So you sell on Amazon and want to expand to the U.S. market, but are sweating bullets about taxes. This is a walk-thru of how to setup your store and pay U.S. taxes, for non-resident foreign sellers on Amazon.
In this article:
- Tax treaties for the foreign seller on Amazon
- Amazon Seller Tax ID registration requirements
- Amazon seller tax information interview
- Income tax forms and deadlines for foreign sellers on Amazon
- Sales tax for Amazon: understanding marketplace facilitator
- State use tax on foreign inventory purchases
Taxes For Foreign Sellers On Amazon
Running an Amazon store in the U.S. opens you up to a huge sales market. However, to run an Amazon store in the United States you will need to pay taxes in some form or another. Repeat! You will owe taxes as a foreign seller on Amazon. There is a lot of misinformation out there that could be costly.
Depending on your business entity and other factors you may need to pay: state and federal income taxes, state sales and use taxes, and state and federal payroll taxes. Whether you need to pay income taxes on earnings from Amazon will largely depend on tax treaties.
Federal Tax Treaties
Tax treaties are agreements between the U.S. and countries globally to ensure fair tax practices. Here’s how it works: an international Amazon seller will receive a tax credit in the United States OR the home country for taxes paid to the U.S. or the home country. The country you actually end up paying is specific to the tax treaty.
Determine if there is a tax treaty between the United States and your home country. Always consult with a tax professional for additional information on your tax treaty. Note: States are NOT obligated to follow Federal tax treaties, meaning your business is expected to pay taxes at the local level.
Steps To Pay Amazon Taxes In US For Foreign Sellers
Follow these steps to ensure you are starting up your Amazon business properly.
1. Registration Requirements For Amazon Seller Tax ID
If you plan on having an Amazon Seller Tax ID, and filing taxes in the U.S. take this step before setting up your Amazon seller’s account. An Amazon Seller Tax ID means you have an EIN from the IRS to open the store and conduct business. To get an EIN, you will need to have an SSN, ITIN, or go through a registered agent that represents your foreign business for tax purposes. More so, you will need to register your business to a U.S. address, even if you aren’t a resident. Here is more information on registration requirements:
What is an Individual Taxpayer Identification Number (ITIN)?
Think of this as a social security number. As a foreign seller you don’t have a social security number but you can get an ITIN. It’s an identification number for non residents and aliens to report and file taxes on an individual level. You must complete Form W-7 to get an ITIN, and it usually take 7 weeks to finalize the paperwork.
Note: It is recommended get an ITIN before getting an EIN. As stated above you can get an EIN without an ITIN through a registered agent but the process is more complex.
What Is An Employer Identification Number (EIN)?
After you get your ITIN you can apply for an EIN for your business entity. It is a number issued by the IRS that identifies your business for Federal and state tax purposes. You need this for Amazon seller activity like getting products through customs, employing workers, applying for a sales tax permit, and opening certain merchant accounts. Non U.S. citizens must file Form SS-4 first to obtain an EIN.
Note: Fax your application forms to the IRS, processing is quicker.
2. Amazon Seller Tax Information Interview
As a foreign seller when you open an account, you will go through an Amazon seller tax information interview. Yes you CAN open an Amazon seller’s account as a non-resident foreign individual OR business entity by using your foreign tax identification numbers. If you are setting up your Amazon store as a foreign individual or business that means you are claiming benefits of income via a mutual tax treaty. You’ll need to have the tax rate of your home country’s treaty on hand.
The answers provided to Amazon will determine the tax residence and withholdings of the seller. You will be filling out one of these forms:
What is a W-8BEN?
If you are an individual international seller Amazon will require you to fill out and submit an IRS Form W-8BEN. This is the information Amazon will reference when they send you Form 1042-S at the end of the year, detailing U.S. based income.
What is a W-BEN-E?
If you are an international business entity selling on Amazon you will fill out W-8BEN-E. This is the information Amazon will reference when they send you Form 1042-S at the end of the year, detailing U.S. based income
What is a W-9?
If you are setting up your Amazon store as a foreign-owned U.S. business, with an EIN and a U.S. based address you will fill out a W-9. This is to receive a 1099-MISC at the end of every year detailing your Amazon income.
3. Federal Income Taxes
Our advice—always file an annual U.S. based income return with the Federal government. Even if you don’t owe anything, you should file an informational return. This is because your earnings from Amazon are considered Effectively Connected Income (ECI). Meaning that income coming from the United States needs to be reported. Amazon will be reporting all tax information connected to your sellers account, so should you.
