October 27, 1995

U.S. VIRGIN ISLANDS FOREIGN SALES CORPORATION LAW (INCLUDING THE CORPORATION FRANCHISE TAX LAW)

VIRGIN ISLANDS CODE TITLE 13. CORPORATIONS AND ASSOCIATIONS CHAPTER 12. FOREIGN SALES CORPORATIONS

§ 770. Definitions
For the purposes of this chapter:

"Director" means the Director of the Virgin Islands Bureau of Internal Revenue;

"Foreign sales corporation", "FSC", and "former FSC" have the same meanings as those defined in subpart C of part III of subchapter N of chapter 1 of the Internal Revenue Code;

"FSC" includes "small FSC" unless otherwise indicated;

"Foreign trade income" means income which is:

(1) foreign trade income as defined in section 801(a) of the federal Deficit Reduction Act of 1984 (P.L. 98-369), as amended; and

(2) gross income of an FSC attributable to non-Virgin Islands trading gross receipts;

"Foreign trade related income" of an FSC means the income of an FSC other than foreign trade income, investment income, or carrying charges:

(1) income derived from or related to the non-Virgin Islands trading gross receipts of the FSC, including, but not limited to, penalties, forfeitures, accelerated lease payments, payments in lieu of lease payments, liquidated damages, payments on default, guarantees, indemnities, and the like;

(2) other payments received by a lessor under, or in connection with, a long term lease of all or substantially all its non-Virgin Islands export property, or from the sale, exchange, or other disposition of such leased non-Virgin Islands export property; and

(3) such other income as the Director shall by regulation designate.

"Internal Revenue Code" means the Internal Revenue Code of 1986 (Title 26, United States Code), as amended;

"Investment income" and "carrying charges" have the same meanings as those defined in subpart C of part III of subchapter N of chapter 1 of the Internal Revenue Code. However, these terms shall only include investment income and carrying charges as are included as effectively connected with a United States trade or business in the United States tax return of an FSC;

"Net foreign trade income" of an FSC means the foreign trade income of the FSC less any deductions of the FSC properly apportioned and allocated to the foreign trade income derived by the FSC under the Internal Revenue Code;

"Net investment income" of an FSC means the investment income of the FSC less any deductions of the FSC properly apportioned and allocated to such investment income derived by the FSC under the Internal Revenue Code;

"Non-Virgin Islands trading gross receipts" means the gross receipts of any FSC which are:

(1) from the sale, exchange, or other disposition of non-Virgin Islands export property for direct use, consumption or disposition outside the Virgin Islands;

(2) from the lease or rental of non-Virgin Islands export property for use by the lessee outside the Virgin Islands;

(3) for services which are related and subsidiary to:

(A) any sale, exchange, or other disposition of non-Virgin Islands export property by such corporation; or

(B) any lease or rental of non-Virgin Islands export property for use by the lessee outside the Virgin Islands;

(4) for engineering or architectural services for construction projects located (or proposed for location) outside the Virgin Islands; or

(5) for the performance of managerial services for an unrelated FSC in furtherance of the production of non-Virgin Islands trading gross receipts described in item (1), (2), or (3) of this definition; Provided, That this item (5) shall not apply to an FSC for any taxable year unless at least fifty percent (50%) of its gross receipts for such taxable year are derived from activities described in items (1), (2), and (3) of this definition.

"Non-Virgin Islands export property" means property which is:

(1) export property as defined in section 801(a) of the federal Deficit Reduction Act of 1984, as amended; and

(2) property held for sale, lease, or rental, in the ordinary course of trade or business, by, or to, an FSC, for direct use, consumption, or disposition outside the Virgin Islands;

"Resident of the Virgin Islands" means a person who:

(A) has been a full-time resident of the Virgin Islands for at least one (1) year;

(B) is domiciled in the Virgin Islands; and

(C) at the end of his most recent taxable year was a resident of the Virgin Islands for the purposes of satisfying his federal income tax liability; or

(2) has registered with the Resume Bank as provided under Act 4714.

"Wages" means the amounts shown on W-2 forms of the Virgin Islands Bureau of Internal Revenue.

