Non-U.S. Brands: Know Your U.S. Tax Exposure Before You Scale
We help established non-U.S. brands map their U.S. tax exposure level, align their W-8/W-9 and KYC story across banks and marketplaces, and avoid expensive cleanup later.
Watch the U.S. Tax Masterclass
U.S. Tax Levels: What You MUST Know Before Selling in the U.S.
- U.S. tax laws are complex, and most non-resident sellers either misinterpret them or overlook key compliance steps, leading to unexpected tax bills, penalties, or IRS audits.
- Understanding U.S. Tax Responsibilities for Foreign Sellers
Your U.S. tax responsibilities depend on your operating facts, even if you sell through a foreign entity.
Most non-U.S. sellers assume:
That can be true in some situations, but it becomes risky once you introduce any U.S. footprint, especially:
- U.S. inventory or fulfillment (Amazon FBA, U.S. 3PL, warehouses, returns)
- U.S. people doing recurring work (customer service, prep, operations, negotiations)
- Platforms that push you into a W-9 profile (TikTok Shop, often Walmart, some banking/processor situations)
Start with the gatekeeper question:
Are you carrying on a U.S. trade or business based on your overall pattern of U.S. activity?
If the answer is “yes” (or you’re not sure), the next question becomes:
Is any of your profit treated as effectively connected with that U.S. activity?
And if you’re in a treaty country, there’s an additional overlay:
Treaty rules may reduce federal income tax in some cases, but they are fact-specific and don’t eliminate state-level exposure.
The simplest way to think about it
Most brands fall into one of three practical levels based on their U.S. footprint and how they operate.
Below is a high-level framework to help you identify where you likely sit before you scale.
Where you are now matters; where you’re going matters more. Use the levels below to benchmark your U.S. footprint today and anticipate how it will change as you add U.S. inventory, U.S. people, or platforms like TikTok Shop. This framework helps you identify your risk band so your tax posture and KYC story don’t drift out of sync as you scale.
These are operating-fact levels, not “tax strategies.”
Signals: no U.S. inventory, no U.S. people, ship from abroad
Why it matters: risk is lower, but still needs review as you scale
Next step: watch masterclass/blueprint
Signals: FBA/3PL inventory, U.S. returns, U.S. people doing recurring work
Why it matters: this is where USTB/ECI/PE conversations become real
Next step: “Stop DIYing. Get a plan.”
Signals: U.S. office, employees, management
Why it matters: assume U.S. tax and state exposure
Next step: strategy session + tax/legal partner coordination
Engaged in a U.S. Trade or Business (USTOB), Common Misconceptions.
Many non-resident sellers assume they have “no U.S. tax” because they have no U.S. office. That’s not how the IRS looks at it. USTB is driven by your operating facts (U.S. inventory, recurring U.S. activity, and the role U.S. assets/people play in earning profit), not by whether you rent an office.
Common misconceptions we see:
- “No U.S. office = no U.S. tax.” Not necessarily. An office is not required for USTB.
- “Amazon is only logistics, so my sales aren’t U.S.-sourced.” Sourcing and ECI depend on where profit is earned and whether U.S. assets/activities materially contribute.
- “A U.S. LLC shields me from U.S. tax.” Entity form doesn’t erase tax exposure. Tax follows the owner classification and facts (SMLLC, corporation, or partnership).
- “Independent agents eliminate U.S. tax.” Independence is mainly a treaty/PE concept and doesn’t automatically remove USTB/ECI under domestic rules.
Once USTB is in play, the next question is whether profit is effectively connected (ECI). Treaties can reduce federal tax in some cases, but they’re fact-specific and generally require proper disclosure. States are a separate analysis.
Selling on a Marketplace
Selling on a Marketplace (platform reality first): Each marketplace pushes you toward different tax and verification requirements. The goal is to keep your entity structure, W-8/W-9 profile, and verification story aligned before you scale.
- Walmart: Many non-U.S. sellers will ultimately be pushed into a W-9 profile,
which usually means a U.S. entity that can bring federal and state filing exposure, depending on how you operate
(inventory, fulfillment, U.S. agents, and risk posture). - TikTok Shop: In practice, TikTok is largely U.S.-only. It typically requires a W-9,
a real U.S. Primary Business Representative, and a verifiable U.S. address. Plan accordingly. - Amazon: The most flexible. You can often operate as a foreign entity (W-8 path) or a U.S. entity (W-9 path).
