Why Cross-Border E-Commerce Needs to Pay Taxes After Registering a US Company? Uncovering the Reasons and Impacts

Why Do Cross-Border E-Commerce Companies Need to Pay Taxes After Registering in the U.S.? Exploring the Truth and Its Implications

In recent years, with the rapid growth of the global e-commerce market, an increasing number of Chinese merchants have chosen to register companies overseas-particularly in the United States-to gain smoother access to the North American market. However, a pressing issue has emerged why must these cross-border e-commerce businesses pay taxes after registering in the U.S.? What logic and mechanisms underlie this requirement? This article will explore the topic from the perspectives of tax systems, business compliance, and industry trends.

I. The Basic Logic of the U.S. Tax System

The U.S. operates a hybrid tax system based on both citizenship of the taxpayer and territoriality where income is earned. This means that any entity-domestic or foreign-that generates revenue or profits within the U.S. is required to pay taxes accordingly. For cross-border e-commerce businesses, registering a company in the U.S. establishes a legal presence, known as a Permanent Establishment PE, thereby triggering tax obligations.

The U.S. federal government levies a corporate income tax at a standard rate of 21%, as adjusted by the 2017 Tax Cuts and Jobs Act. Additionally, individual states may impose their own corporate taxes-for example, California’s maximum rate can reach up to 8.84%. Even if a company is controlled by Chinese interests, its U.S.-registered subsidiary must comply with U.S. tax laws.

II. Why Do Cross-Border E-Commerce Businesses Choose to Register in the U.S.?

Many Chinese cross-border e-commerce platforms, such as Shein, Anker, and Temu, choose to establish legal entities in the U.S. for several key reasons

1. Enhanced Brand Trust American consumers tend to trust domestic businesses more. Registering a U.S. company helps boost consumer confidence.

2. Improved Logistics and Supply Chain Management Establishing local warehouses and logistics centers enables faster delivery and higher service efficiency.

3. Easier Access to Financing and IPO Opportunities For companies considering a future U.S. listing, setting up a U.S. entity is a crucial early step.

4. Bypassing Trade Barriers Some countries impose high tariffs or strict import regulations. By establishing a presence in the U.S., companies can manufacture or sell locally, avoiding certain trade restrictions.

However, these advantages come with the responsibility of complying with U.S. tax requirements.

III. Recent Case Study Temu's Path to Tax Compliance

Take Temu, the cross-border e-commerce platform under Pinduoduo, as an example. Since entering the U.S. market in 2025, it has expanded rapidly and quickly become one of the most downloaded shopping apps in the country. To support its operations, Temu established an independent legal entity in the U.S., hired local employees, and leased office space.

According to U.S. media reports from 2025, Temu began filing and paying corporate income tax and sales tax in accordance with U.S. regulations. Despite earlier speculation that Temu might use its cross-border status to avoid tax obligations, the reality shows that any company aiming for long-term success in the U.S. market must prioritize compliance.

IV. The Complexity of Sales Tax Cannot Be Ignored

Beyond corporate income tax, another critical tax obligation for cross-border e-commerce is sales tax, which is collected from consumers by sellers and then remitted to the state. Rates vary by state-and even by city. For instance, New York State has a sales tax rate of 4%, while California’s rate reaches 8.25%.

A landmark 2018 Supreme Court ruling clarified that online marketplaces are required to collect and remit sales tax once they reach a certain sales threshold-even without a physical store. This decision prompted platforms like Amazon and eBay to require sellers to provide tax information and assist in collecting sales tax.

Failure to comply with sales tax regulations can result in penalties, account suspension, and damage to brand reputation. As a result, more cross-border sellers are turning to third-party tax software solutions like Avalara and TaxJar to automate tax calculations and ensure compliance.

V. The Positive Impact of Tax Compliance

While tax obligations increase operational costs, compliance offers long-term benefits

Building Market Trust Compliant operations enhance brand credibility and attract premium customer segments.

Reducing Legal Risks Avoiding investigations and penalties ensures stable business growth.

Expanding Collaboration Opportunities Many large retailers and distribution channels require tax compliance as a prerequisite for cooperation.

Supporting Capital Operations Clear financial records and tax history are essential for attracting foreign investment or pursuing mergers and acquisitions.

VI. Conclusion

As globalization deepens, cross-border e-commerce has become a vital link connecting global markets. However, taxation remains an unavoidable aspect of international business. Registering a company in the U.S. is not a way to avoid taxes-it is a necessary step toward internationalization. Only by embracing tax compliance and understanding the differences among global tax systems can businesses operate sustainably and thrive in the global marketplace.