§ 771. Applicability of benefits

(1) apply only to an FSC incorporated in the Virgin Islands;

(2) do not apply to an FSC or its shareholders if more than five percent (5%) of the FSC's gross income during the taxable year is derived from sales or services in the Virgin Islands; Provided, That this paragraph shall not be construed to disqualify an FSC for the performance of services provided by or on behalf of an FSC earning sales commissions from sales that generate non-Virgin Islands trading gross receipts;

(3) do not apply to any Business Management or Consulting Firm for a Foreign Sales Corporation described in Title 27, section 302(a), Virgin Islands Code.

§ 772. Election of a corporation to be an FSC or a small FSC

(a) A corporation created under the laws of the Virgin Islands, or a foreign corporation qualified to do business in the Virgin Islands, making or revoking an election to be an FSC or a small FSC with the Internal Revenue Service of the United States, shall file a copy of such election or revocation with the Director at the same time as the election is made with the Internal Revenue Service of the United States.

(b) An FSC which:

(1) elects to be an FSC or a small FSC with the Internal Revenue Service of the United States, and

(2) elects to incorporate as a Virgin Islands Corporation, shall be deemed to have elected to be eligible for the benefits provided to such FSCs under the Virgin Islands Code.

§ 773. Exemption of FSCs from income taxes

An FSC shall be exempt from the payment of income tax under the Internal Revenue Code (as it applies to the Virgin Islands) on:

(a) foreign trade income;

(b) net investment income and carrying charges; and

(c) foreign trade related income.

§ 774. Exemption of FSCs from gross receipts taxes

An FSC shall be exempt from the tax imposed under Title 33, section 43, Virgin Islands Code, with respect to non-Virgin Islands trading gross receipts and foreign trade related income.

§ 775. Exemption of FSCs from excise taxes

An FSC shall be exempt from the tax imposed under Title 33, section 42, Virgin Islands Code, on non-Virgin Islands export property imported into the Virgin Islands for reexport by the FSC in the ordinary course of its trade or business.

§ 776. Exemption of FSCs from customs duties

(a) Non-Virgin Islands export property imported into the Virgin Islands for reexport by an FSC shall be free of customs duties.

(b) The Director shall, within ten (10) days of a written request of an eligible FSC to do so, provide the United States Customs Service with a certification that such FSC is eligible for the benefits of this section. Should an FSC (or former FSC) which has been so certified become no longer eligible for such benefits, the Director shall immediately so certify to the United States Customs Service.

§ 777. Exemption of certain shareholders of an FSC from certain taxes

(a) No tax shall be imposed under sections 871(a)(1) and 881 of the Internal Revenue Code upon citizens and residents of the United States and upon corporations organized in the United States with respect to payments received from sources within the Virgin Islands derived from the foreign trade income, investment income and carrying charges, or foreign trade related income of an FSC, of which such citizen, resident or corporation is a shareholder. However, the exemption from tax under this section shall apply to payments made by a former FSC only to the extent such payment is made with respect to expenses paid or accrued from foreign trade income or foreign trade related income earned by the former FSC during taxable years in which it was an FSC.

(b) For the purposes of this section, distributions shall he deemed to first be made from foreign trade income and foreign trade related income earned by an FSC, or by a former FSC in a taxable year during which the former FSC was an FSC.

§ 778. Exemption of FSCs from certain withholding taxes

An FSC 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 777 of this chapter.

§ 779. Board of Directors and shareholders meetings in the Virgin Islands; offices

(a) In order to be eligible for the benefits of this chapter, an FSC, other than a small FSC, must hold a:

(1) directors meetings; and

(2) shareholders meeting;

at least once annually in the Virgin Islands.

(b) In order to be eligible for the benefits of this chapter, an FSC must maintain an office in the Virgin Islands pursuant to Title 13, section 51, Virgin Islands Code; provided that an FSC which meets the requirements of section 922(a)(1)(D)(i) of the Internal Revenue Code by maintaining an office in the Virgin Islands shall be deemed to have satisfied this requirement.

