Key takeaways
- The US Virgin Islands (USVI) apply a "mirror" of the US Internal Revenue Code: capital gains are taxed at the same rates as in the US (0%, 15% or 20% on long-term gains, ordinary rates on short-term gains), but paid to the Virgin Islands Bureau of Internal Revenue (VIBIR) by bona fide residents.
- To be a bona fide USVI resident you must meet the presence test (typically 183 days), have no tax home outside the USVI and no closer connection to the US or a foreign country (IRC section 937).
- Gains on assets you held before becoming resident are largely US-source, and the Economic Development Commission (EDC) programme's 90% income-tax exemption does not cover passive investment gains in general – only income connected to the approved business.
Last reviewed: October 2026
The USVI attract US entrepreneurs because of the EDC tax incentives, and many people assume that moving there means paying almost no capital gains tax. The reality is more nuanced: the USVI tax system mirrors US law, and special sourcing rules decide whether a gain belongs to the USVI or to the US. This guide explains capital gains taxation in the USVI in 2026.
USVI capital gains – key figures (2026)
| Item | Figure / rule |
|---|---|
| Tax system | Mirror of the US Internal Revenue Code |
| Tax authority for bona fide residents | Virgin Islands Bureau of Internal Revenue (VIBIR) |
| Long-term capital gains rates | 0% / 15% / 20% (same brackets as US federal) |
| Short-term gains | Ordinary income rates (10%–37%) |
| Net investment income tax (3.8%) | Not part of the mirror code; a US district court held in 2026 that bona fide USVI residents do not owe it |
| Bona fide residence – presence test | Generally 183 days in the USVI in the tax year (alternative tests exist) |
| EDC benefit (qualifying business income) | 90% reduction of income tax on eligible income |
| Pre-residence appreciated property | Gain allocated to US source under IRC 937 rules (10-year window) |
How the USVI mirror system works
The USVI do not have their own income-tax code: they apply the US Internal Revenue Code, replacing "United States" with "Virgin Islands". As a result:
- rates, brackets and definitions of capital gains are the same as in the US;
- a bona fide USVI resident who files and pays in the USVI is generally relieved of US federal income tax on USVI-source and effectively connected income;
- US citizens who are not bona fide residents but have USVI income file with both the IRS and VIBIR, splitting the tax.
Who is a bona fide USVI resident?
Under IRC section 937, you must satisfy three tests for the whole year:
- Presence test – usually at least 183 days in the USVI during the tax year (alternatives include 549 days over three years with a 60-day minimum, or limited presence in the US).
- Tax home test – your main place of business or employment is in the USVI.
- Closer connection test – you have no closer connection to the US or a foreign country than to the USVI (home, family, driver's licence, voting, bank accounts, etc.).
You report your status change to the IRS with Form 8898 in the year you become or stop being a bona fide resident.
How capital gains are sourced
The key question for a gain is where it is sourced:
- Personal property (e.g. shares) sold by a bona fide resident – generally USVI-source, so taxable only in the USVI…
- …except for appreciation accrued before you became resident: under the section 937 regulations, gain on property held before becoming resident is treated as US-source to the extent of pre-move appreciation if sold within 10 years of becoming resident.
- US real property – always US-source and taxed by the IRS (FIRPTA-type rules do not apply to US citizens, but the gain is US-source).
- Business assets of an EDC beneficiary – gains on assets used in the qualifying business can benefit from EDC relief if the certificate covers them.
Example: A US founder moves to St. Thomas in 2026 and becomes a bona fide resident. In 2029 she sells shares bought in 2020 at a USD 2 million gain, of which USD 1.5 million accrued before her move. The USD 1.5 million pre-move gain is US-source and taxed by the IRS; the USD 0.5 million is USVI-source and taxed in the USVI at the mirror rates.
The EDC programme and capital gains
The Economic Development Commission (EDC) grants qualifying businesses (minimum investment and local employment conditions) benefits including a 90% reduction of income tax on eligible business income and exemptions from certain local taxes. It is designed for active business income, not passive portfolio gains. Investors relocating mainly to sell appreciated assets usually find that the sourcing rules above limit the benefit.
Points for location-independent professionals
- US citizens remain US taxpayers; the USVI route only works through bona fide residence and correct filing with VIBIR.
- Remote consultants with clients on the mainland can structure through an EDC-approved USVI business if they meet employment and investment requirements; income must be effectively connected with the USVI business.
- Documentation matters: the IRS has audited USVI residency claims; keep presence records, lease, local ties and Form 8898 filings.
Frequently asked questions
Does the US Virgin Islands have capital gains tax?
Yes. The USVI mirror the US tax code, so long-term capital gains are taxed at 0%, 15% or 20% and short-term gains at ordinary rates. Bona fide residents pay the tax to the Virgin Islands Bureau of Internal Revenue instead of the IRS on USVI-source gains.
What are the USVI tax residency requirements?
You must meet the presence test (generally 183 days), have your tax home in the USVI and have no closer connection to the US or another country, for the whole tax year. You report the change with IRS Form 8898.
Can I avoid US capital gains tax by moving to the USVI?
Not on gains that accrued before your move: sourcing rules allocate pre-residence appreciation to the US if you sell within 10 years. Gains accruing after you become a bona fide resident can be USVI-source.
Does the EDC programme exempt capital gains?
The EDC mainly reduces tax on qualifying active business income by 90%. Passive investment gains are generally not covered unless they relate to the approved business.
Do I still file a US tax return as a USVI resident?
A bona fide resident with only USVI-source income usually files with VIBIR, not the IRS, but must file Form 8898 when residence changes and may need a US return for US-source income.
Related guides
- How to obtain tax residency in the US Virgin Islands
- Corporate income taxes in the US Virgin Islands
- Tax incentives in the US Virgin Islands
- British Virgin Islands tax residency
Sources
- US Internal Revenue Code, section 932, 934 and 937 and Treasury regulations under section 937
- IRS Publication 570 (Tax Guide for Individuals With Income From U.S. Territories) and Form 8898 instructions
- Virgin Islands Bureau of Internal Revenue; USVI Economic Development Authority (EDC programme)
This guide is general information, not personalised tax advice.
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