The right choice depends on your footprint (FBA/3PL), goals, and your long-term tax strategy. - U.S. entity path: Once you choose a U.S. entity, the paperwork and KYC story must match the tax profile
(EIN/IRS records, W-9 posture, and what marketplaces see). Misalignment is a common reason brands get stuck later. - Intercompany flows: If a foreign company and a U.S. entity both touch the customer journey (goods, services,
IP, or loans), transfer pricing becomes part of the plan. We document an arm’s-length model up front to
reduce double-tax and penalty risk.
Outcome: One coherent story across marketplaces, banks, and your tax team so that you can expand without re-verification surprises or expensive cleanup later.
Filing a Protective Return. Why CPAs Diverge.
Protective returns are a risk-management tool. They’re commonly used when U.S. trade-or-business (USTB)
and effectively connected income (ECI) are uncertain, or when your facts may change during the year. The goal is to
preserve deductions, reduce notice risk, and avoid getting boxed into a bad position later.
Why some CPAs recommend protective filings
- Preserve deductions: timely filing can protect deduction positions if the IRS later asserts USTB/ECI.
- Start the statute of limitations: a filed return can limit how long the IRS can assess.
- Facts drift: inventory, U.S. helpers, or returns operations can change risk mid-year.
- Reduce mismatch notices: filings can align with platform and payment data flows.
Why some CPAs do not file protectively
- Facts are clearly outside USTB/ECI: and the client can document that position.
- Cost vs benefit: administrative burden isn’t justified when exposure is remote.
- Risk posture: the client prefers to file only when U.S. exposure is clear.
Decision cues (when this discussion usually matters)
- Year-round U.S. inventory cycles (FBA/3PL) with evolving operating facts.
- A U.S. person may gain authority or recurring operational responsibility.
- A treaty position is expected, but documentation may only be available after year-end.
- State nexus is likely due to inventory locations or thresholds (states are separate from the federal).
Bottom line: Protective filings can be a practical way to reduce downside while you finalize the USTB/ECI,
treaty, and state conclusions. The right approach depends on your facts and risk tolerance, and should be documented
and coordinated with qualified tax counsel.
Advanced reference (for your CPA/legal team): mechanics & common forms
This section is an educational context only. Specific filings depend on taxpayer type, structure, treaty posture, and
facts (federal vs state considerations). Apply with qualified advisors.
Non-Resident Selling on Amazon Without a Tax Treaty
If your home country has no U.S. tax treaty, you may not have treaty relief to reduce or eliminate U.S. federal tax on business profits. That doesn’t automatically mean you owe U.S. tax, but it does mean your margin for error is much smaller once you use U.S. inventory (FBA/3PL) or build recurring U.S. operating facts.
Once your operating facts look like a U.S. trade or business and profit is treated as connected to those U.S. facts,
the IRS can tax that profit at normal U.S. rates. If filings are mishandled, the downside isn’t just “more tax,” it can be
lost deductions, penalties, and expensive cleanup later.
The four traps we see most often (no-treaty sellers)
- “No U.S. office means no U.S. tax.” An office is not required. U.S. inventory and recurring U.S. activity can change the analysis.
- “Amazon is only logistics.” FBA and U.S. inventory can materially change the U.S. footprint.
- “A U.S. LLC solves it.” Entity form doesn’t erase tax exposure; classification and facts do.
- “If I leave money in the U.S., it isn’t taxable.” Tax follows where profit is earned/connected, not where cash sits.
When you should stop guessing
- You use Amazon FBA or a U.S. 3PL with recurring inventory cycles.
- You’re scaling into the U.S. (especially past $500K–$1M+).
- You formed a U.S. entity because a platform or bank pushed you into a W-9 profile.
- You have conflicting guidance from advisors or “internet strategies.”
Next step: Map your risk band and align your structure, marketplace paperwork, and tax posture before you scale further.
If you want the framework, start with the masterclass. If you want a plan for your specific facts, the next step is a
paid Strategy Session with Scott.
