For non-Americans looking to break into the U.S. market via a Limited Liability Company (LLC) framework, one critical step to take is registering for an ITIN (Individual Taxpayer Identification Number).
The ITIN, like the SSN is for employees, is specific to Americans, and is designed for people who need an Identification Number (ID) for tax purposes. However, ITIN is only assigned to people who will not qualify for a SSN.
Many non-residents globally have ITINs, and tend to overlook the opportunity that an ITIN presents. An ITIN is much more than a tax ID. Some notable advantages include taxes, access to banking, having payment processors, and even business expansion.
Your U.S. LLC will likely face challenges with compliance, operations, and even making a profit if the tax ID isn’t in order. For the vast majority of non-U.S. LLC owners, the challenge is not a lack of opportunity, but an absence of the right tax ID. Without an ITIN, your tax ID is ineligible, and there is not much else to be done.
In the following sections, we cover everything from exploring benefits of having an ITIN to address the numerous questions some may have. And ultimately, allow Bizstartz to take the stress of worrying about the process off your shoulders.
1. Obligations in Relation to U.S. Tax Laws
Owning a U.S LLC means that you’re liable to U.S. tax laws for revenues that stem from a U.S. source, regardless of your country of residency. The IRS mandates that any person with tax obligations in the U.S. must possess a Taxpayer Identification Number, for non-residents without SSN, this is the ITIN.
Not having an ITIN when required can lead to:
Under ITIN, one cannot:
- Accurately file your U.S. tax returns: ITIN precludes you from completing your tax filings, and the IRS will not process incomplete filings.
- Pay penalties for late or incomplete filing: you may not make profits, but failing to file can incur IRS penalties.
- Face losing LLC good standing: impacts ability to renew permits, and operate legally.
- Face ITIN penalties: loss of legal and financial LLC protections.
With an ITIN, one is compliant with legal regulations, and can adequately protect the LLC from unnecessary legal and financial risks.
2. Active LLC Tax Filing
Tax filing should not be treated as a yearly undertaking; rather as an active efficiency method for your LLC to maintain business standing, in the United States possessor non-residents. LLC owners that are non-residents are required to:
- Single member LLCs require the ITIN of the owner to file pertinent forms, most notably form 1040-NR and Schedule C for U.S. sourced income.
- To avoid rejection, multi-member LLCs need to list each member’s ITIN on the partnership return (Form 1065).
Without these numbers, the IRS submitting your return will either reject your return outright or send it back to you, significantly slowing the process and, in the worst-case scenario, incurring penalties.
Having your ITIN enables you to streamline:
- Timeliness and acceptance of filings.
- Accuracy in tax reporting.
- Providing better communications with the IRS.
This level of organization improves compliance and saves substantial hours of the most valuable time each year.
3. Establish a U.S. Business Bank Account
Establishing a U.S. business bank account is often the first real obstacle non-U.S. entrepreneurs face after creating an LLC. While a few banks offer the convenience of remote account openings, most require in-person verification. An ITIN can significantly ease this process.
With an ITIN, you are able to:
- Access a full range of banking products like checking and savings and even merchant accounts.
- Send and receive U.S. payments with no costly wire transfer fees.
- Benefit from FDIC protection on your business funds.
- Establish a reliable financial profile in the United States.
Many U.S. clients prefer dealing with companies that have a U.S. bank account as it indicates financial stability and professionalism. An ITIN helps you achieve that.
4. Gain Approval from Payment Processors
If you have an online business like an ecommerce store, you’ll likely need payment processors such as Stripe, PayPal, Square, or Shopify Payments. These companies often require either an SSN or ITIN to verify your identity and link your business account.
Without an ITIN:
- Your verification process can take weeks or months.
- Funds may be held in reserve until documentation is provided.
- Accounts can even be closed unexpectedly for lack of proper ID.
Having an ITIN speeds up approval, prevents payout delays, and ensures you can seamlessly process payments from customers which is vital for online revenue.
5. Claim Tax Treaty Benefits
The U.S. tax treaties for many countries to prevent double taxation. These treaties can:
- Reduce or eliminate withholding tax on specific income types like interest or dividends.
- Permit you to pay a lower tax rate than the standard 30%.
