Setting Up a Company in Delaware

The first step in setting up a company in Delaware is to define its most fundamental building blocks. Begin by choosing the type of company: a C-Corp, LLC, LLP or another type of entity. Next, choose the state of incorporation, whether Delaware, New York, Florida, Wyoming, Nevada or elsewhere. To form a company in Delaware, you also need to choose a company name, decide on the number of directors and members, and set out their shares in the company’s capital. The amount of share capital must also be determined. The second step is to compare the tax burden in the various states. Bear in mind that federal income tax accounts for the bulk of the overall tax burden, so choosing a low-tax state for your US company will have only a limited effect on the total tax you pay. Besides income tax, you should also consider sales tax; however, this has no bearing on your tax burden at all, because it is charged according to where the customer lives, so the state of incorporation makes no difference to the amount. The third step in forming a Delaware company is to consider the state’s reputation and prestige. Investors favour states with a high-quality legal system, such as Delaware, whereas everyday business partners tend to prefer companies from their own state or from one of the larger states, such as New York or Florida. The fourth step is to consider how anonymous the directors and members will be. Some states record only the company’s name and registered address in the business registry, while others also record the director’s name and address. The fifth step is to take account of the annual fees and the cost of the registered address and mail handling once the Delaware company has been formed. Renewal fees are high in some states and low in others. Last but not least, when forming a company in Delaware, or later at the start of each year, you can choose its tax status, whether it is a Corp or an LLC:

* the company can be tax-transparent, meaning it is not taxed at company level and the tax liability “passes through” to the members (the so-called pass-through taxation principle), or * tax is charged at company level, with a possible second layer of tax when dividends are paid to the members, * unless the members elect otherwise, an LLC is tax-transparent, with taxation passing through to the members, while a Corp is taxed at company level.

• Setting Up a Company in Delaware
• Forming an LLC in Delaware
• Taxes in Delaware
• Sales Tax in Delaware
• Filing a Tax Return in Delaware
• Delaware Apostille
• Apostille on a Delaware Business Registry Extract

What our Delaware company formation service includes:

– Fees. The official incorporation fee; – EIN / ITIN. Registration of the company for US income tax; – Legal documents: Certificate of Good Standing; Initial Resolution of Shareholders; Initial Resolution of Directors; Register of Shareholders / Members; Register of Directors; Share Certificates (paper certificates evidencing ownership); the company’s constitutional documents (articles of association, bylaws or operating agreement) – Corporate Kit. A professional binder for the company’s documents. – Registered office. A registered address for the company (12-month subscription) with scanning or postal forwarding of official correspondence, i.e. mail from the business registry, courts and tax authorities, with the option of adding business correspondence – Apostille, required for transferring ownership interests or opening a bank account abroad.

Why set up a company in Delaware?

• – high prestige and standing in international business
• – a reputation for reliability, credibility and trustworthiness with banks and authorities
• – incorporation within 24 hours
• – a bank account
• – protection of investments
• – the option of registering for US sales tax as well as VAT
• – share capital from as little as $/€1
• – anonymity for the members and managers of an LLC
• – neither members nor managers are liable for the company’s debts, and their position is governed by US law
• – managers and members may be foreign nationals and do not need a residence permit
• – popular with investors and private equity funds, with the option of issuing preferred shares

Applicable tax rates

Federal taxes

Types of federal tax: Federal taxes for companies (income tax) – apply to the taxation of a C-Corp Federal taxes for individuals (income tax) – apply to the taxation of LLCs and individuals

Ltd., Inc. and Corp. entities are known collectively as a C-Corp. Companies of this type must always file a US tax return. A C-Corp pays tax at company level, and when the shareholders decide to pay part of the profit out to themselves, dividend tax is also payable.

S-Corp status is available only to US citizens or US permanent residents. Foreign nationals are therefore limited to an LLC or a C-Corp.

An LLC (Limited Liability Company) pays no tax at all at company level; tax is paid only by the members, so income is taxed just once. Each member files a personal income tax return that includes the LLC’s profit or loss as business income. If an LLC has managers or employees who spend extended periods in the USA, or has offices or warehouses there, its members must file a US tax return. As soon as an LLC starts doing business in the USA through employees or offices, its owners have a “permanent establishment” or a “place of effective management” in the USA, giving rise to an obligation to pay US tax on the income generated by those employees, offices and other US activities. If the company does no business in the USA and has no managers, employees, warehouses or offices there, its members need file a tax return for the company’s income only if they are US citizens or spend long periods in the USA.

Social contributions, known as self-employment tax and covering Social Security and Medicare, are payable by LLC members who live in the USA.

Individuals pay income tax if they are employed, run a business or receive other income.

State income taxes

Types of state income tax: State income taxes for companies – apply to the taxation of a C-Corp State income taxes for individuals – apply to the taxation of LLCs and individuals

This tax is generally paid in the state where the company has its employees and offices, not in the state where it was formed. For example, if a company is formed in Delaware and has its customers in Florida but its offices and staff in California, it must pay state taxes in California. If it also has offices in New York, it must divide its income into two parts: income generated by its employees and offices in California, and income generated by its offices in New York. Each part is then taxed at the rates of the relevant state, and the company pays each state its share. Some states, such as Alaska, Texas and Florida, do not levy this tax at all.

Sales tax – state turnover tax

Sales tax, the US equivalent of VAT or a consumption tax, differs from state to state. It usually ranges from 5% to 10%, although some states do not charge it at all. The rate depends on where the customer lives or is located, not on where the company is based. So if your customer is in Florida, you must collect Florida sales tax from them, even if your company was formed in Delaware and has its offices in California.

Ongoing annual obligations