Amazon Tax Guide for Canadian Sellers in the United States & Canada

Amazon Tax Guide for Canadian Sellers in the United States & Canada

Amazon Tax Guide for Canadian Sellers in the United States & Canada 1280 815 Baranov CPA

Table of Contents

I. Amazon Registration for Canadian Sellers
II. Canadian Income Tax Requirements for Amazon Sellers
III. Canadian Sales Tax Requirements for Amazon Sellers
IV. United States Income Tax Requirements for Canadian Amazon Sellers
V. United States Sales Tax Requirements for Canadian Amazon Sellers
VI. Amazon Tax and Accounting-related Questions from Canadian Sellers
VII. References

I. Amazon Registration for Canadian Sellers

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What do I need to register for an Amazon Sellers account?

You need to be a resident of one of the countries accepted for registration (see the link in the references section). You need to have an address, valid phone number, and internationally chargeable credit card.

In addition, as part of the registration process, you may be asked to provide the following documentation:

For individual identification, government-issued photo ID (e.g., Permanent Resident card or passport). The document needs to show the following fields:

  • Name
  • Date of Birth
  • Expiry Date
  • Signature of the bearer (if applicable)
  • Country of issuance or country of citizenship

For business identification, you may be asked to provide confirmation of business identity. For example:

  • Business registration documents (certificate of incorporation, business license, etc.)
  • Proof of business address (mailed bank statements, utility bills, etc.)

What does it mean to be a resident for Amazon Seller registration purposes?

For Canadian Amazon Sellers that would be a permanent resident or a citizen status.

Can I use my Canadian bank account for registration?

Yes. But you will be charged a 3.5% currency conversion fee when you are transferring the amounts to Canada for your U.S. sales. A USD checking account with a Canadian bank would not work either (in fact you may be charged the conversion fees twice) i) when Amazon sends you the money to a USD account in CAD and ii) when your bank converts the delivered CAD amount back to USD).

We recommend opening a separate cross-border USD checking account (see the link in the references section). Some banks like RBC, BMO and TD are offering these types of business accounts. There are also virtual banks like OFX and Transferwise who are offering online bank accounts that function like normal U.S. bank accounts.

Having a separate bank account will also save you some FX conversion costs if you want to pay your suppliers in USD directly from your account without paying an exchange, credit card or PayPal fees.

Do I need to open a U.S. business entity (LLC, S-Corp, C-Corp) to register for an Amazon Sellers account?

No. You don’t need to open a U.S. entity to start selling on Amazon in the U.S. In fact, it will add another layer of compliance and complexity to your business.

What type of Canadian entities can register for an Amazon Sellers account?

You can register your business on Amazon as one of two entity types:

  • Individual / Sole Proprietorship
  • Business (Partnership or Corporation)

Should I open a Canadian corporation to sell on Amazon?

A corporation is not a requirement. You can sell as an individual seller / sole proprietor. Opening a corporation should be a business decision unique to your circumstances. We discuss pros and cons of main business structures for your e-commerce business in this article.

Do I need an Employer Identification Number (EIN) to start selling on Amazon.com as a Canadian seller?

No. You don’t need an EIN to start selling on the Amazon.com account.

When do I need an Employer Identification Number (EIN)?

If you are planning to use Fulfilled by Amazon (FBA) services and import goods into the U.S., then you will need an EIN for filing your income tax returns with the Internal Revenue Service (IRS) as well sales tax and state tax returns with individual states. You also may be asked to provide an EIN or W8/W9 forms when you deal with U.S. vendors.

How can I get an EIN?

If you need an EIN, you can call the Internal Revenue Service at 1-267-941-1099 Option 1 (not a toll-free number). The agent will ask a few questions. For example:

  • Are you based in the U.S.?
  • If not, what country is the business located?
  • What is the mailing address?
  • What type of entity are you?
  • What is the legal name of the entity?
  • When was the business started?
  • How many people work in the company?
  • What is the reason for applying?

The Internal Revenue Service (IRS) will send you a letter to the mailing address provided. Please make sure you save that letter when you receive it.

Note that once you obtain an EIN, the IRS will expect you to start filing income U.S. tax returns for that entity on an annual basis. Your compliance costs will increase as you will start needing an accountant who is familiar with e-commerce and U.S. filing requirements for Canadian companies.

If you don’t need the EIN any longer, you may request the IRS to close your account in writing. The account cannot be closed if you have any returns or taxes outstanding with the IRS (link for more details in references).

What are the forms W9, W-8BEN or W-8BEN-E and when do I need them?

The form W9 identifies you as a U.S. taxpayer. It can only be provided by U.S. individuals or tax entities.

The forms W-8BEN (for individuals) or W-8BEN-E (for businesses) identify you as a foreign person or entity. By law, non-resident payments are subject to the U.S. withholding tax of 30%. These forms establish your status as a foreign person or entity and may decrease the withholding tax to 0%, depending on the tax treaty between the U.S. and the country where the foreign person or entity is resident.

The U.S.-Canada Tax Treaty reduces the withholding taxes paid by foreign Canadian entities to 0%. You should have that form available if any of the U.S. vendors request it.

Note that filling out forms W-8BEN or W-8BEN-E does not release you from the responsibility to file U.S. income tax returns if you earned Effectively Connected Income in the U.S. (more details on that further down the article).

 

II. Canadian Income Tax Requirements for Amazon Sellers

amazon tax canada guide accounting sellers ecommerce

If you decide to open a Canadian corporation for your Amazon e-commerce business, what corporation type is better, provincial or federal?

There is no difference from the tax standpoint. Both types of corporations are taxed exactly the same. The main difference between the two has to do with the name protection. With a federal corporation, your business name is protected across all provinces; with provincial it is only protected in the province of incorporation.

What are the advantages and disadvantages of incorporating my Amazon e-commerce business?

The advantages include:

  • Significant tax deferral on the first $500,000 of net income
  • Tax planning opportunities (salary vs. dividends options)
  • Limited liability protection

The disadvantages include:

  • Higher compliance, maintenance and accounting fees
  • The money belongs to the corporation (need more planning around it)
  • Harder to get insurance in the U.S. for a non-U.S. entity

A more detailed discussion of the advantages and disadvantages of incorporating an e-commerce business is discussed in this article.

When should I incorporate my business?

Generally, we recommend incorporating if you want to limit your liability and do not need all the profits earned by the business for your personal expenses.

If you are just starting out and testing the waters, you may decide to operate as a sole proprietorship for some time to limit compliance costs. You don’t need a corporation to start selling your products in Canada or in the U.S.

We recommend comparing compliance costs against long-term benefits and see if that legal structure is right for your online store at the moment.

What are my income tax obligations as an Amazon seller in Canada?

As a Canadian resident, your worldwide income is subject to Canadian tax.

If you operate as a sole proprietor or a partnership, you will need to fill out form T2125 for your Amazon e-commerce business income from all countries. If you operate multiple businesses, you will need to fill out separate T2125 forms for each type of business.

The net between revenues and expenses for each business is what will be added to your personal income on your T1 return and taxed at your personal marginal tax rates.

The tax return will need to be filed by June 15th of every year, with interest starting to accrue on tax amounts due from April 30.

If you operate a corporation, you will need to file a T2 for your corporation within six (6) months of the fiscal year-end, with interest starting to accrue on tax amount due from three (3) months after the fiscal year-end.

 

III. Canadian Sales Tax Requirements for Amazon Sellers

amazon tax canada accounting guide for sellers ecommerce

What is sales tax and how is it different from income tax?

Sales taxes are the amounts that a state/province obligates businesses to collect from customers on behalf of the government. The sales tax amount is charged on top of the sales price of the product and then remitted to the government when the sales tax filing is due. The sales tax is not coming out of businesses’ pockets.

