What is a Franchise Tax?
Franchise Tax is merely the cost of having a business in Delaware. It is a necessary tax for the companies established in Delaware. It has nothing to do with the actions or the income of your business; it is only required to keep your business operating.
When to pay?
It depends on the type of business.
For corporate businesses, the deadline is the 1st of March every year. If the amount has not been paid until this day, there will be a delayed penalty of $125 and 1.5% interest for each month the payment was delayed.
For LLCs, the deadline is the 1st of June every year. The period is also the same for Limited Partnerships. If the amount has not been paid until this day, there will be a delayed penalty of $200 and 1.5% interest for each month the payment was delayed.
Corporates, LLCs, and LPs all pay their taxes for their previous calendar year.
How to calculate the Franchise Tax?
For an LLC and Limited Partnership, the annual franchise tax is $300 (as of 1st of June, 2014).
It is a little different for corporations. Their franchise tax is calculated upon the number of shares they have. Franchise tax for corporations consists of an annual reporting fee and the estimated tax.
Non-profit organizations are exempted from Franchise Tax. They are only required to pay a reporting fee of $25.
A corporation with 5,000 shares or less is required to pay $50 reporting fee and $175 tax ($225 in total).
A corporation with 5,001 or more shares is required to pay $50 reporting fee and a tax amount between $200-$180,000. There are two different methods to calculate this tax:
The Authorized Shares Method
5,000 shares or less: $175
5,001-10,000 shares: $250
For each additional 10,000 shares: $75
Maximum annual charge: 180,000$
*You should also add $50 yearly reporting fee.
The Assumed Par Value Capital Method
Delaware allows you to pay your tax by one of these two calculation methods. So, if you delivered a tax bill with the number of hundreds of thousands, please consider calculating your tax amount with both methods. To use this method, you are required to list all the assets and shares your company has. It is quite a complicated process of calculation. Please feel free to contact us to get help about this method.
Does Franchise Tax also cover the Registered Accountant fee?
They are paid separately. You need to pay your accountant fee to the accountant or the accounting organization you work with along with paying your franchise tax to the State of Delaware.
You can choose our Accounting Services and handle your annual payments with us.
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You can choose one of our services to start your business in the US, and you can always contact us for further information or questions.
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