What is the annual Franchise Tax in Delaware?
Effective January 1, 2018, a domestic stock or non-stock for profit corporation incorporated in the State of Delaware is required to pay annual franchise tax. The minimum tax is $175.00, for corporations using the Authorized Shares method and a minimum tax of $400.00 for corporations using the Assumed Par Value Capital Method.
Do tech startups pay Delaware state taxes?
As a technology startup incorporated in Delaware, you will receive a tax bill from the State of Delaware. It isn’t necessarily tied to income, but it is a tax you need to pay because the company’s place of origin is in the State of Delaware. All active corporations incorporated in Delaware must pay the annual franchise tax on or before March 1 st .
How can I reduce the costs of a Delaware franchise?
There are ways to reduce your Delaware franchise costs in certain circumstances. To reduce the taxes paid by a startup, use the Assumed Par Value method. This method calculates the taxes by total assets. As long as your issued shares constitute a third to half of your authorized shares, this method will save you money.
How much does it cost to file Delaware business taxes?
Payment can be submitted with an electronic check or credit card. Once payment is submitted, you're finished. The minimum Delaware franchise tax fee is $175 with a $50 filing fee. The minimum Delaware franchise tax and annual report payment is $225 for domestic corporations. The Delaware franchise tax for this business is simple.
Authorized Shares Method
The Authorized Shares Method uses the total number of shares authorized by a corporation to calculate taxes. A corporation with 5,000 authorized shares or fewer will pay $175 total while a corporation with greater than 5,000 authorized shares but less than 10,000 authorized shares will pay $250 total.
Assumed Par Value Capital Method
The Assumed Par Value Capital Method uses a more complicated calculation that ties the annual franchise tax amount to total gross assets and the total number of issued shares. The total gross assets can be found on Schedule L of Form 1120 of the corporate tax return.
Examples of each method
Here’s an example of how the two methods result in vastly different taxes for the same corporation. Let’s say ABC Corporation has 10,000,000 authorized shares of common stock with a par value of $0.001. The Company has issued 5,000,000 shares of common stock to founders and the company has $10,000 of total gross assets.
When are Delaware franchise taxes due?
Franchise Taxes and annual Reports are due no later than March 1st of each year. An annual Franchise Tax Notification is mailed directly to the corporation’s registered agent. Blank Franchise Tax Returns are not available. The Delaware Division of Corporations will require all Annual Franchise Tax Reports and alternative entity taxes ...
When are Delaware corporation tax returns due?
Franchise Taxes and annual Reports are due no later than March 1st of each year.
Do Delaware corporations have to file annual reports?
All corporations incorporated in the State of Delaware are required to file an Annual Report and to pay a franchise tax. Exempt domestic corporations do not pay a tax but must file an Annual Report. The Annual Report filing fee for all other domestic corporations is $50.00 plus taxes due upon filing of the Annual Report.
Do corporations have to file taxes in Delaware?
Corporations incorporated in Delaware but not conducting business in Delaware are not subject to corporate income tax, [30 Del.C, Section 1902 (b) (6)] but do have to pay Franchise Tax administered by the Delaware Department of State. Any corporation that is incorporated in Delaware (regardless of where you conduct business) must file an Annual ...
What is Delaware Franchise Tax?
Delaware franchise tax is a tax charged by the state of Delaware for the right to own a Delaware company. The tax does not affect income or company activity. The tax is required to maintain the company's good standing in Delaware.
Why do you need to use franchise tax in Delaware?
The Delaware franchise tax is beneficial to corporations because it is a simple process to submit and calculate payment. The Delaware franchise tax is also beneficial to businesses as it is a small fee in comparison to other states.
How much is the late fee for franchise tax in Delaware?
If you pay your Delaware franchise tax late, you'll be charged a late fee. The late fee is $125.00 and a 1.5 percent monthly interest afterward.
What information is required to file a franchise tax in Delaware?
When filing a franchise tax in Delaware, all the must be submitted is the physical address of the business and the name of the registered agent. This can be a business owner or someone else. By not requiring more information, businesses that file their franchise tax in Delaware can maintain privacy.
What happens if you don't file Delaware franchise tax?
If you don't file your Delaware franchise tax on time, you will be charged a late fee.
What is Delaware's court of chancery?
Delaware has what is called a Court of Chancery. This allows the state to adjudicate corporate litigation. The corporate laws and cases decided in Delaware are often used by the Supreme Court to influence decisions.
How much does it cost to register a foreign business in Delaware?
Foreign File. Business that are formed out of state but are registered to do business in Delaware must pay a $125 registration fee. Foreign corporations, those that are formed outside of Delaware, cannot file online. To file as a foreign corporation, mail in the necessary documents.
What is the par value method?
The Assumed Par Value Method computes the franchise tax owed based on how many shares are authorized, the number of shares issued, and the amount of the corporation’s gross assets.
Why are franchise taxes so high in Delaware?
Most franchise tax bills are outrageously high because of the default calculation method . A corporation computes its Delaware franchise taxes using one of two methods. The default method for calculating franchise taxes is the Authorized Shares Method, which calculates the franchise tax based on the number of authorized shares per ...
How much is the minimum amount of tax for the assumed par value method?
Generally, the minimum tax for the Assumed Par Value Method is $400 per year. In most cases, companies will pay the $400 amount.
Why do corporations need to issue stock?
A corporation prefers this flexibility because it generally needs to issue stock to raise third-party capital and give stock-based compensation to company founders and key employees.
How to minimize franchise taxes?
Startups can usually minimize franchise taxes by using the Assumed Par Value method, since it calculates tax as a function of total assets. The only pitfall to watch out for is that even a company with few assets could potentially owe very large franchise taxes if it authorizes a very large number of shares but then issues a tiny percentage of them. So long as your issued shares constitute at least a third to a half of your authorized shares, the Alternative Par Method should work well for most startups.
What is the par value of a company in Delaware?
$0.001 or below), Delaware has come up with an “assumed par value,” which is the Company’s gross assets divided by all of its issued and outstanding shares . The gross assets come from U.S. Form 1120, Schedule L tax form for the same year that the Company is filing its annual report. If the Company has not filed its taxes for that year yet, then a number from a recent balance sheet will suffice and can be amended later if necessary. The par value used to compute the tax is the greater of the “assumed par value” or the actual par value listed in the certificate of incorporation.
How to calculate Delaware franchise tax?
Delaware’s default method of calculating annual franchise tax is based only on how many shares a Company has authorized in its charter: 1 5,000 shares or less (minimum tax) $175.00 2 5,001 – 10,000 shares – $250.00 3 Each additional 10,000 shares or portion thereof add $85.00 4 Maximum annual tax is $200,000.00
How much does a company with 5,000,000 authorized shares owe?
By way of illustration for how quickly this grows, a company with 5,000,000 authorized shares will owe $37,675.00; a company with 10,000,000 will owe $75,175.00; and for a company to hit the maximum tax, it will have to authorize just fewer than 24,000,000 shares. Again, this is based on authorized shares and not outstanding shares.
What information is required for a Delaware corporation?
An officer of the company must enter and confirm the necessary information, which includes the physical address/location of the corporation, address of the registered agent in Delaware, a list of all directors and at least one officer, issued shares, and gross assets.
When are Delaware franchise taxes due in 2021?
Please note: this information is up-to-date as of April 12, 2021.