USA-Delaware-Corporation

Basic taxes (briefly)

Personal tax 10-37%
Corporate tax (in detail) Delaware state income tax rates are 8.7%.
Capital gains tax. Details
VAT. Details At the federal level, sales and use tax are not levied. However, such taxes are levied in most states as well as at the municipal level.
Other taxes Social contributions, Inheritance and gift taxes, Property taxes
Government fee
Stamp duty State level

International tax agreement

Tax treaties entered Australia, Austria, Bangladesh, Barbados, Belgium, Bulgaria, Canada, Chile, China, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea (Republic of), Latvia, Lithuania, Luxembourg, Malta, Mexico, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Kingdom, Venezuela, Viet nam
   
Tax Exchange Information Agreement (TEIA) Antigua and Barbuda, Argentina, Aruba, Bahamas, Barbados, Bermuda, Brazil, Cayman Islands, Colombia, Costa Rica, Curaçao, Dominica, Dominican Republic, Gibraltar, Grenada, Guernsey, Guyana, Honduras, Isle of Man, Jamaica, Jersey, Liechtenstein, Marshall Islands, Mauritius, Mexico, Monaco, Netherlands Antilles, Panama, Peru, Saint Lucia, Sint Maarten, Trinidad and Tobago, Virgin Islands (British)


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TAXATION

General Info

Corporation is a taxable legal entity. Each corporation is required to file corporate income tax return annually and pay taxes on all income received inside and outside of US.
Federal income tax rates depend from corporate taxable income and vary from 15% to 35% on worldwide net income.
Delaware state income tax rates are 8.7% on net income attributable to business in Delaware only.
Corporation is able to take tax deductions on business expenses (auto, office, etc.). Moreover, Corporation can provide tax free benefits for its employees, such as dental, medical and others.
Corporation is required to maintain appropriate accounting records and file annual income tax returns with US Internal Revenue Services. Corporations who are incorporated in Delaware and whose activities are limited to maintaining a statutory registered office and not conducting business within Delaware, are exempt from filing the Delaware Corporate Income Tax Return.

Personal Income Tax

All US citizens and residents, including resident aliens and citizens who reside outside the US, pay federal tax on their worldwide income. Nonresident aliens are taxed only on ECI and US-source non-ECI. The 50 states and the District of Columbia also collect income tax from nonresidents and individuals who reside in their territory.
Individuals generally must include nearly all gross income from whatever source derived in their taxable income (including their compensation for services (including all forms of remuneration and allowances), dividends, interest, royalties, rents, fees and commissions, gains from dealings in property and income from a partnership). Nonresident aliens exclude non- ECI in computing taxable income; however, they are subject to US tax on the gross amounts of such income, generally collected on receipt via withholding, if the income is from US sources and not from the sale or exchange of property.
Rates are progressive up to 39.6%.
Delaware collects a state income tax at progressive rate spread across tax brackets:
Tax Bracket (Single) Tax Bracket (Couple) Marginal Tax Rate
$2,000+ $2,000+ 2.20%
$5,000+ $5,000+ 3.90%
$10,000+ $10,000+ 4.80%
$20,000+ $20,000+ 5.20%
$25,000+ $25,000+ 5.55%
$60,000+ $60,000+ 6.60%

In addition to the regular income tax, individuals may be subject to the alternative minimum tax (AMT), which is triggered where an individual’s tentative AMT liability exceeds that individual’s regular income tax liability. The AMT is imposed at a rate of 26% on the taxable excess (AMT income minus an “exemption amount”) up to specified levels, and at a rate of 28% on the taxable excess above these levels. The exemption amounts for the individual AMT for 2013 were USD 80,800 for married taxpayers filing jointly and USD 51,900 for unmarried taxpayers) and will be automatically indexed for inflation thereafter.
The tax year is the calendar year, unless a fiscal year is elected. Any fiscal year must end on the last day of a calendar month.
Tax is deducted at source from employment income. Individual self-assessment tax returns are due by the 15th day of the fourth month following the end of the tax year (or the sixth month, in the case of certain nonresident aliens).

