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Old 07-07-2015, 08:19 PM   #1
myway
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Default double taxation online

Hello,


Before forming a company (pretty much a "one-man company") doing business online, I need to know more clearly when I might get subjected to double taxation on my income (i.e. both by my home country and by US's IRS). I ask this because, even as a foreign national (i.e. neither citizen nor resident of United States, never been to US either), I am not sure if I'd have tax liability to US's IRS, given that my home country does not have a tax treaty with US.


Some examples of the activities which might potentially subject me to double taxation: selling and reselling (aka flipping) websites, selling on online platforms (like Amazon), selling anything from my website (like any kind of digital product), affiliate marketing, providing web design and hosting services and so on, assuming the other party (the client/customer) is "a US person". Is there a clear rule as to whom I'd pay income tax to in such situations? Worst case being both countries, of course.


I need to stress that I am referring to US federal taxes (e.g. federal income tax) and not the "normal" sales taxes of various states (which are a topic on its own), and that I would normally pay income tax in my home country since that's where the company will be registered and operated from.


My question seemed simple at first glance, but all the info I could find online is rather confusing at best, ranging from that I should have no income tax liability to a foreign country, to that I'd have to pay a 30% flat fee on any income "from US sources" since it's not "related to business or trade" (I fail to understand how selling is unrelated to trade, or how a registered company is unrelated to business though). I also know of people who have been subjected to 30% withholding on their payments from US companies, as well as of others who did not have such withholdings in similar settings.


Any clarification is greatly appreciated! Also, any advice on how to legally alleviate the negative effects of possible double taxation is more than welcome.
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Old 07-08-2015, 01:00 AM   #2
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Default Re: double taxation online

I wish to inform you that if you are not a resident in USA and perform your work outside of USA then for your income you may not be taxed in USA. You are liable for taxes in your home country. You may be liable for taxes in USA if you are operating the business from USA. Your US clients may be liable for taxes in USA.

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Old 07-08-2015, 10:33 PM   #3
myway
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Default Re: double taxation online

Hello and thanks for replying AFFA, what you wrote makes perfect sense to me, however how do you explain then that some US Internet companies withhold 30% from income of their users who are out of jurisdiction?


Take Amazon.com for example. They require professional sellers to obtain a TIN/ITIN/EIN (this by itself makes you liable for US taxes in my opinion) and they withhold 30% (or a reduced rate, based on a treaty) from the income of those sellers. Another example would be independent publishers' earnings from Kindle e-books. There are numerous other examples as well - some of the graphic design, stock photography and freelance sites also withhold 30% from their users' income, regardless of the fact that those users are outside USA. We may argue that many of the above mentioned are freelancers and not firms, however I was using those as examples that you can be income-taxed in USA even if you live and work outside of USA. Also, those freelancers-alike could establish a legal entity in their home countries, and they would still be double taxed.


What's more, IRS page on taxation of non-resident aliens says that
Quote:
FDAP income generally consists of passive investment income; however, in theory, it could consist of almost any sort of income. FDAP income is taxed at a flat 30 percent (or lower treaty rate, if qualify) and no deductions are allowed against such income.
So I think the cases in my examples are taxed for FDAP income, even if they are a foreign legal entity. What I am interested in, is there a more clear rule as to when IRS considers a foreign citizen's (or legal entity's) income taxable as "Fixed, Determinable, Annual, or Periodical (FDAP)", and why there is selective interpretation of such rules both by IRS and many of US Internet companies (as in the examples above). By "selective" I mean that some rules seem applied at random basis. Such rules are also very vague to me.


Also, could you clarify a bit what precisely you mean by "performing work outside USA" - does it mean that if I make extensive use of websites in my work, they should be hosted on servers outside USA in order for me to be exempt from IRS taxation?


Thanks again for any clarification!


P. S. I don't have anything against Amazon (I like Amazon), I was simply using their name as an example!
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Old 07-08-2015, 10:35 PM   #4
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Default Re: double taxation online

You are responsible to pay IRS taxes on any business done in the US including US sales on Amazon.
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Old 07-08-2015, 11:12 PM   #5
myway
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Default Re: double taxation online

Disagreeable,

I'm not sure if you replied to my initial post or the last one as we posted at nearly the same time. However, Taxes and regulations: U.S. | Amazon Global Selling says
Quote:
IRS regulations require non-U.S. taxpayers to provide Form W-8BEN to Amazon in order to be exempt from U.S. tax reporting requirements.
It appears I would be exempt from paying IRS taxes for sales on Amazon, at least according to Amazon's website. Although I am not sure about that.
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Old 07-09-2015, 02:55 AM   #6
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Default Re: double taxation online

