August 20, 2019 by Dan Roberts

Five key considerations for Canadians selling to Americans online

Due to the rise of online sales through the likes of Amazon and eBay, a number of Canadians are looking into selling goods online to consumers who live in the United States. Setting up an online business is a great way to supplement your primary income stream, but even if your business is a relatively small undertaking, there are several issues to consider. With that in mind, here are five key considerations for Canadians selling to Americans online.

1. Setting up a business

The first step is to determine how you’re going to carry on business. Are you going to act as a sole proprietor or set up an entity? Before finalizing your decision, speak to someone who has experience with cross-border businesses and discuss the pros and cons. If you’re just testing the waters, you might want to start out as a sole proprietor, rather than go through the major step of setting up a legal entity (it can be quite costly, with filing costs, legal fees, etc.). If everything goes smoothly, you can migrate to a more sophisticated structure or an entity, rather than continue carrying on business as an individual.

2. Establishing bank accounts and managing currency conversion

To make transactions on platforms like Amazon, you need to establish accounts with suitable banking facilities. For most sellers, it is preferable to sell through the U.S. version of Amazon, but to do this, you may first want to set up a relationship with a U.S. bank, which can be a challenging process. In fact, one of the main reasons people set up an entity is to simplify the process of opening a U.S. account. Resolving this issue is an important part of selling online to the U.S., as it will help you minimize currency conversion fees, which can be up to 3.5%.

3. Legal requirements

When you sell products to the U.S., you need to consider what this means from a legal perspective. In general, the United States is a more litigious country than Canada. This could have a major impact on your business, even if you’re only involved in online sales. If you’re doing business in the U.S., ensure you’re aware of the legal requirements and have enough insurance to cover yourself in the event something goes wrong.

4. Income tax

Your income tax obligations are tied to the structure you choose. If you’re selling online, you should look to set up a structure that minimizes your overall income tax obligations and filing requirements. With the recent change in corporate tax rates in the U.S., the use of a U.S. corporation has become more attractive. When looking at your structure and how you drive business, your overall income tax rate is an important consideration. Depending on the level of your sales and other factors (such as the volume of inventory you maintain in the U.S.), you might not be subject to income tax in the U.S.

5. U.S. sales tax

One of the most significant concerns for Canadian companies conducting online business in the U.S. is state sales tax. The biggest issue with sales taxes is tracking, filing and reporting sales tax to the state tax authorities. Individual states are becoming more aggressive in requiring out-of-state sellers to collect sales tax. Historically, an out-of-state seller would only have to charge sales tax if they had a specific connection to the state (nexus). This concept still holds true, but more and more states are introducing the concept of “economic nexus,” which requires the collection of sales tax when you exceed a designated number of sales in a particular state.

While the points above offer a good overview of the issues facing Canadian businesses selling online to the U.S., there are many other considerations to keep in mind. Before you start selling south of the border, be sure to speak to a Baker Tilly advisor with an understanding of cross-border business and online sales.

Meet the Author

Dan Roberts Dan Roberts
Vancouver, British Columbia
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