DOING BUSINESS IN DELAWARE
Since 2003, Healy Consultants Group PLC has assisted our Clients with business registration in Delaware. Our services include i) Delaware company incorporation ii) business license registration iii) corporate bank account opening iv) immigration related solutions v) office space solutions and vi) employment strategies.
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Advantages and disadvantages
Advantages of Delaware company registration
- Delaware is one of the best jurisdictions in the world for company incorporation because:
- An LLC can be registered in Delaware within a day with 1 director and 1 shareholder, who can be of any nationality. Furthermore, the director and the shareholder can be the same individual. Also, the Client will not have to travel for company incorporation;
- There is no statutory minimum share capital required to set up a Delaware company. Furthermore, it is not mandatory for the Client to open a corporate bank account for their new company. However, Healy Consultants recommends you to have a US bank account for receiving or remitting payments;
- Delaware LLCs not operating in the state are exempt from all state business license requirements. Also, such LLCs will not be required to file financial statements or annual income tax reports with the state government;
- Lastly, a Delaware LLC can be easily converted into a C-Corporation with 1 filing with the state government and 1 filing with the IRS.
- Delaware is hailed as a reputable domestic corporate tax haven because:
- Delaware offers complete privacy to directors and shareholders of the local companies as their names and details are not available for public records. This factor makes Delaware an attractive jurisdiction for company incorporation and contributes towards United States having the 5th highest financial secrecy in the world (Financial Secrecy Index by the Tax Justice Network) ;
- Non-resident shareholders of a Delaware LLC (US LLCs are treated as pass through entities for tax purposes) will be exempt from paying tax on their corporate income if the LLC conducts no business in the state; Similarly, corporations incorporated in Delaware can also be completely exempt from state corporate taxes if they conduct no business within the state. As a result, majority of US resident business have been incorporated in Delaware;
- Delaware resident companies also suffer no taxes on income derived from the use of intangible assets including patents, trademarks and royalties. As result, companies operating in other US states (where intangible assets are taxed) can incorporate Delaware companies for holding their intellectual property and pay licensing fees to their Delaware companies for use of this property. This way, the earnings derived from the use of intangible property will be deductible for Delaware corporate tax purposes;
- Companies owning assets which are expected to earn future income can be state tax exempt by placing the assets in Delaware irrevocable trusts. The Delaware government does not levy tax on distributed income if the beneficiaries of the trusts are not resident in Delaware. Similarly, there will be no tax on accumulated income and capital gains if the remainder beneficiaries are not Delaware residents. Furthermore, unlike companies, trusts are not subject to annual franchise tax;
- Delaware’s corporate law is more developed as compared to other states in the United States. Hence, companies feel more secure when dealing with Delaware’s Court of Chancery as their judges are experienced with resolving corporate disputes Furthermore, Delaware Supreme Court’s judgements on corporate governance are well respected and routinely followed. As result, the US Chamber Institute for legal reform ranked Delaware as the state with the best legal climate in the US;
- Being a US state, Delaware runs no risk of being sanctioned or blacklisted as a tax haven. Furthermore, there is low probability of Delaware changing its tax laws in the near future. Hence, it is definitely the best option for company incorporation in the US.
- Delaware is hailed as the preferred business hub in the USA for foreign investors because:
- Delaware offers complete privacy to directors and shareholders of the local companies as their names and details are not available for public records. This factor makes Delaware an attractive jurisdiction for company incorporation and contributes towards United States having the 3rd highest financial secrecy in the world (Financial Secrecy Index and the Tax Justice Network).
For more information, kindly refer to our page on Advantages of USA company registration.
Disadvantages of Delaware company registration
- While Delaware businesses can be state corporate tax exempt, they will still suffer some costs including:
- All Delaware companies must have a registered agent resident in Delaware. If required, Healy Consultants affiliate office will be pleased to offer this service to our Clients;
- Every Delaware registered entity must pay an annual franchise tax of US$300. This tax must be paid even if the company’s physical office is located in another state. Also, all Delaware based corporations must file an annual report with the Division of Corporations;
- While Delaware is a great jurisdiction for company incorporation, it is not recommended for setting up a physical office. Hence, most companies choose to establish their physical offices in other states. As a result, the company will be required to i) apply for foreign qualification in the other state ii) pay franchise tax in both states and iii) comply with reporting requirements of both states.
- Delaware companies will be subject to annual federal taxes including:
- All shareholders in a US resident LLC will be required to pay withholding tax. If the shareholder is a foreign corporate entity, the withholding tax will be 35%. If the shareholder is a foreign individual, the withholding tax will be 40%;
- Income earnt by foreign nationals not connected to the day-to day running of a resident business (Effectively Connected Income) including dividends, interests, annuities, rents and royalties (Fixed, Determinable, Annual and Periodical Income) are subject to a withholding tax of 30%;
- A C-Corporation in the US will be subject to double taxation. While the income of the corporation is subject to federal tax of up to 35%, the after tax profits distributed to the shareholders are also liable to personal tax of up to 40%.
- US federal tax regulations impose an undue burden on foreign entrepreneurs because:
- All shareholders in an LLC must pay their share of federal tax regardless of whether profits have been actually distributed to them i.e. even if the shareholder decide to re-invest the annual profits of the LLC, they will still have to pay the withholding tax;
- Non-resident shareholders of a US LLC are obligated to file the annual income tax returns with the IRS (form 1040NR and form W-8BEN). This results in additional expenses as US tax law is very complex and requires assistance of a resident tax consultant;
- All non-resident shareholders of a US LLC must apply for a personal Tax Identification Number (TIN).
- It is important our Clients are aware of their personal and corporate tax obligations in their country of residence and domicile, and they will fulfill those obligations annually. Let us know if you need Healy Consultants’ help to clarify your local and international annual tax reporting obligations.
For more information, kindly refer to our page on Disadvantages of USA company registration.
- Delaware is one of the best jurisdictions in the world for company incorporation because:
Best uses for a Delaware company
- Delaware companies are also a good solution for Clients that prioritize privacy, as it is one of the few states in the USA in which the name of the shareholders and directors are not publicly available;
- Lastly, Delaware companies are optimal solutions to hold intellectual property as resident companies are exempt from paying taxes on income derived from the use of intangible assets.
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- Time to incorporate: One week
- Cost to set up: US$8,900
- Minimum capital: US$0
- Physical office required: No
- Shareholders: 1
- Directors: 1
- Company secretary: Yes
- Resident director: No
- Corporate tax rate: Tax-transparent
- Corporate tax base: Worldwide
- Shelf companies: Unavailable
- Main company type: LLC
Useful links for Delaware
Government and public authority websites:
- Delaware Tax Authority
- Delaware Company Registrar
- Delaware company name search
- Central Bank of Delaware
- Delaware Stock Exchange
- Chamber of Commerce
- Delaware airports
- Visiting Delaware
- Deloitte – U.S. highlights 2015
- Investing in the U.S.
- Why Corporations Choose Delaware
- Delaware General Corporation Law
- Securities Regulations and Law
- Solving Delaware’s Revenue Puzzle