A lot of startup companies are born with the outlook of growing as fast as humanly possible towards unicorn status. One difficulty that many of them run into is the need to expand quickly into other markets to scale up. The US is one of the most common markets to grow into early on because it is a mature software buying market and home to a large number of businesses to sell to. Growing startups based in Europe, the UK, Asia, Australia and New Zealand often start their global growth by setting up a subsidiary in the US. One thing you need to know when doing this is how to set up an EIN for your US based entity.
An EIN is similar to a tax registration number in other countries and will be required to do business in any form. This is used whether you’re selling to customers, registering for sales in each state or employing people. It is an essential piece of getting set up for business in the US.
Before we get started on how to set up an EIN for your US based entity let’s look at a couple of situations that would mean you don’t need an EIN.
If you have customers in the US but you do not have a business set up or a physical presence (think employees) in the US then you are a foreign company simply selling into the US and you don’t need to read any further
If you have contractors in the US doing work for you and they are clearly defined as contractors (you don’t legally employ them) then you won’t need to get an EIN
How long does the process take?
Honestly the process of getting an EIN is a fairly quick and painless one, following this guide you’ll have things set up in a couple of days and then you’re ready for business.
Is it worth setting up business in the US?
The US is the largest English speaking market in the world. Setting up there has a number of advantages. The most notable advantage is that you’ll be close to your customers. Being able to sell to customers in the same time zone and even being able to sell face to face to customers can be one of the biggest advantages to closing software as a service deals faster. So what are you waiting for? Get out there and scale.
What is an EIN?
The Internal Revenue Service (IRS) issues the unique nine-digit Employer Identifying Number (EIN), also known as the Federal Employer Identification Number (FEIN), or the Federal Tax Identification Number, to corporate entities operating in the United States for identification reasons. The term “Taxpayer Identification Number” is typically used when the number is used for identification purposes other than employment tax reporting (TIN). It is commonly known as an EIN when used to report employment taxes. These numbers are only used for tax administration; all other uses are prohibited. An EIN should not be used, for instance, in lotteries, auctions, or sales of tax liens or for any other activities unrelated to the administration of taxes.
Employers frequently use EINs to report taxes. The number has the format XX-XXXXXXX and consists of nine digits. In the same manner that Social Security Numbers (SSNs) are used to identify specific inhabitants of the nation, Employer Identification Numbers are provided to identify corporate entities in the United States. Federal Tax Identification Number
is another name for the EIN.
The format of an EIN is XX-XXXXXXX, and it has nine distinct digits, as was already mentioned. EINs are numbers that the IRS issues and contain details about the state where a corporation is registered. EINs are used by the organization to identify taxpayers who must submit various business tax filings.
If you employ people, conduct business as a company or partnership, file certain tax returns, or withhold taxes from income other than wages, you must obtain an EIN. Before starting operations, business organizations must submit a phone, online, fax, or postal application for an EIN. EINs are available to all kinds of businesses, including:
Limited liability companies (LLCs)
Non-profit organizations (NPOs)
The IRS does not favor larger or smaller businesses. This implies that individuals and small businesses with a single employee are eligible for an EIN.
How do I get an EIN?
It is simple to obtain an EIN. Use one of the following approaches to apply for a free EIN directly to the IRS:
– Apply Online
Most people will find that applying online is the best option. First, visit the IRS website; it costs nothing and won’t take much of your time.
You must finish the application in one session, according to the IRS. Therefore, you cannot begin, save your work, and complete it later. Whenever there is no action for 15 minutes, your session immediately ends. You’ll have to start anew if this occurs.
The online application is straightforward. Just a few details about your company must be provided, which include:
– Legal structure (sole proprietor, partnership, LLC, corporation, etc.)
– Member information
– State or territory where the business is physically located
– Reason for applying (to hire employees, banking purposes, new business, etc.)
– Information about the “responsible party” (Contact Person)
On weekdays, you can submit an online application between 7 a.m and 10 p.m. EST.
After your application has been approved, you will instantly obtain your EIN, which you can use to create a bank account or submit an application for a company license.
The EIN does not, however, officially appear in the IRS’s records for up to two weeks. So until it appears in their official records, you won’t be able to submit an electronic tax return or make an electronic tax payment.
– Apply by Fax
It is possible to send your application by fax if you are unable to or do not wish to submit it online. However, printing and filling out IRS Form SS-4
There are no deadlines for sending the fax (unlike the online form), which is available online (unlike the online form). Don’t forget to read the form carefully. The process can be significantly slowed down if you give a wrong answer or make a typo or other mistake. Usually, it takes four business days to process error-free forms.
– Apply by Mail
Postal applications take longer to process. The Form SS-4 can be printed, filled out, and sent to the specified address if you’re not in a rush. Regardless matter where you are physically located, the mailing address remains the same.
– Apply by Phone
You cannot apply online for an EIN if your company is based outside the US. Instead, you must contact the IRS directly to get an EIN as a foreign applicant.
International candidates ONLY have access to this option. The IRS no longer accepts phone applications for companies that are located in the US.