Quick Assessment = 4 questions → personalized strategy | Entity Comparison = LLC vs C-Corp side-by-side | Tax Rules = treaty rates, withholding, ETBUS/ECI | Exit Scenarios = IP structuring for tax-efficient sale | Implementation Roadmap = step-by-step setup guide
🎯 Quick Assessment
Answer 4 questions to get personalized recommendations. Want full details? Click the other tabs above.
Q1: Who will own the US entity?
🎯 How this affects your structure:
- Individual owner = simpler, use Form W-8BEN for treaty claims
- Foreign company owner = use Form W-8BEN-E, may enable holding company strategies
- This affects withholding, filings, and exit planning
Q2: What's your business model?
🎯 How this affects your tax exposure:
- US inventory (FBA, 3PL) = almost certainly creates ETBUS → US taxes apply
- No US presence (dropship, digital) = likely NO ETBUS → potentially 0% US tax
- This is the #1 factor determining if the IRS can tax your business income
Q3: How will you fund the business?
🎯 How this affects your entity choice:
- LLC = pass-through taxation (no corporate tax), simpler, best for bootstrapped
- C-Corp = required for VC funding, has 21% corporate tax + dividend withholding
- Wrong choice now = expensive restructuring later ($5K-$20K+ in legal/tax fees)
Q4: What's your exit plan?
🎯 How this affects your structure:
- IP owned by US LLC = sale proceeds taxed in US (up to 37%)
- IP owned by YOU personally = sale is non-US source = taxed in your country only
- For UAE individuals: personal IP ownership → typically 0% capital gains → ~0% total tax on exit
🏛️ Entity Structure Comparison
Detailed breakdown for UAE residents — compare LLC vs C-Corp vs home country entity
| Factor | US LLC | US C-Corp | UAE Entity Only |
|---|---|---|---|
| US Corporate Tax | 0% if no ETBUS | 21% flat | 0% |
| Stripe/PayPal | ✓ Yes | ✓ Yes | Available* |
| Amazon FBA | ✓ Yes | ✓ Yes | Limited |
| Annual Filing | Form 5472 + pro forma 1120 | Form 1120 | None in US |
| Withholding on Distributions | If ECI: up to 37%** | 30% (no treaty) | N/A |
| Setup Cost | ~$500-800 | ~$500-2,000 | $0 |
*Stripe/PayPal now support UAE businesses, though onboarding and banking may be smoother with a US entity depending on merchant category.
**If the LLC has ECI (effectively connected income), partnership withholding under IRC 1446 applies to foreign partners (up to 37% non-corporate, 21% corporate). No ECI = no partnership withholding.
Recommendation for UAE Founders
Delaware LLC owned by you personally. Simplest structure, and if you avoid ETBUS (no US inventory), you owe 0% US tax.
Why Delaware?
✓ Business Court
Court of Chancery specializes in business disputes.
✓ Privacy
No public disclosure of members. Only registered agent on file.
✓ No State Income Tax
If you don't operate in DE. Just $300 annual franchise tax.
✓ Industry Standard
Banks and payment processors expect Delaware.
📊 Tax Rules Deep Dive
Complete breakdown of ETBUS, ECI, withholding rates, and treaty benefits for UAE residents
🇦🇪 US-UAE Tax Treaty Status
⚠️ No Tax Treaty Exists
The UAE has no income tax treaty with the United States. This means:
IRS Treaty A-Z Index →
- 30% withholding on dividends, interest, royalties
- No treaty-based position to reduce ETBUS impact
- No protection against double taxation
ETBUS: When You Owe US Tax
"Engaged in Trade or Business in the US" status determines if your income is taxable.
🔴 Creates ETBUS
- Inventory in US (FBA, 3PL)
- Employees in US
- Dependent agents who can bind you
- Regularly performing services in US
🟢 Likely No ETBUS
- Drop-shipping (never own inventory in US)
- Digital products, SaaS
- All decisions made outside US
- Independent contractors only
The FBA/3PL Reality
FBA and US inventory are high-risk ETBUS/ECI facts. Treaty PE concepts may help in narrow scenarios, but don't assume protection. The "3PL as consignee" argument is aggressive and may not survive IRS audit. If you have US inventory, plan for US tax exposure.
🚨 The "3PL as Consignee" Argument — Deep Dive
A common question: "If my 3PL acts as importer/consignee and holds title at import, can I avoid ETBUS?" Short answer: probably not.