Whereas income taxes are charged by governments on the net amount between revenues and expenses that was earned by a business during a specific period of time, income tax is an expense to a business.

What are the sales tax requirements (GST/HST/PST) in Canada for Amazon Sellers?

GST = Goods and Service Tax (charged by federal government)

HST = Harmonized Sales Tax (charged by federal government)

PST = Provincial Sales Tax (charged by provincial government)

RST = Retail Sales Tax (charged by provincial government)

QST = Quebec Sales Tax (charged by Quebec provincial government)

In general, Canadian and non-Canadian businesses operating in Canada should charge and remit sales taxes on their products if their worldwide taxable sales revenue in the last or any of the last four (4) consecutive quarters exceeded $30,000.

The percentage of sales tax charged depends on i) the province in which the business is located (i.e., place of business) ii) the province in which the product is delivered (i.e., place of supply).

The current GST/HST sales tax rates for product delivery to these provinces are:

  • 5% GST in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon
  • 13% HST in Ontario
  • 15% HST in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island

In addition to GST/HST collections, if the business is located in a non-participating province (i.e., non-HST province), it has to collect the provincial taxes (PST/RST/QST).

You don’t have to collect PST/RST if you don’t have a physical presence in that province (with the exception of Quebec, see update below).

For example, if your business is located in Ontario and sells a product to a BC customer, you need to charge 5% GST on top of the sale price.

Another example: your business is located in British Columbia and ships your product to Manitoba. You need to collect 5% in GST from your customer.

However, if you are located in British Columbia and ship the product to a customer in British Columbia, you will need to collect 5% in GST and 7% in PST. The GST portion needs to be sent to the federal government; the PST portion will need to be sent to the provincial government.

*** Update 01/01/2019: We are seeing some major changes in the provincial sales tax legislation in Canada. For sales to Quebec residents, starting from January 1, 2019 online sellers have to register and start collecting QST on top of GST regardless of where they are located in the world.

Canadian online sellers have until September 1, 2019 to register and start collecting QST.

What sales taxes should I collect if I use Amazon FBA services for my Canadian sales?

It will depend on the location of the Amazon warehouse from where the purchase order is dispatched. If the Amazon warehouse is located in a participating province (i.e., HST province) they should only collect federal sales taxes (GST/HST).

If the Amazon warehouse is located in a non-participating province (i.e., non-HST province) and there was a sale made in that province, they should collect federal sales taxes (GST/HST) AND provincial sales taxes (PST/RST/QST) for that sale.

We have created this Google Sheet to summarize Canadian Sales Tax requirements and make things clearer:

Canadian Sales Tax Grid For Amazon Sellers

Note: you will need a Google account to access this document.

 

IV. United States Income Tax Requirements for Canadian Amazon Sellers

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How does the U.S. income tax work for Canadian businesses?

To understand the applicable U.S. income tax laws, we need to understand how the U.S. tax system works. (Note that the U.S. tax system is one of the most complex systems in the world. You will need to consult with a professional cross-border tax accountant to get proper advice for your specific situation).

In general, to determine how your U.S. earned income should be taxed, you will need to determine the degree of your company’s involvement in the U.S.

Level 1. Your company does not have any connections to any of the U.S. suppliers. You are simply soliciting, accepting and fulfilling orders out of Canada (e.g., Amazon Fulfilled by Merchant). You don’t have any offices and any employees on the U.S. soil. You don’t use any vendors and don’t deal with any suppliers.

Level 2. Your company is using U.S. suppliers and logistics (i.e., Fulfilled by Amazon or other 3rd Party Logistics) to produce revenue, but does not have employees, office or warehouses in the U.S. In that case, your company is deemed to be “engaged in a trade or business in the United States (ETBUS)” and have generated “Effectively Connected Income (ECI)”.

Level 3. Your company has an office or employees in the U.S. (i.e., fixed place of business). You regularly conduct business with U.S. companies. You have continuous projects (over 12 months) or you provide services for 183 days or more in the U.S. In those cases, you will be deemed to have an Effectively Connected Income (ECI) and a Permanent Establishment (PE) in the U.S.

What constitutes an Effectively Connected Income (ECI) for Canadian Amazon Sellers?

In order to have ECI in the U.S., you need to have considerable, continuous, and regular business activity. Examples of that activity include:

  • Using 3rd Party Logistics (3PL) like Amazon FBA
  • Use of U.S. facilities (warehouses, storage, display)
  • Passing the title of imported goods in the U.S. (if you are importing from another country)
  • Using dependent agents (like employees or salespersons) to conduct business in the U.S.
  • Having a US-based bank account

Note that isolated, sporadic transactions will not be considered as the U.S. trade or business income.

What constitutes a Permanent Establishment (PE) for Canadian Amazon Sellers?

To be deemed to have a PE in the U.S., you will generally need to be physically present in the country. For example,

  • Fixed place of business (office, employees, factory)
  • Presence of dependent agents who has the authority to execute contracts (e.g., a sales agent who travels to the U.S. frequently to conclude contracts)

What are my income tax obligations in the U.S. as a Canadian Amazon Seller?

Now that we discussed three general scenarios of how foreign businesses are taxed in the U.S., we can discuss the filing requirements for your Amazon e-commerce business.

Level 1 scenario: In case if you don’t have any Effectively Connected Income (ECI) in the U.S., you are not obligated to file any income tax returns with the Internal Revenue Services (IRS). Your net income from worldwide sources will be fully taxed in Canada.

Level 2 scenario: In case if you have Effectively Connected Income (ECI), but no Permanent Establishment (PE), your business needs to file:

  • For individuals/sole proprietorships/partnerships: file Form 1040NR U.S. Non-resident Alien Income Tax Return and Form 8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) to claim tax relief under the U.S.-Canada Tax Treaty.
  • For corporations: file Form 1120-F U.S. Income Tax Return of a Foreign Corporation together with Form 8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) to claim relief under the treaty.

These are informational forms, your business will not be liable for income taxes in the U.S. However, the IRS will want to know about your business activity in the U.S. as a foreign corporation.

Level 3 scenario: If you have Effectively Connected Income (ECI) AND a Permanent Establishment (PE) in the U.S., then you need to file the 1040NR (for individuals/ sole-proprietors) / 1120-F (for corporations). Form 8833 is not necessary since your income will no longer be protected by the U.S.-Canada Tax Treaty.

In addition, your company will be subject to the state filing requirements in the state where you are deemed to have a Permanent Establishment (PE).

If you have ECI & PE in the U.S., your U.S-sourced income will be effectively first taxed in the U.S. and then in Canada. However, you can claim a foreign tax credit in Canada to avoid double taxation on the Effectively Connected Income in the U.S.

Finally, note that if you have opened an EIN for your business (for importing or bank account purposes, for example), the IRS will be expecting a tax return from your business regardless of the scenario.

What are the filing deadlines for U.S. income tax returns?

For individuals/sole proprietors: 15th day of the 6th month following calendar year-end (i.e., June 15).

For Canadian corporations with ECI, but no PE: 15th day of the 6th month following the fiscal year-end.

For Canadian corporations with ECI and a PE in the U.S.: 15th day of the 4th month following the fiscal year-end (15th day of the 3rd month with June 30th year-end).

You can also request an extension in writing before the deadline (not discussed here).

Non-disclosure penalties can be levied against your business in case you don’t file, even if there was no taxable income or full reduction under a tax treaty.

Make sure you file your U.S. income tax returns on time to avoid those penalties.

What are the filings requirements if I opened a U.S. corporation for my Amazon business (C-Corp, S-Corp)?

The IRS will expect you to file U.S. tax returns for a U.S. corporation. At the same time, if you are a resident of Canada for tax purposes (generally, if you live in Canada for more than 183 days a year), then the Canadian government will declare your business entity a resident of Canada for Canadian tax purposes.

