1) What is a U.S. Trade or Business (USTB), in plain English
You have a USTB when you are actually doing business in the United States in a regular, continuous, and meaningful way. Courts often use the terms “considerable,” “continuous,” and “regular” to describe this overall threshold. It is not a separate third test; it is the way domestic law describes being in business in the United States.
Why do people get confused
- Domestic U.S. law (USTB and ECI) decides if the United States can tax business profits.
- Tax treaties (permanent establishment, or PE) can still block U.S. tax even when USTB exists, but only if there is no fixed place or dependent agent in the United States and treaty conditions are met.
- Many explanations mix these layers and treat dependent agent as if it were required under domestic USTB. It is not.
2) What is ECI (Effectively Connected Income)
ECI is the portion of your profit tied to your U.S. business. If USTB exists, income is ECI if one of the two look-throughs is met.
- Business-activities test: U.S. activities materially helped earn the income.
- Asset-use test: a U.S. asset, such as your inventory in a U.S. warehouse, was used to earn the income.
If either test fits, the income is ECI once USTB is present.
3) Why an Amazon FBA seller usually falls into USTB and ECI
- Sells to U.S. customers year-round, with a consistent, continuous pattern.
- Places its own inventory in U.S. warehouses, which are assets used to earn the income (asset-use).
- Runs pricing, content, ad spend, and restocking in repeat cycles, which is ongoing and meaningful.
Taken together, these facts typically satisfy USTB under domestic law and make profits ECI under the business-activities and asset-use tests. This is why many practitioners treat FBA as USTB and ECI by default for compliance. The independent-agent idea can still help at the treaty layer, but it does not change the domestic conclusion.
Why does an independent agent not save you under domestic law
The independent-agent rule is a treaty concept about PE. It can block federal tax on business profits even if USTB exists, but only if all treaty conditions are met and the position is properly claimed on a filed return. It is not a domestic safe harbor. Domestic USTB does not require a U.S. office or a dependent agent.
4) When an FBA seller might not be USTB and ECI
There is no hard number; courts look at the pattern. Examples where USTB may not exist:
- Short pilot with no restock: a small test lot sells for a brief period and then stops, with no ongoing pattern.
- Inventory present but no selling activity: units enter FBA but are removed without listings or filled orders.
- Ultra-sporadic seasonal trickle with long gaps: small batches far apart in time and no restocking pattern.
Caution: even in these edge cases, states may impose filing duties. State nexus rules can be economic or bright-line. Inventory in a state can create franchise or gross-receipts taxes even if federal income tax is zero.
5) Why many professionals still miss this
- They mix layers and treat no office or no dependent agent as if it were required under domestic USTB.
- They under-weight the asset-use test; U.S. inventory used to fill U.S. orders often drives ECI once USTB exists.
- They optimize for risk management and file protective returns because facts can drift over time.
- They overlook state rules. Treaties do not bind states, and economic nexus or market-based sourcing can still require filings.
- They repeat the myth that no dependent agent means no U.S. tax. Domestic law does not say that.
6) Two lines that needed tuning
Regular, continuous, considerable
Use this up front. It describes the overall domestic USTB threshold. It is not a separate test after something else.
Independent-agent rule
This is a treaty concept. Using an independent agent such as Amazon can support a no-PE claim and block federal tax on business profits, if treaty conditions and limitation-on-benefits are met. It does not change that domestic USTB can exist without a dependent agent or your own office.
7) A pocket decision map for FBA
Step A: Domestic (USTB and ECI)
- Do you sell into the United States in a pattern that looks regular and continuous, including restock cycles
- Do you place your inventory in the United States and use it to fill orders
Typical result: yes to both means USTB is present and profits are ECI under the asset-use and business-activities tests. Edge cases such as one-off tests or minimal sales may be arguable no USTB.
Step B: Treaty filter (if treaty resident)
- No fixed place and no dependent agent who habitually concludes contracts
If yes, a no-PE claim can block federal tax on business profits even if USTB exists. File the correct return and disclosure to claim the treaty.
Step C: States
Regardless of treaty or USTB, check for state nexus from inventory or sales thresholds. File where required.
8) What should I file, in simple examples
- Foreign company selling via FBA: file Form 1120-F with Form 8833 to disclose a no-PE treaty claim if applicable. Some teams mark it protective in light-facts years to preserve deductions and start the statute.
- U.S. single-member LLC that is disregarded and owned by a non-resident individual: the LLC files Form 5472 with a pro-forma 1120 when there are reportable related-party transactions. The owner files Form 1040-NR and often Form 8833 to claim a treaty no-PE result if facts and treaty permit.
Complex or mixed facts should go through a structured review. A short strategy call helps choose the correct filing path.
9) One operational reminder about marketplace KYC
Opening an Amazon account with a foreign entity and your home-country address usually makes identity checks easier. Using a U.S. virtual address without a real utility bill will fail verification and creates geo-mismatch issues. Align personal and business information carefully to avoid delays.
Stop guessing. Start selling the right way.
If you are moving into the U.S. market, whether you plan to sell through a foreign entity or you need a U.S. company for TikTok Shop, talk to us before you file anything. We fix broken LLC setups, bad W-9 and W-8 choices, and KYC roadblocks all the time. Fixes cost more and take longer than doing it right from the start.
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