Delaware tax system for LLC: audit, reporting and optimization of taxation of Delaware companies and individuals: VAT, income tax and capital gains

Basic taxes (briefly)

Personal tax 10-37%
Corporate tax (in detail) The basic income tax rate is 35%
Capital gains tax. Details
VAT. Details At the federal level, sales and use taxes are not levied. However, most states and municipalities do charge sales and use taxes.
Other taxes Social contributions, Inheritance and gift taxes, Property taxes
Government fee
Stamp duty At the state level

International tax agreement

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


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Delaware Limited Liability Company (Delaware LLC)

By default, U.S. LLCs are "transparent" for tax purposes at the federal as well as Delaware state level. This means that income/income tax is paid not by the company, but by its owner(s).

If such a company has no presence in the U.S. and receives no income from sources in the U.S., there are no U.S. taxes (other than small registration fees).

However, certain (limited) notification/reporting obligations do exist.

Personal Income Tax

US citizens and residents are taxed on their worldwide income, non-residents are taxed on US-source income.

Income tax is levied at the federal level, the level of states and some municipalities.

Federal tax is payable on a progressive scale:

  • Income up to USD 10,275 – 10%;
  • Income from USD 10,276 to 41,775 – 12%;
  • Income from USD 41,776 to 89,075 – 22%;
  • Income from USD 89,076 to 170,050 – 24%;
  • Income from USD 170,051 to 215,950 – 32%;
  • Income from USD 215,951 to 539,900 – 35%;
  • Income over USD 539,901 – 37%.

There is an alternative minimum tax and a targeted Medicare tax.

Most states and some municipalities also levy income tax, although some states don’t (for example, Florida). Some states levy income tax at a flat rate and others have a progressive scale. The rates and income levels to which they apply vary greatly.

Capital gains from the sale of assets held for at least 12 months are taxed at the federal level at reduced rates: the maximum rate is 20% (President Biden promises to significantly increase the rate for the highest income levels). Dividends are included in the ordinary taxable income. However, if certain requirements are met, they are taxed at the rates applicable to capital gains. There is usually also capital gains taxation at the state level.

Corporate Income Tax

US companies are taxed on their worldwide income, foreign companies are taxed on US-source income.

The federal corporate income tax rate is 21% (President Biden plans to raise the rate to 28%). It applies to both ordinary income and capital gains. 50 to 65% of dividends from US companies are tax exempt depending on the size of the shareholding. Corporations may be exempted from corporate income tax on dividends from foreign companies in the case of at least 10% shareholding, the holding period of more than a year and when meeting certain other conditions.

Corporate income tax is also levied at the state and municipal levels. State rates range from 1% to 12%, some states have no such tax.

CFC Rules

A controlled foreign company is a foreign company in which the US shareholders own directly or indirectly more than 50% (US shareholders are those with at least 10% ownership interest).

The CFC’s undistributed profit is included in the taxable income of the US shareholders.

This income includes passive income as defined by law.

There are a number of exceptions.

The taxable income also includes income that does not qualify as “passive” income, but exceeds a 10% return on the value of tangible assets of a foreign company (GILTI). Such income is taxed at lower effective corporate tax rates.

Withholding Tax

Withholding tax on dividends, interest and royalties is levied at the rate of 30%. Certain types of interest are exempt from withholding tax.

The tax may be withheld on certain other types of income.

The tax rates can be reduced under double tax treaties (DTT).

Sales Tax

Sales and use taxes are not levied at the federal level.

However, such taxes are levied by most states as well as municipalities.

The tax rates vary, usually ranging from 2.9% to 7.25%; the rules vary too.

The tax usually applies to retail sales, certain services, and some digital products.

Social Security Contributions

Social security contributions are paid by both the employer and the employee at the rate of 6.2% on employment remuneration not exceeding USD 142,800.

Medicare insurance rate is 1.45% for the employer and the same amount for the employee.

An additional Medicare insurance premium is withheld from the employee's salary at the rate of 0.9% for salaries over USD 200,000.

Employers also pay an unemployment insurance premium at the rate of 6% on the first USD 7,000 of the employment remuneration (however, the rate can be reduced to as little as 0.6% if such payments are also made at the state level).

Social security contributions can also be levied at the state level.

Inheritance and Gift Taxes

Inheritance tax is levied at the federal level at progressive rates, with a maximum rate of 40%.

The non-taxable amount is USD 11,700,000, the amount is indexed annually.

Inheritance tax is also levied at the state level.

There is also a gift tax.

Property Taxes

Most states and municipalities levy taxes on real estate.

Many states also levy taxes on commercial movable property.

Stamp Duty

Stamp duties are usually imposed by states and municipalities on real estate transactions.

Double taxation treaties

USA has entered into the following tax information exchange arrangements:

60 DTCS: Australia, Austria, Bangladesh, Barbados, Belgium, Bulgaria, Canada, China, Cyprus, Denmark, Egypt, Germany, Greece, Hungary, Iceland, India, Indonesia, Israel, Italy, Kazakhstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Republic of Korea, Romania, Russian Federation, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Thailand, Trinidad and Tobago, Tunisia, Turkey, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Kingdom, Venezuela, Viet Nam.

34 TIEA: Antigua and Barbuda, Argentina, Aruba, Bahamas, Barbados, Bermuda, Brazil, British Virgin Islands, Cayman Islands, Colombia, Dominica, Gibraltar, Guernsey, Guyana, Honduras, Grenada, Jersey, Jersey, Costa Rica, Curaçao, Liechtenstein, Marshall Islands, Mauritius, Mexico, Monaco, Netherlands Antilles, Isle of Man, Panama, Peru, St. Lucia, St. Martin, Trinidad and Tobago, Jamaica.

Exchange Control

There are generally no restrictions on foreign exchange transactions.

    Taxes of USA

    Min. rate for corporate tax 35%
    Capital gains tax Up to 20%
    VAT About 3-10%
    Withholding tax 30%/30%/30%
    Exchange control No
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