You will end up paying higher compliance costs as you will need to file both U.S. and Canadian taxes for the same business entity.

Double taxation can be avoided by the CRA granting foreign tax credits on taxes paid to the IRS.

What if I opened a U.S. LLC for my Amazon business?

An LLC owned by a single non-resident owner is considered to be a disregarded entity.  If you do have Effectively Connected Income (ECI), but no Permanent Establishment (PE), then you will need to file 1040NR form along with Schedule C form. In addition, you will be required to file Form 5472. For U.S. tax relief under the treaty, you should file Form 8833.

You will also need to obtain an Employer Identification Number (EIN) and Individual Tax Identification Number (ITIN) to file these forms.

If you don’t have any Effectively Connected Income (ECI), then you are still obligated to file. You should file 1120 Pro Forma and Form 5472 to avoid penalties.

To make things clearer, we have created this Google Sheet to summarize U.S. and Canadian Income Tax Filing requirements:

U.S. & Canada Income Tax Filing Requirements for Amazon Sellers

Note: you will need a Google account to access this document.

 

V. United States Sales Tax Requirements for Canadian Amazon Sellers

amazon tax canada guide sellers usa ecommerce

What makes the U.S. sales taxes complicated for Amazon Sellers?

The biggest problem with sales taxes is tracking, filing and reporting them to appropriate authorities. If you sell your products in Canada from a participating province (i.e., HST province), you only need to track one GST/HST account. If you sell from a non-participating province (i.e., non-HST province) to customers in that province, then in addition to GST/HST, you need to collect, track and remit PST/RST/QST provincial sales tax.

That creates additional compliance and filing requirements for small businesses, but it is fairly manageable compared to the U.S.

In contrast, the U.S. has 50 states that have multiple counties and municipalities each imposing their local taxes.  Washington DC and 45 states collect statewide taxes. In addition, local taxes are collected in 38 states by various counties and municipalities.

What are the U.S. sales tax requirements for Canadian Amazon Sellers?

By law, an Amazon seller is obligated to collect and remit the sales tax if the goods are delivered to a customer AND there is a sales tax nexus present in that state. In general, a presence of an Amazon warehouse constitutes a sales tax nexus, and hence, the business is obligated to collect and remit sales taxes to that state or county.

In addition, a number of states will force sellers to collect sales taxes if you make a certain amount of sales in that state (called economic nexus).

If one would do it by the book, it would create immense costs of compliance for Amazon sellers in the range of tens of thousands of dollars. The business would need to register for a sales tax account with every state and county where they ship their products and where there is a sales tax nexus.

Then an Amazon seller would need to start collecting and tracking all sales taxes in separate accounts using specialized software. Finally, sales taxes should need to be remitted to every state or county before specific deadlines.

The costs of software and tax filing with every state and county will become very high.

Do I really need to register in every state, collect and remit the sales tax amounts for my Amazon business?

The U.S. state tax laws say yes. However, from a business owner standpoint, you need to make a business decision. Weighing the risk and exposure to potential taxes and penalties vs. cost of compliance is something you will need to consider.

If you are an Amazon seller making more than seven-figures a year, does it make sense for you to pay for all the accounting and tax compliance fees? Probably, yes.

If you are an Amazon seller who sells products in smaller quantities, can your business live with the risk of one or two states coming back to you to collect taxes plus penalties & interest? You should make that decision for your business.

What are my sales tax obligations if I do drop shipping using Amazon or any other services in the U.S.?

By using drop shipping services, you are effectively using suppliers and 3rd Party Logistic (3PL) services in one of the states. If you sell in the states where those suppliers have a sales tax nexus (warehouse, office, factory, etc.), then you are obligated to collect and remit sales taxes.

Does the U.S.-Canada Tax Treaty provide relief from sales and state taxes for Canadian sellers?

No. The U.S.-Canada Tax Treaty only provides relief from federal income tax for businesses that don’t have a permanent establishment (PE) in the U.S. Individual states are not bound by tax treaties with Canada or any other countries.

Will I need to collect sales taxes if I don’t use Amazon FBA services and ship products directly from Canada to the U.S.?

No. If you are fulfilling the orders yourself without using U.S. logistics and warehouses, then you should not collect any sales tax since your business will not have a sales tax nexus in any of the states.

 

VI. Amazon Tax and Accounting-related Questions from Canadian Sellers

What are my record-keeping obligations as an Amazon Seller?

Any individual or business in Canada is obligated to keep records and supporting documentation for six (6) years after the end of tax year. Since you file after the end of the tax year, we recommend keeping records for at least seven (7) years.

What accounting software do you recommend using for Canadian Amazon Sellers?

We recommend accounting software that is cloud-based and integrates well with inventory tracking apps. Also, the software needs to track foreign exchange gains/losses since you may have sales income in different currencies.

The two biggest accounting software providers Quickbooks Online and Xero will be able to do the job for you.

What are the most common tax deductions allowed for Canadian Amazon Sellers?

Amazon sellers may claim the cost of goods sold, home office expense, promotional expenses, business travel, accounting, and legal fees as part of their income tax deductions.

Note that cost of inventory that was not sold is not tax deductible. It can only be deducted when a sale was made.

You can find a complete list of CRA-approved small business tax deductions under this link.

What is the likelihood of a CRA / IRS audit for my Amazon e-commerce business?

Businesses are selected for audits for a multitude of reasons. The major reasons why your business can be selected for an audit are:

  • Random selection
  • Review of a specific industry in a given year
  • Lack of compliance in prior years
  • Higher than normal or unusual deductions compared to industry averages and benchmarks
  • Cross-matching from other businesses (e.g., an auditor will check if you reported income that was expensed by another business)
  • Anonymous tips from exes, nice neighbours, bad friends through the snitch telephone line (this is more common than you think)

Can you give some accounting advice for those Amazon Sellers who are just starting out?

We can suggest a couple of accounting tips for new Amazon sellers:

  • Keep clean records and receipts for all transactions
  • Create separate bank and credit card accounts for business expenses
  • Use accounting software and enter transactions regularly
  • Speak with an accountant about how to organize your business before you open anything
  • Know all your filing and reporting requirements
  • Educate yourself about business related terms so that you can speak more easily with your accountant

When should I outsource bookkeeping and accounting for my Amazon business?

It depends. If you are bootstrapping and just starting out, you may have time to do bookkeeping and accounting yourself. However, as your sales grow and your business processes become more complex, you may need to consider outsourcing your accounting to a professional firm.

Ask yourself this question: do you save by doing accounting yourself, or do you save by outsourcing it?

What are your services and how much do you charge?

We are providing month-to-month accounting services to our e-commerce clients.

We can also help with incorporation, tax filing, and system setups.

Our current pricing can be found on this page.

 

VII. References

Documentation Requirements for Amazon Registration

https://www.amazon.com/gp/help/customer/display.html/ref=help_search_1-2?ie=UTF8&nodeId=202075030&qid=1535045153&sr=1-2

List of countries accepted for Amazon Sellers registration

https://sellercentral.amazon.com/gp/help/external/200405020?language=en-U.S.&ref=mpbc_200417280_cont_200405020

Amazon Tax Interview Guide

https://developer.amazon.com/tax-interview/help?nodeId=201588330&locale=en_U.S.

