As the rise of Amazon Sellers continues to increase, so does the trend of multiple marketplace selling. This leads to us wondering, why limit yourself to one country when there is a whole world of opportunity out there?
However, it is wise to remember that the opportunity of selling in new territories brings complexities and challenges, even if you do outsource the fulfilment to Amazon. This is emphasised by the USA being the largest marketplace for Amazon, with more than 11 x the annual revenue of Amazon UK (US – Amazon Revenue (2015): $107.01 billion & UK – Amazon Revenue (2015) $9.03 billion) due to this, we would always recommend that you get professional advice.
HPC are a cloud accounting, tax, human resources and technology service focusing on advising and managing international businesses on their move to the USA. In this article, HPC will answer the most important queries for Amazon Sellers looking to set up in the USA. – Jess Withington, BlueHub.
At HPC, we frequently receive the same types of questions from customers on what is the best way to expand their business into the USA. In this post, we want to cover some of the most common questions that we get asked and the best answers. We are certain the insight provided here will help make your expansion and ongoing compliance requirements easier.
Do I Need to Register a US Company to Sell on Amazon?
This is one of the most common questions we hear, and the answer is: not necessarily. However, if you want to be fully compliant and avoid bottlenecks that could prevent you from growing you should consider forming a US entity. Another benefit to forming a separate US legal entity is that it can limit your foreign company’s exposure to the IRS and potential lawsuits.
What is the deal with nexus?
Nexus is a complex topic and answers, advice, and decisions can vary (based on what?). When you sell through Amazon, Amazon creates nexus (aka a tax footprint) in states where it decides to store and fulfil your inventory. When this tax footprint is established, nexus triggers the need for registrations and various state-by-state filing requirements you must fulfil to be compliant with each state’s tax requirements.
The good news, while you’re just starting to sell on Amazon in the US, is that economic nexus and income tax requirements are generally at much higher thresholds than sales tax nexus rules and requirements, and sales taxes should be a pass-through tax collected at the point of sale and remitted to the state. This means sales tax does not ‘come out your pocket’ so long as you are properly collecting it.
Where should I register my company?
Keep in mind that in the USA, where to form your company and what states it needs to be registered in are two very different things. You might have formed a Delaware LLC or C Corp that needs to be registered in 1-20+ states given your nexus.
You get to choose where your US company is formed, but do not get to choose what states you register in. It is important that you closely monitor nexus and where from Amazon fulfils your products. This is because state registrations take time (how much time?) before you can receive any necessary state tax ID numbers to log sales tax filings. Also, collecting sales tax from your customers after the point of sale is nearly impossible and late filings have penalties associated with them. Registering correctly will save you a considerable headache and money!
What taxes will I need to pay?
The amount of taxes due, where they are due, and when they are due will vary significantly.
Foreign companies that sell via Amazon FBA in the US and don’t have a US entity often need to file what is called an 1120F. The 1120F is the equivalent of an annual income tax filing for a domestic company in the US, and requires the foreign company disclose a lot of information to the IRS about the foreign sales and activities that would otherwise not be reported.
Domestic Amazon FBA businesses may have franchise taxes and annual reports due to different states for as little as a few hundred dollars each year. Income taxes are due annually, but in many cases, fiscal year elections can be made to align your US tax year end with your foreign tax year end. Income tax returns are accompanied by foreign informational forms, such as Form 5472, Form 5471, and/or the FBAR — all of which disclose information about foreign owners and activity and have very steep non-filing penalties, starting at $10,000. Sales taxes will need to be paid and filed on a sliding schedule based on your volume and by state.
Local cities also have tax in some cases, and many states require that sales taxes are broken out into individual cities or counties. The cities, states, and IRS reserve the right to change these rules at any time, too.
Do I need a transfer pricing agreement?
Many of our clients’ foreign country requires a transfer pricing agreement to satisfy their foreign compliance requirements. In the US, we don’t require one per se, but it is a good idea in the event of an audit. Most importantly, if there are going to be any intercompany transactions for things like inventory, IP, repatriation of money, and management fees, these transactions are managed appropriately and applied on a consistent basis.
Our solution to our customers includes reviewing and helping reinforce a transfer pricing agreement with the proper reconciliation of inter-company transactions along with providing easier ways to complete inter-company bank transfers.
How should sales taxes be managed?
By an expert…
Sales taxes, as mentioned earlier, are not static but can be very dynamic… Ultimately, you want to make sure you are monitoring state sales and fulfilment activity. This includes not only registering in new states on a timely basis but also changing your Amazon Seller Central settings to begin automatically calculating and collecting the sales taxes from customers, based off their contact information they will provide at the point of sale.
Sellers need to realise that collecting sales taxes and paying and filing it are two very separate things. While automated tools exist for parts of the job, they don’t typically come with the advice and oversight required to properly manage your sales taxes, nor will they complete the state registration work for you.
What if I want to branch off Amazon?
Why wouldn’t you want to branch off Amazon? More marketplaces mean more sales, but sometimes it is easier to initially test the market with Amazon. Expanding to another sales channel can also mean expanding to a new third-party fulfilment warehouse. This can have 3 unintended consequences:
1. This can affect your nexus and overall tax filing requirements
2. This also can create challenges for properly accounting for sales and COGS
3. This can also increase the level of reporting that may be required for compliance or making important business or production decisions.
- This can affect your nexus and overall tax filing requirements
- This also can create challenges for properly accounting for sales and COGS
- This can also increase the level of reporting that may be required for compliance or making important business or production decisions.
What is the difference between a registered agent and having a US address?
A registered agent is a requirement to keep your business in good standing in the state(s) and will require an annual fee. However, this registered agent address is not the same as a US address and is not suitable for advertising on your website or receiving vendor or customer mail.
How can I get a US address?
Many of the Amazon businesses from abroad will not have a US employee or any people working here. However, they still need to receive mail though and will find themselves needing a physical address. HPC has many vetted partners we trust in helping with obtaining a US address, virtual mailing services, and check depositing, such as Earth Class Mail.
What is an ideal system for managing my US back office and reporting?
There really is no ideal system and there are multiple ways you can manage your accounting and reporting. However, we strongly recommend that you at least check out the Xero accounting platform. Xero is cloud-based, syncs well with other tools to allow for further automation and less manual work, Xero also deals well with multi-currency.
A typical baseline technology stack for a business that will primarily sell on Amazon is:
- Xero for the accounting and reporting
- A2X for pushing the important data from Amazon to Xero
- Veem for seamless bill pay and low-cost international transfers that most companies experience
- There are also many 3rd party cloud-based inventory systems, such as DEAR Inventory, for companies that have more advanced needs for inventory management
Let HPC Be Your Solution
We have worked with and talked to well over a hundred businesses in this situation and have developed a proven solution we custom fit to each customer.
All of our clients get a team consisting of dedicated tax experts, e-commerce and tech-savvy accountants and advisors, with all the software and best practices. We can discuss and complete all company formation and registration requirements, then design and train on your back-office systems for a flat one-time fee. We will also assist with managing all ongoing accounting, reporting, software, and tax compliance for one fixed monthly fee.
With HPC, we help you expand your business and stay compliant while becoming a trusted, long-term partner. We will collaborate with your existing accountants and advisors and open our large network of strategic partners such as legal and immigration advice, inventory management solutions and consultants, and like-minded accounting firms we’ve partnered with across the globe.