Quick Query: Ecommerce in the Virgin Islands Can Save Taxes

The U.S. Virgin Islands are located roughly 90 miles east of Puerto Rico in the Caribbean Sea. The islands are known for their white sand beaches and clear, blue water. A new Virgin Islands-based economic initiative wants e-businesses to know there are significant tax advantages to doing business there. This new initiative partners the University of the Virgin Islands with private technology providers. It’s called the Ecommerce Island and its Chief Marketing Officer is Steve Rohrlick.

PeC: The U.S. Virgin Islands has massive Internet and broadband infrastructure, interestingly enough. Tell us why that is.

Rohrlick: “Well, it was actually just a pure coincidence. Many years ago, Global Crossing laid billions of dollars of undersea fiber optic cables under the ocean connecting the United States to Latin America, South America, Europe, and Asia, and these cable assets needed to be checked periodically from a land map and because the Global Crossing networks contained military and governmental communication. The company needed to make sure that the stations that are actually located on land had to be on U.S. territory and it just so happened that the island of Saint Croix, which is one of the U.S. Virgin Islands, is where they put their cable stations. So it ends up that the island of Saint Croix has the second largest concentration of bandwidth second only to New York City.”

PeC: You’re involved with an initiative that takes advantage of that infrastructure. It’s a public-private partnership in the Virgin Islands that can really help software and ecommerce companies. Could you explain this initiative to us?

Rohrlick: “Absolutely. The U.S. Virgin Islands is part of the United States. We’re not a state; we’re a territory, and because of a very unique circumstance, we do not pay taxes to the Internal Revenue Service. Instead, we pay taxes to the Virgin Islands Revenue Bureau. Even though the tax code on it [the Virgin Islands Revenue Bureau] is mirror tax code of the U.S., the Virgin Islands government has an economic development program with the University of the Virgin Islands, whereby, we can waive 90% of federal income tax for companies that locate their servers and operation in the U.S. Virgin Islands.”

PeC: What’s the initiative called?

Rohrlick: “It’s called the University of the Virgin Islands Research and Technology Park.”

PeC: And for qualifying businesses that locate there, those businesses can save up to 90 percent on the federal tax liability?

Rohrlick: “That’s right. So, say, a typical company is profitable and is paying, let’s say, 35 or 40 percent in taxes to the IRS. If it was doing those same operations from the U.S. Virgin Islands instead of the United States mainland, it would then be paying between 3.5 and 4 percent tax on its profit.”

PeC: What types of businesses qualify for this?

Rohrlick: “Well, the best fit are companies that are purely digital. The IRS gave some examples in 2008 of the type of businesses that will qualify and the two examples that it set out in those regulations are software as a service, and software purchases, whereby, the title for the software passes in the U.S. Virgin Islands. So, in both of those examples, the IRS would look at those transactions as Virgin Islands transactions and then the Virgin Islands tax initiative would take over. Some of the other types of companies that would fit into those examples would be research reports, digital photographs, music, ring tones, online databases, and online dating.”

PeC: Ebooks?

Rohrlick: “Exactly.”

PeC: Does the business have to physically locate there?

Rohrlick: “No, it doesn’t. What it needs to do is form a new entity that’s incorporated in the Virgin Islands and then make sure that components of the business, such as software, is being served from the servers in the Virgin Islands. I also need to caution that every business is different. So, if there are certain adjunct services that are supporting the delivery of those digital services, then you have to look on a case by case basis in order to determine which personnel or which type of people might also have to be located in the Virgin Islands.”

PeC: For our readers that think they may qualify or that may be interested in exploring more, how can they know if they fit and what their total savings will be?

Rohrlick: “Well, the next step is we created a website that answers most of the questions, at This really makes sense only for profitable companies. If you’re not profitable, then the tax savings really doesn’t do you any good. Also, if you’ve just recently become profitable and still have net operating losses to use up, it’s also probably not a fit. But for a qualifying company that is profitable and that’s paying in the U.S., I think it really makes sense for them to take a look.”

PeC: Anything else on your mind for our readers, who are mainly smaller ecommerce merchants?

Rohrlick: “Well, you can pretty much rest assured that if you’re a profitable company, you’re going to be under a higher level of taxation and so I think with the opportunity that we have in the US Virgin Islands to reduce your taxation is sort of a judiciary responsibility to your shareholders and the great news is we are still in the United States, so you’re under the US flag with FDIC insurance. If any IT needs to be adjudicated, it’s adjudicated in Philadelphia. Of course, we have the massive amounts of bandwidth. So, it’s really something that I would suggest to any profitable company to help them get an advantage over their competitor, something they should really explore and take a look at.”

PEC Staff
PEC Staff
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