Not that long ago, we explained in detail what an EIN is, why nonresident investors need it, and how non-US citizens can get one. Today, we’re going deeper into the topic of why exactly you might want to get it and what is an EIN number used for, by explaining the benefits that come with having one.
In the intricate landscape of business and financial transactions in the US, nonresidents can find it quite challenging to fight their way to profit. That’s why it’s vital you take every opportunity you can get.
Luckily, with the right tools and knowledge, you can find plenty of them. And, at the very heart of that opportunity lies the Employer Identification Number (EIN) — a powerful identifier that opens doors to various possibilities.
What Is An EIN Number Used For?
Today, we prepared a comprehensive guide on what is an EIN number used for. We covered the top avenues a nonresident can take to leverage their EIN to optimize both their personal and professional lives.
From tax compliance and apartment renting to obtaining credit cards, the EIN serves as a catalyst for success in the US market. Let’s take a closer look at what is an EIN Number used for.
1. Paying Taxes
People often find themselves wondering, “What is an EIN number used for?” — and the #1 answer to that question is always tax compliance.
For nonresidents operating businesses in the US, an Employer Identification Number (EIN) is essential for tax compliance.
An EIN is a unique identifier that allows you to fulfill your tax obligations and avoid legal complications — with it, you’re guaranteed smooth transactions with the Internal Revenue Service (IRS).
It doesn’t matter what type of business you have, you’ll need an EIN for your business to be operational and compliant with the law. For example, you’ll need one if you have:
- An online business that’s a registered US LLC that enjoys the tax-free privileges,
- A company that operates and does business with US companies and thus has a US-sourced income, or
- A real estate business.
Any type of US-sourced income, passive or active, makes you obligated to report and pay taxes to the IRS, and the only way to do that is via the EIN. Even if you have an NPO or a trust, you’ll still need to report taxes to the IRS.
2. Employing Workers
An EIN enables nonresidents to hire employees in the US legally. Whether you’re a sole proprietor or part of a larger business structure, having employees is made possible by obtaining an EIN, which streamlines the payroll and reporting processes.
“But I only want to have an investment business, so my LLC won’t have any employees!” we hear you say.
Well, even if you’re the only person in your LLC, you’re still technically an employee of your own company. That means you can’t operate your business without an EIN because, without it, you won’t be able to collect payroll tax and stay in compliance with tax laws.
EIN is the number that separates your company as an entity from all others, as far as the IRS is concerned. This number is used by the IRS to track your payroll tax remittances — the process of submitting contributions, deductions, and taxes that are withheld from your employees’ salaries.
3. Speeding up Business Loan Applications
If you’re still wondering, “What can I do with an EIN number?” we have excellent news — our list is just getting started.
If you’re a business owner looking to secure a loan (including the Disaster Recovery Small Business — DRSC — loan), then you’ll find having an EIN quite beneficial.
A DRSC loan is technically a mortgage of an investment property, which is why people often call it a rental loan — something that pays for itself. The amount you can loan out depends on the cash flow of your property — that, along with other factors, such as your DSCR loan down payment, determines how big of a loan you can get.
However, securing the loan in the first place depends on your paperwork. To ensure you get one, you need an EIN because this number establishes a clear business identity. Once the lenders know who you are and how trustworthy your business is, you can expedite the loan approval process and increase your chances of securing financial support and getting reasonable interest rates.
Need Help Securing a Loan? Give Us a Call!
4. Opening Business Bank Accounts
Having an EIN is a prerequisite for nonresidents seeking to open business bank accounts in the US.
Operating a business in the US or a US LLC comes with many benefits. However, some are only available to those with open US business bank accounts.
For example, enjoying the benefits of the US tax system is only possible if you have a business bank account. Aside from that, having a business bank account also gives you:
- Unrestricted access to the entire US financial system,
- Access to other payment services (such as Wise, PayPal, Amazon, etc.),
- Opportunity to invest in US real estate.
A US business bank account also helps you establish efficient financial management as a business owner, and an opportunity to separate your personal from your professional banking. Finally, some business-specific banking services are only available if you have a business bank account.
So it’s clear that a business bank account is a must (and that a personal bank account isn’t enough) — which is why an EIN is also a must-have. Although you can get access to payment processors with an ITIN and even build a credit score with an ITIN, you need an EIN to open a business bank account.
5. Establishing Business Credit
And, speaking of credit score — did you know that one of the things you can do with an EIN is build a business credit?
