How to File Delaware franchise tax in USA & Due date?

How to File Delaware franchise tax in USA? Due date for filing Delaware Franchise tax

Delaware (DE) Franchise Tax and Annual Report 

♦ What is an DE Franchise Tax?

The Delaware Franchise Tax is an annual tax imposed by the state of Delaware on businesses that have been incorporated or organized in Delaware. The tax is based on the value of the company’s authorized shares, which is the total number of shares that the company is authorized to issue, as well as the par value of those shares.

The Delaware Franchise Tax is often considered to be a relatively low cost for corporations and LLCs, but it is an important source of revenue for the state of Delaware. The amount of tax owed varies based on the type of business entity, the number of authorized shares, and the par value of those shares.

It’s worth noting that even if a Delaware company does not conduct business in the state, it is still required to pay the annual franchise tax. All corporations incorporated in the State of Delaware are required to file an Annual Report and to pay a franchise tax. Exempt domestic corporations do not pay a tax but must file an Annual Report. Only Corporations are required to file Annual Report with the state of Delaware. Limited Partnerships, Limited Liability Companies and General Partnerships formed in the State of Delaware do not file an Annual Report, they are required to pay an annual tax. 

♦ Why paying DE Franchise tax is important?

• Maintaining good standing status: Paying franchise tax on time helps businesses maintain their good standing status with the state of Delaware. This status is important because it enables businesses to enter into contracts, obtain loans, and conduct other business activities in the state.
• Compliance with state laws: Delaware requires all businesses incorporated or organized in the state to pay franchise tax annually. Failure to pay the tax can result in penalties, interest charges, and the loss of good standing status, which can have negative consequences for the business.
• Revenue for the state: Delaware Franchise Tax is an important source of revenue for the state of Delaware. This revenue is used to fund state services and infrastructure, including schools, roads, and public safety.
• Equity among businesses: Paying franchise tax ensures that all businesses operating in Delaware contribute to the state’s economy and infrastructure. This helps to create a level playing field for all businesses and ensures that everyone pays their fair share.
• Consequences of not paying Delaware Franchise Tax
• Late payment penalties and Interest: Businesses that do not pay the full amount of franchise tax owed by the due date may be subject to late payment penalties. These penalties can add up quickly and increase the amount owed. 
  • Annual Report and Delaware Franchise Tax – The penalty for not filing a completed Annual Report within due date is USD 200.
  • Interest – @1.5% per month is applied to any unpaid tax balance. 
• Loss of good standing status: If a business does not pay its Delaware Franchise Tax, it may lose its good standing status with the state of Delaware. This can have negative consequences for the business, including the inability to enter into contracts, obtain loans, or conduct other business activities in the state.
• Revocation of business entity status: If a business continues to fail to pay its franchise tax, the state of Delaware may revoke its business entity status, which means that the business will no longer be recognized as a legal entity in the state.

♦ Who must pay the DE Franchise Tax? 

• Any business entity that has been incorporated or organized in the state of Delaware is required to pay Delaware Franchise Tax. This includes corporations, limited liability companies (LLCs), limited partnerships (LPs), and limited liability partnerships (LLPs).
• It’s important to note that even if a business does not conduct any business activity in Delaware, it is still required to pay the annual franchise tax to maintain its good standing status in the state.

♦ Due dates to file DE Franchise Tax and Annual Report

The due date for paying Delaware franchise taxes varies depending on the type of business entity.

• For Corporations, the due date for the filing of Annual Report and paying Franchise Tax is March 1st of each year. 
• For LLCs (limited liability companies) and Partnerships, the due date for the payment of Franchise Tax is June 1st of each year. No Annual Report is required to be filed by the LLCs or Partnerships.

It’s important to note that if the due date falls on a weekend or a holiday, the due date is moved to the next business day. Additionally, if a business misses the due date or fails to pay the full amount owed, penalties and interest will accrue on the unpaid balance. 

♦ Estimated DE Franchise Tax Payment

Taxpayers owing USD 5000 or more are required to pay estimated taxes in quarterly instalments with 

• • 40% due June 1, 
  • 20% due by September 1, 
  • 20% due by December 1, 

and the remainder due March 1.

♦ Methods to calculate DE Franchise Tax and Tax payment amount

• For Corporations
  • Authorized Shares Method – If the Corporation number of Authorized Shares are
    • 5000 shares or less (minimum tax) – USD 175.
    • 5001 – 10000 shares – USD 250.
    • Each additional 10,000 shares or portion thereof – add USD 85.
    • Maximum Annual tax – USD 200,000.

• Assumed Par Value Capital Method

 The State of Delaware allows you to pay the lower of the two Delaware Franchise Tax calculation methods. 

• Under this filing method, you are required to submit: 
  • the company’s total gross assets (as reported on the Form 1120, Schedule L), and 
  • the total number of issued shares. 
• The minimum tax for the Assumed Par Value Capital Method of calculation is USD 400.
• Please note that the calculation used for this method is more complex. However, but if your number of authorised shares are more than 20,000, this method can result in lower franchise tax as compared to the Authorised Shares method.

You may also use the Franchise Tax Calculator to calculate the DE Franchise tax.

• Annual Report

• • The Annual Report filing fees for all other domestic corporations is $50.00 plus taxes due upon filing of the Annual Report. 
  • As mentioned above as well, Taxes payment and Annual Reports are to be filed with the state of Delaware on or before March 1st of each year. 

• For LLCs and Partnerships
  • Limited Liability Companies and General Partnerships formed in the State of Delaware are required to pay an annual tax of flat USD 300.
  • As mentioned earlier as well, no Annual Report is required by LLCs and Partnerships.

♦ How to online file DE franchise tax and Annual Report?

To file Delaware Franchise Tax online, you can follow these steps:

• Go to the Delaware Division of Corporations website at https://corp.delaware.gov/. 
• Click on “File Annual Report & Pay Franchise Tax” on the home page.
• Enter your entity file number or your entity name, then click “Search”.
• Confirm your entity information and click “Continue”.
• For the tax year for which franchise tax return is to be filed click “File Annual Report”. 
• Now, a tab will open. 
• Enter the required information, the number of issued shares, the par value, gross assets, date as on which gross asset value is taken, end of fiscal year, principal place of business, officer information, and director’s information.
• Review the information.
• Click “Save and Exit” to continue later, or “Continue Filing” to file right away. 
• Pay the franchise tax using a credit card or from your bank account.
• Save a copy of your confirmation page or email for your records.
• Once you file your Delaware Franchise Tax online, you will receive a confirmation of your submission. 
• Your DE Franchise Tax and Annual Report is duly filed.

Many Indians who are opening their company in USA need to comply with all the applicable requirements and are recommended to file such Forms return within due time or it might result in interest and penalty.