Corporate Tax Residency
Common law jurisdictions, such as the United States and its First State Delaware, follow the principle that the place of incorporation of a company leads to its corporate tax residency. In an international and virtual market place, management and control of a company may be elsewhere. This results in a potential conflict of laws between the preference of the registration and incorporation in common law jurisdictions, and the center of the corporate activities that applies to countries that adopted the civil law as their legal system.
International businesses and their management constantly seek for the best location to grow, professionalize, maintain and stabilize their organization. To do so they must consider issues like regulation, administration, legal system, and taxation. Forum shopping is for small and medium sized enterprises possible to a certain extent. They however find it often difficult to relocate the center of their corporate activities to a different country. As such, they need to design their international organization carefully and professionally, so the company complies with distinct rules in several countries.
To maintain an equal playing field that supports regulatory competition between jurisdictions, international recommendations, codes of conduct and measures are formulated. These guidelines support transparency and equality and aim to restrict unfair practices. Consequently, corporate tax residency does not forbit the use of offshore financial centers but merely limits abuse.
From the perspective of corporate tax residency, the incorporation of a Delaware company must be seen as a crucial first step. Yet, it does not end there. To further local substance and presence, several activities must take place in Delaware. Such activities may include the provision of nominee services, local administrative tasks, the organization and physical location of the required annual meetings, and virtual services like telecom and marketing.
The objective for beneficiaries of Delaware companies who wish to benefit from corporate tax residency in the state is to leave no uncertainty over the place of effective management of the company. From this perspective it is recommended to relocate as much activities as possible to Delaware.
Delaware Corporate Tax Residency
Global taxation is complex. The distinct characters of personal income tax and corporate income tax is important when choices for incorporation are made. Ownership of a foreign company, even when this ownership is shielded by individual or corporate nominees and protected under a trust agreement, must often be declared to the tax authorities in the country of personal residence. Where countries impose a levy on world wide income, the foreign profits and benefits of the corporation may be charged locally.
Location independent entrepreneurs, small business owners, international consultants and other professionals can contact us by completing the contact form below. Depending on the personal situation of the beneficiary and the proposed corporate activities, a tailor made approach leads to the design of a stable and professional organization. For more information, contact us today.