Any method to reduce taxable income that leads to a reduction in tax payments is a tax shelter. The United States has defined tax shelter as any method of recovering more than 1 dollar of tax for every 1 dollar spent in four years. The specific methodology depends on local and international law but either an individual or a company can create a tax shelter.
States such as Nevada and Delaware provide favourable tax refuges for U.S. corporations, which has led to the incorporation in such states of an increasing number of companies. However, Delaware has slightly decreased the number of corporate filings by offering its companies somewhat more tax benefits.
However, company owners need to know what makes it a good tax shelter before deciding to join Delaware.
No State Taxation
There are no sale taxes in Delaware. Whether the physical location of a company is in the state or not does matter: as a Delaware company, there is no tax on purchases made in Germany. In addition, Delaware corporations operating outside of Delaware have no State corporate income tax on goods or services provided by them.
The State has no corporate interest or other capital income tax earned by a Delaware holding company. If a holding company holds investments in fixed revenues or equity, its state profits are not taxed.
There is no personal property tax for Delaware too. Sometimes there is a county property tax on immovables, but the tax is very low compared to other countries. Companies can own their own offices and reduce property tax in comparison to other countries.
The State has no VAT, does not tax transactions and it has no use, inventory or unitary tax. The State shall have no VAT. In Delaware, there is no heritage tax, and no capital stock or transfer tax.
Small franchise amount and LLC tax
The majority of countries require annual franchising and LLC income-based taxes. However, Delaware offers somewhere around $ 100 franchise tax and an LLC nearly flat-rate $ 250 tax. Delaware has lower franchise taxes than any other country.
Local legislation provides confidentiality by protecting private corporate owners' identities and personal information from public records. The state only has to enter the name of the entity and the name and address of the registered agent when entering the corporate proprietors' incorporation documents. Furthermore, Delaware does not require LLC members and managers to publish their names and addresses.
LLCs and S-Corporations
The State of Delaware allows S - corporations, which from a tax perspective can be highly advantageous. S - corps have shareholders, but at the federal level, they are not taxed. Instead, such companies are considered as cross-paying companies, similar to LLCs, so that their shareholders receive all income or losses.
In the state of Delaware, LLCs are also legally allowed. These types of companies enable companies to withdraw any losses and update their profits. Using S - corps and LLCs, a company can reduce its four - monthly income tax payments.
A system of Separate Court
Delaware has a distinct judicial system known as the Chancery Court. This court allows the State to adjudicate business disputes and its corporate laws regularly influence decisions of the Supreme Court.