Start a U.S. dropship business from abroad
The number one question that I get asked from clients is, when I live overseas, how can I start a dropship business in the US? If you have just purchased lifestyle dropships, you may still be confused about your legal requirements to conduct a dropship business overseas.
I will expose your only real option in this blog post. If you find the process too demanding and expensive then you probably have better chance to send your customers outside the United States using a Chinese dropshipping or dropshipper–that means you have no need to associate yourself with the United States.
If you are trying to operate a U.S. dropship business outside of the US, these are some of the road blocks that you will find: poor credit card dealerships (i.e. unable to use shops or large-scale payments) unable to get US resellers permits that most dropshippers require for account setup.
Let’s look at the kind of Dropship Company you plan to build in order to see if you have to act.
A. Your non-US citizen who wants to use a U.S. dropshipper for customers in the United States–read below.
B. Your non-US citizen who wants to use a U.S. dropshipper for international customers–read below
C. Your non-U.S. citizen: Who wants to use a Chinese dropshipper for U.S. customers–set up a local business?
Delaware Company Setting up a limited company in Delaware is the number one way to legally use U.S.-based dropship companies.
Delaware is considered a leading corporate haven for domestic and foreign companies within the United States. Anyone from anywhere in the world can set up a Delaware company. You don’t have to live or have ever been there in the United States. If you are not banned or have convictions in the United States, you can set up a Delaware company.
This will allow you to: set up a legitimate business based in the U.S. like many out there marketers.
Get Reseller permission required by Dropshipper Setup a U.S. bank account Initiate a Shopify, woo commerce etc credit card merchant credit card processor Get the advantage of better offers to travel free of charge.
Please notice that I’m not a lawyer, accountant or tax consultant so use the following information only as a resource but it worked for me.
Delaware is the only offshore state in the US (Wyoming now, too) that allows foreign companies to set up and operate companies without actually being in or having a social security number in the United States. The only drawback to a company’s operation is that you cannot sell to consumers in Delaware. This shouldn’t have too much impact on your business given how small the state is, however you will need to specify on your website that you can’t ship to Delaware.
In Delaware You have two options here, depending on how big your business is, you might be able to hire the services of a U.S. startup lawyer specializing in situations like this. I’ve heard Ryan Roberts being highly recommended at Startup Lawyer and charging around $1000. You can communicate with it via Skype and e-mail and you will add a flat charge to your company including an association memorandum, articles of association, limited agreements, etc.
The other option is to use a service from Delaware Incorporation that charges the service for about $300 a year. I can’t really recommend one, but a quick google search will reveal a lot of these companies with different charges and fees. In this situation, the one with the flashiest website may not be your best provider.
To set up your Delaware C Corp business, which costs $148 once, you will have to pay an incorporation fee.
All companies in Delaware are required to have a registered agent in Delaware if all managers and shareholders live outside Delaware. If you use the above mentioned incorporation service, it usually is included, but you can find a company that serves as the agent for about $125 a year.
These registered agents will also provide mail transmission services that keep your personal information away from the public domain.
Employer ID Number
Each company in the U.S. needs an EIN number (this is called a Tax ID Number in NZ). After you have incorporated your company, simply complete an SS4 form and call the IRS Philadelphia Center at 1-800 829 4933 (the only office we could find that processes companies that own foreign countries). You can fax through your completed SS4 form while on the phone to them and they will provide the EIN number over the phone if everything checks out. At the time, it sounded scary, pretty straight forward.
US Physical Address
To receive business documents, all Delaware companies need a physical US address. There are hundreds of different offers online out there. Again, if you use a registered Delaware agent, they may be able to provide you with something, even though it may be the top end of your budget. When I first set up my Delaware Company, I chose VirtualPostMail, a nice startup company that offered a $20 business mailbox per month for the first 3 months with a 50 percent off.
VirtualPostMail will scan and email documents so you don’t have to wait weeks for a letter to appear. My plan includes 125 free monthly scans with $1 each additional scans. This is a perfect solution given that nobody actually mails me.
You need to submit a notarial USPS 1583 form before opening your mailing account to allow the company to open mails for you. For once, good old USA thinking of our privacy 🙂
OK, this is sure to be your biggest challenge and hardly any useful information is available online–I looked up high and low for the optimal solution and finally got there. You require a business checking account with an US bank–especially if you want to use free payment processing tools from Shopify or wooCommerce.
If you’re lucky enough to have a U.S. bank account in your personal name already then you probably won’t have any issues, just try calling them and see if you can open your new business with a bank account. They will cut you off the minute you ask where the company is formed and where you now live, depending on your bank.
Every time I called some banks and I got fobbed off, someone from Citibank told me that I had to go to the USA to visit Delaware with my passport and corporate documents. I put it to my limited start-up budget and it’s easy to go to a US bank. If you’re planning a vacation in the US soon, go to a bank of your choice by all means and set up your new accounts.
I managed to get a break when I posted a new Silicon Valley bank (that’s also the name) on an Angel Investor Forum, which was considered very startup friendly. I was asked to send a copy of my company idea and any reference was made from New Zealand within a week without any visits to LA.
The bank account required a scanned copy of the stamped incorporation documents for the EIN which I had previously set up to set up. I had to provide my passport and driving license with two forms of identification. A depositor’s contract and an internet banking registration form. Finally, I had to provide the U.S. address and complete a federal W8 form required for signers without a U.S. social security number (aka me).
Merchant Account Paypal is decent but it is much easier for most buyers to put their credit card details into your website. You can now use the free payment merchant services Shopify and woocommerce. You can also use Authorize.net, the braintree and a flock of other providers of credit cards. FeeFighters has a nice web site comparing providers for saving you cash.
I use Braintree for myself as payments are paid in 12 hours on my account and purchasers never seem troubled and their support is outstanding. They provide the gateway for payment that makes PCI compliant with my sites.
Technically, I find Toll-free Forwarding to be the best and then send calls to a local Skype number here in New Zealand, regardless of whether your company is incorporated either here or outside the United States of America. The total cost is about $30 a month to do this. In the past, I’ve looked at call replies, but I prefer sending my callers to a generic voicemail, and then ringing them back. I rarely get phone calls so it’s better to lose a couple of sales than to pay $50 for the unused service.
Business Credit Card Slightly tricky, especially if you don’t immediately put cash into your U.S. bank account, I put $5000 into my account and the total cash could secure the total credit I received. I applied through Silicon Valley Bank for a MasterCard credit card and then took advantage of some of Johnny FD’s recommendations on his air miles post here. It will help me to rack up my aircrafts quite quickly (hopefully).
Your business, like mine, can now operate freely on the US market from the comfort of your own home anywhere in the world.
Your Delaware Tax Obligations Just a short point is that U.S. taxation of non-residents can be quite complex, involving many specific facts that determine whether or not non-residents are subject to U.S. taxation. Without much information, it is impossible for someone like me to know your specific tax obligations, so be sure to consult with relevant tax advice.
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