Wyoming vs Delaware for Non-Citizen LLCs

Wyoming and Delaware are two of the most popular states for forming a Limited Liability Company (LLC), especially for non-residents and non-U.S. citizens. Both states offer benefits that make them appealing to entrepreneurs and business owners. It is essential to weigh up all the pros and cons of each state. Knowing how they compare to each other allows businesses to make an informed decision that benefits their business moving forward.

Wyoming LLC benefits

• Privacy protection: Wyoming offers strong privacy protection for LLC members. The state does not require members’ information on formation documents. These formation documents are not considered public records, which can be an advantage for those who wish to be anonymous. Keep in mind that the newly mandated BOI report dictates that owners and those with “substantial control” must be named.
• Asset protection: Strong asset protection laws shield LLC member’s personal assets from any business liabilities. There is even protection for single-member LLCs which is not the case across every state. This provides an extra layer of security for business owners.
• Business-friendly environment: There is minimal bureaucracy and a streamlined regulatory environment, which can make it easier for LLCs to grow.

Drawbacks

• Lack of legal precedent: Compared to Delaware, Wyoming has less legal precedent with business cases. This means courts may be less predictable when legal cases arise.
• Growth limitations: Wyoming’s business-friendly nature, stemming from low start-up costs and minimal red tape, may actually hinder growth as more complex operations may not be suited to Wyoming’s financial infrastructure.

See this guide for more information about non-citizen Wyoming LLCs.

Delaware LLC benefits

• Unique court system: The Delaware Court of Chancery focuses on business law and resolving corporate disputes. The Court can resolve business matters quickly without the need for a jury.
• Efficient: The process can be sped up in Delaware, with the option of a one-hour filing if time is of the essence.
• Credibility: Over two-thirds of Fortune 500 companies have incorporated in Delaware. Staring your LLC in Delaware may lend more credibility and prestige to your company, making it easier to attract investors.

Drawbacks

• Higher costs: Forming and maintaining an LLC in Delaware generally involves higher costs. In addition to the annual franchise tax of $300, Delaware’s filing fees and registered agent fees tend to be higher than those of other states.
• Complex legal landscape: Although this can be a benefit, the complex legal landscape of Delaware may also cause confusion for those not familiar with it. The unique court system may require specialized legal help and expertise, which can be costly and time-consuming

See this guide for more information about non-citizen Delaware LLCs.

Comparison table (Wyoming LLC vs Delaware LLC)

Understanding the costs

When forming an LLC in either Wyoming or Delaware, there are several costs beyond the initial filing fee. These costs may impact your decision on where you decide to form your business.

Wyoming

• Filing fees: Filing Articles of Organization costs $100 when you file by paper or $102 if you file online.
• Registered agent fees: These vary by the service you decide to use but can cost between $50-$300 per year.
• Annual report fees: The annual fee is $60 for businesses with less than $300,000 in Wyoming assets. If the business has more than $300,000 in Wyoming assets, it is 0.0002% of these assets.

Delaware

• Filing fees: Filing a Certificate of Formation is $110 for either online or paper filing. There is an option for an expedited service for an additional $100 for the same day and $50 for a 24-hour service. There is also an option for a priority 1 hour filing for $1000 or $500 for a 2 hour filing.
• Registered agent fees: These vary by the service you decide to use but can cost between $50-$300 per year.
• Franchise tax: A franchise tax is a tax levied by some states on businesses for the privilege of existing in that state. The annual franchise tax in Delaware is $300 per year and is due June 1st. If this date is missed, there is an additional $200 fine.

Keep in mind that these fees and taxes are subject to change, so keep an eye on each state’s website for up-to-date information.

Considering tax benefits

One of the most important factors to consider when choosing where to form your LLC is the potential tax advantages that may be offered to the company.

Wyoming

• State Taxes: Wyoming’s lack of state income tax and franchise tax remains a major advantage for non-U.S. residents. You will not pay Wyoming state taxes on your LLC’s income.
• Federal Taxes: Your main tax focus will be on US federal income tax. You’ll only be taxed on income generated by your Wyoming LLC from U.S. sources. If your LLC is mainly focused on non-U.S. markets, your tax liability might be minimal or zero.
• Sales/Use Tax: If your LLC sells physical or digital goods/services to Wyoming clients or has a physical presence in the state (employees, warehouse, etc.), you might have to collect and remit Wyoming sales/use tax.

Delaware

• State Taxes: Similar to Wyoming, Delaware does not impose state income tax on LLCs. You will not pay Delaware state taxes on your LLC’s income.
• Federal Taxes: Your focus will be US federal income tax. The tax applies only to income from U.S. sources.
• Sales/Use Tax: If your LLC sells physical or digital goods/services to Delaware customers or has a physical presence in the state, you may need to collect and remit Delaware sales tax (which is currently 0%) or potentially other related taxes.
• Franchise Tax: As previously mentioned Delaware requires an annual franchise tax of $300, regardless of your where you live.

When weighing up the tax benefits of both Delaware and Wyoming, it is important to consider your business needs. Consult with a tax professional to get a firm idea of which state’s tax laws align best with your business.

How to form a non-resident LLC

1. Choose a name for your LLC that follows the state’s naming rules. For example, both states require the LLC to use the words “Limited Liability Company” or the abbreviations associated with it.
2. Appoint a registered agent service with a physical address in the state. This is particularly important for non-residents as they can use the registered agent’s address as their U.S. business address.
3. File formation documents (Articles of Organization in Wyoming, Certificate of Formation in Delaware) with the appropriate agency (Secretary of State or Delaware Division of Corporations).
4. Although not required, both states recommend authoring an operating agreement that outlines the roles and responsibilities of the LLC members.
5. Obtain an individual Taxpayer Identification Number (ITIN) from the IRS to allow you to get an Employer Identification Number (EIN).
6. Obtain an EIN from the IRS for tax purposes. This is necessary if you plan to hire employees, conduct business in the United States, or wish to open a business bank account.
7. File a Beneficial Ownership Information Report, which details the LLC owners and any individuals who have “substantial control.”
8. A business bank account can be opened at this point. This can add credibility to your business and allow payments to be received with ease.

Choosing the best state for your LLC

Deciding between these two business-friendly states depends on the specific goals and needs of your business.

1. Business size and growth plans: If you have a small business or a startup with next to no growth plans, Wyoming’s low costs and ease of filing might be more attractive. If you are seeking outside investment and venture capital, Delaware’s established business environment and the prestige that comes with it may be best.
2. Industry: Some industries lend themselves to certain states. Delaware is a popular choice for tech startups and those in financial services. Wyoming is more appealing for those who work remotely in online or e-commerce businesses.
3. Taxes: Evaluate your business’s tax needs. Wyoming’s lack of state income tax may appeal to your LLC, whereas Delaware’s low tax treatment of certain business entities may be more beneficial for others.
4. Legal protection: If the industry has a high likelihood of legal disputes, Delaware’s specialized courts that focus on corporate law may provide more protection for your LLC.

Types of businesses that may benefit from each state:

• Wyoming: Online businesses, e-commerce companies, small businesses with limited growth plans, businesses prioritizing privacy and asset protection
• Delaware: Technology startups, financial services companies, businesses seeking outside investment, larger corporations with complex ownership structures