Delaware LLC Taxation for Non-US Residents

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Introduction to Delaware LLC Taxation for Non-US Residents

Delaware has long been recognized as one of the most business-friendly states in the U.S., thanks to its favorable tax laws and lax incorporation requirements. Hence, many overseas entrepreneurs contemplate setting up Limited Liability Companies (LLCs) in this state.

Regardless if you're an American living abroad or not holding U.S citizenship at all – that doesn't restrict you from owning an entity like an LLC in places like Delaware.

A well-crafted plan can fit your international business structure into U.S tax rules' framework, thus saving money and avoiding undue bureaucratic headaches.

Understanding US-Based Taxation System

The U.S taxation regime is arguably complex, particularly when it comes with foreign entities' involvement — understanding some basics helps navigate this tricky area.

U.S income is divided into two categories: Effectively Connected Income (ECI) and Fixed or Determinable, Annual or Periodic (FDAP) income. ECI is earned through active business operations within the country and issubject to regular income tax. On the other hand, FDAP income, which includes interests and dividends, is typically taxed at a flat 30% rate unless a treaty specifies otherwise.

The IRS doesn't have a category for LLCs. They are either disregarded entities that pass through to their owner(s) or are classified to be taxed as Corporations.  Single Owner LLCs classified as disregarded entities pass-through their revenue and expense declarations to the owner, and are accounted for in the owners tax return. An LLC with multiple owners registered as a disregarded entity is classified as a Partnership for tax purposes, and so a partnership return is filed and then the profit is accounted for in the individual partner's income tax returns.

All of these pass-through complications are avoided by forming a Corporation, or by having your LLC registered to be taxed as a Corporation. The LLC/Corp is then taxed like any other US "person", regardless of the location of the owners and managers.

Advantages of Creating a Delaware LLC as a Non-US Resident

Forming an LLC in Delaware provides several distinct advantages to non-US residents:

The Different Types of Taxes Levied on Delaware LLCs

Typically, three types of taxes apply to a Delaware LLC owned by non-U.S. citizens:

  1. Federal Income Tax: If setup as a Disregrarded Entity, required only if the entity generates income within the U.S., whether through services provided, the sale of goods/products, or rental properties.
  2. State Tax: In certain instances where there's nexus with another state. This is unlikely, unless you have anything to do in California, but is ever changing.
  3. Franchise Tax: This is uniquely a state-imposed tax for allowing you the privilege to own an entity in that jurisdiction—effectively a 'license cost'. The annual LLC tax is $300 in Delaware.

Tax Obligations For Non-U.S Residents Owning a Delaware LLC

Despite these potential taxes, it's crucial to identify scenarios when non-US residents are exempt from them:

  1. If you operate your business outside the U.S entirely (no ECI)
  2. Even while owning any Delaware-based property/real estate or even shares - unless these assets relate directly to your US-based business operations
  3. Profits from products/services sold online globally but fulfilled outside of U.S borders In these cases above, generally no US federal or state taxes apply — except DE Franchise Tax ($300/yr).

See our Tax Free LLC post for more information.

Practical Tips for Managing Delaware LLC Taxes as a Non-US Resident

Some tips may be helpful when managing taxes with a Delaware LLC:

  1. Maintain records meticulously – good record-keeping forms the foundation for efficient tax management.
  2. Employ a professional Accountant with international taxation expertise –They will help you understand tax nuances, help reduce liabilities, and prevent costly mistakes.
  3. Comprehend treaties between your home nation and the U.S - Some nations have 'Double Taxation Avoidance Agreements' with the U.S, which can make you exempt from certain taxes or lower tax rates.


Owning a Delaware LLC as a non-US resident comes with several benefits, particularly in terms of privacy and administrative simplicity. However, it's vital to understand that each business is unique, and therefore its tax implications will also be different.

Navigating these complexities requires careful planning and professional advice.

It’s worth noting that while setting up an LLC is straightforward, understanding US-based international taxation can be complex; hence legal advice should always be acquired when curating such plans to ensure compliance. Remember:

When used wisely—Delaware's well-established corporate laws, courts focused on business cases, and extensive case law history can offer robust asset protection benefits to diligent entrepreneurs seeking avenues for setting up businesses overseas successfully.

Delaware LLC Taxation for Non-US Residents can be the same as every other domestic US corporation if the LLC elects to be taxed as a Corporation.