The best company structure for an Etsy shop.

An Etsy shop's primary structural need is a business bank account in a country supported by Etsy Payments. For many sellers, that country is the United States. While Etsy supports many jurisdictions, sellers in unsupported countries, or those seeking access to the US financial ecosystem, find themselves blocked. A US company structure directly solves this by providing the legal basis to open a US business account.

Beyond banking, the structure must be simple to manage from abroad. An online business like an Etsy shop, with no US staff or offices, does not need a complex corporate footprint. The ideal entity is one with minimal maintenance and straightforward compliance. It should also provide a US Employer Identification Number (EIN). This nine-digit number is essential for opening a US bank account, interfacing with US payment processors, and issuing or receiving tax forms like the W-9.

Finally, the structure needs to appear credible to customers and platforms. A registered US business entity lends a degree of professionalism and permanence that a sole proprietorship, especially a cross-border one, may lack. This can be a small but meaningful factor in customer trust and in dealings with US-based suppliers or partners.

A single-member LLC (SMLLC) owned by a non-US person and treated as a ‘disregarded entity’ for tax purposes is a simple, effective solution. Commercially, it is a formal US business entity registered in a specific state, like Wyoming or Delaware. It can get an EIN, open a US bank account in its own name, and contract with platforms like Etsy. This unlocks the core US infrastructure most founders need.

Its simplicity is its greatest strength. For a foreign founder without US operations, it avoids the complexity of a US C Corporation, which is a separate US taxpayer. The LLC separates the business's liabilities from your personal assets, a core feature of any limited liability company. It meets Etsy's terms of service for business sellers and allows you to present a professional US face to the world.

However, it is crucial to understand its limits. An LLC does not eliminate your tax obligations in your country of residence; you are still required to report your income locally. It does not make a high-risk business model low-risk. If your shop sells items that are restricted or heavily regulated, an LLC will not change the fundamental compliance risks. Finally, forming an LLC does not guarantee a bank account. Banking is always subject to approval by the financial institution.

For a non-US person, the US taxation of a single-member LLC hinges on two key concepts: whether the business is ‘Engaged in a Trade or Business in the United States’ (ETBUS), and whether its income is US-sourced. An SMLLC is a pass-through or ‘disregarded’ entity. This means the LLC itself does not pay US federal income tax. Instead, the tax liability flows through to the owner.

If the foreign owner is not ETBUS, they generally do not owe US federal income tax on non-US source income. Many online businesses, including Etsy shops operated entirely from outside the US with no stateside employees, offices, or dependent agents, may not be considered ETBUS. This is a fact-specific determination that must be confirmed with a qualified US tax adviser who can analyse your specific situation.

Even if no tax is owed, there is a critical compliance requirement. A foreign-owned SMLLC must file Form 5472 and a pro forma Form 1120 with the IRS each year to report transactions with its foreign owner. Failure to file this form, or filing it late, carries a significant minimum penalty, currently $25,000. This filing makes the structure transparent to US tax authorities, and it is not optional.

For most non-US founders running an Etsy shop, a Wyoming LLC is the default choice. Wyoming offers low annual fees, a simple filing process, and strong privacy protections. The state does not levy a franchise tax or state corporate income tax, which simplifies compliance for a foreign-owned entity. Because an Etsy business does not have a physical nexus in any particular state, you are free to choose the most efficient domicile.

Delaware is another popular option, known for its corporate case law and well-regarded Secretary of State. However, it is often overkill for an Etsy shop. The legal protections of the Delaware Court of Chancery are more relevant for venture-backed companies or those planning complex equity structures. Delaware also has an annual franchise tax on LLCs, adding a small but unnecessary cost compared to Wyoming.

There is generally no compelling reason to choose another state. Forming an LLC in a high-tax state like California or New York would create a state-level filing obligation and potential tax liability, with no corresponding benefit for an online business operated from abroad. The logic is simple: choose the jurisdiction that is most efficient and requires the least ongoing maintenance. For this business model, that is almost always Wyoming.

The primary benefit of a US LLC for an Etsy seller is solving the payout problem. Etsy Payments requires that your shop's registered country matches the country of your settlement bank account. If you are in a country not supported by Etsy Payments, or want to bank in the US for other reasons, you are stuck. A US LLC with a US EIN is eligible to apply for a US business bank account.

With a US account in the LLC's name, you can set your Etsy shop country to the United States. Etsy Payments can then settle your sales proceeds in USD directly into your US business account. This avoids forced currency conversions and the limitations of services like Payoneer when used as an intermediary. It provides a clean, direct deposit rail from the platform to your own business account.

This structure also opens up the broader US payments ecosystem. You can apply for a US Stripe account, use Shopify Payments if you expand to your own site, and transact seamlessly with US suppliers. When US customers or partners need to pay you, they can do so via domestic ACH transfer. When you need to provide tax information, you can supply a Form W-9 for your US entity, simplifying procurement with larger US businesses.

