May 1, 1995

THE EXEMPT COMPANY LAW OF THE UNITED STATES VIRGIN ISLANDS

VIRGIN ISLANDS CODE
TITLE 13. CORPORATIONS AND ASSOCIATIONS
CHAPTER 14. EXEMPT COMPANIES

§ 850. Policy and purpose
The policies and purposes of this chapter are declared to be the promotion of the growth and development of the economy of the Virgin Islands by creating opportunities and incentives for international investment in the Territory, as authorized and encouraged by the federal Tax Reform Act of 1986, which will result in:

(1) worldwide exposure of the Virgin Islands as a business center as well as a tourist destination;

(2) the creation of new jobs through the expansion of existing local businesses;

(3) the creation of new local business opportunities; and

(4) the promotion of capital formation for the development of the Virgin Islands.

All of these policies and purposes are declared to be in the public interest.

§ 851. Definitions
For the purposes of this chapter:

(a) "Exempt company" means a corporation organized in the Virgin Islands which meets the requirements of section 852 of this chapter and an exempt branch as such term is defined in section 853a of this chapter.

(b) "Internal Revenue Code" means the United States Internal Revenue Code (Title 26, United States Code), as amended.

(c) "Exempt insurer" means an exempt company which also meets the definition of "exempt international insurer" in Title 22, chapter 55, Virgin Islands Code, and which conducts no business other than that of an exempt international insurer.

(d) "Exempt international banking facility" means an exempt company which is granted a license pursuant to Title 9, chapter 21, Virgin Islands Code.

(e) "Exempt mutual fund" means an exempt company the principal business of which is trading in stocks or securities for its own account.

(f) "Virgin Islands person" has the same meaning as is contained in the Internal Revenue Code as it applies in the Virgin Islands.

(f) "United States person" has the same meaning as is contained in the Internal Revenue Code as it applies in the United States.

(g) "Exempt activities" are any of the activities undertaken by an exempt company outside of the Virgin Islands, the earning or receipt of interest on deposits with banks or savings institutions or on amounts held by an insurance company under an agreement to pay interest thereon, the earning or receipt of interest or dividends from another exempt company, and the realization of gain or loss from the sale or exchange or other disposition of the stock of another exempt company. In the case of exempt insurers, exempt mutual funds, and exempt international banking facilities, exempt activities may also include activities within the Virgin Islands provided such activities are a required part of the business of the exempt insurer, exempt mutual fund or exempt international banking facility.

Without limiting the foregoing, "exempt activities" also include, in the case of an exempt mutual fund, activities conducted in the Virgin Islands of a type described in clauses (1) - (10) below, as appear in U.S. Treasury Regulations Section 1.864-2 (c) (2) (iii); these exempt activities shall include:

(1) Communicating with its shareholders (including the furnishing of financial reports),

(2) Communicating with the general public,

(3) Soliciting sales of its own stock,

(4) Accepting the subscriptions of new stockholders,

(5) Maintaining its principal corporate records and books of accounts,

(6) Auditing its books of accounts,

(7) Disbursing payments of dividends, legal fees, accounting fees, and officers' and directors' salaries,

(8) Publishing or furnishing the offering and redemption price of the shares of stock issued by it,

(9) Conducting meetings of its shareholders and board of directors, and

(10) Making redemptions of its own stock.

§ 852. Requirements for exempt companies
In order to qualify and remain eligible for the benefits granted by this chapter, an exempt company shall:

(1) Except in the case of an exempt insurer which is a domestic corporation as defined in Sections 7701 (a)(3) and (4) of the Internal Revenue Code (as it applies in the United States), or which has an election in effect under section 953(d) of the Internal Revenue Code (as it applies in the United States), not engage in the conduct of a trade or business in the United States;

(2) Except in the case of an exempt insurer, exempt international banking facility, or exempt mutual fund, not engage in the active conduct of a trade or business in the Virgin Islands;

(3) Except in the case of an exempt insurer which is a domestic corporation as defined in Sections 7701 (a)(3) and (4) of the Internal Revenue Code (as it applies in the United States), or which has an election in effect under section 953(d) of the Internal Revenue Code (as it applies in the United States), comply with section 934 of the Internal Revenue Code or such successor provision as may be required by law, with respect to ownership of stock of the exempt company by United States persons;

(4) Comply with section 854 of this chapter with respect to ownership of stock of the exempt company by Virgin Islands persons; and

(5) Elect to be an exempt company in accordance with section 853 of this chapter.

