Facts that make Delaware a Tax Heaven for Business Owners

The US corporate law, particularly the law of Delaware, which leaves scope to contractual freedom, was one of the reasons for the success that led to the creation and financing of the start-up ecosystem in Silicon Valley.

The state of Delaware has a population of just 995,764. At the same time, however, there are more than 1.5 million legal entities registered in Delaware. So the number of Delaware companies exceeds the number of residents. One of the main reasons for Delaware’s economic appeal is likely to be the favorable tax laws for companies. As a result, a large number of large American companies are registered and registered in Delaware. Another important aspect that always speaks in favor of the Delaware location is the degree of anonymity granted to the company.

In the past, Delaware had secured its decisive competitive advantage in this regard because it was one of the first US states whose corporate law allowed companies to have all functions of a stock corporation (president, vice president, and treasurer) performed by a single person. Thus, a special degree of anonymity could be achieved in the corporate law structure.

If this corporate law structure is the main motivation for founding your company in Delaware, you should also consider a current development within the USA:

  • Since the states in the USA are in strong competition with one another in terms of the business settlement, many states have meanwhile “caught up” with Delaware with this option. Your choice of incorporating a company in the US does not have to “automatically” fall on the state of Delaware.
  • On the contrary: depending on the type and scope of your business, other US states may offer significantly lower fees and administrative costs.

What else should be considered when founding a Delaware?

The strongest advantages of opening an incorporate company in Delaware, i.e. the simple and uncomplicated incorporation with a high degree of anonymity, also have a possible main disadvantage:

For precisely these reasons, the reputation for seriousness and trustworthiness of a Delaware company is not always guaranteed. This aspect should therefore be given sufficient consideration, especially for services in conservative business areas and for start-ups, for example, if lending banks and traditional investors need capital.

US tax and social security system

The tax issue in the US is not so rosy anymore. This is because income tax is calculated based on the sum of federal and state tax rates. – In the USA, companies are subject to federal (national) and state CIT. The federal tax rate for businesses is 21 percent. State taxes range from 0 to 12 percent, depending on the state.

Many US business owners choose to establish or register their business as an LLC with a Delaware LLC because of the legal benefits of predictable, business-friendly state laws. Forming a Delaware LLC is also easy – there’s no need to visit the state, apply for an employer identification number becomes easy and minimal information is required to form a Delaware LLC.

Delaware has a state tax system with some of the best tax breaks in the world that foreign entities establishing companies in Delaware can count on.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top