Industry Guide · E-Commerce SellersThe Complete Tax Guide for Non-Resident E-Commerce Sellers
Amazon FBA, Shopify, digital products — each model has different US tax implications. This guide explains exactly what you owe, what you don’t, and how to structure your business for maximum tax efficiency.
Watch: E-Commerce Tax Guide for Non-Resident Sellers
The Foundation
The Critical Distinction Every Non-Resident Seller Must Understand
If you are a non-resident entrepreneur selling products to US customers, the single most important question is whether your income is subject to US federal income tax. The answer depends on a three-step analysis that the IRS applies to all non-resident business income. Understanding this sequence — and applying it correctly to your specific e-commerce model — is the foundation of every tax strategy we build for international sellers.
Step 1: Where Is the Income Sourced?
The first question is whether your income is US-source or foreign-source. For the sale of physical goods, the IRS generally sources income based on where title passes to the buyer. For services, income is sourced to where the services are performed. For digital products created and delivered from abroad, the income is typically foreign-source — meaning it falls outside the US tax net entirely, regardless of whether the buyer is American.
This is why the e-commerce model matters so much. A dropshipper in Brazil who sources products from China and ships them directly to US customers has a very different sourcing profile than an Amazon FBA seller whose inventory sits in US warehouses. The dropshipper’s income is foreign-source. The FBA seller’s income passes title in the US.
Step 2: Do You Have a US Trade or Business?
Even if income has a US connection, the next question is whether the non-resident is engaged in a US Trade or Business (USTB). This is where the analysis gets nuanced — and where much of the misinformation online originates.
For Amazon FBA sellers specifically, the critical legal question is whether Amazon acts as a dependent agent or an independent agent. Under IRC §864(c) and longstanding IRS interpretations, a non-resident is considered to have a USTB if they conduct business through a dependent agent in the US. However, if the agent is independent — meaning they act on behalf of many principals, not just one — the agent’s activities generally do not create a USTB for the non-resident.
Amazon is, by any reasonable analysis, an independent agent. Amazon operates its fulfillment network for millions of sellers worldwide. It sets its own warehouse procedures, controls the fulfillment process, and acts on behalf of countless principals simultaneously. The IRS has historically relied on case law — including Inverworld, Inc. v. Commissioner and the principles established in Commissioner v. Piedras Negras Broadcasting Co. — to distinguish between dependent and independent agents. Under these precedents, Amazon’s relationship with FBA sellers strongly supports independent agent status.
What this means in practice: Based on current IRS interpretations and reliance on prior case law, Amazon FBA income for a non-resident seller who has no other US presence (no US office, no US employees, no authority to conclude contracts in the US) would likely not constitute a US Trade or Business. The seller is not directly conducting business in the US — Amazon is conducting its own business, which happens to include fulfilling orders for the seller.
Key Insight: The prevailing interpretation under current IRS guidance and case law is that Amazon FBA, by itself, does not create a US Trade or Business for a non-resident seller. Amazon is an independent agent serving millions of sellers — not a dependent agent acting exclusively on your behalf. This is a significant distinction that many advisors get wrong.
Step 3: Does a Tax Treaty Provide Additional Protection?
Even in a scenario where the IRS were to argue that an FBA seller has a USTB, a tax treaty between the US and the seller’s country of residence provides an additional layer of protection. Most US tax treaties contain an article on “Business Profits” (typically Article 7) that states business profits are taxable only in the country of residence unless the business maintains a Permanent Establishment (PE) in the other country.
A Permanent Establishment generally means a fixed place of business — an office, a warehouse you control, or employees working on your behalf. Amazon’s fulfillment centers are Amazon’sfacilities, not yours. You do not control them, you cannot access them, and you have no employees there. Therefore, most non-resident FBA sellers in treaty countries do not have a PE.
The treaty eliminates all uncertainty. Even if the IRS were to take an aggressive position and argue that FBA selling constitutes a USTB, the treaty exemption under Article 7 would override the domestic law and eliminate the tax. This is why we always recommend that treaty-country sellers file their returns and claim the treaty position — it provides a belt-and-suspenders level of protection.
The critical caveat: the treaty exemption does not apply automatically. You must file a US tax return (Form 1040-NR for individuals, Form 1120-F for foreign entities) and explicitly claim the treaty position. Failure to file means the IRS can assess tax on your gross income with no deductions — a potentially devastating outcome.
