This blog tends to attract a lot of international readers, and one of the most common questions I get is from non-Americans asking how they can sell their imported and private label products in the United States. Readers are eager to access the more than 330 million consumers in the states, and understandably so—the American ecommerce market is huge.
This happens to be a question I am well versed in answering as I live in Vancouver, Canada, and the vast majority of our company's sales are in the US. Almost all of the products we import are warehoused in the US. And no, I do not have a US corporation or some other fancy legal workaround. (I give a more detailed account of how to get started doing business in the United States in our Importing Course.) However, this article will give you a great start on the basics you need to know to start selling in the United States.
Also, let me give the necessary disclaimer and say that I am not a lawyer or a customs broker, so please consult these professionals before relying on the information I outline here.
To begin, let me address a few common misconceptions about non-Americans importing into America.
FALSE: I need to open a US company to ship and sell my goods from the United States
If you are simply shipping your goods to the United States to have another company fulfill them (e.g., Amazon FBA), you do not need to have a US company. Lobbing your goods into some US warehouse to be shipped to Americans is easy. The need to have a US company becomes an issue when you start wanting to work in the United States or employ people there.
FALSE: I need an EIN (or W-EIN) to import into the United States
To make a formal entry into the United States (a shipment over $2,500) you need either a Social Insurance Number, EIN, W-EIN, OR a Customs Assigned Number. Thus, there's no need for an EIN or W-EIN if you have the Customs Assigned Number.
The Customs Assigned Number is for people who don't have a social insurance number or EIN. You can fill out this form or, if you're using a customs broker, they will get this assigned number for you and charge you nothing or very little to get it for you. Again, if your shipment is under $2500, you do not have to worry about this.
FALSE: I need to pay US income tax if I sell my goods in the United States
Simply selling your goods in the United States does not normally require you to pay US income tax. There's something called ETBUS (Engaged in Foreign Trade or Business in the US). To be considered ETBUS, you need to meet the following requirements:
- Have at least one dependent agent in the United States. A dependent agent is one who works so closely with you that his or her actions can be considered yours.
- That dependent agent should be furthering your business in the United States, i.e., the job is not limited to admin tasks).
You will be required to pay US income tax if you are ETBUS. But if you have no employees, you're almost certainly not ETBUS.
You will, however, have to pay sales tax in any state your products are stored (which would be 0% if you store them in a state like Oregon with no sales tax) and you can easily register, even as a foreigner, to pay sales tax with local state authorities.
Shipping Your Goods to Your Fulfillment Center
The first obstacle is getting your goods to the fulfillment center you are shipping your products from in the United States. The big key is to ensure that you ship them to whatever fulfillment center you're using (be it Amazon FBA or someone else) with all duties paid. This is critical because if they do not come this way, your Fulfillment Center may reject delivery of your goods.
If you're shipping your goods via sea, you will almost certainly be using a customs broker. This customs broker, by definition, is the party who will ensure your products have their duties and taxes paid, so you're unlikely to run into any problems with your Fulfillment Center rejecting your goods. Your customs broker will walk you through everything and they will proactively deal with any issues with you, as opposed to Amazon FBA who will just flat out reject your goods.
If you're shipping your goods via air, you must ensure your products are shipped Delivery Duty Paid (DDP). Most common carriers, e.g., UPS, FedEx, DHL, etc., can arrange this. If you're shipping goods with a declared value under $800 (see below) there should not be any charges incurred at the time of import, but ship DDP regardless.
There are two amounts that you, as an importer, should always be aware of: $800 and $2500. Goods under $800 are considered de minimis shipments, which means they do not incur any duties when you import them into the US. There's no catch. It really is that good. Shipments between $800 to $2500 do not require a formal entry but will be subject to duties. Formal entries require a bunch of paperwork. A customs broker will easily do this for you, but they'll charge you $150 to $250 for it, so it's best to stay under this $2500 threshold.
How to See How Much Your Competitors Are Importing from China
Want to see how much your competitors are importing from China?
Custom import records are public information in the United States and there are multiple tools that allow you to simply search for a company name and see exactly how much these companies are importing from China.
My favorite tool for this is Jungle Scout's Supplier Database tool which costs less than $50 a month (other more expensive options include Import Genius and Panjiva). These tools will neatly summarize all of the information included on a particular company's Bill of Lading information such as product type, quantity, and supplier name/address.
There are two small caveats to be aware of no matter how you're shipping your goods. This concerns two fields on a customs declaration field called the Importer of Record and the Ultimate Consignee.
