Many of you have wondered about my limited posting here at Small Business Trends. Partly it was because I was away on a trip to the U. S. Virgin Islands. No, it was not a vacation. It was a business trip.
I was there on a speaking engagement, addressing a group of small business owners, clients of a Virgin Islands Economic Development Commission (EDC) company called Compass Diversified.
While I was there I learned a lot about EDC companies — and why the U.S. Virgin Islands are called an investor’s dream.
About the U.S. Virgin Islands
The U.S. Virgin Islands are an unincorporated territory of the United States. So, in one sense the Virgin Islands are just like being in the United States — because they ARE part of the United States. For instance, the official currency is U.S. dollars. English is spoken. The U.S. legal system applies. As an American, no passport was required for the visit (although on my return to the mainland the Customs officer sternly chastised me for not having a birth certificate to prove my citizenship and advised me that starting in December 2006 a passport will be required).
The small business owners I met from the Islands are just like small business owners everywhere. They face mostly the same kind of issues as small business owners everywhere: people, technology, funding, growth.
On the other hand, it is also like being in a foreign country. You drive a car on the left side of the road, instead of on the right as on the U.S. mainland (although cars are mostly U.S. makes and have the steering wheel on the left side, not the right side as in Australia or the U.K.). And in many different ways you realize that you are on a Caribbean island — in everything from the climate to the food to the existence of the pastel-green Virgin Islands Legislature building in the heart of St. Thomas.
Tax Breaks for Businesses in the Virgin Islands
One of the enticingly attractive aspects of doing business in the Virgin Islands is the EDC program. That program gives a tax break to companies that set up shop in the Virgin Islands, are capitalized to the tune of $100,000, hire ten full-time employees in the Virgin Islands, and otherwise contribute back to the local economy. To be eligible, the business has to fall into one of certain designated categories.
The payoff can be handsome. Your company gets a 90% exemption on income taxes and other important tax exemptions and reductions. The end result is an effective Federal income tax rate of roughly 3% for Virgin Islands residents. For those who are into the details, this example calculates the tax savings on a mythical company.
This kind of tax savings is not available anywhere else in the United States or its territories. That makes it very attractive for Americans.
By the way, this is not some shady offshore tax shelter. The program falls under the U.S. Department of the Interior, and the idea is to draw business to the U.S. Virgin Islands, and help the Islands economy diversify and not be completely dependent on tourism. The program has been in effect for 3 decades, but not many people knew about it because neither the Virgin Islands nor the Interior marketed it until recently.
A Stunning Place to Do Business
Look at the photographs accompanying this post, and tell me you wouldn’t know you are in the Caribbean. I took them during my stay — one from the hotel balcony and one from the mountain top looking down on St. Thomas harbor. What a beautiful place to do business. (Click the images to see larger images.)