H.R. 368: Territorial Tax Parity and Fairness Act

The Territorial Tax Parity and Fairness Act (H.R. 368) aims to amend the Internal Revenue Code related to the taxation of certain individuals and corporations in the Virgin Islands. Below are the key provisions of the bill:

1. Key Changes to Tax Treatment

• The bill proposes to change how bona fide residents of the Virgin Islands are treated for tax purposes, specifically regarding their income from Virgin Islands corporations.
• It seeks to specify that certain individuals who qualify as bona fide residents will not be considered United States persons when calculating their taxable income from dividends received from corporations that are organized in the Virgin Islands.

2. Definition of Bona Fide Residents

• Bona fide residents of the Virgin Islands are defined in the context of receiving dividends from local corporations.
• The bill indicates that dividends received from these corporations will be treated as income sourced within the Virgin Islands, exempting these individuals from certain U.S. tax obligations.

3. Amendments to Existing Law

• The amendment will modify Section 957(c) of the Internal Revenue Code, which currently includes certain individuals as U.S. persons based on their holdings in foreign corporations.
• The new provision will exclude bona fide residents of the Virgin Islands from this classification, provided the dividends they receive qualify under the newly defined rules.

4. Effective Date

• The changes introduced by this bill would take effect for taxable years of foreign corporations beginning after December 31, 2024.
• It will also apply to the taxable years of individuals that coincide with those of the corporations.

5. Purpose of the Bill

The main goal of the Territorial Tax Parity and Fairness Act is to provide tax relief and fairness for residents of the Virgin Islands. By adjusting how they are classified for tax purposes, the bill aims to promote greater economic stability and growth in the region.

Relevant Companies

• None found