Since taxes take a part of a businesses’ profits, many business owners tend to search for countries, states, and islands known as “tax havens” to reduce and even waive the taxes on their business.
One of the well-known tax havens is Delaware. Delaware is a state in the US that is considered one of the best states to incorporate your company.
Delaware is considered a tax haven state because it does not impose a tax on the state level. It has no sales tax and no local tax.
When you hear this, a question will directly come to your head:
Does that mean that if I incorporate in Delaware, I won’t have to pay taxes?
Well, the right answer is it depends. But what does it depend on?
To give a more in-depth explanation, we should differentiate between:
The types of entities incorporated and their owners.
We will deal with this by giving examples:
Scenario number 1: a domestic corporation. When we say domestic, every corporation incorporated in the US, whether owned by US nationals or foreigners, will have to pay a federal tax of 21%.
Scenario number 2: an LLC is a disregarded entity, so if US residents own it, then its shareholders will have to pay personal income tax, and such tax is progressive. Delaware collects taxes based on seven brackets with rates ranging from 0% to 6.6%.
If the LLC is owned by foreigners 2 cases must be observed:
Case 1: if the shareholders are residents in the US or have effectively connected income such as employees or inventory in the US, they will have to pay taxes.
Case 2: which is the best scenario ever, and many foreigners tend to do is incorporating an LLC in the US and not residing there or having any effectively connected income there. In this case, no taxes are due on its foreign owners.
Case 3: what if foreigners and US nationals own the LLC at the same time and no one is resident there?
In this case, the US national will have to pay a withholding tax of 30%.
- Why is it important?
Knowing these facts is of significant importance because if you hear the word tax haven, you might think that no taxes are imposed, but the truth is it is not always the case.
- How can a lawyer help?
For this reason, consulting a lawyer is necessary to provide you with an overview on whether, in your case, you will have to pay taxes and if the place you are choosing to incorporate is suitable for your business. After all, you should study the case from many perspectives, not just lowering the taxes to pay.
There are several aspects that should be studied in parallel upon which your go-to country should be chosen.
Looking to incorporate your business and need help figuring out the right place to incorporate? Think no more!
Just visit lexyom.com and book an online consultation with a lawyer, and we will take it from there.