What is an EIN (Employer Identification Number) and why do I need one? Or why would I not want to have one?

The EIN is the United States of America (USA) equivalent of a business number. It is the number used to identify a business in the USA for federal taxation.

Discussion:

An EIN is required in many circumstances when doing business in the USA. If your business is physically present in the USA it is easy to understand that you would require this number for things like payroll tax remittances. It is less clear though if your business is not physically present in the USA why you might need this number. The reasons listed on the Internal Revenue Service (IRS) website for needing an EIN are clear.

• You have USA employees
• You operate a corporation or partnership, retirement plan, trust, estate, mortgage investment, non-profit or cooperative
• You file employment, excise, alcohol, tobacco or firearms tax returns
• Withhold taxes from non-residents

When you read that list you might conclude that if you are outside of the USA and don’t have a physical presence in the USA, in other words you don’t do business in the USA, you don’t require an EIN.

The slippery slope and the audit trail. What often ends up triggering the need for an EIN is a USA business customer or USA supplier of your business refuses to do business with you and, for example, refuses to pay you unless you provide your EIN. The reason for this is that tax regulations are tightening and businesses are penalized if they cannot provide the EIN of all of their customers and suppliers to the IRS. So, if you are doing business with a USA business that has been audited and penalized they may refuse to do business with you unless you provide an EIN. They may not understand that your business is not on the list and does not need to provide an EIN. These businesses can often exert enough economic pressure on your business that you register for an EIN even though you really don’t need one and in fact could be opening a can of worms by getting an EIN. Having an EIN can lead to tax filing obligations.

Recommendation

Contact us to learn more about EIN’s and how you can be caught offside and also how you can politely avoid getting an EIN.