In today’s global economy, business owners from various countries can efficiently sell products on platforms like Amazon, even if they are based outside the U.S. This article outlines a consultation between a foreign business owner, Felipe from Argentina, and Alex Oware, a CPA, who provides expert advice on U.S. tax compliance for foreign owners of LLCs.
Introduction: The Scenario
Felipe, an experienced businessman from Argentina, plans to expand his business by selling goat skin on Amazon’s U.S. marketplace. To facilitate this, he’s considering forming a U.S. single-member LLC. Felipe’s key concerns include setting up the LLC, managing taxes, and handling the logistics of selling and shipping his products through Amazon.
Key Concepts: Selling on Amazon as a Foreign Business Owner
Felipe’s primary goal is to simplify transactions by receiving payments in U.S. dollars, thereby avoiding the unfavorable exchange rates he would face in Argentina. While forming a U.S. LLC is not strictly necessary for selling on Amazon, it offers several advantages, especially given Felipe’s situation:
- Bank Account: By forming a U.S. LLC, Felipe can open a U.S. dollar bank account, making it easier to handle earnings without converting them to Argentine pesos.
- Amazon Fulfillment: Felipe plans to ship goat skin directly to Amazon’s fulfillment centers, where Amazon will manage the logistics and sales.
Step-by-Step Guide to Setting Up a U.S. LLC
1. Do You Need a U.S. LLC?
Alex explains that while it’s possible to sell on Amazon without forming a U.S. LLC, Felipe’s desire to manage his finances in U.S. dollars and avoid complications with the Argentine banking system makes forming a U.S. LLC a good option. This also provides access to U.S. virtual banking services, such as Mercury.
2. Choosing the Right State
Alex recommends forming an LLC in Wyoming or Colorado due to lower annual renewal costs. While Delaware is a popular choice, it charges higher fees ($300 annually), making Wyoming ($60) or Colorado ($25) more cost-effective for small foreign-owned LLCs.
3. Tax Considerations
- Federal Taxes: Felipe’s business would not pay U.S. federal taxes on profits since the product is manufactured and shipped from Argentina. Moreover, Felipe will not have any physical presence or conduct business activities in the U.S. He won’t maintain warehouses, offices, or a fixed base in the U.S., nor will he have dependent agents, employees, or exclusive independent contractors in the country. Under U.S. tax laws, income generated by a foreign person – from products that are produced and sold from outside the U.S. is classified as foreign-sourced income and is not subject to U.S. federal taxes.
- State Taxes: Felipe must consider state-specific tax obligations. Each U.S. state has different tax rules, especially regarding sales tax nexus. Felipe would need to address sales tax if his sales exceed certain thresholds, typically 200 transactions or $100,000 in revenue in most states.
How to Handle Sales Tax with Amazon
One of Felipe’s concerns is managing sales taxes. Alex clarifies that Amazon collects sales tax from buyers and remits it directly to the relevant states, relieving Felipe of the responsibility for sales tax management if he exclusively sells through Amazon. However, should Felipe expand to other platforms like Shopify or his own e-commerce platform, he would need to track and manage state-specific sales taxes himself.
Forms and Filings: Ensuring Compliance
Felipe will need to file specific forms annually to stay compliant:
- Pro Forma 1120 and Form 5472: These forms are essential for reporting related-party transactions between Felipe and his U.S. LLC. These are not tax returns but information returns that the IRS requires to track foreign owners or related parties investments and distributions.
- State Renewal and Registered Agent: Felipe must renew his LLC annually in the state where it is registered and maintain a registered agent to receive legal documents in the U.S.
Additional Considerations: Importing Goods into the U.S.
As Felipe expands to larger shipments, he will need to consider the various methods available for importing goat skin into the U.S. These include:
- Air Freight: This is a quick method for shipping goods, ideal for high-value or time-sensitive shipments. Goods can be delivered to major U.S. airports, including those in Miami, Los Angeles, New York, and Chicago.
- Sea Freight: More cost-effective for larger or bulk shipments, sea freight involves shipping goods in containers, which can arrive at major ports like the Port of Los Angeles, the Port of New York and New Jersey, or the Port of Miami.
- Land Freight: If goods are being shipped from neighboring countries like Canada or Mexico, land freight via truck or rail is an efficient option. Major land ports of entry include Laredo, Texas, and Detroit, Michigan.
- Courier Services: For smaller shipments, international courier services like DHL, FedEx, or UPS can deliver goods directly to Amazon’s fulfillment centers or other U.S. destinations.
The Role of 3PL Providers and Customs Brokers
When it comes to customs clearance, Felipe has the option to hire a customs broker or a third-party logistics (3PL) provider:
- Customs Brokers: They specialize in handling the documentation and regulatory compliance necessary for clearing goods through U.S. Customs.
- 3PL Providers: These providers can also manage customs clearance, depending on the services offered and the specific agreement in place. A 3PL provider typically handles documentation, ensures compliance with customs regulations, and facilitates communication with customs authorities. They may also offer additional services like duty drawback programs, customs consulting, and compliance audits.
Solutions and Key Takeaways
Here’s a summary of the solutions provided to Felipe based on his business needs:
- Form a U.S. LLC in Wyoming or Colorado to minimize annual renewal costs and streamline financial management in U.S. dollars.
- Open a U.S. bank account through services like Mercury or Payoneer to handle transactions in U.S. dollars, avoiding currency exchange issues.
- Rely on Amazon to manage sales tax collection from U.S. customers.
- Understand that there are no federal tax obligations since Felipe’s business activities are entirely conducted outside the U.S., with no physical presence or business operations within the country.
- Ensure compliance by filing Pro Forma 1120 and Form 5472 annually, renewing the LLC with the state, and maintaining a registered agent.
- Choose the appropriate method for importing goods into the U.S., such as air freight, sea freight, land freight, or courier services, and consider the benefits of hiring a customs broker or a 3PL provider.
Forming a U.S. single-member LLC can be a strategic move for foreign business owners like Felipe, who seek to simplify financial transactions and effectively sell on platforms like Amazon. By following the guidelines outlined in this article, foreign entrepreneurs can navigate the complexities of U.S. tax laws, logistics, and banking regulations while maximizing their business potential.
If you’re a foreign entrepreneur looking to set up a U.S. LLC, manage your taxes, or expand your business into the U.S. market, schedule a consultation with O&G Tax and Accounting Services. Our experienced team will ensure that you stay compliant with U.S. regulations while maximizing your profits. Book a Consultation Here.
At O&G, we also ensure that your foreign-owned LLC complies with the Corporate Transparency Act (CTA), which mandates U.S. entities to report beneficial ownership information. Stay ahead of the regulatory curve with our CTA Filing Assistance—contact us today for a seamless filing process.
