Shopify is a fast-growing platform that has seen its e-commerce revenues skyrocket since the pandemic. There are many benefits as a non-resident to get your e-commerce in the best position to sell on Shopify, including:- Shopify is great for getting your business online quickly and easily.
- Shopify is great for stores that sell both physical and digital goods or services that require a minimal amount of configuration.
- Shopify also gives you the advantage of having access to a massive community of fellow merchants, experts, and developers (we have referrals).
- Stores with extensive inventories can take advantage of Shopify themes with features such as multi-tag filtering and a flexible collections organization system to organize products.
- Shopify’s built-in tools can conform to a wide variety of business models and marketing approaches.
- The Shopify platform is optimized for online selling.
- It’s highly flexible and easy to use, with over 6000 apps available on the Shopify App Store to customize the user experience.
- Shopify stores were visited over 58 million times.
Here are the Steps to Set up for Shopify Payments:
- Government-issued photo ID
- A valid IRS Tax ID
- SSN (if a U.S. resident)
- State-level business registration document
- Proof of your physical presence in the U.S.
- A USD checking account (virtual banks have more risk)
Shopify Payments Non-Residents
If you do not have all the required documents, you can still use the payment providers available in your country. If you have all the documents, I can send your request up for review; however, keep in mind that we can not guarantee that you’ll be able to use Shopify payments even if you can supply all the documents.
Before You Set Up Your Store, here is a link to Shopify’s complete store checklist.
- Create an account name for your store and set your legal business name. U.S. residents are not recommended to operate as a sole proprietorship, as this will increase their audit rate and impact their personal credit.
- Enter your business address. A U.S. seller may not want to use your home address.
- Add your billing information.
- Set up your payment provider. This may include Shopify Payments, a third-party provider, Apple Pay, or cryptocurrency.
- Set your default currency for your store.
- Set a default weight unit for your store listings.
- Set up your shipping settings
- Set up a pickup and local delivery.
- Set up your taxes.
- Set up your payment gateways
- Set up your domain.
Shopify Store Policies to Add Include:
- Refund Policy
- Privacy Policy
- Terms of Service
- Shipping Policy
- Legal Notice
Note: Here is a link to a comprehensive Shopify store policy details.
Shopify Sales Tax Responsibilities:
Since the 2018 U.S. Supreme Court Case, Wayfair vs. South Dakota, the state has created economic thresholds that will impact Shopify sellers and their responsibilities to get registered to collect and remit sales tax after they cross these thresholds. There are 46 economic nexus states, and 19 states have economic nexus thresholds of only 200 transactions. Once you cross these economic thresholds, you will want to register for a sales tax permit, update your tax settings in your Shopify store, and collect and remit sales tax.
Go to this page to learn more about their complete sales tax registration services. Do NOT turn on your tax collections until you are registered with a sales tax license in the state first. Collecting tax without a permit is illegal and could be considered tax fraud. At this point, you must get registered.
Shopify’s tax liability dashboard will help determine if you should register for sales tax.
How to Find Shopify’s Liability Dashboard:
After signing in to your Shopify admin page, click on settings (on the bottom left) and click taxes. Next to the U.S., click manage. You will see a section at the top of the screen that says manage sales tax liability. To the right of that, click show all liabilities. You are on the sales tax liability dashboard and can click show details to see Shopify’s calculations in relation to the thresholds.
Key in mind these two important points:
- Shopify does not count those sales towards your economic nexus thresholds if you sell on other marketplaces. Some states count marketplace sales towards your thresholds even if the marketplace collects and remits sales tax.
- Do you sell products exempt from sales tax, such as supplements (in some states) or clothing? If so, exempt sales should not be counted towards your economic thresholds.
- Each state has different calculation methods to determine how you determine if you cross the economic nexus thresholds. Some states look at the previous 12 months of sales, others the previous calendar or current year.
Which Entity is Best to Sell on Shopify?
Several factors are involved in making this critical decision, especially for non-residents.
A U.S. resident may form an LLC taxed as an S corporation to keep your profits off schedule C, which is more likely to be audited, or an LLC taxed as a C corporation, which may help manage your personal tax bracket. However, you will want to be aware of the potential double taxation of profits. In either case, the LLC operating agreement must match the number of members and taxation type of the LLC.