Individual and all Foreign Businesses (excluding Corporations)
- Must file 1040NR an annual federal income tax return by 6/15.
- Companies who receive a Form 1042-S withholdings on personal services, from Amazon, must file this with the annual return.
- Report your treaty-based income return position using Form 8833 with your annual information return.
Foreign Corporation
- Form 1120-F is filed annually by foreign based companies selling on Amazon, the deadline is 6/15.
- Companies who receive a Form 1042-S withholdings on personal services, from Amazon, must file this with the annual return.
- Report your treaty-based income return position using Form 8833, with your annual information return.
If you form a U.S. based LLC or corporation for your Amazon store, you have a U.S. address. That address qualifies you as having Permanent Establishment (PE) which guarantees you will be paying Amazon seller income taxes to the United States. See below for important tax filing forms and deadlines:
Single Member Corporate Election, Multi Member LLC Corporate Election, or C Corporation
- Form 1120 is filed annually to report business income, due by 4/15.
- Form 5472 is due 4/15, with the annual tax return. It is for any company that has 25% or more of non U.S. resident owners or members. This form reports all transactions between owners and the company. If Form 5472 is not filed, or filed incorrectly, the IRS charges a minimum penalty of $25K.
Single Member LLC – Disregarded Entity
- Foreign individuals will need to file a 1040NR Income Tax Return for U.S. sourced income, due 4/15
- Form 5472 is required with the same penalties as above
- No separate business return to file
Multi Member LLC – Partnership
- File Form 1065 as an information return of LLC income. As well as issue Schedule K-1 to all owners outlining each portion of profit/loss. Both are due by 3/15.
- Each partner reports their share of profit/loss (on the K-1) with Form 1040NR, due by 4/15
- Form 5472 is due from each owner on 4/15, with the annual tax return.
4. State Income Taxes
States determine their own income tax nexus rules. Many require you to sell regularly into the state, which results in what is called state income nexus. Examples of income nexus triggering events:
- Physical locations of officers, Amazon FBA fulfillment center, warehouses, or employees
- The amount and frequency of sales into the state
- Contractors (in some instances)
- If you travel to that state to do business
State Tax Deadlines
Most states tax returns align with federal due dates, but each state should be reviewed separately. However, foreign business franchise and annual fees have different deadlines.
5. State Sales Tax For Foreign Sellers On Amazon
Amazon FBA means that you are storing products in warehouses throughout the United States. Under normal circumstances, you would need a sales tax license in each of the states where you store product. Fortunately, Amazon is a marketplace facilitator meaning they are responsible for collecting and paying sales tax on your behalf. Marketplace facilitator laws are in effect in a long list of states.
If you start to experience a sufficient number of sales in states where Amazon is NOT a marketplace facilitator, you should do a nexus study to determine if you have sales tax nexus. Having “nexus” means you have a sufficient presence in that state: physical or economic. Sales tax nexus is determined by the location of the business (physical presence), or the amount of sales (economic presence). Here are some nexus triggering events:
- Do you participate in Amazon FBA?
- Are you Permanently Established (PE) in the state via employees, warehouses, and/or offices?
- Have you engaged in a sufficient amount of activity in the state?
- Does the state charge one sales tax rate or is the rate determined locally?
In the United States, paying sales tax is enforced at the local level. States are NOT subject to follow tax treaties between the federal government and a foreign government. Note: If you have to pay sales tax in a state you will need to get a sales tax license. To get a sales tax license you will need an EIN.
6. Paying State Use Tax On International Purchases
Use tax is a transactional tax paid by the purchaser. If you purchase inventory within a state that is not subject to sales tax, and you move it across state lines into a sales tax state, you owe use tax. The thing that makes use tax different is where it is used, stored, or consumed by the buyer.
This is especially applicable to foreign sellers on Amazon who may purchase inventory in a foreign country and transfer it to an Amazon FBA fulfillment center. Yeah that is right—storing any inventory in a state that has sales tax, but sales tax wasn’t paid, means you are using the product in a location and need to pay up.
Use tax is paid at the state level and is calculated based on sales tax rates (generally they are equal). You pay via use tax remittance forms which require a sales tax permit. Or, depending on the state, you can include it on your state income tax filing. Either way you will need an EIN to pay use tax for your business.
Final Thoughts: Amazon Seller Taxes In The US
Now you know your tax burden as a foreign seller on Amazon. Go forth and sell to your hearts content but be sure to comply with the law. The U.S. is built on the idea of cooperation in global commerce, so there is little in the way of doing business from your home country. If you are still feeling anxious about taxes, please connect with one of our expert tax consultants to get your Amazon store set up correctly.
