Global Family Office Summit by yurtgc548


									                             4th Annual
                Private Wealth Management Summit
                        Opal Financial Group

    Opportunities for Investment Managers and Family Offices in
                        the U.S. Virgin Islands

      Marjorie Rawls Roberts, Esq.
      Marriott Frenchman‟s Reef, U.S. Virgin Islands
      May 13, 2004

    An Overview of the Economic Development Program

       U.S. Unincorporated Territory
       Acquired by U.S. from Denmark in 1917
       Uses U.S. Currency and No Exchange
       Part of U.S. Court System – Two Federal
        District Court Judges and Within the Third
        Circuit Court of Appeals

    United States Virgin Islands

       Five Banks - Bank of St. Croix, V.I. Community
        Bank, First Bank of Puerto Rico, Banco
        Popular, Bank of Nova Scotia (all FDIC or
        CDIC Insured)
       Federally Chartered Land-Grant University –
        University of the Virgin Islands – with
        Campuses on St. Croix and St. Thomas
       St. John – 2/3rds National Park

    Tax System

       USVI Uses Internal Revenue Code under
        “Mirror” System Whereby USVI Substituted
        for “United States”
       USVI Residents file One Form 1040 with the
        Bureau of Internal Revenue, regardless of
        source of income-may be changed pending

    Tax System Cont.’d

       USVI Corporations File Form 1120 with the
        BIR and Foreign Corporations (Including US
        Corporations) File Form 1120F with the BIR
       USVI is Foreign to the US for Corporate Tax
        Purposes, so the rules for Controlled Foreign
        Corporations, Passive Foreign Investment
        Companies, and Foreign Personal Holding
        Companies Apply

    United States Virgin Islands

       Offers Economic Development Incentives to Targeted
       Authorized by the U.S. Congress under Section 934 of
        the Internal Revenue Code of 1986 (IRC)
       USVI can reduce or remit so much of the tax liability
        incurred to the USVI “as is attributable to income
        derived from sources within the Virgin Islands or
        income effectively connected with the conduct of a
        trade or business within the Virgin Islands.”

    United States Virgin Islands

       IRS Not Yet Issued Regulations Defining what
        are “sources within the Virgin Islands or
        effectively connected with the conduct of a
        trade or business within the Virgin Islands.”
       Under IRC, income connected with services
        performed in the USVI is sourced in the USVI

    United States Virgin Islands

       Under Federal Umbrella, USVI Has Enacted a
        Number of Economic Incentive Programs
        –   Economic Development Program
        –   Farmers & Fishermen Act
        –   Affordable Housing
        –   Enterprise Zones

    USVI Economic Development

       Administered by Economic Development
        Commission, a Division of the Economic
        Development Authority
       Recommends Grants of Benefits to Businesses
        to Governor
       Businesses Selected to Diversify Economy;
        Create Good Jobs; Provide More Customers
        for Local Businesses

     USVI Economic Development

        Targeted Businesses
         –   Service Businesses Serving Clients Outside the
         –   Hotels and Other Tourism Related Businesses
         –   Manufacturing and Assembly, Especially Jewelry
             and Watches
         –   Transportation
         –   Marine Related Businesses
         –   Others

     Service Businesses – Category IIA

        In 2001, Legislation was Amended to Focus on Service
        Category IIA Added to Statute (Section 708(a), Chapter
         12, Title 29, VIC)
        Reflected Legislature‟s and Executive‟s Goal of
         Encouraging Investment Managers and Other Service
         Businesses to Relocate to USVI
        Previously investment managers applied under “old”
         generic category of “economic or management
         consulting services.”

     Service Businesses – Category IIA
        The Following Service Businesses Are Eligible:
         –   Investment Managers and Advisors
         –   Research and Development
         –   Business and Management Consultants
         –   Software Developers
         –   E-Commerce Businesses
         –   Call Centers
         –   High Tech Businesses
         –   International Public Relations Firms
         –   International Trading and Distribution
         –   Any Other Businesses Serving Clients Outside the Virgin Islands

     USVI Economic Development

        Employment Requirements
         –   Hire at least 10 People, 80 % of Whom Must be USVI
             Residents for at least a year
         –   After third year of operations, 20 % of management,
             supervisory, and/or technical positions must be filled by USVI
         –   Must Each Work at Least 32 Hours a Week
         –   Must Provide Health Care and Retirement Benefits
         –   Must Provide Vacation and Sick Leave
         –   Must Provide Management Training Program

     USVI Economic Development

        Capital Investment Requirements
         –   Must Invest at Least $100,000
         –   Must Specify Period of Investment
         –   Must use Local Providers If Available
         –   Must Meet Stringent Local Purchase Requirements
         –   Generally Must Make Charitable Contributions,
             although not statutory
         –   Internships are important

