Wyoming vs Delaware Franchise Tax: Which State is Better for Your LLC

Setting up a business in the United States entails some level of strategic thinking. Some of the factors to take into consideration include the company’s operational costs, business strategy, compliance requirements, and more, all of which can be quite crucial to the company’s future.

Entrepreneurs frequently consider the states of Delaware and Wyoming due to the ease of doing business in both. Although both are business friendly, both states have opted to use different approaches to franchising tax and the yearly payment all business have to make.

Tax systems have the ability to make or break a business. Hence, it is worth pondering why a state should be chosen over the other. In the case of merger and acquisition, poorly rationale decisions can cost more over a number of years.

In this essay, i will break down the differences of Delaware and Wyoming’s tax systems and how they operationalize them. Further focus will be placed on the other sector considerations other than taxes that will help choose the most favorable state for your business.

What is a Franchise Tax?

What is the franchise tax and why is it important, are some of the questions that should be clarified first before comparison.

The franchise tax is one of the many taxes some states in the US charge based on the classification of a business. Although the name is slightly misleading, this tax does not only apply to franchised business such as a McDonald’s or Subway, but also to corporations and limited liability companies, irrespective of the size.

Specifically about the Franchise Tax:

• There are profits and un-profits, which much, relates, determines the profits.
• There are many states where one might be free from state income tax, but might as well be paying a state franchise tax.
• There are states where franchise tax might be based on income, authorized shares, and flat rate, company assets.

There are many, these type of taxes, is one of the very first motivators for the location of an entrepreneur. Some states, such as Delaware, charge very high state franchise taxes compared to Wyoming, which has relatively low taxes.

Wyoming Franchise Tax (or Lack Thereof)

Wyoming is known to be the most cheapest, as well as the most entrepreneur friendly state for LLCs and Corporations. This is owes much to his…

Key Details About Wyoming:

• No franchise tax of any amount
• No corporate taxes
• No personal income tax
• No complicated fee structure

Wyoming does not impose state franchise tax but instead, the Wyoming company pays an Annual Report and License Tax… Wyoming fee is relatively low, as compared to the Delaware Corporations.

Wyoming Annual Report License Tax:

• Minimum fee: $60 per year
• Calculation Method Fee: $0.0002 for every $1 of assets registered in Wyoming.

Examples of Fee Payments

• If your company has $100,000 worth of assets in Wyoming → $20.
• If your company has $500,000 worth of assets in Wyoming → $100.
• If your company has no assets in Wyoming (like many businesses operating online or in other countries) → you only pay $60.

👉 This approach creates a unique competitive advantage for online businesses, freelance workers, consultants, and foreign entrepreneurs without a physical presence in the US.

Benefits Of Wyoming No Franchise Tax:

• Predictable low annual fees ($60 in most cases)
• No tax bills based on shares or equity split.
• Basic Compliance and Less Work
• Easy for bootstrapped companies.

Ultimately, hassle and low costs year after year for maintaining a business in Wyoming are unrivaled.

Delaware Franchise Tax

Delaware remains the most common point of incorporation for corporations and venture-funded companies. Its world-class legal system and developed corporate law framework along with the legal system are highly appreciated by investors. This, however, does not decrease Wyoming’s advantage in franchise tax.”

Franchise Tax for Delaware Corporations:

Delaware computes franchise tax for a corporation in one of two was:

Authorized Shares Method – Taxes authorized shares, not issued shares.

• $175 for small corporations with limited shares
  
• Can go up to $200,000+ per year for large corporations with millions of shares

Assumed Par Value Method – Taxes based on total assigned value of assets and issued shares.

• Delaware franchise firms are more advantageous to larger companies who do not want to pay exorbitant fees.

Alongside franchise tax, Delaware firms must also pay a yearly report charge of $50.

Within the many obligations Delaware corporations have, the payment of the franchise tax starts at $175 depending on the class.

Franchise Tax for Delaware LLCs:

LLCs in Delaware have it easier compared to corporations, but it’s still more costly than Wyoming.

• Flat annual tax of $300
  
• Due every year by June 1
  
• No calculations based on assets or shares
  

While predictable, this $300 fee is five times more expensive than Wyoming’s minimum $60 license tax.

