Delaware - USA | Let's Talk Business

Delaware, USA. a favourable jurisdiction for investors and business people. This Business-friendly state divided into 3 Counties and 57 Cities. With a population less than 1 Million inhabitant covered by 7 municipalities Delaware offers the easiest and fastest route of accessing the North American Market.

Located in the east side of the continent right next to Washington, Pennsylvania and New Jersey give the State a privilege in terms of mobility.

A business distinguishing factor is the Delaware Government initiative of facilitating investing in the state with a step by step guides from Business Planning to Company Establishment. In addition to the advanced juridical system served by well experienced Judges who are well known by their experiences among various commercial industries which at the same time is supported by highly e-filling system. In fact, Delaware applies a DRAA – Delaware Rapid Arbitration Act which enforces strictly that Arbitration Cases must be completed after 120 days after the Arbitrator accepts the case with an extension of only another 60 days and any non-compliance with the deadlines puts the parties subject to Financial Penalties. For Instance, Court of Chancery which only hears business cases and is widely known with its superiority for solving business disputes.

Adding to that, the fact that Delaware is a business environment friendly to Angel Investors and Venture Capitalists and Private Equity Holders as the state's laws regarding securities and management fit in with the expectations of professional Investors.

Now let’s explore the types of incorporation in Delaware that could be held.

For Non-Resident Companies and / or Investors willing to establish business in USA. Delaware is considered the best host as investors can establish a remotely operated company which could be run from outside the US avoiding double taxation on the state level on Taxable Net Income generated through physical offices outside of its state of incorporation.

The type of entities in Delaware are C Corporation or Limited Liability Company

Businesses that is not going to trade or get involved in any commercial transactions inside the borders of the US

A C Corporation is Taxed on the Federal Level for all Net Income generated Worldwide.

On the other side an LLC Does not obligate the company by US Federal Income Tax.

Non-US Businesses that will be actively trading inside the US

A C Corporation the type of entities that is owned by non-US companies are not subject to branch profit taxes.

But an LLC owned by non-US company and / or Investor wholly or partially is subject to US Income Tax and non-residents withholding tax that must be filed via 1040NR form declaring trade or business in the US.

Ownership and Profit Distribution

A C Corporation doesn’t obligate the owner / partners to distribute profits at the end of the fiscal year. In which can Retain Earnings, reinvest in the business, Pay Debts or even hold them for future utilisation.

Also, a C Corporation can issue preferred stock and there are no restrictions on ownership of these stocks. This ease the process of selling shares of the company to potential investors.

An LLC is based on straight percentage ownership and not shareholding. Which makes an LLC faces “Phantom Income” because it doesn’t distribute profit covering taxable liability due to pass through taxation.

EX: If an LLC Capital is $1 M and a partner straight percentage of the capital share and consequently the whole company is 20% then the meant partner will be subject to Taxes on that 20% despite distribution or non-distribution of profits.

Taxes

C Corporations with foreign and domestic ownership is taxed on the its income at a corporate tax rate of 21%. Shareholders, Directors, Officers and Employees are subject to withholding tax at an individual level.

LLCs due to the pass-through taxation do not pay taxes at the business generated as profit or loss are “passed through” to owners and then reported on each investor personal income and paid individually.

Foreign Investors engaged in US trade or business and generates US-source income, the business must withhold tax on each foreign investor’s with a rate of 30% -Unless there is a reduced treaty introduced – but this is applicable via “graduated tax rate” which in simple words means that income to a specific extent will be subject to income tax of 10% – 37% then what exceeds this extent will be subject to 30% withholding tax.

Meanwhile, USA does not apply VAT instead only some states apply sales taxes where calculations and processing varies as per the jurisdictions but wholesale companies can apply for a resale certificate which give them an exemption from sales taxes.

It takes around 12 days to get your company incorporated and operate with no requirement of visa for non-residents. Business & Temporary visas (B1 & B2) could be issued under necessary circumstances until the point of operating the company like:

1- Applying for Bank Account. (Application is applied remotely but to get it operated at least one investor representing the company must be present)

2- Signing Lease Agreement.

3- Hiring & Training US based Employees.

4- Contracts Negotiations.

Once the company is incorporated and functioning then any non-resident member working on a daily basis inside the US borders must be working visa apart from B1 & B2 visas.

As a conclusion, Delaware business environment is very friendly to investors and would help companies be more successful giving the focus to what make their companies grow not for routinely governmental requirements and long unsystematic procedures that affect the business.