Every business that has employees is required to have an Employer Identification Number (EIN). It’s effectively your business’ Social Security number.
The Internal Revenue Service announced that it has revised the Employer Identification Number application process in order to provide greater security and improve transparency. The revision will require that each applicant’s responsible party have either a Social Security number or an individual taxpayer identification number.
Nothing has changed for how an EIN is obtained by non-US residents or non-US citizens who own US LLCs. However, if a company owns another company, it can no longer use its existing EIN on the new EIN application and the parent company cannot be listed as the EIN Responsible Party.
The instructions to the Form SS-4 define the term “responsible party” as the person who owns or controls the entity or who exercises effective control over the entity.
For example, in the case of a corporation, the responsible party may be a principal officer and, in the case of a partnership, the responsible party may be the general partner. In the case of many non-US entities, only non-US individuals would meet that definition. Many non-US individuals who might meet the definition with respect to non-US entities do not have an SSN or ITIN.
These changes to the EIN rules are really about national security. Not about preventing foreigners from forming US LLCs and opening bank accounts. The US government has been focused for some time on strengthening national security to combat sanction evasion, money laundering, fraud, and tax evasion.
Assuming the IRS applies the requirement strictly, the individual who is the responsible party of an international applicant will need to apply for an ITIN on IRS Form W-7, IRS Application for Individual Taxpayer Identification Number, on that person’s own behalf before the international applicant can request an EIN.
It can take the IRS several weeks to process ITIN requests. As a practical matter, this requirement could create significant delays in obtaining EINs for international applicants, which in turn could create delays in setting up bank accounts, filing entity classification elections, etc.
Moreover, the responsible parties of many international applicants may be uncomfortable submitting information to the IRS in order to apply for an ITIN.
The Financial Crimes Enforcement Network (FinCEN) has enforced new regulations on banks and financial institutions for US bank accounts owned by LLCs. The banks are now required to obtain a Beneficial Ownership Declaration which states who the actual owners of an LLC are, whether they are American or non-American.
Due to these new rules, it’s impossible for an LLC owned by non-US residents or non-US citizens to be opened remotely. The bank account must be opened in person by visiting the bank. In fact, it’s impossible to open any (legitimate) US bank account remotely, whether you’re a US citizen or not.
If you find a service that says they can open a bank account for you remotely, there’s a good chance it’s a scam. And the person opening the account for you has the ability to steal your money.
Ultimately, the US government doesn’t want to prevent foreign investment from coming into the United States. They just want to prevent financial crimes.
If you are opening a business and have any questions about obtaining your Employer Identification Number, consult your trusted advisors for business accounting in Springfield Missouri at Schultz, Wood, & Rapp.