The IRS assigns a unique Employer Identification Number (EIN) to business entities operating in the US. This nine-digit number is a type of Tax Identification Number (TIN) and functions like a Social Security Number (SSN) for businesses. Businesses in the US use EINs for tax filing and reporting purposes, letting the IRS track tax-related activities and check compliance with tax laws.

Businesses operating in the US need an EIN to pay employees, open business bank accounts, apply for business licences and file tax returns. This applies even if the business owners are not located physically in the US. This guide will cover how to obtain an EIN while living outside the US, and will cover the process, costs and what happens after your EIN is in place.

What's in this article?

• How EINs work in the US
  
• Can non-residents get an EIN from outside the US?
  
• What do non-residents need to apply for an EIN?
  
• How much does an EIN cost?
  
• What are the tax obligations after you get an EIN?
  
• How to terminate your EIN
  
• How to operate a business in the US as a foreign entity
  

How EINs work in the US

The IRS uses TINs in the administration of tax laws for individuals and businesses, and most businesses in the US need an EIN to operate. This includes corporations, partnerships and any business with employees. Sole proprietors might need an EIN if they have employees or meet certain conditions.

Businesses use an EIN for tax filing purposes, opening business bank accounts, obtaining business licences, recruiting employees and more. It serves as a form of identification for businesses in various legal and financial transactions. Although EINs are public information, businesses should use them judiciously – especially in public documents or online – to prevent identity theft or fraud.

• Applying for an EIN: Applying for an EIN is straightforward. For applications in the US, businesses can do this online through the IRS website. The process is free, and the IRS issues the number immediately upon completion for online applications. It's important to use the official IRS website to avoid any unnecessary charges. This is because third-party services might offer to obtain an EIN for you for a fee. Businesses can also apply by fax, post or phone, but an online application is the fastest way to do it.

• Changing your EIN: If a business changes its structure, such as from a sole proprietorship to a corporation, it will probably need a new EIN. Not all changes in structure require a new number, so it's important to check with the IRS or a tax professional.

• EIN expiry: Once issued, an EIN will not expire. It remains with the business entity until the business is closed or the organisation's structure changes.

Can non-residents get an EIN from outside the US?

Yes, non-residents can obtain an EIN from outside the US. In general, international applicants cannot apply for an EIN online, as this process is reserved for entities with a US address (businesses with a legal residence, principal office or principal agency in the US may qualify). However, international applicants can apply via phone, fax or post.

Each application method involves completing Form SS-4, the Application for Employer Identification Number. When filling in Form SS-4, international applicants must indicate the foreign status of their entity and follow the instructions for foreign entities, which include not providing an SSN or Individual Taxpayer Identification Number (ITIN) if they do not have one.

For all methods, it's important to have all the required information ready, such as the legal name of the entity, the entity's principal business activities, the name and address of the responsible party, and the reason for applying for the EIN.

Here's how to apply for an EIN from outside the US:

• Phone application: International applicants can apply for an EIN by contacting the IRS using the designated number, which can be found on the IRS website. The person making the call must be authorised to receive the EIN and answer questions regarding Form SS-4.

• Fax application: International applicants can fax a completed Form SS-4 to the IRS. If they provide a return fax number, the IRS can send the EIN within four working days.

• Postal application: International applicants can submit a completed Form SS-4 to the IRS by post. This is the slowest method, taking about four weeks to obtain an EIN.

What do non-residents need to apply for an EIN?

Non-residents applying for an EIN for a foreign entity need to be able to provide the requested information on Form SS-4, as detailed below.

• Entity's legal name: The official name of the business, as registered in the country of origin.

• Entity type: The type of entity (e.g. corporation, partnership or LLC) and any relevant details about the business structure.

• Reason for applying: Why you are requesting an EIN (e.g. to start a business, to recruit employees or to open a business bank account).

• Responsible party: The name and identifier for a designated individual who has control over or is entitled to the entity's funds and assets. The identifier can be an SSN for US residents, or a foreign passport number or similar identifying number for non-residents. For non-residents, the designated responsible party is often a principal officer or controlling individual.

• Postal address: If the business doesn't have a US postal address, it can provide an international address instead.

• Principal business activity: The primary nature of the business, including the products sold or the services provided.

• Number of employees: If the business doesn't have any employees but will in the next 12 months, it can estimate the number of employees that will be recruited. This section should also indicate the employee type (e.g. agricultural, household, other).

• First-date wages or annuities were paid: This is only relevant if the business will have US-based employees.

How much does an EIN cost?

Obtaining an EIN from the IRS is free for all businesses, regardless of where they are based.

Although the EIN is free, there may be associated costs for businesses not based in the US if they hire tax professionals or legal advisors to help them with the application process or with understanding their tax obligations in the US.

What are the tax obligations after you get an EIN?

