Can I Open a Business With an ITIN Number
Can I open a business with an ITIN number is one of the first questions foreign principals look to answer when planning to start a business in the U.S.3 min read
2. Understanding the ITIN
Updated July 7, 2020:
Can I open a business with an ITIN number is one of the first questions foreign principals look to answer when planning to start a business in the U.S. It can be a complex procedure to obtain the necessary documentation to register a business in the country, but the best place to start is by gaining an understanding of the role that tax identification numbers play in the process. These tax ID numbers are issued by the IRS and are required of individuals who will earn income in the U.S., and thus have to file annual tax returns with the agency.
Even before considering tax ID numbers, the first step any foreign individual with the goal of running a business in the U.S. should take is obtaining an E2 Visa. This visa is required for any individual seeking to legally gain employment in the country or start a business, but it is not enough on its own for either. For that, a tax ID number is necessary as well.
3 Types of Tax ID Numbers
All tax ID numbers issued by the IRS have nine digits. These include three types of ID: Social Security Numbers (SSNs), Individual Tax Identification Numbers (ITIN), and Employer Identification Numbers (EIN). Many foreign individuals mistakenly believe that they must have an ITIN to open a business in the U.S.
- Social Security Numbers: SSNs are granted to citizens and permanent residents of the U.S., although they are occasionally provided to temporary residents. An SSN can be obtained by filing Form SS-5 with the Social Security Administration, along with required documents to establish identity and either citizenship or immigration status. An SSN is used to file taxes, and while in some cases it may be used to operate a sole proprietorship or single-member limited liability company (LLC), it is not enough to start a partnership, multiple-member (LLC), corporation, or other types of business entities.
- Individual Tax Identification Numbers: ITINs are for individuals who are not eligible to receive SSNs. Like an SSN, an ITIN is required to pay taxes in the US, although they must also file Form W-7 at the same time. As is the case with an SSN, an ITIN is not required to start a business in the U.S. and may be enough to operate a sole proprietorship or single-member LLC.
- Employer Identification Number: The IRS issues an EIN, also known as a Federal Tax Identification Number, to an individual who intends to start a business in the US. Neither an SSN nor an ITIN is required to obtain an EIN, although this is a common misconception. In fact, the difference lies in the fact that both SSNs and ITINs are only required to pay taxes because of employment, while an EIN is required for anyone looking to become an employer under certain conditions, whether the business is a sole proprietorship, partnership, LLC, corporation, or another business entity.
Understanding the ITIN
Even though an individual who cannot establish U.S. citizenship or permanent residency status and intends to earn income in the U.S. must have an ITIN, the ITIN in itself is not enough to gain employment, nor does it bestow the right to social security benefits. The following individuals are candidates for an ITIN:
- Citizens of foreign nations who cannot obtain an SSN, but must pay tax on earnings in the U.S.
- An individual who does not have a green card or has not passed the substantial presence test (non-resident aliens), yet must file a tax form to receive a tax credit.
- Green card holders (resident aliens) who have earned income in the U.S.
- Dependents or spouses of U.S. citizens or green card holders who have earned income in the U.S.
- Dependents or spouses of non-resident aliens who have earned income in the U.S.
There are advantages for foreign nationals to establish an LLC or corporation in the U.S. It is suggested that any foreign individual looking to start a business in the U.S. consult either a qualified tax consultant or an experienced corporate attorney. It’s important to understand the tax regulations before setting up shop
To learn more about whether it is possible to open a business with an ITIN, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.