A limited liability company (LLC) in Delaware can bring you the utmost benefits among all types of business entities. An LLC is easy to register. Its taxation is flexible. Not to mention that it is also easy to maintain.
To remain in good standing, all companies need to comply with three requirements in Delaware. They are filing annual reports, paying annual fees, and filing returns.
However, an LLC in Delaware does not need to file an annual report. It only needs to pay certain kinds of fees and file income reports at the State level.
1. Delaware LLC Annual Report
For your information, an annual report is a document that reports crucial information of a business to the state government, including:
- The location of the company
- The name and address of one officer
- The names and addresses of all directors
Does a Delaware LLC need to file an annual report? NO. An LLC in Delaware is NOT required to file an annual report to the Division of Corporations. This means no Delaware LLC annual report fee and no due day.
2. Delaware LLC Annual Fees for Maintenance
For maintenance, Delaware LLC's annual costs include 2 kinds of fees. They are registered agent fees and annual tax.
2.1. Delaware LLC Registered Agent Fee
According to the Limited Liability Company Act, every LLC has to get and maintain in the State of Delaware:
- A registered office, which can be different from the business office (place to conduct business), and
- A registered agent.
A registered agent will receive legal documents and tax notices on behalf of a Delaware LLC. You can think of a registered agent as a bridge of connection between an LLC and the state government. The agent will make sure a Delaware LLC pays annual fees and does the filing on time.
The agent can be an individual or an entity but must be a resident in Delaware. The person must be available during business hours to receive legal documents and notifications.
If an LLC has a business office the same as the registered office in Delaware, it can act as its own registered agent. However, it can still opt for a registered agent service to avoid dealing with complicated paperwork.
In case of service engagement, a Delaware LLC must pay an annual fee to the provider for service maintenance. The fee varies according to different providers.
2.2. Delaware LLC Annual Tax
The annual tax of an LLC in Delaware is very straightforward. An LLC is required to pay a flat annual tax of $300.
The payment needs to be made no later than the first day of June.
Late payment will cause a penalty of $200 plus monthly interest of 1.5% imposed on both tax and penalty.
3. Delaware LLC Annual Tax Filing Requirements
The taxation of an LLC in Delaware is very flexible. The tax filing requirements will depend on the type of entity that an LLC elects for tax purposes.
By default, a multiple-member LLC will be treated as a partnership for tax purposes. Meanwhile, a single-member LLC will be treated as a sole proprietorship for tax purposes.
An LLC can elect to be treated as a corporation for taxation. If so, the tax filing requirements will be the same as a corporation. There are two kinds of corporations: C-corporation and S-corporation.
The C-corp status will result in double taxation at the corporate level and personal level. S-corp status cannot apply to LLCs with non-resident members. You are not suggested to change to these statuses without careful consideration.
3.1. Filing Requirements for Multiple-member Delaware LLC
At the State level, a multiple-member LLC does not pay income tax at the corporate level, since it is treated as a partnership for tax purposes. The tax liability will pass through to the members. They will pay income tax according to their tax statuses.
However, an LLC still needs to do some reporting. If the profits or losses of an LLC connects to a Delaware source, it must file the Delaware Form 300 (the partnership return) to the Division of Revenue. The filing deadline is before the 15th day of the third month after the fiscal year ends. If an LLC does not have any Delaware-sourced income or loss, it needs not file the return form.
For your information, Delaware-sourced income refers to the income generated from property located in Delaware or from any trade, business, occupation conducted in the state.
Subsequently, members of the LLC will need to report their income (which comes from the partnership) to the Division of Revenue. Residents need to file the Delaware Form 200-01, meanwhile, non-residents need to file Form 200-02. If non-residents do not have any Delaware-sourced income, no filing is needed. The deadline is by the last day of the fourth month after the fiscal year ends.
3.2. Filing Requirements for Single-member Delaware LLC
At the State level, a single-member LLC also does not pay corporate tax. The liability will flow to its sole owner. The person will need to pay tax and file a personal tax return to the Division of Revenue (Form 200-01 for residents and Form 200-02 for non-residents). Non-residents of a single-member LLC will not be taxed on foreign income (income that is not from U.S sources).
