International Business Taxation Inquiry

[Jeet Patel]

Jurisdiction

Ontario

Hello,

I am planning to operate my business from India from where I will ship my product to US & Canada to a warehouse for ease of shipping. I have a distributor who can handle shipping and returns in north America. All the prices and sale will be in USD or CAD but earnings will be converted to INR (Indian Currency) and deposited in Indian bank and taxes paid in India as well.

My question is do I have to register as a taxable party in US & Canada?

If it helps, I will not have physical location in North America nor will I have an employee. All the sale will be through website.

Any suggestions and help is appreciated.

Thank You

 

[adjusterjack]

Hire a lawyer and a tax pro in each country.

 

[flyingron]

In the US, if you were shipping direct to customers you'd have to worry only about the issues involved with the customs handling on your items (hopefully, they are not some specially restricted item such as alcohol or tobacco, which we could write books about).

However, since you are shipping to a distributor in the US, you have a different story. The distributor may or may not be the importer of record depending on just how you are handing the arrangements with the distributor and the ultimate customers.

Further, the distributor almost certainly creates a nexus for you in whatever state they are located in. You will be obliged to register with that state and collect sales tax on items shipped to customers there.

Fortunately for you, you're not the first person in India or any other foreign country to have this problem. There are concerns in the US that specialize in helping such foreign sellers (google international sellers and sales tax and you'll find them, we don't make specific recommendations here).

 

[Tax Counsel]

You have several different tax issues in the United States. First, there may be customs duties for importing the goods you are selling into the U.S. Second, to the extent you have income that is effectively connected with a trade or business in the US, which would include a business selling goods into the US, you will have a US federal income tax obligation. Finally, you may have an obligation to charge and collect sales tax on the sales you make, and sales taxes vary from state to state in the US. It'd be a good idea for you to consult a tax attorney in the US to ensure you meet all the tax obligations you have when selling goods in the US. In Canada there will be similar issues, although instead of sales tax Canada has a value added tax (VAT).