Corporate Tax

In general, all businesses operating in Delaware which are not registered as a flow-through entity (like a sole proprietorship, a partnership, or an S-Corporation) must report their income and pay both Delaware and Federal corporate income taxes on their earnings.
Domestic corporations are taxed by the federal government on worldwide income, including income from branches, whether or not repatriated. Profits of foreign subsidiaries usually are not taxed until they are repatriated as dividends. A foreign corporation is taxable on income effectively connected with the conduct of a trade or business in the US (“effectively connected income” or “ECI”) and on most non-ECI that is derived from US sources.
Domestic corporations are taxed on nearly all gross income (including, e.g. income from a business, compensation for services, dividends, interest, royalties, rents, fees and commissions, gains from dealings in property and income from a partnership), from whatever source derived. A foreign corporation is subject to this same tax, except that taxable income for this purpose is limited to the gross amount of its ECI.
A flat tax of 35% applies to the taxable income of a corporation that has taxable income for the year equal to or greater than USD 18,333,333. Graduated rates, starting as low as 15%, apply to income of a corporation with total taxable income of less than USD 18,333,333. The gradations in the rate brackets that apply to a single corporation’s progressive amounts of income phase out as the corporation’s total taxable income rises from USD 100,000 to USD 18,333,333.
Delaware state income tax rates are 8.7% on net income attributable to business in Delaware only.
Because C-Corporations pay corporate taxes on their revenue in addition to the personal income taxes shareholders and owners pay on profits withdrawn from the company, profits received from a C-Corporation are subject to a phenomenon known as double taxation.
S-Corporations and other flow-through entities aren't subject to the double taxation of revenue imposed on a C-Corp, because they aren't required to pay corporate taxes on their revenue. However, the owners or members of the corporation must report their share of the corporation's income on their personal tax returns and pay Delaware and federal income tax.

Capital Gains Tax

Gains recognized by domestic corporations on capital assets (e.g. assets held for investment) are taxed at the same rate as ordinary income. Capital losses can be deducted against capital gains, but not against ordinary income. Relief from gain recognition is available for sales or exchanges of business assets in certain situations. A foreign corporation generally is exempt from tax on capital gains, unless the gain is from the sale of a US real property interest or is connected with the operation of a US trade or business (tax on the latter may be eliminated under a treaty in certain cases).

Alternative Minimum Tax

Domestic and foreign corporations are liable for a 20% alternative minimum tax (AMT) to the extent that 20% of an adjusted measurement of income, computed without certain preferences, exceeds the regular tax on taxable income.

Dividends

A dividends received deduction is available for dividends received by a corporate shareholder from a domestic corporation, at a rate of 70% (for a less-than 20% shareholder), 80% (for a noncontrolling shareholder owning 20% or more) or 100% (for distributions among members of the same affiliated group, provided other requirements are met).

Losses

A corporation’s net operating losses generally may be carried back two years and forward 20 years.

Withholding Tax

Dividends The gross amount of dividends paid by a domestic corporation to a foreign corporation generally is subject to a 30% withholding tax, unless the rate is reduced under a tax treaty or the income is ECI. Dividends received by a foreign corporation from another foreign corporation out of the latter’s earnings attributable to ECI are not subject to US withholding tax; the branch profits tax serves as a substitute for shareholder-level taxation of such earnings.
Interest The gross amount of interest received by a foreign corporation from US sources generally is subject to a 30% withholding tax, unless the rate is reduced under a tax treaty or a statutory exemption applies. Interest that is ECI and certain interest on portfolio debt obligations, on short-term obligations, on bank deposits, on bonds issued by state or local governments and on debts of grandfathered 80/20 companies generally may be exempt from withholding tax.
Royalties Royalties received by a foreign corporation for the use of property in the US are subject to a 30% withholding tax unless the rate is reduced under a tax treaty or the income is ECI.
Technical service fees There is generally only a tax on fees for personal services, including technical services, if the services are performed within the US. If performed in the US, such fees typically would be ECI.
Other Any other income, gain or profit characterized as “fixed or determinable, annual or periodic” (FDAP) is subject to a 30% withholding tax, unless the rate is reduced under a tax treaty or the income is ECI.