Physical Goods via FBA
Amazon FBA, Walmart WFS
Likely Not Taxable
Amazon acts as an independent agent. Under current IRS interpretations and case law, this likely does not create a USTB. Treaty protection eliminates any remaining uncertainty.
Dropshipping
Shopify + overseas suppliers
Foreign-Source — Not Taxable
No US inventory, no US fulfillment, no USTB. Income is foreign-source. The product ships from the supplier directly to the customer without touching US soil under your control.
Digital Products
Courses, ebooks, software, templates
Foreign-Source — Not Taxable
Digital products created and delivered from outside the US are foreign-source income. No US inventory, no US trade or business, no US tax.
Amazon FBA
Amazon FBA: Why This Income Is Likely Not Taxable
Amazon FBA is the most common e-commerce model among our international clients, and it is also the most misunderstood from a tax perspective. Many CPAs and online advisors reflexively classify FBA income as Effectively Connected Income (ECI) and tell non-resident sellers they owe US tax. This conclusion skips critical steps in the analysis and ignores both the independent agent doctrine and the weight of existing case law.
Let us walk through the proper three-step analysis as it applies specifically to Amazon FBA sellers. This is the same framework we covered in the Foundation section above, now applied to the facts of a typical FBA operation.
Applying Step 1: Sourcing the Income
For physical goods sold through Amazon FBA, the income is generally US-source because title to the goods passes to the buyer within the United States. The product is stored in a US warehouse, purchased by a US customer, and shipped from US soil. Unlike dropshipping (where the product never enters the US under the seller’s control), FBA involves US-based inventory that generates US-source income.
This is the step that causes many advisors to jump straight to “taxable.” But sourcing alone does not determine taxability. The IRS must also establish that the non-resident has a US Trade or Business — and this is where the analysis diverges from the conventional wisdom.
Applying Step 2: The Independent Agent Analysis
The central question for Amazon FBA sellers is whether their use of Amazon’s fulfillment network creates a US Trade or Business. The answer hinges on the independent agent doctrine.
Under IRC §864 and the regulations thereunder, a non-resident is considered to have a USTB if they conduct business through a dependent agent in the US — meaning an agent who acts primarily or exclusively on behalf of that one principal. However, if the agent is independent — acting on behalf of many principals in the ordinary course of their own business — the agent’s US activities do not create a USTB for the non-resident principal.
Amazon is unambiguously an independent agent. Amazon operates its fulfillment network as its own business, serving millions of sellers worldwide. It controls every aspect of the warehousing, picking, packing, and shipping process. It sets its own procedures, employs its own workers, and makes its own operational decisions. No individual seller directs Amazon’s fulfillment operations. Amazon acts on behalf of countless principals simultaneously — the textbook definition of an independent agent.
The IRS’s own interpretive framework, supported by case law including Inverworld, Inc. v. Commissioner and the principles from Commissioner v. Piedras Negras Broadcasting Co., draws a clear line between dependent and independent agents. Under these precedents, the activities of an independent agent are not attributed to the foreign principal for purposes of establishing a USTB.
The practical conclusion: A non-resident FBA seller who has no other US presence — no US office, no US employees, no authority to conclude contracts in the US — is relying entirely on Amazon (an independent agent) for US-side operations. Under current IRS interpretations and the weight of existing case law, this arrangement likely does not create a US Trade or Business. Without a USTB, the income cannot be classified as ECI, and no US federal income tax is owed.
Applying Step 3: Treaty Protection as a Safety Net
For sellers in treaty countries, the tax treaty provides an additional — and arguably definitive — layer of protection. Even in a hypothetical scenario where the IRS were to challenge the independent agent analysis and argue that an FBA seller does have a USTB, the treaty’s Business Profits article (typically Article 7) would override the domestic law.
Under Article 7, business profits are taxable only in the country of residence unless the business maintains a Permanent Establishment (PE) in the US. Amazon’s warehouses are Amazon’s PE, not yours. You do not own, lease, or control those facilities. The treaty exemption would apply, and the US tax liability would be zero.
