Comparing EU and US Tax Rates : The Best States for Company Formation

Currently, at 19.99%, Europe has the lowest average statutory corporate tax rate among all the regions in the world. When weighted by GDP, this goes up to 24.61%, also the lowest.

However, some countries of the EU have higher than the world average rate (France, Portugal, and Germany), and countries like Ireland, Cyprus, Hungary, and Bulgaria are the ones keeping the EU average lower than that of other continents.

Over here in Europe, states like the aforementioned may well act as a spanner in the works of the G8 – because at least 5 European states may veto corporate tax fixing in Europe, where in theory, all it takes is one of them to step forward and veto the move.

Cyprus is in a peculiar position given that it needs bigger EU states to vouch for it’s security, but Hungary, Malta, Romania and Bulgaria may be more bold in this regard.

Currently, federal corporate taxes in the US are levied at 21%. Add to this state corporate taxation of between zero and 11.5%, the combined average top tax rate reaches 25.8%, slightly higher than the EU. Of course, all this stands to change if President Biden’s plans to increase the federal corporate tax rate to 28% are implemented.

Best States for Incorporating Your Business

Deciding on the best state for your LLC formation entails the consideration of several factors. These include state taxes, the available labor force, business regulations, and permits and licensing requirements.

Lower taxes

Wyoming does not impose a corporate or individual income tax, making it one of the best states in the US for business formation. The state’s sales and unemployment taxes are just 4%, and the average property tax rate is at 0.61%.

Other states with zero corporate tax are South Dakota and Nevada. Meanwhile, other states with favorable taxation include Alaska, Indiana, Oregon, Utah, New Hampshire, Montana, and Florida.

Business-friendly states

Some states are so business-friendly that they help businesses to protect their hard-earned assets. Wyoming, Nevada, and Delaware (home to more than 60% of Fortune 500 companies) offer more than just tax benefits to businesses incorporating there.

It’s always best to live in the same state that you form your business in. However, in the three states above, business owners can live or be headquartered in another state while operating their businesses here. This is because these states include excellent incorporation services, knowledgeable courts, and enhanced privacy.

Ease of LLC formation

Choosing the right business structure is one of the most important steps for meeting the needs and goals of any business. The ideal business structure for a small business in the US is an LLC or Limited Liability Company.

This business structure offers two great advantages for the business owner, personal asset protection and pass-through taxation. Moreover, an LLC is an affordable and simple business structure to maintain.

LLC formation in the US is very easy, requiring just a few simple steps, depending on the state.

Steps required

Besides selecting the best state to start an LLC, several other steps are required when filing for an LLC formation in all states, with just some small differences.

Naming the LLC is the first important step since no other business in the state has the same name registered. New business owners can check this by completing an LLC name search in their chosen state. A name error is the most common reason for the rejection of LLC formation requests; therefore, the LLC designation is as important as the name. In some states there are restricted words and a name must never mislead consumers into thinking the business is a government agency.

Assigning a registered agent is another important step for business owners in all states. Their role is far greater than just receiving the business correspondence, since they offer other valuable business services.

Filing the formation document of the business is required by all states. This is usually called the Articles of Organization but is also called the Certificate of Formation. This document includes all the important information about the business, including the owners, members, and whether it is member-managed or manager-managed. In some states, newspaper publication notices are needed before forming an LLC.

The LLC Operating Agreement is the legal document that defines the ownership structure, roles, and duties of the members. Even in states that don’t require an Operating Agreement, this is a valuable document that prevents misunderstandings and offers credibility for the business.

Employer Identification Number (EIN) is essential for hiring employees and is the tax identification number of every business.

Final Word

In the US, starting a business is not a difficult process, no matter which state is chosen for the LLC formation of a startup. Self-proprietors of existing businesses can also opt to form an LLC to protect their assets, and business LLCs can also move to another state with ease.

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