Does Selling on Amazon as a Foreign Entity Create a Permanent Establishment?
Selling on Amazon FBA as a foreign entity can raise Permanent Establishment (PE) questions under a tax treaty.
The key point is simple: platform logistics are not the same as a defensible treaty position. PE outcomes depend on your operating facts.
Common misconceptions
- “No U.S. office” does not automatically remove PE risk. Facts and authority matter.
- FBA is often “storage and delivery,” but additional U.S. activity can change the analysis.
- You don’t have to personally sign contracts in the U.S. for agent activity to create exposure.
What typically moves a brand into higher risk
- U.S. space used for operations (office, leased warehouse, returns/prep).
- U.S. people with authority to negotiate or regularly conclude deals/concessions.
Important: Treaties don’t bind U.S. states. Even when a federal treaty position looks favorable, state income/franchise exposure can still apply based on inventory and nexus.
Bottom line: If you’re scaling with FBA, treat PE as a facts-and-documentation exercise, not a guess.
The safest move is to map your treaty posture, U.S. footprint, and state exposure together before you scale further.
Want the framework? Watch the 2026 U.S. Tax Masterclass.
Want the conclusion for your facts? Start with a paid Strategy Session.
Advanced reference (for your CPA/legal team): common PE triggers
- Fixed place of business used to run operations (office, leased warehouse, returns/prep).
- Dependent agent activity with authority or principal role in concluding contracts.
- Extended U.S. services/activity thresholds (varies by treaty and facts).
- Separate state exposure can apply even when federal treaty positions look favorable.
- Fixed place of business (office, employees, factory)
- Presence of dependent agents who have the authority to execute contracts (e.g., a sales agent who travels to the U.S. frequently to conclude contracts).
- Providing services in the U.S. for more than a specified period (e.g., 183 days under many treaties)
- Ownership of U.S. located assets, equipment, or real estate
A U.S. corporation pays U.S. taxes
Forming a U.S. corporation does not remove tax or compliance. Once you operate as a U.S. corporation, you are a domestic taxpayer and file Form 1120 every year. A domestic corporation is generally taxed at 21 percent on its worldwide income, with normal deductions and credits, regardless of who owns the stock or where the owners live.
Common misconceptions about U.S. corporations
- Owning a U.S. corporation avoids personal U.S. tax. Corporate-level tax still applies, and distributions to foreign shareholders are generally subject to U.S. withholding tax on dividends at 30 percent, unless reduced by a treaty.
- Forming a corporation automatically lowers the U.S. tax burden. It changes the tax base and rate but adds a second layer when profits are distributed; model corporate tax plus dividend withholding versus pass-through options.
- Having a U.S. entity removes home-country filings. Your country may treat the company as locally managed and controlled or apply CFC or participation rules; coordinate with home-country advisors.
Key tax considerations
- Flat 21 percent federal corporate rate on worldwide income, with foreign tax credit rules for foreign-source income and normal netting of expenses.
- An LLC can elect corporate status on Form 8832; once effective, it follows the same corporate rules. S corporation status is generally not available if any shareholder is a nonresident alien.
- A U.S. corporation does not rely on business-profits treaty relief for federal income tax; treaties mainly affect withholding on outbound payments such as dividends and interest.
- Branch profits tax does not apply to a U.S. corporation; that tax targets foreign corporations with a U.S. branch.
- Distributions to foreign shareholders are typically subject to a 30 percent withholding tax unless a treaty reduces the rate; coordinate payor withholding and documentation.
- States are separate. Expect state income or franchise tax where you have nexus, plus sales and use tax obligations as applicable.
Foreign sellers often misread the consequences of incorporating. A U.S. corporation can simplify marketplace onboarding and W-9 requirements, but it adds corporate reporting, potential double taxation on distributions, state filings, payroll compliance if you hire, and information reporting. Model the full cost before electing corporate status and coordinate with home-country advisors to avoid unexpected tax in both jurisdictions.
A U.S. LLC taxed as a partnership is a popular choice for foreign sellers because it creates a U.S. tax presence for platforms like Amazon (optional) and Walmart (required). However, foreign-owned partnerships have strict withholding and filing obligations that many sellers overlook.
