AliExpress Overseas Managed: With Inventory in a U.S. Warehouse, Does the Chinese Company Owe U.S. Tax? Form 1120-F, the Treaty and a U.S. Subsidiary

Under AliExpress's overseas managed model, the platform sets prices and handles marketing and customer service, while the seller keeps inventory in a U.S. or other overseas warehouse and ships orders itself. It looks like the platform is selling, but the goods are in the U.S. and generally still belong to the seller until a sale. A Chinese company that imports in its own name and sells from U.S. inventory very likely has effectively connected income (ECI), needs to apply the U.S.–China tax treaty and files Form 1120-F, and state taxes in the inventory state don't follow the treaty. That is why many sellers move import and contracting into a U.S. subsidiary.

How overseas managed differs from Choice

AliExpress officially launched Choice, its fully managed service, on March 1, 2023. The seller delivers goods to a Cainiao warehouse in China, and AliExpress handles pricing, cross-border logistics, customs and delivery. Semi-managed, fully launched on January 4, 2024, leaves pricing with the seller while AliExpress and Cainiao handle cross-border logistics. In both, goods are handed over in China, so a Chinese seller generally has no U.S. inventory and no U.S. income tax filing.

Overseas managed launched in February 2024 and, according to trade press, now covers more than 30 markets including the U.S.; it is AliExpress's headline model for 2026. The difference is that goods are imported in bulk into a U.S. warehouse first, the seller handles fulfillment, AliExpress handles marketing, user operations and customer service, and the seller quotes a supply price that includes shipping. AliExpress's U.S. "Saiya plan," announced on June 17, 2026, reportedly includes an advance of up to 60% of the supply price once goods enter the warehouse.

That advance matters. If the platform is fronting money against goods sitting in the warehouse, the goods generally are not yet the platform's. Title is still with the seller.

Three facts to pin down first

Who is importer of record. Whose name is on the entry when goods arrive: the Chinese company, its U.S. subsidiary, or a forwarder (usually the forwarder under DDP terms). The importer pays duties, and only the importer or its broker can claim refunds such as IEEPA duty refunds.

Who owns the inventory. While goods sit in the U.S. warehouse, are title and risk with you or the platform? Read the contract's title clause and look at how things actually work: who insures the stock, who bears loss or damage, and who takes back unsold goods.

What the platform pays you. Is it a purchase price (you sell to the platform, which resells to customers) or sales proceeds minus commission (you sell to customers through the platform)? In the first case you are the platform's supplier; in the second you are a seller doing business in the U.S. The source and character of your income can differ between the two.

Selling through the Chinese company directly: ECI and Form 1120-F

A foreign corporation engaged in a trade or business in the U.S. has effectively connected income on the related profits and files Form 1120-F. A Chinese company that is importer of record, keeps inventory in a U.S. warehouse and delivers to U.S. customers from there is very likely engaged in a U.S. business, so this step can't be skipped.

Can the treaty take the profits out of U.S. tax? Article 7 of the U.S.–China treaty lets the U.S. tax a Chinese enterprise's business profits only to the extent they are attributable to a permanent establishment in the U.S. Article 5 then excludes from a permanent establishment the use of facilities solely for storage, display or delivery of the enterprise's goods, and the maintenance of a stock of goods solely for those purposes. A seller that only stores and ships from a U.S. warehouse, with no other place of business, can generally take the position that it has no PE and owes no federal income tax on those business profits.

When that changes. U.S. employees or an office; someone in the U.S. who habitually concludes contracts for you; or a platform arrangement that makes the platform a dependent agent acting for you. Any of these can create a PE, so the analysis is case by case. A treaty position is disclosed on Form 8833 attached to the 1120-F.

File the 1120-F on time. A foreign corporation with no U.S. office generally files by the 15th day of the sixth month after year-end, which is June 15 for a calendar-year company. Under Treas. Reg. §1.882-4, if the return isn't filed within 18 months of its due date, the IRS can deny deductions for costs and expenses. That is why many companies file a protective 1120-F even when they believe the treaty means no tax is due.

States don't follow the treaty. Federal tax treaties generally don't limit state income and franchise taxes. Inventory in a state's warehouse gives you physical presence there, and P.L. 86-272 protects only the solicitation of orders, not sellers that keep inventory in the state. States such as Texas and California need their own review.

Selling through a U.S. subsidiary: Form 1120 + 5472

The other route is a U.S. C corporation owned by the Chinese company. The subsidiary is importer of record, owns the U.S. inventory and signs the overseas managed agreement with AliExpress. It files Form 1120 at the 21% federal rate and, if 25% or more foreign-owned, attaches Form 5472 every year listing purchases from the parent, loans and expenses paid on its behalf; each missed Form 5472 starts at a $25,000 penalty. A newly formed company in which a foreign person acquires 10% or more of the voting interest files BE-13 with the Bureau of Economic Analysis within 45 days.

Set prices carefully. Purchases from the Chinese factory must be at arm's length under Section 482, and tax inventory cost generally can't exceed customs value under Section 1059A. The subsidiary's profit sits between the factory price and the platform's supply price. Price the factory goods too high and the subsidiary loses money year after year, inviting an IRS adjustment; declare customs values too low and you have a customs problem.

Choosing between the two

Example (hypothetical numbers, to show the method): a Ningbo factory plans to put 5,000 desk lamps in a New Jersey overseas warehouse under overseas managed, supplying them at $30 each.

If the factory imports directly, it needs a customs bond, files Form 1120-F with Form 8833 claiming no PE under the treaty, and assesses New Jersey tax separately because inventory is there. If a U.S. subsidiary imports, it buys at a $12 customs value per unit; with duty at an assumed 37.5% plus freight and customs fees, unit cost is $18. Selling 4,000 units brings $120,000; after $72,000 cost of goods sold, $24,000 of last-mile and warehouse costs, $3,000 of deductions and returns and $6,000 of other costs, pre-tax profit is $15,000 and federal tax at 21% is $3,150.

For a small test with clean documents, selling through the Chinese company directly can work, but the 1120-F and state filings still have to be done. For larger, longer-term volume, or alongside other platforms, a U.S. subsidiary usually keeps things clearer and makes platform, bank and IRS records easier to align. Decide the contracting entity before onboarding; switching later is painful.

Before you onboard

Money received as a warehouse-entry advance, for goods not yet sold and still owned by you, is generally a customer deposit until the sale. Platform deductions are charged in dollars, so build them into your profit model. Product compliance, trademarks and contract terms are for an attorney.

For the full comparison of AliExpress's five models, the entity decision table, platform comparison and pre-onboarding checklist, see the AliExpress seller guide. For Form 5472, see Form 5472 and pro forma 1120; for related-party pricing between a Chinese parent and a U.S. subsidiary, see Chinese parent, U.S. subsidiary. To sort out the contracting entity and taxes before you onboard, book a 15-minute free call or message us on WeChat at YCLUSA.