Is Delaware a Tax Haven? Offshore Jurisdiction Review

Delaware is the most business-friendly jurisdiction in the US. In fact, this small state is one of the biggest corporate tax havens on earth, acting as registered home to more than one million companies from around the world. The famous 1209 North Orange Street alone is the legal address of more than 285,000 businesses (yes, that is not a typo!).

This includes some of the biggest names such as Apple, Berkshire Hathaway, American Airlines, and Google. In this article, we break down why Delaware is such an excellent choice for an offshore tax haven. 

For here for more info on setting up a Delaware offshore LLC

Table of Contents:

• Why Choose Delaware As An Offshore Tax Haven?
• Benefits Of Setting Up An Offshore Business In Delaware
• Background Information About Delaware
• Location
• Political Structure
• Economy And Infrastructure
• Population, Language And Culture
• Exchange Control
• Type Of Law
• Principle Corporate Legislation
• Taxation
• Corporate Tax
• Personal Income Tax
• Sales Tax
• Property Tax
• Estate Taxes
• Conclusion

Why Choose Delaware as an Offshore Tax Haven?

The main attraction of Delaware is its extremely favourable corporate tax structures. Since 1965, Delaware has created the ideal landscape for company formation and is one of the most popular jurisdictions in the world to incorporate an offshore business. The infamous “Delaware Loophole” allows companies to avoid paying any corporate income tax where they earn the revenue, provided they are operating outside of the state. Delaware is one of five states with zero sales taxes, which draws consumers from different states.  

Aside from the primary tax savings, A Delaware offshore LLC offers many other advantages, such as financial privacy, fast and affordable incorporation processes, and few reporting requirements. One of the unique features of a Delaware LLC is the fact that there is great flexibility in drafting the operating agreement, which means one can tailor the terms to suit their individual requirements. 

The fact that Delaware is a US state further adds to its attractiveness as an offshore tax haven, because it offers greater reputability with fewer risks. It is the main reason why it has been able to fly under the radar for so long, and continues to receive little to no scrutiny from governments and watchdogs from around the world. 

The Benefits

Delaware is the top tax haven for offshore company incorporation. Advantages of setting up an offshore business in Delaware include:

• Tax reduction: Delaware offshore LLCs and corporations which do not conduct their business within the state are completely exempt from state corporate income tax. A company is not liable for US federal income tax if it is owned by non-resident members who do not have any income source from inside the US.
• Privacy and confidentiality: Information about members/shareholders of a Delaware LLC is not publicly reported. Company information and accounting records are also not available to the public. Nominee shareholders/directors are permitted for increased privacy.
• Asset protection: Delaware has a history of few litigations and it is difficult for asset claims to be won by creditors. The corporate-friendly attitude of Delaware courts is another major reason why so many of the world’s biggest businesses choose to incorporate there.
• Fast and easy incorporation process: A Delaware LLC can be incorporated in as little as one day, with no stringent paperwork requirements.
• Flexibility and convenience: The structure of the LLC is highly flexible, with few mandatory provisions in the corporate legislation. As a US state. Delaware is very convenient in terms of geography, language, and legal structures.
• Only one member is required, who can be of any nationality.
• There are no minimum capital requirements
• There is no requirement to file accounts and no audit requirements
• Delaware is a stable and reputable jurisdiction for company operation
• Low setup and maintenance fees
• Sound legal system (US Common Law) with well drafted and friendly corporate legislation.

Background Information about Delaware

Location

Delaware is a US state located in the mid-Atlantic region. It is bordered by Maryland to the south and west, Pennsylvania to the north, and New Jersey and the Atlantic Ocean to the east. 

Delaware is the second-smallest state in the US after Rhode Island. It has an area totalling only 1,982 square miles (5,130km2)

Political Structure

Delaware is part of the constitutional federal republic and presidential system of the US. Under this system, each of the 50 individual state governments have the authority to make laws within their jurisdictions that are not in conflict with the U.S. Constitution.

Delaware’s Constitution of 1897 (now in its fourth amendment), provides the outline for executive, judicial and legislative branches of government. The executive branch is headed by the governor, currently John Carney who took office in January 2017. 

