Key Takeaways

  • The Delaware franchise tax is a required annual payment for maintaining good standing, separate from income tax.
  • Tax rates and due dates vary by entity type, with corporations having more complex calculations than LLCs or nonprofits.
  • Delaware offers two tax calculation methods for corporations—businesses can choose the cheaper option.
  • Late payments result in penalties and accruing interest.
  • Filing requires submitting both payment and an annual report, with detailed company information.
  • Delaware is considered a tax haven due to its low taxes, strong corporate privacy laws, and specialized court system.

What is Delaware Franchise Tax?

Delaware franchise tax is a tax charged by the state of Delaware for the right to own a Delaware company. The tax does not affect income or company activity. The tax is required to maintain the company's good standing in Delaware.

Paying Delaware franchise tax doesn't mean that your business is a franchise.

Along with your business's annual Delaware franchise tax, your business is required to submit a Delaware annual report. Both the Delaware annual report and the Delaware franchise tax are due by March 1 each year.

Your Delaware franchise tax must be paid online. If you don't want to pay your Delaware franchise tax yourself, you can hire a registered agent to do it for you. The registered agent will charge a small fee to complete the filing of your Delaware franchise tax.

The goal of the Delaware franchise tax is to make owning a business in Delaware simple. Since the tax payment process is simple, businesses are more likely to want to be incorporated in Delaware.

If you pay your Delaware franchise tax late, you'll be charged a late fee. The late fee is $125.00 and a 1.5 percent monthly interest afterward.

How to File

Filing your Delaware franchise tax is a simple, online process. There are three steps.

  1. Calculate your franchise tax fees and check your math.
  2. Enter business entity file number and corporation information.
  3. Pay the Delaware franchise tax.

Calculate Your Franchise Fee

Domestic corporations can only file online.

Enter Business Entity File Number

To find your Business Entity File Number search for your business name. Your business name and number should be returned.

Enter Corporation Information

  • Federal Employee Identification Number or EIN
  • Corporation's physical address
  • Names and addresses of corporation officers
  • Names and addresses of all corporation director
  • Name, title, and address of person completing the filing

Pay the Delaware Franchise Tax and Delaware Annual Report Fee

Submit the required fees.

Payment can be submitted with an electronic check or credit card. Once payment is submitted, you're finished.

Filing Availability and Technical Tips

The online filing portal for the Delaware franchise tax and annual report is available daily from 8:00 a.m. to 11:45 p.m. Eastern Time. It's important to use only standard English characters in all fields to prevent data entry errors. Incorrect characters may lead to inaccurate records or rejected filings.

Delaware corporations are encouraged to file early to avoid last-minute delays or penalties.

Cost

The minimum Delaware franchise tax fee is $175 with a $50 filing fee. The minimum Delaware franchise tax and annual report payment is $225 for domestic corporations.

Additional Fees and Payment Notes

In addition to the franchise tax and annual report filing fee, corporations may incur extra costs if they require expedited processing or special filings. These include:

  • Expedited service fees (for faster processing)
  • Certified copies or Good Standing Certificates
  • Registered Agent renewal fees (separate from franchise tax)

Ensure these are not confused with your franchise tax delaware obligations, which are recurring annual requirements.

How to Calculate Your Delaware Franchise Tax Fee

Entity Type Due Date Fee
Corporation March 1 See below
Benefit Corporation March 1 See below
Foreign Corporation June 30 $125 annual report fee
Nonprofit Corporation March 1 $25 annual report fee
LLC June 1 $300
Foreign LLC June 1 $300 annual report fee
General or Limited Partnership June 1 $300
Limited Liability Partnership June 1 $200 per partner

LLC or LP

The Delaware franchise tax for this business is simple. It is a flat fee of $30 due on June 1.

Corporation

The Delaware franchise tax for a corporation is slightly more complicated. It is based on the corporation type and authorized shares. The total cost also includes an annual report fee.

When paying the annual report fee, corporations are sorted into two categories.

Sole Proprietorship

With this type of business, your business income will be distributed to you as the sole proprietor. You will pay tax to the state on that income on your individual state tax return. The tax rate will depend on your overall taxable income that year.

Authorized Shares Annual report fee and tax fee
Less than or equal to 5,000 $50 annual fee, $175 tax
5,001 or more $50 annual fee, $200-$180,000 tax

If your company falls into the maximum stock option of 5001 or more shares, there are two possible methods to calculate the Delaware franchise tax.

