Foreign Company Alert: Obtaining an EIN may be your Biggest Challenge in the U.S.
When a foreign company wants to start up in the U.S., it usually creates a separate corporation here so U.S. obligations and liabilities will not flow back to the overseas parent. The U.S. corporation needs a federal Employer Identification Number (EIN) – at the very least, to open a bank account, even if the corporation will have no employees in the U.S. In a recent post on its website (Use of Nominees in the EIN Application Process), the Internal Revenue Service recently made it more difficult for foreign companies to obtain an EIN.
To obtain an EIN, the corporation typically provides the social security number (SSN) of a “principal officer”. In the past, the IRS was rather vague as to what this term meant, stating that it referred to a “president, vice president, or other principal officer”. So, for example, if the corporation’s overseas president did not have an SSN because s/he never worked in the U.S., the corporation could temporarily appoint as vice president an individual who has an SSN, which the corporation then would use to apply for an EIN.
The IRS now states that it “does not authorize” this approach because it facilitates tax non-compliance. Instead, the principal officer must be someone who “controls, manages, or directs the applicant entity and the disposition of its funds and assets”.
The bottom line: A foreign company looking to start up in the U.S. will need to include, among its officers, at least one who (a) controls, manages, or directs the corporation and the disposition of its funds and assets and (b) has an SSN.
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Update as of December 7, 2009
A tax practitioner in Florida provided the following information:
I work in the tax advisory service line and focus on mostly international tax services. This of course includes helping foreign entities establish US operations, which I see is one of your specialties. I took a minute to browse your blog and saw that you’ve run into the principal officer SSN problem on the EIN application. From my experience, the IRS does not reject the application if an SSN is not included. We simply enter “FOREIGNUS” on line 7b of the SS-4. The only issue is that the EIN cannot be applied for online because the system rejects anything that is not in a ###-##-#### format.
Another couple of tips for the SS-4 for foreign applicants:
- Enter a US c/o person on line 3
- Use a US address for mailing address and the foreign address for street address
- Call (267) 941-1099 [number updated October 2010] to obtain the EIN directly from an agent and they will give you a fax number so you can fax them the SS-4
The bottom line: Foreign companies whose officers do not have Social Security Numbers should use the telephone, rather than the IRS website, to obtain an EIN. But be prepared for a long wait – when I called to confirm the procedure, I hung up after being on hold for about ten minutes.
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Update as of March 15, 2010
Dealing with the IRS has been much worse than I expected. Repeated problems include:
- Calls that do not go through
- Calls that, once they go through, have sound quality so poor that I must re-dial
- Calls that, once they go through, are on music hold for an extended time
- Fax machines that receive transmissions properly from dedicated fax machines (which I do not have) but not from computers or multifunction (all-in-one) devices (which, of course, I have)
I have wasted hours during the past two working days, yet I still do not have an EIN for one of my clients. Tomorrow I will traipse over to a storefront office-services company to see whether their fax machine can communicate successfully with the IRS.
Now I know, first-hand, why people speak so poorly about the Internal Revenue Service.
Postscript: The fax machine at nearby FedEx Office worked successfully with the IRS equipment.
Post-postscript: I ended up buying a traditional fax machine so I wouldn’t have to leave my office to work with the IRS.
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Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.
Foreign Company Alert: Obtaining an EIN may be your Biggest Challenge in the U.S.
How right! I am desperate for help.
I have called (267)-941-1099 twice now, to file in Form SS-4, both without success.
My aim is to obtain an EIN for my Limited company registered in the UK, eventually to claim 0% withholding tax under treaty benefits using Form W-8BEN.
We have NO involvement in the US, neither want one, except to sell software to US.
As soon as I mention our company’s name XYZ Limited the operators ask “Who is the owner?” and then try to register us as an LLC. I have intervened to say that I do not want to register an LLC but a Foreign Corporation and one of the operators said “Are you teaching me my job?”. Is it not possible to tick NO for the LLC box (8a) and then check the Corporation box in 9a? Your help will be much appreciated.
I routinely check 8a and 9a as you have described.
I suspect that your problem has to do with the tax return form that must be specified when 9a is checked. (I usually specify 1120.) However, I am not a tax expert or tax advisor, so I am not qualified to help you with this problem.
Hi Dana,
Thanks so much for getting back.
One operator advised that I can enter:
“9b Corporation (enter form number to be filed): W-8BEN”
In 10, I tick:
“Compliance with IRS withholding regulations”, and
“Other (specify): To obtain a reduction of withholding imposed by section 1441 pursuant to an income tax treaty.”
So, in order to the avoid the operator effect I will file Form SS-4 by fax and hope that it goes through.
I appreciate that you cannot advise, but sharing your experience with me was most useful.
@Mat Ayhan
Hi, did faxing it in and avoiding an operator work?
Hello,
Im living and based in Turkey and just want to do online business in California, USA.We will provide our customers with the best deals on our website, backed with professional support & benefits in a mutual win-win business model between the customer and our company.Our products will be consumer electronics,garden,home.We will do niche marketing model for our market oriented future.My questions how to get Reseller Permit for the California State for foreigners, we do not know about the regulations and business startups like a foreigner , i need full support with clause-by-clause if possible. Thank you very much.
Kind regards,
Kerem Köksal
Sorry – without an individual having a physical presence in CA (there are other requirements, too), you cannot obtain a reseller permit.
Dana.
Great post. I was trying to get an EIN for a European client online and it wouldn’t let me because the client doesn’t have a SSN or ITIN. I then starting going through the W-7 form, and after instantly getting a headache, I found this post via Quora.
Great to know that I can get an EIN without an ITIN by merely faxing or mailing the SS-4 in. Thanks for this!
Thank you for a very helpful link! I also, like Alan, was on my way into the mess with applying for an ITIN when I found this. I filled in the SS-4 with the hints found here and then called the IRS on toll-free number 800-829-4933. There was really no need to fill in the form as the expedient did it over the phone. After less than 10 minutes I had my EIN!
Hi
I have been looking at mycorporation, they said that they can obtain EIN for non us citizens wanting to do business in the US that’s a good start the other piece to the puzzle is obtaining a reseller id# :S
To obtain a California (if that is the state in question) reseller permit, one must be doing business in California.
I just want to be clear. Can a US Citizen form an LLC and have an EIN issued without providing a SSN?
Obtaining an EIN for an entity with a US-citizen principal officer requires that the principal officer’s SSN be used. The EIN may be obtained online using that SSN.
I know this question has been asked many times everywhere,
Can a person with H1B (who has SSN)
1) Obtain EIN? (Employer ID). That is to open a company and work as non-executive CEO?
2) That start up doesn’t want to have a CITIZEN Owner/CEO yet. (may be after it starts making enough profits)
3) The H1B person doesnt want to leave his original employer
See Visa Basics for Foreign Entrepreneurs Coming to the U.S.
Dear Mr. Shultz:
SS-4 was recently rejected for “Use a US address for mailing address and the foreign address for street address” where the US address in question was that of 3rd Party Designee. Should the US address belongs to someone other than 3rd Party Designee, would IRS have accepted?
Thank you.
That is correct – the US address must be different from the address of the third-party designee.