DOING BUSINESS IN DELAWARE IN 2023
Since 2003, Healy Consultants Group assists multinational Clients register USA business through Delaware, including opening multicurrency corporate bank accounts with USA top tier banks, without bank signatory travel. A Delaware corporate structure is attractive to multinational Clients because i) there is zero corporation tax in the USA and ii) USA banks do not follow CRS reporting obligations.
|Compare different Delaware entities||Fast business set up solution||Tax exempt LLC||Tax resident C-Corp||Trust|
|Also known as?||LLC||LLC||Corporation||Trust|
|Best use of company?||Doing business outside the USA||Doing business outside the USA||Doing business within the USA||Holding international assets|
|Legally tax exempt if properly structured||Yes||Yes||No||Yes|
|How soon can you invoice Clients/sign sales contracts?||1 week||2 weeks||4 weeks||Not allowed|
|How long to supply corporate bank account numbers?||1 week||12 weeks||12 weeks||12 weeks|
|How long to supply entity registration/tax numbers?||7 weeks||7 weeks||4 weeks||4 weeks|
|How soon can you hire staff?||Not allowed||Not allowed||7 weeks||Not allowed|
|Can do business with USA customers?||No||No||Yes||No|
|USA corporate bank account allowed?||Yes||Yes||Yes||Yes|
|Travel to USA required?||No||No||No||No|
|Corporate Income Tax on net annual profits?||0%||0%||30%||0%|
|Limited liability entity?||Yes||Yes||Yes||No|
|Government grants available?||No||No||Yes||No|
|Minimum paid up share capital?||US$1||US$1||US$1||N.A.|
|Can bid for Government contracts?||No||No||Yes||No|
|Corporate bank account location?||Valley Bank||BNY Mellon||Wells Fargo||BofA|
|Can secure trade finance?||No||No||Yes||No|
|Average total business set up engagement costs?||US$17,180||US$11,500||US$11,500||US$13,830|
|Average total engagement period?||2 months||4 months||4 months||4 months|
Delaware business setup summary
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The Delaware LLC
For the majority of our multi-national Clients wanting to establish a USA entity, Healy Consultants recommends a simple Delaware LLC because:
- Usually, a Delaware LLC suffers less tax than any other USA entity. Only USA income tax is payable on annual net profits of a Delaware LLC, regardless of whether dividends are declared. By contrast, a Delaware corporation suffers USA corporation tax on annual net profits; and USA income tax on company distributions to the shareholders;
- A Delaware LLC does not suffer a personal holding company tax (click link). By contrast and in addition to annual corporation tax of 30%, a closely held Delaware corporation suffers a tax of 20% of undistributed holding company income;
- A Delaware LLC must file a legal annual return (click link), but does not have to file financial statements;
- There are no independent statutory audit requirements for a Delaware LLC;
- A USA LLC is similar to an Limited Liability Partnership (click link), net profits flow through to shareholders. The latter paying income tax in their country of residence;
- A Delaware LLC does not suffer USA corporation tax; only USA income tax;
- If our multi-national Clients’ do not have a business presence in the USA, the members are not issued an income tax number by the IRS. Consequently, it is difficult to submit an annual income tax return;
- If our Client needs a reputable low tax entity for international trading, we recommend a simple Delaware LLC and a Citibank corporate bank account. However, the bank signatory needs to travel to the USA.
Why choose a Delaware entity when doing business in the USA?
- Foreign corporate shareholders need to register for Employer Identification Number (EIN) tax at all times. IRS will not share tax information with the Client’s home country;
- Of all the USA states, Delaware is the most pro-business friendly state including i) State laws that favour employers more than employees and ii) case law that welcomes entrepreneurs and multi-national companies and iii) General Corporation Law that favors directors over shareholders and iv) Delaware case and State law if consistent, transparent and predictable;
- Because of the above, 60% of the Fortune 500 companies are incorporated in Delaware;
- Business set up is fast and easy because i) company registration without employees and office premises is common ii) no income tax payable if all business is conducted outside the State;
- Delaware tax is lower than most other USA States because:
- lower personal income tax rates, compared to other USA States;
- there is no sales tax in Delaware;
- Delaware does not impose state withholding taxes on dividends or interest or royalties paid to overseas shareholders;
- Delaware does not tax imports or exports;
- No personal property or inventory taxes. Corporations can own their own office spaces without suffering property tax;
- There is no inheritance tax in Delaware, nor withholding taxes on dividends or interest or royalties paid to overseas shareholders, nor capital gains tax on transfer of stock/equity;
- Compared to other states, Delaware offers very low franchise taxes including a flat tax of US$ 100 for a C Corp and US$ 250 for an LLC;
- Property tax relief for new construction and improvements of existing property;
- The deferment of import taxes at the Port of Wilmington’s foreign trade zone;
- Public utility tax rebates of 50% on increased consumption for qualifying industries and reduced rate for manufacturers and agricultural processors.
