GILTI and how it impacts the US Virgin Islands

To prevent offshore tax avoidance, the US implemented Global Intangible Low-Tax Income (GILTI) to ensure American companies pay their fair share. It is a US tax created to stop American companies and citizens from avoiding taxes by shifting profits to foreign companies they control. These foreign businesses, known as controlled foreign corporations (CFCs), must be more than 50% owned by US individuals or corporations, with each owner holding at least 10% of the company.

GILTI mainly targets income tied to intellectual property (IP)—like patents, copyrights, trademarks, and licenses—because these are easy to move to low or no-tax countries. Congress added GILTI in the 2017 Tax Cuts and Jobs Act (TCJA) after finding that US shareholders were using foreign subsidiaries to shelter income and reduce their US tax bills.

To close this loophole, GILTI applies a minimum tax—between 10.5% and 13.125%—on foreign income above a normal rate of return (defined as 10% of the company’s tangible assets). Any extra income is treated as IP-related and taxed accordingly.

However, this has a different impact on the US Virgin Islands because of the way Global Intangible Low-Tax Income is structured. US citizens who choose to invest in the Virgin Islands are subject to more taxation despite the territories being a part of the United States, which discourages investment in an American jurisdiction.

The US Virgin Islands Government posted a statement from their Governor speaking on revising the issue. Governor Albert Jr. stated, “This isn’t about creating a loophole—it’s about fixing a mistake,” the Governor added. “It ensures that investors view the Virgin Islands as a viable, stable, and fair destination for long-term economic development”. Moving forward to promote fair economic development across the nation has sparked discussion on how GlLTI should aim to include and support US territories in their tax incentive programs.