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Non-US Citizen Amazon Resellers & U.S. Tax Obligations

Non-US Citizen Amazon Resellers & U.S. Tax Obligations
Ines Zemelman, EA
27 April 2020

Non-Resident alien merchants selling goods on Amazon

Non-US merchants from all over the world sell goods in the US via Amazon.com. Questions about the US tax consequences of this business activity are very common. The answer depends on the seller status (individual or business) and on the availability of the Tax Treaty between the US and the seller's resident country.

The US tax consequences differ significantly depending on whether the Non-Resident Alien merchant sells goods as:

  • As an individual seller (NRA)

  • Through a US LLC registered under his/her name

  • Through a non-US company

Another distinction lies between foreign sellers who

  • Reside in countries that have a Tax Treaty with the US 

  • Reside in countries that do not have a tax treaty with the US

Let’s review the US tax consequences for each situation.

If the seller does not file the US tax return, the IRS would consider the income taxable and send a tax bill to the seller address as provided by Amazon.

The seller resides in a country that has a Tax Treaty with the US

For sellers who resides in a country with a Tax Treaty with the US, let's cover all 3 scenarios.

As always, TFX can assist.

Individual Non-resident alien seller

 

 Individual seller 
  • Request ITIN (Individual Tax Identification Number)

  • Complete form W8-BEN claiming “Treaty benefits” to allow the exemption of Amazon sales proceeds from 30% tax withholding (Amazon fees still apply)

  • Submit the form to Amazon

  • If sales volume exceeds the threshold ($20K and 200 transactions), Amazon will issue the form 1099K the following year

  • The seller should file the form 1040NR with the IRS but sales income should be exempt from taxation through the tax treaty (via specific schedule of the form). This is not simple & is not properly done by most professional tax preparers.

  • If sales volume did not exceed the threshold and Amazon did not issue the form 1099-K then filing of the form 1040NR is not required.

 Non-resident alien selling goods through  US LLC registered under his/her name

 

 NRA with US LLC   
  • Request ITIN (Individual Tax Identification Number) for themselves

  • Request EIN for the US LLC

  • Complete form W-9 for the LLC to provide the EIN to Amazon

  • Amazon does not apply a backup withholding to the US LLC

  • NRA owners of US LLCs have a complex set of US reporting requirements. TFX can assist with preparing these and other forms.

  • US LLC is considered a “disregarded entity” and qualifies for the same treaty benefits as individuals.  

  • The following year, the seller must file form 1040NR with the IRS to report income received through the US LLC - and claim income exemptions. This is not simple & is not properly done by most professional tax preparers. 

Non-resident alien selling goods through non-US corporation registered in country that has tax treaty with the US

 

  NRA with Non-US Corp 
  • Reques EIN for the non-US corporation doing business in the US

  • Complete form W8-BEN-E for the corporation.

  • Claim “Treaty benefits” for the corporation for the exemption of Amazon sales proceeds from tax withholding (Amazon fees still apply) 

  • Submit form W8-BEN-E  to Amazon

  • The following year, file form 1120-F for the non-US corporation with the IRS. Provided the forms are prepared correctly & the Treaty allows the tax exemption, there will be no US tax due.

U.S. Tax return is necessary

Why is the return necessary if the income qualifies for exemption and there was no backup withholding?

The tax return is necessary because Amazon reports the income paid to the individual ITIN or business EIN to the IRS. The exemption from the US taxation should be claimed on the tax return and substantiated by the relevant treaty article in order to get the IRS approval of the exemption.

If the seller does not file the US tax return, the IRS would consider the income taxable and send a tax bill to the seller address as provided by Amazon.
 

Seller resides in country without Tax Treaty with the US

If the seller resides in a country that does not have a Tax Treaty with the US, then follow the same procedural steps as described above for individual sellers or for businesses owned by the Non-Resident Alien - however, the treaty benefits will not apply.

Amazon will then take a 30% backup withholding from the sales proceeds.

 

Tax likely overpaid - US tax return necessary to receive refund

Why is a tax return necessary if Amazon took backup withholding? The actual tax owed may be far lower than the IRS withholding rate, which is also based upon gross sales and no adjustment for expenses.

In more detail:

  • Amazon withheld 30% of gross sales.

  • There was no adjustment for Amazon seller fees, credit card processing fees and all kinds of business expenses (cost of goods sold).

  • Filing a US tax return is the sellers opportunity to present the true amount of tax you owed. You can report various business expenses and come up with the correct amount of NET business income subject to taxation - substantially lower than gross income.

  • Furthermore, the 30% is a default rate set up at the level where the seller never pays less than he owes yet likely more.

  • The tax rate on the individual return is gradual, starting from 10%. And it will never be higher than 30% for non-resident aliens. Filing the US tax return is your only opportunity to get the refund for the excess of Amazon tax withholding.

Ines Zemelman, EA
founder of Taxes for Expats