General GST/HST Information for Registrants

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4022/general-information-gst-hst-registrants.html

Additional Information on U.S. Sales Tax for International Sellers

https://blog.taxjar.com/international-amazon-fba-sellers-us-sales-tax/

https://blog.taxjar.com/international-sellers-deal-sales-tax-u-s/

IRS information on how to apply for an EIN

https://www.irs.gov/businesses/small-businesses-self-employed/how-to-apply-for-an-ein

IRS information on how to close an EIN

https://www.irs.gov/businesses/small-businesses-self-employed/canceling-an-ein-closing-your-account

RBC cross-border account services

https://www.rbcbank.com/cross-border/us-bank-accounts.html

TD cross-border account services

https://www.tdcanadatrust.com/products-services/banking/cross-border-banking/index.jsp#

Quebect Sales Tax changes

https://www.revenuquebec.ca/en/press-room/tax-news/details/152500

Images Credit:

https://pexels.com

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from an accounting professional. Baranov CPA Professional Corporation will not be held liable for any consequences that arise from the usage of the information provided on this page.

79 Comments
  • MTT September 15, 2020 at 11:52 pm

    Thanks for writing up this article.
    It seems complex to sell on Amazon US as a Canadian entity.

    I’m a Canadian. I have a BC Corporation. I have a GST/HST account and a PST account.
    My team and I intend to sell on Amazon Canada using Amazon FBA.
    But we want to also sell our goods using Amazon FBA in the US.

    Our goods are manufactured in China.
    Most likely we will send the products to Canada and US directly from China.

    Would I need to have a US business entity? Do I need an EIN number?

    Thank you,

    MTT

    Reply
    • Boris Baranov September 24, 2020 at 8:23 am

      No need for a US business entity. You might need an EIN to import the goods, but it will depend on your freight forwarder.

      Best of luck,
      Boris

      Reply
  • PJ September 13, 2020 at 7:30 pm

    I have Canadian Incorporation (also have Bank Account in US for my Canadian Incorporation) and will be sourcing (from US Manufacturer/Suppliers) and selling in the U.S. Nothing imported or exported, in or out of Canada. I will be doing FBA from Amazon.com.

    I think, I need a reseller license, is it correct?

    I’ve inquired about getting product and cost lists from manufacturers/distributors and they are not very sure whether Canadian Incorporation could get the “resale certificate”.

    Please advise whether Canadian Incorporation could get “resale certificate” to buy from US manufacturers and to sell to US consumers? If yes, what’s process of that? or Do I need US LLC or S-corp or C-corp to get “resale certificate”? whether each state has it’s own “resale certificate” and do I need to apply to each individual states?

    I really appreciate the help with this.

    Reply
    • Boris Baranov September 14, 2020 at 8:09 am

      To obtain a reseller certificate, you will need to register for a sales tax account in the state where your supplier is located. You can do so as a Canadian corporation. But please note that by registering for a sales tax account, you will be obligated to collect, file, and remit sales taxes in that particular state. You will also trigger the effectively connected income requirement to file US tax returns for your Canadian corporation.

      Hope that helps and best of luck!

      Reply
      • PJ September 16, 2020 at 10:23 pm

        Thanks Boris for detailed response, all your blogs are very helpful to us, very much appreciated for your help to community.

        Please advise whether “reseller certificate” is same as ST-120 (in case of for NY state)? Just trying to understand difference between “reseller certificate” and forms like ST-120 (in case of for NY state) because as per “Part 2” of ST-120, it seems like Canadian Incorporation could add NA as well in “registration number” field, does it mean that we don’t need sales tax account for NY state? Also, “reseller certificate” is issued by Canadian Incorporation (purchaser) to Manufacturer (seller) or is it issued by US State to Canadian Incorporation (purchaser)? Whether we need EIN to get “reseller certificate” from US State?

        Again thanks.

        Reply
        • Boris Baranov September 24, 2020 at 8:18 am

          I can’t comment on this as this is a company-specific scenario. I recommend calling the NY Department of revenue to ask this question.

          Reply
      • Boris Baranov September 24, 2020 at 8:18 am

        Please call NY Department of Revenue with regards to this question.

        Reply
  • Victoria July 27, 2020 at 2:09 pm

    Hi Boris,

    Thanks for the great and detailed article.

    I’m a bit confused about US/Canada income tax requirements.

    Have a question, hoping you can clarify:

    We plan to sale products on Amazon.com and maybe Amazon.ca from US suppliers
    Just starting out, no income yet and getting ready to get approved by US Suppliers
    We are a Federal Corporation, registered in Canada, with a physical presence in Alberta. We got a GST number. Our Corporation has two owners. We got an EIN number for banking purposes to be able to open a cross-border account.
    When we applied for EIN number we said that our company has two members and IRS assigned for us a tax classification where we must file 1065 Form. As I understand correctly, they identified our company as a partnership.
    I don’t have a permanent establishment (PE) in the US. I don’t have employees, office or warehouses in the US either
    I understand from your article that since I will be using U.S. suppliers and logistics, my company will be deemed to be ETBUS and it will generate an “Effective Connecting Income” (ECI). So this is Level 2 Scenario and our corporation should file Form 1120-F together with Form 8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) to claim relief under the treaty. And file T2 Form in Canada. Is that correct?

    Moreover, now I’m in the process of getting a cross-border account for my business at BMO Harris Bank which is located in Illinois. They sent me documents and forms, and two of them are W-8BEN-E and W-8ECI. Are these forms necessary for Canadian corporations doing business in the US? I’m not sure if I need to fill out both of them or just one. Are there specific things that I don’t want to miss when I fill them out to not get in trouble in the future?
    Could you please advise me on that.

    Thank you for your time and consideration.

    Reply
    • Boris Baranov July 27, 2020 at 2:16 pm

      So this is Level 2 Scenario and our corporation should file Form 1120-F together with Form 8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) to claim relief under the treaty. And file T2 Form in Canada. Is that correct?

      Based on what the setup you described, correct

      When we applied for EIN number we said that our company has two members and IRS assigned for us a tax classification where we must file 1065 Form. As I understand correctly, they identified our company as a partnership.

      You won’t be able to file 1120-F forms properly, because the EIN was setup incorrectly. You need to write IRS a letter requesting to change your entity type to Corporation.

      Moreover, now I’m in the process of getting a cross-border account for my business at BMO Harris Bank which is located in Illinois. They sent me documents and forms, and two of them are W-8BEN-E and W-8ECI. Are these forms necessary for Canadian corporations doing business in the US? I’m not sure if I need to fill out both of them or just one.

      Please only fill out W-8BEN-E. This form will allow the bank to issue your company the bank account interest tax-free.

      Best of luck!
      Boris

      Reply
  • Marina Mar July 21, 2020 at 1:03 pm

    Boris Baranov, thank you very much for such a detailed, informative and just an amazing article. I am federally incorporated (main office in Ontario). I want to sell on Amazon FBA both in Canada and USA. I have lately heard about payoneer account. Would you recommend me to have one? If no what account would be the best to start the business with Amazon FBA?

    PS. Are your services and consultation available in Russian?

    Thanks
    Marina

    Reply
    • Boris Baranov July 27, 2020 at 2:20 pm

      Payoneer works great for Amazon.com deposits. You can also use TransferWise or BMO Harris for US bank account and US deposits.

      Reply
  • Greg Pesky March 30, 2020 at 11:47 am

    Boris-
    Thanks for the excellent article. I am an American company that will soon be selling in Canada via Amazon (we currently sell on Amazon U.S.). One question I am having difficulty getting an answer to is if Amazon pays the GST/HST to the Canadian Revenue Agency on behalf of American-based companies or if it is the responsibility of each company?
    Thanks
    Greg

    Reply
    • Boris Baranov March 30, 2020 at 12:05 pm

      Hi Greg,

      Canada and its provinces have not implemented Marketplace Facilitator Tax laws. It’s up to each company to register, collect, and remit the appropriate sales taxes for each jurisdiction.

      Hope that helps!

      Reply
  • Beatrice January 30, 2020 at 9:41 am

    Hello Boris,

    I am a Canadian (Ontario) resident that sells on amazon.com, I source my products from china.

    I am a ”sole proprietor” , i have not registered my name under the company.