In that form you certify the following:
•I am the individual that is the beneficial owner (or am authorized to sign for the individual that is the beneficial owner) of all the income to which this form relates or am using this form to document myself as an individual that is an owner or account holder of a foreign financial institution,
•The person named on line 1 of this form is not a U.S. person,
•The income to which this form relates is:
(a) not effectively connected with the conduct of a trade or business in the United States,
(b) effectively connected but is not subject to tax under an applicable income tax treaty, or
(c) the partner’s share of a partnership's effectively connected income,
•The person named on line 1 of this form is a resident of the treaty country listed on line 9 of the form (if any) within the meaning of the income tax treaty between the United States and that country, and
•For broker transactions or barter exchanges, the beneficial owner is an exempt foreign person as defined in the instructions
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Old 07-09-2015, 03:57 PM   #7
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Default Re: double taxation online

Quote:
Originally Posted by myway View Post
Hello,


Before forming a company (pretty much a "one-man company") doing business online, I need to know more clearly when I might get subjected to double taxation on my income (i.e. both by my home country and by US's IRS). I ask this because, even as a foreign national (i.e. neither citizen nor resident of United States, never been to US either), I am not sure if I'd have tax liability to US's IRS, given that my home country does not have a tax treaty with US.


Some examples of the activities which might potentially subject me to double taxation: selling and reselling (aka flipping) websites, selling on online platforms (like Amazon), selling anything from my website (like any kind of digital product), affiliate marketing, providing web design and hosting services and so on, assuming the other party (the client/customer) is "a US person". Is there a clear rule as to whom I'd pay income tax to in such situations? Worst case being both countries, of course.


I need to stress that I am referring to US federal taxes (e.g. federal income tax) and not the "normal" sales taxes of various states (which are a topic on its own), and that I would normally pay income tax in my home country since that's where the company will be registered and operated from.


My question seemed simple at first glance, but all the info I could find online is rather confusing at best, ranging from that I should have no income tax liability to a foreign country, to that I'd have to pay a 30% flat fee on any income "from US sources" since it's not "related to business or trade" (I fail to understand how selling is unrelated to trade, or how a registered company is unrelated to business though). I also know of people who have been subjected to 30% withholding on their payments from US companies, as well as of others who did not have such withholdings in similar settings.


Any clarification is greatly appreciated! Also, any advice on how to legally alleviate the negative effects of possible double taxation is more than welcome.
The IRS can issue an opinion letter by one of their attorneys for situations like yours. And such an opinion letter can be relied upon as authority -- higher than any tax lawyer can provide.

That is what I recommend you do -- apply to the IRS for an opinion letter so you will know for sure whether or not with the facts of how you plan on conducting your business you would be subject to taxation in the U.S.
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Old 07-09-2015, 06:03 PM   #8
myway
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Default Re: double taxation online

Quote:
•The income to which this form relates is:
(a) not effectively connected with the conduct of a trade or business in the United States,
This is exactly what puzzles me in that particular case because, in layman's terms, I feel that selling on Amazon to US buyers is in fact "effectively connected with the conduct of a trade or business in the United States". Also, if I claimed that it was not connected (as suggested on Amazon's site), I could either be exempt from taxation, or taxed at 30% flat rate (FDAP income I mentioned before), subject to IRS interpretation of its rather vague rules on this subject. It seems I would have a more favorable tax treatment (10%+ graduated rate) if there was a way/form to claim that I am effectively connected with... trade... in the United States (but only for that part of my business which includes selling on Amazon). Any thoughts?
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Old 07-09-2015, 06:16 PM   #9
myway
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Default Re: double taxation online

Quote:
Originally Posted by Friend In Court View Post
The IRS can issue an opinion letter by one of their attorneys for situations like yours. And such an opinion letter can be relied upon as authority -- higher than any tax lawyer can provide.

That is what I recommend you do -- apply to the IRS for an opinion letter so you will know for sure whether or not with the facts of how you plan on conducting your business you would be subject to taxation in the U.S.
Hi Friend In Court, just noticed your post, and it seems that is what I am eventually going to do. Can one ask for an IRS opinion letter via email, or should they be contacted in a particular way?
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Old 07-10-2015, 10:02 AM   #10
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Default Re: double taxation online

Quote:
Originally Posted by myway View Post
Hi Friend In Court, just noticed your post, and it seems that is what I am eventually going to do. Can one ask for an IRS opinion letter via email, or should they be contacted in a particular way?
You can try email. My lawyer requested a determination in writing -- from the regional office that handled my returns. Frankly, I would suggest that you do the same -- address a written request to IRS headquarters in Washington, D.C. Since you are not in the U.S. you do not have a regional office to file, anyway. That way you will be assured it will reach the desk of one of the IRS attorneys while if you email heaven only knows how your request will be handled or by whom.

The main address for the IRS in Washington, D.C. is:

Internal Revenue Service
500 N. Capital St. NW
Washington, D.C. 20221
(202) 874-6748
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