Moving overseas with the military and planning to take your small business with you? Turns out, running your own business in the U.S., while complicated at tax time, is pretty easy. Running your own business while stationed OCONUS? Not so much.
Thanks to federal "status of forces agreements" (known as "SOFA"), which allow the U.S. to operate in foreign countries, you can't just easily go about your daily grind when you're stationed abroad. From taxes, to what kind of business you can operate, registering your business, shipping inventory and who you can conduct business with all might be influenced by the SOFA. There's a reason you can't find a reliable how-to anywhere else on running your business while stationed OCONUS: It's very complicated.
Each country with a major U.S. military presence and even some with only a small embassy staff -- about 30 countries in all -- has its own SOFA with the U.S negotiated through the State Department. The rules in Germany, for example, may not be the same as those in South Korea.
There is good news, though: While running a home-based business overseas is complicated, it can be done.
While working on this story, we realized something very quickly: The military is full of spouses living OCONUS who are breaking SOFA rules for their host country and either don't know they are doing so or don't care.
The same is true stateside -- plenty of spouses ignore the rules for running home-based businesses on base. But stateside, the stakes are much lower, and here's why: If you simply fail to register your business on base, the rule you are breaking is one put in place by the military.
If you evade SOFA rules, especially rules governing taxes, you could be fined heavily or inflicted with all sorts of annoying punishments like having your APO privileges revoked. And although unlikely, base commanders also have the ability to revoke your sponsorship and send you back the U.S.
To give you the lay of the land, we first talked to a lawyer. Then we spoke with spouses who have actually done it -- some legally, some who thought they were doing it legally, and some who realized that they weren't doing it legally and found themselves in a sticky situation.
This isn't an article telling you how to break the law -- we aren't lawyers and we don't give legal advice. We strongly suggest that after getting the basics here on operating your business OCONUS, you speak with a lawyer, an overseas tax expert or both on how to do all of this.
Get information specific to the country in which you are stationed. Don't just take our word for it.
Two Steps For Getting Started OCONUS
So how do you get started? Before anything else, take these steps.
Step 1: Start with Legal.
Your first step in working overseas needs to be the same first step ours was when writing this article: legal help.
In addition to helping you establish what jurisdictions are empowered to tax any income you make while stationed OCONUS, talking to an attorney will also help you make sure you start the application process to work on base properly.
Lakesha Cole, the 2014 Military Spouse of the Year and owner of She Swank Too, which she operates from Okinawa, Japan, agrees. "When in doubt, always ask the source," she advises. "If you're unsure of the source, start with base legal."
This is also a good place to start before you even head overseas. When you first get OCONUS orders, schedule a time to visit base legal and talk through your concerns. With some legal advice on your side, you'll know what you're getting into with the particular country to which you're moving and how to navigate the process better there.
Step 2: Fill Out Your Business Application.
The Housing Office at your new duty station should have a business application form for you, and as soon as you get there, you should fill it out. Of the spouses with whom we spoke, some were able to fill this out in advance, but most reported needing to actually be there in person to get the ball rolling. If you're worried about a lag in income, call ahead and see what you can do stateside before you leave.
Lakesha warns that if your job is something that requires licensing or certification in the United States, you'll be asked to provide your state license number during this process. Make sure you have copies of all of your licensure information before you leave, and be aware that you may be forced to have compliant insurance for whatever you do (be it cosmetology, etc.) overseas.
Universal Rules for Operating Your Business OCONUS
A little paperwork won't kill anyone, right? But just like with businesses operated on base stateside, there are a few rules that are true in almost every location -- and two rules that are true everywhere OCONUS, regardless of SOFA.
Universal Rule 1: You have to pay taxes.
Army brat and attorney Bill Smith doesn't know the ins and outs of every single SOFA, but when it comes to running your own business while stationed overseas, he made one thing clear: You have to pay taxes.
"No matter where you are, some jurisdiction is entitled to tax you," he said.
Smith says this is even trickier in home sales LINK schemes, in which many military spouses believe that they are essentially just selling website referrals overseas, and that it's not a taxable product.
