Domestic corporations that are exempt from tax do not have to pay a tax, but they must file an annual report. The filing fee for all other domestic corporations is $50, plus any taxes that are due when the annual report is filed. All registered corporations are required to pay taxes and file their annual reports before the 1st of March. Authorizing excessive shares of stock can result in a higher annual franchise tax liability. A large widely held public company might have difficulty reducing their authorized and/or issued shares but a start-up technology or life sciences company may have more flexibility.

• Taxpayers who owe $5.000 or more will have to pay estimated taxes in quarterly installments, with 40% due on the 1st of June, 20% due on the 1st of September, 20% due on the 1st of December, and the remainder due on the 1st of March.
• In addition, Delaware has a number of other business-friendly policies.
• In the state of Delaware, all corporations are required to file an annual report and pay a franchise tax.
• A corporation with 1,000,000 shares authorized pays $8,665 ($250 plus $8,415[$85 x 99]).

The tax under this method is $400 per $1,000,000, or portion thereof, of assumed par value. Assume a Delaware corporation has 20 million of authorized shares with a par value of .001, $50,000,000 of total gross assets and 15,000,000 of issued shares. When clients are thinking about forming Delaware Corporations, one of the most important decisions to make is how many total Authorized Shares of Stock the Corporation will have along with the Par Value of the Shares. This information is listed on the Delaware Certificate of Incorporation filed in Delaware. And one of the most popular questions we receive daily is how many shares of stock should I start my Corporation with?

What is Delaware franchise tax?

A refund might be available if the Assumed Par Value Capital Method was not considered. Workhy offers end-to-end solutions that facilitate company set-up, management, and growth by enabling users to carry out all processes related to their business online, on a single platform. Receive the latest business insights, analysis, and perspectives from EisnerAmper professionals. Just want to highlight that Justin Damiani is one of the BEST customer support reps I have ever interfaced with.

• In this article, you can find all the information you need to know about the Delaware franchise tax.
• Workhy can help you set up a company in Delaware and prepare your franchise tax returns, even if you are not a US resident.
• As discussed above, the tax on 20 million of authorized shares is $170,165 ($250.00 plus $169,915.00[$85.00 x 1999]).

This is a great question as it truly depends on certain factors and will influence your company’s Delaware Franchise Tax owed each year. The minimum franchise tax is $175.00 for corporations using the Authorized Shares Method and $400.00 for corporations using the Assumed Par Value Capital Method. All corporations using either method will have a maximum tax of $200,000.00 unless it has been identified as a Large Corporate Filer, then the tax will be $250,000.00. Delaware Franchise Tax is based on a Corporation’s total Authorized Shares. Delaware has a low franchise tax and also has no state income tax, which makes it an ideal place to start a business.

Technology & Life Sciences C Corporations: How Do I Compute the Delaware Franchise Tax?

The tax is based on the value of the company’s assets, and it is paid every year. The tax is used to fund the state’s budget, and it is one of the main sources of revenue for the state. The Assumed Par what is irs form w Value Capital Method in the above example results in a much lower tax ($26,800 vs. $170,165). Delaware would automatically show the higher tax due on their website using the authorized shares method.

Some clients that form Corporations in Delaware may be working with a limited budget, or perhaps clients may not envision having investors at the time of the initial formation since there may be many other goals left to accomplish, first. They may decide to start with a minimum stock structure which is 1 to 5,000 shares of stock. With this stock structure, the Delaware Corporation will pay a $225 Delaware Franchise Tax each year which includes the annual report fee. This will allow for the lowest annual fees which is sometimes beneficial for bootstrapped start-up companies. But what if you plan to bring aboard investors in the future and the need for more authorized shares is required?

Filing Deadline:

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Annual Report Filing Fee:

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. The state has a low franchise tax rate, a short disclosure period, and a number of other business-friendly policies. Workhy can help you set up a company in Delaware and prepare your franchise tax returns, even if you are not a US resident. If your annual report for franchise tax is not filed and the Delaware franchise tax is not paid for two years in a row, the corporation will be dissolved by the State of Delaware. Delaware franchise tax is a tax levied by the state of Delaware on businesses that are incorporated in Delaware.

If the need arises, a Stock Amendment can be filed with the state for approval to increase the number of authorized shares of the Corporation. This method requires that you enter the treasury shares as well as all other issued shares and total gross assets into spaces provided for these details in your annual Delaware franchise tax report. The total gross assets should be the “total assets” reported on US form 1120, schedule L (federal return) for the company’s fiscal year ending the calendar year of the report. Form 1120 Schedule L for tax year ending prior to filing the Delaware franchise tax report.

Delaware Franchise Tax calculations are prorated if a corporation’s authorized and/or issued shares change during the year. In addition, Delaware has a number of other business-friendly policies. The state has a low corporate income tax rate of 8.7 percent, and there is no state sales tax.

Ideally, Delaware Franchise Tax liability should be quantified prior to incorporating in the state and prior to any new shares being authorized or issued. 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. The filing fee is currently set at $125 and must be paid upon submitting the report. If the annual report and corresponding fee are not received by the due date, a $125 late penalty will be added to the original filing fee. There are several variables that enter into the Assumed Par Value Capital Method including the corporation’s gross assets, issued shares, number of authorized shares and their par value. Delaware provides a Microsoft Excel worksheet that can be used to show the tax based on various assumptions.

Annual Report Franchise Tax:

However, in addition to incorporation, a corporation must actually be “doing business” in Delaware to be subject to the state income tax. In addition to paying the Franchise Tax, Delaware requires every corporation to have and maintain a registered agent in the State. This is a person or a representative that is physically located in Delaware. If a company doesn’t have a physical presence in Delaware, there are professional registered agents available for hire; prices and levels of service vary. As discussed above, the tax on 20 million of authorized shares is $170,165 ($250.00 plus $169,915.00[$85.00 x 1999]).