This is one of the most common questions we receive from our customers. Read more, to learn when you should register a company, to import commercial products from abroad.
We also explain why you can start the process, and even contact suppliers, before the incorporating a company.
So, can I import products as an individual for commercial purposes?
Yes, you don’t need to register a company to import products. At least not in most markets.
As such, individuals can import products from abroad, and have the cargo cleared through customs. All taxes, such as import duties and VAT, can also be paid directly by the individual.
In the United States, each citizen (and companies) has a tax ID, which in most cases is sufficient.
In the European Union, all importers – both companies and individuals – must apply for an EORI number. The application can, in most countries, be made online, and is free.
However, while importing products without a registered company is possible, there are many benefits to importing goods as a company – rather than as an individual.
Some products require permits and licenses
When importing most products, licenses or import permits are not required. At least not in developed markets.
Yet, if you import food, beverage, agricultural products, chemicals or cosmetics, you may need to obtain a permit before the goods arrive in the port.
Such permits and licenses can, in many cases, only be held by company entities. Not individuals.
Taxation and product liability issues when importing and selling products as an individual
An individual, importing and selling products, is generally considered a sole proprietor. Hence, the seller must pay all import and profit taxes.
These are normally the same as if you would have a company, so there’s no financial benefit to not having a company.
The biggest drawback, when not having a registered company, is that you cannot deduct expenses. As such, you may be forced to pay taxes on the entire revenue, without deducting the product, shipping and marketing costs.
Product liability is another major issue to consider, when acting as a sole proprietor. As a sole trader, you don’t have the protection of limited liability. In fact, you have the opposite. Unlimited liability.
Picture that something would go wrong.
For example, that somebody is injured by your product. In that case, you could be held liable for tens of thousands of dollars (or more) in damages.
Indeed, limited liability is not a license to get away with severe violations of the law, but it does make a big difference if you would ever find yourself in a bad situation.
Are manufacturers in China willing to work with individuals?
Yes, most suppliers don’t care if you have a company registered or not. That said, you certainly don’t want to make the impression that you are an amateur (even if you actually are one).
Keep your legal status to yourself, and focus on the business.
You can definitely start the product development and supplier sourcing process, sometimes even the sample order process, without having a registered company.
Hence, the company registration process is not a good reason to delay the process.
In fact, you should start the process as early as possible, and if you don’t have a company registered at this point, deal with that later.
A common mistake that I see, and perhaps the reason why I decided to write this article, is that many Entrepreneurs wait for weeks, sometimes months, before the company and all trademarks are registered.
That’s fine, but it’s not an excuse to hold off on product development and supplier sourcing. It can easily take several months to find the right supplier, and you will lose precious time if you wait for your papers to be in order.
Papers that, frankly, only you care about. At least at this stage of the process.
At what stage should I register a company?
You should definitely register a company before you and the supplier sign the sales contract.
But, as I already mentioned, it can take months – or even a year – to get to that point. Get started as early as possible, and don’t let the incorporation process slow you down.
That said, the incorporation process is relatively fast and easy in many countries, and can even be done online. What used to be a tedious procedure is now reduced to something you can do in less than an hour.
I think this is more of an issue in developing countries, where the setup process can take months, not days.
In which country should I register a company?
You should register the company in your country of residence. At least if you are a startup company.
While it may be tempting to set up a company in a place with lower taxes, such as Hong Kong or the BVI, you will in the end pay taxes based on your own residency – not that of the company.
Offshore setups are expensive to set up and maintain, and only make sense for established businesses.