But to access these treaty benefits, you have to:
- Have a valid ITIN.
- Submit necessary IRS forms such as W-8BEN.
Without an ITIN, you may have to pay the maximum withholding rate which is unnecessary taxation if your country has a beneficial tax treaty with the U.S.
6. Establishing a U.S. Credit Profile
It may seem like building U.S. credit is impossible for the owners of foreign LLCs, but that is not the case. Some financial institutions use ITINs in place of SSNs to create credit profiles. With responsible banking and credit management, your LLC can over time:
- Obtain business credit cards.
- Qualify for small business loans or lines of credit.
- Establish a reliable reputation with business lenders.
Access to these funds can be critical for scaling operations, marketing, or managing unplanned costs.
7. Invest in U.S. Real Estate and Securities
To invest in U.S. real estate, stocks, or other assets, many non-U.S. LLC owners obtain ITINs. An ITIN is important for:
- Reporting rental or investment income to the IRS.
- Paying capital gains taxes on the sale of a property.
- Claiming tax refunds for excess withholding on investment income.
Without an ITIN, investments would be subject to higher taxes, complicated refunds, and a long process.
8. Avoid Higher Withholding Rates
Missing a tax ID number, foreign individuals or entities that receive payments sourced from the U.S, face a default 30% withholding tax.
With an ITIN, you are eligible to:
- Apply for a tax return for overclaimed tax withholding.
- Offset tax treaty provisions to reduce the withholding tax.
- Significantly lower the withholding tax accumulation over the life of your LLC.
This greatly benefits foreign businesses dealing with U.S. clientele or payment systems.
9. Speed Up IRS Processing
Filing without a tax ID often incurs tax ID application backlogs, which are the manual handling queue.
Having an ITIN means with:
- Less delays for businesses waiting to receive tax refunds.
- Reduced overall wait time or tax-related correspondence.
- More timely refund allocation, if eligible.
Less waiting time also translates to improved time management for tax-related matters, which increases focus on growing the business.
10. Future Business Expansion
Plans of further deepening presence in the U.S. through hiring, opening offices, or certain visa applications becomes smoother ITIN processes. It permits:
- Documented adherence to filing tax returns as a foreign business entity.
- Identified for applications and registrations.
- Proof of active business in the USA for over a year.
Obtaining an ITIN now is a minor investment that eliminates potential future complications for growth.
Why Bizstartz Can Help You Obtain An ITIN
We assist entrepreneurs from non-U.S. countries at Bizstartz with business setup and operations in the United States. We handle the ITIN applications for foreign LLC owners, with special attention to:
- Thorough step-by-step assistance on document assembly (passport, ownership documents, etc.).
- Filling out IRS Form W-7 accurately so there are no delays or rejections.
- Submission through correct channels to expedite the process.
- Filing and monitoring until the ITIN is issued, ensuring no steps are skipped.
From over 50 countries served, we know how to assist in business setup, overcoming borders and geography as a held back.
Conclusion
For LLC owners based outside the U.S., an ITIN is not just a number for tax purposes. It allows for better streamlined business operations, cost savings, and expanded business opportunities within the United States.
It makes tax compliance, opening a U.S. bank account, getting approvals for payment processors, and benefiting from tax treaties a lot easier and smoother when an ITIN is available.
At Bizstartz, we make the process of getting an ITIN simple, fast, and stress-free. Reach out to us so that we can help unlock the benefits for your business, and begin building your American business presence the right way.
Frequently Asked Questions (FAQs)
1. What is the time frame for obtaining ITIN?
Typically, 6-10 weeks from the time the IRS receives a complete application. However, there may be delays during busier times.
2. Is it possible to apply from outside the U.S.?
Yes, You don’t need to travel to the U.S as we apply on your behalf.
3. ITIN and SSN, are they the same?
No. SSN is issued to US citizens and in some cases, to foreign nationals on certain visas. ITIN is issued to non-citizens solely for tax reporting purposes and does not permit employment.
4. Does an LLC owner require an ITIN if their LLC has not generated any income?
Yes. An ITIN is important for documents that require filing or for opening a bank account—even without any income.
5. Does an ITIN expire?
Yes. An ITIN that has not been used for three years will expire and need to be renewed.
