Tax Guide for US Expats Living and Working in British Virgin Islands
Who Is Liable For Income Taxes in British Virgin Islands
The British Virgin Islands have no personal income tax.
Payroll tax
General. Under the Payroll Taxes Act, 2004, corporate tax, Pay-As-You-Earn (PAYE) income tax and any other income tax payable under the Income Tax Ordinance is applied at a 0% rate.
Payroll tax is imposed on the following:
- Remuneration provided in cash or in kind by employers to employees and deemed employees
- Remuneration received in cash or in kind by self-employed persons
- Any benefits received in cash or in kind by employees, deemed employees or self-employed persons as a result of his or her employment
Remuneration is defined as the payment an employee receives for services rendered to his or her employer. The first US$10,000 of earnings is exempt from payroll tax. Persons receiving remuneration from a second employment are not entitled to the exemption of US$10,000 with respect to that remuneration because the exemption is granted only once.
Employers must pay the payroll tax, regardless of whether they withhold payroll tax from employee remuneration. Employers may withhold 8% of the remuneration of an employee and pay the amount withheld together with the balance of the tax due to the Inland Revenue.
Employers may not withhold payroll tax from the first US$10,000 paid to an employee in a tax year.
Individuals are not subject to tax on investment income in the British Virgin Islands.
Rates. The applicable rate of payroll tax depends on whether the employer is classified as a Class I employer or Class II employer.
Class I employers. For Class I employers, which include self-employed persons, payroll tax is imposed at a rate of 10%.
A Class I employer or self-employed person is one who meets the following conditions:
- Its annual payroll does not exceed US$150,000.
- Its annual turnover or gross receipts does not exceed US$300,000.
- The total of its employees and deemed employees does not exceed seven.
Class II employers. For Class II employers, which include self-employed persons, payroll tax is imposed at a rate of 14%.
A Class II employer is an employer that does not satisfy all of the requirements for qualification as a Class I employer.
Capital gains. No tax is levied on capital gains. However, transfers of real property are subject to stamp duty at a rate of up to 4% of the sales price or market value of the property, whichever is higher. The rate of the duty is increased to 12% if the sale is made to a non-British Virgin Islander. British Virgin Islanders are persons who are born in the British Virgin Islands or who obtain “belonger” status, as defined by law.
B. Social security
All employers and employees must contribute to the National Insurance Scheme. The total contribution rate is 8.5%; employers pay 4.5% and employees pay 4%. Contributions are based on the amount of weekly or monthly wages, up to maximum weekly wages of US$696.15 or to monthly wages of US$3,016.65. Consequently, the maximum annual contribution is US$1,629.12 for employers and US$1,448.16 for employees.
To learn more about the history, culture, economy and other information about the British Virgin Islands
We have been preparing US income tax returns for US Citizens and permanent residents living in the British Virgin Islands for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in the British Virgin Islands and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the British Virgin Islands tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your British Virgin Islands Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working in the British Virgin Islands, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in the British Virgin Islands.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email