US Expat Taxes for Americans Living in the British Virgin Islands – What You Need to Know
It has been estimated that there are several thousand Americans living in the British Virgin Islands.
Living in the British Virgin Islands is an incredible experience for a number of reasons, including the climate, the beaches and sailing, the community, and the quality of life.
As an American expatriate living in the British Virgin Islands though, what exactly do you need to know regarding filing US expat (and British Virgin Islands) taxes?
All US citizens and green card holders who earn a minimum of around $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in the British Virgin Islands, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040.
While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“For tax purposes, residence is defined as presence in the country for more than six months of a year. Individuals in the BVI pay no income tax; there is no capital gains tax, wealth tax, inheritance or gift taxes, sales tax or VAT.” – Lowtax.net
While most expats won’t pay any income tax in the British Virgin Islands, they can reduce their US tax liability by claiming the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a British Virgin Islands resident. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
British Virgin Islands banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/British Virgin Islands dual citizen, and you have been living in the British Virgin Islands but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
British Virgin Islands taxes – what you need to know
The British Virgin Islands has no income tax, no VAT, no wealth tax, no capital gains tax, and no estate tax.
There is however a small land tax, stamp duty on property transactions, and a payroll tax of 14%, of which 8% is payable by the employee after their first $10,000 of income. (The rate is 10% rather than 14% for small businesses).
As payroll tax is deducted at source, there is no BVI tax filing requirement. If you have any questions about taxes in the British Virgin Islands, direct them to the British Virgin Islands Tax Authority, the Ministry of Finance. We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in the British Virgin Islands that you contact a US expat tax specialist.