Offshore: Delaware

Guide For Offshore Corporate Services In Delaware

A view of river with trees at DelawareGuide For Offshore Corporate Services In Delaware

About Delaware

Delaware, one of the United States located on the Atlantic coast in the Mid Atlantic region of the US. Delaware is a mere 1,954 square miles (5,060 km2) and it is statistically the second-smallest state in the United States. Delaware is bounded by Pennsylvania, the Delaware River Delaware Bay, New Jersey and the Atlantic Ocean; and Maryland.

There are two major physical features in the state of Delaware: the Piedmont Plateau and the Atlantic Coastal Plain. Delaware’s average elevation is 58 feet above sea level, with only a few areas of high ground; much of the state lies on the Atlantic Coastal Plain, a flat region that covers most of the U.S. eastern seaboard. Despite its small size and flat horizon, Delaware has a range of land features.

Delaware was one of the 13 colonies participating in the American Revolution. On December 7, 1787, Delaware became the first state to ratify the Constitution of the United States and has since been known as “The First State”.

The state of Delaware is divided into 3 counties, namely, New Castle, Kent and Sussex. Before settlement by Europeans around the 16th century, Delaware was inhabited by several groups of Native American Indians.

Diamond State – Legend has it that Thomas Jefferson called Delaware a “jewel” among the states because of its strategic location along the East Coast. Blue Hen State – One form of entertainment during the Revolutionary War for Delaware soldiers was cock fighting.

Delaware shares a semi-circular border with Pennsylvania. Delaware is home to Dover International Speedway, also known as the “Monster Mile,” which hosts two NASCAR races each year.

 

Infrastructure

Voted the best place to live in Delaware for very good reasons; quality of schools, nightlife, and job opportunities all surpass other neighbourhoods in the state. North Star provides residents with great commuting options. Unsurprisingly, 98% of residents in North Star live in owned homes.

While the nation’s infrastructure earned a “D+” in the 2017 Infrastructure Report Card, Delaware faces infrastructure challenges of its own. Success in a 21st century economy requires serious, sustained leadership on infrastructure investment at all levels of government. Delaying these investments only escalates the cost and risks of an aging infrastructure system

 

Economy

Delaware’s agricultural output consists of poultry, nursery stock, soybeans, dairy products and corn. Its industrial outputs include chemical products, processed foods, paper products, and rubber and plastic products. Delaware’s economy generally outperforms the national economy of the United States.

Delaware is also an important agricultural state because it is close to the large eastern United States markets. The state has good transportation facilities. It is connected to neighbouring states canals, highways, and railroads. Due to the favourable climate, fruits and vegetables are grown in abundance. And agro processing plants, poultry production and produce are leading cash products for the state of Delaware.

Wilmington, a manufacturing hub, is the largest, with two-thirds of the Delaware’s population residing there. The last estimated population of Delaware is just over 920,000. Wilmington is an important seaport because of plentiful waterpower and easy access to the Delaware waterway. This is Delaware’s main financial, commercial and banking zone.

 

Type of Law

The Laws of Delaware are a compilation of the official acts of each session of the Delaware General Assembly. When the legislation is signed by the Governor, it is assigned a chapter number unique to the current volume of the Laws of Delaware. The Delaware General Corporation Law is the statute governing corporate law in the U.S. state of Delaware.

 

Central Bank

The United States financial system is a network that facilitates exchanges between lenders and borrowers. The system, which includes banks and investment firms, is the base for all economic activity in the nation. According to the Federal Reserve, financial regulation has two main intended purposes: to ensure the safety and soundness of the financial system and to provide and enforce rules that aim to protect consumers. The regulatory framework varies across industries, with different regulations applying to different financial services.

Individual federal and state entities have different and sometimes overlapping responsibilities within the regulatory system. For example, individual states and three federal agencies—the Federal Reserve, the Office of Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)—regulate commercial banks. Other sectors of the financial market are regulated by specific entities.

Several major banks were already incorporated in Delaware because of the state’s Chancery Court, where corporate cases are heard by judges, not juries, and resolved faster. The Chancery Court has long made the state an appealing place for businesses to incorporate for legal benefits.

 

Anti-Money Laundering: ​FATF Status

Although some States in the USA offer offshore financial services e.g. Delaware, the United States is not considered to be an Offshore Financial Centre. The USA is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

Compliance with FATF Recommendations

​The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in the USA was undertaken by the Financial Action Task Force (FATF) in 2016. According to that Evaluation, the USA was deemed Compliant for 9 and Largely Compliant for 21 of the FATF 40 Recommendations.

