Frederiksted, US Virgin Islands Short-Term Rental Regulation: A Guide For Airbnb Hosts

What are Short-Term Rental (Airbnb, VRBO) Regulations in Frederiksted, US Virgin Islands?

Short-term rentals through booking platforms like Airbnb and VRBO have become increasingly popular in Frederiksted and across the US Virgin Islands. However, there are specific regulations and licensing requirements that short-term rental operators must follow.

Starting a Short-Term Rental Business in Frederiksted

Ever since July 1, 2021, the US Virgin Islands Department of Licensing and Consumer Affairs (DLCA) requires a specific business license to operate a short-term rental for stays less than 90 days. There are two license categories:

• "Short Term Rental A" for properties accommodating 5 or more guests, with an annual fee of $260
• "Short Term Rental B" for properties accommodating up to 4 guests, with an annual fee of $195

The licenses aim to ensure short-term rental operators pay the 12.5% Hotel Room Occupancy Tax. While Airbnb collects and remits this tax on behalf of its hosts based on a 2017 agreement, other platforms rely on the honor system. The licenses also allow homeowners associations (HOAs) to monitor compliance with any short-term rental restrictions in their bylaws.

Short-term rentals appear to be a lucrative business in Frederiksted. According to AirDNA data, the 244 active rentals have an average occupancy of 45%, a $256 average daily rate, and $23,576 in average monthly revenue.

However, aspiring short-term rental operators should carefully review zoning codes and HOA bylaws before starting. The Virgin Islands Zoning and Subdivision Code governs land use and may restrict short-term rentals in certain areas. Some HOAs allow long-term but not short-term rentals.

Real estate investing forums like BiggerPockets have discussions on navigating the short-term rental landscape in the USVI. Users advise researching island-specific foreign ownership restrictions, rental regulations, and retirement lifestyle factors.

The DLCA has said the new short-term rental license requirements aim to level the playing field and ensure all lodging providers pay their fair share of taxes. With the proper licensing and due diligence, a short-term rental can be a profitable investment in Frederiksted. Consulting with local officials and real estate professionals is prudent when evaluating locations and regulations.

Short-Term Rental Licensing Requirement in Frederiksted

Ever since July 1, 2021, the US Virgin Islands Department of Licensing and Consumer Affairs (DLCA) requires a specific business license to legally operate a short-term rental for stays less than 90 days in Frederiksted and throughout the territory. The licensing process involves several steps and documentation requirements:

1. Submit a completed Application for U.S. Virgin Islands Business License to the DLCA's Licensing Division. The application must specify either a "Short Term Rental A" license for properties accommodating 5 or more guests ($260 annual fee) or a "Short Term Rental B" license for properties accommodating up to 4 guests ($195 annual fee).
2. Obtain a Certificate of Trade Name/Partnership and Corporation Registration from the Lt. Governor's Office.
3. Provide a Tax Clearance Letter from the Virgin Islands Bureau of Internal Revenue (BIR) showing the applicant is current on their tax obligations.
4. Pass a Police Records Check conducted electronically by the DLCA Licensing Division.
5. Secure Zoning Approval from the Department of Planning and Natural Resources, which is also handled electronically by the DLCA upon application submission.
6. Pass a Fire Inspection from the local Fire Service to ensure compliance with fire codes. The fire inspector will require a copy of the deed or lease evidencing property ownership or possession.
7. For certain property types, pass a Health Inspection from the Department of Health.
8. If applicable, obtain any required Board Certifications, such as for construction contractors, electricians, plumbers, real estate appraisers, etc.

The typical processing time is not specified, but the DLCA advises having the property ready for all required inspections and complying with all rules and regulations prior to submitting the business license application to avoid delays.

Failing to secure the proper short-term rental license can result in fines and penalties. The DLCA has said the new licensing requirement aims to level the playing field, ensure tax compliance, and allow homeowners associations to enforce any short-term rental restrictions in their bylaws.