Once you get your EIN, you’ll use it to open a business bank account, apply for licenses, permits, etc., and maybe even apply for a loan. But to be able to do that, you’ll need credit.
Business credit bureaus use EINs to establish your credit and general history. They track all your business activities such as payments, loans, debts, etc., and generate specific scores based on that data. Those credit scores are then used to determine whether you’re eligible for loans.
So, an EIN plays a crucial role in building and establishing business credit for nonresidents. Since you’re a nonresident, you don’t have any personal credit history that will show how trustworthy of a lender you are. Therefore, you need to ensure you establish your business credit and position yourself as an eligible lender.
A good business credit also contributes to the overall financial health of your business.
6. Renting an Apartment
If you’ve heard other nonresidents wondering, “Can I use my EIN to rent an apartment?” and come up short when it comes to the answer, you’ll be happy to hear the answer is YES.
Nonresidents without a Social Security Number can use an EIN to secure housing in the US.
Landlords often require a valid taxpayer identification number, and an EIN serves this purpose, which means that an EIN can help you ensure a smoother renting experience. This is an amazing benefit if you’re property hunting in the US and need a short-term rental to be your base of operations.
However, keep in mind that you can use your EIN to rent an apartment only if you intend to use said apartment to conduct business. If you open a US LLC for your real estate endeavors, for example, you can rent an apartment to do business from with an EIN.
Still, renting with an EIN does come with a few downfalls, such as:
- You might need a co-signer for the lease,
- Your security deposit might be larger, and
- You’ll still need to provide a personal credit history.
Even with these potential setbacks, for a nonresident who doesn’t have an SSN, renting an apartment with an EIN is still a good option.
7. Getting Business Permits
In order to operate in the US, every business needs at least one or two permits. And, although securing those can be quite a hassle, having an EIN can speed the entire process up.
Securing business permits and licenses is simplified with an EIN.
First of all, having an EIN makes it easier for all nonresidents to navigate the regulatory requirements, which is a massive benefit for those who haven’t encountered the US bureaucratic system before.
What’s more, your EIN will also help you comply with local and federal regulations when applying for permits, thus making sure your entire business operation is legal and above board.
8. Applying for Credit Cards
Having a credit card goes a long way when you’re trying to build a credit score. Frequently using the card and making regular payments on it builds your credit score, making you look like a responsible and trustworthy client in the eyes of credit lenders.
However, in order to reap all those benefits, you first need to get a credit card — and you can’t do that as a nonresident without an EIN.
Nonresidents can apply for business credit cards only by using their EINs. Having business credit cards allows you to:
- Easily separate your personal and business expenses,
- Track said business expenses for tax purposes, and
- Establish a credit profile for your business.
9. Avoid Taxes (Under Special Circumstances)
Now, we already talked about how you need an EIN in order to pay your taxes if you have a US-bound business with US-sourced income. But, did you know that an EIN can also help you avoid taxes altogether?
That, of course, is only possible under specific circumstances.
If you’re a non-US citizen who has an online business, for example, that operates completely offshore (as in, not in the US), then you won’t have to pay US taxes.
Aside from that, you also have to meet other requirements:
- Not have a US citizenship,
- Not be a Green Card holder,
- Not have employees in the US,
- Not have a business location(operations) in the US.
Having a US LLC, for example, with an EIN that’s completely separate from the American legal and financial system will allow you not to pay taxes in the US — all your income is considered non-US-sourced after all. EIN is essential for Nonresidents who do not have US source income to open a US bank account.
Ensuring you don’t end up paying steep tax for your non-US business isn’t easy — which is why it’s always good to get some professional help. Here at NRI, we have registered CPAs who have had years of experience when it comes to dealing with the taxation of both foreign income for US citizens and US-sourced income for nonresidents.
Get in Touch With Our CPA!
Need Help Securing Your Very Own EIN? NRI Can Help!
Now that you have further insight into how beneficial an EIN can be for nonresidents, it’s time to get one of your very own!
Getting an EIN can be a difficult task for some nonresidents, which is why the NRI team is here to help! Let us help you navigate the various aspects of business and personal financial management by getting you your own EIN, thus making your business a recognized entity in the eyes of the IRS.
Since getting the EIN can be a long and tedious task, we established a process that’s available to all nonresidents — we offer a full range of services that include:
- Dealing with the initial paperwork (filling in the forms and filing them with the IRS),
- Applying for the EIN,
- Helping you open an LLC, and
- Securing your very own business bank account.
With the NRI team, you’re only a step away from your own EIN number and ready to reap all the benefits it can bring!
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