Accounting and tax
Corporate taxes in Delaware
Tax rate in Delaware
- A Delaware corporation (C-corp) suffers USA corporation tax under which it is liable to pay Delaware Corporate and LLC taxes. A Delaware LLC also suffers USA personal income tax, which means the owner will pay personal taxes on the business’ profits in addition to the $300 annual LLC tax;
- Because a Delaware entity is incorporated in the USA, it is considered a USA tax resident vehicle. A Delaware entity is not a legally tax-exempt corporate structure it is governed by the Delaware General Corporation Law;
- At the rate of 8.7%, a Delaware entity suffers State income tax only on i) income from Delaware sources; and ii) on income apportioned to Delaware;
- 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;
- 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;
- 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;
- 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;
- A corporation doing business in Delaware must include, in its Delaware taxable income, dividends received from a foreign corporation;
- Under Section 1902(b), Title 30, Delaware Code, corporations that may be exempted 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;
- In Delaware, corporate income tax is due to be filed on or before 15 April each year.
Other taxes in Delaware
- A corporation incorporated under the laws of Delaware is also subject to an annual corporate franchise tax;
- Delaware does not impose state withholding taxes on dividends or interest or royalties paid to overseas shareholders;
- Delaware does not tax imports or exports;
- Delaware does not impose state or local sales tax. The State, however, imposes Gross Receipts tax on total receipt of a business received from goods sold and services rendered within Delaware.
- Delaware does not impose thin capitalisation rules, nor controlled foreign company rules, nor transfer pricing rules;
- Foreign entities are allowed to re-domicile to Delaware including tax haven companies;
- Delaware allow corporations to carry forward net operating losses for up to 20 years, but Delaware also allows them to carry back up to US$30,000 of such losses for up to two years.
Legal and compliance
- A Delaware LLC may be managed by i) a designated manager or ii) or 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 nor to the Board of Directors. The Members make all decisions per the provisions set forth in the LLC Agreement as agreed upon by the parties;
- The board of directors of a corporation shall consist of one or more members, each of whom shall be a natural person. The power to appoint and remove directors is governed by the provisions of a company’s Bylaws.
- A company may dividend out any of its assets, including; profits, share premium and capital, as long as said company can pass a solvency test immediately after the dividend payment;
- Delaware’s annual franchise tax which falls due 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 and US$18,000;
- Transfers of companies both inwards and outwards of Delaware are permitted.