The franchise in franchise tax refers to the State’s authorization for a company to incorporate in the state or do business there. Most aspiring companies end up incorporating in Delaware to reap the benefits of robust case law and a pro-business attitude. But being a Delaware corporation also comes with franchise tax liability, each and every year. This the USD value of your gross assets at the financial year-end, usually December 31st for many businesses, unless you have chosen a different tax year deadline. The State of Delaware no longer mails hard copy annual reports. Instead, Registered Agents forward a notification letter in December.
Delaware law requires companies incorporated in Delaware to pay an annual franchise tax to keep the company in “good standing”. Even companies with no business activity must pay a franchise tax to maintain “good standing” status. All limited liability companies (LLCs), limited partnerships (LPs), and general partnerships (GPs) registered in Delaware are required to pay an annual tax of $300 by June 1st. If the taxes are not paid, there is a penalty of $200 plus 1.5% interest per month on the tax and penalty. Delaware corporations and Limited Liability Companies (LLCs) must pay annual franchise taxes to the state. Businesses incorporated in Delaware must also file an annual report.
Filing an annual report and paying franchise tax is also required to maintain a company’s good standing in Delaware. Not filing and paying means your company cannot obtain a good standing certificate and Delaware will declare your company void. Many Delaware corporation owners form companies and authorize huge numbers of shares (millions, in some cases).
Delaware Annual Report Requirements by Entity Type
While this may seem like a fine idea at the time, it leads to major tax consequences later. In Delaware, less stock and a smaller par value will result in a far smaller tax bill each year (a Delaware LLC, by contrast, will pay a flat tax each year that does not fluctuate). If you don’t pay the Delaware Franchise Tax for your Delaware Corporation for two consecutive years, your corporation will be administratively dissolved by the State of Delaware. If you do not file your Franchise Tax by June 1st, you will be charged a late fee of $200 and your company will be penalized at 1.5% interest for every month it remains unpaid. Corporations are also required to file an annual report. Filing an annual report is for corporations only.
Please be ready to substantiate the evidence of this inactivity period for future audits from the state as you will pay less franchise tax for the inactive period. If you are not sure, consult with your accountant. The address written on your SS-4 form sent to IRS may not reflect your current address information. Please check your SS-4 form, and/or prior-year tax returns (if any) to ensure you have updated address information also with IRS. If not, you may need to file Form 8822-B to update your business mailing and principal addresses. If this is your first year, then you may want to decide how you will file your tax returns and complete your form accordingly.
You must pay Franchise Tax to maintain “good standing” status for your company. If you don’t pay your Franchise Tax, it will always stay in the records of the Delaware Division of Corporations and you will pay a penalty for late payment which is $200. Also your company will be penalized at 1.5% interest for every month it remains unpaid. Delaware Corporations are also required to file an annual report besides paying the Franchise Tax. Foreign corporations that wish to do business in the state of Delaware are required to file an annual report with the secretary of state on or before June 30th every year.
This return or “Annual Report” must be filed by March 1st with the state of Delaware each year, regardless on income or activity, as long as the business is registered in the state. Don’t forget about your Delaware franchise tax and annual report filings! Delaware corporations or Delaware LLCs that are actively conducting business need to stay compliant with the Delaware Division of Corporations to keep a business in good standing. Filing the annual report and paying the franchise tax as soon as possible help you avoid frustration and delays with other time-sensitive filings.
We also send a follow up letter and two e-mails. Annual fees from $100 to $175 per state plus filing fees. Late and missed payments result in a $200 penalty. Late tax payments and the penalty acre interest at the rate of 1.5% per month.
The Delaware state site URL to file your annual report and pay the franchise tax is also listed below for easy access. If your company was incorporated in a certain year but was inactive for a period of time during the year, you can report this in the “inactive period” section and pay less taxes. There is more information below on this subject. I don’t understand why I have to pay franchise taxes. Every Delaware-based corporation must pay the Delaware Franchise tax.