Why This Argument Is Risky
The IRS and courts look at substance over form. Key factors they examine:
- Who bears the economic risk? If the 3PL can return unsold goods to you, or you guarantee their costs, you still own the inventory economically.
- Who controls sales? If you set prices, run marketing, handle customer service, and direct fulfillment — you're conducting business, not the 3PL.
- Where are goods stored? Inventory physically located in the US creates US nexus regardless of who holds nominal title at import.
- Regular vs. isolated activity? Ongoing FBA/3PL operations = regular, continuous trade or business in US — not a one-off transaction.
📋 What the 3PL Agreement Would Need
- 3PL takes true title and risk (not just consignment)
- 3PL buys from you FOB overseas, resells at their own price
- 3PL handles returns, customer service, bears credit risk
- You have no US employees, no US bank accounts controlling operations
Reality: Most 3PL arrangements are logistics services, not true buy/resell. The 3PL is your agent, not an independent buyer.
⚖️ Relevant Authority
- IRC §864(b) — ETBUS definition
- Treas. Reg. §1.864-2 — Trading safe harbors
- The §864(b)(2) safe harbor is for "trading in stocks/securities/commodities" — NOT physical goods through fulfillment centers
- Treaty PE articles address "permanent establishment" but don't override domestic ETBUS rules where inventory creates presence
Practical Guidance
- If you use FBA or a US 3PL: Plan for ETBUS/ECI exposure. The question is managing the tax, not avoiding it entirely.
- Consider C-Corp structure: Caps entity-level tax at 21% (vs. up to 37% for pass-through ECI).
- Document everything: If you want to take an aggressive position, at minimum document who controls decisions, who bears risk, and get a formal legal opinion.
- True drop-shipping alternative: If you never take title to goods in the US (supplier ships direct to customer), that's cleaner — but FBA/3PL models don't work this way.
Withholding Rates
| Income Type | Without Treaty | Your Status |
|---|---|---|
| Dividends | 30% | 30% (no treaty) |
| Interest | 0-30%* | Often 0% (portfolio interest exemption) |
| Royalties | 30% | 30% (no treaty) |
| Capital Gains (non-USRPI) | 0% | 0% |
*Interest withholding is highly fact-dependent. The "portfolio interest" exemption can reduce withholding to 0% even without a treaty, if the debt is in registered form and the payee properly certifies foreign status on a W-8.
📋 Form 5472 Compliance
🏢 Does a C-Corp Insulate from ETBUS?
📄 Transfer Pricing Documentation
⚠️ Don't Forget: US Sales Tax
Sales tax is separate from income tax. Even with no ETBUS, you may have sales tax obligations.
📦 Physical Nexus
- Inventory in a state (FBA, 3PL) creates nexus
- Amazon can place FBA inventory in many states
- Each state = potential registration + filing
💰 Economic Nexus
- Sales volume thresholds (typically $100K or 200 transactions)
- Varies by state
- Can apply even with no physical presence
Marketplace Facilitator Rules
For marketplace sales (Amazon, Etsy, eBay), the platform typically collects and remits sales tax. But for DTC sales (Shopify, your own site), YOU are responsible for collection and filing in nexus states.
💰 Exit Scenarios & IP Strategy
Full breakdown of IP ownership options and exit tax implications for UAE founders
Where Should the IP/Brand Be Owned?
When you sell, the buyer pays mainly for IP (brand, customer base, systems). Location of IP determines where gain is taxed.
| IP Ownership | US Tax on Sale | UAE Tax | Net Result |
|---|---|---|---|
| You personally | 0% | 0% | 0% Total |
| Your UAE company | 0% | 0% | 0% Total |
| Your US LLC | Up to 37% | 0% | Up to 37% |
Note: UAE corporate tax (9%) may apply to company gains. Free zone entities may qualify for 0% on qualifying income. Individuals typically face 0% capital gains. Consult a UAE tax advisor.
⚠️ Exit Guardrails — "0% US Tax" Is Not Automatic
- ECI-tainted exits: If the business has ETBUS/ECI, the exit itself can be taxable depending on deal form and which assets are sold.
- Asset sale with US operations: Selling US operating assets (inventory, equipment, goodwill of US business) may create ECI even if IP is offshore.
- Contingent payments: If sale price includes earnouts or royalty-like structures, those payments may be sourced differently under IRC §865.
- Stock sale vs asset sale: Buyers often prefer asset purchases for tax step-up, which increases your ECI exposure.
⚖️ Asset Sale vs Stock Sale — What Buyers Want
Your preferred exit structure (sell offshore IP separately) may conflict with what buyers want. Understanding this tension is critical.
