Disqus - Latest Comments for IslandEd

Re: What state should I incorporate in?

Island Ed — Mon, 13 Apr 2009 20:55:08 -0000

Yokum,

You are right, it would be a taxable event to reincorporate a USVI corporation in Delaware and vice versa. However, there is no tax consequence to utilizing a Delaware corporation as an EDC company. In order to qualify for EDC benefits, the Delaware entity would simply need to have its principal place of business within the Territory of the USVI.

So, maybe incorporating in the USVI is not the best location for companies who plan and intend to use venture capital investors who require a Delaware corporation, but domiciling it in the USVI could be a great move for increasing shareholder value.

Now, you have to agree the US Virgin Islands offer some interesting possibilities for start up technology companies, especially if someone as knowledgeable and competent as yourself advise them how to go about structuring themselves in their initial start up phase as a "Tax Advantaged technology company".

Regards,

Edgar
www.usviedc.com

Re: What state should I incorporate in?

Island Ed — Fri, 06 Mar 2009 11:30:11 -0000

Yocum,

Thank you for your prompt reply.

My apologies as I was not clear. It is incorrect to assume a USVI corporation is treated as a domestic entity for US tax purposes. That assumption may have caused you to miss the point I was hoping to make, which is the Virgin Islands EDC program allows companies to receive a 90% tax savings on their income, including a 90% savings on the 35% repatriation tax which offshore entities could cause for US investors.

From a purely corporate law standpoint, you are correct when you stated, "Regardless of where the operations of a business entity are located, Delaware is frequently chosen as the state of incorporation", for the benefit of their corporate friendly laws.

With that comment in mind, the best of both worlds is available! A Delaware entity can be a USVI EDC beneficiary as long as its principal place of business is within the territorial boundaries of the USVI. This opens up possibilities for US businesses, including technology companies, to position and structure themselves in the most tax advantaged way to benefit themselves and their shareholders, while keeping the benefits of the Delaware corporate law.

I encourage any investor and their counsel to investigate this program and become "comfortable/familiar with it", then you may readily agree, the US Virgin Islands offers some very interesting possibilities.

Regards,

Edgar
www.usviedc.com

Re: What state should I incorporate in?

Island Ed — Thu, 05 Mar 2009 13:23:07 -0000

Yocum,

I read with interest your comments and you are correct for the reasons you described. However, I respectfully suggest there may be one more jurisdiction that can be added to this list.

The US Virgin Islands using the US Virgin Islands Economic Development Commission program:

Why the US Virgin Islands?

The US Virgin Islands Economic Development Commission (USVI EDC) program provides qualified businesses and individuals with exceptional and comprehensive benefits and incentives that allow them to take control of their income taxes and significantly improve their profits.

The USVI EDC program falls under the US Department of the Interior, and is authorized jointly by the United States tax laws (IRC 934 & IRC 937) and the United States Virgin Islands tax laws. It is a legitimate program whose purpose is to draw business to the US Virgin Islands, help the Virgin Islands economy diversify, and is designed to produce significant, positive economic benefits to the Territory of the US Virgin Islands and its residents.

As with many Economic Development programs, various tax incentives are used to attract, retain, and expand businesses for their community. The US Virgin Island EDC program offers various tax incentives, which include:

• 90% Exemption on Local Income Taxes (Federal equivalent)
• 90% Exemption on Dividends
• 100% Exemption on Gross Receipts Taxes
• 100% Exemption Property Taxes
• 100% Exemption on Excise Taxes
• 1% Custom Duties

Like most insular territories of the US, the USVI operates under a “mirror tax” system with the US, which means that for many taxpayers, the tax forms and calculations are the same as what would be expected elsewhere in the US. The key difference: taxes owed are remitted or allocated to the territorial Bureau of Internal Revenue (BIR) instead of the IRS. While remitting taxes to the BIR, the USVI remains a US jurisdiction subject to US laws; including corporate, intellectual property and investment laws. It also has support from Philadelphia’s Third Circuit Court of Appeals has federal and appellate jurisdiction.

Of special interest to you is that in 2006, the United States Internal Revenue Service delivered an early holiday present to the US Virgin Islands, its Economic Development Program and particularly to technology companies. IRS Notice 76-2006 issued in late August specifically cited the USVI EDC program for utilization by technology companies. Key clarifications pertinent to Knowledge Based Businesses were published in final regulations for IRC 937(b) in April, 2008, which speak specifically to certain e-commerce and IT-related business models. These notices, along with a Tier-1 data-center facility housing the world’s largest amount of unused internet/telecommunications bandwidth, the Virgin Islands offers technology companies an unparalleled opportunity to execute their business model in the most tax advantaged way.

Federal law permits insular territories of the US, including the USVI, to operate under modified tax scenarios as long as key “residency” and “income sourcing” requirements are met. Care must be taken to meet the income sourcing and residency requirements. There are a variety of ways an individual or company can qualify for the EDC benefits.

I hope you will agree, the US Virgin Islands offers some very interesting possibilities for technology companies.

Regards,

Edgar
www.usviedc.com