Delaware legal and accounting and tax considerations in 2024
Since 2003, Healy Consultants Group assists multi-national Clients’ timely accurately and completely discharge their legal, accounting, audit and tax obligations. If properly structured, a Delaware LLC is the optimum corporate structure.
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Delaware taxes
- A Delaware LLC is known as a pass-through entity and is exempt of USA corporation tax. If certain conditions are met, the shareholders may need to pay USA personal income tax on their share of the annual net profits. If properly structured, a single member Delaware LLC is legally tax exempt of all USA taxes. It is important the shareholder and director reside overseas and does not have a permanent establishment in the USA;
- Because a Delaware entity is incorporated in the US, it is considered a US tax resident vehicle and will suffer US taxes on income derived from within the US including i) rental income from US property, ii) capital gains from the sales of US real estate and iii) investment income from US listed securities including interest and dividends. There is no US tax on profits from the sale of listed securities including bonds and equities.
- Regardless of the location of the shareholders, a Delaware corporation (C-corp) suffers corporation tax of 28.7%; including federal tax of 20% and state tax of 8.7%. Dividend distributions to international shareholders suffers USA withholding tax of 30%;
- A corporation doing business in Delaware and having receipts from Delaware sources is subject to Delaware gross receipts tax at various rates depending on the nature of the business conducted in Delaware.
- Under Section 1902(b), Title 30, Delaware Code, corporations that may be exempt from corporate income tax include i) those maintaining a statutory corporate office in Delaware but not doing business in the state, ii) a domestic international sales corporation, iii) an investment company and iv) a real estate mortgage investment trust.
- April 15 is the filing deadline for Corporations and Individuals. Partnership returns are due by March 15.
- Financial Statements themselves are not required to be filed with the IRS, but are necessary to prepare the tax returns.
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Other taxes in Delaware
- A corporation incorporated under the laws of Delaware is also subject to an annual corporate franchise tax.
- Delaware impose state withholding taxes on dividends, interest or royalties paid to overseas shareholders.
- Delaware does not tax imports or exports.
- Delaware does not impose state sales taxes. Instead, Delaware imposes a gross receipts tax on total receipt of a business received from goods sold and services rendered within Delaware;
- Delaware’s annual franchise tax is payable on 1 March for corporations and 1 June for an LLC. Depending on the amount of paid-up share capital, the minimum annual franchise tax ranges from US$75 to US$18,000. Usually our multi-national Clients’ only pay US$ 300;
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Delaware Covid-19 relief
- The Delaware government have approved a Relief Grants Program amounting to US$176 million to assist Delaware i) small businesses and ii) eligible non-profit organization affected by the Covid-19 crisis.
- The grants can be used to i) purchase equipment for Covid-19 safety ii) refinance debt incurred due to Covid-19 iii) advertise expenses incurred as a result of Covid-19 and iv) fixed expenses accrued during Covid-19.
- The Delaware government has also approved a health care relief fund for the health care industry. This includes i) home health care agencies ii) intellectual and development disability providers iii) nursing homes and assisted-living facilities iv) behavioural health service providers, and v) Delaware hospitals.
- The fund can be used to purchase Covid-19 related investments including technology upgrades and purchase of personal protective equipment (PPE).
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C-corporation
- The C-corporation must file a Form 1120 each year to report its income and to claim its deductions and credits.
- Filing due date is 15th April annually
- Delaware Franchise tax and annual report is due annually before 1st March
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Single member LLC
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Partnership
- A partnership must file Partnership Returns (form 1065 and any other required forms) by 15th March annually
- Partnership will issue form K-1 to each of the partners indicating their proportionate share of income or loss.
- Each partner, in turn, will need to file its own tax returns by 15th April. Individual partners will file form 1040, and corporate partners will file form 1120.
- Delaware Franchise tax is due annually before 1st June
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Individual tax identification number (ITIN) application
- A Delaware LLC with only one member is treated as an entity disregarded as separate from its owner
- For federal income tax purposes, a single-member LLC classified as a disregarded entity generally must use the owner’s social security number (SSN) or employer identification number (EIN) for all information returns and reporting related to income tax
- Hence, is required to provide a Form W-9, Request for Taxpayer Identification Number (TIN) and Certification
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Legal and compliance
- A Delaware LLC may be managed by i) a designated manager or ii) by a corporate board of directors. This is known as a “Manager Managed LLC”. A Delaware LLC managed by the equity owners is known as a “Member Managed LLC”. No management team is put into place and no power is delegated to a manager or the board of directors. The members make all decisions per the provisions set forth in the LLC Agreement as agreed upon by the parties.
- Each Delaware LLC must appoint a state registered resident agent. Healy Consultants Group will act as your Delaware company agent and our annual responsibilities include i) preparation and filing of the annual return, ii) securely maintaining company records, iii) liaising with the Delaware government and iv) legal filing of changes of company structure.
- Before 15 April each year, a Delaware LLC annual tax return must be submitted to the Internal Revenue Service (IRS), reporting i) annual net profits, ii) member allocation of profit and loss and iii) balance sheet assets and liabilities;
- In accordance with Internal Revenue Service guidelines, all entities are must register for an Employee Identification Number (EIN). The EIN is also a requirement before a business can hire employees in Delaware and open a US bank account. This tax number is not a corporation tax number nor a personal income tax number of the beneficial owners. The IRS does not share tax information with the Client’s home country. It takes two months to receive an EIN from the IRS, delaying the corporate bank account opening process;
- Delaware does not impose thin capitalisation rules, control foreign company rules, nor transfer pricing rules.
- Delaware allows corporations to carry forward net operating losses for up to 20 years. For two prior years, Delaware allows a maximum of US$30,000 losses to carry back;
- A Delaware LLC is exempt from an independent statutory annual audit.
- The Limited Liability Companies Act stipulates each Delaware entity must appoint a State registered resident agent. Healy Consultants Group will act as your Delaware company agent and our annual responsibilities include i) preparation and filing of the annual return in 2021 and ii) securely maintaining company records iii) liaising with the Delaware Government on behalf of our Client iv) legal filing of changes of company structure and v) reminding our Client of annual statutory deadlines. Furthermore, our Client must maintain a legal registered office in Delaware, to which all official government communications and notices may be addressed. To comply with this statutory requirement, Healy Consultants Delaware business office will be the registered office address for your local entity. Thereafter, this address will be used to receive Government correspondence including i) annual tax returns and ii) bank statements; iii) other Government communications. Our Client can place Healy Consultants Group Delaware office address (click link) on invoices, contracts, websites and business cards;
- It is important our Clients are aware of their personal and corporate tax obligations in their country of residence and domicile. Let us know if you need Healy Consultants Group help to clarify your local and international annual tax reporting obligations;
Conclusion
Doing business in the USA is easy, if you know how. If properly structured, a USA entity can be a tax efficient vehicle to do business within the USA and overseas.