The table below illustrates the basic withholding tax rates applicable to residents of the countries with which the US has concluded a tax treaty. (“D” indicates that the domestic rate (30%) applies.)
Treaty Partner Dividends, % Interest, % Royalties, %
Armenia D D 0
Australia 0/5/15 0/10 5
Austria 5/15 0 0/10
Azerbaijan D D 0
Bangladesh 10/15 5/10 10
Barbados 5/15 5 5
Belarus D D 0
Belgium 0/5/15 0 0
Bulgaria 5/10 5 5
Canada 5/15 0 10
China 10 10 10
Cyprus 5/15 0/10 0
Czech Republic 5/15 0 0/10
Denmark 0/5/15 0 0
Egypt 5/15 15 15
Estonia 5/15 10 5/10
Finland 0/5/15 0 0
France 0/5/15 0 0/5
Georgia D D 0
Germany 0/5/15 0 0
Greece D 0 0
Hungary 5/15 0 0
Iceland 5/15 0 0/5
India 15/25 10/15 10/15
Indonesia 10/15 10 10
Ireland 5/15 0 0
Israel 12.5/25 10/17.5 10/15
Italy 0/5/15 0/10 0/5/8
Jamaica 10/15 12.5 10
Japan 0/5/10 0/10 0
Kazakhstan 5/15 10 10
Korea 10/15 12 10/15
Kyrgyzstan D D 0
Latvia 5/15 10 5/10
Lithuania 5/15 10 5/10
Luxembourg 5/15 0 0
Malta 5/15 10 10
Mexico 0/5/10 4.9/10/15 10
Moldova D D 0
Morocco 10/15 15 10
Netherlands 0/5/15 0 0
New Zealand 0/5/15 0/10 5
Norway 15 0 0
Pakistan 15/D D 0
Philippines 20/25 10/15 15
Poland 5/15 0 10
Portugal 5/15 10 10
Romania 10 10 10/15
Russia 5/10 0 0
Slovakia 5/15 0 0/10
Slovenia 0/5/15 0/5 5
South Africa 5/15 0 0
Spain 10/15 0/10 5/8/10
Sri Lanka 15 10 5/10
Sweden 0/5/15 0 0
Switzerland 0/5/15 0 0
Tajikistan D D 0
Thailand 10/15 10/15 5/8/15
Trinidad & Tobago D D 0/15
Tunisia 14/20 0/15 10/15
Turkey 15/20 10/15 5/10
Turkmenistan D D 0
Ukraine 5/15 0 10
United Kingdom 0/5/15 0 0
Uzbekistan D D 0
Venezuela 0/5/15 4.95/10 5/10

VAT

The US does not levy a federal value added tax or sales tax. Individual states levy sales tax at various rates, subject to state-set requirements.
Delaware has no sales tax, and does not allow cities or counties to assess any type of sales tax. Businesses are, taxed on their gross receipts as an alternative to sales tax, but this tax cannot be passed on to consumers. A 3.75% "document fee" is collected on all automobile sales, and occupational license taxes of up to 1.92% are also collected on certain business activity.

Stamp Duty

Stamp duty is not levied in the US, including Delaware.

Government Fee

All corporations incorporated in the State of Delaware are required to file an Annual Report and to pay a franchise tax. Exempt domestic corporations do not pay a tax but must file an Annual Report. The Annual Report filing fee for all other domestic corporations is $50.00 plus taxes due upon filing of the Annual Report. Taxes and Annual Reports are to be received no later than March 1st of each year. The minimum tax is $225.00.

Other Taxes and Duties

Payroll tax The employer must withhold federal income tax from employee wages and must remit the tax to the government.
Real property tax Tax generally is imposed by the local governments at various rates. The median property tax in Delaware is $1,078.00 per year for a home worth the median value of $249,400.00. Counties in Delaware collect an average of 0.43% of a property's assessed fair market value as property tax per year.
Inheritance/estate tax For US citizens and residents, the estate tax is imposed, generally based on the assets of the deceased in excess of USD 5,340,000 (for 2014), and the heirs generally are not subject to income tax on the appreciation of the assets in the hands of the decedent. A gift tax is imposed on gifts made during a person’s life. The top rate for estate and gift taxes is 40%. For nonresident noncitizens, estate taxes are imposed only on property situated in the US in excess of USD 60,000. Gift taxes are imposed on any transfer in excess of a USD 13,000 annual exclusion. The US has estate and gift tax treaties in force with over a dozen countries.
Social security Social security taxes are comprised of old age, survivors and disability insurance (OASDI), and “hospital insurance” (also known as “Medicare”). The taxes generally are borne equally by the employer and the employee, with the employer responsible for remitting each employee’s portion to the federal government. The OASDI tax is imposed on the first USD 117,000 of wages, at the combined rate of 12.4%. The Medicare tax is imposed on total wages, at the combined rate of 2.9% (plus an additional 0.9% for wages above a certain threshold). The employer’s portion of social security taxes is deductible for income tax purposes.