§ 853. Election of a corporation to be an exempt company; revocation of election

(a) In order to elect to become an exempt company a corporation shall take any one of the following actions:

(1) include a statement in its original articles of incorporation, or in its certificate of domestication filed in accordance with Section 471 of this title, that it may or shall be considered an exempt company pursuant to this chapter;

(2) file with the Lieutenant Governor, at the time of filing its original articles of incorporation, or its certificate of domestication filed in accordance with Section 471 of this title, a letter or statement signed by a majority of its incorporators, that it shall be considered an exempt company pursuant to this chapter; or

(3) in the case of a corporation to which section 853a of this chapter applies, files with the Lieutenant Governor, at the time of filing the documents required by Section 401 of this title or Title 22, Chapter 55, Virgin Islands Code, a letter or statement signed by its president, vice-president or managing director, attested to by another corporate officer or director, that it shall be considered an exempt company pursuant to this chapter; provided, however, that originals or copies of any such letter or statement filed by an exempt insurer shall be filed with both the Division of Corporations and the Division of Banking and Insurance of the Office of the Lieutenant Governor.

(b) A corporation may include in the letter or statement by which it elects to become an exempt company, or in a subsequent letter or statement, a statement to the effect that it elects to be subject to the provisions of section 855(c). A corporation that makes such election may revoke the election at any time by filing with the Lieutenant Governor, a letter or statement in which it states that it revokes the election and sets forth the effective date of the revocation, which shall not be prior to the first day of the taxable year of the corporation in which the letter or statement is filed.

(c) A corporation that shall propose to transfer its domicile into the Virgin Islands may include in the certificate required by paragraph (4) of Section 472(c) of this title, a statement that upon its transfer of domicile into the Virgin Islands it shall be considered an exempt company pursuant to this chapter. Such election shall only become effective upon the transfer of the domicile of such corporation to the Virgin Islands and shall be in lieu of any other election required by this section.

(d) An exempt company may revoke its election to be treated as such by filing a letter or statement with the Lieutenant Governor signed by the President or Vice-President and the Secretary or Assistant Secretary stating the effective date of the revocation.

(e) Any revocation of an election to be an exempt company shall only take effect as of the first day of the company's present or next subsequent taxable year.

§ 853a. Exempt branches
Any corporation that (i) is not a domestic corporation as that term is defined in Sections 7701 (a) (3) and (4) of the Internal Revenue Code (as it applies in the Virgin Islands), and (ii) is not a domestic corporation as that term is defined in Sections 7701 (a) (3) and (4) of the Internal Revenue Code (as it applies in the United States), and (iii) which qualifies to do business in the Virgin Islands pursuant to Section 401 of this title or is licensed as an international insurance company under Title 22, Chapter 55, Virgin Islands Code, and (iv) meets the requirements of Section 852 of this chapter, and (v) makes an election in accordance with Section 853 (a) (3) of this chapter, shall be an exempt branch and shall be treated for all purposes in the same manner as an exempt company. The requirements of clause (ii) above shall not apply to an exempt insurer.

§ 854. Limitation on ownership by Virgin Islands persons

(a) A corporation shall qualify as an exempt company only if less than ten percent (10%) of:

(1) the total voting power of the stock of such corporation; or

(2) the total value of the stock of such corporation;

is owned or treated as owned (within the meaning of section 958 of the Internal Revenue Code) by one or more Virgin Islands persons.

(b) For the purposes of this section, "Virgin Islands persons" shall not include exempt companies.

(c) This section shall not apply to an exempt international banking facility owned in whole or in part by a Virgin Islands bank.

