I have spoken with hundreds of international e-commerce businesses over the past eight years who are looking to expand to the US. The rules have and will continue to change in the US, but the conversations and questions have been pretty consistent. I wanted to create a short list of common questions with answers and resources for assisting with US e-commerce expansion considerations.
Do I need to pay taxes in the US?
The answers to many of these questions are, of course, that it depends on your specific goals and use case. However, in most cases if you plan to do a significant amount of sales in the US, you will have some level of tax risk. If you plan to store inventory, to employ people or have an office here, or to spend a significant amount of time physically present here you will definitely have US tax and compliance requirements.
A common misunderstanding given recent changes in US nexus and sales tax rules is that if you don’t have physical presence here then you won’t have US tax requirements. This is actually incorrect. Every state here legislates their own tax laws, and the states now use the new concept of economic (vs physical) nexus as a way to hold out of state and out of the country sellers responsible for sales tax and other tax compliance purely based on sales volumes. Thus, without having a physical presence of any kind, you can still be creating multi-state nexus here.
Now, there are all kinds of considerations here, such as Amazon being pressured to be a marketplace facilitator to try to take some of the heat off their sellers. However, the idea of economic nexus and reporting happening for your sales creates new risk management considerations of expanding to do business here.
Economic nexus and state by state rules also dictate state income tax requirements, and while the US and IRS may have a tax treaty with your foreign country the individual states do not. So it is likely you will generate income tax (or at least income tax filing requirements) on the federal and state level. There are also various indirect taxes such as franchise tax, annual reports, registered agent fees, 1099s, and even city level taxes.
Also, if you don’t have a US company, but do have a US EIN for your foreign company, then it is very likely that you have an Annual 1120-F Income Filing requirement. I find many international sellers are not aware of this requirement
Do I need to open a US company?
The short answer is ‘probably’.
If you plan on growing and being successful here you should open up a US company to avoid bottlenecks later. Without a US company it makes it harder to stay compliant here, it creates additional risk for your foreign company, and it will limit your ability to grow here.
We have had some clients where we helped them form their US company from the start. Other companies come to us later when they have a US tax, vendor, or customer issue that needs to be resolved ASAP.
For example, a business might expand here, apply for an EIN for their foreign company without a US legal entity formed, couldn’t open a bank account, and weren’t quite doing B2B wholesale here or hiring anyone here to start. Then they triggered economic nexus and they need to employ someone, but couldn’t pay their tax or US employee because they couldn’t get a US bank account and couldn’t formally employ the person without a US company. Also, that same company is now ready to do B2B trade with Nordstroms or other larger retailers here, but can’t because the large litigious retailers will only do business with a US entity. Now the business owner must disrupt their business and reboot their US sales branch to have a US company which takes 4-8 weeks, vs just being ready to take advantage of these opportunities right away. A big part of this is a business risk vs a tax risk, and are two use cases we’ve seen time and time again that we resolve as quickly as possible for new international clients with our US consulting and formation team.
If you plan on having a significant presence here and making it one of your key growth markets, you should form a company from the beginning for the greatest growth potential and the least amount of risk.
Do I need to open a US bank account?
Yes, a bank account is key for paying US taxes, and then a cross border payment tool, such as Veem, will help you eliminate exorbitant foreign exchange and wire fees.
Borderless or virtual bank accounts are typically only a temporary solution given you can neither write checks to government bodies from these types of ‘bank accounts’, nor hook up these accounts with routing and account numbers for electronic sales tax and other payments to government and vendor websites.
If you’re going to grow here, you’re going to have sales and other state taxes, and to pay those taxes it’s best you have a US bank account. In order to get a ‘real US bank account’ you need a US company vs just a US EIN for your foreign company.
What else should I know about selling into the US?
One thing I always like to point out to foreign businesses expanding here, is that while we are the United States, the states are actually fairly disjointed. Also, between all the federal, international, and state reporting, it is common for an average international sellers income tax return to be 30-100+ pages long, vs an Australian tax return that is only a few pages and fields.
It is complex and expensive to do business in the US. However, Aprio Cloud has spent years tailoring our solutions to meet the advisory, infrastructure, and compliance needs of international sellers looking to expand to the US.
Our staff are spread across 20+ states and 5 countries, so we know what it takes to run a distributed global business. We also are powered by Aprio, a Top 50 US CPA Led Advisory Firm, and a network of 160+ other foreign accounting firms and 50+ software partnerships to provide a comprehensive yet flexible solution to businesses large and small. You can visit the Aprio Cloud Technology Marketplace to see more of our recommended technology solutions, in addition to Veem mentioned above.
Aprio Cloud has a one-time, low cost, fixed fee, consulting package to provide the right answers and guidance for each business’s specific use case. From there we can provide everything you’ll need from formations and bank account opening, to outsourced accounting and reporting, to filing all your taxes, and a solution for practically any financial, back office, and compliance need you’ll have here in the US.
Please get in touch if you’d like to discuss getting started with our international tax, e-commerce, and other experts.