Anti-Avoidance Rules

Transfer pricing: The tax authorities may adjust income in related party transactions that are not at arm's length. Detailed regulations prescribe the scope, specific methodologies and principles. Documentation is required. Advance pricing agreements, both bilateral and unilateral, may be negotiated.
Thin capitalization: The “earnings stripping” rules restrict the ability of US (and certain foreign) companies to claim an interest deduction on debt owed to, or guaranteed by, certain non-US related persons (and other related persons exempt from US tax). The rules generally apply where the debt-to-equity ratio of the payer exceeds 1.5 to one and the payer’s “net interest expense” exceeds 50% of its “adjusted taxable income” for the year. Disallowed interest that is not currently deductible may be carried forward and deducted in future years if certain conditions are satisfied.
Controlled foreign companies: Certain types of income of controlled foreign corporations (CFCs) are included currently in the taxable income of "US shareholders" (US persons that own at least 10% of the foreign corporation’s voting stock). A CFC is a foreign corporation, more than 50% (by vote or value) of whose stock is owned (directly, indirectly or by attribution) by “US shareholders.”
Other: The US has numerous structure-specific regimes, including the anti-inversion and PFIC provisions.
Disclosure requirements: Corporations with USD 10 million or more in assets are required to file Schedule UTP, disclosing information about tax positions treated as “uncertain” for financial statement purposes. Individuals are required to file a statement with their income tax returns to report interests in specified foreign financial assets if the aggregate value of those assets exceeds certain thresholds. Reporting thresholds vary based on whether a filer files a joint tax return or resides abroad, and are higher for married couples and taxpayers who qualify for foreign residency. Failure to disclose for any taxable year would subject the individual to a USD 10,000 penalty (with the continuation penalty capped at USD 50,000) and a 40% penalty on an understatement of tax attributable to nondisclosed assets.
Beginning in 2014, new rules (FATCA) designed to prevent US persons from evading US tax through foreign accounts and entities are scheduled to be enforced by the imposition of a 30% withholding tax on US-source income that is not otherwise subject to withholding tax, and on the proceeds of post-2016 dispositions of instruments giving rise to US-source dividends or interest, in situations where insufficient information is provided, or insufficient diligence is performed, by foreign financial institutions (FFIs) or nonfinancial foreign entities (NFFEs) with respect to whether the ultimate owners of accounts or foreign entities are US persons.

Double Tax Agreements

The USA have exchange of information relationships with 88 jurisdictions through:

  • 60 DTC: Australia, Austria, Bangladesh, Barbados, Belgium, Bulgaria, Canada, Chile, China, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea (Republic of), Latvia, Lithuania, Luxembourg, Malta, Mexico, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Kingdom, Venezuela, Viet nam.
  • 34 TIEAs: Antigua and Barbuda, Argentina, Aruba, Bahamas, Barbados, Bermuda, Brazil, Cayman Islands, Colombia, Costa Rica, Curaçao, Dominica, Dominican Republic, Gibraltar, Grenada, Guernsey, Guyana, Honduras, Isle of Man, Jamaica, Jersey, Liechtenstein, Marshall Islands, Mauritius, Mexico, Monaco, Netherlands Antilles, Panama, Peru, Saint Lucia, Sint Maarten, Trinidad and Tobago, Virgin Islands (British).

Foreign Exchange Control

While there are no general restrictions on remittances of profits, dividends, interest, royalties or fees to nonresidents, sanctions and embargoes apply to listed countries and entities, with restrictions on foreign payments, remittances and other types of contracts and trade transactions. Regulations are prescribed by the US Treasury, and Treasury’s Office of Foreign Assets Control maintains related lists. Extensive currency transaction reporting and recordkeeping requirements also apply.

ACCOUNTS

Financial Statements

There is no requirement to prepare and file financial statements for Delaware corporations.

Audit

There is no audit requirement for Delaware corporations.

Annual Report

All corporations incorporated in the State of Delaware are required to file an Annual Report and to pay a franchise tax. Exempt domestic corporations do not pay a tax but must file an Annual Report. The Annual Report filing fee for all other domestic corporations is $50.00 plus taxes due upon filing of the Annual Report. Taxes and Annual Reports are to be received no later than March 1st of each year. The minimum tax is $175.00 with a maximum tax of $180,000.00.
Taxpayers owing $5,000.00 or more pay estimated taxes in quarterly installments with 40% due June 1, 20% due by September 1, 20% due by December 1, and the remainder due March 1. The penalty for not filing a completed Annual Report on or before March 1st is $125. Interest at 1.5% per month is applied to any unpaid tax balance.
Notification of Annual Report and Franchise Taxes due are sent to all Delaware Registered Agents in December of each year.

Tax Returns

Corporations may adopt as their tax year a fiscal year consisting of 12 months and ending on the last day of any month.
In general, a US corporation's tax return must be filed by the 15th day of the third month following the end of its taxable year. Related tax must be paid on or before the due date of the return. Extensions are available.

    Taxes of USA

    Min. rate for corporate tax 8,7%
    Capital gains tax Before 20%
    VAT ~ 3-10%
    Withholding tax 30%/30%/30%
    Exchange control No
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