§ 780. Issuance of contract

(a) The Office of Lieutenant Governor is authorized and directed to provide any FSC, within thirty (30) days of request by the FSC 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 on the later of the date of incorporation of the FSC or the effective date of the act amending this section to provide for thirty year contracts, shall be and remain available to said FSC, and shall not be reduced, for thirty years from the date the contract is issued, so long as the FSC is:

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

(2) current in the payment of taxes and fees owing 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 FSC upon its acceptance by the FSC. Such acceptance shall be indicated by the signature of an officer or the registered agent of the FSC on a copy of the contract, which copy shall be returned to the Office of Lieutenant Governor and shall remain on file in that office.

(b) Any FSC which has entered into a contract with the Government pursuant to subsection (a) of this section, or any prior version of this section, may obtain one or more additional contracts pursuant to subsection (a) of this section.

(c) Notwithstanding subsection (a) of this section, no FSC shall be denied the benefits of the contract described therein for failure to be in compliance with all laws, rules, and regulations of the Virgin Islands or failure to be current in the payment of all taxes and fees owing to the Virgin Islands, unless:

(1) the Government, or the appropriate agency thereof, has provided the FSC with written notice specifying in particular with which law, rule or regulation the FSC is said to have failed to comply or which tax or fee the FSC has failed to pay, and stating further that the FSC shall have no less than thirty (30) days from the date the FSC receives the notice within which to comply and pay; and

(2) the FSC fails to comply with the specified law, rules, or regulations, and to pay the specified tax or fee within the time period stated in the notice.

The notice referred to above shall be sent to the registered agent of the FSC.

§ 781. Rules

The Director 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.

As amended through September 28, 1990

November 27, 1995

APPENDIX

VIRGIN ISLANDS CODE
TITLE 13. CORPORATIONS AND ASSOCIATIONS
CHAPTER 5. CORPORATION FRANCHISE TAX

§ 530. Definitions

(a) As used in this chapter:

"Foreign sales corporation", "non-Virgin Islands trading gross receipts", "FSC", "former FSC", "wages", "resident of the Virgin Islands", and "small FSC" have the same meanings as those contained under Title 13, chapter 12, Virgin Islands Code, except that "FSC" shall include a former FSC.

(b) For the purposes of this chapter only, a foreign corporation shall be deemed to be doing business in the Virgin Islands if it maintains an office in the Virgin Islands.

§ 531. Rate and computation of franchise tax

(a) Every corporation incorporated under the laws of the Virgin Islands and every foreign corporation qualified to do or doing business in the Virgin Islands shall pay to the Lieutenant Governor for the use of the Government of the Virgin Islands, a franchise tax of $1.50 for each thousand dollars of capital stock used in conducting business in the Virgin Islands. The minimum tax for any corporation except a foreign sales corporation or former FSC, however, even though no capital or capital stock is so used, shall be $150.00. A full year's tax shall be collected for any portion of any tax year in which the corporation was in existence after December 31, 1993.

(b) Effective January 1, 1989, the franchise tax required by this section shall be filed and paid, together with the filing of the annual report and annual franchise tax report on a form prescribed by the Lieutenant Governor, on or before June 30 of each calendar year.

(c) In connection with bonds, obligations or rights issued or granted by the Government, in connection with the Virgin Islands Hurricane Hugo Insurance Claims Fund Program pursuant to Title 22, chapter 10a of this code, the Governor by written declarations or declaration may direct that, so long as such bond, obligations or rights are outstanding, the franchise tax required by this section shall be deposited, upon collection or thereafter, into the Virgin Islands Hurricane Hugo Insurance Claims Fund created pursuant to Title 33, chapter 111, section 3061a, of this code.

(d) In connection with the bonds, notes or other evidences of indebtedness issued by the Government pursuant to Act No. 5883 (Bill No. 20-0164), Section 5, as amended, the Governor by written declarations or declaration may direct that, so long as such bonds, notes or other evidences of indebtedness issued are outstanding, all or any portion of the franchise tax required by this section collected in excess of the amounts necessary to make payment on bonds issued pursuant to Title 22, Chapter 10a, Virgin Islands Code, shall be deposited, upon collection or thereafter, into the St. Croix Economic Development Fund.

