Key takeaways
- The US Virgin Islands (USVI) apply a "mirror code": the US Internal Revenue Code with "Virgin Islands" in place of "United States". Bona fide residents file with and pay the Virgin Islands Bureau of Internal Revenue (BIR) instead of the IRS.
- Bona fide residence under IRC §937 requires three tests: presence (for example 183 days in the USVI), tax home in the USVI and no closer connection to the US or a foreign country.
- Businesses approved by the Economic Development Commission (EDC) can get up to a 90% reduction in income tax on qualifying income for their owners, plus other exemptions, in return for local jobs and investment.
Last reviewed: October 2026
Alongside Puerto Rico, the USVI are one of the few places where US citizens can legally access a large income tax reduction – up to 90% on qualifying business income – without giving up citizenship. This guide explains the bona fide residence tests, the filing rules and the EDC programme in 2026.
USVI tax residency – key figures (2026)
| Item | Rule |
|---|---|
| Tax system | Mirror code of the US IRC; rates 10%–37% |
| Tax authority | Virgin Islands Bureau of Internal Revenue (BIR) |
| Bona fide residence | §937: presence + tax home + closer connection tests |
| Presence test | 183+ days in the USVI in the year (or alternative tests) |
| Reporting | IRS Form 8898 in the year you become or stop being bona fide resident (if income > USD 75,000) |
| EDC incentives | Up to 90% reduction of income tax on qualifying income; gross receipts and property tax exemptions |
| Immigration | US citizens/green-card holders move freely; others need US immigration status |
The three bona fide residence tests
- Presence test – usually 183 days or more in the USVI in the tax year. Alternatives exist, such as spending no more than 90 days in the United States during the year, or 549 days in the USVI over three years with at least 60 days each year.
- Tax home test – your main place of business or employment must be in the USVI.
- Closer connection test – you must not have a closer connection to the US or a foreign country. Factors include your home, family, cars, driver's licence, voter registration, bank accounts and where you file.
You must meet all three for the whole tax year (with special rules for the year of the move).
How filing works
- Bona fide residents file Form 1040 with the BIR only and report worldwide income. They owe no US federal income tax on that income if they file and pay correctly in the USVI.
- US residents with USVI-source income file with both, splitting the tax.
- USVI-source income rules matter for EDC benefits: the 90% reduction only applies to income effectively connected with the approved business in the USVI.
EDC programme in brief
Approved beneficiaries commit to a minimum capital investment, local hiring and local spending/charitable contributions. In return they can get up to a 90% reduction in income tax on qualifying income, and exemptions from gross receipts tax and excise and property taxes for a set period.
Example: A New York investment manager sets up an EDC-approved advisory firm in St Thomas, moves his family there and spends 250 days a year on the island. As a bona fide resident, his qualifying management fees benefit from the 90% reduction. Gains on investments he held before the move are not treated as USVI-source income under the §937 rules (for 10 years) and do not benefit from the EDC reduction.
Frequently asked questions
How do I become a bona fide resident of the US Virgin Islands?
Meet the presence, tax home and closer connection tests of IRC §937 for the whole year, and file Form 8898 when your status changes if required.
Do USVI residents pay US federal income tax?
Bona fide residents pay income tax to the Virgin Islands BIR under the mirror code instead of the IRS.
What is the USVI EDC programme?
An incentive programme giving approved businesses up to a 90% income tax reduction on qualifying income, in return for investment and local jobs.
Can non-US citizens move to the USVI?
Only with a US immigration status, such as a green card or a valid visa, because the USVI follow US immigration law.
Related guides
- Capital gains tax in the US Virgin Islands
- Corporate income taxes in the US Virgin Islands
- Business expenses in Puerto Rico
Sources
- IRS Publication 570 – Tax guide for individuals with income from US territories; IRC §932 and §937; Form 8898
- Virgin Islands Bureau of Internal Revenue; USVI Economic Development Authority
This guide is general information, not personalised tax advice.
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