📦 Asset Purchase (Buyer Preference)
- Why buyers want it: Tax step-up on all assets, pick and choose what they acquire, avoid unknown liabilities
- Your problem: Selling US operating assets (goodwill, customer lists, inventory) = ECI/ETBUS exposure
- Typical structure: Buyer acquires IP from you, operating assets from LLC
- Result: Some proceeds US-taxable, some not — allocation matters
📜 Stock/Membership Interest Sale
- Why you might prefer it: Cleaner — sell your LLC interest, one transaction
- Foreign seller of US LLC: Gain on sale of LLC interest can still be ECI if the LLC had ETBUS
- IRC §864(c)(8) — Partnership/LLC interest sale by foreign partner is ECI to extent of ECI assets
- Result: Stock sale doesn't necessarily escape US tax for FBA sellers
🎯 The Practical Reality for E-commerce Exits
- If you had US inventory (FBA/3PL): The US operating business has ETBUS. Both asset sale of LLC assets AND sale of LLC interest can trigger US tax. Offshore IP helps, but doesn't eliminate exposure.
- If you had NO US presence (dropship/digital): LLC interest sale or IP sale is likely non-US source. This is the cleanest exit scenario.
- Allocation negotiations: In asset deals, negotiate to allocate more value to offshore IP vs US operating assets. Get valuation support.
- Buyer due diligence: Sophisticated buyers (aggregators, PE) will analyze your tax structure. Clean documentation helps deal certainty and valuation.
Common Exit-Optimization Approach for UAE Founders
- YOU (as UAE tax resident) own the brand/IP directly
- US LLC licenses the IP from you (arm's length royalty)
- On exit: sell your IP rights (non-US source, taxed in home country)
- US LLC is sold separately or dissolved
Trade-offs: This structure creates ongoing royalty withholding (30% for UAE) and transfer pricing compliance. Buyer preferences may favor stock sales. Consider all exit paths.
⏰ IP Registration Timing — Do This BEFORE US Entity Formation
The timing of brand/IP registration matters. Registering IP in your name BEFORE forming the US LLC is cleaner than transferring later.
✅ Optimal Sequence (Pre-Launch)
- Register trademarks/brand in YOUR name (or your home-country company) — in the markets you'll operate (US, EU, etc.)
- Register domain in your name (or home-country company)
- Create IP in your name — product designs, packaging, marketing materials owned by you from inception
- THEN form US LLC — it licenses the IP from you from Day 1
- Document the license — arm's length royalty rate, written agreement, transfer pricing support
⚠️ Common Mistake — IP Created Inside US LLC
- If the US LLC registers trademarks, creates content, develops the brand — the LLC owns it
- Later transferring IP out = taxable event, potential anti-abuse scrutiny
- IRS looks at "where was value created?" — if it was built in the US entity, that's where it belongs
- Much harder to restructure later vs. getting it right from the start
📋 Pre-Launch Checklist
- ✓ File trademark applications (USPTO, EUIPO, etc.) in your personal name or home company
- ✓ Register domain in your name
- ✓ Create logo/branding materials with you as owner
- ✓ Document IP ownership in writing
- ✓ THEN form US LLC
- ✓ Execute IP license agreement before first sale
💡 Why This Works
- You can show IP existed before US entity
- License is "arm's length" — independent parties would do the same
- On exit, IP has clear non-US ownership history
- Buyer can acquire IP directly from you (offshore) + operating assets from LLC (US)
The Royalty Licensing Structure
Your US LLC pays you royalties for using the IP you own.
📝 What You Need
- IP Assignment (you own brand, trademarks, domain)
- License Agreement (US LLC → you)
- Transfer pricing documentation
- Arm's length royalty rate (fact-specific, support with benchmarking)
⚠️ Royalty Withholding
- 30% US withholding on royalties (no treaty)
- This is a cost, but exit savings outweigh it
- Need Form W-8BEN from you
- IRS scrutinizes related-party royalties
🗺️ Implementation Roadmap
Step-by-step guide to structuring your US e-commerce business — do these BEFORE launching
Phase 1: Pre-Formation (Do This First)
The decisions you make BEFORE forming your US entity determine your tax position. This is where the value is.
✅ Step 1: IP Registration
- Register trademarks in YOUR name (not future US LLC)
- File USPTO trademark application ($250-350 per class)
- Register domain in your name
- Create logo/brand assets with you as owner
- Document IP ownership in writing
Why first: IP registered in your name before US entity = clean offshore ownership history.
