As Indian startups increasingly set their sights on the US for growth, compliance has  emerged as a critical yet often overlooked challenge. While the American market  presents vast opportunities with its mature consumer base and potential for substantial  revenue, it also features a complex and fragmented tax and regulatory environment that  can pose significant hurdles, even for experienced founders. 

To shed light on the key aspects of compliance for Indian startups venturing into the US,  we spoke with Dulles Krishnan, Vice President of Go-to-Market at Avalara (India &  APAC). He shared valuable insights on how to effectively manage compliance from the  outset, turning it into a strategic advantage rather than a potential risk. 

Why Indian Startups Are Rapidly Expanding into the US 

Krishnan identifies two primary drivers behind Indian founders’ push towards the US  market: confidence and infrastructure. For SaaS startups, the US represents the largest  and most sophisticated software market globally. Meanwhile, direct-to-consumer (D2C) brands are attracted to its well-established ecommerce ecosystem and consumers’  readiness to invest in quality products. 

The advent of cross-border payments, global fulfilment solutions, and digital platforms  has simplified the process of securing that crucial first US customer. However, Krishnan  warns that the real challenges arise after that initial sale, as complexities surrounding  tax, pricing, and compliance begin to surface. 

Understanding the Intricacies of US Tax Compliance

In contrast to India, the US does not have a unified tax system. Instead, there are over  13,000 state and local tax jurisdictions, each with its own set of rules, thresholds, and  definitions. 

For SaaS and digital service companies, tax obligations are determined by economic  nexus. In many states, exceeding $100,000 in annual sales automatically incurs a sales  tax liability, even without a physical presence in the country. 

For D2C exporters, compliance is layered. Federal customs duties are applied upon  import based on HS code classification and valuation, while state sales tax is  applicable when products are sold to customers. Confusing these two layers can lead  to costly errors. 

Common Compliance Pitfalls for Indian Founders 

Krishnan points out three prevalent mistakes. The first is postponing sales tax  registration, mistakenly believing that a US entity is necessary. In reality, tax obligations  are tied to sales thresholds rather than the structure of the business. 

The second common error is misclassification—whether of digital services or physical  goods—which can result in incorrect tax treatment or delays in shipping. The third  mistake is an over-reliance on payment gateways or marketplaces. While these  platforms may handle tax collection at checkout, the onus for registration, filing, and  remittance ultimately lies with the seller. 

The Impact of Compliance on Pricing and Brand Trust 

Inadequate compliance planning can lead to penalties, unforeseen expenses, and  pricing volatility. US consumers expect clarity regarding landed costs and tax  documentation. Startups that excel in this area build trust more rapidly and encounter  fewer obstacles in enterprise dealings, partnerships, or due diligence processes. 

Krishnan stresses that compliance is not merely a financial concern; it significantly  influences pricing, logistics, sales strategies, and brand reputation. 

Streamlining Compliance with Lean Teams 

For startups lacking extensive finance departments, automation becomes essential.  Modern compliance platforms can seamlessly integrate with billing and ecommerce  systems to automatically calculate taxes, monitor thresholds, and manage filings. 

The use of AI enhances this process by identifying classification issues and compliance  risks early on, enabling founders to proactively address potential problems rather than  merely responding to notices or audits. 

Krishnan’s guidance is straightforward: compliance planning should commence with  the very first invoice. Founders should prioritise three key areas—gaining visibility into 

sales locations, ensuring accurate classification of products or services, and integrating  with accounting and analytics systems. 

By treating compliance as a strategic asset from day one, startups can safeguard their  margins, instill investor confidence, and position themselves as credible long-term  partners in the US market.