Entrepreneurs who are not residing in the USA, you can sell products to the USA without paying taxes
When it is decided to start an LLC in the USA, taxation is one of the most curious issues. Some of the most frequently asked questions are;
- I started an LLC in the USA. Do I pay taxes?
- I own a LLC in the USA but do not reside in the USA. I sell products to people in the USA. Do I pay taxes?
- I am doing Amazon FBA (Amazon Fulfillment) business and selling products to people in the USA. Will I pay taxes?
- I sell products to US citizens residing in the US with dropshipping. Do I pay tax?
- I own a consulting or digital agency company. I sell digital products and services. Do I pay tax if I sell in the USA?
- I do business in any area of the above items and I sell products to every country in the world except USA. Do I pay tax, bebin LLC or I in USA?
The common answer to all the above questions is “NO“.
I follow the writings and comments of many tax lawyers who have been residing and serving in the USA for a long time. I even talked about this at length with a tax lawyer (taking paid consultancy service) and I am writing the result here as it is. Please read this article carefully.
This article is an excerpt from the blog of a trusted tax lawyer in the USA. Source: https://ustax.bz/
If you do business in any area of the above statuses, if you sell products within the USA or anywhere in the world, you will not pay taxes in the USA. It is enough to fill out a form called 5472 and fax it to the IRS every year, please read this article for details.
But there are some conditions for this and we have a responsibility to make an annual declaration to the US government (IRS) even though we do not pay taxes.
On this page, we will talk about the tax procedures applied in the USA for foreigners or NRAs who are not resident in the USA. If you are not any of the following, then you are NRA.
• American citizen
• Permanent resident or green card holder in the USA
• A person living in the USA for a long time to pass the presence test in the USA
If you are not in any of the above statuses, there are two types of regimen applicable to you. One of them is passive regime and the other is active regime.
What is a Passive Regime?
When you get one of certain types of passive income, for example, interest, dividends, royalty income, real estate income. Such income types fall under the status of passive regime and are subject to a fixed 30% tax bracket. Every individual earning this type of income must pay taxes to the US government, and this is a requirement.
What is an Active Regime?
Active regime is the taxation of the income earned by an active operating business. To summarize, it is a completely different type from the above; it works as follows;
- If a person is engaged in a business residing in the USA and earns income from this trade, they are subject to “ETBUS”.
- You become ETBUS only if the following two elements occur (if these two definitions fit you)
- You will become ETBUS if you have at least one (affiliated with you, your representative or who does your business for you) representative in the USA.
- If you have a branch, office, workplace located in the USA and carry out commercial activities through them, you will become ETBUS.
Now let’s elaborate on the above issue a little more.
What is a Dependent Representative?
Your dependent representative is the person who officially works with you, conducts your business. In fact, we can say that it is the official representative of your business there, if we summarize a little more, it is your insured employee that you hired in the USA.
- One or more individuals who do business for you officially but independently.
- One or several people who officially serve you completely
These are your dependent representatives there. If you do not fall into these categories until now, you are still not affected by both regimes. Lets continue…
What is an Independent Representative?
Your representative in the USA is your resident who does not have any official connection with you. This representative’s every action belongs to him and has nothing to do with your actions. It has its own company, pays its own tax and continues its own activities. Although it indirectly benefits you in your business, it is not officially dependent on you, it is not your employee or partner. Using an independent representative or his services for your own purposes does not imply that you are resident in the USA. If you have carefully read what has been written so far, you must have guessed the end of the article.
The reason why this situation is completely misinterpreted may be …
On taxation, we see that some tax experts rightly interpret the situation differently, and we come across such information a lot. When you do a little research and talk to a tax lawyer who is an expert in this field, you will see that the situation becomes clear.
The tax system in America is evaluated in two different concepts as local resource and foreign resource. Generally, a normal tax expert mentions that if you sell a product to America, you have to pay taxes. In other words, experts adopt the view that a product sold in the USA, a company that is open there should pay taxes to the state.
But tax lawyers do not agree.
A non-US citizen should only declare their income to the US government if that income is “actively linked to a business or business in the United States,” ie ETBUS. If you do not have an affiliate representative, do not have a branch in the USA, if you are not a US citizen, most of all, if you are not an ETBUS, you do not have to pay any taxes to the government.
As soon as I heard about the subject at first, this situation was very interesting to me and when I continued my research, I realized that it was really like this. If the conditions we have written so far do not bind you, you are still not subject to tax.