This is why we always recommend filing: The treaty does not just provide an alternative argument — it eliminates all uncertainty. Whether or not the independent agent analysis holds up under IRS scrutiny, the treaty provides a separate, independent basis for zero US tax. Filing the return and claiming the treaty position is the belt-and-suspenders approach that protects our clients completely.
Case Study: Marcus from the United Kingdom
Amazon FBA Private Label · Treaty Country
Marcus is a UK resident who launched a private-label kitchenware brand on Amazon US in 2023. He sources products from a manufacturer in Shenzhen, ships them directly to Amazon’s fulfillment centers, and sells exclusively to US customers. In his first full year, he generated $340,000 in gross revenue with $85,000 in net profit after Amazon fees, cost of goods, advertising, and shipping.
Marcus formed a Wyoming LLC (single-member, disregarded entity) and obtained an EIN. He opened a Mercury bank account to receive Amazon disbursements and pay suppliers. His CPA filed Form 1040-NR with Form 5472 (pro-forma 1120), claiming the US-UK tax treaty exemption under Article 7 — Business Profits.
Under the independent agent analysis, Marcus’s FBA income likely does not constitute ECI in the first place — Amazon is an independent agent, and Marcus has no other US presence. However, by filing Form 1040-NR and claiming the treaty position, Marcus eliminates any remaining uncertainty. The treaty provides an independent, separate basis for zero US tax that does not depend on the agent classification analysis.
Result: Marcus paid $0 in US federal income tax on his $85,000 profit. He pays UK tax on this income in the UK, where his effective rate is lower than the US graduated rates would have been. His total US compliance cost was approximately $1,800 per year (CPA fees for Form 1040-NR and Form 5472, plus Wyoming’s $60 annual report).
Key takeaway: The treaty reduces all uncertainty. While Marcus’s FBA income is likely not taxable even without the treaty (based on the independent agent doctrine), the treaty gives him complete certainty and an airtight position if the IRS ever questions his filing. This is why we recommend treaty-country sellers always file — the cost of compliance is minimal compared to the protection it provides.
Case Study: Ana from Brazil — Dropshipping
Shopify Dropshipping · Products from China · Non-Treaty Country
Ana is a Brazilian entrepreneur who runs a Shopify store selling home décor products to US customers. She operates a dropshipping model: when a customer places an order, Ana’s supplier in Guangzhou ships the product directly to the customer in the US. Ana never holds inventory in the US, never uses a US warehouse, and manages her entire business from São Paulo.
In 2024, Ana generated $180,000 in gross revenue with $45,000 in net profit. Despite Brazil not having a comprehensive income tax treaty with the United States, Ana’s tax situation is favorable because of the nature of her business model.
Ana’s income is foreign-source. The products ship from China directly to US customers — they never enter the US under Ana’s control or ownership. She has no US inventory, no US warehouse, no US employees, and no US office. She does not use Amazon FBA or any US-based fulfillment service. The entire fulfillment chain occurs outside the United States from Ana’s perspective.
Because Ana has no US Trade or Business and her income is foreign-source, she owes $0 in US federal income tax — even without a tax treaty. She formed a Wyoming LLC to access Shopify Payments and a US bank account, and she files Form 5472 annually to report transactions between herself and her LLC. But the LLC does not change the sourcing analysis — it is a disregarded entity, and the substance of the business (dropshipping from China) determines the tax treatment.
Result: $0 US federal income tax. Ana pays Brazilian tax on her worldwide income in Brazil. Her US compliance costs are approximately $1,200 per year (Form 5472 filing and Wyoming annual report). She does monitor sales tax obligations in states where she exceeds economic nexus thresholds.
Key takeaway: Dropshipping from overseas suppliers eliminates the US tax question entirely — even for non-treaty country sellers. The critical distinction is that Ana never holds US inventory. If she were to switch to Amazon FBA (storing products in US warehouses), the analysis would change significantly.
E-Commerce Tax Strategies for International Sellers
A deep dive into structuring your e-commerce business for tax efficiency
Watch: E-Commerce Tax Strategies for International Sellers
Shopify & Independent Stores
Shopify & Independent Stores: Generally Not Taxable
For non-resident entrepreneurs running Shopify stores or other independent e-commerce websites, the tax analysis is generally straightforward: your income is not taxable in the US unless you have a US Trade or Business (USTB). Shopify itself is simply a software platform — it does not create a tax obligation. The question is whether you have sufficient US presence to constitute a USTB.
