Franchise taxes contribute to Delaware’s state revenue and are essential for the maintenance of state services. We can take the reins on your books and your taxes, freeing up your time to focus on what you do best – running your business. The report must be filed by the due date on the 15th of April or by the automatic extension due on October 15th.
A fine of $200.00 is imposed for non-payment or late payment, with an interest rate of 1.5% per month applied to the outstanding balance. Interestingly, corporations incorporated in Delaware but not conducting business within the state are not subject to the Corporate Income Tax1. However, they are still required to pay the Franchise Tax, which is administered by the Delaware Division of Corporations2. All incorporated entities in Delaware must file an annual report and pay the corresponding franchise tax. Exempt domestic corporations are not subjected to the tax but still need to file an annual report with a filing fee of $253.
For corporations with more than 5,000 authorized shares, the tax rate was $250 plus an additional fee of $50 for each additional 10,000 authorized shares. Delaware is one of the most popular states for incorporation due to its business-friendly laws, strong legal system, and accounting community forum well-established infrastructure. The state’s low tax rates also make it an attractive destination for businesses seeking to incorporate. The Delaware Franchise Tax is one of the state’s main sources of revenue, accounting for approximately 20% of the state’s annual budget.
- We’ll cover topics such as the tax due date, the amount of tax to be paid, how to file your annual report, and the various payment methods available.
- Book a demo today to learn more and take the first step toward streamlined compliance.
- Similarly, businesses can reduce their total gross assets in the state of Delaware by selling assets or moving them out of the state.
- The minimum franchise tax is $175 for corporations using the Authorized Shares method and $400 for corporations using the Assumed Par Value Capital Method.
This category is designed for corporations that meet specific revenue and asset thresholds detailed under Schedule L of the tax instructions. The Delaware franchise tax is a mandatory fee that is calculated annually based on one of two methods. Each method takes into account different aspects of a corporation’s structure and assets. Whether you’re a domestic corporation or a foreign entity doing business in Delaware, understanding and adhering to these obligations is paramount. The franchise tax isn’t a measure of income but a fee for the privilege of incorporating and operating under Delaware’s advantageous legal framework. To calculate franchise tax for LLCs, refer to the state’s flat fee structure.
What happens if you don’t pay Delaware franchise tax?
Compliance with franchise tax is one of the key considerations when starting a business in Delaware as it enhances your credibility and demonstrates your positive standing with the state authorities. If you need help with Delaware annual Franchise Tax, you can post your legal need on UpCounsel’s marketplace. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Twillo. Wolters Kluwer is a global provider of professional information, software solutions, and services for clinicians, nurses, accountants, lawyers, and tax, finance, audit, risk, compliance, and regulatory sectors. This guide for informational purposes only and does not constitute legal or tax advice or create an attorney-client relationship.
What Is the Annual Registered Agent Fee?
This easy-to-use service is helpful for businesses looking to estimate their franchise tax payment as accurately as possible. For instance, if you are a C corp with 5,000 authorized shares or less, you are considered a minimum stock corporation, and you will owe a total of $225 per year (annual report fee of $50 plus tax due of $175). There will be a notice of payment amount and dues sent from The Secretary of The State to the registered agent. Delaware requires all annual reports and franchise tax to be processed and paid online in only US dollars drawn from US banks. The first step in paying your Delaware franchise tax is to determine your tax due date and the amount you need to pay.
Division of Corporations
This method often favors corporations with a high number of shares but lower asset values. The Delaware annual report includes information about the registered agent, principal business location, directors, and officers, ensuring transparency and up-to-date records with the state. Beyond the franchise tax, Delaware corporations are required to submit an annual report. This is a detailed account of the corporation’s structure and operations over the past year. In Delaware, the franchise tax for LLCs is a flat fee of $300, regardless of company size, income, or activity. This flat fee structure simplifies the process and allows for easier compliance for LLCs, due annually by June 1st.
All Delaware companies which have a foreign bank account or other financial accounts with foreign wealth beyond US$ are required to file Foreign Bank And Financial Accounts Report. The purpose of the filing is to report all money and assets engaged in the accounts to the Internal Revenue Service (IRS) and the Financial Crimes https://intuit-payroll.org/ Enforcement Network (FinCEN). Once the Franchise Tax is paid, business owners can request a Delaware Certificate of Good Standing that certifies the date of formation of the company in the state of Delaware. It will also note that the company is in good standing and is current regarding all applicable Delaware taxes.
Corporations not conducting business in Delaware still have to pay a franchise tax, which is collected annually by the Department of State. The minimum franchise tax is $175 for corporations using the Authorized Shares method and $400 for corporations using the Assumed Par Value Capital Method. Depending on the size of the corporation, this method can be a more straightforward approach to calculating the Delaware franchise tax. However, it does not take into consideration the actual value of issued shares, making it potentially less accurate in some cases. Even though Limited Partnerships, Limited Liability Companies, and General Partnerships in Delaware don’t have to file an annual franchise report, they do need to cough up an annual tax of $300.
Corporations are required to pay this fee for the privilege of doing business in the state. For the big players, or the corporations that are labeled as large corporate filers, they’re required to pay $250,000 in annual taxes. These are corporations with stocks listed on national exchanges, boasting hefty revenues or assets in their financials. This approach uses tax brackets based on share count to determine the tax payment.
Business that are formed out of state but are registered to do business in Delaware must pay a $125 registration fee. This means that if you receive a high bill that was calculated under the first method, you can request a recalculation using the second method. After you’ve made your payment, it’s important to verify that it was received by the Delaware Division of Revenue.
The corporate income tax is based on the net income of the business, while the franchise tax is a fee that is charged regardless of the company’s profitability. Additionally, the franchise tax is due on an annual basis, while the corporate income tax is typically paid quarterly. Nevada’s corporate laws offer more protections from investor suits against executives. Plus, the state does not have a corporate income tax or franchise tax for corporations. While the former considers the total number of authorized shares to determine the tax, the latter bases it on the corporation’s total gross assets and issued shares.
This will result in a lower tax liability under the authorized shares method. Paying your Delaware franchise tax is an important requirement for all corporations incorporated in the state. By following the steps outlined in this article, you can ensure that you pay your tax on time and avoid any penalties or interest charges. Once you’ve determined your tax due date and the amount you need to pay, you can choose a payment method that suits you. Delaware offers several methods for paying your franchise tax, including online payment, wire transfer, credit card, and check. All corporations incorporated in Delaware are required to pay this tax every year, and failure to do so may result in penalties and interest charges.