 

Corporate Entities

Delaware is considered an attractive state of America for an offshore company in Delaware for tax optimisation and international business structure.

Delaware became the first state in the nation to ban by statute the sale of bearer shares, which are unregistered shares that only require the transfer of a physical document and therefore lack the regulatory oversight of common shares. Shares without par value can be issued.

A corporation needs at least one director and one shareholder. However, corporate directors are not permitted. There are no residency requirements, however, the corporation’s registered office and registered agent must be situated in Delaware.

 

Taxation

There is no sales tax in Delaware. Additionally, there is no state corporate income tax on goods and services provided by Delaware corporations operating outside of Delaware. The state does not have a corporate tax on interest or other investment income that a Delaware holding company earns.

 

National Flag of DelawareRegistration of Offshore Companies

An offshore company doing business through a subsidiary in the U.S. must register that company under state law. In addition, Internal Revenue Service rules require the registration of foreign financial institutions that have U.S. account holders or substantial American ownership. It’s very popular to take advantage of a stable jurisdiction with very good reputation.

What is Delaware loophole?

The Delaware loophole is a longstanding, legal practice that large corporations in Pennsylvania use to exploit a state law that allows them to establish holding companies in Delaware.

 

Delaware Limited Liability Company (LLC)

The Delaware Limited Liability Company (LLC) is a legitimate US limited liability company internationally recognized and accepted. Investors who desire a US company with which to trade and or invest have the option of choosing a US company that has the advantage of being tax-free.

Though the Delaware Limited Liability Company is not an offshore company, when the Delaware Company is formed and incorporated by a non-US nationals and the business of the offshore LLC is wholly offshore, that is to say, conducted outside the United States, any income generated from such business activities under the LLC is tax free under US systems. As such, it is sometimes called the “Delaware offshore company” or “Delaware Company for non-residents”.

An LLC is not limited by shares and as such does not have any shareholders, the members of an LLC are called members. The LLC is a legitimate entity that is treated separately from the members. Because shares are not issued by LLCs there is no authorized capital requirement.

In a Delaware LLC, the assets of the beneficial owners is carefully protected, and the company is subject to “pass-through” or “flow through” taxation which means the LLC does not pay corporation tax; members are responsible for personal income the on profits distributed.

One or more members or organizers can form Delaware Limited Liability Companies, though it is often recommended the LLC have more than two members to benefit from tax exemptions. There is no limit on the number of members.

Take note, the US tax authority can categorize a Delaware LLC as a taxable branch of a foreign company if the members of the LLC are companies (non- resident, so it is best if the members of an Delaware offshore company in LLC form are persons rather that corporations

Similarly, if the LLC is treated like a Sole Proprietorship when owned by one member and the member is a non-resident alien, and the LLC derives its income outside of the US, the tax free benefit will be lost when treated like a Sole Proprietorship by the Internal Revenue Service (IRS)

Limited Liability companies are designed to protect the members (owners) from the debts and other obligations of the LLC. Such that the members risk in a Delaware offshore LLC limited to the investment in the LLC, personal effects property and assets are not subject to risk.

To be considered a Delaware offshore company, the company should be wholly owned by non-residents, though not necessary. The company cannot employ US residents as staff, nor can it have resident place of business in the United States.

Delaware Limited Liability Company formation beings with the certificate of formation which contains: the name of the company; the name and address of the registered agent; and the address of the company. The member may choose to include the company’s by-laws. The name of the company must have the phrase Limited Liability or the appropriate abbreviation (LLC) affixed to it. Delaware LLCs may also include the words; Association, Institution, Union, Company, Foundation in the name.

The Management of an offshore LLC is normally performed by the members. but a non member manager may be employed, reporting directly to the members. There is no requirement to hold member meetings or maintain records. Annual financial reports are required, which sets out the distribution of profits to US residents.

The names of the members of an offshore LLC are not part of any document filed with the state.

 

Delaware Corporations

Delaware corporations are companies that are legally registered in the state of Delaware but can conduct business anywhere.

Roughly half of the companies listed on the S&P 500 are incorporated in Delaware because it is perceived as being business-friendly.

Delaware especially appeals to financial firms due to usury laws which give banks and credit card companies the freedom to charge high-interest rates on loans.

Usury laws are state-based legislation that establishes limits on the amount of interest that can be applied to loans and other forms of financing. This is a form of consumer protection that regulates how much interest businesses can charge their local customers. Delaware usury laws, by comparison, give lenders greater leeway to charge interest.