  • The Authorized Share Method
  • The Assumed Par Value Capital Method

The Authorized Share Method

This is the first method that is typically used to calculate tax.

  • 5,001-10,000: $250
  • Additional 10,000: add $75

The maximum payment is $180,000. Don't forget to include the $50 annual report fee.

The Assumed Par Value Capital Method

To use this method, you must supply the company's total gross assets and the total number of issued shares.

Often, the tax is then calculated to the minimum payment of $350, with a $50 annual report fee.

The calculation used in this method is complex. For questions, contact the Harvard Business Services, Inc. A report of the calculation can be emailed to you.

Which Method to Use

Delaware allows you to pay the lower of the two methods. This means that if you receive a high bill that was calculated under the first method, you can request a recalculation using the second method.

Nonprofit

Non-stock or non-profit companies are considered exempt from tax in Delaware. These types of companies must file an annual report fee. This fee is $25.

Common Calculation Mistakes to Avoid

While calculating your Delaware franchise tax, be aware of common pitfalls:

  • Confusing authorized vs. issued shares: The "Authorized Share Method" is based on all shares authorized in your charter, not just those issued.
  • Not including gross assets: When using the "Assumed Par Value Capital Method," omitting asset values will default your tax to a higher amount.
  • Forgetting the $50 annual report fee: Always include this fee in your total.
  • Misapplying the tax cap: Remember, the maximum franchise tax is $200,000 for most corporations—higher only for large corporate filers like banks.

Using accounting software or consulting with a tax professional can help minimize errors.

Reasons to consider using Delaware Franchise Tax

The Delaware franchise tax is beneficial to corporations because it is a simple process to submit and calculate payment. The Delaware franchise tax is also beneficial to businesses as it is a small fee in comparison to other states.

How Do I Pay My Delaware Franchise Tax?

Paying your Delaware franchise tax is simple.

Go to the Delaware Inc. website and follow the instructions.

If you have problems, you can email or call Delaware Inc. at [email protected] or 800-345-2677, Ext. 6904.

What Do I Submit with Payment?

When you submit your Delaware franchise tax payment, you'll also need to submit an annual report.

The annual report must include:

  • The corporation's physical address
  • The name and physical address of at least one director
  • The name, title, and physical address of one officer (if you have officers)

Foreign File

Business that are formed out of state but are registered to do business in Delaware must pay a $125 registration fee.

Foreign corporations, those that are formed outside of Delaware, cannot file online.

To file as a foreign corporation, mail in the necessary documents. The Delaware franchise tax for foreign corporations is due by June 30 every year.

Multistate Businesses

This article focuses on businesses that are operating solely in Delaware. If your business is operating in multiple states, your business may have "nexus" with those other states. This means that you're likely to need to pay taxes in those states.

If your business was formed or is located in another state but generates income in Delaware, you may need to pay Delaware taxes. If you own a business that operates in multiple states, you will greatly benefit from the knowledge of a tax professional. Multistate taxes and determining nexus can be very complicated.

Foreign Corporations and Franchise Tax Delaware Rules

Foreign corporations registered in Delaware must file an Annual Report and pay a $125 fee by June 30 each year. Unlike domestic corporations, foreign corporations cannot file online and must submit paper forms to the Delaware Division of Corporations.

Required information for foreign filers includes:

  • Principal place of business
  • Current officers and directors
  • Confirmation of good standing in the home state

Not paying the Delaware franchise tax on time may result in the revocation of your authority to do business in Delaware.

Deadline: Delaware Franchise Tax

Your Delaware franchise tax due date depends on the type of business you own.

Corporation

The Delaware franchise tax for a corporation is due on March 1.

If your Delaware franchise tax is submitted late, a $125 late fee and interest fee of 1.5 percent will be charged.

LLC

Your Delaware franchise tax is due on June 1 for an LLC. The limited partnership or LP franchise tax is also due on June 1.

If the tax is not paid on or before June 1, a late fee of $200 and a monthly interest of 1.5 percent will be charged.

Arrears

Corporations, LLCs, and LPs are taxed in arrears. This means that the tax due is for the previous calendar year.

Late Fee

If you don't file your Delaware franchise tax on time, you will be charged a late fee.