Common Misconceptions About Foreign-Owned Partnerships
- “A partnership doesn’t owe U.S. taxes since it’s a pass-through entity.”
- “If I don’t take money out of the business, I don’t need to file a tax return.”
- “Withholding tax only applies if the LLC has U.S. employees.”
Key U.S. Tax Considerations for Foreign-Owned Partnerships
- The partnership itself does not pay U.S. taxes, but foreign partners are subject to withholding tax on their share of Effectively Connected Income (ECI) at a rate of 37% (or the highest individual tax rate).
- Partnerships with foreign partners must withhold and pay estimated taxes throughout the year, even if no cash distributions are made.
- The IRS requires Forms 8804 and 8805 to report withholding tax liability and partner allocations.
- Foreign partners must file a U.S. tax return (Form 1040-NR or 1120-F) to claim deductions, credits, or treaty benefits.
Many sellers misunderstand the tax obligations of a partnership, leading to penalties for failing to withhold or file correctly.
Not sure if a partnership is the right structure for your business? Book a Free Discovery Call.
A Deeper Look at Engaged in a U.S. Trade or Business
Whether a non-resident is engaged in a U.S. trade or business is not a single-factor test. The IRS looks at the total pattern of U.S. activity and asks whether it is regular, continuous, and meaningful. Many sellers assume they are outside the rules and later face assessments when facts show a sustained U.S. footprint.
Common misconceptions about USTB classification
- “If I do not have a U.S. office, I do not have a USTB.” A leased office is not required; the overall pattern of U.S. activity controls.
- “Amazon FBA is only logistics, so my business is not U.S.-based.” FBA can be a high-risk indicator because your own inventory and U.S. fulfillment are used to earn the income.
- “If I ship to the United States but live abroad, I do not owe U.S. tax.” If your activity rises to a USTB and profit is effectively connected, U.S. filing and tax can apply regardless of residence.
Key factors the IRS considers
- Substantial activity: reliance on U.S. operations beyond isolated or occasional sales.
- Continuous and regular operations: recurring sales, fulfillment, or services directed at the U.S. market.
- Use of U.S. assets and people: inventory stored and fulfilled from U.S. facilities, a fixed place you use, recurring in-country work by you or staff, or a U.S. person with authority to bind terms.
How USTB connects to ECI
First decide USTB. If USTB exists, income is effectively connected if either test is met:
- Business-activities test: U.S. activities were a material factor in producing the income.
- Asset-use test: income was produced by assets used or held for use in the U.S. business, such as your inventory in U.S. fulfillment centers.
FBA by itself is not an automatic rule, but year-round fulfillment of your own inventory commonly satisfies one or both tests in practice. Sourcing rules still apply: purchased inventory is generally sourced by place of sale or title passage, produced inventory by place of production, and foreign-source sales can still be effectively connected if attributable to a U.S. office that materially participates.
What happens if you are USTB
- Your U.S.-connected profit is taxed on a net basis as effectively connected income.
- File the correct federal return: Form 1040-NR for nonresident individuals or Form 1120-F for foreign corporations.
- Foreign corporations that are unsure may file a protective Form 1120-F on time to preserve deductions and limit open-ended assessment periods.
Treaty and state overlays
If you are treaty resident, you can be USTB domestically yet owe no federal tax on business profits if you have no permanent establishment. You disclose the treaty position on a timely Form 1040-NR or Form 1120-F, along with Form 8833. Treaties do not bind the states; inventory and sales thresholds can still trigger state income, franchise, sales, or use tax filings.
Common misconceptions about USTB classification
- “If I form a U.S. LLC, I am automatically engaged in a U.S. trade or business.” Entity formation alone does not decide USTB.
- “Having a U.S. bank account means I owe U.S. taxes.” Banking access is not determinative of USTB or ECI.
- “Amazon FBA always creates a USTB.” FBA is high-risk, but not a per-se rule; the overall pattern of U.S. activity controls.
What actually determines USTB
- Totality of activities: the IRS looks at the overall pattern of U.S. activity, not just formation or banking.
- Continuity and scale: recurring sales, fulfillment, returns handling, or in-country work point toward USTB.
- Use of U.S. assets and people: inventory stored and fulfilled from U.S. facilities, a place at your disposal, or a U.S. person with authority to bind terms are key facts.
