC program is open to a wide range of businesses, including financial services and investment firms, manufacturing and technology sectors, hotels and tourism-related enterprises, and professional service providers.

Other USVI Tax Incentive Programs

Research and Technology Park (RTPark) Program

This program aims to foster technology-driven economic development in the USVI. The benefits are similar to the EDC program, including tax reductions, exemptions, and a reduced customs duty rate.

Enterprise Zone Program

This program encourages development in economically disadvantaged areas of the USVI. Benefits include a 90% income tax exemption, a 100% gross receipts tax exemption, and property tax benefits.

Important Considerations

USVI tax incentives are designed within the US tax code, so their implications for mainland US tax liability must be carefully evaluated. Each incentive program has its specific application and approval process.