Businesses operating in the US must fulfil a series of tax obligations. Once you have obtained an EIN to operate in the US, the following tax obligations may apply:

• Income tax filings: Businesses must file annual income tax returns. The specific form that they must use depends on the business structure (e.g. Form 1120 for corporations, Form 1065 for partnerships and Form 1040 for sole proprietors).

• Employment taxes: If the business has employees, it must withhold federal income tax, Social Security taxes and Medicare taxes from their wages. The business also needs to pay the employer's share of Social Security and Medicare taxes, along with federal unemployment (FUTA) tax.

• Excise taxes: Some businesses are responsible for excise taxes if they manufacture or sell certain products (such as fuel, tyres or tobacco), use various kinds of equipment, facilities or products, or receive payment for certain services.

• Estimated taxes: Business owners and entities might need to make estimated quarterly tax payments if they expect to owe US$1,000 or more in tax when their return is filed. This is especially relevant for entities where income is passed through to the owners, such as S corporations and partnerships.

• State and local taxes: Businesses need to be aware of and comply with any US state and local tax requirements, which can include income, sales, property and employment taxes.

• Reporting: Businesses must provide the IRS and their employees with information returns (e.g. Forms W-2 and 1099) to report different transactions, such as payments to independent contractors and employee wages.

How to terminate your EIN

Although the IRS will not technically cancel an EIN (the number is never reassigned and remains associated with the business entity to which it was issued), the following steps will effectively close your business's tax account with the agency:

• File final tax returns: Your business must file a final tax return. For corporations, this would be Form 1120. Partnerships would need Form 1065 and sole proprietors would use a final Schedule C (Form 1040). Tick the box that indicates that this is a final return. If you have employees, you must also file the final employment tax returns, including the final federal tax deposits for these taxes.

• Pay outstanding taxes: Pay all outstanding taxes, including income taxes, employment taxes and any other federal taxes for which your business is responsible.

• Issue final wage and payment reports: If your business had employees, issue them with final W-2 forms and file these with the IRS. If you've paid independent contractors US$600 or more during the business's final year, issue each contractor with a Form 1099-NEC and file these with the IRS.

• Cancel your business name: If applicable, cancel your business name with the appropriate state or local agencies.

• Close your business account with the IRS: Send a letter to the IRS that includes the complete legal name of the entity, the EIN, the business address and the reason for closing the account. If you have any IRS-issued licences, permits or other authorisations, return these with the letter, and indicate the date on which you stopped paying wages.

• Notify state and local agencies: Inform state and local tax agencies and any other relevant agencies of your business's closure. You may also need to cancel your state business licence, state employer accounts and any local permits.

• Keep records: Maintain your business records for a minimum of three years after closing your business. This is because the IRS may request information within this period. Some records, especially those related to employment taxes, should be kept for longer.

How to operate a business in the US as a foreign entity

Foreign entities operating a business in the US must go through many of the same processes as US residents. Here's an overview of what's involved:

• Business structure: Research and choose a suitable business structure. Common options for foreign entities include the corporation (C corp) and the limited liability company (LLC).

• State selection: Decide on which state to incorporate in. Delaware, Nevada and Wyoming are popular because of their business-friendly laws. Consider factors such as tax rates, the legal environment and the physical presence of your business.

• Business registration: Register your entity by filing the necessary documents, such as Articles of Incorporation (for corporations) or Articles of Organisation (for LLCs), with the chosen state's secretary of state office.

• EIN: Apply for an EIN with the IRS as outlined in this guide.

• Business bank account: Opening a business bank account usually requires the business owner or a representative to be in the US to provide the EIN, incorporation documents and identification.

• Insurance: Procure appropriate insurance to mitigate the risks associated with your business activities in the US.

• Taxation: Understand your federal, state and local tax obligations, including income taxes, payroll taxes and sales taxes. International businesses may also need to consider tax treaties between the US and their home country to avoid double taxation.

• Employees: If you are recruiting employees, you must comply with US employment laws regarding wages, workplace safety, non-discrimination and benefits. Obtain any necessary employer identification numbers at the state level, understand the obligations for withholding and paying payroll taxes, and familiarise yourself with labour laws.

• Licences and permits: Identify and obtain relevant federal, state and local licences and permits. These will vary depending on the industry and business activities.

• Immigration and work visas: If you will have foreign nationals working in the US, ensure that you comply with immigration laws, including obtaining the correct visas. This may involve L-1 visas for intracompany transfers, E-2 visas for investors or H-1B visas for specialised employees.

• Ongoing compliance: Maintain ongoing compliance with annual reporting, tax filings and renewals of licences and permits. Stay up to date with any changes in laws that may affect your business. Consult with lawyers and accountants who specialise in international business, especially for complex matters, such as international tax planning, intellectual property protection and compliance with the Foreign Corrupt Practices Act.