Texas Company Compliance and Maintenance Guidelines
After successfully registered in Texas, the Corporation or LLC are required to operate in compliance with the Business Corporation Law/Limited Liability Company Law of the State of Texas. This guideline note intends to provide a summary of those on-going compliance requirements for the interest of our clients.
The first section of the guideline note briefs the basic maintenance and reporting that a Texas company is required to comply with, including franchise tax report, public information report, registered office and registered agent and business license renewal.
The second section describes income tax filing services, including federal income tax filing.
The third section describes the Texas State sales tax filing requirements and tax rate.
The fourth section describes federal and state payroll tax filing and foreign person’s U.S. source income subject to withholding tax filing requirements. All U.S. companies are required to file tax returns on time to comply with tax laws.
The fifth section states the foreign banks and financial accounts reporting. If you have foreign financial accounts, you are required to report accounts to IRS on time.
The sixth section describes financial reporting, including bookkeeping service and the audit service of annual financial report.
The last section summarizes our compliance and maintenance services and costs to maintain a Texas company in good standing. The fees listed are based on estimation and for reference purpose only. The final service fee may be different according to actual circumstances.
This guideline is not meant to cover all the compliance requirements imposed on a company by the Texas and U.S. laws. If any issue of interest is not covered in this guideline, you are welcome to contact and consult our professional accountants.
- Annual Renewal Requirements
(1)
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Franchise Tax Report
All active business entities registered at Texas must file Franchise Tax Report annually with the Comptroller of Public Accounts, even without any tax due. The annual franchise tax report is due May 15. If May 15 falls on a weekend or holiday, the due date will be the next business day.
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(2)
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Public Information Report
All foreign and local business entities registered at Texas are required to file Public Information Report annually. The report includes the most current names and addresses information of all the board directors. Public information report is due May 15.
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(3)
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Registered Office and Registered Agent
Texas law requires that every business entity must have and maintain a Registered Agent in the State of Texas who may be either an individual resident or business entity that is authorized to do business in the State of Texas. The registered agent must have a physical street address in Texas for the purpose of service of notice.
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(4)
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Business License/Permit Renewal
In the situation where a Texas registered company holds a business licence or permit issued by the Federal or State Government because it engages in one or more regulated business, in general, such a licence or permit must be renewed each year.
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- Corporate Income Tax Filing
(1)
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Federal Income Tax Return
According to Internal Revenue Service (IRS), all Texas registered business entities must file an income tax return on or before the following 15 April (corporation) or 15 March (LLC) of the tax year, or 15 October (corporation) or 15 September (LLC) with extension, if the company adopts the calendar year as its accounting year. However, a business entity must still pay its tax due in full no later than the original deadline for filing of its tax return (not extended deadlines). Interest and penalty will be charged for late payment of tax if an extension of time to file is granted.
An LLC is also required to file a federal income tax return each year without paying any income tax because an LLC is by default a pass-through entity unless it chooses to be taxed as a corporation. Should an LLC make such as choice, then it will need to file the Federal Income Tax Return and at the same time pay federal income tax at company level.
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(2)
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Texas State Income Tax Return
Texas state does not impose income taxes on business entities.
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- Sales or Use Tax
Sales or use tax is the tax imposed upon all retail sales, leases and rentals of most goods, as well as taxable services within Texas.
The sales and use tax rate in Texas State consist of the state tax rate (6.25%) and local tax rate (up to 2%) imposed by a city, county, or school district. The combined rates vary in each county and in cities that impose sales/use tax.
- Payroll Tax Filing
(1)
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Federal Payroll Taxes
If business entities have employees and pay wages in U.S., they must report income and payroll taxes withheld from their employees to Internal Revenue Service (IRS) periodically and deposit these taxes in full to an authorized bank or financial institution pursuant to Federal Tax Deposit Requirements. The business entities are also responsible for filing and paying Social and Medicare Taxes (employer share amount) and Federal Unemployment Taxes.
The deposit schedule for the payroll taxes depend upon the amount of business entities?payroll tax liability. Employers may be subject to criminal and civil sanctions for wilfully failing to pay employment taxes.
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(2)
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State Payroll Taxes
If the business entities have employees and pay wages in Texas, they must register as employer with Texas State Workforce Commission. Texas State does not have withholding requirement. But employers must contribute to Unemployment Insurance Tax (UI).
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(3)
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Foreign Person’s U.S. Source Income
According to Internal Revenue Code, the payments that certain foreign persons received from U.S. sources, are subject to tax withholding. And withholding agent or payer must report the amount withheld to IRS, if any. The sources include dividends, interest, rents, annuities, etc. Kaizen can help you prepare Form 1042, 1042-S, W-8BEN or other forms required by government agencies.
- If foreign persons received U.S source income, they are required to submit Form W-8BEN to the withholding agent or payer for tax withholding purpose;
- Form 1042 is used to report the tax withheld on U.S. source income of foreign persons;
- Form 1042-S is the statement of U.S. source income and amount withheld of foreign persons.