§ 531a. Minimum franchise tax

(a) An FSC, or former FSC (including an FSC or former FSC which is a foreign corporation doing business in the Virgin Islands) shall pay a minimum franchise tax in accordance with this section and sections 531b and 531c of this chapter.

(b) Commencing in 1986, the Office of the Lieutenant Governor shall forward to the Bureau of Internal Revenue documentation of the amount of franchise tax paid by an FSC together with copies of any supporting information described in section 531d, subsection (c) of this chapter. The Director shall examine these documents in order to determine whether the amount of franchise tax paid is correct. If the amount is incorrect, the Director shall immediately notify the Office of the Lieutenant Governor which shall then collect any underpayment. Such underpayment shall be subject to any interest and penalty as set forth in rules approved by the Lieutenant Governor.

§ 531b. Minimum franchise tax for small FSCs

(a) For the first year that a small FSC is required to pay franchise tax, the minimum tax is $400.

(b) For the second and each subsequent year that a small FSC is required to pay franchise tax, the minimum franchise tax shall be computed by reference to the non-Virgin Islands trading gross receipts of the small FSC for its most recent taxable year ending by March 31 of the year in which the franchise tax is due. The tax shall be determined according to the following schedule:

Non-Virgin Islands trading But not more Minimum tax gross receipts equal to than or greater than

$ 0 $2,000,000 $400

Non-Virgin Islands trading But not more Minimum tax gross receipts greater than than

$2,000,000 $5,000,000 $900

(c) In the case of a small FSC which in the second year that it is required to pay franchise taxes does not have a taxable year ending by March 31 of that year then for that second year only, the minimum franchise tax shall be $400.

§ 531c. Minimum franchise tax for other FSCs

(a) For the first year that an FSC, other than a small FSC, is required to pay franchise tax, the minimum tax is $1,000.

(b) For the second and each subsequent year that an FSC, other than a small FSC, is required to pay franchise tax, the minimum franchise tax shall be computed by reference to the non-Virgin Islands trading gross receipts of such FSC for the most recent taxable year ending by March 31 of the year in which the franchise tax is due. The tax shall be determined according to the following schedule:

Non-Virgin Islands trading But not more Minimum tax gross receipts equal to than or greater than

$ 0 $ 10,000,000 $ 1,000

Non-Virgin Islands trading But not more Minimum tax gross receipts greater than than

$ 10,000,000 $ 20,000,000 $ 2,500
20,000,000 50,000,000 5,000
50,000,000 100,000,000 10,000
100,000,000 250,000,000 15,000
250,000,000 500,000,000 20,000
500,000,000 -- 25,000

(c) In the case of an FSC which in the second year that it is required to pay franchise taxes does not have a taxable year ending by March 31 of that year then for that second year only, the minimum franchise tax is $1,000.

§ 531d. Reduction in franchise tax based on wages paid to residents of the Virgin Islands

(a) An FSC is entitled to reduce its franchise tax liability for the calendar year 1986 and each year thereafter by an amount equal to fifty percent (50%) of the wages paid during the previous calendar year to employees who are residents of the Virgin Islands. For the purposes of this section, wages paid to employees (who are residents of the Virgin Islands) of a contractor providing services to an FSC may be considered wages paid to employees of the FSC to the extent that such wages are properly allocable to the FSC.

(b) The maximum reduction of franchise tax to which an FSC is entitled under this section is fifty percent (50%) of the franchise tax liability for a particular taxable year.

(c) An FSC claiming a reduction in franchise tax under this section shall file a franchise tax return with the Office of the Lieutenant Governor. Any franchise tax return in which a credit is claimed under this section shall include:

(1) copies of W-2 forms documenting the gross wages paid to residents of the Virgin Islands; and

(2) a statement sworn to by an officer of the FSC which:

(A) lists the names, addresses, and gross annual wages of the residents that formed the basis for the franchise tax calculation; and

(B) states that each of the listed residents has certified in writing to the employer that he is a resident of the Virgin Islands.