Short-term rental operators in Frederiksted must also register with the BIR and file monthly occupancy tax forms along with the 12.5% Hotel Room Occupancy Tax payment. While Airbnb collects and remits this tax for its hosts, other platforms rely on the rental operator to handle the tax filings.

Careful due diligence on local zoning laws, HOA bylaws, business licensing, and tax obligations is crucial before starting a short-term rental in Frederiksted. With the proper planning and compliance, a vacation rental can be a profitable investment in this popular Caribbean destination.

Required Documents for Frederiksted Short-Term Rentals

To obtain a short-term rental license in Frederiksted, applicants must submit the following documents to the Department of Licensing and Consumer Affairs (DLCA):

1. Application for U.S. Virgin Islands Business License: This form, available from the DLCA's Licensing Division, is the primary application for the short-term rental license. It must specify either a "Short Term Rental A" license for properties accommodating 5 or more guests or a "Short Term Rental B" license for properties accommodating up to 4 guests.
2. Certificate of Trade Name/Partnership and Corporation Registration: Obtained from the Lt. Governor's Office, this document registers the business name and ownership structure.
3. Tax Clearance Letter: Issued by the Virgin Islands Bureau of Internal Revenue (BIR), this letter certifies the applicant is current on their tax obligations.
4. Police Records Check: The DLCA Licensing Division conducts this background check electronically upon application submission.
5. Zoning Approval: The DLCA secures this approval from the Department of Planning and Natural Resources electronically to ensure the rental property complies with zoning regulations.
6. Fire Inspection: The local Fire Service conducts this inspection to verify compliance with fire codes. The applicant must provide the fire inspector with a copy of the deed or lease evidencing property ownership or possession.
7. Health Inspection: For certain property types, the Department of Health performs this inspection to ensure sanitary standards are met.
8. Board Certifications: If applicable, the applicant must submit any required professional certifications, such as for construction contractors, electricians, plumbers, real estate appraisers, etc.
9. Proof of Liability Insurance: Short-term rental operators must provide documentation of commercial liability insurance coverage suitable for the rental property. A "Rental Endorsement" or "occasional rental use" acknowledgment should be identified on the insurance document.
10. Proof of MDH Lodging License: A license from the Minnesota Department of Health (MDH) is required for short-term rentals. Applicants must submit either the actual MDH Lodging License or acknowledgment that the MDH license review process is underway.

These comprehensive documentation requirements aim to ensure short-term rental operators are properly licensed, insured, and compliant with health, safety, zoning, and tax regulations. The DLCA's centralized application process streamlines approvals from multiple agencies. However, it remains the owner's responsibility to fully comply with all applicable laws beyond the county ordinance.

Careful preparation of the required documents, along with the $195-$260 annual license fee, is essential for obtaining a short-term rental permit in Frederiksted. The DLCA Licensing Division is available to assist applicants through the process.

Frederiksted Short-Term Rental Taxes

Short-term rental operators in Frederiksted must comply with several tax obligations at the territorial level:

Hotel Room Occupancy Tax: Short-term rentals are subject to a 12.5% Hotel Room Occupancy Tax on the gross rental rate, including any additional fees like energy surcharges or maintenance fees. The tax is paid by the guest, but the rental operator is responsible for collecting and remitting it to the Virgin Islands Bureau of Internal Revenue (BIR).

Airbnb collects and remits this tax on behalf of its hosts based on a 2017 agreement with the USVI government. However, operators using other booking platforms must handle the tax filings themselves.

Gross Receipts Tax: Rental income is subject to a 5% Gross Receipts Tax, calculated on all receipts without any deduction for costs or expenses. There is generally a $9,000 per month exemption, but annual gross receipts over $225,000 eliminate this exemption.

Short-term rental operators must file Form 720-B annually by January 30, even if no tax is owed. If annual gross receipts exceed $225,000, a monthly Form 720-VI is required instead, due 30 days after each calendar month.

Income Tax: Net income from short-term rentals is subject to USVI income tax at ordinary rates. Bona fide USVI residents must report worldwide income, including from rentals outside the territory. A foreign tax credit may be available for income taxes paid to other jurisdictions.

