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.
Related Post: Am I in Trouble if My Accountant Used His SSN to Get My Corporation’s EIN?
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.
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.
Hello Dana
I am a British Citizen and I run a reasonably successful graphic design business in London and am looking to branch out and make our 2nd office based in NY.
Do these rules apply to me also? Any help or advice would me much appreciated
Thanks
@kjh
I recommend that you go to this blog’s Foreign Countries page and follow the steps suggested there. By the time you follow all of the relevant links, most of your questions should be answered.
Hi Dana,
Your blog is the most helpful!
I understand that a person on an H visa can incorporate an LLC (or C-Corp). Can that person also file for the EIN, if they have a social security number (while they are on an H visa)? And as a follow up, can they also file the entity’s taxes (LLC electing to file taxes as a corporation) at year end?
Thanks very much!
@RP
Anyone with an SSN can, as a principal officer of an entity, obtain an EIN for that entity. I’m not a tax expert, so I am not in a position to comment on who can or should file tax returns for an entity.
Hi Dana,
I registered an LLC to start a company with my friend controlling 70% and me – 30%. My friend never had an SSN, lives at and citizen of foreign country, while am student (on F1 status) in USA working on Curricular Practical Training at a different company. while I have no itentions to work the new company, we wanted to apply for it’s EIN sing my SSN. Does this pose any problem for my F1 immigration status or would that conflict with my CPT , in view of the IRS’s updates to the process of getting an EIN ?
Would appreciate your valuable feedback/advise,
Thanks
VC
As stated in this post, the LLC can use your SSN to obtain the EIN only if you are a “principal officer”.
However, as stated in Visa Basics for Foreign Entrepreneurs, Part 2: What Constitutes Work?, being an officer requires a work visa, which you do not have, so I have trouble seeing how your SSN can be used to obtain the LLC’s EIN in a way that complies with both IRS and visa requirements.
Hi Dana,
I own a clothing business in Africa and i am trying to branch out to buying wholesale clothing, but the wholesalers keep asking me for “Seller’s Permit/Wholesale Tax ID”. i am not a united states citizen nor have i ever lived there. what am i to do? i also don’t plan on opening a branch in the US, i just want to buy, and i don’t have a online business.
Thank you.
I believe that the wholesalers will sell to you only if you are a retailer. If you are a retailer, you need a state-issued seller’s permit. When, based on that seller’s permit, you furnish a resale certificate, the wholesaler sells to you without charging sales tax.
Each state has its own procedures – see, e.g., California’s FAQs for seller’s permits and resale certificates.
Your problem, of course, is that you are not doing business in any state, so you won’t qualify for a seller’s permit. I’m sorry, but I have no solution for that problem.
Hi Dana,
My friend started an IT company in Canada in a partnership. He is a Canadian resident. I am a resident of USA and would like to open a branch in US. Is it possible? We have two more partners who are Indian residents. Thank you so much in advance.
The basic answer is “yes”, though there are many issues you will need to address (e.g., work visas), depending on what you want the company to do and who will do it.