A non-resident Shopify seller creates a USTB only in specific circumstances. The three scenarios that would trigger a USTB are:
A US-Based Dependent Agent
If you have an employee, partner, or representative in the US who has the authority to conclude contracts on your behalf and regularly exercises that authority, their activities create a USTB for you. An independent contractor or platform (like Shopify or a fulfillment center) does not count — they must be acting primarily on your behalf.
Your Own US Warehouse or Office
If you lease or own warehouse space in the US where you store and ship your own inventory, that physical presence constitutes a USTB. This is different from using a third-party fulfillment service — the key is whether you control the facility. A 3PL warehouse that serves many clients is an independent service provider, not your fixed place of business.
Anything ‘On the Ground’ in the US
If you have employees working in the US, maintain a physical office, or conduct regular business activities on US soil through people under your direction, those activities can establish a USTB. Remote management of a Shopify store from abroad does not qualify — the activities must be physically occurring in the US under your control.
If none of these three conditions apply — and for the vast majority of non-resident Shopify sellers, they do not — then you do not have a USTB, your income is not Effectively Connected Income, and you owe $0 in US federal income tax. This is true regardless of whether your country has a tax treaty with the US. The treaty is not even necessary when there is no USTB.
This applies equally to dropshipping (where products ship from overseas suppliers directly to US customers) and to fulfillment from your home country. In both cases, the seller has no US presence, no US agent, and no US warehouse. The income is foreign-source, and the US has no basis to tax it.
The one exception to watch: If you use a US-based third-party fulfillment service (such as ShipBob or Amazon MCF) to store and ship your Shopify orders, the analysis becomes more nuanced. These services are independent contractors serving many clients, so they likely do not create a USTB under the independent agent doctrine. However, having physical inventory in the US does create sales tax nexus at the state level — a separate obligation from federal income tax.
Shopify Payments and the US LLC Requirement
One practical consideration that drives many non-resident Shopify sellers to form a US LLC is payment processing. Shopify Payments — the platform’s built-in payment processor, powered by Stripe — requires a US business entity with an EIN and a US bank account. Without Shopify Payments, you are limited to third-party payment gateways, which often charge higher transaction fees and may have their own verification requirements.
Forming a Wyoming or Delaware LLC, obtaining an EIN, and opening a Mercury or Revolut bank account gives you access to Shopify Payments and its competitive processing rates (typically 2.9% + $0.30 per transaction). It also provides a professional US business presence that builds trust with American customers and simplifies your accounting.
Case Study: Priya from India — Shopify Dropshipping
Shopify Store · Dropshipping from India · Treaty Country
Priya runs a Shopify store selling handcrafted jewelry. She designs the pieces herself and works with artisans in Jaipur who produce and ship each order directly to US customers. Priya never holds inventory in the US — every package ships from India via DHL Express.
In 2024, Priya generated $125,000 in revenue from US customers. She formed a Wyoming LLC to access Shopify Payments and opened a Mercury bank account. Her CPA determined that because all fulfillment occurs outside the US and Priya has no US inventory, her income is foreign-source. She filed Form 5472 to report transactions between herself and her LLC, but did not owe US federal income tax.
Priya does need to monitor her sales tax obligations. Because Shopify is not a marketplace facilitator in most states (unlike Amazon), Priya is responsible for collecting and remitting sales tax in states where she has economic nexus. With $125,000 in total US sales, she exceeded the $100,000 threshold in several states. She uses Shopify Tax to automate calculation and collection, and registered for sales tax permits in the five states where she had the highest volume.
Result: $0 US federal income tax. Approximately $4,200 in sales tax remitted to various states (collected from customers, not out of pocket). $1,500 in annual compliance costs.
Digital Products
Digital Products: The Most Tax-Efficient E-Commerce Model
Selling digital products — online courses, ebooks, software, design templates, music, photography presets, or any other downloadable or streaming content — is the most tax-efficient e-commerce model for non-resident entrepreneurs. The reason is straightforward: digital products created outside the US and delivered electronically do not involve US-based inventory, US-based fulfillment, or US-based business activities. The income is foreign-source.
