USVI – Big money comes. Big money goes. But when it leaves a major hole in a Territory’s finances it could upend your financial planning, and so you have to sit up straight in your seat and take notice of why the big bucks went flying out the door.
The departure from the U.S. Virgin Islands of two high-net-worth individuals will cost the Territory an estimated $35 million to $40 million in income tax revenue this year. Bureau of Internal Revenue (BIR) Director Joel Lee warned lawmakers at a recent budget meeting that these two high-end exists will impact the budget in such a negative manner that it could spark fears of a domino effect among some of the Territory’s top taxpayers.
The Territory relies heavily on personal income tax collections to support its spending plans which will come to a proposed $1.6 billion for FY 2027. The sudden loss of $35 to $40 million in receivables by only two individuals has to give the powers that be a long moment of thought when they see a noticeable mid-year downturn in collectables, and wonder why such an abrupt event occurred.
The departures has cost the Territory both expected extension payments and final payments since both these taxpayers are taxed on their worldwide income as residents.
The topic came into play during Director Lee’s visit to the Legislature during the recent FY 2027 budget hearings.
“Director Lee, have you recognized over the last several months that we have seen a downturn in income tax collection,” Senator Novelle Francis Jr. queried him and asked what he attributed to the downturn.
Mr. Lee pointed to the loss of high-income taxpayers who had been part of the Territory’s personal income tax base.
“As I mentioned in the budget overview, we have lost some very high net worth individuals, they have moved back to the States for whatever reason, and they were a significant part of our taxes,” the Director replied.
Mr. Lee did not identify the individuals who left the Territory and stated the Bureau could not have predicted their departure. He stated that besides the loss of the two taxpayers, collections were running ahead of last year’s performance. “We’re currently above what we did last year. Had those individuals stayed, we would be doing very well.
Although it is impossible to ascertain why these two major earners left the beautiful environs of the USVI, there are a number of reasons why high-net-worth individuals move back to the States from the islands. It can be due to inadequate healthcare facilities, the need to be nearer to medical specialists or it could have reasons that require their children to have access to top-tier private prep schools and prestigious universities.
Other reasons may involve unreliable power grids, intermittent internet access and costly shipping logistics that make managing a luxury lifestyle and multiple properties on island deeply frustrating compared to the seamless infrastructure available in the U.S.
There is also the matter of intense IRS residency audits that are borne from a Territory’s tax incentive programs that require strict compliance. Many high earners return to the States when facing close IRS scrutiny or audits regarding their physical presence and income-sourcing rules. Despite moving assets offshore, U.S. citizens remain subject to taxation on worldwide income, necessitating strict adherence to IRS reporting requirements.
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