    In 2019 i sold 133 units to be exact, with all of the sellers fee and advertising fees that were deducted i have made no profit.

    The products i sourced has now become a debt and is collecting interest on my american credit card.

    In terms of doing my taxes in Canada since tax season is vastly approaching.

    What steps would i need to take include the earning and loses of the amazon business and would i be able to claim

    for the loses since i technically did not make any profit.

    Thank you

    Reply
    • Boris Baranov March 27, 2020 at 10:09 am

      You can still claim losses from this Amazon business. You will need to report all income and expenses related to this venture on form T2125

      Reply
  • Austin January 22, 2020 at 4:33 pm

    The website contact form is not working and i’m interested in your services. What email can I use to contact you?

    Reply
  • Alex August 23, 2019 at 11:26 am

    Thank you so much for this fantastic article Boris! i’ve been searching for months about this information and nobody explains as clearly as you do. I really appreciate that you are willing to share this!

    I’ve a quick question regarding form 1120F. Based on your explanation, I think I’m L2 seller and I’ve a Canadian Corp. As a result I need to fill out both 1120F and 8833. I remember I read somewhere that if I don’t have permanent establishment in US, I only need to fill out the informational sections of 1120F, not the whole form. Would you know 1. if that is true? 2. if it’s true, which sections are considered informational sections? I was trying to call IRS to get confirmation but the representatives can’t give a definitive answer. Thank you so much Boris! Appreciate your time.

    Reply
    • Boris Baranov August 23, 2019 at 12:46 pm

      Hi Alex,

      I don’t recommend you do your taxes yourself. Please speak to a qualified accountant about your specific scenario.

      Boris

      Reply
  • Lawrence August 15, 2019 at 1:23 pm

    Definitely one of the best article on tax! just have 2 questions thats not clear in the article.

    1) If im living in BC, while all order is FBA and stored in Ontario, do i still collect PST in BC since im not shipping it within BC.

    2)For QST, i was reading the QST site, it does states if your sale is over 30k in Quebec, you will need to collect QST. Is that true? or i have to collect QST even if i have just like a few hundred dollars a year in Quebec.

    thanks for your help! wish all the bst

    Reply
  • Aaron McRann July 22, 2019 at 1:29 pm

    OMG, Boris!! This is an amazing article!! Thank you so much. I have honestly been searching for-EVER for this information and most sources make it so complicated it’s impossible to understand. I am so happy to have found your website.

    Can I ask for confirmation of my understanding? I will have product at an FBA warehouse in the US, selling to US customers. I am a Canadian sole proprietorship. I THINK this means I fall into the “level 2” scenario so (1) I will have to file the US tax forms and (2) I will only pay income tax in Canada.

    Thanks again. I am promoting this article everywhere!

    Aaron

    Reply
    • Boris Baranov July 27, 2019 at 6:32 pm

      1) Yes, your sole proprietorship will generate Effectively Connected Income (ECI) but will not have a permanent establishment in the US.
      2) If you register for an EIN, you will need to file individual treaty-protected returns, but all your income will be taxed in Canada.

      You might also check your sales tax obligations which are completely separate from the income tax requirements discussed above.

      Reply
  • William July 22, 2019 at 11:51 am

    Thank for the very clear information provided here in the article and replies to questions. Very useful!

    One question regarding declaration of C-Corp/S-Corp. Does this apply only for U.S. corporation opened in the U.S.?

    Am I correct in assuming that a Canadian corporation doing business in the U.S. and engaging regularly with U.S. vendors (corresponding to level 2 scenario in your article) would only need to obtain a EIN, but not file a form for S- or C-corp?

    The Canadian corporation would still be able to benefits from the Canada-US Tax treaty disposition (given proper forms 1120-F/8833 are filled out). Correct?

    Cheers,
    William

    Reply
    • Boris Baranov July 27, 2019 at 6:36 pm

      A US-domiciled C/S-corporation will need to file in the US with IRS and state authorities.

      A Canadian corporation doing business in the US, but without a permanent establishment, will need to register for an EIN and file 1120-F/8833 forms with the IRS

      Reply
  • Richard June 19, 2019 at 1:59 pm

    Boris… thank you for a great article. I was hoping to find out about the tax implications for Canadians (who are incorporated) who are using the MerchbyAmazon program which is basically a print-on-demand service. It is quite different from FBA since we don’t operate the business but are mostly graphic designers who are just submitting designs directly to Amazon.

    We upload designs and a description and Merch does the rest. The products are only sold in the US. I assume given that I don’t need an EIN or any official number.

    Since I haven’t understood what needs to be done in my case I’m going along with the 30% withholding. Some have written to just put my SIN # but I’m not sure if that is fraud since my account is for the company and not me personally.

    Any insight would be so appreciated.

    Thank you

    Reply
    • Boris Baranov June 29, 2019 at 12:19 pm

      We don’t have any clients selling on Amazon Merch. But in theory, you should be able to submit form W8-BEN-E for your corporation to them (I posted a detailed blog post on how to complete it). This form should allow Amazon not to withhold 30% on payments to your Canadian corporation.

      You may or may not need an EIN at this stage (depending on the volumes, consistency of sales, etc.), but you can use your 9-digit Canadian Business Numbers as a foreign Identification Number if they are ok with it.

      Hope that helps!
      Boris

      Reply
  • Alex May 29, 2019 at 11:45 am

    Agree with everyone- great work, Boris!

    My situation: Canadian corporation, Asian supplier, US customers acquired from Amazon .

    I want to import pallet of goods to JFK, where NY customs broker will clear, using my CAD corporation as ultimate importer on record.

    Once goods cleared, I want to move them to the warehouse in DE, a state without Sales Tax, so no need for Sales Tax registration..

    Once online order from Amazon comes, the warehouse releases a box with customer’s order to UPS.

    Questions:

    1. According to your article I am a Level 2, so I have to get an EIN and start filling annual forms for federals in the US, correct?

    2. Since warehouse is in sales tax free state, I am not planning charge any sales tax on customers. Do individual States have meaningful way to track my sales in each state and go after foreign (Canadian) entity?

    Reply
    • Boris Baranov June 29, 2019 at 12:27 pm

      1. Technically yes. You are would be conducting “regular and continuous” trade activity, so you should register your Canadian corporation and start filing 1120-F and 8833 with IRS every year. With that said, many sellers opt not to register for an EIN until one of their suppliers/service providers requests to. But I would leave that decision to the business owner.

      2. If your warehouse is in a sales tax-free states (like Oregon for example), you don’t have to charge sales taxes on sales to Oregon customers. You still have to charge sales taxes on sales to customers in other states if you meet their definition of sales tax nexus. At the moment, most states have moved to the economic tax nexus concept, meaning, that you will be deemed to have a nexus if you sell over a certain threshold or unit count. The rules are quite complex and are literally changing every months.

      Now, how can they go after you – you are leaving digital footprints all over the US (suppliers, warehouses, import records, payment processors, marketplaces, etc.). The question should not be how they will catch you, but what is the level of risk you are comfortable living with if you don’t comply. It is of course quite difficult to go after each seller, but the local states have all the tools and resources to do so.

      Hope that helps!
      Boris

      Reply
  • Art May 26, 2019 at 4:18 pm

    I am planning to sell on Amazon.com. Will buy products from USA vendors. The business is registered in Canada as a Sole Proprietorship. I have already got my EIN from IRS. I won’t have any physical presence in the USA.

    How do I get Resale Certificate (Resale Tax Certificate)? All vendors ask for it every time when I try to buy any products.

    Thank you.

    Reply
    • Boris Baranov June 29, 2019 at 12:35 pm

      You will need to request a Resale Certification from each state that you are planning to deal with. This may or may not create additional sales/income tax obligations for you. Please talk to a local CPA on the ground to clarify that for you before registering.