In the case of residents employed by a contractor of an FSC, the statement shall also be sworn to by the contractor or an officer thereof.

§ 532. Late payment of tax; penalties

Every corporation failing to pay the annual franchise tax as prescribed by sections 531, 531a, 531b, and 531c of this title, shall, in addition to the tax, be liable for a penalty of 10 per centum of the tax and interest at 1 per centum for each month or part thereof that the tax remains unpaid, payable to the Lieutenant Governor.

§ 533. Failure to pay tax; penalty

(a) No corporation qualified to do or doing business in the Virgin Islands may commence or maintain any action in any court if it has not paid its annual franchise tax last due. A certificate of the payment of such annual franchise tax, or any duplicate of such certificate under the seal of the Lieutenant Governor, shall be prima facie evidence of such payment. The Lieutenant Governor shall issue such certificate upon request.

(b) Failure of any corporation to pay its annual franchise tax for a period of one year from and after the date when such payment first became due, shall be prima facie evidence of the insolvency of such corporation and the fact of such insolvency may be shown by the government of the Virgin Islands or by any private person or corporation.

(c) The Lieutenant Governor upon determination that any corporation has neglected for a period of one year to pay its annual franchise tax, shall--

(1) if the delinquent corporation is a domestic corporation, make a notification upon the records of his office that such corporation is dissolved and it shall thereupon be dissolved and the directors of such corporation shall hold title to the property of the corporation as trustees for its stockholders and creditors to be disposed of under appropriate court proceedings; or

(2) if the delinquent corporation is a foreign corporation, make a notification upon the records of his office that the authority of such corporation to do business in the Virgin Islands is revoked and it shall thereupon be revoked; provided, that no domestic corporation shall be dissolved, and no foreign corporation shall have its authority to do business in the Territory revoked, for the non-payment of franchise taxes which the Government is barred from recovering by the statute of limitations set out in Title 5, section 31, of this Code.

(d) Any corporation thereafter organized may take and shall have the exclusive right to use the corporate name of any corporation so dissolved.

§ 534. Failure to pay tax; enforcement

The Commissioner of Finance may institute an action in the name of the government of the Virgin Islands to enforce the payment of any franchise tax under the provisions of sections 531, 531a, 531b, and 531c of this title, and any penalty and interest due under the provisions of section 532 of this title.

§ 535. Applicability of chapter

This chapter shall not apply to banks, foreign banks which have branches established in the Virgin Islands, and national banking associations, as those institutions are defined by section 1 of Title 9, and to domestic corporations organized for religious, fraternal, scientific, benevolent, social, charitable, or educational purposes, or to foreign corporations organized for like purposes, when not engaged in the Virgin Islands in the loaning of money or the conducting of any other business pursuits for profit.

As amended through December 30, 1994 As enacted by Section 1, Act No. 4990, September 25, 1984 and as amended by Section 4, Act No. 5032, December 19, 1984 and Section 1, Act No. 5641, September 28, 1990. The position of Commissioner of Commerce was renamed as the Commissioner of Economic Development and Agriculture by Act No. 5265, approved June 24, 1987 and was again renamed Commissioner of Tourism by Act No. , approved , 1995. Enacted as part of the original Virgin Islands Code in 1957 and amended by Section 2(d), Act No. 4990, September 25, 1984; Section 5, Act No. 5032, December 19, 1984; Section 4(c), Act No. 5369, October 21, 1988; Section 6, Act No. 5610, September 6, 1990; Section 5, Act No. 5641, September 28, 1990; Section 5(p), Act No. 5891, October 13, 1993; Section 106(A), Act No. 5948, January 13, 1994; Section 3, Act No. 6006, August 26, 1994; Section 2, Act No. 6029, September 30, 1994; and Section 29, Act No. 6064, December 29, 1994.

U.S. VIRGIN ISLANDS
FOREIGN SALES CORPORATION LAW
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U.S. VIRGIN ISLANDS
CORPORATION FRANCHISE TAX LAW
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