Understanding EIN and ITIN for Non-US Residents: FAQs and Steps for Reselling

What is the difference between EIN and ITIN?

When starting a business, it's crucial to understand the differences between EIN (Employer Identification Number) and ITIN (International Tax Identification Number). Here’s a breakdown to help clarify:

What is an EIN (Employer Identification Number)?

EIN, as the name suggests, is primarily used for tax identification purposes, rather than merely labeling the entity as an employer. This number is assigned to businesses by the Internal Revenue Service (IRS). Businesses of all types, whether or not they hire employees, need an EIN. It is required for various tax and information reporting in the United States.

Who needs an EIN?

Corporations LLCs (Limited Liability Companies, both single-member and multi-member) Partnerships Sole proprietorships

EINs are necessary for federal and many state tax returns, information reporting, and even for banking purposes for single-member LLCs. Individuals may also receive an EIN for a sole proprietorship, but it can't be used for US tax reporting.

Key points about EIN:

Required for US federal and many state tax returns Can be used for banking and information reporting Not needed for single-member LLCs to file US federal tax returns, with the exception of Form 5472 for foreign-owned US disregarded entities

What is an ITIN (International Tax Identification Number)?

ITIN, issued by the IRS, is specifically for non-US residents who have US tax reporting obligations but do not qualify for a Social Security Number (SSN). This number is required if you need to pay taxes in the United States but do not have an SSN. It’s commonly used by foreign individuals and entities with US-filing requirements.

Who needs an ITIN?

Non-US resident individuals with US tax filing obligations Beneficiaries of previous taxpayers Non-citizens with legal presence in the US

Key points about ITIN:

Cannot be obtained without an obligation to file a US tax return or claim tax treaty benefits based on a US-other country tax treaty No need to have an LLC to obtain an ITIN EIN is a preferable alternative for business filings and information reporting

Can I get an ITIN as a Non-US Resident Without Filing an LLC?

Yes, you can get an ITIN as a non-US resident even without forming an LLC. The primary requirement is to demonstrate that you have a US tax reporting obligation. This could include establishing residency, having investment income, or being involved in certain types of business transactions in the United States.

Steps to Get an ITIN:

Identify your tax obligations and whether an ITIN is necessary. Gather all required documentation, such as a valid and complete last green card, green card application, passport, or other official documentation. Complete IRS Form W-7, Application for IRS Individual Taxpayer Identification Number, and submit it along with your supporting documentation. Pay the processing fee, which is typically $140, unless you qualify for a reduced fee of $55. Submit your application through the mail, in person, or electronically via the electronic ITIN application service (e-FIT). Wait for approval, which usually takes 4-6 weeks.

Pitfalls to Avoid When Obtaining ITIN or EIN

While both EIN and ITIN are important for tax compliance, there are common pitfalls to avoid:

Improper documentation: Lack of accurate or required documentation can result in denied or delayed applications. Incorrect Forms: Using the wrong form can lead to sudden rejections. Always ensure you use the correct and most up-to-date form. Missed Deadlines: Missing the submission deadlines for EIN or ITIN can cause unnecessary delays and potential legal complications. Inaccurate Information: Providing false information can lead to penalties and even legal issues.

Conclusion

For non-US residents starting a reselling business, understanding the differences between EIN and ITIN is crucial. Both are important forms of tax identification, but they serve different purposes. While it's possible to get an ITIN without an LLC, an EIN is often more preferable for business operations. Make sure to review the requirements and follow the correct procedures to avoid any complications. Proper tax identification can help you stay compliant and avoid potential legal issues.