Wyoming vs Delaware: Side-by-Side Comparison

Here’s a quick breakdown of how the two states compare:

Which State Should You Select?

Wyoming and Delaware are rather different concerning business missions and objectives.

Wyoming is a great choice if:

• You are an international business person and wish to set up a US company for Amazon FBA, dropshipping, SaaS, or consulting.
• You wish to keep costs low and pay little annual fees.
• You don’t anticipate raising funds with venture capital in the short term.
• You wish to keep things simple and enjoy no surprise compliances.

👉 Most small businesses and startups find Wyoming affordable and easy to maintain.

Delaware is the right choice if:

• You are seeking venture capital funding or are planning to raise money from US investors.
• You wish to go public someday.
• You appreciate Delaware’s special Court of Chancery for business legal disputes.
• You are building a startup with high growth potential which will offer stock to employees and investors.

👉 For businesses with primary growth objectives, Delaware’s reputation in the investment world often overshadows the costs.

How Bizstartz Can Help

We assist international founders and non-U.S. residents in the formation of an LLC in the U.S. Whether you have chosen the cost-effective Wyoming or investor appealing Delaware, we have you covered with:

• Formation of an LLC or corporation
• Employer Identification Number (EIN)
• Opening of U.S. bank accounts
• Registered agent services
• Filing and compliance of Beneficial Ownership Information (BOI)
• Bookkeeping, Tax Filing, and Compliance
• ITIN filing for non-U.S. owners

We will help you start Delaware or Wyoming business quickly. Bizstartz will give you the expert direction you need.

Final Thoughts

In terms of Wyoming vs Delaware franchise tax, the difference is simple:

• Wyoming is more economical and charges a small annual report fee beginning at $60.
• Delaware, however, can be much more costly, especially for corporations with a high number of shares, and can charge upwards of $200,000.

Wyoming tends to be the happier choice for most overseas founders, online business operators, and tiny businesses. However, high-growth companies targeting U.S. investors still prefer Delaware, no matter the price.

Frequently Asked Questions (FAQs)

1. Do foreign (non-U.S.) owners franchise tax in Wyoming or Delaware?

Yes. In Wyoming, you will pay the $60 minimum annual report fee. In Delaware, you will even have to pay $300 annual tax, irrespective of your place of residing, if your LLC is registered in Delaware. Same goes for any foreign, non-U. S. owners.

Franchise tax (or equivalent annual fees) is applied to every single company registered in the territory of the state, irrespective if the owners live in the territory of the state or outside the US.

2. Which state has lower ongoing compliance costs?

For ongoing compliance costs, Wyoming is the established winner. The annual fee for maintaining a Wyoming LLC is set at $60, and every Delaware LLC claim a standard fee of $300. The difference in costs for many corporations can be much larger, in Delaware, it depends on the count of the permitted shares.

3. Why do large corporations still prefer Delaware in spite the higher franchise tax?

Delaware’s reputation, justified or not, is the state that had developed the most favorable conditions for business, and this is the territory in which best developed corporate law, thus having a specialized business court (the Court of Chancery).

Investors, more than any other interested parties, need to fund technologies which Delaware corporations for the most part need. Most like to fund start ups or young competitors in the field of technology.

They fund that kind of technology because lots of them understand the potential that young technologies have for the future. They will often fund formations, since the changes that can result from the technologies in the future can be entirely new and different.

4. Am I able to transfer my company to Wyoming from Delaware in order to avoid paying franchise tax?

Yes. You may transfer your company from Delaware to Wyoming through a process called domestication (if both states allow it, Delaware and Wyoming).

Alternatively, you may decide to close the company in Delaware and open a new limited liability company in Wyoming. In either case, we suggest seeking the advice of an expert so you avoid the legal and tax consequences of an unplanned switch.

5. Which of the two states is more advantageous to an online business and Amazon sellers?

For online business entrepreneurs, drop shippers, consultants, and Amazon FBA sellers, Wyoming is often the best option. Its annual fee of $60 and basic minimalist compliance requirements is a plus for international entrepreneurs and other small business operators who do not require the legal benefits Delaware offers.