Under the IRS sourcing rules, the source of income from the sale of personal property (including intangible property like digital products) is generally determined by the residence of the seller, not the location of the buyer. A non-resident who creates a digital course in Berlin and sells it to a customer in New York has generated foreign-source income. The fact that the customer is American, pays in US dollars, or uses a US payment processor does not change the sourcing analysis.
This is a fundamentally different situation from Amazon FBA. With FBA, you have physical inventory sitting in US warehouses — a tangible US asset generating US-source income. With digital products, there is no physical presence in the US at all. The product exists as data, created abroad, stored on servers (which may or may not be in the US — it does not matter for income tax purposes), and delivered electronically.
The Platform Does Not Determine the Source
A common misconception is that selling through a US-based platform — Gumroad, Teachable, Whop, Kajabi, or Shopify — makes the income US-source. It does not. The platform is simply a tool for delivery and payment processing. The IRS looks at where the product was created and where the seller resides, not which platform facilitated the transaction.
Similarly, receiving payment through Stripe (a US company) or into a US bank account does not convert foreign-source income into US-source income. The payment mechanism is irrelevant to the sourcing analysis. What matters is the substance of the activity: where was the intellectual property created, and where does the seller perform the work?
State Sales Tax on Digital Products
While digital product sellers generally escape US federal income tax, state sales tax is a separate obligation that cannot be ignored. The taxation of digital products varies dramatically by state. Approximately 25 states impose sales tax on digital goods, while roughly 20 states exempt them. The rules are not always intuitive — some states tax downloaded software but exempt streaming content, while others do the opposite.
States that tax digital products include New York, Texas, Washington, Pennsylvania, Connecticut, and several others. States that generally exempt digital products include California (with some exceptions), Florida, Missouri, and Virginia. If you sell digital products to customers in taxing states and exceed the economic nexus threshold (typically $100,000 in sales), you may need to register for a sales tax permit and collect tax on those transactions.
Unlike Amazon, platforms like Gumroad, Teachable, and Whop are generally not marketplace facilitators for sales tax purposes. This means the responsibility for collecting and remitting sales tax falls on you, the seller. Some platforms offer built-in tax calculation tools, but registration and filing remain your obligation.
Case Study: Lukas from Germany — Digital Course Creator
Teachable + Whop · Digital Products · Treaty Country
Lukas is a German software engineer who created a series of online courses teaching Python programming. He hosts his courses on Teachable and sells a community membership through Whop. All content is created from his apartment in Munich. In 2024, he earned $180,000 from US customers and $95,000 from customers in other countries.
Lukas formed a Wyoming LLC and opened a Mercury bank account to streamline payment collection and present a professional US business presence. His CPA determined that because Lukas creates all content in Germany and delivers it digitally, his income is foreign-source. He does not have a US Trade or Business, and his income is not ECI. He filed Form 5472 to report the transactions between himself and his LLC.
Even though Lukas has the additional protection of the US-Germany tax treaty, the treaty was not even necessary in his case — his income was foreign-source regardless. The treaty would only matter if his income were somehow classified as ECI, which it is not.
Result: $0 US federal income tax on $180,000 in US sales. Lukas pays German income tax on his worldwide income. His total US compliance cost is approximately $1,200 per year. He earns $275,000 globally with a US tax bill of zero.
Sales Tax Nexus
Sales Tax Nexus: What South Dakota v. Wayfair Means for You
Sales tax is a completely separate system from federal income tax. It operates at the state level, follows its own rules, and is not affected by tax treaties. Even if you owe zero federal income tax, you may still have sales tax obligations in multiple states. Understanding how sales tax nexus works is essential for every non-resident e-commerce seller.
Before 2018, states could only require a business to collect sales tax if the business had a physical presence in the state — an office, a warehouse, an employee, or inventory. This changed dramatically with the Supreme Court’s decision in South Dakota v. Wayfair, Inc. (2018), which established that states can impose sales tax collection obligations based on economic nexus — meaning the volume of sales into the state, regardless of physical presence.
Economic Nexus: The New Standard
Following the Wayfair decision, all 45 states with a sales tax (plus the District of Columbia) have enacted economic nexus laws. The most common threshold is $100,000 in sales or 200 transactions within the state during the current or prior calendar year. However, thresholds vary by state, and several states have been eliminating the transaction threshold in recent years, leaving only the dollar amount.
