Foreign-owned companies must have U.S. employer identification number

EIN for Foreign Person

Can someone who is not an American citizen, or a resident of the U.S., form a corporation or LLC in Florida or any other state?

The answer is yes. There is no requirement that the owners of an entity registered in the U.S. are American citizens or residents of this country.  However, all U.S. registered business entities must obtain an employer identification number (EIN) from the IRS. For foreign-owned entities, the process of obtaining an EIN can be complicated and confusing.

Obtaining an EIN

For example, when forming a Florida corporation or LLC, let’s assume the individuals forming the entity are Canadian citizens living in Canada. There’s nothing stopping these folks from paying the fee and filing articles of incorporation to register their corporation with the Florida Division of Corporations. They can use their Canadian address as the principal place of business (although there may be very good reasons to use a U.S. address, including for banking).  They will need to identify a registered agent with a Florida address. But, there’s no shortage of companies, law firms and individual attorneys willing to take on those responsibilities, including our law firm.

As we know, it doesn’t do much good to register a corporation that is unable to conduct business and in order to conduct business, the corporation will need an EIN.  With few exceptions, a company with U.S. owners who have either a social security number or an individual taxpayer identification number (ITIN) will be able to apply for an EIN on the IRS’s website quickly and easily –  (https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online). But our Canadian citizens have none of those numbers, so what do they do?

First, let’s discuss the common misconception that foreign citizens need to obtain an ITIN in order to apply for an EIN.  This is not true and is actually not even possible.  An application for an ITIN is filed at the same time as the applicant files their initial U.S. tax return.  Take our Canadian citizens. They won’t file a personal tax return based on the income from their new Florida corporation until the company has been operational (and has generated taxable income) for a significant period of time. And it can’t operate without an EIN, therefore, it is not possible for them to obtain an ITIN and use that to obtain the company’s EIN.

So, back to our Canadian citizens who do not have an ITIN or SSN among them – what can they do?  They must file Form SS-4, Application for Employer Identification Number (https://www.irs.gov/pub/irs-pdf/fss4.pdf) with the IRS by mail or by fax and wait.  According to the IRS, the response time for a mailed Form SS-4 is four to five weeks and for a faxed form, the wait is about one week.  Be sure to complete the form correctly, because if the form is incorrect or incomplete and is rejected by the IRS, you’ll need to resubmit the corrected form and wait all over again.

There is some confusion about this process from the IRS itself.  In order to obtain an EIN, an entity must name a “responsible party” with the IRS. In the past, a responsible party could be another business entity.  However, that’s not the case anymore.  With the very limited exception of government entities, the responsible party must be an individual who, according to the IRS, “is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity. The person identified as the responsible party should have a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the person, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets.”

Unless you are otherwise experienced or informed, or bother to spend the time calling the IRS, you would probably interpret line 7b of Form SS-4 and the corresponding instructions (https://www.irs.gov/pub/irs-pdf/iss4.pdf) as a requirement that you cannot be a responsible party if you don’t have an SSN, ITIN or EIN.  The instructions do not inform an applicant without any of these numbers as to what they should enter. It turns out foreign applicants, like our hypothetical Canadian citizens, must enter the word “Foreign” on line 7b.

Widerman Malek Attorneys

If you are or know of a foreign person interested in forming a Florida corporation, LLC or other business entity, or if you’d like our assistance with any business-related matter, please contact us or Ralph Dyer directly at rdyer@uslegalteam.com, or by calling (407) 566-0001.