The late fee is a $125 penalty. You will also be charged a 1.5 percent monthly interest on the amount due.

Special Cases for Delaware Franchise Tax

You may have a special case if any of the following are true:

  • Total gross assets are zero.
  • Number of shares issues is zero.
  • Shares are not assigned a par value.

If any of these are true, contact the Delaware Secretary of State Franchise Tax for assistance. For assistance, call this number: 302-739-3073

Reducing Costs

There are ways to reduce your Delaware franchise costs in certain circumstances.

Startups

To reduce the taxes paid by a startup, use the Assumed Par Value method. This method calculates the taxes by total assets.

As long as your issued shares constitute a third to half of your authorized shares, this method will save you money. If not, consider the Alternative Par Method.

File Your Annual Report

Delaware franchise tax is due on March 1. An annual report is due at the time of filing the Delaware franchise tax.

The report should be filed online. The report must include the necessary information:

  • The physical address of the corporation
  • List of all directors
  • List of at least one officer
  • Issued shares
  • Gross assets

Delaware Annual Report

When you file your Delaware franchise tax, an annual report must also be filed.

Fees

The annual report fees are:

  • LLPs and LLLPs: $300 per partner
  • Delaware nonprofit: $25
  • Foreign corporations: $225
  • LLCs, LPs, GPs: $300
  • Domestic corporations: $225
  • Domestic professional service corporation: $225 minimum

Annual Report Technical Requirements

Delaware's annual report form must be filled out completely to be accepted. Key technical tips include:

  • Enter the physical address, not a P.O. Box.
  • Ensure the Federal EIN matches IRS records.
  • Provide at least one director and one officer, even if they are the same person.
  • List issued shares and gross assets if using the Assumed Par Value Capital Method.

Filings that are incomplete or inconsistent may be rejected, resulting in penalties or additional scrutiny from the state.

Delaware: Tax Haven

Delaware is considered a tax haven or tax shelter.

A tax haven or shelter is a method of reducing taxable income which results in a reduction of tax payment. The method is any that recovers more than $1 in tax for ever $1 spent within a four-year period. The methodology of tax havens vary. A tax shelter can be created by an individual or a corporation.

Delaware provides a favorable tax shelter for U.S. corporations. There are other states, such as Nevada, that also do this. This leads to a high number of businesses being incorporated in those tax shelter states.

These are the reasons that make Delaware a tax haven.

No State Taxes

Whether your business is physically in Delaware or not, you don't pay any state taxes. Delaware has no sales tax.

Delaware also has no personal property tax or value-added taxes.

Small Franchise and LLC Tax

The Delaware franchise and LLC tax is a flat fee. Most states require a tax fee based on earned income. This means that Delaware tax is much lower than other states' LLC and franchise taxes.

Corporate Privacy

When filing a franchise tax in Delaware, all the must be submitted is the physical address of the business and the name of the registered agent. This can be a business owner or someone else.

By not requiring more information, businesses that file their franchise tax in Delaware can maintain privacy. The names of the owners, LLC members and managers are not required to be made public.

S-Corporations

Delaware allows S-corporations. These can be very helpful when paying taxes.

Separate Court System

Delaware has what is called a Court of Chancery. This allows the state to adjudicate corporate litigation. The corporate laws and cases decided in Delaware are often used by the Supreme Court to influence decisions.

Frequently Asked Questions

Do I need to pay Delaware franchise tax if my company had no activity last year? Yes. All Delaware entities must pay franchise tax and file an annual report regardless of income or activity.

How can I check if my Delaware franchise tax was paid? You can check your payment status through the Delaware Division of Corporations website or contact them directly with your entity file number.

Can I change the calculation method after I submit payment? Yes, if you initially used the Authorized Shares Method and were overcharged, you can request a recalculation using the Assumed Par Value Capital Method.

What happens if my business misses the Delaware franchise tax deadline? Late filings result in a $125 penalty plus 1.5% monthly interest. Continued noncompliance may lead to the loss of good standing or charter forfeiture.

Who can help me file my Delaware franchise tax? You can hire a registered agent or an attorney experienced in Delaware business law. UpCounsel offers access to qualified professionals who can assist with filings and tax strategy.

If you're interested in incorporating your business in Delaware or need to pay your Delaware franchise tax, consider posting a job to receive free custom quotes from one of UpCounsel's top 5% of attorneys.