Question: As an individual who has been conducting business on Amazon since 2016 and has obtained an EIN with the assistance of Nevada Corporate Planners, Inc., I have recently realized that I have yet to file my 2018 tax return with the IRS, despite the due date having passed. Given that I believe I do not meet the criteria for being considered (A) a U.S. Person for tax purposes, and (B) having a U.S. Permanent Establishment within the United States, would this exempt me from any tax liabilities on my past sales?
Answer: As a business owner on Amazon, it’s important to be aware of your tax obligations and ensure that you are in compliance with all applicable laws and regulations. In your case, you have realized that you have yet to file your 2018 tax return with the IRS. While you believe that you are not a U.S. person for tax purposes and do not have a U.S. Permanent Establishment, this does not necessarily exempt you from tax liabilities on your past sales.
The determination of whether you are subject to U.S. federal income tax on your Amazon business income depends on several factors, including your tax residency, the source of income, and the tax treaty between the U.S. and your country of residence. If you are considered a non-U.S. person for tax purposes, your U.S. tax liability may be limited or eliminated, but this depends on the specific circumstances and applicable tax treaty provisions.
If you owe taxes and have not paid them, interest and penalties will continue to accrue, therefore, it is crucial to address the issue of your unfiled 2018 tax return as soon as possible.
In order to determine your tax liability as a foreign seller on Amazon, it’s important to understand the concepts of “U.S. Trade or Business” (USTB) and “Effectively Connected Income” (ECI). Under U.S. tax law, a foreign person or corporation that is engaged in trade or business within the U.S. is subject to U.S. federal income tax on its income that is effectively connected with the conduct of a trade or business within the U.S. However, the Internal Revenue Code does not have a straightforward definition of what constitutes a USTB.
A foreign person who is not physically present in the U.S. and merely solicits orders through advertising and sends inventory to the U.S. to fulfill orders is not likely to be engaged in a USTB. However, if the foreign person or corporation has employees or agents physically present in the U.S. for the purpose of advertising, demonstrating, or soliciting orders, they may be deemed to be engaged in a USTB. If a foreign person or corporation is found to be engaged in a USTB, the limited force of attraction rule 864(c)(3) rule sets in to all of their income from sales or services sourced within the U.S. to be subject to U.S taxation.
In some cases, U.S. tax treaties may override the ECI provisions and limit or eliminate a foreign person’s U.S. tax liability if the ECI is not attributable to a permanent establishment located in the United States. To have a permanent establishment, a foreign person or entity must operate in the U.S. through a fixed place of business. However, there are exceptions, such as using facilities solely for storage, display, or delivery of goods, or maintenance of a stock of goods solely for processing by another person.
It’s worth noting that this article applies to foreign sellers doing business on other major e-commerce platforms, such as Walmart, Ebay, Shopify, Etsy, and PayPal. However, if you have ownership in a U.S. partnership or corporation, this article does not apply to you, and you should consult a competent tax advisor for more information.
Additionally, it’s important to be aware of your state tax obligations, as each state in the U.S. has its own tax laws and requirements. You may have a state tax filing obligation, such as sales tax registration, collection, and remittance. You may also have state franchise and state income tax requirements, depending on your level of business activities within a specific state.
In conclusion, as a foreign seller on Amazon, it is crucial to understand the U.S. tax implications and requirements for your specific situation. While it is possible that you may not be subject to federal income tax on your Amazon business income due to your tax residency, the source of income, and the tax treaty between the U.S. and your country of residence, it is essential to seek professional advice to ensure compliance with all relevant tax laws and regulations.
As a dedicated CPA and the sole practitioner in my firm, I am committed to providing personalized and comprehensive tax planning and compliance services to foreign individuals and businesses engaged in e-commerce and other cross-border activities. My expertise and focus on international taxation will help you navigate the complexities of U.S. tax laws, ensuring that you stay compliant and can focus on growing your business.
Don’t let tax issues hinder your success in the global marketplace. Contact me today to schedule a consultation and let me help you minimize your tax liabilities and maximize your financial opportunities.
New Compliance Alert!!: On January 1, 2024, the Financial Crimes Enforcement Network (FinCEN) announced the commencement of beneficial ownership information (BOI) reporting under the Corporate Transparency Act (CTA). This vital step forward ensures greater transparency and aids in the fight against illicit financial activities. Companies established or registered in the U.S. are required to comply with these reporting standards, contributing to a more accountable corporate environment.Learn more and seek guidance here.
