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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 3856
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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We are a small consulting firm based in Sao Paulo, Brazil. We

Resolved Question:

We are a small consulting firm based in Sao Paulo, Brazil.
We are in the process of extending the operations from Brazil, to the US.
Currently, we already have various US based clients.
We deliver all of our services in Brazil, or other places, outside of the USA.
Currently, we bill our clients from Brazil for our services.
We would like to start billing them for part of the services from the US, and for that we are looking at the creation of a US subsidiary, fully owned by either the Brazilian firm, or the same partners of the Brazilian firm.
The company, we thought, would be based in Delaware, invoicing our clients and collecting from them for the services effectively rendered in Brazil, by our Brazilian employees and subcontractors.
By doing this, we hope to be able to build up a capital base, for the time when we plan to open operations in Brazil, where we would have employees in the US and would deliver our services in the US as well.
We are wondering, what else might be involved in setting up this subsidiary in the US, other than using one of the INCORPORATION Sites in the internet, get the company incorporated, the bank account opened.
Although Delaware is considered a tax heaven, we still wonder what reporting requirements do we need to fulfill? Do we still need an accountant to prepare the tax returns? What type of taxes will be levied in Delaware (for consulting services delivered outside the US)?
Maybe the question could be put very broadly like this: how to set up a consulting firm in Delaware (or in the US more generically), for services to be rendered exclusively abroad, by consultants, who set never foot in the US.
Submitted: 9 months ago.
Category: Finance
Expert:  Rakhi Vasavada replied 9 months ago.

Rakhi Vasavada :

Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

Rakhi Vasavada :

To begin with, people choose to incorporate in Delaware due to some benefits that it offers. It will offer certain benefits such as under:

=>Delaware’s business law is one of the most flexible in the country.
=>For corporations, there is no state corporate income tax for companies that are formed in Delaware but do not transact business there (but there is a franchise tax).
=>Taxation requirements are often favorable to companies with complex capitalization structures and/or a large number of authorized shares of stock.
=>There is no personal income tax for non-residents.
=>Shareholders, directors and officers of a corporation or members or managers of an LLC don’t need to be Delaware residents (Such as in YOUR Case)
=>Stock shares owned by persons outside Delaware are not subject to Delaware taxes.

Rakhi Vasavada :

Given this thing, you will still need to maintain accurate financial records and file income tax returns. You would be "Exempt" from taxes but this does not absolve you from maintaining books of account and filing tax returns.

Rakhi Vasavada :

I must say, Delaware is your most proper choice to incorporate.

Rakhi Vasavada :

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we receive credit for assisting you. Alternatively, please feel free to revert back with a reply if you need further assistance and I would be more than happy to assist you further.

Warm Regards

Expert:  Rakhi Vasavada replied 9 months ago.
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Customer: replied 9 months ago.

Rakhi, thanks for your reply.


Could you please clarify the following statements:


 


RV: =>For corporations, there is no state corporate income tax for companies that are formed in Delaware but do not transact business there (but there is a franchise tax).


DN: but there will still be the Federal Income Tax? Or any other Federal or Local Tax? What is the franchise tax? Is there a way of saying what the tax rate is for consulting services (disregarding any deductibles etc.)


 


RV: =>There is no personal income tax for non-residents.


=>Stock shares owned by persons outside Delaware are not subject to Delaware taxes.


DN: does that mean dividends paid by the LLC to the shareholders are not taxed, not in Delaware, and not in the US at all?


Can profits be repatriated to the country (Brazil) of residence of the shareholders, without any withholding (not really our purpose at this point, but still good to know)?


 


RV: Given this thing, you will still need to maintain accurate financial records and file income tax returns. You would be "Exempt" from taxes but this does not absolve you from maintaining books of account and filing tax returns.


DN: do you mean the LLC is excempt but still has to file taxes? What about federal filings? Will there be any other tax liability, local, federal, which will be based on the filing of the LLC?


Or did you also mean the shareholders themselves. Even not resident in Delaware or the US, do they also need to file taxes, even though the dividend payments might be exempt?


What does tax filing involve? Let's say this corporation will have one type of service, IT system consulting, 20 invoices paid by clients, no relevant expenses in the US - for a company of this type and volume of activity, would TurboTax or a similar solution be sufficient to file taxes? I.e., can this usually be done in house by a small firm's owner? Or does this very likely require a professional tax accountant?


