Corporate Tax status of Foreign company who act as "Importer of Record" for its America customer

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Permalink Reply by Werner Reisacher on January 31, 2010 at 11:10am

The crucual issue that will be decisive in the judgement about a potential tax liability in the USA is the question, whether that foreign entity that is acting as Importer of Record has established a permanant residence for tax purposes in the USA. Permanant residence for tax purposes does not require physical office location. The question is: does anybody that is an employee of the foreign corporation handle such transactions physically in the USA. Who pays the duty and where is the person handling the transaction located and how is that person being reimbursed. In order to on the safe side, the foreign company should appoint an indepedant agent operating in the USA or let the freigh forwarder located in the USA handle the custom transactions to stay in the clear about the possiblity of the IRS declaring the company and or person that is handling the payment of these invoices and the receiving of cash from the foreign operatio as a taxable transaction withi the USA.
Werner Reisacherr

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Permalink Reply by Phillip Galgiani on February 23, 2010 at 12:14am

a surprisingly similar situation -- I am a commissioned representative rather than an employee for a European book distributor --- we would like to bring in consolidated shipments-- to the USA -to be forwarded then to individual customers, and the simplest path would seem to be for me to act as Importer of Record as far s clearance.

As long as I remain as an independent contracter in my relationship ( and am willing to accept any customs liabilities of course ) are there tax ramifications for the European companty that otherwise has no tax standing in the US -- thanks for any further comments to the above reply which as I say has certain similarities to our situaton /

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Permalink Reply by Bill M Wright on March 2, 2010 at 9:18pm

Assuming you have followed Werner's advice above about using a USA Customs Broker and/or Frieght Forwarder and Assuming you are not a USA citizen and not working within the USA e.g working in China making solicitation/customer service calls to USA book dealers/distributors you should not have a USA income nor business tax nor need to file a traditional annual business/income tax form regardless of how you get paid by the Euro Co. e.g. commissions, salary or both.

The National Customs Brokers and Forwarders Association of America will provide exporters with information on their members. They can be reached at 1200 18th Street, NW, Suite 901,Washington, DC 20036, (202) 466-0222, or http://www.ncbfaa.org/.

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Permalink Reply by Phillip Galgiani on March 2, 2010 at 10:00pm

I am a US citizen / paid as a comissioned rep / paying US taxes accordingly --
Does that shift things ?

Right now we use the UPS brokerage system and clear each art of the consoliadtion sperately which can be a headache making each customers tax ID jibe with all the details in their invoices.

UPS had suggested that I take on the position of imprter of record to avoid that - I have no problem with the responsibility of that as long as it does not complicate any tax reporting issues on the part of the Dutch distributor ( currently they only file Dutch taxes and have no tax standing here in the US)

Thanks again for the advice on this / regards Phillip Galgiani

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Permalink Reply by Werner Reisacher on March 4, 2010 at 10:37am

Following is your and the Dutch company's tax situation. As long as you act as an independant agent and are running your acitivity either as a sole prorpietorship (Schedule C attached toform 1040) or any other form of registred entity, their is a clear cut from a tax point of view between the exporting company in Holland and your activity in the USA. No tax exposure for the exporter.
As far as UPS is concerned, you should try to negotiate a better deal. Ideally, they should import the shipments as a consolidated "bulk" shipment and separate (break down) the shipment into individual packages for delivery to your customers after customs clearance. Importing individual parcels increases their clearance fees and simplifies their administrative work since no additional administrative work is involved at the time the consolidation is "broken down" into individual shipments. If they are not willing to give you a better deal, try FEDEX, DHL and don't forget, the USPS are much better then their reputation. If it comes to speady customs clearance, my money is on USPS.
Werner Reisacher

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Permalink Reply by Phillip Galgiani on March 4, 2010 at 12:54pm

thank you very much for taking the time here - and the thoughts re UPS -- to be honest its been a mess all the way around with them - so top heavy and hard to find an individual to deal with when you need to who can take responsibility. We may simply deal with the consolidation end ourselves and hand off to UPS on this side !

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Permalink Reply by Bill M Wright on March 4, 2010 at 12:46pm

YES, for you (but as you say you're already filing a USA Tax Return and paying USA Taxes) but NO for the Non-USA based (nor active in selling within the USA) firm, as Werner has stated.

USA citizens ( living and working within the USA ) are subject to USA Federal Tax on "World Wide Income". Yes, that includes things like the interest earned on foreign bank accounts in well know offshore tax havens. Naturally as tax laws keep expanding, adding new layers of law ontop of old laws, exceptions and exclusions are always expanding e.g. Military Combat pay or Military pay earned in a "War Zone" or a USA citizens who's home and work is in a foreign country.

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Permalink Reply by Phillip Galgiani on March 4, 2010 at 12:52pm

thanks so much -- this confirms what I had thought and is reassuring !

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Permalink Reply by Morgan on March 6, 2010 at 2:39pm

Hi,

I am new to this site and hope I am posting in the right place. I came across this thread as I am searching for an answer to a similar sort of issue. It is partially answered in the comments above, but any additional help on this subject would be much appreciated. I'll try and be as concise as possible:

1) We're a UK design company. We have designed a new series of kitchen products.
2) We're having the products manufactured in China.
3) We will be selling via an online store, and shipping to US customers.

Question 1:
If we ship from our supplier in China to a warehouse in the US, can we be the importer to the US, even though we're a UK company? The answer to this question seems, yes, as described in the posts above (as long as we use a customs broker and are not the importer of record).

Question 2:
If the sale is made online, with payment booked (and corporate taxes paid) in the UK, do we need to pay any tax in the US? Do we need to have any kind of registered presence in the US?

Question 3:
If the warehouse is in LA, and we ship to a customer in California, do we have to collect California sales tax? How do we do that if we are not registered in the US?

Help much appreciated.

Kindest Regards


Morgan

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Permalink Reply by Bill M Wright on March 8, 2010 at 1:44am

Q1: Yes Q2: Where will the Computer Servers ( software and hardware taking the online orders) be located? Is the Warehouse in LA owned and operated by your company?
Q3: Collecting Sales Tax: Some Sites Have To, Some Don't
If an online retailer has a physical presence in a particular state, such as a store, business office, or warehouse, it must collect sales tax from customers in that state. If a business does not have a physical presence in a state, it is not required to collect sales tax for sales into that state. This rule is derived from a 1992 Supreme Court decision which held that mail-order merchants did not need to collect sales taxes for sales into states where they did not have a physical presence.

Regarding Sales Taxes: USA States are lossing billions in lost sales taxes to sales on the internet. USA internet sales have been growing in excess of 25% annually. Most states require (by law) tax payers to report the value of their online purchases and pay the state sales tax if no one is collecting it. But in reality now one is reporting and paying the tax. So it's only a matter of time before the states wise up to whats happening and push for law changes.

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Permalink Reply by Morgan on March 8, 2010 at 6:16am

Hi Bill,

Thank you for your very detailed reply.

With regards to Q2:
The warehouses in the US are owned and operated by a third-party logistics company, and have nothing to do with us. We would just contract them to fulfill our orders. The servers are in the UK, and we will primarily be selling to European customers from a UK warehouse. The US market would be a (big) "overseas" market for us.

Based on this additional information, I think I can assume that we have no requirement to have a US presence or a US Tax ID.

With regards to Q3. It seems that we would not be liable to pay sales tax, which, as you point out, is a huge loss to US sates.

Thanks again for your help.

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