Differences between a Wyoming and a Delaware LLC

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.

State-level Differences

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.

Wyoming

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.

Delaware

Franchise tax

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.

Corporate laws

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.