A non-resident now has the option to sell as a foreign company or individually and use Shopify payments from your country. If you are a non-resident and looking to qualify for Shopify payments from the U.S., you must establish a U.S. company, U.S. address (not a P.0. Box), U.S. bank account, and an ITIN for the signer.
The biggest hurdle is the physical presence test, also called “operational presence,” and what qualifies. A strategy call with our CEO, Scott Letourneau, is recommended to gain clarity on what is required and the impact on your U.S. tax strategy and overall costs. If you sell over $1M on Shopify and want to save the 2% conversion fee, a strategy call to explore the impact on your business would make sense.
Of course, tax planning is essential when creating a U.S. taxpayer regarding U.S. taxes, tax treaties, and the overall tax impact on your business. Don’t be surprised if you receive different answers as we have after interviewing several CPAs and U.S. tax attorneys on this complex subject.
If you create a U.S. taxpayer and fill out a W-9, you are creating a permanent establishment in the U.S., which will require U.S. tax returns and taxes to be paid on any profits.
The key is working with our team, which works closely with CPA firms that specialize in working with non-residents, to help minimize your U.S. tax responsibilities, which come with working with the tax treaty in your country (assuming one comes into play; if not, there is another level of complexity).
An LLC is the most popular U.S. entity and the most understood, with the most errors that create issues down the road. The key factors with an LLC formation to keep in mind include the following:
- The management of the LLC
- The taxation type, there are four options: partnership, corporation, S corporation, and disregarded
- The operating agreement must match the number of members and taxation type
- The LLC formalities to protect the entity veil
- Capitalization of the foreign owner (whether an individual or foreign company)
- The proper U.S. tax returns are to be filed for the LLC and the ownership structure.
- Avoiding commingling of funds
- Proper accounting and record-keeping to protect you from the IRS
- The proper completion of the SS4 application to the IRS
The U.S. tax strategy in relation to your country of residency is a critical factor in your overall planning. It makes no sense to save a few hundred dollars in your LLC formation only to pay thousands more in taxes because the overall tax strategy was not the best for your situation.
We work with top CPAs and tax attorneys who understand U.S. taxation and the key questions for your tax professionals. If, as a non-resident, you create a U.S. taxpayer to sell on Walmart, some of the key questions to address are listed below.
- Are you engaged in a U.S. trade or business?
- Did you create a U.S. taxpayer?
- Did you create a permanent establishment?
- Did you have a hybrid entity regarding how your countries view the U.S. taxation of your LLC formation?
- Do you qualify for treaty benefits with your country?
- Should you retain profits in the U.S? Issue dividends?
- Which U.S. tax returns are recommended?
- Which state tax returns are also due?
- When is a sales tax registration required? It is especially important for Shopify sellers.
- What is the start date on your SS4 application?
- What mistakes do you want to avoid on your SS4 application?
- Do branch profits tax come into play in your structure?
- Does your entity formation need to pay U.S. taxes?
Branch Profits Tax vs. Dividends Withholdings Tax:
A foreign-owned U.S. corporation is not subject to the branch profits tax. A foreign corporation that does not have a permanent establishment in the U.S. is not subject to the branch profits tax. If a foreign corporation has a permanent establishment in the U.S., it will be subject to the 30% branch profits tax, which the tax treaty with your home country may reduce. A single-member LLC disregarded for U.S. tax purposes will have a different U.S. tax result depending on various factors, including tax treaties.
Another important component is which state is best to form your U.S. company to sell through your Shopify store. As a U.S. resident, forming an entity in your home state is the most common. However, Nevada does offer another layer of protection and complexity, even though foreign qualification into your home state will be required based on the multi-state taxation rules. Most CPAs will advise you to “keep things simple” and form an entity in your home state, which is not always best.
Non-residents, on the other hand, have more options because they are not personally domiciled in the U.S. The most common choices are Delaware, Nevada, and Wyoming.
Other factors include liability protection to the owner and officers or manager and the ability to obtain additional verification in the form of a state business license or utility bill. Once you are clear on these major components, our U.S. entity packages include training on both subjects, which state and entity are best. Our popular strategy sessions will help you clarify what is best for you before you form a complete U.S. formation with our team. Learn more about our strategy options at this link.