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- Foreign Banks and Financial Accounts Reporting
If your Texas company owns, or has any interest in, any foreign financial accounts, Foreign financial accounts include, but are not limited to; checking, savings, securities, brokerage, deposit, or any other account held with a financial institution. Foreign financial accounts also include annuities with a cash out value, mutual funds, or whole-life insurance policies.
You must assess the balances each year to determine if your Texas company is required to file an FBAR form (FinCEN Form 114) or FATCA Form 8938.
(1)
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FBAR Form
The FBAR form is required to be filed each year if the total balance of foreign financial accounts owned by your Texas company exceeds USD10,000 during the year. The Foreign Bank Account Report (FBAR, FinCEN Form 114) will need to be filed with the Department of Treasury on or before 15 April following the calendar year you are reporting.
Anyone who are obligated to file the report but failed to do so may be subject to a fine of USD10,000 per violation. If it is determined that you purposely avoided filing, the fine can be USD100,000 or 50% of the balance of the account at the time of the violation, whichever is greater.
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(2)
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FATCA Form 8938
The FATCA Form 8938 is required to be filed each year if the total value of foreign financial assets owned by your Texas company exceeds USD50,000 during the tax year. It will need to be attached to your annual return and due on the date of that return, including any applicable extensions.
Anyone who are obligated to file the form but failed to do so may be subject to a fine of USD10,000 per violation and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply.
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- Financial Reporting
(1)
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Financial Reports
Texas is one of the few states that does not statutorily require the keeping of books and records. This is an example of the pro-business climate that inspires many entities to choose Texas as their formation state. However, it should be noted that Texas companies may still have other reporting requirements, such as filing of Federal Income Tax Return and this could not be done without properly kept accounting records and financial statements. In this regard, we suggest that you should keep all your accounting records and update the books of accounts on a regular basis.
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(2)
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Audit of Annual Financial Reports
In Texas, all entities, both corporations and LLCs, other those than listed in a stock exchange, are not required to appoint an auditor, and is also not required to arrange to have their annual financial statements audited. Public companies are required to submit the audit reports to the U.S. Securities and Exchange Commission annually per the list rules of the relevant stock exchange. It should be noted however, private companies may also want to have their financial reports audited annually or periodically for some other reasons, such as submitting the audited financial report to lending party or to investors.
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- Texas Company Annual Maintenance Costs
As discussed above, all active Texas Corporations and LLCs are required to operate in compliance with the Texas business laws. They may also need to apply for license and permits with the State Department according to industry specific requirements. Kaizen U.S. office is a professional CPA firm, offers complete compliance services and business support, such as bookkeeping, financial statement audit, filing tax return, making payroll, etc. Some of our Texas company related services and fees are listed below for your reference.
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Item
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Description
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Service Fees (USD)
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1
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Annual renewal including registered agent, registered office and franchise tax report fling fees (excluding any tax due) (Note 1)
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Yearly
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900
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2
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Business license/permits renewal (Note 2)
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Yearly
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TBD
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3
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Federal business income tax return filing (Note 3)
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Each
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800/up
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4
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Sale or use tax filing (Note 4)
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Each
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150/up
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5
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Payroll tax filing and relevant services (Note 5)
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TBA
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TBA
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6
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Foreign banks and financial accounts filing (FBAR) (Note 6)
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Yearly
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TBD
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7
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Financial statements and special audit (Note 7)
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Yearly
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2,000/up
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8
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Accounting and bookkeeping (Note 8)
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Monthly
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300/up
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Note:
(1)
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Our service fee for the annual includes provision of registered office, registered agent and franchise tax report filing, but not including business license renewal service or franchise tax due amount. |
(2)
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This is the official filing fee for renewal of business licence when your company holds one for reason of carrying out business in Texas. Kaizen does not charge service fee for handling the renewal of business license/permits for your Texas company. The final amount depends on the number of locations of business operation your company may have in Texas. |
(3)
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Our service fee for preparation and filing of the Federal Corporate Income Tax Return depends on business model and complexity and transactions of financial statements of your Texas company. Once we have the opportunity to review the books of accounts of your Texas company, we will then prepare and provide an accurate quotation for your consideration. |
(4)
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Kaizen service fee for quarterly sales/use tax filing is USD 150. If you need to file monthly return, our service fee is USD 120. |
(5)
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Our fee for payroll tax filing and relevant services is charged based on numbers of employees and frequency of salary payments.
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(6)
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Our fee for handling of filing of FBAR depends on the number and type of financial accounts to be reported. If no more than three accounts, the filing fee is USD 200. For each additional account, we charge USD50. |
(7)
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Our service fee for audit of annual financial statements is determined taking into consideration the business model of company, the complexity of the financial positions and the types and amounts of assets etc. Once we have the opportunity to review the books of accounts and financial statements of your company, we will then prepare and provide an accurate quotation for your consideration. In addition to audit of financial statements, we can also provide special audit and review services. |
(8)
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Our service fee for accounting and bookkeeping is determined taking into consideration the number of transactions. Other than updating books of accounts on a monthly basis, we can also update the books of accounts of your Texas company on a quarter or annual basis. We can also prepare financial statements in a language other than English.
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See also:
Texas Corporation Registration
Texas LLC Registration
Texas Corporation Dissolution
Texas LLC Dissolution
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