You Formed a U.S. Single-Member LLC for Your Amazon Seller Account. Now What?
Selling on Amazon as a non-U.S. seller sounds like a great opportunity. You’ve probably heard that forming a U.S. LLC makes it easier to get verified and operate within the U.S. marketplace.
You took the necessary steps:
- Formed a U.S. single-member LLC that is disregarded for tax purposes because someone told you it would make everything easier.
- Completed Amazon’s tax interview and submitted your W-8BEN or W-8BEN-E.
- Get your Amazon seller account verified and start generating revenue.
At this point, everything seems to be going well. But then, a question comes up that you may not have considered:
“Are you sure you don’t owe U.S. taxes?”
If you’re like most non-U.S. sellers, you might assume the answer is no—especially if you don’t live in the U.S., have no employees in the U.S., and simply use Amazon’s FBA warehouses for fulfillment.
But that’s where things get complicated.
The IRS, CPAs, and even Amazon have differing interpretations of how non-resident sellers should be taxed in the U.S. Some say if you store inventory in a U.S. warehouse, you’re automatically engaged in a U.S. Trade or Business (USTOB), meaning you must file U.S. tax returns. Others argue that since Amazon is an independent contractor, you don’t have a USTOB—and, therefore, owe no U.S. taxes.
To make things even more confusing, Amazon’s tax interview process doesn’t provide clear guidance on this either. So who’s right? And what happens if you scale to $5M+ in sales and suddenly the U.S. government decides to audit foreign Amazon sellers?
FBA Sellers Taxation Differs From Amazon Affiliates
There’s an important distinction to make: this covers non-U.S. Amazon FBA sellers selling physical products—not Amazon affiliates.
Amazon has two types of non-U.S. sellers, and they are taxed very differently.
Amazon FBA Sellers—Business Income (Possible USTOB & ECI)
- Amazon FBA sellers are engaged in active business operations—storing inventory, fulfilling orders, and managing logistics.
- Their income is NOT considered FDAP (passive income).
- If the IRS determines that a seller has a U.S. Trade or Business (USTOB), their income becomes Effectively Connected Income (ECI) and may be subject to U.S. taxation—unless a tax treaty applies.
Amazon Affiliate Marketers—FDAP Income (Subject to Withholding)
- Amazon affiliates earn passive commission income through Amazon’s Associates program.
- This income is considered Fixed, Determinable, Annual, or Periodic (FDAP) income and is automatically subject to a 30% withholding tax (unless a tax treaty reduces the rate).
- Amazon issues Form 1042-S to non-resident affiliates to report this passive income.
Bottom Line
Unlike affiliates, Amazon FBA sellers do not have their taxes withheld upfront. Having U.S.-sourced income alone does NOT mean you have a U.S. Trade or Business (USTOB). The IRS must also determine whether your U.S. activities are substantial, continuous, and regular. If the IRS classifies you as a USTOB, your income becomes Effectively Connected Income (ECI). It may be subject to U.S. taxation—unless a tax treaty applies and you properly file Form 1040NR and Form 8833 (assuming you live in a treaty country with the U.S.).
Did Amazon’s Tax Interview Already Decide If You Owe U.S. Taxes?
If you’re a non-U.S. seller, Amazon’s tax interview forces you into one of two categories:
- W-8BEN – Foreign individual or foreign company
- W-8BEN-E – Foreign entity owning a U.S. LLC
The W-8BEN form itself states at the very top:
“Do NOT use this form if… you are a beneficial owner claiming that income is effectively connected with the conduct of trade or business within the United States.”
Amazon’s tax interview does not provide an option for non-U.S. sellers of physical products to submit Form W-8ECI. Instead, Amazon typically requires sellers to complete Form W-8BEN or W-8BEN-E, which are designed for foreign individuals or entities that are certifying their income as not effectively connected with a U.S. trade or business.
The W-8ECI is generally used for income that is explicitly classified as Effectively Connected Income (ECI), such as certain service-based revenues, but Amazon does not appear to provide this option in its tax interview for sellers using FBA. This means that sellers must independently determine their U.S. tax status and compliance requirements beyond Amazon’s tax interview process.
What Amazon and Many Tax Professionals Get Wrong About ECI
One of the biggest mistakes non-U.S. sellers—and even some CPAs—make is assuming that if they don’t have a Permanent Establishment (PE) under a tax treaty, they are automatically exempt from U.S. taxes.
This is incorrect because U.S. tax law has two separate tests:
- U.S. Trade or Business (USTOB) & Effectively Connected Income (ECI) – Domestic Tax Law (IRS Rules)
- Permanent Establishment (PE) – Treaty-Based Analysis
Why This Confuses Many People
- Many CPAs and tax advisors focus on tax treaty PE analysis, assuming that if there’s no dependent agent or fixed U.S. business location, there’s no U.S. tax obligation.
- However, USTOB is determined under U.S. domestic tax law, which applies to ALL non-U.S. sellers—regardless of whether their country has a tax treaty.
- A seller can be classified as a USTOB even if they do NOT have a PE under a treaty.
The Dependent Agent Mistake
Many tax professionals wrongly assume that if a non-resident seller has no dependent agent, they are exempt from U.S. taxation.
- This is incorrect because dependent agents are part of tax treaty PE analysis, NOT USTOB analysis under U.S. domestic law.
- Even without a dependent agent, the IRS can still classify an Amazon seller as a USTOB if they use U.S. warehouses, logistics, and fulfillment services.
This means that even if a seller’s home country has a treaty with the U.S., they could still owe U.S. taxes if they fail the USTOB analysis.
What’s Your Risk Tolerance?
- If you’re doing $100K in sales, maybe you think, “The IRS isn’t coming after me anytime soon. I’ll take my chances.”
- If you’re doing $5M in sales, there’s no way you’re risking it now over IRS uncertainty.
Taking the aggressive stance of “I don’t have a USTOB and ECI, so I’m not filing” means you’ll always be wondering if today is the day an IRS letter shows up telling you that you owe back taxes, penalties, and interest.
Or, you could take the conservative approach, file a few extra returns under the tax treaty (1040NR & 8833), pay your CPA an extra $1,000, and sleep well at night knowing you’re 100% covered.
Next Step: Book a U.S. Tax & Amazon Expansion Discovery Call
- Understand your actual U.S. expansion setup
- Make recommendations for our deep-dive paid options to evaluate your overall tax situation.
- Refer you to our network’s best-matched CPA or tax attorney as part of our paid packages.
Schedule Your Discover Call Here
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Disclaimer
This content is for informational purposes only and should not be considered legal or tax advice. Every tax situation is unique, and you should consult with a qualified tax professional before making any decisions regarding U.S. tax compliance.