     USVI Economic Development

        Benefits
         –   Available for 15 years in Frederiksted District of St. Croix
         –   Available for 10 years in Eastern Half of St. Croix, St. Thomas,
             St. John, Water Island
         –   Renewable for 10-year Period upon Application
         –   90 Percent Reduction in Otherwise Applicable Income Tax
             Rate for Beneficiary (if Taxable)
         –   Also Applies to Allocations or Dividends to Investors who are
             Bona Fide USVI Residents On Their Personal Form 1040s
             (The USVI does not impose „local‟ income tax)
         –   Other Income of Investors is Taxable at Regular Federal Rates

     USVI Economic Development
        USVI Residency
        Owners of Business Must be Bona Fide Residents of USVI to
         Enjoy Benefits on Their Personal Returns
        How is Residency Determined?
          – IRC Section 932 Sets out Rules for USVI Resident Filings
          – Facts and Circumstances Test
          – Substantial Presence Test
          – IRS Working on Regulations on Territorial Residency
          – Until Such Regulations, Look to Standards in “Old” Section
            871 and 911 Tests and Cases

     USVI Economic Development

        How is Residency Determined (Continued)
         –   Full-Time Residence Available for Resident‟s Exclusive Use (Not
             Time-Share or Home in Villa Rental Program)
         –   Voters Registration and Drivers License (Three Months Test in
             Driver‟s License Handbook)
         –   Regular Time in USVI
         –   Closer Connection to USVI than Anywhere Else – Church, Clubs,
             Civic Participation, Medical, Other Investments, Family, Other Factors
         –   Advise IRS – Form 8822
         –   Although Clients Outside USVI, Must Perform as Many Services for
             Clients as Possible Inside USVI

     USVI Economic Development
        Substantial Presence Test
          – Amendment 3143 to S. 1637, as passed by US
            Senate on May 11, 2004 provides “bona fide
            resident' means a person who satisfies a test,
            determined by the Secretary, similar to the
            substantial presence test under section 7701(b)(3)
            with respect to Guam, American Samoa, the
            Northern Mariana Islands, Puerto Rico, or the Virgin
            Islands, as the case may be.'„
          – Additional legislative changes expected prior to

     USVI Economic Development

        Substantial Presence Test (cont.)
         –   Individual has substantial presence in the USVI if
             “present in the USVI on at least 31 days during the
             calendar year and sum of the number of days on
             which such individual was present in the US during
             the current year and 2 preceding calendar
             tears…equals or exceeds 183 days.”
         –   Uses a weighted average, such that residency
             established at 122 days per year, over a three+ year

     USVI Economic Development

        Additional Benefits
         –   Gross Receipts Tax Exemption- otherwise 4%
         –   Property Tax Exemption- otherwise .75% of value
         –   Customs Duty and Excise Tax Benefits

     Application to Investment

        Possibility of Relocation of Business and Owners
        Application Submitted to EDC
        8-9 Public Hearings Each Year
        Executive Session
        Governor‟s Review and Formal Approval
        Certificate – Commencement of Benefits (Binding
        Must Provide Physical and Mailing Address and
         Telephone and Fax Numbers to Request Certificate

     Application to Investment

        Benefits – Five Years to Activate
        Different Benefits -- Different Dates
        IRS Filing – Gift and Estate Tax Benefits
        IRS Filing – Social Security and Self Employment

     Other U.S. Virgin Islands Tax

        Exempt International Insurance Companies
        Estate and Gift Tax Benefits for People Born or
         Naturalized in a US Territory
        Exempt Companies – Tax-Free Holding
         Companies for Non-US Owners
        Research and Technology Park

     Tax Facts

        USVI Not Covered by US Tax Treaties
        Covered by US Treaties of Friendship, Commerce &
         Navigation and Bilateral Investment Treaties
        Special Competent Authority Procedure for Territorial-
         IRS Disputes – Rev. Proc. 89-8, 1989-1 CB 778
        Tax Implementation Agreement – Feb. 24, 1987 –
         Governs Exchange of Information Between USVI and

     Facts for Investment Managers

        Securities and Exchange Commission and Commodity
         Futures Trading Commission – Authority Over USVI
        Registered Investment Advisors and Broker-Dealers –
         Subject to Oversight from SEC Miami Office
        USVI has no “Blue Sky” Laws (but lots of blue sky) and
         no local investment advisor registration laws
        Business License Categories – Investment Advisory
         Service ($200), Investment Brokerage ($400),
         Business and Management Consultant ($300)

     Securities Law Issues

        Uniform Securities Act-still pending before
         committee. A hearing date has not yet been set
         in regard to this matter.
        This Act would require filing a notice and
         consent to service of process with the USVI Lt.
         Gov. or his designee.
        $200 for the initial notice fee and $100 annually

     Telecommunications in the USVI

        Undersea Cables
         –   Global Crossing
         –   AT & T
        DSL (Wireless and wired)
         –   Mostly used by businesses
        Dial-up Modem
         –   Most widely used form of telecommunications for

     For More Information Contact:

        Marjorie Roberts, Esq.
        Marjorie Rawls Roberts, P.C.
        One Hibiscus Alley
        St. Thomas, USVI 00802
        (340) 776-7235 (Telephone)
        (340) 776-7951 (Fax)


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