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Amazon in the US has been obvious target for UK sellers lately with rise of popularity of private labels. It is relatively very easy to operate
FBA business however there is very less guidelines available about the tax requirements and Amazon are not clear on this on their help pages. So, we have put together some FAQs to help you understand and be compliant with US taxes. This information has been collected directly from our US based trusted tax advisors. We will cover Income tax in this and we will be publishing sales tax information in a few weeks’ time.
As a UK seller do you have to register US LLC to trade on Amazon.com?
You trade on Amazon.com with UK ltd company.
As UK sellers do I need to file US income tax?
Yes. Whether you use your name or an entity from the UK, or you form a U.S. sole proprietorship or entity, you will need to file a U.S. income tax return.
If you use an entity from the UK and obtain a US FEIN, a U.S. tax return will be required-but whether or not you pay U.S. taxes is based upon the tax treaty with the UK.
Since there is a tax treaty with the U.S. and the UK*, you may only be filing a U.S. information return and paying no U.S. federal income taxes (if you are not a permanent establishment) AND you work with the right U.S. tax firm. Don’t assume you have no U.S tax returns to file or even any U.S. taxes to pay at the federal level.
What’s involved in opening US Amazon seller central?
When you open your Amazon Seller Central account you will need to determine what business name will go on the account and the corresponding tax ID number. You may either use your name or your UK Company or form a US company (which may be a U.S. sole proprietorship or U.S. entity). You will either fill out a W-8BEN, a W-8BEN-E or a W-9 form, depending on how your account is set up. It may take up to three weeks for Amazon to verify your tax information when setting up your account.
Because U.S. laws require all Amazon FBA sellers to submit taxpayer information, Amazon needs UK citizens to fill out form W-8BEN or W-8BEN-E to show you’re exempt from U.S. Internal Revenue Service (IRS) reporting requirements. At the beginning of the following year, you will receive a 1099-K only if your sales reach over $20,000 directly from Amazon Seller Central, which is an income statement that is issued to sellers by Amazon.
As UK sellers I am exempt from U.S. Internal Revenue Service (IRS) reporting requirements. What does this mean?
No, you are not exempt from US taxes, with a tax treaty you may only file an information return. We have found some sellers who have not filed any tax return in the US and the IRS will send a tax bill if an EIN was obtained to avoid the 30% withholding, a whole other problem.No, you are not exempt from US taxes, with a tax treaty you may only file an information return. We have found some sellers who have not filed any tax return in the US and the IRS will send a tax bill if an EIN was obtained to avoid the 30% withholding, a whole other problem.
What if my sales $20,000 per annum ? (you still claim the income if under $20K you just may not receive a 1099-K)
The 1099-K is only issued to sellers who made over $20,000, in over 200 transactions, on a single platform. This does not mean that if you sell less than $20,000 and you don’t receive a 1099-K, that you don’t have to pay U.S. taxes. The 1099-K will not take into account any expenses you had in your business; it is just the GROSS sales you generated. If you receive a 1099-K, that means the IRS also received a copy, so make sure that income is included in your U.S. income tax return.
The IRS will match your 1099-K income with the income you report. This means that the 1099K for gross income needs to match your US tax return that you file.
Starting in the fall of 2012, e-commerce sellers began receiving “1099-k match letters” from the IRS regarding a discrepancy between numbers reported on the 1099-K and seller’s income tax returns. Although a relatively small number of these letters were sent, it is important to make sure that your reported gross income is the same, or higher, than the amount reported on the 1099-K. And if it isn’t, you need to show proof of why.
So what are the possible options for UK sellers?
#1 UK person completes a W-8BEN
#2 UK entity completes a W-8BEN-E
#3 UK person with a S. sole proprietorship or entity completes a W-9 (NOT W-8BEN/W-8BEN-E)
What Are the U.S. Tax Responsibilities for a UK Seller (Non-Resident)?
What are the US tax rates? [1]
UK residents and UK entities are subject to a U.S. 30% flat tax rate on certain kinds of income they receive from U.S. sources. Sometimes an Income Tax Treaty negotiated between the U.S. and the UK can be used to reduce this tax rate.[2]
This flat tax is withheld at source by the payoneer of the income. The payoneer, also known as a “withholding agent”, has responsibility for withholding the required tax and sending it to the U.S. Internal Revenue Service (IRS). In the event withholding is required and the withholding agent fails in its duties, the agent can be held personally liable for the tax.
For this reason, payors are very careful to ensure they have undertaken all the necessary actions to certify if the payee is a U.S. person or a UK person. forms in the Form W-8 series (e.g., Form W-8 BEN). U.S. persons complete form W-9.
The 30% (or lower Treaty rate) withholding tax is required only for payments made to UK payees, it is not required when the payee is a U.S. person. UK persons complete one of the
Do I Pay U.S. Income Tax as a Foreign Seller? That depends upon all the areas we discussed, at least you will file a US return and with the tax treaty get a credit to your home county the problem is really when UK seller does not file any US return.
The answer is it depends. First, if you form a U.S. sole proprietorship or entity and show a profit you will pay U.S. federal income taxes.
If you are a UK sole trader (similar to a U.S. sole proprietorship) or entity and obtain a U.S. FEIN, the UK entity will be expected to file a U.S. tax return. You will also need the U.S. FEIN to obtain sales tax permits so you can collect and remit sales tax in the states where you have stock/inventory.
What is the UK – U.S. Tax Treaties?
The key point outlined in the UK – US tax treaties is that if a UK resident forms a US single member LLC disregarded that is not protected by the treaty based upon a UK court case a year ago, means it will be double taxed. There was a case in 2015 when UK court decided to allow U.K. investors to avoid double taxation when investing in the United States through a Delaware Limited Liability Company (“LLC”).
As a UK seller you may be familiar with international tax concepts and U.S. federal tax treaty protection. What you may not be familiar with is that the U.S. States (50 of them) do not recognise tax treaties entered into between the U.S. and the UK (bi-lateral tax treaties) to the sales tax laws of the states (and local governments within the states).
That is why a UK seller may not be subject to U.S. Federal Income tax, but is still subject sales tax. We will be publishing a detailed article in next few weeks.
We hope this helps you understand how US tax system works. This blog post has been produced in partnership US based tax advisor and we’d like to help you be compliant. If you would like to book a consulting time to answer your specific question simply contact us and we will schedule a time to discuss your case in detail.
Please write any questions you have in our comment section and we will answer them.
[1] See http://budurl.com/UStaxrates
[2] *LLC taxed as a partnership. If a single member LLC disregarded for tax purposes and the foreign individual is the owner, that owner would file a 1040NR.