Economy and Infrastructure

As a well-developed US state, Delaware has a strong and stable economy and good infrastructure. Delaware has the 17th highest number of millionaires per capita in the US.  

Delaware has seen an industrial decline since the mid-2000s, with some of its biggest manufacturers significantly reducing or halting their operations in the state. One of the biggest drivers of Delaware’s state revenue (accounting for about one fifth) is the franchise taxes they collect on Delaware corporations. That’s because Delaware is the most attractive corporate haven in the US and one of the best jurisdictions for offshore incorporation in the world.

More than half of all publicly traded US companies, and more than two thirds of the Fortune 500, are incorporated in Delaware. The state is now home to over a million registered companies (more than the size of their human population), and this thriving industry has helped keep Delaware as affluent and economically sound as it still is today. 

Population, Language and Culture

The population size of Delaware according to the 2020 US census was 989,948. The current population based on estimates is 1.01 million. This makes it the 6th smallest state population in the US.  

According the 2019 American community survey, the racial composition of Delaware is made up of 61% non-Hispanic whites, 23.2% Black or African American, 9.6% Hispanic or Latin American of any race, 4.1% Asian, and the remainder is made up of several other minority groups.  

86.6% of Delaware residents speak only English at home and 13.4% speak other languages/ The most prominent non-English language is Spanish, spoken by 7.1% of the population. 

Christianity is the predominant religion in Delaware (61% of the population). Delaware shares many of the common cultural characteristics that one would expect to find in a U.S. state.

Exchange Control

Delaware does not impose any exchange controls. 

Type of Law

Delaware follows the common law system of the U.S. 

Principle Corporate Legislation

Delaware General Corporation Law (DGCL) is the principle corporate legislation governing Delaware LLCs and corporations. The DGCL has several beneficial policies for offshore company owners. These include the stipulation of a zero corporate tax rate and the allowance of nominee shareholders/directors for greater privacy. 

Taxation

Corporate Tax

The standard state corporate income tax in Delaware is 8.7% on federal taxable income, which is in line with U.S. norms. However, Delaware is specifically seen as a tax haven for offshore entities.

Offshore LLCs and corporations in Delaware are completely exempt from corporate taxation. To qualify for this rate exemption, the company should not carry out their business within the state (hence they are referred to as “offshore companies”). There is also zero taxation on royalty payments and distributions to members. Interest or other investment income that a Delaware holding company earns is completely tax-free.

The above tax policies allow for significant tax savings in certain circumstances; however, the ultimate benefits that can be derived depend entirely on your own specific tax situation and status. For example, US citizens would still be liable to pay hefty federal taxes on all income earned and distributed.

Those residing in other high-tax jurisdictions may face a similar issue, but with the right structuring could avoid repatriation of a large portion of the profits and therefore keep them tax-free. Those living in a tax neutral or low-tax jurisdiction themselves would be able to maximise their savings and benefits from incorporating a Delaware offshore LLC. 

Personal Income Tax

Delaware has a personal state income tax rate ranging from a low of 2.2% (on taxable income from $2001 to $5000) and a high of 6.6% (on a taxable income above $60,000). This is in line with U.S. average state taxes. These taxes are in addition to the usual federal taxes that all U.S. citizens and tax residents are liable to pay. 

Sales Tax

There is no state or local sales tax in Delaware.

Property Tax

Delaware has low effective property taxes, with the median rate at $568 per $100,000 of assessed home value, one of the lowest in the U.S. 

Estate Taxes

Delaware has no estate or inheritance taxes. 

Conclusion

Whether you are just a wealthy individual looking to incorporate an offshore holding company to help reduce your taxes and protect your assets, or if you are the prospective owner of a huge multi-national conglomerate, the tax-haven state of Delaware has the solutions you need.

It’s track record speaks for itself, and the proof is right there in the sheer number of businesses and individuals who have decided to make Delaware their tax home. This tiny US state is undoubtedly one of the most successful tax havens in the world. 

Delaware Offshore Company Formations From Offshore Protection

Click below for more information on Delaware-based offshore company formations:

• Delaware offshore LLC