When a US bank or fintech institution reviews an account application for an Etsy shop, they focus on a few key areas. First is the nature of the products sold. Handmade goods, craft supplies, and vintage items are generally considered low-risk. However, if your shop sells items that fall into restricted categories, such as some jewellery, regulated botanicals, or products with unsubstantiated claims, you will face much higher scrutiny. Underwriters check for prohibited items listed in their own acceptable use policies, which often align with those of platforms like Stripe and Etsy itself.

Second, they will verify the business's legitimacy. This means confirming the LLC is in good standing in its state of formation (e.g., Wyoming) and that the EIN is valid. They will look for a clear, verifiable link between the LLC and the Etsy shop. The shop should have a history of sales, positive reviews, and a clear description of what it sells. A brand new shop with no history is harder to approve.

Finally, they assess the non-US owner. You will need to provide government-issued photo ID and proof of address. The underwriter conducts KYC (Know Your Customer) checks on the owner to comply with anti-money laundering regulations. Your personal background and country of residence are part of the risk assessment. The entire application must present a coherent picture of a legitimate, low-risk ecommerce business.

For an Etsy seller, the choice of formation state for a US LLC affects annual costs, perceived legitimacy and personal privacy. Wyoming is the most common choice for its low annual upkeep and strong privacy shield. The public record shows the registered agent's details, not the owner's. This is ideal for a solo Etsy creator working from home who prefers not to have their personal details exposed on a public state register.

Delaware offers a similar level of privacy but carries a higher annual franchise tax. Its primary advantage is its mature and well-respected corporate legal system, which is largely irrelevant for a single-member LLC running a simple Etsy shop. Underwriters at US financial institutions see Delaware filings constantly and view them neutrally; it signals a serious, well-advised founder, but carries no specific advantage for a low-risk e-commerce model.

Florida has gained popularity for its lack of state income tax, which is not a direct benefit to a non-resident founder whose LLC is a pass-through entity. Its filing and annual report fees are higher than Wyoming's. Crucially, Florida requires the LLC's manager or member to be named on the public record, eroding privacy. For an Etsy seller, the cost and privacy trade-offs usually make Wyoming a more practical fit.

Etsy Payments is the primary processor for most sellers. It requires bank accounts to be located in one of its supported countries. If your home country is not on this list, a US LLC with a US bank account becomes a necessity. Etsy will require the LLC's formation documents and EIN confirmation letter (CP 575) to update the legal entity and banking details on your shop.

When expanding beyond Etsy, processors like Stripe or PayPal are common. For a foreign-owned US LLC, they will verify the EIN, the registered business address, and the identity of the ultimate beneficial owner. Stripe's verification is highly automated and relies on matching the legal entity name and EIN exactly with IRS records. Any mismatch can trigger a review. PayPal may ask for proof of address for the business owner, such as a utility bill, which can be challenging for non-residents.

For handmade goods, banking and payment risk is low. However, high refund rates or a sudden spike in sales can trigger account reviews or reserves, where the processor holds a percentage of your funds (typically 5-10%) for a period like 30-90 days to cover potential chargebacks. Having clear shipping policies and tracking numbers for all orders helps minimise this risk.

Setting up a US LLC involves several third-party costs. The state filing fee itself is approximately $100 in Wyoming or $90 in Delaware. Annually, you must pay for a registered agent service, which typically ranges from $100 to $250, and file an annual report with the state. Wyoming's annual report fee is around $60, while Delaware's franchise tax is a flat $300.

Obtaining an Employer Identification Number (EIN) from the IRS is free, but for founders without a Social Security Number (SSN), the process can take 4-8 weeks via fax. This is often the longest waiting period in the setup sequence.

Week 1-2: Your formation agent files the LLC with the chosen state. Approval takes a few business days. Week 3-10: The application for your EIN is submitted. You wait for the IRS to issue the number and send the confirmation letter. Week 11-12: With the LLC documents and EIN, you can apply for a US business bank account. Approval can take a few days to a week. Week 13: Once the bank account is open, you can update your Etsy Payments details. The first payout to the new account may be held for a few days for verification. The entire process, from filing to first payout, realistically takes about three months.

The process of setting up a US LLC and its banking follows a clear sequence. First, the LLC is formed in the chosen state, typically Wyoming. This involves filing Articles of Organization with the Secretary of State. This step usually takes a few business days. Once the LLC is registered, the next step is to apply for an Employer Identification Number (EIN) from the IRS. For a non-US founder without a US Social Security Number, this application must be submitted by fax or mail, and the current processing time for the IRS to return the EIN can be several weeks or even months. There is no reliable way to expedite this.

Xavion manages this entire process. We handle the state filing, prepare and submit the EIN application, and track it with the IRS. Once the EIN is issued, we compile the full document package: Articles of Organization, the EIN confirmation letter, and the LLC's operating agreement. Only at this point can we begin the final step: placing the application for a US business account with appropriate financial institutions.

From start to finish, a realistic timeline is two to four months, with the EIN application being the longest and least predictable part. Any service promising a faster timeline for a non-US founder is not being transparent about the realities of IRS processing. We provide a clear portal to track each milestone.