Lots of entrepreneurs around the world, just like you, are excited to explore the business possibilities in the US. Especially if you are up to setting up a Limited Liability Company (LLC) for your brand and getting some cool perks like e-commerce taxation for foreign-owned US LLC as low as 0 (zero) %.
Many people have their eyes fully focused on eCommerce, and whether you’re just starting to plan your business or are ready to establish your presence in the US, knowing and following US tax rules is crucial.
* Before we get into all the important stuff for your remote company, make sure you check out the benefits of starting a US LLC as a non-resident. You won’t regret it. It’s a promise.
What is a foreign-owned US LLC?
A non-resident US LLC is a unique entity structure tailored for entrepreneurs who are not US citizens and do not live within the United States but wish to establish a business presence in the country.
Let’s look at some real-life scenarios from our business owners community:
- A group of friends running a successful dropshipping business from the exciting city of Dubai.
- A person from Germany running an Amazon store, easily selling products to the US market.
- People from Macedonia and Romania are taking advantage of worldwide platforms like Amazon and Shopify.
What brings all these different situations together is the ownership setup – a non-US business owner living outside the States, and running a company within its borders.
No matter if it’s a dropshipping business, an Amazon shop, or a Shopify online store, one thing is clear: the ownership and residency are both from outside the US.
If you want to explore more on this topic, read more on how to start running your LLC from anywhere.
Types of taxes for the US LLCs:
When it comes to e-commerce taxation for foreign-owned US LLC, understanding the landscape involves familiarizing oneself with two primary categories of taxes: income taxes and sales taxes.
Income Taxes:
Okay, so US LLCs are a bit different than normal businesses. They don’t pay taxes on their own, but the owners or members of the LLC do. Basically, the money the LLC earns goes to the owners and they handle the tax stuff on their tax forms. Cool, right?
Hear this (it just gets better) – sometimes, owners of Foreign-Owned US LLCs don’t have to pay taxes at all.
How, you might ask? By meeting three important things:
- No Employees in the US: If the LLC doesn’t have any employees in the US, it can lower its taxes. This means everything is done outside the US, like running things and having workers.
- No Premises in the US: Basically, if the LLC doesn’t have any actual places in the US, like offices or warehouses, it could get some tax perks. Just by doing business from outside the country, the LLC can lower its taxes.
- Not Become a US Tax Resident: One thing you really gotta do is make sure you don’t become a US tax resident if you own an LLC. That means not spending too much time in the country or having big connections here.
Just mark all three as checked and foreign LLC owners can set up their businesses to save on US taxes.
We created the Neubase packages to make things easier for you. Check them out.
Sales Taxes:
Sales tax is the US version of VAT. It’s a tax you pay when you buy stuff. When you make a certain amount of money or sell a certain number of things in a state, you gotta add a little bit of sales tax to your price for customers in that state. Then you just gotta give that money to the IRS.
A few quick facts about sales tax:
- Most foreign-owned US LLCs do not pay the sales tax because few businesses exceed the thresholds in the number of transactions or revenue
- Each state sets its own thresholds and tax rates
- Also, each state decides what income is subject to the thresholds (somewhere the income from freelance services will not be calculated in your total income when determining whether this tax should be paid, and in some states, Amazon sales won’t count)
- If you have to charge sales tax in one state, you only have to charge it to consumers in that state (for example, if you exceed the thresholds in Florida, you only have to charge sales tax to buyers in Florida, not those in New York or California)
- Thresholds range from $100,000 to $500,000 in revenue per year, or from 100 to 200 transactions per year – all in just one state (you can see all the thresholds at this link)
- Tax rates usually range from 4-6%. Some countries have a rate of 0%, and nowhere is a charge more than 11.5%
- Once you start collecting sales tax in a specific state, you can never go back.
Your business has to be good to have to pay sales tax.
To get a better idea of how it works, have a look at these examples:
Example 1: You provide marketing services through your LLC registered in Wyoming. You have clients in San Francisco, Chicago, and Stockholm. In one calendar year, you have earned the following income:
- $42,000 from San Francisco client (minimum $500,000 income threshold, excluding service income)
- $12,000 with Chicago client (minimum $100,000 revenue threshold
- $4,000 with the Stockholm customer (transactions with European customers are subject to VAT, but the threshold is not exceeded here)
Considering that you have not exceeded any threshold, next year, you do not charge sales tax anywhere.
Example 2: You provide programming services while also running several e-commerce stores. Your income is as follows:
- $120,000 in sales in Illinois, of which $70,000 is from e-commerce (from 2000 transactions), and $50,000 is from services. Of the e-commerce revenue, $53,000 (about 1700 transactions) is from its own Shopify stores, and the rest is from Amazon.
- $17,000 in e-commerce revenue in California
The threshold in California is $500,000 and you are not over it.
The threshold in Illinois is $100,000 in revenue or at least 200 transactions. In addition, services and products sold through online marketplaces such as Amazon and Etsy are exempt. Hence, only $53,000 made over 1700 transactions is subject to the sales tax threshold.
Under Illinois rules, the threshold is exceeded if you have at least $100,000 in sales or at least 200 transactions. You don’t have that much in sales, but you do in transactions. Therefore, during the next calendar year, you will add a sales tax of 6.25% to your price for consumers from Illinois (only there, not in other states).
If you sell a product for $100, the invoice will say that $100 is the price, and $6.25 in tax is charged on that.
Example 3: You have an e-commerce business and you sell all over United States of America. Your income is as follows:
- $42,000 in California income
- 2,000 income in Minnesota
- $7,000 in income in Michigan
- $18,000 income in New York
- $22,000 in income in Texas
You have not exceeded the thresholds in any federal state, so you do not charge any sales tax whatsoever.
Conclusion
Making an LLC is a good idea if you’re not from the US and want to get into the growing US eCommerce scene.
It’s got perks like easy management, limited risk, and good taxes, so it’s a pretty sweet deal. One awesome thing about having an LLC is you might not have to pay taxes right away, especially if you don’t make a ton of money.
This is because LLCs are set up so you don’t have to pay taxes twice. Pretty awesome, huh?
Figuring out e-commerce taxation for foreign-owned US LLC is all about being smart with your planning, following the rules, and making the most of what’s out there. If you go this path all by yourself, by knowing the ins and outs of income and sales taxes, you can take control of the US tax game with ease.
The other case is to reach out to us. We stand by the fact that each entrepreneurial journey has unique needs and challenges, making personalized advice invaluable. Feel free to schedule a ‘1-on-1 consultation’ with Petar and get personalized/custom advice tailored to your business needs.
