The number one question I get asked from clients is, How can I start a dropship business within the United States when I live overseas?.
If you've just purchased an eCommerce course you might still be confused about your legal requirements to operate a drop ship business overseas.
I initially wrote this post in 2016 and I've revamped it in 2020 with some updates. I followed this process 4 years ago, so while I believe most of it is accurate, something might have changed.
Why Setup a USA Off-shore Business?
If you're like me and you live overseas and you want to setup a USA eCommerce store. That is a store that uses US based dropshippers.
You probably can't. Because US dropshippers only work with US companies and directors which social security numbers and reseller ID's.
If you live in say, Moldova, you might be able to work with European dropshippers and you definitely will be able to use Chinese ones, such as Aliexpress.
But USA companies won't work with you. Period.
Many courses say USA dropshipping is much more lucrative and customers will be much happier due to shorter delivery times. But they fail to tell you that unless you're a US resident you won't be able to onboard yourself with a US supplier.
Unable To Process Credit Cards
If you're from a third world country and want to sell on Shopify, you'll quickly find that Shopify payments don't have a solution for you to process cards.
While some countries have an alternative, there are many countries with no payment processors. To combat this, setting up a USA off-shore business will allow you to process cards using Shopify USA or Stripe USA policies.
If you've been banned from Shopify due to excessive disputes or chargebacks, you might be up a creek without a paddle and need a new credit card processor. Starting a US off-shore company could help you.
Who This Tutorial Is For?
I'm not a financial planner, nor am I licensed in your country or mine to provide such advice.
You should use my guide as an educational resource and if in doubt, seek the services of an overseas tax adviser. I've been setup this way for years and I've had no issues.
Why Offshore In The USA?
There's two states that offer off-shore company formation for foreigners, Wyoming and Delaware. I chose the latter as it was the only option at the time.
For me, it was to work with USA dropshipping providers to expand my business. I would try and apply and I'd fail due to no social security number or reseller ID.
Additionally registering in states such as Delaware or Wyoming means 0% income taxes on profits. It's important to point out, you're still legally required to pay income tax in your country.
It's a common misconception that offshore company means no tax at all. While you pay no company tax if you have offshore bank accounts, such as say 35% on profits, but you'll still pay personal tax in the country you reside, such as from your shareholder salary or owner funds.
The best thing for me, is the fact you don't need to keep any accounts, file no annual return and aren't subject to audits. Bottom line, you can do business very easily indeed.
Delware or Wyoming?
Both have their pros and cons, however Delaware was the original state before Wyoming came along and as such it's entirely up to you.
Both offer zero tax on corporation income if your bank account is outside the US. Both offer support for eCommerce support as you can setup an LLC (Limited Liability Company).
Both states offer absolute privacy, confidentiality and protection of assets. No public information is stored on directors or shareholders and there's no upfront capital required.
Delaware is often the go to place for larger companies, whereas Wyoming is seen as the place for startups and small businesses. Most larger businesses court in Delaware, which you probably won't need so Wyoming can be a lucrative state.
Delaware is usually slightly cheaper than Wyoming but there's many companies offering the same service, so do your own research to find the best one.
You charge no sales tax on sales to those outside the state, so most people simply don't sell or ship services to Delaware or Wyoming.
What You Can Do With Off-shore Company?This will allow you to:
Setup a legitimate US based business like many marketers out there.
Obtain reseller permits required by dropshippers
Setup a US based bank account
Setup a merchant credit card processor with Shopify, Bigcommerce etc
Get a US issued credit card to take advantage of way better airmiles offerings for free travel.
Which is exactly what you need for your eCommerce business.
How To Incorporate In Delaware
A quick search online reveals dozens of companies that offer incorporation services.
You can expect to pay around $1,000 for an incorporation. This may or may not include a bank account. Your bank account can be located in another jurisdiction such as Hong Kong.
However if you're looking to process US payments you'll need a US bank account.
You'll either need to be a director and shareholder yourself or you can hire the services of a nominated director, who basically does nothing but it keeps your name out of any records.
You can also have a registered office. An eCommerce business probably needs a registered office in Delaware to look more official, however your office can be in another state.
Below I'll share my process I followed.
How I Incorporated In Delaware
I used a formation agent. They are no longer in business but there's other providers that my friends have used including:
I registered a Delaware C Corp business which cost $148 for the application fee. This was on top of the $300 I paid for the incorporation provider.
Currently all Delaware companies are required to have a registered agent in the state, if directors and shareholders live outside the state.
That was me, so I chose the registered agent which cost me $125 per year. If someone sends a letter to my company, they'll open it and scan it over to me.
