Member Avatar for annapurnab

Hi,

here is the long story...

One of my friends who lives in India wants to start VOIP business like he wants to sell phone cards to people in the US so that they can talk to India. He needs a place where he can collect money in the US. I suggested paypal and he wants me to take charge of that, like open an account in paypal with my name. Collect the money and send him the money when required or pay to other companies in the US which he has to pay, from that money.

I did not register any company here nor do I have the license to do any business. Can I still open an account in paypal and do business on this behalf. Also should I show this money in my taxes. I have no benifit from any of these transactions. I am doing this for the sake of friendship. Legally and in terms of tax what are the implications. Can anyone please explain.


Thanks in advance

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Short summary and practical caution for ’s scenario (friend in India selling phone‑cards): using a personal PayPal account in someone else’s name to receive and forward customer payments creates real compliance, tax, and payment‑platform risks. PayPal’s account rules require accurate beneficial‑owner and tax information and limit accepting payments that are not for the account owner’s own business activity; accounts can be limited or frozen when ownership/usage doesn’t match the records. (pep.paypal.com)

Regulatory and tax red flags to keep in mind: routinely receiving money and sending it onward can be treated as money‑transmission activity under federal/state law, which triggers MSB registration with FinCEN and state money‑transmitter licensing in many states (with significant bonding, AML/KYC and reporting obligations). State licensing regimes are fragmented and enforcement can be severe. Separately, third‑party payment platforms report gross receipts (Form 1099‑K) to the IRS in the account holder’s name and that reporting can create a tax liability unless clear pass‑through/agency documentation exists; the IRS publishes guidance on handling 1099‑Ks and related withholding/reporting when an account is acting for a foreign party. (fincen.gov)

Practical steps that would reduce risk (use as a checklist):

  • Put a short written agency/assignment agreement in place showing funds are held only on behalf of the India business and describing the flow for each payment (invoice → receipt → transfer).
  • Use a separate business account (and register the account type correctly with the processor); provide whatever W‑9/W‑8 documentation the processor requests. (paypal.com)
  • Keep transaction‑level records (customer, invoice, date paid, date forwarded, receipts from the recipient) and reconcile monthly.
  • If volumes are more than occasional, insist the seller establish a formal entity or use a provider set up for cross‑border merchant services; check state licensing and get a US commercial banker or payments lawyer and a CPA before proceeding.

This approach ties into points raised by and tempers the simple “PayPal is fine” view offered by : convenience is real, but so are regulatory and tax consequences—document everything and get professional advice before acting as a conduit.

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Member Avatar for baker011

Ok, where to begin. Paypal, ok I use an Indian IT firm to outsource some of the larger projects for my website and they say the Indian government dont like Indian businesses using paypal, instead they use www.cash2india.com (which when sending money can actually be done through paypal still). Thats something to think about. Now as for the taxation issues. By trade I am an Accountant, and basically what you are doing there is acting as an agent for this person. It will be classed as a trade as you are the one receiving the money and if the taxman was to see all this money under your name (regardless of the fact its also going out straight away) he is going to ask questions. There will be no tax to pay at all,that is if you are transferring ALL proceeds toy our indian friend? However, you are expected to alert the taxman of your trade, as you are not a limited company you have no reason to keep accounting records, but personally I would suggest keeping a excel spreadsheet detailing all the transactions incase you are ever questioned about it. You dont have to submit anything if you dont make any money if you are employed as your employer will file a tax return for you with your total income for the year. This is how it would work in the UK anyway :mrgreen:

Member Avatar for uniecommerce

I would say paypal is the best option for business payment. It is easy to use. Can easily transafer money overseas without any issues.

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