"Depending on how that's handled, that's near fraud," he says. "That's why you'd want to talk to a tax attorney before you do anything else."
Air Force wife Tori said she assumed she was in compliance with SOFA rules after registering her business overseas. One housing office administrator who was not a tax expert had advised her that because she was earning money overseas and spending it overseas, it wasn't taxable by her home state.
At the same time, though, she wasn't reporting her income to the SOFA host nation. "I realized later that I guess I was never taxed on what I made at that time. I did all of my business from overseas, and no one collected any money on it."
Universal Rule 2: You cannot use APO mail to send or receive anything to do with your business.
APO is a privilege designed to make living overseas easier for military personnel. If you use it for business purposes and you are caught, your APO privileges could be revoked permanently or temporarily.
If shipping is critical for your business, talk to your housing office to brainstorm other solutions like using a local post office box, address or courier service.
Now here are some rules that may or may not be true for you. Again, check with legal counsel or your specific base for more information about where you are stationed.
Likely Rule 1: Your business can't compete with the exchange or the commissary.
If it does, your application for operating on base will probably be denied. You can't compete with whatever the base exchange sells or might sell through a contractor, and you can't resell exchange or commissary items. That means if you want to operate a photography business, for example, and the exchange has its own photo studio, your application could be denied.
Likely Rule 2: Food sales probably equal health inspection.
While we weren't able to confirm that this is true everywhere, there's a pretty good chance that if you are registered on base and your business involves selling food, you're going to be required to have additional clearance from the public health office.
Likely Rule 3: No door-to-door sales.
That's pretty simple -- and generally true on stateside bases as well.
Likely Rule 4: You can sell only to customers governed by the SOFA, too. Most SOFA rules for running your business OCONUS require that if you're selling something, you sell it only to those who are also there under the SOFA. That means you cannot sell to local citizens.
This likely rule is where things get really tricky. If you're doing something easy, like making up-cycled camo wreaths that you plan to sell only on base at a holiday craft fair, that's no problem. But let's say you make up-cycled camo wreaths and sell on Etsy, or you're a writer, and you sell to various publications on a regular basis -- in those cases, your buyers aren't SOFA-status customers.
"That's where I may have broken the rules," says Air Force wife Tori.
Tori runs a successful Etsy shop. She doesn't bring her work to craft fairs, she says, because the financial investment isn't there for her anymore. "I mostly do custom orders," she says. "I used to make things in bulk and sell them at those things, but not in years. I run my entire business on custom."
When Tori first arrived at their OCONUS duty station, she registered like she was supposed to, and when she got the OK, she just went on operating like nothing changed. It wasn't until they moved back to the States that she began to wonder if she was doing something wrong.
Tori has yet to experience any repercussions for not paying taxes on her sales while overseas or selling to non-SOFA clients, but there's a possibility that she could be punished for tax fraud in the future.
Whatever You Do, Don't Give Up
Financially, many of our families rely on two incomes to make ends meet. Just as important, many spouses rely on their careers as places of growth, self-expression, productive challenge, and success. The application process to work overseas should be, on its own, relatively simple. But sometimes, ensuring that the work you're doing overseas on the legal up-and-up is more of challenge.
"I think the [SOFA] regulations are outdated and don't reflect the current economic climate," Lakesha said.
"Nowadays, most households are dual income. However, nearly 90 percent of the military spouse community is unemployed and/or underemployed. Many spouses pursue entrepreneurship whether out of passion or necessity," she said.
"Restricting one's ability to generate income, in a remote location where traditional 9-5 job opportunities are scarce, is a growing stressor for many spouses. Financial wellness is a family readiness issue," Lakesha said. "We have to find a workable solution that offers more support for spouses and lessens the financial burden that so many of our families endure when they relocate overseas."
Hanging on to that second income when overseas might seem like a tricky feat when you start the process, but take the advice of those who have done it: It can be done, and it can be done correctly.
Just be sure you seek legal advice along the way.