Starting an online international business

September 7, 2015 5:52 PM

I'm in BC, Canada, trying to start an online store. Customers are likely in the US. Manufacturers are in China and the US. What's the best way to set up and operate my business?

I'm starting a Shopify-based online store selling specialty glass kitchenware/decore products, with fulfillment by Shipwire (or a similar company, I know Shipwire tends to be on the expensive end). I've gotten some great quotes through Alibaba for my product from a Chinese manufacturer. Some of the product would need to be shipped to a second manufacturer in the US to be modified before selling.

I'm based in British Columbia, Canada. I expect (but haven't fully validated) that the bulk of my customers will be American. I'm currently looking at setting up as a sole proprietorship or possibly incorporating. However, I need to learn more about the thorny issues related to importing/exporting/taxation on my product before I venture down the wrong path too far.

My questions for anyone who has started this type of business or is familiar in this area are as follows:

-What's the best way to set up this business to minimize costs/headaches related to importing/exporting/shipping my product?

- Who should I be talking to in order to learn more about these issues? Corporate/tax lawyer? Accountant? Experienced entrepreneur? The business is currently a hobby/side project, so I'd prefer cheap/free resources, but if you know there's good value in consulting a professional I'd love to hear your reasons why.

-Any other good resources you've found for a startup in this area.
Thanks in advance!

posted by beepbeepboopboop to Work & Money (4 answers total)

Best answer: Can you give an idea of the size of your business (now and potential in the future)? What might make sense for $1M a year in revenue would definitely not make sense for $10K a year in revenue and vice versa.

That said, the differences between incorporating in BC versus being a sole proprietor are mostly in the realm of liability and taxation (as in income, not import duties or sales tax). I can't think there would be any difference in importing goods to the US and selling in the US for a Canadian sole proprietor versus corporation on the tax and duty side, but there are obviously the liability differences. Are you considering any other options, like incorporating in the US?

To be clear, if you've already started selling product, you are already a sole proprietor in the eyes of the law.

What you will need is a good customs broker to help you get product into the USA (but you also need to quite familiar with the law yourself) and help with the freight aspect. Also, be ready to travel to China to meet manufacturers as this tends to be what people in your situation end up doing to ensure good quality product manufactured to their specifications.
posted by ssg at 6:11 PM on September 7, 2015

Amazon makes it really easy to sell stuff, including your private label products, on both their US and Canada platforms and they will deal with the sales tax and import duties for you as well as give you useful documentation for doing your income taxes. People sell private label stuff all the time. You can also have them do your fulfillment for you for sales you generate off your Shopify site. Poke around www.sellercentral.com for more information. Pay attention to the differences between individual and professional accounts, which goes to your incorporation question.
posted by carmicha at 6:50 PM on September 7, 2015

Best answer: I'll try to zero-in on the tax and accounting aspects of your questions. The fact that you're resident in Canada and going to be managing inventory in the US raises some complex international tax issues. I think the simplest structure in your case is going to be a C-Corp based in the United States. Many US CPA's will push towards S-Corp or LLC, but this is not a good choice as a Canadian resident. The CRA will treat US S-Corps and LLC's as corporations under Canadian tax laws, so you might as well set up the company as a C-Corp.

I highly recommend working with at least one accountant to manage the compliance filings. There are informational returns required with both the IRS and the CRA as you start to operate internationally and grow larger. These are the kind of filings that come with steep penalties and are difficult to find out about on your own.

I'd recommend looking for a few key characteristics in an accountant:
-holds a CPA designation
-is familiar with US taxation as it applies to non-residents of the US
-is familiar with the Canada-US tax treaty
-is familiar with Canadian tax

You may need two accountants working together to cover all of these areas.

Obviously, this breaks your requirement to look for cheap/free resources. But, I think it's worth having a consult with an accountant before you start operating to discuss your proposed business model. They can help evaluate whether you're going to trigger any foreign tax requirements and perhaps suggest alternative business models to avoid this while the business is still small.
posted by bkpiano at 7:45 PM on September 7, 2015

Response by poster: Thanks everyone for the responses. I will look to consult with an accountant and look for a customs broker as I set up the business (no sales yet, unfortunately).
posted by beepbeepboopboop at 8:56 PM on September 9, 2015