I know there is a lot of specificity here, but I didn’t know where else to post this after all the tax attorneys I’ve asked have failed:
The business in question is an online business which is registered in Singapore. The bank account is in Singapore as well, which Paypal empties into - however the merchant fees (2.9%) plus the currency exchange rates used are unfair (above regular exchange rates). We have no need to change from USD to SGD. We figure fees will be lowest for us if we open a US bank account to empty the Paypal (or Stripe) money into, but we think we might be hit with US taxes. None of the owners of the company live in the US - and what is being sold online is digital media.
Can you give an answer as to whether we can get taxed in the US (as well as we already do in Singapore) for opening this account. I’d feel much better with some .gov references or some way to guarantee correct interpretation of the law. Extra credit: can we open a business banking account in the US under a foreign company?
Merchant fees (all said and done) of 2.9% aren’t too bad. Looking at Paypal, they charge 2.9% here in the states as well, so you’re not saving anything…unless I’m not understanding what you’re trying to do.
Saving on the high conversion rates. They don’t allow you to deposit USD into Asian banks without converting the currency. Furthermore, their conversion rates are above everyone else’s.
Poking around online, I’m getting some mixed answers. My guess is that your best bet is going to be to contact a stateside CPA or lawyer (even better if they deal with international businesses) and ask them. It might just be a matter of paying him/her for an hour phone call, some emails and a written letter to confirm it all in writing. If for no other reason, if something does go sour, it’ll be nice to have someone ‘over here’ that you already have an established relationship with.
FTR, you can call the IRS directly and ask them. They can’t/won’t give you legal advice, but they’ll sometimes (depending on who you talk to) help you as much as they can. Of course, if you call back 10 minutes later and ask again, you may get a different answer from a different person. So unless you find a line on IRS . Gov that specifically states what you’re looking for, I wouldn’t take it for granted.
It seems like you should be able to do it. I mean, for US citizens, the IRS (in general) has no idea how much money flows through our bank accounts, they don’t even look at it and as long as it’s non-interest bearing (which is what you’d want) nothing gets reported to the IRS.
One last thing, you may have to set up a business here in the states to get an FEIN (the business equivalent of a social security number) in order to set up the account. But even on that topic I read it both ways.
You could also just try calling a bank or Paypal and asking them. It’s something they deal with often enough that they might have some insight.
Can you send your customers invoices? I have international customers who I send invoices to in USD, and when they pay I get the exact amount no conversion fee. I make it clear up front I take payment in USD only.
I once had a customer just send me a payment unsolicited in lira or something, I refused it because indeed paypal wanted to charge an outrageous currency conversion fee to put it into my account.
What I’m saying is could you send your customer an invoice or payment request in SGD, so you would receive that in your paypal account?
So basically, I can avoid these fees if I have every customer pay in SGD, but then they’ll be charged extra for any currency conversion via Paypal. There is no win/win solution?
It looks like there is no currency conversion fee if the customer uses their paypal balance, but one if they use a credit card as a funding source.
I only started using the invoice/payment request option in USD because I didn’t want the headache of customers asking how much it was in their local currency, or making sure they sent the correct amount to me.
If I understand your problem correctly your paypal account is receiving payments in USD, and you then need to transfer it to a bank account in Singapore. Paypal won’t allow you to send USD to the bank, requiring you first convert it to SGD first and that is where the fee comes from correct?
Do you have a US based paypal account? If you qualify for the business debit card you can withdraw from some ATMs without conversion fees or ATM fees even in foreign countries.
If you have a Singaporean based paypal account none of this probably applies, I know paypal accounts based in different countries all have their own different rules.
It is certainly legal for you, a foreign national/business, to open a bank account in the United States. At least as far as U.S. law is concerned, anyway.
As far as taxes are concerned, in the United States taxes may be assessed either by the federal government or by the state government. Any interest you earn on the account will be subject to tax at both levels (unless you are in one of the few states that does not tax income). Most checking accounts, particularly business checking accounts, don’t pay interest, so that isn’t likely to be an issue for you. Opening a U.S. bank account should not otherwise subject you to federal taxation. Whether you are subject to tax at the state level will depend on whether your business is required to be qualified to do business in the state. Opening a bank account, without more, will not require you to qualify to do business, but if you are engaged in other activities in the state, the existence of the bank account will be one factor to take into account. This is a complex analysis, and you will need to consult a corporate lawyer in that state if there is a risk that you may be required to qualify to do business.
So the legal and tax impediments to opening a U.S. bank account are pretty minimal. However, you will have to find a bank that wants you as a customer. Banks are subject to know-your-customer and anti-money-laundering rules, which can make them unenthusiastic about taking on foreign customers.
You need to pay a qualified professional to render a written position on this. There are two reasons:
it’s a very complicated question. I’m a CPA, and you don’t even want to trust my answer on this over an Internet forum. I couldn’t give you a thorough answer on a forum, and if I tried, I’d be violating my due diligence requirements.
a written opinion may be a reason to avoid paying penalties should the IRS disagree with your position. Since the FATCA rules impose a $10,000 flat penalty, per year, for failing to disclose foreign assets, you can see that avoiding penalties is a real motivation.
I will give you an “in general” answer. In general, the location of bank accounts is not important to income tax. What they care about is the source of the business income. Source is not always easy to determine, but generally:
Source is based on where the company (and its employees) operate. NOT where its customers are located.
Source is also based on the location of revenue-producing property. This would include interest on bank accounts.
So a US-based bank account could produce US-sourced interest income that would require filing a US tax return. However, if all business activities are being performed in Singapore, the rest of the income is still sourced to Singapore.
That said, you also have to pay attention to FATCA rules. These rules can require reporting of the signature authority over a bank account, possession of certain financial assets, and transfers of large amounts of money.
You also have to satisfy both the merchant service provider and the bank. I think both of those will require a US taxpayer ID number (like an EIN), and maybe would even require some physical location in the US. A physical location in the US might mean some business income is now sourced to the US.
You can deposit USD, GBP, and a few other currencies into your bank account in China (if you happen to have such an account). The funny thing is that the bank basically creates a foreign currency account for you for each foreign currency deposited. I discovered this when my sister did a bank wire transfer of dollars to me two years ago. I had to withdraw the dollars and then use them to purchase yuan.