The state’s legislation also applies to operations and business conducted in other states. In other words, a company incorporated in Delaware can charge interest rates in accordance with Delaware usury law rather than local usury laws even when doing business with customers nationwide.

This particular benefit of incorporation in Delaware has prompted other states to adopt more business-friendly laws. For example, some states now allow locally incorporated businesses to charge interest rates on a par with out-of-state companies that do business within the state.

Delaware is currently the leading domicile for public companies, but this could conceivably change in the future; New Jersey was once the go-to state until modern U.S. corporation laws made it a less advantageous location.

 

Shares for a Delaware corporation

Here are some general guidelines to consider when authorizing shares for a Delaware corporation:

Quantity: When authorizing shares for a Delaware corporation, one should consider that the annual Delaware Franchise Taxes will be based on the number of shares; therefore, whenever possible, it is best to keep the number of shares low. A good rule of thumb is to authorize only what the corporation will need. Corporations with 5,000 or less authorized shares are considered minimum stock and will pay the minimum Delaware Franchise Tax each year.

If you must exceed 5,000 authorized shares, you will be afforded the opportunity to recalculate the company’s Franchise Tax using a complicated formula called the assumed par value capital method, which will consider the company’s gross assets and the number of issued shares at the end of the year.

Par Value and Share Valuation: If you decide you need more than 5,000 authorized shares for your corporation, the Delaware Franchise Tax calculation is no longer a matter of consequence, and now the focus shifts to the par value assigned to the shares. If you must exceed 5,000 shares, the next threshold for you to consider is a share valuation of $75,000. Share valuation is simply the number of authorized shares multiplied by the par value.

Par value is only relative to the bottom value of the share, and has no bearing on the market value or stock price of the share.  As with the number of authorized shares, it is generally better to keep the par value as low as possible because the initial filing fees will be calculated based on the share valuation. Minimum stock corporations may consider a zero par value, but corporations in excess of 5,000 authorized shares will want to assign a par value to the shares to avoid additional filing fees levied by the Delaware Division of Corporations.

Delaware law allows for a par value as small as $0.000001, thus making it very easy to manipulate your company’s share valuation to remain below the $75,000 threshold. For example, if you decide you need 1,000,000 authorized shares, you can assign a par value of $0.001, which will result in a share valuation (1,000,000 shares x $0.001 par value) of $1,000. Because the share valuation is less than $75,000, the corporation will not experience any additional filing fees at the time of incorporation.

Classes of Stock: Although classes of shares have no direct influence on the Delaware Franchise Tax, it is still important to mention. For most corporations, the share class will be common, but the scope of authorized shares includes all classes (i.e., common and preferred). Therefore, it is important to remember that when you are considering the quantity of authorized shares or calculating the share valuation that the authorized shares are all shares combined, both common and preferred.

 

Type of Entity:
Limited Liability Company (LLC)
Corporation

General Features of Offshore Entities In Delaware

Minimum Government Fees (Excluding Taxation)

  • USD300
  • USD225

Corporate Taxation

  • None*
  • None on Foreign Profits*

Double Taxation Treaty Access

  • No
  • No
Share Capital

Standard Currency

  • USD
  • USD

Permitted Currencies

  • USD
  • USD

Usual Authorized

  • N.A.
  • USD5,000

Minimum Paid-up Capital

  • USD1.00
  • USD1.00

Bearer Shares Allowed

  • N.A.
  • No

No Par Value Shares Allowed

  • N.A.
  • Yes
Directors or Managers

Minimum Requirement

  • One Manager
  • One Director

Requirement of Local Resident

  • No
  • No
Corporate Directorship Allowed
  • N.A.
  • No

Public Access to Company Records

  • No
  • Yes

Required Location of Meetings

  • Anywhere
  • Anywhere
Members

Minimum Number

  • One
  • One

Public Access to Company Records

  • No
  • No

Required Location of Meetings

  • Anywhere
  • Anywhere

Requirement of Company Secretary

  • No
  • No

Local or Qualified            

  • Not Required
  • Not Required
Accounts

Requirement to Prepare

  • Yes
  • Yes

Audit Requirements

  • No
  • No

Requirement to File accounts

  • No
  • No

Public Access to Accounts

  • No
  • No
Annual Return

Requirement to File Annual Return

  • No
  • Yes
Others

Permission for change of Domicile

  • Yes
  • Yes

* U.S. Tax laws apply, hence whether U.S. Federal Taxes will be due or not, is subject to the circumstances of the particular company, shareholders and members and the portions of the U.S. tax code that apply to them.

