Delaware nicknamed “the first state” after the ratification of the constitution of the United States, because it was the first to have signed it on December 7, 1787.
Today, this small state of 5,133 km² located on the east coast of the United States, occupies an important place in the business world. Indeed, the second smallest state in the United States has the distinction of registering more companies than inhabitants, 967,171 inhabitants in 2018 for more than a million businesses.
Should this be seen as a sign of a tax haven conducive to the opening of its offshore company?
Above all, it is important to understand the meaning of “an offshore company”. When we talk about an offshore company, we are talking about a company whose head office is established in a jurisdiction other than that in which it exercises its functions and whose shareholders are domiciled in another country.
This is a subject of controversy in the European Union, because if at first glance the United States is not considered as a tax haven, the State of Delaware seems very attractive to companies, which can suggest a potential fiscal attraction for the latter.
Delaware, a tax haven?
Since the early 1990s, Delaware has become a key jurisdiction for business formation, with more than one million businesses on its land today.
Although this number is impressive, it is even more surprising to find many large companies listed on the stock exchange, because this tiny state lists nearly 50% of companies listed on Wall Street and 63% of the companies of the top 500 US companies (classified according to the importance of their turnover).
But make no mistake, if this jurisdiction is prized by the largest companies, it is not for its idyllic location, but its advantageous taxation.
Rest assured, beyond the listed companies, Delaware has countless limited liability companies. The creation of an offshore company in Delaware is open not only to American entities, but also to the rest of the world. Anyone can take advantage of the tax privileges of an offshore company in Delaware.
Delaware thus attracts companies from all over the world, in order to benefit from an almost zero taxation, where the incomes of its last are exempt from taxes. These companies have no business in Delaware because they are not authorized to practice in the United States, they simply have an address that allows them to take advantage of this tax privilege.
Many entrepreneurs see it as a boon to register their offshore company in Delaware in order to benefit from 0% taxation, with no need for auditing and no reporting requirements.
Why does Delaware attract so many entrepreneurs?
Like any tax haven, Delaware attracts entrepreneurs from around the world, but why do so many go the route and set up their headquarters there? It must be said that this jurisdiction is stable with an excellent reputation hidden behind the American banner. Under cover of this American affiliation, it intensely seeks to encourage investments and businesses on its territory.
Because of several criteria put forward, such as the simplicity of constitution at low cost, guaranteed anonymity, or even the favorable laws in force and the low taxes which apply this state.
It is up to you to isolate the real advantages of setting up an offshore company in Delaware which are:
• The cost and simplicity of constitution:
The costs of setting up an offshore company in Delaware are among the lowest in the market and the creation is generally carried out in 2 or 3 working days.
• Nearly zero taxes
Offshore companies that are registered in Delaware do not pay taxes, nor “sales tax” (the equivalent of VAT in France), provided they have no activity on the ground the United States. Within this specific framework, it will only have to pay the annual franchise fees of around $ 250. No local tax is due on profits, dividends and the business transactions they generate outside the United States.
In addition, if a person holds shares in an offshore company in Delaware without residing there, he is not liable to any tax or duty owed to him. In the event that the shareholder comes to sell his shares, there is no tax on the sale of his shares and the same is true for inheritance tax to which he will not be subject.
• Laws very favorable to companies
The court competent to judge commercial cases is the “Court of Chancery”, an old institution founded in 1792, whose reputation makes it pro-business.
This makes it easier to deal with disputes quickly. As the United States often relies on case law in judgments, needless to say, the “Court of Chancery” has had time to define and perfect its own. Consequently, the laws regulating Delaware companies give companies a great deal of flexibility in managing their affairs.
• Very flexible accounting:
o No requirement for balance sheet publication
o No accounting requirements.
o No reporting obligation.
• Anonymity guaranteed:
Offshore companies find refuge there, because one of the very interesting aspects is the guarantee of preserving their secrets.
In Delaware, the identification of the beneficiary is not compulsory and therefore makes it possible to maintain his anonymity. Indeed, when setting up an offshore company in Delaware, there is no obligation to declare the names or addresses of the shareholders, or of the directors, this information remains confidential and does not appear in the public registers of the Division.
Corporations of this state. As a result, no investigation procedure into any tax practice can succeed, since there are no people in the organization chart.
Under what conditions to create an offshore company in Delaware?
This less sulfurous jurisdiction than the Bahamas or the Cayman Islands, enjoys the American identity to hide its tax haven under the banner of the United States, thus making it invisible to the eyes of the OECD (Organization for Economic Cooperation and Development) who has never placed it on the list of tax havens.