For example, New York requires $500,000 in sales and 100 transactions (both conditions must be met). California’s threshold is $500,000 in sales with no transaction requirement. Texas uses $500,000 in sales. Most other states use the standard $100,000 threshold. As of 2025, Utah and Alaska have eliminated their 200-transaction thresholds, joining a growing trend toward dollar-only triggers.
When you exceed the economic nexus threshold in a state, you are required to register for a sales tax permit, collect sales tax from customers in that state, and file regular returns (monthly, quarterly, or annually depending on your volume). Failure to comply can result in penalties, interest, and back-tax assessments.
Physical Nexus: The FBA Inventory Problem
Economic nexus is not the only trigger. Physical nexus — the traditional standard — still applies and is particularly relevant for Amazon FBA sellers. When you send inventory to Amazon, the company distributes it across its network of over 100 fulfillment centers in approximately 25 states. You have no control over which states your inventory goes to — Amazon’s algorithm optimizes for delivery speed, not your tax compliance.
The presence of your inventory in a state creates physical nexus in that state. This means that even if your sales into a particular state are below the economic nexus threshold, you may still have a sales tax obligation because your products are physically stored there. This is one of the most overlooked compliance issues for non-resident FBA sellers.
Physical Nexus: The FBA Inventory Problem
The good news for Amazon sellers is that marketplace facilitator laws have significantly simplified sales tax compliance. Under these laws, the marketplace (Amazon, Walmart, eBay, Etsy) is responsible for calculating, collecting, and remitting sales tax on behalf of third-party sellers. As of 2025, all 45 states with sales tax have enacted marketplace facilitator laws, and Amazon complies with all of them.
This means that if you sell exclusively through Amazon, the platform handles your sales tax obligations in most cases. However, there are important caveats. Some states still require the underlying seller to register for a sales tax permit even when the marketplace collects the tax. A few states require permits before you can legally sell in the state. And if you sell through multiple channels — say, Amazon and your own Shopify store — the marketplace facilitator law only covers your Amazon sales. Your Shopify sales are your responsibility.
Shopify Sellers: You Are on Your Own
This is a critical distinction that many non-resident sellers miss. Shopify is not a marketplace facilitator in most states. Unlike Amazon, Shopify does not collect and remit sales tax on your behalf. Shopify is a software platform that enables you to build and run your own store — the tax obligations belong to you, the store owner.
Shopify does offer Shopify Tax, a built-in tool that calculates the correct sales tax rate for each transaction based on the customer’s location. It can also help you track when you approach or exceed nexus thresholds in each state. However, Shopify Tax does not register you for sales tax permits, does not file your returns, and does not remit the tax to state authorities. Those responsibilities are yours.
If you operate a Shopify store with significant US sales, you should work with a sales tax compliance service (such as TaxJar, Avalara, or a CPA specializing in e-commerce) to identify your nexus states, register for permits, and automate your filing process. The cost is typically $200–$500 per month depending on the number of states, but the alternative — years of uncollected sales tax liability accumulating across multiple states — is far more expensive.
Common Mistakes
Seven Costly Mistakes Non-Resident E-Commerce Sellers Make
After working with hundreds of non-resident e-commerce sellers, we have identified the mistakes that cause the most financial damage. Some of these errors result in unnecessary tax payments. Others create compliance risks that can escalate into five- and six-figure liabilities. All of them are avoidable with proper planning.
1
Assuming All E-Commerce Income Is Automatically Taxable
Many CPAs and online advisors reflexively classify all e-commerce income as taxable ECI. The reality is more nuanced. Amazon FBA income is likely not taxable under the independent agent doctrine, Shopify sellers without US presence have no USTB, and digital product sellers have foreign-source income. The tax treatment depends on the specific facts of your business — not assumptions. Always work with a CPA who understands the independent agent analysis and income sourcing rules.
2
Not Filing US Tax Returns to Claim Treaty Protection
Even though Amazon FBA income is likely not taxable under the independent agent doctrine, we always recommend filing a US tax return to claim the treaty position. The treaty provides an independent, separate basis for zero US tax that eliminates all uncertainty. If you fail to file and the IRS later challenges the independent agent analysis, they can assess tax on your gross income with no deductions. On $300,000 in gross revenue, this could mean a tax assessment exceeding $100,000. Filing is your insurance policy.