(d) Notwithstanding any other provision to the contrary, a company shall not be disqualified as an exempt company if ten percent (10%) or more of the total voting power of the stock of such company is owned or treated as owned by one or more Virgin Islands persons as trustee or trustees pursuant to a voting trust, so long as such trustee or trustees have no beneficial ownership interest in the stock of such company and the company otherwise qualifies as an exempt company.

§ 855. Exemption from income taxes

(a) An exempt company, other than an exempt insurer, an exempt mutual fund, or an exempt international banking facility, shall be treated with respect to its exempt activities for the purposes of the Internal Revenue Code (as it applies in the Virgin Islands) as a foreign corporation which does not earn Virgin Islands source income and which is not engaged in trade or business within the Virgin Islands.

(b) An exempt insurer, an exempt mutual fund and an exempt international banking facility shall be exempt from the payment of income tax under the Internal Revenue Code (as it applies in the Virgin Islands) with respect to its exempt activities provided, however, that this exemption shall not apply to:

(i) income which is derived from sources within the United States, unless the income is effectively connected with the conduct of a trade or business within the Virgin Islands, or

(ii) with respect to an exempt insurer that is not required to meet the ownership requirement of section 852(3) of this chapter, income which is derived from sources other than the Virgin Islands, unless the income is effectively connected with the conduct of a trade or business within the Virgin Islands.

(c) In the case of an exempt company electing to be subject to the provisions of this subsection:

(i) subsections (a) and (b) of this section shall not apply;

(ii) with respect to its exempt activities, such exempt company shall be subject to the payment of income tax under the Internal Revenue Code (as it applies in the Virgin Islands) but only to the extent of one percent (1%) of its taxable income from such activities; provided however, that of the one percent (1%) of such taxable income, ten percent (10%) thereof shall be put aside and used for promotion and advertising of the Exempt Company program by the Department of Economic Development and Agriculture.

(iii) such exempt company may elect to credit against its income tax liability described in clause (ii) above the amount of franchise tax it pays during the taxable year pursuant to Section 860(a) of this chapter, but in no event shall the amount of such credit exceed the amount of such income tax liability; and

(iv) any exempt company which elects to take the credit described in clause (iii) above in respect of any franchise tax payment may not also deduct the amount of such franchise tax payment in determining its taxable income.

§ 856. Exemption from gross receipts taxes
An exempt company shall be exempt from the tax imposed under Title 33, section 43, Virgin Islands Code.

§ 857. Exemption of shareholders and creditors of exempt companies from certain taxes

No tax shall be imposed under sections 871(a)(1) and 881 of the Internal Revenue Code (as it applies in the Virgin Islands) with respect to dividends or interest received from sources within the Virgin Islands by a shareholder or creditor, respectively, of an exempt company.

§ 858. Exemption from certain withholding taxes

(a) An exempt company shall be exempt from the requirements of sections 1441 and 1442 of the Internal Revenue Code (as it applies in the Virgin Islands) to withhold the tax imposed by sections 871(a)(1) and 881 of the Internal Revenue Code (as it applies in the Virgin Islands) with respect to payments exempt from tax under section 857 of this chapter.

(b) An exempt branch, as such term is defined in Section 853a of this title, shall be exempt from the branch profit tax of Section 884 of the Internal Revenue Code (as it applies in the Virgin Islands).

§ 858a. Exemption from premium tax

An exempt insurer shall be exempt from the payment of premium tax under Title 22, Virgin Islands Code.

§ 859. Exemption from licensing requirements

(a) Except in the case of an exempt insurer and an exempt international banking facility, no exempt company shall be required to obtain a license to do business in the Virgin Islands unless such company:

(1) revokes its election to be an exempt company; or

(2) commences doing business in the Virgin Islands.

Notwithstanding the preceding sentence, an exempt company which, in violation of section 852 of this chapter, conducts business in the Virgin Islands, shall be subject to the penalties set forth in Title 27, chapter 9, Virgin Islands Code.

(b) Holding meetings of shareholders or directors, or maintaining the principal office required by section 51 of this title, shall not be deemed as doing business in the Virgin Islands.

(c) An exempt insurer and an exempt international banking facility shall be licensed in accordance with Titles 22 and 9, Virgin Islands Code, respectively.