Personally, as a company that sells digital products in the USA, I am also not taxable and will not be until the laws change. Do not consider the situation as Delaware, Wyoming, etc., as a state-based company formation, with the current law and laws within the United States.
If the parts up to here are not convincing, you are free to research and consult as you wish. My goal is just to share my experiences and to do it right that makes me happy.
On the other hand, the USA has many states and in almost all of these states, companies are constantly established by non-US people. Considering the existing ones, there are a lot of foreign companies in the USA.
In this case, these companies need tax experts and these professionals provide them and services. Since it will be quite natural for tax professionals to prepare a return for a fee and gain from this business, their decisions about being subject to tax are not likely to change much.
After preparing the declaration voluntarily and making the official payment to the state, nobody pays back because this money is too much. So this situation seems to be discussed for a long time.
Anyway, back to the subject, let’s give an example to clarify the subject
An entrepreneur with Amazon Fulfillment (i.e. Amazon FBA)
Let’s think of an entrepreneur who sells products to people in the US, that is to people residing in the USA, by making Amazon Fulfillment. It buys products in bulk and ships them from anywhere in the world to Amazon’s US warehouses.
When products are sold on Amazon from your Amazon account, Amazon employees package the product and send it to a customer’s home in the USA.
In this case, does amazon become your dependent representative? Does Amazon work for you? No. Amazon is a corporate structure in itself and receives payment from its customers and ships your or someone else’s property in its warehouse to the customer.
Based on this example, tax lawyers say;
The entrepreneur is not resident in the USA by making the Amazon Fulfillment service (FBA) and cannot be a dependent representative of the entrepreneur or said merchant at Amazon. The result is not taxable in the USA.
Looking at the explanations and applications, the situation is quite clear. Under these conditions, it is possible to establish a LLC company as a foreigner in the USA and to do remote trade there.
If you rent a warehouse in the USA, hire salaried and insured employees (official representative or representatives affiliated to you), shipping, return, technical service, etc. If your affiliated team managed such processes, you would be subject to tax in the USA. Since this situation points to the “Active Regime” type, one of the above regime types, the subject would be closed to discussion.
If you work with independent representatives or individuals such as Amazon, if you use their services, they are not your official paid employees, they are not dependent on you. That’s why you are not pointing at any type of regime. It may be Amazon or a person or a structure that helps you, you use its service, according to tax lawyers, this issue is very clear and clear.
So if you are operating remotely as an LLC company, will the situation change?
LLC companies with sole ownership and no partners are not considered as full companies in the USA. Sole proprietorships are actually considered as individuals. For this reason, if a company is to be opened in the USA and such a trade is to be done (there is no problem in terms of operating in a partnership structure by paying taxes anyway), establishing a single-partner LLC company is the most logical, low-cost, tax-free solution.
Does getting a dollar payment from a bank in the USA change the situation?
The result does not change. The currency you trade in and the position of the bank in which this money moves are irrelevant. On the banks side, they are only interested in whether you are ETBUS or not.
I am doing E-Commerce in USA and My Website is hosted on a server in USA. What happens?
It does not change again because the server company is not your dependent representative. Not your partner or salaried employee.
When physical products were sold in America, wouldn’t we earn income from the US source?
Yes, when this kind of trade is done, we earn income from the American people, but we still do not have an active regime with ETBUS status. A sole proprietorship LLC company does not subject us to US taxes.
Starting up a LLC company in a sensible state in the USA
Having read everything above and all questions are clear, the smartest thing to do is to set up a sole proprietorship individual LLC company in the USA. The costs that will occur here are already obvious from the very beginning. No surprise. You can start your business by setting up a company in a state with low annual franchise tax ($ 50) from your home through a registerent agent, paying only the annual state tax and submitting an annual tax return (you should read the article on this topic).
Advantages of setting up an American based LLC company
- You can get money from a customer or customers in the USA to your bank account by credit card. You can easily transfer this money to your country.
- If someone sues LLC, the company will shield you.
- A US buyer trusts a seller from the same country more easily. This may give you an advantage if you choose to make the state you set up as the LLC address public.
Whether it is scary or difficult to open a bank account in the USA, there are some banks that support the entrepreneur, and you can easily open an account remotely.
We have come to the end of a long and useful article, I hope it has been useful for you. I wish you good luck.
This article is an excerpt from the blog of a trusted tax lawyer in the USA. Source: https://ustax.bz/