How ECI fits after USTB
Only after USTB exists do you test effectively connected income. Profit is effectively connected if either the business-activities test is met (U.S. activities materially help earn the income) or the asset-use test is met (U.S. assets, such as your inventory in U.S. facilities, are used to earn the income). Purchased inventory is generally sourced by place of sale or title passage and produced inventory by place of production; foreign-source sales can still be effectively connected if attributable to a U.S. office that materially participates.
Treaty and state overlays
A treaty can block federal tax on business profits when there is no permanent establishment and the position is disclosed on a timely return. Treaties do not bind the states; inventory and sales thresholds can still create state income or franchise and sales or use tax obligations.
Misreading USTB can lead to unnecessary filings when there is no U.S. exposure, or to penalties when exposure is ignored. If you want a quick fit assessment to see whether a paid consultation makes sense, request a short discovery call and bring a one-page summary of your U.S. activities, inventory flow, and any prior filings.
Sales Tax Compliance
Marketplace rules help, but they do not erase your obligations. Most states require marketplace facilitators to collect and remit sales tax on facilitated sales. That does not always relieve the seller of its duties. If you place inventory in U.S. warehouses or meet a state’s economic nexus threshold, some states still require the seller to register, maintain an account, and, in some cases, file zero returns for marketplace sales. Plan for the basics: U.S. EIN, a verifiable U.S. address, state registrations, and periodic filings.
Foreign company path. If you sell as a foreign entity using a W-8, expect to obtain an EIN and complete state sales tax registrations where a physical or economic nexus exists. For federal income tax purposes, many non-resident sellers also plan to file a protective Form 1120-F and, when applicable, a Form 8833 treaty disclosure. Sales tax and income tax are separate systems, so you can have sales tax registration requirements even while your federal income tax position is under a treaty.
Branch Profits
Branch profits tax (BPT) is not an “Amazon tax.” It can become relevant when a foreign corporation is treated as operating a
U.S. trade or business, and has U.S.-connected profits treated as earned through a U.S. branch.
It’s facts-driven, not automatic.
When it tends to come on the radar
- You add a meaningful U.S. footprint (U.S. inventory, U.S. people, U.S. operational space, or agent activity).
- You’re operating through a foreign corporation, and your U.S. activity starts to look “branch-like” under U.S. rules.
- You expand into additional channels or processors that change your entity/KYC posture and how profit flows are structured.
Treaty vs non-treaty reality (high level)
- Treaty countries: treaty rules may limit U.S. taxation of business profits, unless a permanent establishment exists, and treaty benefits are available and correctly claimed.
- Non-treaty countries (or treaty eligibility fails): U.S. activity can drive real U.S. tax exposure, and branch-related concepts can become more relevant.
Bottom line: Don’t structure around headlines about “30%.” Map your entity type, treaty eligibility, U.S. footprint, and profit flows
together before you scale.
What is the branch profits tax rate?
Branch profits tax is often quoted as 30%, sometimes reduced by treaty in eligible cases. It is not a tax that applies to all foreign sellers. It becomes relevant mainly when a foreign corporation is treated as operating a U.S. trade or business through a branch and has U.S.-connected profits treated as repatriated.
Common confusion
- BPT is not the same as dividend withholding (U.S. subsidiary dividends are different).
- “No withdrawal” doesn’t automatically mean “no issue.”
- The outcome depends on entity type and operating facts, not headlines.
Bottom line: If you’re scaling with U.S. inventory or meaningful U.S. activity, this is a “map your facts” issue, not a DIY issue.
Reduction with a U.S. Tax Treaty
Reduction with a U.S. Tax Treaty (high level)
Treaty reductions are not automatic. Your outcome depends on:
- Whether you’re actually a treaty resident
- Whether you qualify for treaty benefits (often through LOB-style rules)
- Whether your operating facts support the treaty position you want to claim
Bottom line: “We’re in a treaty country” isn’t the same as “we get treaty benefits.” Map treaty eligibility and U.S. footprint together before you scale.
Transfer Pricing for Cross-Border Sellers
Transfer Pricing: How Bigger Sellers Lose Money Quietly (and How to Fix It)
When a foreign company and a U.S. entity both touch the customer journey, who earns what matters more than your articles of organization.
