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.
- 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.
- 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
Delaware Texas New York Florida Company incorporation costs US$8,900 US$7,300 US$8,700 US$6,100 Subsequent annual costs (incl. audit and tax) US$3,700 US$4,500 US$3,600 US$4,500 How long to set the company up? 1 week 1 week 8 weeks 1 week How long to open company bank account? 3 weeks 3 weeks 3 weeks 3 weeks Issued share capital required US$1 US$1 US$1 US$1 Corporate bank account location Bank of America Wells Fargo GE Capital Bank of America Tenancy agreement required before incorporation? No No No No Do you travel for company incorporation? No No No No Resident director required? No No No No Resident shareholder required? No No No No Minimum number of directors 1 1 1 1 Minimum number of shareholders 1 1 1 1 Resident company secretary required? Yes Yes Yes Yes Individual shareholders allowed Yes Yes Yes Yes Corporate shareholders allowed Yes Yes Yes Yes Corporate director(s) allowed Yes Yes Yes Yes Public register of shareholders and directors No Yes Yes No Corporate tax payable % 0-33% 0-33% 0-33% 0-33% Statutory audit required No No No No Annual tax return to be submitted Yes Yes Yes Yes Access to how many double tax treaties 67 67 67 67 Tax exempt free zones available No No No No Resident company for local tax purposes Yes Yes Yes Yes How long to get work permit approved 3 months 3 months 3 months 3 months Can the entity hire expatriate staff in the country? Yes Yes Yes Yes Allowed to sign sales contracts with local Clients Yes but taxed Yes but taxed Yes but taxed Yes but taxed Allowed to invoice local Clients Yes but taxed Yes but taxed Yes but taxed Yes but taxed Average monthly salary of skilled labor US$4,500 US$4,200 US$4,800 US$4,500 Average monthly salary of unskilled labor US$1,500 US$1,300 US$1,700 US$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 month US$15 US$10 US$18 US$15 Warehouse rental per square meter per month US$6 US$4 US$8 US$6 Population 1m 26m 19.6m 19.3m Unemployment rate 7.3% 6.4% 7.6% 7.0% GDP 2012 US$ billion US$60.12bn US$1.14tr US$1.15tr US$734bn Healy Consultants engagement fees US$1,590 US$1,590 US$1,700 US$1,590 Company secretary fees US$1,100 US$1,100 US$1,100 US$1,100 Government fees US$310 US$660 US$200 US$660 Corporate bank account opening US$4,950 US$3,950 US$4,950 US$2,750 Estimate of total outgoings in Year 1 US$8,900 US$7,300 US$8,700 US$6,100 Draft sales invoice attached (PDF) View invoice PDF View invoice PDF View invoice PDF View invoice PDF
- 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.
- 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 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.
- 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.