Differences between a Wyoming and a Delaware LLC
- Foreign Owned US Disregarded Entities
- Taxation for LLCs with two members
- Corporate laws
- Advantages for US persons
- Better online platform
- Foreign Owned US Disregarded Entities advantages
When opening an offshore company in the USA, people often think of Delaware as their first option because of its popularity. However, it might not be your best option if you want the most tax-efficient structure. In this article, we'll explore the differences between a Wyoming and a Delaware LLC and help you decide where to open your LLC.
Taxation for LLCs in the USA
For an LLC in the USA, regardless of the state of formation, to be used as a tax-free entity, it must meet certain criteria:
Foreign Owned US Disregarded Entities
To qualify as a tax-free entity, an LLC must be owned by a non-US person (non-resident foreigner) and not have US-sourced income. These entities are labelled as "Foreign Owned US Disregarded Entities" and only file form 1120 Pro Forma (only filling company details) and form 5472 to report transactions between the sole member and the company.
Taxation for LLCs with two members
If an LLC has two members, it will be taxed as a partnership, with different tax implications.
Both the LLC in Wyoming and Delaware will not be subject to income tax at the state level if they don't have state-sourced income. Nonetheless, there are compliance requirements at the state level.
Annual report and state fee
In Wyoming, LLCs must submit an annual report, reporting all assets in Wyoming and confirming company addresses. The state fee (tax) for this annual report is US$60.
In Delaware, LLCs pay a yearly franchise tax to the state, amounting to US$300.
Why is Delaware popular?
Delaware is popular for corporations thanks to its corporate laws, making it a great place for forming a corporation, listing your company, going public, raising funds, etc.
Delaware's corporate laws are considered more favourable than other states, attracting many businesses.
Advantages for US persons
Even US persons can benefit from Delaware for certain types of ventures or activities, as it might have better tax and corporate laws than their home state.
Choosing Wyoming for Tax Efficiency
If your main goal is to create a Foreign Owned US Disregarded Entity or use US LLCs as a tax shelter, Wyoming might be the better choice.
Better online platform
From my experience, Wyoming has a more user-friendly online platform, allowing you to manage your state filings in a much less complicated and time-consuming manner.
Foreign Owned US Disregarded Entities advantages
Wyoming offers more advantages when forming a Foreign Owned US Disregarded Entity, making it a more attractive option for non-US persons seeking a tax-efficient LLC structure.
When comparing a Wyoming and a Delaware LLC, it's essential to consider your business needs and objectives. While Delaware may be more popular due to its favourable corporate laws, it might not always be the best choice for those seeking a tax-efficient structure. Wyoming offers a more affordable state fee and a user-friendly online platform, making it an attractive option for Foreign Owned US Disregarded Entities. Ultimately, the decision will depend on your specific requirements and priorities.
- What is a Foreign Owned US Disregarded Entity? A Foreign Owned US Disregarded Entity is an LLC owned by a non-US person (non-resident foreigner) that does not have US-sourced income. These entities can be used as tax-free structures and have specific filing requirements.
- What are the state-level differences between a Wyoming and a Delaware LLC? The main state-level differences include the state fees and compliance requirements. Wyoming requires an annual report and a state fee of US$60, whereas Delaware has a yearly franchise tax of US$300.
- Why is Delaware considered more popular for corporations? Delaware is popular for corporations due to its favourable corporate laws, which attract many businesses seeking to form a corporation, list their company, go public, or raise funds.
- What are the advantages of choosing a Wyoming LLC for tax efficiency? Wyoming offers a lower state fee, a more user-friendly online platform for managing state filings, and better advantages for forming a Foreign Owned US Disregarded Entity, making it a more attractive option for those seeking tax efficiency.
- Can US persons benefit from forming an LLC in Delaware? Yes, US persons can benefit from forming an LLC in Delaware for certain types of ventures or activities, as the state might have better tax and corporate laws than their home state.