GSL / International Taxation / USA-Delaware-LLC

Delaware tax system for LLC - taxation of Delaware companies and individuals: VAT, income tax and capital gains. Tax treaties of the USA.

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Taxes of USA

Сorporate tax
Capital gains tax
30% (dividend), 30% (interest), 30% (royalty)
Withholding tax
Exchange control

Basic taxes (briefly)

Personal tax
Corporate tax (in detail)
Federal income tax: 21%. State income tax ranges from 1% to 12% (although some states have no tax)
Capital gains tax. Details
Regulate rate
VAT. Details
There are no sales and use taxes at the federal level. However, such taxes vary from state to state and typically range from 2,9% to 7,25% at the state level
Other taxes
Social contributions, Inheritance and gift taxes, Property taxes
Government fee
Stamp duty

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 USD 41 775 – 12%;
  • Income from USD 41 776 to USD 89 075 – 22%;
  • Income from USD 89 076 to USD 170 050 – 24%;
  • Income from USD 170 051 to USD 215 950 – 32%;
  • Income from USD 215 951 to USD 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.

International tax treaties

The United States has entered into 60 Double Tax Treaties (DTC) and 34 Tax Information Exchange Agreements (TIEA) with the following jurisdictions:

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.

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