US Taxes for sales originating from EU Company
Hello all!
I'd like to know the tax implications of opening a US based LLC (e.g. in Wyoming) for a company selling goods all over the united states. I read that the sales tax for sales made in Wyoming are 4-6%.
How does this work for online sales to anywhere in the US?
Does the 4-6% rate get applied on all sales regardless of where the customer is?
Thank you!
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Hi Yasser,
(Assuming you are an online-only operation)
This would apply to most ecom businesses. Hope this helps.
Thanks very much! Very helpful :-)
I'm not a accountant/lawyer but I think this is how it is:
Here's an example of sales taxes for saas:
https://blog.taxjar.com/saas-sales-tax/
Thresholds:
https://www.quaderno.io/resources/us-economic-nexus-guide
More info:
https://www.chargebee.com/blog/saas-sales-tax/
https://www.quaderno.io/resources/sales-tax-for-digital-goods
When you are starting out, you are probably under all thresholds so you probably don't have to worry about sales tax until you get bigger.
To manage sales tax, you should either use a service like Quaderno (which handles tax calculations for VAT and US sales tax, but you have to handle tax registration, filings and payments), or you can use a merchant of record like Paddle that will resell your products and handle all EU VAT and US sales tax for you.
Here's a recent post on Stripe vs. Paddle:
https://www.indiehackers.com/post/stripe-vs-paddle-89161b0d5c
Why Wyoming? That seems like an unusual state to incorporate an LLC. Delaware is more common if you don't live in the U.S. If you do live in the U.S., then it's usually easier to create an LLC in the state in which you live.
Hope this helps!
Thanks so much Steven this is super helpful!
This is for an online only business. I thought of Wyoming almost arbitrarily (I stumbled upon services that open LLCs in Delaware and Wyoming.) I'm trying to minimise sales + corp taxes given that the company is already registered in Europe and pays corp taxes there (for now. we may need to close up shop in the EU and have it US based for other reasons).
I think Delaware is the most common option, I have never heard of anyone opening a Wyoming LLC. Also, I think the state sales tax for Delaware is 0%. But as I mentioned above, you will still have to pay taxes in other states when you exceed the threshold for those states. Good luck!
Currently, US tax regimes applicable for a NRA can be broadly be classified under 2 different types - “Passive Taxation Regime” and “Active Taxation Regime.”
Passive Taxation Regime
Under passive taxation regime, when you receive certain types of passive income (such as interest, dividends, rent, or royalties), you are subject to a flat 30% withholding tax. This general 30% rate could be lower on account of an applicable tax treaty between the US and your country.
Ideally, the payor of such income is required by law, to withhold taxes at the applicable tax rate and pay that amount to the US government. Once this is done, you are not required to file a US tax return as the withholding fully takes care of the tax, so there is nothing further to do.
For example, if you hold stock issued by Amazon, and Amazon pays a dividend of $100, it is the responsibility of the company to withhold tax on this income before paying it to you. Amazon will pay you $70 (assuming a tax treaty is not applicable) and the remaining $30 will be paid to the IRS. This takes care of your tax liability.
There are exceptions to the above, however, this is the general rule.
Active Taxation Regime
Under the active taxation regime, a NRA is -
Subject to US tax on business income only if you are “engaged in a trade or business in the United States,” (ETBUS).
Engaged in ETBUS only if 2 conditions are met -
(a) You have at least one “dependent agent” in the US, and
(b) that dependent agent does something substantial to further your business in the US (as opposed to something purely administrative or ministerial).
Lastly, if you can benefit from an applicable tax treaty, then you’re only subject to tax if (in addition to qualifying under ETBUS) you operate in the US through a “permanent establishment” (e.g. an office or other fixed place of business).
Who is a dependent agent?
A dependent agent is a person who works for you so closely that the dependent agent’s actions can be said to be an extension of your own actions. So, the term includes your employees. But it also includes people in two other categories -
Who is an independent agent?
An independent agent is one who is running their own business for whom you are simply another client, just like their other clients. So, an independent agent has their own business going on, and that business helps your business in some way.
An independent agent does things for you (they are still your “agent”), but they are mainly working on their own business, not yours. So, they’re independent of you-their actions are their own and are not an extension of your actions.
For this reason, simply using the services of an independent agent in the US does not cause you to be treated as engaged in a trade or business in the US (ETBUS).
US taxation has a simple concept of income that is “US source” vs “Foreign source”. If you sell products in the US to US customers, that income is US sourced income. However, a non-US person has to pay US tax on income only if that income is “effectively connected with a trade or business in the United States,” meaning that they have to be ETBUS and the income must be connected with the activity that makes them ETBUS.
Example - Say you decide to sell products into the US market using Amazon’s “Fulfillment by Amazon” service (i.e. Amazon FBA). You buy products and have them shipped to Amazon’s warehouses in the US, and Amazon employees package the products and ship them to your customers.
To check ETBUS, ask the following question - Is Amazon your dependent agent? No. Amazon has its own business going on, and you are just one of Amazon’s many merchant, among many other merchants. Amazon’s actions are not an extension of your actions.
So, you are not “engaged in a trade or business in the US,” hence you are not subject to any US tax on income from selling products into the US using Amazon.
Sale of software from marketplaces like the Apple App Store and Google Play Store are considered royalties and are subject to Chapter 3 withholding. Chapter 3 withholding under sections 1441-1443 generally applies a 30% withholding tax (WHT) rate to payments of FDAP (Fixed or determinable, annual or periodical) income or gains from U.S. sources only if they are not effectively connected with a U.S. trade or business made to a foreign person (You cannot have ETBUS + WHT on the same transaction as it leads to double taxation). Since you are not ETBUS (the 2 conditions required to be fulfilled are not met), the income is not effectively connected with a U.S. trade or business , you are not subject to US Tax on your US-sourced income. The 30% withholding tax takes care of your tax liability.