      Reply
  • Philip Montpetit May 19, 2019 at 8:02 pm

    Hi Boris,

    Your article is very instructive and possibly I should be able to figure it out myself however there are details in my hopefully soon to be online sales efforts which are not quite clear-cut, or at least for me.
    I am intending to sell a digital product which, currently would be downloaded from Amazon S3 cloud data store. As such I believe (though not completely sure) that the particular server my original copies (a few different apps) reside on is in the U.S. (Amazon might even consider it worthwhile to have it on different servers in the States to speed up downloads where I to sell extensively in the States!)
    1-Would that constitute NEXUS in whatever states those particular servers might be?
    2-Would that make any sales in Canada appear to be external to Canada? (my website is in the cloud (Heroku) and probably based somewhere in the States also, though heaven knows where. Would that have a bearing on the situation, even if I am a resident of Canada?)
    3- In Canada, if my sales are $30K or less in any year, would I be dispensed of the obligation to collect and remit or even report on any sales tax in any province? (I could close shop for the year if and whenever I reached that amount 😉 ) (trying to do the same in the US would be a nightmare since the 200 transaction threshold could easily be reached before any specific $ amount in various States so I would simply not sell in the U.S.)
    I really only want to supplement my regular income by some reasonable amount.

    As an aside, I truly believe EDC (Export Development Canada) should act as a clearing house or intermediate (ie marketplace facilitator doing all tax collection and remittance) for small Canadian entrepreneurs trying to navigate the US morass that is their sales tax regulations. (and rest of the world for that matter)

    Any and all help much appreciated
    Philip

    Reply
    • Boris Baranov June 29, 2019 at 12:41 pm

      1. Digital product sales tax nexus rules are quite complex. With most states switching to economic nexus rules, you would need to use the billing address of the customer to determine where the product was purchased. Depending on the volumes of sales (both $ and number of sales), you would need to register in those states that you crossed the threshold in.

      2. In short, any sales by a Canadian company to Canadian consumers over $30K CAD should be subject to GST/HST rules.

      3. If your worldwide sales are less than $30K in the last four consecutive quarters, then you are not required to register for a GST/HST account. Once you register, you are obligated to collect, remit and file your GST/HST tax returns with the CRA. In terms of PST, it depends on how much physical presence you have with each PST province (SK, MB, QC, and BC)

      Reply
  • JJ May 16, 2019 at 11:13 am

    Fantastic Article!

    I have bookmarked this for future referencing.

    I want to confirm, as a Canadian selling STRICTLY in US either

    1) Sourcing products from China for Amazon FBA to sell in USA
    2) Sourcing products from Canada for Shopify to sell in USA

    I would need a W8-BEN/or W8-BEN-E (for Corp) and possibly a EIN if Im looking to take a bigger step towards a business?

    Then file a T2125/ T2 for reporting Tax.

    Would this be correct?

    Reply
    • Boris Baranov June 29, 2019 at 12:43 pm

      That is correct. If you obtain an EIN you would need to start filing your tax returns with the IRS.

      You would also need to be mindful of your sales tax obligations both in Canada and the US.

      Reply
  • Anna Antropova May 12, 2019 at 8:22 pm

    Hello Boris,

    I wan to start by thanking you for such an amazing job of putting together this article. It is very informative and straight to the point. Thank you!

    I have a quick question for you (I hop it will be quick). You are mentioning here that if we plan on using FBA then we will need to file for IRS. However, I have stumbled upon an article here by Stewart Patton ( https://ustax.bz/non-us-entrepreneurs/) describing why non-US Amazon sellers (in certain scenarios) do not need to pay US taxes. His point is that FBA is an “independent agent” and therefore is not considered under ETBUS (Engaged in Trade or Business in the United States)
    I won’t restate the article, but hope you may have a look and let me know your thoughts.
    I am at the very beginning of my Amazon journey and still a little confused if I should do LLC, or just Canadian Sole Proprietorship and how that would affect my taxes in the future.
    Thank you so much again for all your time and help!

    Anna

    Reply
    • Boris Baranov May 13, 2019 at 12:30 pm

      Hi Anna,

      I am not going to comment on the blog post as I have not authored it.

      Here is the link from the official source. Internal Revenue Service confirms that selling inventory on the territory of the U.S. either sourced from the U.S. or other countries does constitute engagement in active trade or business, which means that a company must register for an EIN and start filing U.S. tax returns. Your profits may be protected by U.S.-Canada Tax Treaty, but the filing will still be mandatory.

      Please also look up the Tax Court case of Inverworld v. Commr., 71 TCM 3231 (1996). The ruling touched upon use of independent agents on the territory of the U.S. As part of the decision, the court concluded that the use of independent agents can result in effectively connected income.

      Hope that helps,
      Boris

      https://www.irs.gov/individuals/international-taxpayers/effectively-connected-income-eci

      Reply
      • Anna Antropova May 18, 2019 at 9:45 pm

        Hello Boris,

        Thank you so much for taking the time to reply!
        Seams like opening LLC definitely has a lot of extra (and to some degree unnecessary) complications for Canadian based company; and staying local could be the way to go, at least when only starting out on Amazon.
        I went through almost all of your articles and above mentioned references – it was an amazing source of well structured information that helped immensely with understanding basics of the game . Thank you again for putting it together!

        As a side note: I understand that your Meet Up group is not active any longer. Would you have any other groups or recommendations for master minds with like-minded driven entrepreneurs that I could possibly join? I would very much appreciate your input.

        Many thanks,
        Anna

        Reply
  • LG May 8, 2019 at 8:06 am

    Thank you for this excellent article. I’m planning to open a sole proprietorship in Ontario and sell only in Canada. Based on this article, I will need to determine sales tax based on which warehouse my inventory is stored in and shipping out of.

    I have had a tough time figuring out if extra-provincial registration would be required also. I would have no physical offices in another province but my goods could be housed in another province due to FBA. Would extra-provincial registration be a requirement if my goods were sitting in the Amazon warehouse in BC but my business is registered in Ontario?

    Cheers

    Reply
    • Boris Baranov May 9, 2019 at 5:55 am

      Hi Lindsay,

      Extra-provincial registration is required when you run a business out of that province. If you are selling out of Ontario into other provinces, you should not be required to register your business in the other provinces.

      If you store your products in an Amazon FBA warehouse located in BC and your worldwide sales exceed $10K, then you need to register and start collecting BC PST. You are not required to register your sole prop/corporation if you don’t run your business out of BC.

      Hope that helps.
      Boris

      Reply
  • Luis Sandoval April 30, 2019 at 5:05 pm

    Hi Boris,

    First of all thank you for all the information that you provided. This is very helpful.

    I have the following question:

    My Amazon partner and I we want to start selling on the Amazon USA market. In the meantime, we are considering to start selling as individuals and then once the business is running, we’ll consider the possibility of a partnership or corporation.

    However, both of us are mexican citizens under a temporary resident status in Canada (myself working under a NAFTA Work Permit and my partner under an open work permit).

    One of the main questions that we have before subscribing in an Amazon Seller Account is that we don’t know yet if we are able to file taxes in Canada (Considering our current status in Canada).

    Considering the mentioned above, can you clarify if we are able to file taxes in Canada?

    Reply
  • Leo April 30, 2019 at 10:53 am

    Hey Boris ,

    Thank you for this thorough post.

    If I want to consult you for accounting service, how much is for your service

    Reply
    • Boris Baranov May 9, 2019 at 6:06 am

      Hi Leo,

      We only provide outsourced accounting services to eCommerce sellers for a monthly fee at the moment.

      Thanks

      Reply
  • Nemer April 4, 2019 at 4:15 pm

    Thanks for the great and detailed article Boris.