Deductions and Write-Offs

Short-term rental operators can deduct certain expenses to calculate net taxable rental income:

1. Mortgage interest
2. Property taxes
3. Insurance
4. Utilities
5. Repairs and maintenance
6. Supplies
7. Depreciation on assets

If the rental is part of the operator's primary residence, expenses must be allocated between rental and personal use based on the number of days used for each purpose. Improvements that increase property value or useful life may need to be depreciated rather than deducted immediately.

Thorough record-keeping is essential to substantiate deductions in case of an audit. The IRS Publication 527, Residential Rental Property, provides detailed guidance on allowable rental expenses.

Consulting with a tax professional is advisable to optimize deductions and ensure proper tax compliance for a short-term rental business in Frederiksted. With diligent expense tracking and timely tax filings, operators can minimize their tax liability while providing a valuable lodging alternative in this Caribbean destination.

US Virgin Islands Wide Short-Term Rental Rules

In addition to the licensing requirements in Frederiksted, short-term rental operators must comply with territory-wide laws and regulations in the US Virgin Islands:

1. Definition of Short-Term Rental: The USVI Department of Licensing and Consumer Affairs (DLCA) defines a short-term rental as an establishment primarily engaged in providing accommodations for less than 90 days as tourist or vacation rentals in private homes, condominiums, or villas (except hotels, motels, casino hotels, and bed-and-breakfast inns).
2. Zoning and Land Use: The Virgin Islands Zoning and Subdivision Code governs land use throughout the territory. Short-term rentals may be restricted in certain zoning districts. Operators should check with the Department of Planning and Natural Resources to ensure their property is zoned for short-term rentals.
3. Hotel Room Occupancy Tax: All short-term rentals are subject to a 12.5% Hotel Room Occupancy Tax on the gross rental rate. Airbnb collects and remits this tax for its listings under a 2017 agreement with the USVI government. Operators using other platforms are responsible for collecting and remitting the tax to the Virgin Islands Bureau of Internal Revenue (BIR).
4. Business Gross Receipts Tax: Rental income is subject to a 5% Gross Receipts Tax, with a $9,000 per month exemption. Annual gross receipts over $225,000 eliminate the exemption. Operators must file Form 720-B annually, or Form 720-VI monthly if over the exemption threshold.
5. Income Tax: Net income from short-term rentals is subject to USVI income tax at ordinary rates. Bona fide USVI residents must report worldwide income. Certain expenses like mortgage interest, insurance, utilities, and depreciation may be deducted.
6. Homeowners Association Rules: Short-term rental operators must comply with any restrictions in their lease, condominium, co-op, or homeowners association bylaws. Some HOAs allow long-term but prohibit short-term rentals.
7. Insurance: Owners should review their insurance policy and secure appropriate liability coverage and property protection for short-term rental use. Airbnb provides secondary coverage, but it does not replace a comprehensive rental insurance policy.

While there is no territory-wide cap on the number of nights per year a property can be rented short-term, the 90-day maximum stay helps distinguish genuine short-term rentals from longer-term tenancies subject to landlord-tenant law.

The USVI government has said the short-term rental regulations aim to level the playing field, ensure tax compliance, and help homeowners associations enforce rental restrictions. By complying with these rules and securing proper licensing, short-term rental operators in Frederiksted can legally capitalize on the popularity of this Caribbean destination.

Does Frederiksted Strictly Enforce STR Rules?

Based on discussions in real estate investing forums like BiggerPockets and Reddit, it appears that short-term rental regulations are not strictly enforced in Frederiksted or the US Virgin Islands as a whole. Many hosts seem to operate without obtaining the required licenses or paying the 12.5% Hotel Room Occupancy Tax.

While the USVI government has expressed interest in cracking down on non-compliant short-term rentals, there is a lack of manpower and systems to effectively enforce the rules. Some Reddit users have criticized the government for being "lazy" in this regard and unfairly punishing hosts who try to comply with the law.