§ 860. Annual reports and franchise taxes

(a) In lieu of filing an annual report pursuant to section 371 of this title and in lieu of filing an annual franchise tax report and paying the annual franchise tax prescribed pursuant to chapter 5 of this title, every exempt company (including exempt insurers, exempt mutual funds, and exempt international banking facilities) incorporated or in existence on or before May 1 of any calendar year, shall, on or before June 30 of such calendar year, file a combined annual report and annual franchise tax report on a form prescribed by the Lieutenant Governor and shall pay an annual franchise tax of $1,000. Said report shall include the following information and shall be authenticated by the signature of an officer or director of the company:

(1) The name of the exempt company;

(2) The mailing address of the exempt company;

(3) The date on which its most recent fiscal year ended;

(4) The names and addresses of all the directors and officers of the exempt company and the expiration of their terms of office; and

(5) A statement that the exempt company is in compliance with all of the requirements set forth in section 852 of this chapter.

(b) Failure to timely file said report will subject the exempt company to a penalty of $100 for each month or part thereof that the report remains unfiled. Failure to file the said report and pay said franchise tax within six months of the due date may subject the exempt company to disqualification as an exempt company effective as of the first day of its fiscal year next preceding the date the report was due. Such disqualification shall only take effect upon 60 days written notice by the Lieutenant Governor delivered to the resident agent of the exempt company which notice shall state the amount of franchise tax and penalty due and any report which is outstanding. Should full payment be made and all outstanding reports be filed within such 60 day period, then the disqualification shall not take effect.

§ 861. Issuance of Contract

The Office of Lieutenant Governor is authorized and directed to provide any exempt company, within sixty (60) days of a request by the exempt company to do so, a contract signed by the Lieutenant Governor, on behalf of the Government of the Virgin Islands, stating that the benefits of this chapter as they exist upon the date of the contract shall be and remain available to said exempt company, and shall not be reduced, until twenty (20) years has elapsed, so long as the exempt company is:

(1) in compliance with all laws, rules and regulations of the Virgin Islands; and

(2) current in the payment of taxes and fees to the Virgin Islands.

The contract shall further state that the Government shall not adopt any legislation impairing or limiting the obligation of such contract. The contract shall become effective with regard to an exempt company upon its acceptance by the exempt company. Such acceptance shall be indicated by the signature of an officer or the registered agent of the exempt company on a copy of the contract, which copy shall be returned to the Office of the Lieutenant Governor and shall remain on file in that office.

§ 862. Rules

The Lieutenant Governor shall promulgate rules as are necessary for the implementation of this chapter. However, prior to their submission to the Governor under Title 3, chapter 35, Virgin Islands Code, such rules shall be submitted to the Commissioner of Commerce for his recommendations.

§ 863. Information and Reporting Requirements of Resident Agent

The resident agent of an exempt company shall solicit and maintain records of such information as may be required to establish that the exempt company is in compliance with Section 852 of this chapter and to establish that any requirements relating to the ownership of an exempt company imposed by federal or local law or regulatory or administrative action have been met. Any resident agent who:

(1) signs the statement described in Section 860(a) of this chapter of the annual report of the exempt company and arranges for the filing of such report, or who provides and files at least annually with the Lieutenant Governor an affidavit containing such statement, and

(2) who maintains in the Virgin Islands current records of the legal and beneficial ownership of the exempt company, shall be deemed to have complied with this provision. For this purpose, maintenance in the Virgin Islands of the original or duplicate stock ledger required by Section 189 of this title shall be deemed to be an adequate record of the legal ownership and, if all of the shareholders are individuals, the beneficial ownership of the exempt company.

As amended through December 30, 1994 As enacted by Section 3, Act No. 5224, December 8, 1986 (effective February 25, 1987) and as amended by Section 2, Act No. 5880, August 17, 1993; Section 1, Act No. 6029, October 13, 1994; and Sections 4, 5, and 6 of Act No. 6064, December 30, 1994.

U.S. VIRGIN ISLANDS
EXEMPT COMPANY LAW
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