The main activities most developed in Delaware in offshore companies are internet commerce, consulting, import-export, filing and exploitation of intellectual property rights, management of movable and immovable property, or even trading.
If your preferred field is one of those listed, Delaware will welcome you with open arms in the best conditions for the constitution of your offshore company in record time with the minimum requirement, at low cost, and without you get there.
The most important condition being that the activity takes place outside the American borders and that the manager (s) is (are) non-resident (s) American (s).
You may be offered several types of companies, but the most recommended is the Limited Liability Company (LLC).
Because it is a limited liability company, which provides security on the risks undertaken by the company. Thus, non-residents who wish to constitute an offshore company in Delaware, do so essentially by creating this LLC for the simplicity of many points beyond attractive taxation such as:
• The capital :
When setting up your offshore company in Delaware, you have no minimum capital investment and no obligation to pay the capital. In addition, the shares issued may have no par value. This means that if the stock has market value, it can have a face value, set by the issuing company, of zero.
• A bank account :
The offshore company has no obligation to have a bank account in the state of Delaware. But, thanks to the American address of your structure, the latter can open an account in any bank in the United States, and almost anywhere in the world.
• The head office :
The offshore company is not obliged to have its registered office, nor to do business in the state of Delaware, the offshore company can establish its registered office in any country without being forced to do business there . Moreover, the majority of the members of the companies created in Delaware have never visited this state. The company’s only obligation to transact business outside of Delaware is to be represented by a licensed agent in Delaware.
• Functions of members:
The offshore company can be owned by a single person who can be a shareholder, director and officer. In addition, there is no obligation for shareholders, directors and officers to reside in, or organize a meeting there.
• Protection of personal property:
The LLC provides protection to property belonging individually to the shareholders of the offshore company. In the event of financial difficulties, the shareholders are not likely to be called upon to settle the debts owed or to fill a cash defect.
Are there any special precautions to take?
Within the framework of an offshore company in the United States, even if this state is not singled out by the OECD, nor registered in any black list in Europe, its high media coverage has made the European tax regularization authorities more attentive and suspicious of invoices from companies in that state.
Indeed, depending on the type of activity that you will set up, the companies that you may have to invoice could be penalized for tax reclassification by the tax regularization authorities of their country, such as the FISC in France. In the event of a tax audit of a company that requests your services, the FISC could be challenged on the use of such a distant company.
Consequently, the FISC could focus on 4 elements which are: the reason for invoicing, the price, the frequency of invoices and the link between the French entity and that of Delaware. If there are 4 criteria show inconsistencies with the service provided, the invoice can be reclassified as an abusive invoice and lead to heavy financial regularization for the French company with the FISC and URSSAF. For this reason, it is important to properly identify the needs and the type of project you want to create.
Because depending on the type of project and the desired jurisdiction, there are certain precautions to take into account before opening an offshore company. Also on this point, you can contact our services to study and advise you in the development of your offshore company.
Where to start to create an offshore company in Delaware?
First of all and if you plan to create an offshore company in Delaware, it is very strongly advised to be assisted and to obtain advice according to your situation to ensure that this economic model is well suited to your profile. and to your projects, as we have already mentioned.
It is first necessary to identify the field of activity that you wish to reside in Delaware and where you will practice it.
Once your activity is demarcated, it is important to find the name of your offshore company, because it must meet certain guidelines. The name of your offshore company must end in “Limited Liability Company” or the abbreviation “L.L.C.” or even “LLC”. You will have to be careful about the name chosen because some words have restrictions such as: “bank”, “insurance”, “lawyer”, “school”, “university” ( university), “trust” …
In the event that you choose one of these words, you will be required to provide supporting documents proving your experience in these functions or your ability to exercise it. In some cases, you may be asked to integrate into your offshore company a person holding a license to practice this profession. There are also words that are prohibited, such as those which can give rise to a doubt with a federal or state body, such as FBI, CIA, Treasury, NASA …
In addition, it is also prohibited to use a name similar to that of ” a company already registered in the state of Delaware.
Then, you will need to bring a photocopy of your passport or identity card outstanding and a proof of address dating from less than 3 months.
For the rest, do not hesitate to get in touch with our services and give us details of your project in order to best support you in developing it. We can take care of all the formalities to complete to start your business by creating an offshore company in Delaware, developing partnerships and hiring if necessary.
We offer you a real saving of time and a real simplification of administrative tasks without worrying about incorporation issues.