Thinking of Selling in the US? Here’s What Every UK E-commerce Seller Needs to Know Before Setting Up a US LLC
If you’re a UK-based entrepreneur jumping into the booming US e-commerce market via Amazon, Shopify, or your own platform, you’ve likely been told to just form a US LLC in Delaware or Wyoming and start selling.
That advice is dangerously oversimplified.
Understanding the cross-border tax traps, reporting obligations, and structural consequences for UK individuals conducting e-commerce in the US is crucial. You are not totally exempt from tax on both sides. This is a big misconception! You will still need to submit your self-assessment tax return with HMRC if your taxable turnover exceeds the threshold. Moreover, you will also need to register for sales tax in a US state.
Several other tax implications apply in different scenarios while engaging in cross-border e-commerce from the UK to the US. Being fully compliant with these tax matters helps prevent stressful IRS letters, surprise tax bills from both sides, and improve your business reputation.
Registering a US LLC enhances tax benefits and boosts your business credibility across major platforms like Amazon, Shopify, eBay, and more.
So, here’s a detailed guide to what you really need to know about registering a US LLC and the tax implications when UK e-commerce sells on the US market.
Understanding Foreign Trade in the USA from the UK
When a foreign resident, like a UK citizen, conducts any trade or business in the USA, the income is considered to be effectively connected to income (ECI). The US government sees that income as linked to the US trade or business and thus makes it mandatory for you to report and file a US federal tax return.
The following requirements show that your business meets the ECI criteria of the US.
- You’re using Amazon FBA warehouses in the US
- You sell directly to US customers
- You have US-based staff or contractors
US Tax Implications for UK E-commerce Sellers
If your eCommerce income meets the requirements of US ECI, you are conducting trade or business in the US and must report and file a federal tax return. This means you must submit Form 1040-NR (Non-Resident Alien Income Tax Return).
There is a specific nexus threshold that determines whether you must collect and file sales tax in a US state. This threshold is often similar for states in the USA and requires you to file your sales tax to a US state.
Nexus Law for UK Citizens Conducting eCommerce in USA
US sales tax for foreign sellers is governed by the nexus laws. These laws are applied differently in each state. Sales beyond the nexus threshold make it mandatory for foreign individuals to collect sales tax and file sales tax returns with the IRS.
Here are the different nexus requirements in the USA
Physical Nexus:
If you have a physical presence in the USA, like having employees, a warehouse, or even making regular visits to the USA, you fall within the threshold of nexus.
Economic Nexus:
If you sell more than $100,000 or 200 transactions per year in a particular state (like California or Texas), then you must file sales tax.
Click-Through Nexus
This applies when referral partners or in-state affiliates assist you in generating sales in the US.
Marketplace Nexus:
Some states require online marketplaces like Amazon or eBay to calculate and file sales tax on behalf of sellers.
How to File Sales Tax if You Meet the Nexus Rules
Here’s how you need to file a sales tax return if you meet the requirements for nexus laws.
- Register for a sales tax permit in that state
- Collect sales tax at checkout
- File monthly or quarterly returns
Why Should UK Residents Open an LLC in US
Several individuals selling to the US from the UK prefer to register an LLC in a specific state. The reason is that an LLC separates your business assets from your personal assets. This protects your personal assets in case any customer sues you or something gets worse.
Having an LLC also makes it easier for you to set up a US bank account while operating from the UK. Several payment methods like Stripe, PayPal, Shopify Payments and others preferred to work with a US LLC, making it a more suitable option for conducting US commerce from the UK.
Several suppliers, platforms and marketplaces also require you to have an LLC registered to effectively conduct a business.
Additionally, a single-member LLC offers significant tax benefits. For example, a single-member LLC is treated as a disregarded entity. This means the business income is reported on your personal tax return, rather than being subject to separate corporate taxation. More of these flexibilities help businesses reduce their overall tax liabilities while remaining compliant with the UK-US trade regulations.
How to start a US LLC for UK sellers?
States like Delaware, Wyoming, and New Mexico are best for setting up an LLC. These states are popular because of low fees, fast processing, and limited annual reporting.
The steps for US limited liability company formation for UK businesses include:
- Choose a state and register LLC via a registered agent.
- Obtain an EIN (Employer Identification Number) from the IRS. This can take about 1-3 weeks.
- Designate a US mailing address (for IRS correspondence)
- Open a US bank account (which may require in-person verification or working with specialist services)
Do not overlook the importance of LLC structuring. A US LLC is a flexible tool, but how it’s taxed matters far more than how it’s registered which brings us to the question, how the LLC formed by a UK resident will be taxed in the USA.
US LLC Tax Implications for UK Residents
Now, if your LLC is effectively connected with a US trade or business (ECI), you must file the following US tax return.
- For filing corporate tax, you must submit Form 1120
- If you have a single-member LLC, then your business is disregarded for tax. This means you will not have to pay corporate tax, but the turnover will be subject to individual tax, and you will need to submit Form 1040-NR. Additionally, a Form 5472 will be submitted to report your foreign ownership and transactions to the IRS.
- File sales tax if you cross nexus thresholds.
Even if you owe zero tax, reporting your income and expenses to HMRC and IRS is mandatory to ensure complete compliance.
UK Tax Treatment of US LLC Income
This is what most UK individuals conducting eCommerce in the US do not understand. HMRC views US LLC as a look-through entity. That means, if you own a US LLC as a UK tax resident, the profits flow directly to you, regardless of whether you take them out.
