Growing Interest in Virgin Islands Economic Development Companies

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.)


Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.

15 Reactions
  1. During my second year in college an investment company I was working for (which did a lot of work in Latin America) moved to the Virgin Islands. I was fortunate enough to be invited along for a semester, and I went.

    This was 10 years ago, so things have probably changed a lot, but when we were there after a couple of months most of us couldn’t wait to leave. Hopefully things have changed and that’s why they’re marketing the incentives now.

    Driving was dangerous, the infrastructure wasn’t sound, food wasn’t easily accessible. The hurricanes didn’t help. Yes, it was beautiful. Yes we had a great time snorkeling and sailing and hiking and kayaking. But the quality of life wasn’t nearly as American as we were hoping. Definitely wasn’t a great place to raise a family.

    As I said, though, your experience seemed like a good one, and things have probably changed!

    Thanks for your writing, I’m a regular reader!

  2. I do believe things have changed since you were there, Rahul.

    But of course, no matter what, it is still an island territory, and things will not be quite the same as the mainland.

    I can say that everyone I met seemed to be happy. I met a number of transplants from the mainland — from New York, Boston, San Diego and the Carolinas. Some had been there for decades — and no major complaints.

    Thanks for reading, Rahul! PS, I think I saw that episode of Alias you were in ….

  3. Hello Anita,

    I am partner in a small business in St. Thomas. I didn’t know you were going to be on the Rock, or I would have invited you to lunch(offer is still good if you still here !) I am IT Consultant with clients who are EDC Beneficiaries, so I quite aware of the program and its benefits to Small Businesses, both locally and internationally. Hope your trip was informative and look forward to more from you.

  4. Thank you for the standing invitation, Stanford. The EDC program certainly seems like a good opportunity.

    — Anita

  5. Well, is Rahul G.’s negative comment valid or is VI family-friendly, and is so what specific areas?

    Thanks very much. Great reporting.

  6. i am looking for a detailed explanation of the types of business that may qualify for the 90% tax exemption and the requirements for obtaining it. Is there a way to get that by e-mail or on the internet?

  7. Hi John,

    Regarding more information about the types of businesses that qualify, the first step is to explore the Virgin Islands Economic Development Authority website. For instance, this page lists over 100 actual companies that are benefitting from the EDC program:

    Then there’s this PDF document with the text of the actual law — detailed, true, although you may need hip boots to wade through it:

    Finally, the only other thing I can suggest off the top of my head is to contact a local Virgin Islands attorney. There are several who specialize in advising businesses on the ins and outs of the EDC program. For instance, I heard a presentation from this firm while I was visiting the Islands, and I notice they have a number of free articles on their website with information about doing business in the Virgin Islands:

    I plan to do some follow-up articles on the EDC program in the Virgin Islands, and will see if I can come up with something more.


  8. Tom, my pleasure. Maybe we can have you on my radio show to talk about EDCs in the Virgin Islands.


  9. Anita,

    Thank you for referring your readers to our law firm, Tom Bolt & Associates, P.C. ( for more information on the Virgin Islands Economic Development Program. I am happy to report that the United States Internal Revenue Service just gave the tax abatement program a boost with the issuance of IRS Tax Notice 76-2006 ( This IRS Notice provides a clear path for businesses, particularly in the software industry or involving intellectual property, participating in the U.S. Virgin Islands tax program.

    – Tom

  10. Correct me if I’m wrong, but the reason that many people may perceive this to be a tax “scam” is because the EDC program has been misused by some in the past. For instance, say a small business owner transfers ownership of his shares of the domestic US company to one in the USVI and continues to offer his services in the US mainland. If he does not actually pass the residency requirements and genuinely have the USVI company as his true source of income, he is gaming the system to take advantage of the tax credit.

    This could easily be exploited by a group of individuals who offer professional services and go in on this together. The argument would be that since they are offering professional services, it is too hard to pin down their actual income source because anytime they are on a phone or computer, they can provide services.

  11. Thanks for your comments Chris. I don’t know anything about the program being misused in the past.

    I do know that the residency requirements are very specific, as are the requirements that businesses invest in numerous ways in the local U.S. Virgin Islands economy through hiring of a minimum number of local employees, investing in local social causes, buying property and supplies locally, and so on.

    And I understand that the program requirements are indeed enforced today — can’t speak to the past. In fact, I was told that a number of companies were “de-listed” in the past from the program because their owners could not meet the residency requirements.

    My attitude toward any government program is that it is not worth trying to game the system — sooner or later they’re likely to figure it out.

  12. Dear Mrs. Campbell,
    First of all, i would like to compliment you on such a great informative editorial you did on th U.S.V.I. I know your an editor and not an investing firm.But the reason i ended up reading your article is because i was looking for investors on the net when somehow for some reason i saw your name and clicked on your site, and im happy i did.The way you expressed your words the manner in which you explained the whole ordeal about the EDC company was WOW! great. Mrs.Campbell my story is long and i don’t think i can write such personal information of what i would like to disclose to you and please trust me that it’s something of great importance to me. If and only if you have any spare time, i would appreciate it from the top of my heart if you could maybe call me so i can explain.If you can’t , i understand that your busy but your call might make a difference in my life and the decisions im facing right now. May God bless you your family and that beautiful mind you’ve got. If you do find some time and decide on giving me a couple of minutes of your hearing time i would be in such gratitude.Please, this was forwarded to you and not for publishing.My contact number is 340-692-5621. Thank you for your time.

  13. I read your article with interest and tried to open your two links for more information, but could not get in.
    Is there a better way to find out what is requred to open a fictitious business for tax sheltering?