3
Confusing Sales Tax with Income Tax
These are two completely separate tax systems. Income tax is federal, based on your profit, and may be eliminated by a tax treaty. Sales tax is state-level, based on the transaction amount, collected from the customer, and is never affected by treaties. We regularly encounter sellers who believe that because they owe no income tax, they have no sales tax obligations. The two systems have nothing to do with each other.
4
Ignoring State Income Tax Obligations
While most non-resident FBA sellers do not need to worry about state income tax (the threshold is generally very high — $5 million or more in annual sales, or $500,000+ in sales into a single state with $50,000+ in inventory), high-volume sellers can trigger state filing requirements. States like California, New York, and Illinois have aggressive filing requirements for businesses with significant in-state activity.
5
Using the Wrong Entity Structure
Some non-resident sellers form a US C-Corporation on the advice of a formation agent who does not understand international tax. A C-Corp pays a flat 21% federal tax on profits with no treaty exemption available for business income. The same seller operating through a single-member LLC in a treaty country would pay 0%. This single decision can cost tens of thousands of dollars per year. Always consult a CPA who specializes in non-resident taxation before choosing your entity structure.
6
Failing to Track Deductible Expenses
For non-treaty country sellers who must pay US income tax on FBA profits, every deductible expense directly reduces the tax bill. Cost of goods sold, Amazon referral fees, FBA fees, advertising spend, shipping costs, product photography, software subscriptions, and even a portion of your home office expenses may be deductible. Sellers who do not maintain organized records end up paying tax on a higher income figure than necessary.
7
Treating Digital Products the Same as Physical Products
The tax treatment of digital products is fundamentally different from physical products. A non-resident selling ebooks from Portugal has foreign-source income and owes no US tax. A seller using Amazon FBA has a different analysis involving the independent agent doctrine and treaty protection. While FBA income is likely not taxable either, the reasoning is different and the filing requirements are more involved. Sellers who pivot from digital to physical products (or vice versa) without updating their tax strategy and compliance approach can create unnecessary risk.
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Understand ECI vs. FDAP, treaty benefits, and ITIN acquisition. Ensure your income classification is correct.
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Annual Form 1040-NR, Form 5472, state reports, and FBAR. Zero tax doesn’t mean zero paperwork.
Remote Service Providers
If you also provide services alongside your e-commerce business, understand the different sourcing rules.
Frequently Asked Questions
E-Commerce Tax Questions, Answered
Based on current IRS interpretations and existing case law, Amazon FBA income is likely not taxable for non-resident sellers. The key analysis centers on whether Amazon acts as a dependent or independent agent. Because Amazon operates its fulfillment network for millions of sellers and controls all warehousing operations independently, it qualifies as an independent agent — meaning its US activities do not create a US Trade or Business for the non-resident seller. For sellers in treaty countries, the tax treaty provides an additional layer of certainty by eliminating any tax even if the IRS were to argue otherwise. We always recommend filing the appropriate returns to claim the treaty position and document the independent agent analysis.
Not necessarily. Many non-resident sellers operate through their home-country entity and submit a W-8BEN-E to Amazon. However, forming a US LLC offers significant advantages: it makes opening a US bank account easier, provides a professional presence for suppliers and customers, and simplifies the annual filing process. If you are in a treaty country, a single-member LLC (disregarded entity) allows you to claim the treaty exemption through Form 1040-NR.
Effectively Connected Income (ECI) is income connected to a US trade or business — such as selling physical products stored in US warehouses. Foreign-source income is income that originates outside the US — such as digital products created and delivered from abroad, or services performed outside the US. The distinction is critical: ECI is potentially taxable (unless a treaty applies), while foreign-source income is generally not subject to US tax for non-residents.
Yes, in most cases. Under marketplace facilitator laws now enacted in all 45 states with sales tax (plus DC), Amazon calculates, collects, and remits sales tax on your behalf. However, some states still require the underlying seller to register for a sales tax permit even when the marketplace handles collection. If you sell through your own Shopify store, you are responsible for sales tax compliance yourself, though Shopify Tax can help with calculation.
The 2018 Supreme Court decision in South Dakota v. Wayfair overturned the physical presence requirement for sales tax collection. States can now require remote sellers to collect sales tax based on economic nexus — typically $100,000 in sales or 200 transactions within the state. For non-resident sellers on Amazon, this is largely handled by Amazon as a marketplace facilitator. For independent Shopify stores, you must monitor your sales thresholds in each state and register when you exceed them.
