What Is A Domestic Corporation?

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Similar to different organizations, these corporations must follow certain business practices and adhere to domestic regulations. Moreover, such companies may pay fees or duties on imported products. Governments of all nations other than the home country treat these organizations as foreign corporations. Additionally, states in the home country, excluding the state of incorporation, may consider such companies foreign.

Key Takeaways

  • Domestic corporation meaning implies companies that carry out business activities in a country where their incorporators filed articles of incorporation to commence business.The main difference between domestic and foreign corporations is that a company conducting operations in its home country or state is ‘domestic’. In contrast, a company conducting business affairs in a place other than the country or state of establishment is a foreign corporation in that place.Domestic corporation income tax rate varies across different countries.Typically, domestic companies need to pay duties or fees on imported products.

Domestic Corporation Explained

A domestic corporation meaning implies a company that conducts its business-related activities in its country of incorporation or establishment. The taxation of these domestic organizations differs from that of non-domestic or foreign corporations. Domestic companies can conduct business affairs in any country.

Organizations conducting business affairs in a nation different from the country of incorporation are foreign corporations. Moreover, governments can also deem such a company foreign if the latter carries out operations outside its state of establishment. 

Typically, the establishment of a company takes place after the organization’s incorporator files its articles of incorporation with a state agency. Henceforth, the company must adhere to the laws of the state of incorporation even if it does not conduct its operations there. That said, corporations can change which state laws apply to them. The organization’s dissolution must occur in the state of establishment for the organization to become a domestic company in another state. After completing the process, organizations can file their articles of incorporation in another state.

Since domestic company owners can choose where to form a business entity, they must analyze the corporate laws in the different states to find out which state or region is the most suitable place of establishment.

Tax benefits, privacy, the corporate court, and a simple structure are some factors attracting people to incorporate their business in Delaware.

Tax Rate

The domestic corporation tax rate varies from one country to another. For instance, under the current law in the U.S., companies established in the country must pay federal corporate income taxes at a rate of 21% plus state corporate taxes ranging from 0-11.5%. Resultantly, the combined average corporate tax is 25.8%.

Let us consider the Philippines as another example. Between 1997 and 2022, the corporate tax rate in the Philippines averaged 31.31%. However, it fell to an all-time low of 25% in 2022. The table below shows a few more countries’ domestic corporation tax rates.

The table below shows a few more countries’ domestic corporation tax rates.

Examples

Let us look at a few domestic corporation examples to understand the concept better. 

Example #1

The former speaker of the US House of Representatives, Paul Ryan, is optimistic regarding American oil and energy. In October 2022, he helped a domestic corporation named Granite Ridge Resources to launch an initial public offering on the New York Stock Exchange in a special purpose acquisition company or SPAC deal. As a result of this deal, investors can now get exposure to private oil operations in Major American basins, such as the Permian, Eagle Ford, etc.

Paul Ryan expects the investments in the company to promote the production of more fossil fuels sourced from the U.S. That said, energy experts and economists warn oil prices could continue to surge due to global and domestic factors. 

Example #2

Let us say that XYZ International’s incorporator files the articles of incorporation in Texas. Within Texas, this company will be a domestic organization.

Again, suppose the company has its headquarters in Texas, United States, and does business in Italy, Spain, and other countries. It will be considered a foreign corporation in all the nations apart from the country of establishment, i.e., the US.

Domestic Corporation vs Foreign Corporation vs LLC

Knowing the differences between domestic corporations, foreign corporations, and limited liability companies or LLCs is crucial for individuals looking to establish a business. After all, understanding the distinct features helps individuals ensure they have the right structure to meet their business-related requirements. So, let us look at this table that highlights the key differences.

This article has been a guide to What is Domestic Corporation & its meaning. We explain its tax rates, examples, and comparisons with foreign corporations and LLCs. You may also find some useful articles here –

An inverted domestic company is an organization previously established in the US or was a partnership in that country but now has its headquarters in another nation. Alternatively, it might have become a subsidiary of a company with headquarters in a foreign country.

The incorporators of such a company established or organized the entity in the US or under the nation’s laws, any of the states in it, or the District of Columbia.

These are organizations registered under Philippine laws. It is an artificial entity formed by the operation of law. Moreover, they have a juridical personality separate from the organizations linked with it and the stockholders.

The total number of shareholders of these corporations can range from two to fifteen. Each of these shareholders must hold a minimum of one qualifying share of stock. Also, one might have to be a resident of the country. That said, the requirements may vary from one nation to another.

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