The United States federal system in 2023

  • The US federal system allows all 50 states to legislate for themselves on many matters, with states acting in some respects as independent countries. Matters devolved to the states include unique company laws, tax rates, regulations, and cultures;
  • Some states such as Delaware, Nevada and Wyoming are more business friendly as they do not have sales taxes, state taxes or local taxes for business conducted outside their jurisdiction. Consequently, 64% of all fortune 500 companies are incorporated in Delaware alone;
  • Other states such as California and Vermont are notorious for higher taxes and greater regulation, but California’s strong economy and pleasant climate continue to attract businesses;
  • The federal system is advantageous for conducting business in profitable markets like California using a low tax and low regulation entity incorporated in Delaware. A Delaware company can conduct business interstate.
  • Advantages

    • You can incorporate a company in a low-tax, low-regulation state like Delaware and conduct cross-state business in high-tax states like New York;
    • Several states, such as Nevada, Washington and South Dakota, impose no state tax on profits, even those sourced from the state;
    • Some states like Nevada, New Hampshire and Alaska have no personal income taxes at the state level for residents residing in these states.
  • Disadvantages

    • The federal system requires companies to be aware of and in compliance of numerous different local and state laws;
    • Federal laws often conflict with state laws like in case of the Affordable Care Act. These inconsistencies create confusion and can cost extra for tougher compliance;
    • Companies operating in multiple states have complex taxation requirements, as the states from which they derive their income will each require a separate state corporate tax return;
    • Some industries have been notoriously difficult to conduct across state borders and must qualify for out-of-state business, including insurance and healthcare. Profits from the state may be taxed, but domestic state typically gives a tax credit in return.
  • Comparison of states

    DelawareTexasNew YorkFlorida
    Company incorporation costsUS$8,900US$7,300US$8,700US$6,100
    Subsequent annual costs (incl. audit and tax)US$3,700US$4,500US$3,600US$4,500
    How long to set the company up?1 week1 week8 weeks1 week
    How long to open company bank account?3 weeks3 weeks3 weeks3 weeks
    Issued share capital requiredUS$1US$1US$1US$1
    Corporate bank account locationBank of AmericaWells FargoGE CapitalBank of America
    Tenancy agreement required before incorporation?NoNoNoNo
    Do you travel for company incorporation?NoNoNoNo
    Resident director required?NoNoNoNo
    Resident shareholder required?NoNoNoNo
    Minimum number of directors1111
    Minimum number of shareholders1111
    Resident company secretary required?YesYesYesYes
    Individual shareholders allowedYesYesYesYes
    Corporate shareholders allowedYesYesYesYes
    Corporate director(s) allowedYesYesYesYes
    Public register of shareholders and directorsNoYesYesNo
    Corporate tax payable %0-33%0-33%0-33%0-33%
    Statutory audit requiredNoNoNoNo
    Annual tax return to be submittedYesYesYesYes
    Access to how many double tax treaties67676767
    Tax exempt free zones availableNoNoNoNo
    Resident company for local tax purposesYesYesYesYes
    How long to get work permit approved3 months3 months3 months3 months
    Can the entity hire expatriate staff in the country?YesYesYesYes
    Allowed to sign sales contracts with local ClientsYes but taxedYes but taxedYes but taxedYes but taxed
    Allowed to invoice local ClientsYes but taxedYes but taxedYes but taxedYes but taxed
    Average monthly salary of skilled laborUS$4,500US$4,200US$4,800US$4,500
    Average monthly salary of unskilled laborUS$1,500US$1,300US$1,700US$1,500
    English spoken by what % of the population (estimate)96%96%96%96%
    Literacy rate %99%99%99%99%
    Office rental per square meter per monthUS$15US$10US$18US$15
    Warehouse rental per square meter per monthUS$6US$4US$8US$6
    Unemployment rate7.3%6.4%7.6%7.0%
    GDP 2012 US$ billionUS$60.12bnUS$1.14trUS$1.15trUS$734bn
    Healy Consultants engagement feesUS$1,590US$1,590US$1,700US$1,590
    Company secretary feesUS$1,100US$1,100US$1,100US$1,100
    Government feesUS$310US$660US$200US$660
    Corporate bank account openingUS$4,950US$3,950US$4,950US$2,750
    Estimate of total outgoings in Year 1US$8,900US$7,300US$8,700US$6,100
    Draft sales invoice attached (PDF)View invoice PDFView invoice PDFView invoice PDFView invoice PDF
  • Delaware

    • A Delaware resident company only requires one shareholder and director, and these names do not show up on the public register;
    • The company can be incorporated in an hour and requires only a registered address and registered agent. Because of the ease, over 50% of publicly listed companies choose Delaware for incorporation;
    • Delaware corporate law requires every company to pay a yearly franchise tax of US$250;
    • Lastly, even though a Delaware company is in the US, it is still seen as a tax neutral company. Plus, the state does not have as strong a reputation as California and New York to show to investors, clients and banks.
  • Florida

    • Like Delaware, Florida has few restrictions like no minimum capital requirements and few licensing requirements. The names of shareholders and directors do not appear on public records;
    • Unlike Delaware, a Florida company has no association with tax avoidance and is therefore a reputable vehicle for conducting US and international business.
  • New York

    • New York is probably the most reputable business jurisdiction in US. It boasts some of the best trust laws, company laws, and financial laws in the world. As such, New York (and New York City) are seen as the gold standard for international business;
    • In New York, company formation announcement must be run for six weeks in two newspapers after business incorporation. The newspapers selected will depend on the office location. If the office is in New York City, publishing announcements can often cost over US$2,000.
  • Texas

    • A Texas resident company is reputable for international entrepreneurs, especially those in the petroleum or agriculture industry;
    • Only one shareholder and director is required and the names will appear on public record;
    • Texas boasts some of the lowest office space and warehouse rental rates in the country. A warehouse can often be rented for roughly US$6 per square meter per month;
    • There is a 6.25% sales tax on business conducted inside the state of Texas.

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