Introduction to Delaware Corporate Tax Rate:
The Delaware corporate tax rate is well-known for being favorable for business owners. Delaware, dubbed the “Small Wonder,” is the second smallest state in the US. Still, it is home to over 60% of Fortune 500 companies, including industry titans such as Amazon, Alphabet (Google), and Tesla. Delaware is known for its business-friendly environment, which it has earned through lenient tax policies, reduced restrictions, corporate secrecy rules, and streamlined corporate laws. It should come as no surprise that Delaware is a sought-after location for startups and established companies. In fact, over 90% of US-based companies that went public in 2021 were registered in this state.
Delaware’s tax system is ranked 18th in CNBC’s America’s Top States for Business 2023 and 21st overall in the Tax Foundation’s 2024 State Business Tax Climate Index. The state scored highly in areas like workforce quality, economic robustness, and the dependability of its infrastructure. Delaware has a distinct advantage over other states because it has a court system specifically designed to handle corporate cases—the Court of Chancery. This specialized legal institution contributes to the state’s appeal as a haven for corporate entities by fostering an environment that prioritizes efficiency and expertise in resolving business-related matters.
- A Delaware corporation may have its headquarters in any state in the United States and is frequently exempt from state corporate income tax.
- Delaware’s personal income tax is graduated, with rates ranging from 2.20% to 6.60%.
- The Delaware corporate tax rate is 8.70%.
- State income tax returns are due by the 15th day of the fourth month following the end of the fiscal year.
- Delaware does not have a sales tax, but it does levy a business and occupational gross receipt tax, which ranges from 0.0945% to 1.9914%, depending on the type of business.
What Do I Need to Do to Start a Business in Delaware?
To legally conduct business in Delaware, a business license is required. You can apply for a state business license through the Delaware One Stop registration portal for $75. Depending on the nature of your business, you may also need various licenses and permits.
The following is a step-by-step guide to forming a new business entity in Delaware to take advantage of the Delaware corporate tax rate:
- Select the type of business entity that best meets your requirements.
- Obtain a registered agent. Every Delaware business entity must have and maintain a registered agent, who can be an individual resident or entity authorized to do business in Delaware. The Delaware-based company can be its own registered agent.
- Reserve your company’s name. This is not required, but you need to do it to ensure that your business’s name is held for you for 120 days. Reservation requests can be sent in writing or online. Send the application to the Delaware Division of Corporations by email, fax, or mail. The fee is $75.00
- Complete the Certificate of Incorporation/Formation Forms. The entity forms and instructions can be found on the Delaware Division of Corporations website.
- Submit your completed certificate of incorporation/formation forms. You can file the documents online using Document Filing and Certificate Request Information – Division of Corporations – State of Delaware, or mail them to the Division Office of Corporations. Pay the filing fees when you submit your formation forms.
- Obtain certified copies and a Certificate of Status/Good Standing. A Certificate of Good Standing is required to open a business account with some financial institutions. The fee for a Short Form Certificate of Status is $50, and the fee for a Long Form Certificate of Status is $175.
- Annual reports must be filed (except for limited partnerships, limited liability companies, and general partnerships). Exempt domestic corporations must file an annual report despite not paying taxes. The filing fee is $25 for exempt domestic corporations and $50 for non-exempt domestic corporations.
Does Delaware Have an Income Tax?
Yes, Delaware has a graduated state individual income tax, with rates ranging from 2.20% to 6.60%. Furthermore, any Delaware municipality with a population greater than 50,000 is authorized to levy a tax equal to 1.25% of (1) residents’ total income from all sources and (2) total income earned within the municipality by non-residents. Currently, only Wilmington City levies an earned income tax. Delaware has a corporate income tax rate of 8.70%.
Is There a Franchise Tax in Delaware?
Every Delaware corporation is required to file an annual report and pay franchise tax. Exempt domestic corporations do not pay tax but must file an Annual Report. Franchise taxes for different entities are as follows:
|The minimum is $175 for corporations using the Authorized Shares Method. The minimum tax is $400 for corporations using the Assumed Par Value Capital Method. A maximum tax of $200,000 for both methods unless the corporation has been identified as a Large Corporate Filer, then its maximum tax franchise tax is $250,000.
|General or Limited Partnership
|Limited Liability Partnership
|$200 per partner
- A corporation’s franchise tax can be calculated based on one of two methods: the authorized shares method (default method) or the assumed par value capital method.
Does Having a Mailing Address in Delaware Trigger Corporate Income Tax and/or Registration Requirements?
No. Even though some foreign corporations use Delaware addresses for mailing purposes on their tax returns, filing a Delaware state return is not required.
Will I Have to Pay Taxes If I Have a Business in Delaware But Live in Another State?