 

Specific Features of Offshore Companies In Delaware

Currency

  • United States Dollar (USD)

Language

  • The official language is English

Exchange Control

  • None

Principal Corporate Legislation

  • Delaware General Corporation Law as amended.

Type of Company for International Trade and Investment

  • The Delaware Corporation; or
  • Limited Liability Company (LLC).

Restrictions on Trading

  • None.

Powers of Company

  • A Delaware Corporation or LLC has the full capacity of, and all rights, powers, and privileges of, a natural person.

Language of Legislation and Corporate Documents

  • The language of Delaware’s legislation and corporate documents is English.

Language of Name

  • English.

Requirement of Registered Office

  • Yes, Registered Office must be maintained in Delaware.

Name Restrictions

For Corporations:
  • Your Delaware corporation’s name cannot contain the words “bank,” “trust,” “university” or “college,” unless you get pre-approval from the Delaware Banking Commissioner or the Delaware Secretary of Education.
  • Your corporation’s name cannot contain any words that may, in the judgment of the Delaware Secretary of State, be degrading, vulgar or unacceptable. The Secretary of State has full veto power over any name deemed unacceptable.
  • Your corporation’s name must not be the same as any other company name that is formed or reserved in the state of Delaware. However, even the slightest variation can qualify. If you want to form a corporation using all the words in another company’s name, you can simply add a Roman numeral or another word to make your name unique.
For Limited Liability Companies (LLC):
  • Your Delaware LLC name must not contain the word “bank” or any variation thereof without prior approval of the Delaware Banking Commissioner. It cannot contain a word that purports to do banking business that might mislead the public, in the judgment of the Secretary of State.
  • Your LLC name cannot contain any words that may, in the judgment of the Secretary of State, be degrading, vulgar or unacceptable. The Secretary of State has full veto power over any name deemed unacceptable.
  • Your LLC name must not be the same as any other company name that is formed or reserved in the state of Delaware. However, even the slightest variation can qualify. If you want to form an LLC using all the words in another company’s name, you can simply add a Roman numeral or another word to make your name unique.

Names Requiring Consent or Licence

  • A name can be considered in conflict with another entity type if the root is identical; whether the conflicting name is an LLC, corporation, LP, GP, LLP, Statutory Trust or any other entity on record.
  • If the desired filing name is already in existence, the conflicting company may be asked for a “consent to use” name letter signed by an officer or manager of the conflicting entity on its letterhead.
  • If there is a desired name for a future filing, a reservation of name request can be submitted to the Delaware Secretary of State. If the reserved name is filed within the 120 day period, a copy of the name reservation receipt will also need to be submitted for confirmation.
  • If a desired name is not available, adding a letter, number or word should make the modified name available.
  • If the name is available but a void or dissolved company formerly used the same name, it may be wise to reconsider and avoid using the same name.  This avoids problems created by the other business claiming ownership of the name and/or starting to use it in commerce again.
  • If the word “Bank” or “Trust” is in the name, the Delaware Division of Corporations will require the approval of the Delaware Bank Commissioner by completing a form. This will delay the filing since the Division of Corporations does not control the Bank Commissioner. The Bank Commissioner rarely grants this permission unless the company is approved as a true banking institution.

Suffixes to Names

For Corporation:
  • The name of a Delaware corporation must contain one of the following corporate endings:
  • Association, Company, Corporation, Club, Foundation, Fund, Incorporated, Institute, Limited, Society, Union, Syndicate or abbreviations thereof, with or without punctuation, or words that are recognized corporate endings in other countries.
  • If the name of your corporation contains words from any language other than English, you must submit an English translation of the name upon filing.
For Limited Liability Companies (LLC):
  • The name of a Delaware LLC must contain one of the following endings:

     LLC, L.L.C. or Limited Liability Company

Disclosure of Beneficial Ownership to Authorities

  • No

 

TERMS AND CONDITIONS:
  • Source of Information, Guidelines, Compliance, Laws, Rules & Regulations is from the relevant authorities of respective jurisdictions.
  • The Acts in respective jurisdictions are subject to change by the regulatory authorities.
  • We have published the guidelines with most updates from our Associate Firms.
  • The Customers would be notified with the updated Acts with oncoming changes if applicable when the Offshore services are rendered by us.

 

Please refer to our SERVICES for more information or CONTACT us if you wish to avail these or many other services.
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