Compared to other destinations, the USVI and Frederiksted appear to be relatively Airbnb-friendly in practice, if not on paper. The 12.5% occupancy tax is on the higher end, and the licensing process is somewhat onerous. But the seemingly lax enforcement enables many hosts to fly under the radar.

However, operating without a license is not without risk. The USVI Department of Licensing and Consumer Affairs (DLCA) has the authority to issue fines and shut down illegal short-term rentals. And the lack of a license could void insurance coverage and leave hosts liable in case of guest injuries or property damage.

For those reasons, real estate investors on BiggerPockets and Reddit generally advise complying with short-term rental regulations in Frederiksted and the USVI, despite the lack of strict enforcement. Obtaining the proper license, tax clearance, and insurance coverage provides peace of mind and a measure of protection for STR operators.

So while Frederiksted may be considered Airbnb-friendly compared to some markets, hosts should not assume they can ignore the rules with impunity. The DLCA could always step up enforcement, and the downside risks of non-compliance can be severe. Responsible hosts will dot their i's and cross their t's before listing on Airbnb or other short-term rental platforms in Frederiksted.

How to Start a Short-Term Rental Business in Frederiksted

Starting a short-term rental business in Frederiksted requires careful planning and compliance with local regulations. Here are the key steps to get started:

1. Research zoning and HOA rules: Before purchasing a property, check with the Department of Planning and Natural Resources to ensure short-term rentals are allowed in that zoning district. If the property is part of a homeowners association, review the bylaws for any restrictions on short-term rentals. Some HOAs allow long-term but prohibit short-term rentals.
2. Obtain a business license: Apply for either a "Short Term Rental A" license for properties accommodating 5 or more guests ($260 annual fee) or a "Short Term Rental B" license for properties accommodating up to 4 guests ($195 annual fee) from the Department of Licensing and Consumer Affairs (DLCA). The application requires a police record check, zoning approval, fire inspection, and other documentation.
3. Register with tax authorities: Register with the Virgin Islands Bureau of Internal Revenue (BIR) to obtain an Employer Identification Number (EIN) and file monthly Hotel Room Occupancy Tax returns. Short-term rental income is also subject to Gross Receipts Tax and income tax, although there are some exemptions.
4. Prepare the property: Furnish and equip the rental to appeal to target guests. Install safety features like smoke detectors, fire extinguishers, and first aid kits. Consider hiring a professional photographer to showcase the property in its best light for online listings.
5. Create a listing: List the property on popular vacation rental platforms like Airbnb and VRBO. Craft an enticing description, use high-quality photos, and set competitive rates based on comparable rentals in the area. Be transparent about house rules, amenities, and any quirks of the property.
6. Automate operations: Utilize vacation rental software to streamline reservations, guest communication, cleaning coordination, and pricing optimization. Install a keyless entry system for easy guest check-in and check-out.
7. Obtain proper insurance: Secure commercial liability insurance and property protection suitable for short-term rentals. Airbnb provides secondary coverage, but it does not replace a comprehensive vacation rental insurance policy. Look for a policy that covers vacation rental-specific risks.
8. Establish a local support team: Hire a reputable property manager, housekeeper, and maintenance professional to assist with on-the-ground guest needs, cleaning, and upkeep. Provide them with clear instructions and fair compensation. Having a local presence is key to delivering a quality guest experience.
9. Market and promote: In addition to listing on vacation rental platforms, create a property website and social media accounts to showcase the rental. Encourage satisfied guests to leave online reviews. Partner with local businesses to offer discounts or packages to guests.
10. Comply and adapt: Stay informed of any changes to short-term rental regulations in Frederiksted and adjust business practices accordingly. Maintain accurate records for tax purposes and renew licenses on time. Seek feedback from guests and make continuous improvements to the property and guest experience.

Successfully operating a short-term rental business requires a guest-centric mindset, attention to detail, and a commitment to compliance. By following these steps and prioritizing guest satisfaction, short-term rental hosts in Frederiksted can tap into the growing demand for unique and authentic travel accommodations in this Caribbean destination.

Who to Contact in Frederiksted about Short-Term Rental Regulations and Zoning?