 


DN: some additional question...


- do you think use of the incorporation services offered online is save? Are there specific pit falls to watch out for?


- do I understand correctly that you assume LLC will be the right and best legal form to choose?


 


Thanks for your help on this.


Regards.


Dirk


 


 


 


 


 


 


 


 


 

Expert:  Rakhi Vasavada replied 9 months ago.
Dear Dirk,

Hello and welcome again. Thank you for your follow up question. Let me clarify your queries.

RV: =>For corporations, there is no state corporate income tax for companies that are formed in Delaware but do not transact business there (but there is a franchise tax).


DN: but there will still be the Federal Income Tax? Or any other Federal or Local Tax? What is the franchise tax? Is there a way of saying what the tax rate is for consulting services (disregarding any deductibles etc.)

 

Yes, there will be federal income tax. Every domestic or foreign corporation doing business in Delaware, not specifically exempt under Section 1902(b), Title 30, Delaware Code, is required to file a corporate income tax return (Form 1100 or Form 1100EZ) and pay a tax of 8.7% on its federal taxable income allocated and apportioned to Delaware. Every domestic or foreign corporation doing business in Delaware, not specifically exempt under Section 1902(b), Title 30, Delaware Code, is required to file a corporate income tax return (Form 1100 or Form 1100EZ) regardless of the amount, if any, of its gross income or its taxable income. The taxable status of a corporation in Delaware follows the federal treatment of the corporation.

 

Franchise tax means A franchise tax is charged by a state to corporations and other business entities (LLCs in some states), for the privilege of incorporating or doing business in that state.


http://corp.delaware.gov/frtaxcalc.shtml


RV: =>There is no personal income tax for non-residents.


=>Stock shares owned by persons outside Delaware are not subject to Delaware taxes.


DN: does that mean dividends paid by the LLC to the shareholders are not taxed, not in Delaware, and not in the US at all?


Can profits be repatriated to the country (Brazil) of residence of the shareholders, without any withholding (not really our purpose at this point, but still good to know)?


Yes, that means that dividends paid by the Delaware Corp is not tax, not in the US and Delaware as well. Profits can be repatriated to the country of residence.


RV: Given this thing, you will still need to maintain accurate financial records and file income tax returns. You would be "Exempt" from taxes but this does not absolve you from maintaining books of account and filing tax returns.


DN: do you mean the LLC is exempt but still has to file taxes? What about federal filings? Will there be any other tax liability, local, federal, which will be based on the filing of the LLC?


Or did you also mean the shareholders themselves. Even not resident in Delaware or the US, do they also need to file taxes, even though the dividend payments might be exempt?


What does tax filing involve? Let's say this corporation will have one type of service, IT system consulting, 20 invoices paid by clients, no relevant expenses in the US - for a company of this type and volume of activity, would TurboTax or a similar solution be sufficient to file taxes? I.e., can this usually be done in house by a small firm's owner? Or does this very likely require a professional tax accountant?


As mentioned above, you would maintain regular books of account and file for federal taxes. Every domestic or foreign corporation doing business in Delaware, not specifically exempt under Section 1902(b), Title 30, Delaware Code, is required to file a corporate income tax return (Form 1100 or Form 1100EZ) regardless of the amount, if any, of its gross income or its taxable income. The taxable status of a corporation in Delaware follows the federal treatment of the corporation.

 

Shareholders will not file any returns.

 

Yes, turbo tax or any similar business financial account software would be fine.

 

 

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we get compensated for assisting you. Alternatively please feel free to reply back if you need further assistance.

Warm Regards

Customer: replied 9 months ago.


Sorry for the delay, we had to discuss internally first, whether we had all information we needed. We ended up hiring an expert firm in Brazil to help us through the detailed steps. Thanks a lot for your advice. Regards.

Expert:  Rakhi Vasavada replied 9 months ago.
Dear Dirk,

Thank you for your appreciation. In that case, I would request you to kindly rate this positively so that we are credited for assisting you.

In future, if you need to reach out to me directly, just prefix "For Rakhi Vasavada....." and you will reach me.

Warm Regards
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 3856
Experience: Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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