Differences between a Wyoming and a Delaware LLC | Where to Open

When opening an offshore company in the USA, people always think of Delaware as their first option because of its popularity, nonetheless it might not be your best option if you want the most tax efficient structure.

Differences are very little in regards to what concerns us (US tax free entities).

Does the state of formation affect taxation?

First of all, for an LLC in the USA, regardless of state of formation, to be used as a tax free entity, it must be owned by a non-US person (non-resident foreigner) and not have US-Sourced Income. These entities are labeled 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.

If this LLC has two members, it will be taxed as a partnership, and it has different tax implications.

So the federal yearly compliance will be the same regardless of where you form the entity, so the difference lies at the state level.

Differences at the State Level

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, reporting all assets in Wyoming and confirming company addresses. The State Fee (tax) for this annual report is US$60.

Delaware: You pay a yearly Franchise Tax to the state for US$300.

In addition, from my experience I think Wyoming has a better online platform, allowing you to manage your state fillings in a much less complicated and time consuming manner.

So, if Wyoming is better, why is Delaware very popular?

Delaware is popular for corporations thanks to its corporate laws, being a great place for forming a corp, listing your company, going public, raising funds, etc.

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.

But when it comes to forming a Foreign Owned US Disregarded Entity, or using US LLCs as a tax shelter, I would surely pick Wyoming.

Disclaimer: Nothing herein shall be considered nor substitute for financial, tax, or legal advice. Information might not be updated, incorrect or incomplete. Nothing herein constitute a client-attorney relationship.