    I’m a bit confused about Canada income tax requirements when it comes to Amazon FBA. If we are a Federal Corporation with physical presence in Ontario and selling on Amazon Canada for Canadian customers, is Amazon FBA warehouse considered as Permanent Establishment for Canada Income Tax purposes and we are considered as multi jurisdiction corporation given that our products are fullfilled by Amazon from multiple warehouses outside Ontario?

    I appreciate if you can help me answering this.

    Reply
    • Boris Baranov April 4, 2019 at 4:34 pm

      The concept of a permanent establishment relates more to the physical location of the company (office, employees, bank accounts, mind and management, etc.). It is used to establish the residency of the corporation for income tax purposes. If we strictly talk from the US-Canada tax treaty perspective, the location of your inventory is not a determinant of your permanent establishment. Based on the case facts you describe, your corporation would be taxed in Canada on worldwide profits regardless of the location of your inventory.

      With that said, your inventory location in one of the Amazon FBA warehouses may create a sales tax nexus in some of the states. The sales tax nexus is a completely different beast with each US state imposing their own set of rules on companies selling to their residents.

      Hope that helps Nemer, and best of luck with your eCom business!
      Boris

      Reply
      • Nemer April 9, 2019 at 6:41 am

        Hi Boris,
        Thank you for your reply. Really appreciate that.

        I was looking into this over the weekend to complete our corporate T2. I came across the following part of CRA definition of permanent establishment which really a bit confusing

        “If the corporation carries on business through an employee or an agent established in a particular place, it is considered to have a permanent establishment in that place if either one of the following applies:

        – the employee or agent has general authority to contract for the corporation
        – the employee or agent has a stock of merchandise owned by the corporation from which they regularly fill orders received”

        https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/provincial-territorial-corporation-tax/permanent-establishment.html

        I’m not sure if Amazon FBA is considered as an agent that has stock of merchandise owned by the corporation from which they regularly fill orders received in this case or not?

        From your experience do you think this is considered as permanent establishment based on the definition above?

        Thank you for your time and patience going through this as it is our first time filling T2 and Highly appreciate your feedback

        Nemer

        Reply
  • Emma M March 28, 2019 at 9:15 am

    Great article Boris! I like how you explain everything in very simple terms. I have read a few of your post and have learned a lot. Thank you!

    Have a question, hoping you can clarify:

    * I have a Shopify store incorporated in Canada selling to US Customers only
    * Just starting no income yet and getting ready to get approved by US Suppliers/Vendors
    * I will be using US suppliers that will drop-ship for me
    * Plan to follow your advice and open a cross-border US acct with RBC – hoping they have also the cross-border for business
    * I don’t have a permanent establishment (PE) in the US. I don’t have employees, office or warehouses in the US either
    * I understand from your article that since I will be using U.S. suppliers and logistics my company will be deemed to be ETBUS and it will generate an “Effective Connecting Income” (ECI)

    Considering all of the above, US Vendors might require an EIN in order to get me approved as an authorized dealer. However, per your comments above, you don’t recommend registering for an EIN unless you have regular and continuous sales in the U.S – which is still not my case (hoping it will be though)

    Other side of the coin, I also have read that Canadian corporations dealing with US Companies may be asked for the form W-8BEN-E — does this form applies to me even if due to the nature of my business,? I know that by law, non-resident payments are subject to the U.S. withholding tax of 30% – but I won’t be receiving “payments” —– Or does this form also applies for others sources of income such as income generated through sales to US customers? — This has been a confusing point, as this form seems to be directly related to situations where the individual or company receives payment.

    In short, I am trying to understand what may be requested of me when dealing with US vendors when trying to get approved – and what is the most appropriate document for me to present (EIN or W-8BEN-E) – I need to be prepare either way…

    Thank you in advance for any guidance you can provide
    Emma
    (Toronto)

    Reply
    • Boris Baranov March 31, 2019 at 9:38 am

      Hi Emma,

      Thanks for your comment. I don’t recommend registering for an EIN if you don’t have to because you will be required to file US tax returns with the IRS regardless if you sourced any income from the US or not.

      If you need to open it for dealing with US vendors, then go ahead and open it. I just don’t want sellers open it and increase the tax compliance burden for no reason.

      Re: form W-8BEN-E – the form is required by all foreign companies who source income from the US. It does not have anything to do with your tax filings. The form simply establishes you as a non-resident company that does business with US companies. It also determines the amount of withholding taxes the US payer have to withhold and send to the CRA when dealing with a foreign company. The rate will depend on the tax treaties and the type of income you source. Canadian eCommerce companies who are engaged in active business income in the US are eligible for 0% withholding tax rate on their active business income if they present that form to the US vendors.

      Hope that helps!
      Boris

      Reply
      • Emma April 2, 2019 at 6:09 am

        Hi Boris,

        Thanks a lot! It does help! .. as I was confused with this form thinking it was only applicable when your source of income was a payment from a company for your services (consultant, contractor, freelancer, etc.) … I didn’t know it was also applicable to eCommerce Shopify sellers for which source of income comes from sales.

        I am going to have the form W-8BEN-E complete/ready when engaging with the Suppliers, and then see if I can only go with that….. and leave the EIN on the side, and will only open only if required.

        Thanks a lot again! .. Appreciate it!
        Emma

        Reply
  • Dan March 26, 2019 at 12:44 pm

    Hi Boris,

    Great article. Very informative. I’m a sole prop, not incorporated and I am considered to be at level 2 with ECI, but no PE. I’m in the process of working on the submission of Form 1040NR and Form 8833 as you mention above, for my federal return.

    I have a question though related to the income tax for the individual states in the US. I recently found a list of 6-7 states that do not honor the US/CA tax treaty. (Link: https://ustaxesblog.wordpress.com/2017/07/21/does-states-conform-to-the-federal-tax-treaties/). The article says “However, several States do not honor Federal Tax treaties: if you live or work in one of these states, you will owe State income tax even though your income is exempt from Federal income tax by a treaty…”

    I don’t “live or work” in any of those States, but I do have Nexus in a few of them because I use the Amazon FBA warehouses in those states. In fact, I’m already signed up for Sales Tax licenses in those States. Am I still on the hook for submitting an income tax return to each of those States?

    Thanks in advance for any info you can provide.

    Dan

    Reply
    • Boris Baranov March 31, 2019 at 9:41 am

      Generally, none of the US states honor US – Canada Tax Treaty. The agreement was signed on a federal level that is outside of states jurisdictions. The income tax nexus (or connection) for each state will have to be determined for each state separately. Most of the time it will depend on the number/volume of sales, % of revenue derived from that state, and presence of other types of connections (e.g. sales tax, agents, inventory, contractors, etc.).

      Hope that helps!
      Boris

      Reply
  • Philippe March 2, 2019 at 3:04 pm

    Hi,

    The article states that if we fill out form W-8BEN-E for a Canadian corporation, we are exempt from filing a US tax return.

    However, I see further down that you mention that a Canadian corp has to fill out 1120-F form and treaty form for information purposes.

    Does the 1120-F still need to be applied if W-8BEN-E is filed?

    Best regards

    Reply
    • Philippe March 2, 2019 at 3:05 pm

      By the way great article! Its very complete compared to other sources online!

      Reply
    • Boris Baranov March 3, 2019 at 2:12 pm

      W-8BEN-E makes the payments from a U.S. vendor to a Canadian company exempt from non-resident withholding taxes. It does not exempt the foreign company from filing a U.S. tax return if the company is engaged in active trade or business in the U.S.

      Reply
  • Lisa February 24, 2019 at 8:02 am

    Thank you so much for the great information! This is so helpful!

    Reply
  • Senya February 21, 2019 at 2:31 pm

    Hi Boris,

    Thank you for this great article, it is a must read for any new Amazon seller.