Additionally they could in theory pickup the phone for me, but we have a customer support number for that, so it's not needed.
It took 3 days to get setup. They emailed me some forms which I downloaded, signed and scanned back. I got the company documents sent over via DHL once incorporated.
I opted for a nominated director. While Delaware claims there's no public records, I don't buy into that at all so becoming a shareholder only offers more privacy, cost $500 a year.
Grand total thus far was around $1,000.
Getting a Bank Account
Back in 2016, this was a huge challenge. No one wanted to give me a bank account without visiting the United States to sign the paperwork.
Citibank for example wanted me to fly to Delaware and provide a huge startup capital. Remember Delaware requires no upfront capital so I was confused here.
Likewise any bank that was prepared to work with me, didn't offer credit card processing for off-shore businesses with foreigner owners which was a problem for Shopify.
I personally got lucky and found a startup bank called New Silicon Valley Bank that offered to setup an account and I used them for a number of years.
I've also heard that
Their only requirement was to send a document with how my business makes money and some examples. I took a screenshot of my store.
To setup this service I was required to get an EIN number and provide my driving license and passport from my home country. I also had to sign a bank depositor agreement. Lastly I had to sign a W8 tax form which is for signors who aren't US citizens.
Getting an EIN Number
Every business in the US needs an EIN number (in other countries we call this a tax ID number).
Once your company has been incorporated you simply need to fill out an SS4 form and call the IRS Philadelphia center on 1-800 829 4933 (this was the only office we could find that processes foreign owned companies).
While on the phone to them you can fax through your completed SS4 form and if everything checks out they’ll provide the EIN number over the phone. Pretty straight forward but sounded scary at the time.
Get Physical US Address
All Delaware businesses need a physical US address for receiving business documents. There’s hundreds out there online with various different offerings.
Again if you use a Delaware registered agent they might be able to provide something for you although it might be top end of your budget.
When I initially setup my Delaware company I chose VirtualPostMail which is a nice startup company that offered a business mailbox for $20 per month with 50% off for the first 3 months.
VirtualPostMail will scan documents and send them via email so you don’t need to wait weeks for a letter to show up. My plan includes 125 free scans per month with extra scans at $1 each. Given no one ever actually mails me this is a perfect solution.
Before you can open your mailing account you need to submit a notarized form 1583 from USPS to allow the company to open mails on your behalf. Good old USA thinking about our privacy for once :).
Get Merchant Account
Once you've incorporated, got the bank account, the EIN and have a registered US address, you're nearly home and dry.
Paypal is decent but most buyers prefer simplicity and putting their credit card details into your website is much easier.
You’ll now be able to take advantage of Shopify and Bigcommerce inclusive free payment merchant facilities.
If you wish you can also use Stripe, Authorize.net, Braintree payments and a hoard of other credit card providers out there. There’s a neat website called FeeFighters that compares providers to help save you money.
I personally use Stripe as payments are settled in my account within 12hrs, buyers never seem to have issues and the support they provide is top notch. They provide the payment gateway making my sites PCI compliant.
Get a US Phone Number
If you're going to setup a US business you'll want US numbers.
Technically not an issue and possible regardless of whether your company is incorporated here or outside the United States however I find TollFreeForwarding to be the best and then forward the calls to a local Skype number here in my country.
The total cost for doing this is around $30 a month. I’ve looked at call answering services in the past but I prefer to send my callers to a generic voicemail and then ring them back myself.
I rarely get phone calls so losing a couple sales is better than paying $50 for the service that will go unused.
Get Business Credit Card
Slightly tricky especially if you don’t put cash into your US bank account right away, I put $5000 into my account and the total cash was able to secure the total credit provided to me.
I applied for a mastercard credit card through Silicon Valley Bank and then went on to take advantage of some of the recommendations suggested numerous frequent flyer blogs.
Delaware Tax Obligations
Just a brief point is that US taxation of non residents can be fairly complex and involves many specific fact points that determine if the non-residents are subject to US taxation or not.
It’s impossible for someone like me to know your specific tax obligations without lots of information so ensure you consult with relevant tax advisers.
This might be costly to start with but I can guarantee it will be easier and safer than being hit with a huge tax bill (which you’ll struggle to pay) in 5 years time.
In simple terms you’ll need to file annual tax returns and your company will need to keep accurate financials such as balance sheet, profit and loss, chart of accounts etc.
You’ll also run into road blocks such as double taxation and how your country perceives your overseas income.
I’d recommend checking out this guide for further info in this area.
Start An eCommerce Business
eCom Elites is an online coaching course helping individuals setup dropship stores using e-commerce stores.
They have one complete package that costs $197 one time.
I would definitely recommend you buy this course to learn more.