May 31, 2006 — As an unincorporated territory of the United States, the U.S. Virgin Islands does not conduct its own foreign affairs. The U.S. Congress is the only body that has the authority to engage in international agreements and treaties on behalf of the territory.
Not many U.S. treaties are applicable to the U.S. Virgin Islands, and those that are applicable have, for the most part, only been informally confirmed as applicable to the territory. For example, these include the bilateral investment treaties and treaties of friendship, commerce and navigation and other international conventions dealing with international commerce. Their application to the U.S. Virgin Islands has been confirmed through informal correspondence between officials of the U.S. State Department and members of the V.I. Bar. This informal practice raises uncertainties among global corporations, which are reluctant to do business in the U.S. Virgin Islands and would rather do business in a foreign country where the rules are clear and potentially more beneficial.
The North American Free Trade Agreement (NAFTA) between the United States, Mexico and Canada does not include the U.S. Virgin Islands. This is tremendously disadvantageous to the territory. One example is the more relaxed flow of specialized human skills available from Mexico and Canada, which is not available to businesses in the territory. Another concern is the importation of rum from Mexico and Canada, which is now competing with the export of V.I. rum into the U.S. mainland and threatens our Interest Revenue Fund, which supports the territory's bonded indebtedness.
Yet another agreement not applicable to the territory is the foreign investment insurance program of the federal Overseas Private Investment Corporation (OPIC). The purpose of OPIC, of which our own Sam Ebbessen served as member, is to mobilize and facilitate the participation of U.S. private capital and skills in the economic and social development of less developed countries and areas, thereby complementing the development assistance objectives of the United States. OPIC pursues its mission by insuring U.S. investors against political risks that include expropriation, currency inconvertibility and political violence; through facilitating the financing of loans and loan guarantees for U.S. investors overseas; and by providing credits to private investment funds that make equity investments in businesses in underdeveloped countries and regions. This program would be feasible in the territory and would substantially boost foreign investment here.
Taxation is a primary concern for foreign investors. And yes, you guessed it: income tax treaties of the United States do not include the U.S. Virgin Islands. Generally, this makes the largely more favorable tax rates among treaty countries not available to foreign investors in the U.S. Virgin Islands. These investors would rather invest in foreign countries and the U.S. mainland before they invest in the U.S. Virgin Islands.
Finally, federal law may actually preclude some foreign citizens from owning real estate in the territory. A U.S. statute explicitly prohibits aliens or persons who are not citizen of the United States from acquiring "title to" or owning "any land in any of the territories of the Unites States" except if such person is a citizen of a country, party to a treaty with the United States. This prohibition extends to non-U.S. corporations. The only mitigating factor in this prohibition is that it can only be enforced by the government through the U.S. Attorney initiating escheat proceedings. While this statute makes the enforcement of the statute less likely, it certainly inhibits foreign investment by anyone from a non-treaty country, who potentially takes the risk of losing their real property in the territory.
This unfriendly environment puts a chilling effect on any foreign investment in the territory. Clearly there are challenges facing foreign investment in the U.S. Virgin Islands. We should encourage our Delegate to Congress and the U.S. Congress to take a more proactive position to amend our federal statutes to encourage foreign investment in America's Paradise, the U.S. Virgin Islands.
Rosh D. Alger is chair of the Tax & Estate Planning Group at Tom Bolt & Associates, P.C., a full service business law firm based on St. Thomas that includes within its practice a concentration in corporate & financial services, real estate, international business, trusts, tax and estate planning.