    I’m just doing my beginners research before starting on Amazon FBA.

    I was wondering if you can give me an advice on how to proceed with my situation:

    I plan to deal with suppliers that are located in the US and will ship products to US FBA centers.
    From what I’ve been told, when someone wants to open accounts with suppliers they will require certain documentation such as EIN and Sales Tax Certificate. I heard some of the Canadians have used their GST/HST account number instead to get approved by suppliers. Since I don’t have any sales yet I’m not sure if I want to incorporate before I will start earning any significant income, or open HST account as a sole proprietor.

    Do you think I should just go ahead and obtain EIN? How I would go about obtaining Sales Tax Certificate or do I even need one as a Canadian operating in the US?

    Thank You
    Senya

    Reply
    • Boris Baranov February 24, 2019 at 1:46 pm

      Hi Senya,

      There is no clear answer to that question. It will all depend on the state, supplier, and the form of entity.

      Generally, I don’t recommend registering for an EIN or for a Sales Tax Certificate if you don’t have regular and continuous sales in the U.S. (requirement that creates U.S. tax obligations for foreign companies). Once you register, your company will be obligated to comply with various federal and state tax obligations.

      Best of luck,
      Boris

      Reply
  • Ethan February 11, 2019 at 5:42 pm

    Great post.

    One question – does Amazon know to collect provincial sales tax based on where the warehouse is shipping to customers from? Will it just collect provincial sales tax on any transaction coming from the province if you have the corresponding PST or QST number uploaded with them?

    For example, if I get a PST and QST number and put it in my Amazon account, what happens under the following two orders?

    a) Warehouse in Quebec, customer in Quebec

    b) Warehouse in Ont., customer in Quebec

    Will Amazon know to charge QST in case A only – and not in case B? Afterall, they will have my QST number on file, but I see no indication that they realize QST should only be collected in case A. Based on what you said, if the warehouse is in Ontario and the customer is in Quebec, only GST should be applied. You could run the same scenario and replace Quebec with BC here (and use PST instead of QST).

    Any thoughts?

    Ethan

    Reply
    • Boris Baranov February 11, 2019 at 9:37 pm

      Hi Ethan,

      Thanks for your comment!

      You have got a great point. As of the date of writing this response, there are seven Amazon distribution centres in Canada – 1 in BC, 5 in ON, and 1 in AB. There are no warehouses in QC.

      With that said, I understand the nature of the question. It is likely based on the assumption that, similar to the U.S., Amazon is moving the inventory between warehouses located in different states to facilitate more efficient delivery of products.

      Let’s go over a few points to make things more clear:

      1) As it stands right now, in Canada Amazon does not determine sales taxes for each product. It is the seller who sets up what sales taxes should be collected for each product.

      2) As a seller, you are determining what warehouse your inventory is sent to. You also have the ability to transfer inventory between warehouses or restrict the location of inventory to a specific warehouse only. Since you know where your inventory is located at any given time, you know if you should be charging GST/HST or GST+PST for each product.

      3) If your products are located in BC, you should setup the collection of GST+PST for BC customers and GST/HST for the rest of the provinces. If your products are stored in ON or AB, you should setup GST/HST collections only.

      Note that the Quebec government has passed a change to sales tax regulations and will start enforcing collection of QST for non-Quebec sellers with $30K in annual sales starting from Sep 1, 2019, regardless of where your inventory or your business is located.

      Hope that helps Ethan.

      Thanks
      Boris

      Reply
      • Ethan February 11, 2019 at 10:04 pm

        Hi Boris,

        Thanks for the reply.

        That does help.

        So unless you’re located in Quebec as an FBA business home address, nobody needed to be charging QST before – since Amazon never had a warehouse. It follows then that the situation I gave above (warehouse in Quebec, customer in Quebec), was not possible. I understand this is now changing from new legislation in Sept. 2019 based on what you said.

        With all this in mind, wouldn’t it mean that if your business office is not in MB or SK – the two other PST provinces – you would never need to collect PST there since not only are you out of province but there are no FBA centers/warehouses to ship from within MB/SK? It would seem that unless your business is located in MB, SK, or QC, you never need to collect the corresponding PST there since inventory is always coming from BC or Ontario. Is this correct?

        Thanks again for the explanation

        Ethan

        Reply
        • Boris Baranov February 11, 2019 at 10:14 pm

          Yes Ethan, this is correct.

          You didn’t have to charge QST before if you did not have a physical presence in Quebec. This is changing starting from Sep 1, 2019 with Quebec imposing QST on all out-of-province sellers.

          For MB, SK, BC – you don’t need to charge PST if you don’t have a physical presence in those provinces (place of business, location of inventory).

          There are also rules around active solicitation to customers in those provinces (e.g. advertising specifically to customers in BC, MB, SK, QC), then you should be charging PST on top of your sales. However, these rules have been hard to enforce in the age of digital advertising where attribution is somewhat nebulous. So, the physical presence of business or inventory has been used as a more accurate measure.

          Reply
  • Amy M January 17, 2019 at 8:02 am

    Hi Boris,
    The only thing I can say is WOW! I have been looking for all of this info and your article it’s just amazing! Organized, well structured, with all the relevant content nicely presented and references added to make it even better! I really appreciate it!
    THANK YOU!

    Reply
  • Vincent Wu January 2, 2019 at 11:41 pm

    Hi Boris,

    Thank you for writing such a thorough article.
    I have a question.

    I am considered to be at level 2 with ECI, but no PE.
    I have already filed W-8BEN-E for my Canadian corporation. Even though I won’t be paying US taxes, will I still need to get an EIN? (since you mentioned I will need to file 1120-F and Form 8833.)

    Thank you in advance.
    Vincent

    Reply
    • Boris Baranov January 3, 2019 at 6:24 am

      Hi Vincent,

      Thanks for your comment!

      Form W-8BEN-E establishes you as a foreign company for the purposes of withholding taxes while dealing with US organizations. It has nothing to do with US state or federal income tax obligations. For a Canadian company, the form simply allows US organizations not to withhold any taxes on interest, dividends, or vendor payments.

      With regards to a requirement to obtain an EIN and file forms 1120-F & 8833 with the IRS, I can’t answer that question since I don’t know your specific circumstances. However, the rule of thumb is that once you have continuous and regular involvement with the US economy (e.g. using an Amazon FBA warehouse in the US), you are obligated to register and file for US federal taxes (even if filing under a tax treaty protection). Each company needs to determine the degree of their involvement based on their specific set of facts.

      Note that once you open an EIN, the IRS will be expecting a tax return from your company every year. So, I recommend speaking to a professional accountant about your situation, before making that decision.

      Boris

      Reply
  • Helene December 19, 2018 at 3:50 pm

    Thank you for your precious information. If I understood, it’s what I believe to be in my case:

    I am an individual and my official address is Mexico, but my fiscal address is Canada. I will supply my SIN tax # related to Canada and my tax is 0%.

    Now, is there a problem with completing the required form with a different address. I cannot indicate a Canadian address because I am officially a non-resident of Canada but I am always a citizen. I don’t have a tax # in Mexico because I have no income in Mexico. I need it in Canada because of my Canadian pensions.

    Thank you!
    Helene

    Reply
    • Boris Baranov December 20, 2018 at 9:36 am

      Hi Helene,

      Thanks for your comment! What you are describing is a complex non-resident situation. Unfortunately, it is out of the scope of this article. I recommend speaking to your accountant in this regard.

      Best regards,
      Boris

      Reply
  • Anil November 27, 2018 at 12:24 am

    Brilliant write-up, I was searching for this type of thorough answer for a while, you must have just improved the SEO.

    This is exactly the bet steps as I’ve already gone through them but it would have been faster after reading this.

    Cheers

    Reply
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