Your Partner in Delaware: DelawareAgency.com
Mailing address and the principal place of business address may be two different addresses or the same. If you don’t have a capable or a stock register (even a simple spreadsheet document for this), then please either create one or consult with your accountant or lawyer. Please ensure that you type your Company name to match the exact name as used in the Record Sales and Purchases by Credit Card Financial Accounting incorporation documents. You will see a list of Company names matching your search criteria, choose your own Company and note the File ID number. Delaware is undeniably an attractive destination for investors looking to establish their businesses. With its business-friendly environment, tax advantages, and access to major markets, Delaware offers a…
Discover the remarkable advantages of Delaware as a business destination. Our tax pros can assist C-Corps, S-Corps, and LLCs incorporated in states across the US. The franchise tax is paid online at the Division of Corporations website. Upon completion the entity’s status will move out of delinquency and a Good Standing can be issued. Go to the franchise tax filing website for the State of Delaware Division of Corporations. Your Delaware franchise tax is due every year on March 1st.
- The first report is due in the calendar year following initial registration.
- The annual report includes basic information, such as the names of the corporation’s directors and officers, as well as the corporation’s authorized and outstanding share information.
- All corporations must submit an annual report with company details and pay the franchise tax during filing.
You can refer to the Delaware state site, links provided below the article, for the latest updates and rules. CSC is a service company and does not offer legal or financial advice. Businesses can utilize accelerated depreciation, an accounting method that allows larger deductio… Teams from all over the world have used our next-gen accounting services to accelerate growth. Thousands of startups, small, and growing businesses choose GBS as their trusted financial partner.
Delaware Limited Liability Partnership Annual Report Requirements:
The minimum tax for companies using the Assumed Par Value Capital Method is $400. With either method the maximum tax is $200,000, unless the company has been identified as a “large corporate filer,” in which case their tax will be $250,000.00. A Delaware Certificate of Good Standing is a document issued by the Secretary of State that shows the ability of a corporation to do business. If you have an overdue Delaware franchise tax, The Secretary of State will not issue a Good Standing status for your company.
You’ll find a list of tax years during which your business has been eligible for franchise tax. Next to the year you’d like to file for, click File Annual Report. Most non-US owners, without a physical presence in the US, have a US mailing address and their local country office address (or home-office) as the principal place of the business address. Gross assets may differ for accrual basis and cash basis balance sheets. If you have filed tax returns previously, you would know whether you are cash or accrual basis.
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Where Do I File a Delaware Annual Report?
For business owners who come to the State of Delaware for low incorporation and annual fees (no Delaware Income Tax for companies that run outside Delaware), they reach another important compliance deadline. Franchise taxes on businesses formed under the laws of Delaware are due for Corporations on March 1, and for Limited Liability Companies and Partnerships on June 1. To be compliant, the owner of a Delaware LLC needs to pay the Delaware franchise tax in the coming weeks.
In sum, a small Delaware corporation that has no need to authorize more than 5,000 shares of capital stock should never do so, to avoid paying additional franchise tax every year for no good reason. Regardless of whether they are actively doing business, all corporations and LLCs have to file reports and pay franchise taxes. If you don’t plan to use your company at all in the future, we can help you to dissolve it with the State. Corporations compute the tax using either the authorized shares method or the assumed par value capital method.
The Delaware franchise tax is only 1 percent of annual gross receipts. This is one of the lowest franchise tax rates in the country. The state also has a relatively shorter franchise disclosure period than most states, which is six months. Delaware also has a low threshold for qualifying as a franchise, at only $1 million in annual gross receipts. You will see the franchise tax payable value change, probably to a very low amount – depending on your Company type, number of issued shares, gross asset value, and inactive dates (if any).
But did you know it has a franchise tax that is imposed on businesses incorporated in Delaware. This tax acts as a significant revenue stream for the state. The minimum tax for companies using the Authorized Shares Method is $175.
What is the Delaware LLC franchise tax and what does it cost?
8, § 503(a); Delaware Division of Corporations, How to Calculate Franchise Taxes (advising corporations to “[u]se the method that results in the lesser tax”), last accessed June 7, 2022. Here are the two methods of calculating Delaware franchise tax, and what you can do to lower your tax bill. You have completed the annual report, but not filed it yet.