3.3. Gross Receipts Tax
Delaware imposes a tax on the total receipts of an LLC received from selling goods or supplying services in the state. The tax rates depend on different business types and activities (ranging from 0.0945% to 0.7468%). For more information on the rates, you can see them here.
A business must file a tax return (online) and pay such tax on a quarterly or monthly basis. New businesses are set up as quarterly filers as default. On a quarterly basis, the due day is the last day of the first month after the end of the quarter. On a monthly basis, the due day is the 20th day of the following month.
3.4. Delaware Withholding Tax
Withholding tax is imposed on the payments or wages paid to residents or non-residents. Employers of an LLC will withhold an estimated amount of tax from those payments or wages, then pay it to the Division of Revenue.
Every employee must file a Federal Form W-4 as a base for the employers to carry out withholding tax. At the State level, an LLC only needs to make an annual reconciliation report on the withheld tax (Delaware Form W-3) to the Division of Revenue. The due day for such filing is 28th February.
Furthermore, every year, the employer must send each employee a Delaware Form W-2, which is a statement of the employee’s total earnings and withheld tax. All copies of Form W-2 must be attached to Form W-3 when the LLC reports its annual withholding tax to the State government.
The matters of withholding tax are rather complicated. In addition to the State level, there are withholding-tax requirements at the federal level, too. You should consult with your registered agent or professionals to stay compliant with both the local and federal regulations.
4. Compliance Requirements at the Federal Level
Above are the compliance requirements at the State level only. Other than that, an LLC must also comply with the regulations at the federal level.
In general, an LLC in the U.S. is treated as a partnership for tax purposes, by default. It needs to report its income and losses to the Internal Revenue Service (IRS), via From 1065 (the return of partnership income). Additionally, it also needs to report on the matters of employment taxes and excise taxes if it is subject to these kinds of taxes.
An LLC must issue copies of Schedule K-31 (in Form 1065) to all of the members so that the members can proceed to file their annual tax returns to the IRS according to their tax statuses (Form 1040 for residents or Form 1040-NR for non-residents).
You can go over the federal requirements here. Again, you should consult with your registered agent or professionals to stay compliant with both the local and federal regulations.
Other forms required to be filed at federal level:
Form 5472: Any 25% foreign-owned U.S. corporation or any foreign business entities conducting business in the US are required to file this form for Information Return. The form is used to disclose all reportable transactions between the reporting corporation and a foreign or domestic party during the tax year.
Form Foreign Bank And Financial Account Report (FBAR): All Delaware companies which have foreign bank accounts or other foreign financial accounts with their foreign wealth beyond US$ 10,000 are required to report all money and assets contained in these accounts to the Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network (FinCEN). The deadline for filing the FBAR is on 15th of April with an automatic due extension by October 15th. Failing to file the form will lead to civil monetary penalties or criminal penalties.
Discover Foreign Bank And Financial Accounts Report (FBAR): Must-Know Things for detailed information and guideline.
Foreign Account Tax Compliance Act (FATCA):
Specified domestic entities and US persons engaging business in Delaware will be subject to two reporting requirements with the specified reporting thresholds. In the same manner with FBAR, FATCA requires the reporting of foreign financial accounts and assets to the Internal Revenue Service (IRS). Form 8938 is used for the report and must be attached with the annual tax return filing by the due date of such return.
A Delaware LLC does not file an annual report to the State government.
In most cases, there are two kinds of Delaware LLC fees: the registered agent fee and the state’s annual tax ($300).
By default, a multiple-member LLC in Delaware is treated as a partnership. If an LLC earned income from a Delaware source, the LLC and its members need to file reports to the State government.
The same applies to single-member Delaware LLCs. A single-member LLC is treated as a sole proprietorship. The sole owner will need to report to the State government according to his/her personal tax status.
An LLC in Delaware will also need to comply with the compliance requirements at the federal level. Consulting with the registered agents or professionals is highly advised.
Take your time to learn more about the LLCs and other business matters in Delaware with our all-in-one ebook. Should you have any questions or concerns, feel free to contact us!