- Choose the right model: Buy-sell distributor, commissionaire, or services/marketing support. Each has different margin expectations and audit risk.
- Document the split: Intercompany service agreements, royalty/license terms (if brand IP is foreign), and supporting benchmarks.
- Price to the risk: Inventory, returns, and U.S. people typically deserve more profit than “light” support roles.
- Protect the posture: Keep contemporaneous files (TP memo/benchmarks). If asserting no PE at the foreign level, ensure U.S. activity is truly auxiliary; otherwise, move it and charge for it.
Who this is for: brands doing $1M–$20M+ who want to minimize global tax while passing U.S. scrutiny and platform checks.
State Income Taxes
State income taxes are more involved than sales tax because U.S. tax treaties do not cover state taxes.
Several factors come into play, and only a few states may require an additional filing beyond sales tax. For example, in Washington, a Business and Occupation tax (B&O tax) return must be filed with a tax rate of 0.471% (.00471) of your gross receipts. This is not collected or paid by the marketplace (i.e., Amazon).
Illinois has a Retailers’ Occupancy Tax (ROT) on intrastate sales, which is not paid by the marketplace. This does not require an additional tax return but requires the marketplace seller to pay some taxes out of pocket. The ROT tax ranges from 2–4% on all intrastate sales into the state.
California and Texas impose a required franchise tax, even when operating at a loss. Florida is a state where it is recommended that C corporations foreign qualify to file a state corporate income tax return if they collect and remit sales tax in the state.
If you have a sales tax nexus in most states, that does not automatically mean you also have an income tax nexus. A three-factor test is applied: sales, assets, and payroll.
Filing Your U.S. Tax Returns
We coordinate the plan; independent CPAs/attorneys sign opinions and file returns. Tell us your
risk tolerance, volume, and tech stack. We’ll introduce 1–3 vetted options. You engage them directly.
Risk bands:
- Conservative: treaty-friendly, protective filings, robust TP docs
- Balanced: efficiency + defendable positions, tight documentation
- Aggressive: documented, higher-yield positions where facts support (tax attorney support for audits)
Note: Education & coordination only, not legal/CPA advice, and not a tax opinion.
Other income is subject to U.S. tax, EVEN if NOT connected to a trade or business
FDAP Income: FDAP income is subject to U.S. federal income tax even if it is not connected to a U.S. trade or business (USTOB). This includes passive income like interest, dividends, rents, royalties, and certain commissions. Typically, FDAP income is taxed at a flat 30% rate on a gross basis, unless reduced by a tax treaty between the U.S. and the foreign person’s home country.
Tax on Nonresident Aliens: Nonresident aliens (NRAs) are subject to U.S. tax only on their U.S.-source income. FDAP income, which is not connected to a USTOB, is taxed at the 30% withholding rate, and no deductions are allowed. For effectively connected income (ECI), which includes wages and income from a trade or business in the U.S., NRAs must file Form 1040NR and can claim deductions similar to U.S. residents.
Form 1040NR Filing Obligations: Nonresident aliens with ECI must submit Form 1040NR. However, if their only income is wages below the personal exemption threshold or if they only earn passive income on which the proper withholding was applied (reported on Form 1042-S), no U.S. tax return may be required unless they are claiming a tax treaty benefit to reduce withholding.
Tax Professionals Required
Partnering with the Right Tax Professionals for Your U.S. Expansion
Navigating U.S. tax regulations as a non-resident requires expert guidance to avoid costly mistakes, unnecessary filings, or IRS penalties. At NCP, we ensure that you have the right strategy in place before you form your U.S. entity.
As part of our client onboarding process, we provide essential training and connect you with trusted tax professionals specializing in U.S. taxation for foreign entrepreneurs. These professionals operate independently from NCP with separate fees, but we have vetted them to ensure they have the expertise to support your business right from the start.
The wrong tax structure can cost you thousands. Before you move forward, let’s make sure your foundation is solid. Book a Discovery Call to see if a strategy call or verified plan is your next step.
Learn more at our free U.S. tax master class at this link.
Legal Disclaimer: NCP does not provide tax, legal, or accounting advice. This website has been prepared for informational purposes and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction.