Using a US dropshipper from the UK

[chodges]

Hi,

I'm wondering if anyone can help. I'm thinking of expanding my business to the USA (i run a website), and rather than me ship the item direct, I would like a Manufacturer/Wholesaler to send the item direct to the customer. I am planning on setting up a seperate website just for US customers, and the funds will be transferred into my existing bank account.

What happens as far as tax issues are concerned?

Should the American website be a differet company (although I am a sole trader at the moment), registered in America?

With regards to VAT, if I hit the threshold, am I right in thinking I won't have to pay VAT on any American Orders?

Lastly, will I have to collect American Sales Tax, and declare it to their government? The dropshipper will be charging me sales tax depending on the location of the customer, but can i just 'swallow' this and not charge the customer?

I appreciate that it is pretty specialist, but if anyone could offer any advice on any of the above, it would be good.

Or could you recommend anyone that may be able to help?

Thanks.

[TaxationWeb@BritishA]

This is a big, big issue, far too big for tidy short reply. You should probably feel out a few of the companies under "Find a Professional", or do a websearch for US UK corporate taxation. Additional issues to consider: Transfer Pricing!

Once you choose the right structure, the logistics of filling out forms and sending the right taxes to the right entity are perfunctory.

If you're a medium to large business ($5,000,000+ turnover and/or 25+ employees), you'll want a dual qualified firm to handle both personal and corporate taxes.

If you're a small or micro business (<$5,000,000 turnover AND <25 employees), that's going to be cost-prohibitive. You can get the compliance done much cheaper by using a stateside accountant to handle the US corporate returns. Stay with your current UK accountant to keep things going on this side of the pond, and use a separate dual qualified US/UK personal and corporate tax advisor to handle US personal compliance and dovetail the advice. Any time your single-qualification US or UK guys say, "Have I got a tax break for you!", you run it by your dual US/UK advisor first to make sure you aren't robbing Peter to pay Paul.

[chodges]

Thanks you very much for the quick reply.

I would call myself a 'Micro Business' judging by what you are saying. (I turn over about £50,000).

If I was just to ship from the UK I guess I would be OK to carry on as I am (i say guess because I see others (even eBayers) sending items all arund the world from the UK). The problem is arising when using a US dropshipper.

So if i was just to 'test the water' so to speak and dsitribute goods around America from the UK, I would be ok to carry on as I am now, right?

Thanks again.

[innercity]

Hi
chodges

I'm in a similar situation to yourself & have a number of dropship wholesaler accounts in the US, because I plan on having a 50/50 sales ratio UK/USA. - as far as I can see, you wouldn't be braking any laws by selling goods from other countries - aslong as you make it clear that customers are responsible for their own countries tax/import duties that might be due - I came here to find out abit more about the tax implications of it all myself:)

I have also been considering, is setting up an LLC company in America, with a basic registered office,forwarding phone line for USA customers etc. I understand that because I'll be selling to USA customers from within USA, I'll have to fill in a return with the IRS.

So my question would be:
If I create an LLC in USA - what is it classed as with Companies House/Inland Revenue ?

For Example Would Corporation Tax of any kind be due UK side for a USA Based Company or could I just keep individual status on UK & run the LLC under USA's IRS system ?

[chodges]

Hi Elmo,

Nice to know I'm not the only one in the situation. I'd thought about setting up as an LLC as well, but at the moment, I'm only a small time player.

I've been reading around about dropshipping. Apprently American Sales Tax is calculated on where the item is shipped and not by who it's invoiced to (which would make things easier).

As an example if your dropshipper as based in New York, they would charge sales tax to any orders being shipped within New York, and any out of state sales would not be charged sales tax, as the American's declare it on there Tax returns.

If you aren't a registered business in America, you can't charge sales tax (like if you aren't VAT registered here), but the Wholesaler will still be charging and paying Sales Tax to the Government (Again, Like VAT here), so all taxes will be paid.

But i do see conflicting information,. some people argue that the goods are being sold to me and I am selling to the customer, so no sales tax should be charged at all.

Incidentally, when you say 'Registered Office', is a mail forwarding address OK to register?

[innercity]

Hello again,

I've had a few American's ask why I can't 'take the VAT off' a product I've shipped from UK to USA via a dropshipping agent several times.

I have a disclaimer/warning for buyers regarding Tax.

Virtual office in US/LLC
From my current understanding, there is nothing illegal in setting up a 'virtual office' in USA, that takes mail on your behalf at a USA based address & forwards it to your UK address. (no US company formation of your own required with that option)

I've seen a number of Virtual Office websites that offer additional services like LLC formations in States like Delaware & Nevada, which allow LLC formation by "non resident aliens"
I believe you have to have a registered office/agent in the State concerned, someone resident, whom can sign required legal forms as needed, pay annual state Tax etc - similar to the Company Sec./Registered Office services you can buy in UK, that are there to service "legal requirements only" to be an Limited Company.

While I know several agencies I'd trust for using a forwarding address/Company Formation in UK - I'm still looking/researching into the USA Services.

If you type in 'Delaware formation agents' in google, a muddle of websites, all stating different Tax requirements/Laws/Prices come up & they often also be sell 'off-shore' services too - which sound a bit dodgy to me (having used on-line auctions for a while - I'm prepared for every potential deal I'm faced with being a scam/fraud)

It's all "food for thought" - but once I have extracted enough info. from such website I'll probably go to an expert to get advice before spending any money.