✅ Step 2: Structure Decision
- LLC vs C-Corp (see Entity Comparison tab)
- Owner: You personally OR your home-country entity?
- FBA/3PL = plan for ETBUS exposure
- VC fundraising = C-Corp required
Get this right: Restructuring later costs $5K-$20K+ in legal/tax fees.
Phase 2: Entity Formation
Once IP ownership is documented, form your US entity.
✅ Step 3: Form Delaware LLC/Corp
- File with Delaware Division of Corporations
- Appoint registered agent (annual fee ~$50-150)
- Obtain Certificate of Formation
- Draft Operating Agreement (LLC) or Bylaws (Corp)
- Cost: ~$500-800 total for LLC
✅ Step 4: Get EIN
- Apply for EIN (Form SS-4)
- Foreign owners: Online application may not work — use fax/mail
- Free from IRS, but processing takes 4-6 weeks for foreign owners
- EIN required for bank accounts and payment processing
Phase 3: Banking & Payments
With EIN in hand, set up your financial infrastructure.
✅ Step 5: US Business Bank Account
- Remote-friendly options: Mercury, Relay, Brex
- Traditional banks: Chase, Bank of America (may require in-person visit)
- Documents needed: EIN, Certificate of Formation, Operating Agreement, passport, proof of address
- Some banks have enhanced KYC for certain countries
✅ Step 6: Payment Processing
- Stripe: Supports Delaware LLCs, requires US bank account
- PayPal: Business account with EIN
- Amazon Seller Central: Requires US bank or Payoneer/World First
- May need Form W-8BEN/W-8BEN-E on file
Phase 4: Legal Documentation
Execute the agreements that implement your tax structure.
✅ Step 7: IP License Agreement
- License from YOU → US LLC
- Define scope: trademarks, trade dress, domain, content
- Set royalty rate (arm's length, typically 3-8% of revenue for e-commerce)
- Payment terms, withholding acknowledgment
- Get transfer pricing documentation
✅ Step 8: W-8 Forms
- Individual owner: Form W-8BEN
- Entity owner: Form W-8BEN-E
- Claim treaty benefits if applicable
- Certify foreign status to banks and payment processors
- Renew every 3 years
Phase 5: Ongoing Compliance
Annual filings and ongoing requirements to maintain your structure.
📅 Annual Filings
- Form 5472 + pro forma 1120: Due March 15 (single-member LLC)
- Delaware Franchise Tax: $300/year, due June 1
- Annual Report: Some states require (not Delaware for LLCs)
- Penalties: $25,000+ for late/missing Form 5472
📊 If You Have ETBUS/ECI
- Form 1040-NR: Individual with ECI (due April 15 + extension)
- Estimated taxes: Quarterly payments if ECI expected
- State filings: May be required if nexus in other states
- Sales tax: Register and file in nexus states
📋 Full Implementation Checklist
- ☐ Register trademarks in YOUR name (USPTO, other jurisdictions)
- ☐ Register domain in your name
- ☐ Document IP ownership in writing
- ☐ Decide: LLC vs C-Corp, personal vs entity ownership
- ☐ Form Delaware entity
- ☐ Obtain EIN (Form SS-4)
- ☐ Open US business bank account
- ☐ Set up payment processing (Stripe, PayPal, Amazon)
- ☐ Execute IP License Agreement
- ☐ File W-8BEN or W-8BEN-E
- ☐ Set up bookkeeping (Bench, Pilot, or local accountant)
- ☐ Mark annual filing deadlines (Form 5472, DE Franchise Tax)
- ☐ If FBA: Register for sales tax in nexus states
💼 What a Tax Architect Engagement Typically Covers
- Initial consultation: Review your specific facts, business model, exit goals
- Structure design: Entity selection, ownership structure, IP positioning
- ETBUS/ECI analysis: Detailed review of your 3PL/FBA arrangements
- Treaty analysis: Withholding optimization, PE considerations
- Exit modeling: Asset vs stock sale scenarios, allocation strategies
- Documentation package: IP assignment, license agreement, transfer pricing memo
- Implementation support: Entity formation, EIN, banking coordination
Typical engagement range: $2,000-$10,000 depending on complexity. Compare to cost of restructuring later ($15K+) or overpaying taxes on exit (6-7 figures on successful exits).
Need a Custom Structure for UAE?
Every situation is different. Book a consultation to design the optimal structure.
📅 Schedule a 30-Minute CallBy: Sergei Tokmakov, Esq. (CA Bar #279869)