It depends on the state. Approximately 25 states tax digital products (including downloads, streaming content, and SaaS subscriptions), while roughly 20 states exempt them. For federal income tax purposes, digital products created and delivered from outside the US by a non-resident are generally considered foreign-source income and are not subject to US income tax. The key distinction is that no physical inventory enters the US, unlike Amazon FBA.
The required forms depend on your entity structure and treaty status. A single-member LLC owned by a non-resident individual typically files Form 1040-NR (to report income and claim a treaty exemption) and Form 5472 with a pro-forma 1120 (to report transactions between the LLC and its foreign owner). You will need an ITIN to file the 1040-NR. If you operate through a foreign entity, you file Form 1120-F instead. All forms are due by April 15th, with extensions available.
Technically yes — Shopify does not require a US entity. However, without a US LLC and EIN, you cannot activate Shopify Payments (the built-in payment processor), which means you would need to rely on third-party payment gateways like PayPal or Stripe. Forming a US LLC also gives you access to US bank accounts, better payment processing rates, and a more professional appearance to US customers.
Inventory nexus means that storing physical goods in a state creates a tax connection (nexus) between your business and that state. When you use Amazon FBA, Amazon distributes your inventory across its network of 100+ fulfillment centers in approximately 25 states. You have no control over which states your inventory goes to. This creates physical nexus in every state where your products are stored, which can trigger sales tax registration and filing obligations beyond what Amazon handles as a marketplace facilitator.
Not necessarily. Under the independent agent analysis, Amazon FBA income may not constitute ECI even for non-treaty country sellers, because Amazon acts as an independent agent rather than a dependent agent. However, without a treaty safety net, non-treaty sellers face more uncertainty if the IRS were to challenge this position. We recommend that non-treaty country FBA sellers maintain thorough documentation of their business operations and consult with a qualified international tax CPA to evaluate their specific facts and circumstances. The analysis depends on factors like whether the seller has any other US presence beyond the FBA arrangement.
For most non-resident e-commerce sellers, a single-member LLC is the preferred structure. It is a disregarded entity for tax purposes, meaning income passes through to you personally. If you are in a treaty country, this allows you to claim the treaty exemption on Form 1040-NR. A US corporation (C-Corp) pays a flat 21% corporate tax rate with no treaty exemption on business profits, plus additional tax on dividends. The only scenario where a corporation might make sense is if your home country’s tax rate is significantly higher than 21%.
When a customer returns a product, the sales tax collected on that transaction should be refunded as well. On Amazon, this is handled automatically — Amazon processes the refund including the sales tax portion. On Shopify, your refund workflow should include the sales tax amount. For your own records and any state filings, you should track returns and the associated sales tax adjustments. Most states allow you to claim a credit or deduction for sales tax refunded on returned merchandise.
The ongoing costs for a non-resident e-commerce LLC typically include: state annual report or franchise tax ($50–$300 depending on the state), registered agent service ($100–$200 per year), CPA services for Form 5472 and Form 1040-NR ($800–$2,500 per year), and optionally a virtual mailbox ($150–$300 per year). Wyoming LLCs have the lowest annual fees at $60 per year. Total annual maintenance costs typically range from $1,200 to $3,500, depending on the complexity of your business and the CPA you choose.
Yes, dropshipping to US customers is possible without a US LLC if you operate through your home-country entity. Since dropshipping typically means the product ships directly from the supplier to the customer and you never hold US inventory, you may not have physical nexus for sales tax purposes. However, you could still have economic nexus if your sales exceed state thresholds. A US LLC is still recommended for payment processing, professional credibility, and simplified tax compliance.
Initial setup costs for a non-resident e-commerce LLC typically include: state filing fee ($100 in Wyoming, $90 in Delaware), registered agent ($100–$200 for the first year), EIN application (free from the IRS, or $50–$200 if using a service), and US bank account opening (free at Mercury or Revolut). If you use a formation service like James Baker & Associates, packages typically range from $500 to $2,000 and include formation, EIN, bank account assistance, and initial compliance setup. Total first-year costs are usually $800–$2,500.
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