The tax concerns involved in international commerce are far more complex than domestic trade. States usually do not recognize international trade benefits in the tax code, so let's start with the US federal tax code provisions.

The biggest benefit currently offered by the IRS is an export incentive called the Foreign Sales Corporation (FSC). The FSC can allow you to run a portion of your foreign sales revenue through an offshore company headquartered in one of several jurisdictions (most often the US Virgin Islands), and thus receive up to 30% of your foreign sales tax free!

The catch is the expense of forming and maintaining an FSC. The directors and officers must be non-Americans. There are offshore companies who routinely set up and run these types of companies. For smaller businesses that only can use up to a $500,000 sales benefit, there is a tax code provision for a "little FSC." Essentially you are sharing the cost of running a FSC with up to 12 other companies (and getting a smaller tax benefit). But these companies can be set up and run for as little as $700 per year. In fact, some state governments (such as North Carolina) sponsor formation and maintenance of "little FSCs" in the US Virgin Islands to help you get big federal tax cuts form exporting.

One of the biggest danger areas for small businesses is the IRS registration process. While the government wants to encourage exporting (i.e. bringing foreign dollars into the US tax and banking realm), it is very suspicious of international activity out of fear that some monies will not be taxed. Therefore the tax code requirements are severe. You must register any foreign company you own at least 5% of with the IRS. You also have to pay tax on your share of profits, even if none of the profits ever makes it to the US.

Money reporting is also a very touchy area. If you open a foreign bank account, you must report the transfer of funds on a special tax form. Owning, having responsibility over, or having signature authority on any foreign bank account over $10,000 requires a different report. These rules are so complex and confusing and carry such disproportionately severe penalties that you should consult a tax advisor who specializes in international taxation.

Contrary to what some offshore companies advertise, there really is not a way to avoid taxation on profits earned by US citizens or US companies (or any of their subsidiaries) anywhere in the world. To partially offset this international handicap, the US tax code offers a foreign tax credit.

Those are the main US tax considerations on international commerce. You will also have to deal with the rules and quirks of each country you do business with. For example, one country may have income taxes but exempt profits exported to certain other countries. Other countries may emphasize VAT (Value Added Taxes). Still others seem to have arbitrary and capricious tax collection systems due to extensive corruption. Unlike the US, Canada and the United Kingdom (Britain), other countries only tax the profits generated within their boarders, not worldwide income. Many offer exemption from tax for passive income (interest, dividends, capital gains), and some countries are tax havens - areas where no tax of any kind is imposed at all - ever! Of course, you will have to pay customs fees wherever you import goods (including the US), and many countries impose export taxes or quotas (although the US does not have export taxes).