Regardless of location; taxes and obligations are one of the biggest concerns for entrepreneurs. When starting a business in America, foreign entrepreneurs need to know what is EIN and why they need to have this documentation. Knowing about tax obligations will help you to ensure more profits and success in your international career.
The EIN is a form of tax ID used to identify companies with the Internal Revenue Service (IRS), the body responsible for collecting federal taxes in the US. There are other forms of tax ID in the US, such as ITIN or social security number, which are used for individuals.
For foreign entrepreneurs, understanding the differences between each number is important to avoid confusion and manage their businesses safely. Keep on reading and get to know what is EIN and why your company needs to have a tax ID in the US.
What is EIN?
All companies in the US need to have a registration ID called Employer Identification Number (EIN) designated by the IRS. Obtaining the EIN is one of the necessary steps to do business in the country.
The EIN will be your company’s tax ID, as it’d be used to record transactions carried out in the US and ensure that taxes are paid correctly. This document can be requested by international entrepreneurs who wish to incorporate their business in the United States.
In addition, the EIN is usually required by banks when opening American business bank accounts. This would be the only tax ID number required by Globalfy to open your US bank account from abroad. No social security number or ITIN is required. To apply for your EIN, complete our form and start the process!
Why do I need an EIN number?
Registering your company with an EIN is a must for most businesses. Now, check out the exact instances in which it is mandatory according to the IRS:
- Hiring employees: The EIN will be used to track the payroll taxes for all your team members.
- Opening a corporation: As a separate entity from its members, corporations have their debts and obligations when it comes to taxes.
- Operating a partnership: Even though income and expenses generated by the partnership are passed to the partners’ individual tax returns, this process has to be filed in the company’s tax return.
- Owning a personal service company: Companies that have personal services performed by the owner as their primary activity may need to have an EIN. Services such as accounting, consulting, architecture, engineering, health, and law are included.
- Being involved with organizations of the following types: Trusts, Estates, Real estate mortgage investment conduits, Non-profit organizations, Farmers’ cooperatives, and Plan administrators.
When establishing a business in the US with a structure other than a sole proprietorship, you will need to have an EIN. Though, even in these cases, this documentation can bring benefits to your company. Many entrepreneurs choose to request their EIN confirmation letter from the IRS to have more credibility within their industries.
Benefits of having an EIN
Now that you know what is EIN and why I need an EIN number, let’s talk about the benefits of having one. Even though this is not required for every business, having an EIN confirmation letter will help you open and operate your company in the US.
- Open a business banking account. Having a bank account for your business is essential to take your operation to the next level. Most banks will ask for your EIN to open a business account.
- Help in your business tax deductions. Some expenses have fewer chances of being audited if you have an EIN;
- Separate your business finances from personal finances. Other than opening a business account, the EIN can help prevent identity theft.
- Get a business loan. Usually, lenders don’t require an EIN to give your company a loan, but this document can help with your business credit.
- Build trust. Having an EIN will add credibility to your work with clients and vendors.
Besides EIN, what are other kinds of tax ID?
In addition to legal entities, individuals are also identified by tax ID numbers. The social security number (SSN) and Individual Tax Identification Number (ITIN) are respectively used to identify US citizens and foreigners or non-residents.
SSN
The SSN is an identification number for US citizens. For foreigners, an SSN is not required for essential services such as opening bank accounts, starting a business, or school records.
ITIN
For those who do not live in America and some US resident foreigners, the ITIN is used to file an income tax application in the US. In practice, this documentation is for people who have some kind of residence or legal work in the country to be able to declare their taxes.
In addition to the EIN, depending on the structure and organization of your company, LLC or C Corp, owners may be required to file their individual US income tax. Thus, it is necessary to obtain an ITIN to make the mandatory declarations as an individual in the United States.
Are you interested in obtaining an ITIN? Click here to find out more about how to do this process!
Every business may have different needs. Therefore, having the support of specialized partners, such as Globalfy, will make a difference for your company.
How to get an EIN?
The application to get an EIN can be done from anywhere. For businesses, the EIN can be obtained in 15 to 20 days after completing a form called SS4 that is sent to the IRS. For entrepreneurs from outside the country, this process can be done with the support of companies like Globalfy.
When it’s time to start your business, you can get your EIN and state registration with ease. In addition, you will also get access to a business bank account and many other benefits!