The Importer of Record is simply the person who accepts legal responsibility for ensuring your products meet local legal requirements. Amazon will never accept being named the Importer of Record and may reject your shipment if you name them as the Importer of Record, so don't do it. You should simply be able to name yourself and your foreign address as the Importer of Record. I've read of some people shipping via air and not being given the option of entering a foreign address. I am not aware of any restriction on a foreigner being an Importer of Record and this appears to be a mere system technicality.
The “Ultimate Consignee” is simply the warehouse you are sending your goods to (including FBA). FBA will allow you to list them as the Ultimate Consignee as will most other Fulfillment services. Enter the warehouse's name and address as the ultimate consignee. You will also be asked for the consignee's tax ID. Simply ask your warehouse for it (if using Amazon FBA, you can contact them at email@example.com for this information although there's a good chance your Customs Broker already knows this information).
A Sneaky Hack for Canadians to Get U.S. UPS & USPS Rates
This one only applies to Canadians. You know that, thanks to the border, shipping anything to the US is ridiculously expensive. However, there are a number of cross-border carriers that will ship your goods from Canada to the US at the domestic United States USPS or UPS rates (plus a small handling fee of $1 to $5). These carriers will pick up your packages in Canada and then drop them off at a postal facility across the border. Two example carriers who do this are Stallion Express and Chit Chat Express.
However, note that this only applies to orders under $800, and this service is restricted to regions geographically close to the US (Vancouver, Toronto, and Montreal all have these services).
Taxes, Legal Requirements, and Money
Once you get your goods to whatever warehouse it is that you're using, believe it or not, there's not a lot of other legal considerations. In fact, your biggest consideration is sales tax.
You technically have to collect and remit sales tax for whatever warehouse your goods are stored in. Why do I say technically? Well because 95%+ of FBA Sellers do not remit sales tax in the 10+ states they're supposed to. If Americans can slip through the sales tax cracks, a foreigner should not be subject to any more investigation than an American. That's not to say you shouldn't remit sales tax, I'm just giving you the reality of the situation.
In terms of income tax, simply shipping your goods from a U.S. warehouse does not normally make you a U.S. company. Therefore, you should not have to pay any Federal Income Tax. Also, the United States has tax treaties with a lot of countries which will likely make you “exempt from U.S. taxes on certain items of income [you] receive from sources within the United States”.
I file what is known as Form 1120-F with the IRS, which basically tells the IRS “Hey, I sold some stuff in the US. but I'm not paying tax because I'm a foreign corporation.” Again, like with FBA, a good portion of foreigners never file this, although when your revenues get to be substantially large (I'll leave it for an accountant to deem what he or she considers substantially large) you should consider filing such a form.
There are a ton of freelancers on Elance who are happy to do this for a few hundred dollars. I tend to be ultra-paranoid about the IRS and have personally used a large CPA named Moss Adams to get me completely legal in the US to the exact letter of the law. All in all, I paid about $1,000 to $2,000, and they helped me get extras such as an EIN and Reseller Certificate in Washington State. This would be overkill for most importers who are just starting out, in my opinion.
Money and US Bank Accounts
Foreigners can open up bank accounts in the United States relatively easily. I recently opened a bank account with BMO Harris (which is a US-based subsidiary of the large Canadian bank Bank of Montreal) and it was easier to open a bank account with them than with their Canadian parent company! I've heard of conflicting reports from non-Canadian foreigners that they were required to be physically present at the American bank they were opening a bank account with (if someone can confirm this in the comments section, please do).
I make this point about US-based bank accounts because a US-based bank account is very different from a US Dollar bank account in your home country. For whatever reason, PayPal and Amazon (two services you'll likely be using) will not allow you to withdraw US Dollars to a non-US-based bank account, even if that bank account is in US Dollars. This can result in big losses. If Amazon withdraws US funds from my Canadian bank account, I lose about 2% on the exchange rate (you will never get the posted rates you see on TV). Moreover, because I pay all of my Chinese Suppliers in USD, this means I need to convert my Canadian dollars back to US dollars, and I lose another 2%. Ouch! Therefore, it's a good idea to have a US Bank account that ideally does not have any monthly service fees.
One of the strengths of the American economy is how easy they make it for both its citizens and foreigners to do business in their country. For importers looking to sell into the largest economy in the world, this article should give you a good starting point for selling in the United States.
Are you a foreigner selling in the United States? What have your experiences been? Please comment below.