Tax concerns - UK-based and dropshipping to US

savingsguy

Hi there,
I'm wondering if someone might have some insight into the tax obligations in this scenario.

I'm looking to do dropshipping in the US, I'll be a UK-based sole trader.

So for example, Joe Blogs in Texas buys product listed at $100 from my website. I (the retailer) pay US-based dropshipper $70 for the product. US-based dropshipper prepares and despatches product to Joe Blogs in Texas. I make $30 profit.

My understanding is that I'll be paying tax on my UK income only and don't have to worry about US taxes? I don't understand US taxes, from what I can see, they're extremely complex.

So I think on my UK tax return I'd be declaring $30 profit (Joes Blogs income minus US-based dropshipper supplier expenses). 

As the product doesn't change borders there is no customs duty to pay. If I earn less than £85K I won't need to register for VAT. 

 I don't think I have to be concerned with US taxes, but would really appreciate some clarity on my assumption if anyone is a tax expert or does something similar?

Many thanks!

Jeremy535897

It's not my field, but I would assume Article 7 of the US-UK double tax agreement would exempt you from US tax, as you won't have a permanent establishment there:
"1. The business profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the business profits of the enterprise may be taxed in the other State but only so much of them as are attributable to that permanent establishment."

From https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/507431/usa-consolidated_-_in_force.pdf

Have you factored state taxes into your calculations?

savingsguy

Thank you for the information, it does sound encouraging.

Unfortunately I do not know what state taxes are and if I'm subject to them being a UK-based citizen/tax payer or how I'd have to factor them in to an online retail business. 

If anyone has further information or does sell online to US customers, it would be much appreciated to hear how you deal with this. 
 

Jeremy535897

I was thinking particularly of state sales taxes, which might come out of your profit, depending on how things are structured.

Thrugelmir

Will the US drop shipper be handling your sales tax returns ?  Sales tax is similar to our VAT. Though there's no standard rate and individual states differ. 

Cook_County

You'd doubtless have some US SALT liabilities...professional advice would be prudent. 

savingsguy

Thank you for all the suggestions. It seems there is a lot more to consider. I think seeking professional advice is best. 

savingsguy

Thank you for all the suggestions. It seems there is a lot more to consider. I think seeking professional advice is best.