Every domestic or foreign corporation doing business in Delaware must file a corporate income tax return based on the Delaware corporate tax rate unless exempt under Section 1902(b), Title 30 of the Delaware Code.
All My Activities Are Outside the U.S., and I Live in a Different Country, But I Have a company in Delaware. Do I Have to Pay the Delaware Corporate Tax Rate?
If you are a non-resident of Delaware, you are only required to file a Delaware tax return if you have a gross income from sources in Delaware. If that is the case, the Delaware corporate tax rate will apply to you. Also, you only need to pay the state-imposed franchise tax if the company is only Delaware-incorporated.
Does Having an Employee in Delaware Trigger Corporate Income Tax?
Yes, you must pay the Delaware corporate tax rate on income when you have an employee residing in Delaware.
Does Having an Independent Contractor in Delaware Trigger Corporate Income Tax?
No, in this case, you are not required to pay the Delaware corporate tax rate on income because independent contractors are not company employees but contractual individuals you hire for their expertise.
Does Having a Founder Living in Delaware Trigger Corporate Income Tax?
Yes, having an employee shareholder in Delaware will trigger corporate income tax, and you need to file a state return along with your federal return.
If You Hold Board Meetings in Delaware, Will it Trigger Corporate Income Tax?
No, holding board meetings in Delaware will not trigger the payment of corporate income tax.
Is There a Sales Tax in Delaware?
Delaware does not have a state or local sales tax, but it imposes a gross receipts tax (GRT) on the total gross revenues of a business, regardless of their source. GRT is levied on the seller of goods (tangible or intangible) or services. The term “gross receipts” refers to a company’s total receipts from goods sold and services provided in the state unless the statute specifies otherwise. Deductions are not allowed for the cost of goods or property sold, labor costs, interest expenses, discounts paid, delivery costs, state or federal taxes, or other expenses.
Business and occupational gross receipts tax rates range from 0.0945% to 1.9914%, depending on the business activity. Separate gross receipts tax reporting is required when a taxpayer earns income from more than one type of activity. The type of business activity also determines whether gross receipts tax is remitted monthly or quarterly.
Does Delaware Tax SaaS Income?
Delaware is one of the few states in the United States that does not have a traditional sales tax. This implies that the state does not require SaaS and other digital goods vendors to collect sales tax. However, while Delaware does not currently impose a sales tax on software as a service, it is critical to be aware of any potential changes that may occur in the future.
Does Delaware Tax Online Marketplaces?
No, Delaware is not subjecting online marketplaces to sales tax. Seeking advice from a tax professional at Cleer Tax can help ensure compliance with any new tax laws or regulations.
Does Delaware Tax Remote Software Sales?
No, remote software sales are not taxed in Delaware. Generally, there is no sales tax in Delaware. Whether a business is physically located in the state or not is irrelevant; as a Delaware corporation, no in-state purchases are taxable. When they operate outside of Delaware, Delaware corporations are exempt from state corporate income tax on the goods and services they provide. Additionally, Delaware corporations that operate outside of Delaware do not have to pay state corporate income tax on the goods and services they provide.
What Will I Have to Do If I Want to Close My Business in Delaware?
A Certificate of Dissolution for corporations and a Certificate of Cancellation for LLCs must be obtained from the State of Delaware to dissolve a Delaware corporation. To begin dissolving a Delaware corporation, the company must pay a dissolution fee, submit all required tax reports, and pay all outstanding franchise taxes, including late fees and interest. If a Delaware corporation has a bank account, the company will usually close the account before filing the Certificate of Dissolution.
When is My Delaware Tax Return Due?
In the case of a calendar-year taxpayer, Delaware corporate income tax returns are due on or before April 15 of the following year. The return is due on or before the fifteenth day of the fourth month following the fiscal year’s end for fiscal year taxpayers.
What Happens If I File My Delaware Income Tax Return Late?
Corporate income tax returns filed late are subject to a penalty of 5% per month plus interest of 0.5% per month from the original due date until paid. In addition to the late filing penalty and interest, a penalty of 1% per month (up to 25%) is imposed for failing to pay (in whole or in part) the tax liability shown to be due on a timely filed return.
Can Cleer Tax Help with Filing Taxes in Delaware?
Absolutely! Cleer Tax provides hassle-free Corporate Income Tax Packages that include both federal AND state income tax filings. We can also help you determine if the Delaware corporate tax rate applies to you.
Our all-in-one monthly accounting packages include monthly statements plus your federal and state tax returns. If you have any additional questions about structuring your company, schedule a consultation to discuss the best setup for your startup, regardless of which state you register in.
We also offer a new company package that includes tax consultation, bookkeeping, and a chart of accounts set up to help you do it right from the start.