QUESTION: As a Bulgaria-registered e-commerce business owner selling primarily on Amazon and my own webshop in the USA, can I optimize my tax situation by switching to a US-based entity?
EXPERT’S RESPONSE: As a Bulgaria-registered e-commerce business selling primarily on Amazon and your own webshop in the USA, you’re likely already familiar with filing the W8BEN series during the Amazon sign-up process. This may exempts you from US federal withholding taxes under certain circumstances, as long as your activities on Amazon don’t constitute a US Trade or Business (USTB) generating effectively connected income. This typically means avoiding factors like:
- Physical presence in the US: Owning offices, warehouses, or employing personnel within the US.
- Dependent agents: Relying on individuals or entities within the US to act on your behalf with significant autonomy.
- Exclusive independent agents: Utilizing agents within the US with the sole authority to negotiate or conclude contracts for your business.
- Physical visits to the US: Conducting business activities (negotiating contracts, performing work) during physical visits to the US.
Criteria and Factors Determining USTB: The absence of factors like a physical presence in the U.S., employees or agents on the ground, exclusive independent agents, travel to the U.S. for business purposes, and offices or warehouses for business activities often means non-engagement in a USTB and generally implies that you may not be subject to U.S. federal taxes.
Switching to a U.S.-Based Entity
While switching to a US-based entity can offer potential tax benefits, it’s not a one-size-fits-all solution and requires careful consideration, as different entities have varied tax implications. For instance:
- U.S. Corporation: If the corporate tax rate in the U.S. (currently 21%) offers a more favorable option than your home country’s tax rate, forming a U.S. corporation could be advantageous.
- LLC Options: For those not intending to pay federal tax in the U.S., a single or multiple member LLC might be suitable, provided it operates without USTB triggers like physical presence, employees, or business activities in the U.S.
State Tax Obligations
It’s also critical to consider state taxes. The U.S. has 50 states, each with its own tax filing obligations, including sales tax registration, collection, remittance, state franchise, and income tax, depending on your business activities within each state.
Actionable Steps and Consultation
- Comprehensive Evaluation: To make an informed decision, it’s essential to conduct a thorough assessment of your current and potential tax scenarios under different U.S. entity structures.
- Expert Assistance: At O&G Accounting, we specialize in providing tailored advice and solutions for international tax scenarios like yours. Our expertise in U.S. taxation laws makes us well-equipped to guide you through the complexities of transitioning to a U.S.-based entity and optimizing your tax position. At O&G Accounting, we specialize in international tax matters and have extensive experience assisting foreign businesses operating in the US. We offer comprehensive services, including:
- Tax planning and structuring: Develop tax-efficient strategies for your US business operations.
- Entity formation and registration: Guide you through the process of setting up a US entity.
- State and federal tax compliance: Ensure accurate and timely filing of all required tax returns.
- Representation before tax authorities: Advocate for your interests in case of audits or disputes.
Schedule a Consultation: We invite you to book a consultation with our team. During this session, we will analyze your specific situation, discuss the potential benefits and considerations of various U.S. entities, and develop a strategic plan tailored to your unique needs.