Other than a few exceptions, the U.S. practices and promotes free trade through the many trade and tax treaties it has signed throughout the years. With the exception of certain specific items, exported goods are subject to very limited or hardly any regulations and thus, as international trade continues to grow, many entrepreneurs are considering it as a prospective business opportunity. Let’s go over a brief explanation, prepared by our cross border specialists at AG Tax, of the different types of exporting, the licensing required, and why exporting might be considered for a business.
Methods of Exporting:
Direct method: in which you find a foreign buyer and then make arrangements for shipping your products overseas. You may hire Sales Representatives /Agents and/or Distributors.
Indirect Exporting: by using an export intermediary, such as: Commissioned Agents, Export Management Companies (EMCs).
Export Licenses:
Depending on the characteristics of your product, the item’s destination and the recipient’s intended end-use of the item, you may need an ‘export license’. Export licenses grant permission to carry out certain type of export transactions.
Types:
1. General License – a broad grant of authority by the government to all exporters for certain categories of products
2. Individually Validated License – Grants specific authority from the government to the particular exporter to export a specific product to a specific destination if a general license is not available
Licensing bodies include:
• Department of Commerce
• Department of Energy
• U.S. Drug Enforcement Administration
• Food and Drug Administration
• Department of Agriculture
Goods are initially classified under the Harmonized System (HS) which describes and measures the characteristics of goods traded.
Why the Export Business?
Export.gov lists several benefits as to why exporting should be considered, including:
• 95 percent of the world’s consumers live outside of the United States, so if a U.S. business is only selling domestically, it is reaching just a small share of potential customers.
• Exporting enables companies to diversify their portfolios and to weather changes in the domestic economy.
• Exporting helps small companies grow and become more competitive in all their markets.
In addition, the United States currently has Free Trade Agreements (FTAs) with 20 countries. An FTA is an agreement between two or more countries, agreeing on certain obligations that affect trade in goods and services, and protection of investors and intellectual property rights, etc. Targeting FTA countries is a good market entry strategy since there is the potential for the reduction or elimination of tariffs charged on all qualified products exported/imported between the signing countries.
Also, the U.S. Government also provides programs and on-line training to further assist in exporting your products and services.
What are the Tax Implications of Exporting?
As a U.S. exporter you may be subject to:
• Federal Tax filing requirements
• State tax filing requirements
• Foreign tax filing requirements
A thorough understanding of U.S. tax laws and the tax laws of the country you are exporting to (as well as how they interact through tax treaties) is important in ensuring you correctly and file the required forms in both countries in a timely fashion. The interactions of the tax codes of multiple countries can create very complex tax situations. We strongly suggest you contact an AG Tax specialist if you are considering exporting for your business.
It is always advisable to consult a corporate tax professional regarding the tax implications of starting a business, especially a business operating in more than one country.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
