Doing business with US PayPal account from abroad
I own a small Internet based company, located in a country other than US. I don't sell any tangible products, only information services, advertising and consultancy. I don't have any properties in US, nor any office space, nor employees.
I travelled to United States a couple of years ago, opened a US bank account there and filled the W8BEN form, as a non-US resident. With the card provided by that bank, I was able to open a Business PayPal account, which in theory is for US business and/or US citizens. Thanks to this PayPal account, I can receive payments from customers all over the world, including some from US.
I know you don't provide tax advice, but I'd appreciate any input you may provide. I'm also worried about the possibility of PayPal asking me for any documentation to prove the US business status and avoid the suspension of my account at one point. And last, but not least, I'm worried about any tax liability and I would like to avoid any fines.
I just learned about EIN by reading some articles from your site. Should I apply for an EIN and will it suffice in this case?
I read somewhere that there is a type of LLC where you don't have to pay any taxes if you don't conduct any type of business in US, which also means you cannot have customers in US. If creating that type of LLC is the way to go, I could easily just let the US customers go, as they are just a few either way.
I really appreciate your time and your efforts on mantaining this splendid Q&A site.
Thank you very much.
As you mentioned in the question, we do not offer direct tax advise, so in any case you will need to consult a professional CPA (we can help refer you to a CPA specializing in cases such as yours). Let me try to answer your questions to the best of my knowledge.
As far as we know PayPal is going to require EINs for business accounts, which means that if you are running your business using a business PayPal account that requirement would apply to you.
Let me present you with one scenario that in my opinion should work fine for you:
1. Open an LLC (I recommend Wyoming LLC),
2. Obtain EIN for that LLC,
3. Open a business bank account for this LLC (you can try the same bank where you already have an account, you might be able to open it without being physically present)
4. Open a new PayPal account and link it to your new bank account.
This way you will be set up to do business as a US company.
Now lets analyze your tax situation, to the best of my understanding:
Being a US entity your LLC will need to file annual tax return with the IRS. That does not mean that you will have to pay taxes, since your LLC's annual profit might simply be $0 if you have enough business expenses, but this particular topic is best discussed with an accountant.
Whether you can just obtain an EIN for yourself is a tricky question. Technically, as far as I understand, your business is a sole proprietorship, meaning it is not incorporated or otherwise organized as a separate entity. US persons with SSN can obtain EINs for their sole proprietorships and use that EIN with their PayPal accounts, however we were told by the IRS not to try to obtain EINs for non-US persons without ITIN (Individual Taxpayer Identification Number, an equivalent of SSN for non-US persons), so I would suggest you to consider obtaining ITIN first and then getting the EIN using this ITIN.
I hope I answered most of your questions.