For questions about short-term rental regulations and licensing in Frederiksted and the US Virgin Islands, contact:

Department of Licensing and Consumer Affairs (DLCA)

Licensing Division
45 Estate Mars Hill
Frederiksted, VI 00840
Phone: (340) 773-2226

The DLCA Licensing Division handles applications for the required "Short Term Rental A" or "Short Term Rental B" business licenses. They can provide guidance on the application process, required documentation, and fees.

For questions about zoning regulations and approval for short-term rentals, contact:

Department of Planning and Natural Resources (DPNR)

Division of Comprehensive and Coastal Zone Planning
45 Estate Mars Hill
Frederiksted, VI 00840
Phone: (340) 773-1082

The DPNR Division of Comprehensive and Coastal Zone Planning administers zoning maps and regulations in the US Virgin Islands. They can clarify if a particular property is zoned for short-term rental use.

Short-term rental operators may also find the following online resources and communities helpful:

1. USVI Vacation Rentals Facebook Group - A forum for vacation rental owners and managers to share tips and ask questions.
2. VI Consortium Forum - A general discussion forum for residents of the US Virgin Islands, with some threads on real estate investing and short-term rentals.
3. USVI Airbnb Hosts Facebook Group - A private group specifically for Airbnb hosts in the US Virgin Islands to network and troubleshoot issues.

While online forums can provide helpful anecdotes and suggestions, always defer to official government sources like the DLCA and DPNR for the most accurate and up-to-date regulatory information. Consulting with a local attorney well-versed in land use and short-term rental law is also prudent before starting an STR business in Frederiksted.

What Do Airbnb Hosts in Frederiksted on Reddit and Bigger Pockets Think about Local Regulations?

Discussions on Reddit and BiggerPockets provide some insight into how short-term rental operators in Frederiksted and the US Virgin Islands view local regulations:

BiggerPockets Forum - "Vacation/ Short Term Rental in the Caribbean": In this thread, a user interested in buying a Caribbean vacation rental property asks for advice on which islands to consider and avoid. While no one specifically mentions Frederiksted or USVI regulations, the consensus is that thorough due diligence on foreign ownership restrictions, zoning laws, and short-term rental rules is crucial before investing.

BiggerPockets Forum - "Virgin Islands our new vacation rental LLC": A user with a new USVI vacation rental asks about forming an LLC with a Florida mailing address but a local registered agent. This highlights the importance of properly structuring and registering a short-term rental business in the USVI.

BiggerPockets Forum - "$300k US Virgin Islands house for Air BnB? Vacancy rate?": A potential investor asks about buying a non-beachfront St. Croix house as a short-term rental. Respondents note the lack of online data for the small island market and advise considering long-term rather than short-term rentals.

BiggerPockets Forum - "Managing AirBnB/VRBO in the Virgin Islands?": An investor who loved visiting St. Croix looks for advice on owning and remotely managing short-term rentals on the island. Respondents suggest focusing on long-term rentals instead, given the management challenges of STRs from afar.

The overall sentiment seems to be that while the USVI is an attractive market, investors need to carefully navigate the regulatory landscape and consider long-term rentals as a potentially easier alternative to short-term rentals. The lack of online data and on-the-ground support can make compliance and management challenging for out-of-territory owners.

Prospective Airbnb hosts should connect with local officials, property managers, and experienced operators to understand Frederiksted-specific regulations and market conditions before diving in. Online forums offer helpful anecdotes but should be balanced with thorough due diligence and professional guidance.

Disclaimer: While we here at BNBCalc strive to keep all of our city regulation guides updated and accurate with all the latest local laws, we still do not suggest using them as your sole or primary source for local regulations. We also do not recommend you rely on the third-party sources we link to or reference, and we are not responsible for any of the information on these third-party sites. These guides are for entertainment purposes only and only provide basic information and should not be considered as legal advice.

We highly recommend directly contacting the responsible parties for each city and hearing what their officials have to say. Ultimately, it's your responsibility as an investor to ensure you fully comply with the local laws, and it's best to speak with professionals before making an investment decision.