Launching on TikTok Shop is a powerful way for e-commerce sellers to expand, reaching millions of U.S. buyers daily. But for non-U.S. residents, compliance is key. To sell successfully, you must meet several requirements, including a U.S.-based “Ultimate Beneficial Owner” (UBO) holding 25% ownership. Here’s a breakdown of these critical compliance steps to help non-residents avoid costly errors and protect their U.S. expansion efforts.
Compliance Issue #1: Understanding FinCEN’s Beneficial Ownership Requirements
TikTok’s 25% UBO requirement isn’t just a TikTok policy; it ties into broader U.S. regulations under the Corporate Transparency Act. All U.S.-based businesses must file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN), detailing any individuals with significant control or 25% ownership.
FinCEN has fined millions of businesses for failing to meet these requirements (see TD Bank case). For TikTok Shop sellers, this means ensuring transparency with your UBO to prevent potential penalties.
Steps to Take:
- Confirm that your UBO meets the ownership requirement and can provide valid U.S. identification.
- File the required BOI report and maintain accurate records of your UBO’s involvement.
- Avoid using a nominal owner, as FinCEN’s compliance checks can impose penalties if ownership isn’t genuine.
Compliance Issue #2: Selecting the Right Entity Structure
Adding a 25% U.S. owner impacts your U.S. entity structure. A single-member LLC won’t meet requirements; instead, consider a U.S. partnership or corporation. Here’s how each affects your business:
- U.S. Partnerships: If you choose an LLC taxed as a partnership, your income may be classified as effectively connected income (ECI), potentially leading to U.S. tax obligations, including filing Form 1065. Additionally, a UBO’s participation will add to the complexity of tax residency and reporting.
- U.S. Corporations: With a corporation, taxes are managed differently, which may reduce exposure to U.S. trade obligations. However, any dividends paid to non-residents may still be taxed. While corporations can ease compliance, they also bring their own set of tax considerations.
Choosing the wrong entity without a clear tax strategy can create tax liabilities down the line. Consider consulting a U.S. tax advisor to identify the structure that best meets your needs and minimizes compliance risks.
Compliance Issue #3: Voting vs. Non-Voting Shares
The decision to assign voting or non-voting shares when adding a 25% UBO is crucial. Voting shares grant your UBO control over business decisions, while non-voting shares allow you to meet the ownership requirement without compromising operational authority.
For agencies or individuals acting as nominal UBOs, compliance risks can arise. Structured agreements are essential to prevent conflicts, as using a UBO who doesn’t actively engage with the business can lead to future compliance issues and even legal consequences.
Compliance Issue #4: Importance of a Buy-Sell Agreement
Bringing on a U.S.-based partner without a buy-sell agreement can lead to potential disputes. A buy-sell agreement outlines exit terms, share pricing, and transfer conditions, protecting both parties if the UBO or non-resident owner wants to exit the business.
A buy-sell agreement is also vital for agencies acting as UBOs. It ensures that everyone involved has a clear understanding of rights and responsibilities, protecting against misunderstandings and costly disputes down the line.
Setting up TikTok Shop as a non-resident requires strategic planning, from selecting the proper U.S. entity structure to establishing compliance safeguards. Don’t let compliance obstacles derail your growth—schedule a consultation with our team today to secure your TikTok Shop account and expand confidently in the U.S. market.
If you’re looking to navigate the complete expansion process for setting up TikTok Shop with a U.S. 25% Ultimate Beneficial Owner, we’re here to help. Our team offers comprehensive services and resources to guide you through each critical step. Book a call to learn how we can support your seamless U.S. expansion.
