When starting a business, you want to do things right the first time around. If you’re thinking about becoming an Amazon seller, you might be wondering, do I need a business license to sell on Amazon?
The short answer is; it depends. There are several factors that need to be considered when working out whether or not you need a business license, including your location and what you intend to sell.
Let’s get into the specifics.
Do I Need a Business License to Sell on Amazon?
It’s only logical to think that you might require a business license to sell goods online, but this is only true if the products are Federally regulated. Since most goods that are sold online are consumer products, they don’t require approval from the U.S. government.
This doesn’t only apply to Amazon either – you also don’t need a business license to sell on Facebook, Shopify, eBay, or Etsy.
The benefit of not needing a business license means you can take some time to prove your ideas work, without having to make a major monetary commitment.
The same applies to sellers who want to start a business on Amazon UK – a business license is not necessary.
What is necessary in both the US and UK is to keep a record of your income for taxation purposes. Organizations such as the IRS (or HMRC in the UK) are only interested in what you’re doing if you’re earning an income.
Related: Since you’re new to Amazon, you may want to read my blog post on how Amazon pays sellers.
When to Register for a Business License
There are some instances when a business license is necessary.
The first is if you’re planning to sell Federally regulated products.
These are the categories that require a license for online sales:
- Alcoholic & Tobacco
- Firearms, Ammunition & Explosives
- Fish and Wildlife
- Maritime Transportation
- Nuclear Energy
- Radio and Television Broadcasting
The second reason why you might want to register for a business license is to legally protect yourself.
Deciding on a Business Structure
The risk associated with running an online business is low, but it doesn’t mean things can’t go wrong. Many online entrepreneurs operate under a business structure to be safe.
If you decide to operate without a business license, you would do so as a sole proprietor. Any income that you receive from your sales would be reported on your income taxes. This applies in both the US and the UK.
Operating as a sole proprietor is ideal if you’re only planning to sell a small number of goods every month.
The other option is to set up a Limited Liability Company (LLC). This is one of the easiest ways to separate your business and living expenses and protect yourself in the event of a lawsuit. Should your LLC face any legal issues, your personal finances and assets are protected.
Setting up an LLC can also offer tax benefits in some circumstances. In the UK, while sole proprietors are charged 20-45% income tax on profits, an Limited Company (UK’s version of a LLC) only currently pays 19% corporation tax on profits. In the US, income tax for LLCs versus sole proprietors is dependent on the state.
The average LLC filing fee in the USA is $132 – this varies per state. In the UK, setting up a company can cost as little as £12.99.
In the UK, it takes several hours for your business license to be finalized. Those wanting to sell in the US will need to wait between 3 and 5 business days.
If you are thinking about selling in the US from a country outside of the United States, you may find the video below useful.
If you’re a US seller, you need to register a DBA after you’ve decided on a business structure. Every state has different requirements for registering a DBA.
When you form an LLC, the registration forms will require you to choose a business name, the name you will be operating under. The cost of registering a DBA also varies per state.
Lastly, anyone who starts earning an income from online sales will need to register for tax and file the necessary tax returns – including sole proprietors.
As a sole proprietor, you would use your personal income tax number or social security number to submit your returns in both the UK and the US respectively.
As an LLC owner in the US, you need a sales tax and federal tax ID. Depending on the state you’re doing business in, you need to collect sales tax. Not only that, but if you sell to someone in a different state, you need to report it to that state.
When selling online in the US, sales tax can become complicated… Consider using something like TaxJar to help streamline the process.
You can apply for a sales tax number by contacting your state’s tax authority or department of revenue.
When you open your US business bank account, you’re going to need a federal tax ID, also known as an EIN. Sole proprietors don’t need an EIN unless they file excise or pension plan tax returns in the US.
You can apply for an EIN with the IRS at no cost.
If you register a Limited Company in the UK, you will need to apply for corporation tax. Most entrepreneurs do this at the same time as registering their business with Companies House in the UK.
There’s also the option of applying for corporation tax via post, an agent or third-party software.
If your gross year-to-date turnover reaches £85,000, you must register for VAT with HMRC too.
Filing Tax Returns
Most sole proprietors file their tax returns themselves, but when you’re earning additional income, you may want to get professional assistance.
If you’ve registered an LLC, it’s highly recommended that you get an accountant to assist you with your returns to ensure you’re doing everything correctly.
Get Started as an Amazon Seller
Now that you know whether you need a business license to sell on Amazon, you can get to the fun part – making sales!
If you’re considering online arbitrage instead of going the Amazon FBA route, You may want to read my blog about why we decided against it.
You don’t need to stick to Amazon either.
If you want to find out more about other online platforms you can sell on, here are some of the industry favorites.
Whatever you decide on, Good Luck! I wish you the same success that we have found.