- Because the majority of global banks and financial services companies have a large presence in Delaware; it is easier to i) secure debt and equity finance and ii) conduct M&A activity;
- The Delaware Small Business LIFT program reduces loan costs for a small business employing between 3 and 50 persons. Under the 7-year loan program, the first two years are repayments free and the remaining five years are principal-only repayments;
- There is no public register of shareholders and directors in Delaware. Consequently, our Clients enjoy some confidentiality. By contrast, the majority of USA States have an online public register of shareholders and directors. Instead a one-page document is available to the public, that merely states the name of the Delaware LLC and legal registered office address and the name of the Delaware registered agent;
- Delaware trusts are legally tax exempt if the settlor and beneficiary are not resident in the State;
- Delaware also supports the Delaware Technology Park, home to more than 57 high-tech companies. This partnership of governmental, academic, and private industry provides a location for start-ups in high-technology fields, specifically biotechnology, information technology, and advanced materials. These science-based companies benefit from facilities already set up for science research, an advanced IT infrastructure, and the close proximity of like-minded companies;
- Delaware is positioned first in the nation for industry investment and research and development as well as high-wage service jobs. Mainly because of the proximity of the University of Delaware’s top-notch research centers.
Advantages of Delaware company registration
- Delaware is one of the best jurisdictions in the world for company incorporation because:
- Proving the corporate structure and ownership of a Delaware company is straightforward by issuing a cheap internal document called Certificate of Incumbency, verified by a local registered agent;
- 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 neutral jurisdiction 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) ;
- For business owners living outside the USA, only the USA portion of the income is taxable in the USA. Consequently, their global income sourced from outside of the USA is legally exempt from both USA corporate and personal income tax;
- If a Client has i) only a company number in the USA but ii) staff and directors are based outside the USA, there is no effectively connected income, resulting in zero personal tax liability;
- 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 neutral jurisdiction. 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).
- It takes just one day to confirm the availability of a company name with the Delaware Division of Corporations.
- Obtaining a Certificate of Incumbency is cheap and can be generated in one hour;
- It is easier to attract funding in Delaware, than in most other states in the US. Most angel investors and venture capitalists prefer it for its conducive business environment and high rates of return. Most investment banks also require companies to incorporate in Delaware before going public;
- According to the Limited Liability Company Act, there is no minimum required payment for corporate income tax in Delaware;
- Delaware law allows businesses who have an annual net operating loss to carry forward no more than US$30,000 for each of the previous two years. This carry-forward period is valid for 20 years.
- A business owner i) who is neither a US citizen, permanent resident or tax-resident) ii) who lives outside the USA iii) who only has a company number in the USA iv) whose staff and directors are based outside the US and v) whose company provides services or manufactures goods outside the USA, is legally exempt from USA corporate and personal income tax.
- While the above applies for the majority of cases, it should be confirmed on case-by-case basis.
- To complete company formation in Delaware, no physical company formation forms need to be submitted from abroad
- Healy Consultants Group is pleased to offer virtual office solutions, as per our Client’s preference, in Delaware’s economic hub, Wilmington, or capital city Dover.
- Properly structured, a Delaware LLC will also be legally exempt from USA corporate income tax, provided the same has i) no customers in the USA nor ii) staff nor active directors in the USA.
For more information, kindly refer to our page on Advantages of USA company registration.
- Delaware is one of the best jurisdictions in the world for company incorporation because:
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.
- The cost of incorporating in Delaware is higher than in most other US states. As with every state of the USA, Clients need to register in multiple states if they want to conduct business outside Delaware. Multiple state registration also means multiple state reporting requirements. All these add up and increase the cost of maintaining a business, especially if the main business is conducted outside Delaware.
- Without personal travel, activating online banking for a new USA corporate bank account can be a time-consuming process of minimum of 3 weeks;
- During the process of corporate bank account opening, there is an 80% probability that the bank’s in house compliance team will revert asking for additional documents/information;
- A Delaware legal registered address is not sufficient to open a corporate bank account with US banks;
- Delaware does not accept electronic filing of corporate income tax return information. All corporate income tax returns are submitted in hard copy. Healy Consultants Group’s local affiliated office in Delaware can assist to timely submit these documents to the Delaware Division of Revenue.
- An LLC is deemed to be engaged in a trade or business in the USA, and will be subject to USA corporate and personal income tax, if:
- It has at least one ‘dependent agent’ in the USA, i e employees or companies that work for you almost exclusively, and
- This ‘dependent agent’ does something substantial to further your business in the USA, as opposed to something purely administrative, or
- The firm is engaged in ‘considerable, continuous, and regular’ business in the USA.
- Delaware does not accept electronic filing of corporate or personal income tax returns. All tax returns, including any required attachments, must be submitted in paper form. Healy Consultants Group’s local affiliated office in Delaware can assist our international Clients to timely submit the same to the Delaware Division of Revenue.
- To obtain an EIN tax ID from IRS in 2022 takes 30 to 45 days on average for non-USA owners. That said, if our Client requires an urgent EIN tax ID number, Healy Consultants Group can, for additional fees, expedite within five business days.
- Since 2021, the EIN application takes 3 to 4 weeks for IRS to process for non-US owners. However, for an additional fee, Healy Consultants can complete the EIN application for non-US owners within 72 hours.
For more information, kindly refer to our page on Disadvantages of USA company registration.
- While Delaware businesses can be state corporate tax exempt, they will still suffer some costs including:
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. Due to this reason, most investment banking companies choose to incorporate in Delaware prior to making it public ;
- Delaware proves to be an excellent location for start-up companies that are seeking funding from angel investors or venture capitalists. The investors are particularly inclined towards funding Delaware C-Corporations due to their i) high privacy and protection; ii) ease of trading shares; and iii) favourable tax rulings that help in keeping most of the retained earnings of the company;
- 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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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
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