The Definitive Guide to US Expansion for International Ecommerce Brands
International ecommerce brands expanding into the United States face a complex web of entity selection, multi‑state taxation, compliance obligations, and operational hurdles that can either accelerate growth or create catastrophic liabilities.
The difference between a seamless US launch and a six‑figure tax penalty often comes down to decisions made in the first 90 days. This guide provides a technical roadmap for 7–9 figure ecommerce brands navigating US expansion, covering entity structures, federal and state tax implications, sales tax nexus, banking infrastructure, and compliance landmines that catch even sophisticated operators.
The US market offers unparalleled scale, but it comes with regulatory complexity that doesn’t exist in most other jurisdictions. With 45 states imposing sales tax, each with different thresholds and rules, plus federal reporting requirements carrying penalties of up to $25,000 per violation, the cost of getting it wrong far exceeds the cost of getting it right.
Entity Selection Determines Your Entire Tax Structure
The choice between an LLC and a C‑Corporation fundamentally shapes how US profits are taxed, who can own the entity, and what compliance obligations apply. For international founders, this decision is more constrained than it first appears.
S‑Corporations Are Not Available to Non‑Resident Aliens
US tax law (IRC §1361(b)(1)(C)) explicitly prohibits non‑resident aliens from being S‑Corporation shareholders. To qualify, an owner must hold a US green card or meet the substantial presence test (183+ days in the US over a three‑year weighted period).
A narrow exception exists through an Electing Small Business Trust (ESBT), but the S‑Corporation portion of trust income is taxed at the highest individual rate, eliminating most benefits.
Single‑Member LLCs Create a Trap for International Owners
Single‑member LLCs are treated as disregarded entities by the IRS, meaning income flows directly to the foreign owner’s personal tax return.
If an ecommerce business sells physical products using US‑based inventory (including Amazon FBA), that income is classified as Effectively Connected Income (ECI) and taxed at graduated individual rates of up to 37%.
Worse, foreign‑owned disregarded entities must still file Form 5472 with a pro‑forma Form 1120, exposing owners to corporate‑level penalties without corporate tax benefits.
Why C‑Corporations Are the Default Choice
For foreign‑owned ecommerce brands, C‑Corporations offer the cleanest structure:
- 100% foreign ownership permitted
- Flat 21% federal corporate tax rate
- No personal US tax filing until dividends are paid
- Stronger credibility with banks, investors, and partners
The trade‑off is double taxation when profits are distributed:
- 21% corporate tax
- 30% dividend withholding (or reduced treaty rates)
For reinvested profits, C‑Corporations offer meaningful tax deferral and operational simplicity.
Multi‑Member LLCs and Partnership Withholding
Multi‑member LLCs default to partnership taxation, which introduces complex withholding rules. Partnerships must withhold on foreign partners’ share of ECI at the highest marginal rates:
- 35% for corporate partners
- 37% for individual partners
This structure also requires Forms 8804, 8805, and 8813, adding compliance burden without clear advantages over a C‑Corporation.
Federal Tax Obligations Go Beyond the 21% Corporate Rate
Effectively Connected Income (ECI)
When foreign persons sell physical goods to US customers using US‑based inventory, that income is generally ECI and subject to US taxation.
For ecommerce brands using Amazon FBA or US‑based fulfillment, ECI is nearly unavoidable due to:
- The asset‑use test (US assets generate income)
- The business‑activities test (US activities materially contribute to revenue)
FDII / FDDEI Benefits
US corporations selling to customers outside the US may qualify for the Foreign‑Derived Intangible Income (FDII) deduction:
- Through 2025: ~13.125% effective tax rate
- Starting 2026 (renamed FDDEI): ~14% effective rate
This can significantly reduce tax on international sales routed through a US entity.
GILTI / NCTI Considerations
US shareholders of foreign corporations may be subject to Global Intangible Low‑Taxed Income (GILTI):
- Through 2025: 10.5% effective rate
- From 2026 (NCTI): ~12.6% effective rate
This mainly impacts structures where a US holding company owns foreign operating subsidiaries.
| Tax Mechanism | Through 2025 | 2026 Forward |
|---|---|---|
| Corporate Tax Rate | 21% | 21% |
| FDII / FDDEI Effective Rate | 13.125% | ~14% |
| GILTI / NCTI Effective Rate | 10.5% | 12.6% |
| Dividend Withholding (No Treaty) | 30% | 30% |
Branch Profits Tax
Foreign corporations operating through a US branch (rather than a subsidiary) face an additional 30% branch profits tax on deemed dividend distributions.
Combined with corporate tax, total tax exposure can approach 42%, though many treaties reduce or eliminate this tax.
