Delaware Franchise Tax Explained for Foreign-Owned Companies

Delaware does not tax the income of companies that do no business in Delaware. But every Delaware company pays an annual franchise tax simply for the privilege of existing as a Delaware entity. For LLCs it is a flat amount. For corporations it is calculated, and the default calculation produces some of the most alarming tax notices founders ever receive.

This guide explains how it works, so you pay the right amount on time.

Delaware LLCs and partnerships

• Flat annual tax: $300.
• Due: June 1 every year.
• No annual report to file, just the tax payment.
• Late payment: a $200 penalty plus interest of 1.5% per month.

If you formed an LLC in Delaware only because "Delaware is the best", compare it with Wyoming, where the annual report starts at $60. See Delaware LLC vs Wyoming LLC.

Delaware corporations

Corporations file an annual franchise tax report and pay the tax by March 1 each year. The report also lists directors and officers and has a filing fee of about $50.

The tax itself can be calculated by two methods. Delaware's notice usually shows the first one.

Method 1: authorised shares method (the default)

The tax depends only on the number of authorised shares:

• 5,000 shares or fewer: minimum tax ($175).
• More shares: the tax rises in steps with the number of shares, up to the maximum.

A typical startup with 10,000,000 authorised shares gets a default calculation in the tens of thousands of dollars. This is the notice that panics founders.

Method 2: assumed par value capital method

This method uses the company's total gross assets and issued shares together with authorised shares. For an early-stage startup with modest assets, it usually produces the minimum tax of $400, or close to it.

Delaware charges the lower of the two methods, but only if you file using the second method and report your assets and issued shares. Paying the default notice without checking can mean paying thousands more than necessary.

Example

Exact figures depend on your numbers; we calculate them each year.

Common surprises

• The "huge bill" notice: usually fixed by filing with the assumed par value method.
• Missed deadlines: for corporations, a $200 late penalty plus 1.5% monthly interest, and loss of good standing if it continues. Investors and banks check good standing.
• Forgetting a company you no longer use: franchise tax continues until the company is formally dissolved, and unpaid amounts must be cleared before dissolution. See the company closure service.
• Confusing it with federal tax: the Delaware franchise tax is separate from IRS filings.

Federal taxes are separate

Delaware franchise tax has nothing to do with your federal returns. A Delaware corporation still files Form 1120 (and Form 5472 if 25% or more foreign-owned). A foreign-owned Delaware single-member LLC still files Form 5472 with a pro forma 1120. See Form 5472 explained.

Planning your share structure

Your authorised share count drives the default calculation, and the assumed par value method depends on issued shares and par value. Setting these up sensibly at incorporation keeps franchise tax predictable. See authorised shares and par value.

Key dates

See the full 2027 tax calendar.

How UCB helps

For Delaware companies formed with us, we track the franchise tax deadline, calculate the tax using the most favourable method for corporations, and file the annual report on your behalf. If you received a large Delaware notice, send it to us and we will check it.

Read why startups choose a Delaware C-Corp.

Received a Delaware franchise tax notice? WhatsApp us at +91 8105 199 399 or email info@ucbsolutions.com and we will recalculate it for you.