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´m peruvian (without SSN) running a company in Lima and want to open a business in us (doesnt have to be a subsidiary. Can be a separate company). I will export some items from my company in Peru to US. I will make sales online in Peru and will need to hire a person in us for distribution purposes.
I have researched that a LLC would be fine since I would be the only owner. I understand that I require an EIN in order to start up the company. For me is clear that I have to submit the SS-4 form. I will do over the phone. Will I need to submit the W-7 form too? For me is not clear the ITIN figure.
Please, advise the rest of the process. Thanks , I appreciate your guidance.
@Jorge Soto
You do not need an ITIN, so there is no need to submit Form W-7 (which is good, because obtaining an ITIN takes a long time – thus my post about how to obtain an EIN).
Hi Dana,
I think there is a contradiction in these blogs? In the article dated Nov 30, 2009 it clearly states that a SSN is required and that the person be an active participant in the business.
However when you reply to Jorge Soto you say a ITIN is not required?
Which is it?
@tony
There is no contradiction, because an Individual Taxpayer Identification Number (ITIN – issued by the Internal Revenue Service) is not a social security number (SSN – issued by the Social Security Administration). The IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. Perhaps you were confused because ITINs and SSNs have the same number of digits and the same format.
Hi Dana,
please help me.I would like to export used and new surf-related items from the Us (California) to peru via the odd container load.I am German,but spend a lot of time in Peru,where my family lives. I would like to be able to buy wholesale.Is this possible without being a resident in the US?And if not,how do I get around this problem?I am so confused,please fill me in.
@Alexandra
I’m sorry, but I know little about export laws, so I probably am not the right person to advise you on this issue.
Do i begin the process to obtain an EIN after the company has been incorporated?
@John Davis
Yes.
Hello Dana, in your post, you mentioned a tax practicioner in Florida,
he advice that foreign applicants for an EIN
shoud enter a US c/o person on line 3 of the SS-4 form.
What does this mean? and how this affect this US person?
Thanks
@Alex
Here, in relevant part, is what the instructions for Form SS-4 say about line 3:
“If the entity applying has a designated person to receive tax information, enter that person’s name as the ‘‘care of’’ person.”
This information is optional – if no one is identified, tax information will go to the company, generally, rather than to the attention of an identified individual.