Tax Treaties Can Dramatically Reduce Withholding
Most US tax treaties reduce the default 30% withholding rate on dividends, interest, and royalties.
| Country | Portfolio Dividends | Direct Dividends (≥10%) | Royalties | Interest |
|---|---|---|---|---|
| United Kingdom | 15% | 5% (0% if ≥80%) | 0% | 0% |
| Canada | 15% | 5% | 0% / 10% | 0% |
| Germany | 15% | 5% (0% if ≥80%) | 0% | 0% |
| Australia | 15% | 5% | 5% | 10% |
| Ireland | 15% | 5% | 0% | 0% |
| Netherlands | 15% | 5% (0% if ≥80%) | 0% | 0% |
| Non-Treaty Countries | 30% | 30% | 30% | 30% |
To claim treaty benefits, foreign entities must submit:
- Form W‑8BEN‑E to withholding agents
- Form 8833 when treaty positions alter income sourcing or taxation
Failure to disclose treaty positions can trigger $10,000 penalties per omission, even if no tax was underpaid.
Transfer Pricing: Risk and Opportunity
Cross‑border transactions between related parties must follow arm’s‑length pricing under IRC §482.
Common ecommerce structures include:
- Limited‑risk distributors (cost + 5–15%)
- IP licensing arrangements
- Cost‑plus service models (5–10%)
Inadequate documentation can trigger penalties of 20%–40% of the underpayment. The IRS significantly increased enforcement in 2024, particularly targeting foreign‑owned distributors reporting consistent losses.
Choosing a State: Delaware vs Wyoming vs Reality
Delaware
- Preferred by investors and VCs
- Predictable corporate law
- Potentially high franchise taxes
Wyoming
- No state income tax
- No franchise tax
- Low annual fees
- Less investor‑friendly for institutional funding
California Reality Check
If you have employees, inventory, or operations in California, you will owe California taxes regardless of where you incorporate, including the $800 minimum franchise tax.
Sales Tax Nexus: Obligations Everywhere
Economic Nexus
Most states require sales tax collection once sales exceed:
- $100,000 in revenue, or
- State‑specific thresholds (e.g. $500,000 in CA & TX)
Amazon FBA Creates Physical Nexus
Amazon stores inventory across 35+ states. Each warehouse location creates physical nexus, even if sales in that state are minimal.
Marketplace Facilitator Laws
Amazon and similar platforms collect and remit sales tax, but sellers may still need to:
- Register in nexus states
- File zero‑dollar returns
- Collect tax on direct‑to‑consumer website sales
Multi‑State Compliance Requires Automation
Manual compliance across 45 states and 13,000+ tax jurisdictions is unrealistic.
Options include:
- TaxJar – best for small to mid‑size ecommerce
- Avalara – enterprise‑grade automation
- TaxCloud – SST‑certified with lower costs
Voluntary Disclosure Agreements (VDAs)
VDAs allow businesses to fix past non‑compliance with:
- Limited lookback periods
- Reduced penalties
- Protection from criminal exposure
Banking Is Still a Major Bottleneck
Traditional banks typically require SSNs and in‑person visits.
Popular alternatives:
- Wise – fast multi‑currency access (not FDIC insured)
- Mercury / Relay – US fintech banks with strict address requirements
- Brex – high minimum balances, strong credit access
A multi‑bank setup provides redundancy against account freezes.
Hiring in the US: EOR vs Payroll
Employer of Record (EOR)
- Fast setup
- $599–699 per employee/month
- Best for 1–10 US hires
Direct Payroll
Lower long‑term costs but includes:
- FICA and FUTA taxes
- State‑specific employment rules
- Strict contractor classification laws (especially California)
Form 5472: The $25,000 Compliance Trap
Every 25% foreign‑owned US corporation — and every foreign‑owned disregarded entity — must file Form 5472.
Key points:
- No minimum transaction threshold
- $25,000 penalty per form, per year
- No statute of limitations if never filed
This is the most common and expensive compliance failure for international founders.
90‑Day US Expansion Timeline
Week 1–2
- Entity formation
- EIN acquisition
- Banking setup
- FinCEN beneficial ownership filing
Days 15–90
- Sales tax registration
- Accounting setup
- Payroll or EOR onboarding
- Compliance automation
Estimated Costs
- $2,000–5,000 initial setup
- $1,500–5,000+ annually
Conclusion
US expansion is not a quick formation exercise — it’s a compliance‑heavy, high‑stakes process that rewards brands who build correctly from day one.
For international ecommerce companies, C‑Corporations offer the cleanest structure, sales tax automation is mandatory at scale, and Form 5472 compliance represents the single largest penalty risk.
Brands that succeed treat US expansion as a focused 90‑day project with professional guidance — and the US market rewards them accordingly.
Expanding into the US market?
ECOM CPA specializes in 7–9 figure ecommerce brands navigating cross‑border complexity. From entity structuring and Form 5472 compliance to multi‑state sales tax, we handle the technical details so you can focus on growth.
Schedule a consultation to discuss your US expansion strategy.