So, if your US LLC earns $100,000, HMRC wants to tax you on that, even if you reinvest it or leave it in the business.
You must declare the income in your UK Self-Assessment Tax Return, convert it into GBP, and pay UK tax on it. You may get credit from the UK government if you have paid any US taxes.
There is a mismatch in entity classification: the US treats an LLC as a business entity, while the UK treats the income from a US LLC as personal income. This is one of the most dangerous blind spots in cross-border tax structuring.
Best US State to Form an LLC as a UK Non-Resident
Now, most of the UK eCommerce sellers ask where to register your LLC in the US. Here are the best states to consider while registering for an LLC in the USA.
State | Pros | Cons |
Wyoming | Low fees, privacy, no franchise tax | No sales tax advantages |
Delaware | Reputation, strong legal protection | Annual franchise tax |
New Mexico | No annual report, low fees | Less known to banks/platforms |
Most UK clients prefer Wyoming for cost-efficiency and ease of setup. Make sure that you account for nexus laws and sales tax obligations in your actual selling state.
Avoiding Double Taxation Between the UK and the US
The UK-US Tax Treaty helps, but it’s not automatic. You can’t just not pay tax in the US and expect the UK to accept that. Similarly, you can’t get credit in the UK if you don’t file properly in the US.
Here’s how you can avoid double taxation:
- Ensure income is properly reported in both countries
- Claim foreign tax credits in the UK for US tax paid (if eligible)
- Use treaty relief to reduce or eliminate withholding tax on payments
A well-drafted structure, possibly using a US C-Corp owned by UK Ltd, can help reduce tax complexity. Tax flexibility depends on your growth stage, repatriation plans, and risk appetite.
What is the W-8BEN Form for UK Amazon Sellers?
The W-8BEN is a form used by non-US residents to certify their foreign status and claim tax treaty benefits on income from US-based eCommerce activities. If you’re using Amazon.com, eBay US, or US-based Stripe accounts, they may ask you for the form W-8BEN. This form tells the IRS:
- You’re a non-US person
- You claim treaty benefits (e.g. 0% withholding)
What if Your W-8BEN Form is Incorrect
You need to file the W-8BEN form correctly. Any incorrect submission may result in the US not accepting your form, and the marketplace through which you are conducting eCommerce, like Amazon UK, will withhold 30% of earnings. So, make sure the following details on your W-8BEN form are accurate:
- The name matches IRS records
- You tick the correct treaty article for business income
- You list the UK as your tax residence
The form W-8BEN is used for individuals, while W-8BEN-E is used for entities outside the country but selling online in USA.
What is the Risk of Not Ensuring Tax Compliance for UK eCommerce Sellers in the US?
If you are not compliant with the US cross-border tax laws while selling UK eCommerce in the US, then you are subject to the following liabilities.
- Amazon sellers may have 30% of their earnings withheld if they fail to submit the W-8BEN form.
- If a US single-member LLC fails to file Form 5472, it may trigger an IRS penalty of up to $25,000.
- Shopify sellers who miscalculate their state sales tax liability may face backdated assessments, interest charges, and penalties, even if they do not reside in the US.
Clients believe that they don’t owe any tax to HMRC if their earnings were not received (undistributed US profits). However, this income still needs to be reported and taxed under a self-assessment tax return to HMRC.
Final Thoughts: Simplify Tax Implications for UK eCommerce Sellers in the US
US e-commerce is a goldmine, but only if you walk in with your eyes open. As a UK eCommerce seller or entrepreneur, you need more than a quick US LLC formation service. You need a joined-up tax strategy to ensure US LLC compliance for foreign owners, anticipate reporting needs with HMRC and IRS, and align the right legal structure with the requirements of selling on US marketplaces as a UK-based seller
At Lanop Business and Tax Advisors, we have advised dozens of UK-based founders doing business in the US with US LLC registration process, structuring entities, filing in both countries, and ensuring they avoid unnecessary taxes
If you’re a UK eCommerce seller planning to launch or grow your e-commerce operations in the US directly or through a marketplace like Amazon, Shopify, and more, we can help you get tax rights from day one.
FAQs
How can UK residents set up a US LLC?
UK entrepreneurs can register a US LLC by choosing a state (like Wyoming or Delaware), appointing a registered agent, obtaining an EIN from the IRS, setting up a US mailing address, and optionally opening a US bank account. It’s crucial to plan the tax structure before registration.
Do I need a US bank account for my LLC?
While not legally required, a US bank account is highly recommended. It helps streamline payments, supports platforms like Stripe or Shopify, and strengthens your business’s credibility. Many payment processors prefer or require a US-based account linked to your LLC.
Which US state is best for UK sellers to register an LLC?
Wyoming is a popular choice for UK sellers due to its low costs, privacy, and no franchise tax. Delaware offers strong legal backing, while New Mexico has minimal annual filings. The best choice depends on your budget, growth plans, and where your customers are.
What legal compliances must UK sellers follow when operating a US LLC?
UK sellers must file a US federal tax return, submit Form 5472 (if it’s a single-member LLC), and meet state-level sales tax rules under nexus laws. Profits must also be declared in the UK through HMRC’s Self-Assessment, even if they are retained within the US LLC and not distributed to the owner. Compliance on both sides is essential.
