Why is US Tax So Complicated

Why is US Tax So Complicated


With over 300 million people just waiting to be your customers, the prospect of making it in the American market is pretty hard to resist. However, despite this alluring concept, for UK companies it can seem daunting to take on all the necessary regulations and forms

Applying for EIN number

This is your Employee Identification Number, your US tax identification. You’ll need this to open your US bank account and starts organising your US transactions. To apply for this you’ll need to fill in a Form SS-4. This is a short and simple form which gives you easy direction as to which area you need to fill in as an individual seeking an EIN for banking purposes. The main thing to note is that yes, this form means that you will be on the Internal Revenue Services (IRS) system, however this does not mean you have a tax liability.

Filling in reporting documents

In order to open your US bank account you’ll need to fill in W8/W9 forms. These are used by the banks in order to classify you as a domestic or foreign entity, which will affect their reporting. These are not a tax obligation, they are simply for reporting purposes. The forms, including W-8BEN-E, W-8IMY, and W-8ECI forms now include changes relating to the FATCA regulations. This is the Foreign Account Tax Compliance Act.

From the UK – a treaty country

The UK and the US have a tax treaty. For you, a UK business owner, this means that a tax liability will only arise if you are considered to be permanently established in the US, or PE. This is established through the US from your specific activity.

Are you PE?

This can be a tricky question with the potential to leave UK businesses vulnerable to the IRS. If you’re unsure what is defined as PE, you should be consulting a US tax specialist to understand this in greater detail before you move on. This is a necessary precaution to ensure you’re not in the wrong in the eyes of the IRS and US tax laws.

In the case that there is potential for your business to be PE, you must fill in the Form 1120-F. This lets the IRS know that there has been an issue raised to do with PE. Rather than you taking a chance this reduces your risk of losing out in the event of an IRS audit.

Other than simplifying a few things in this blog post, we can’t stress enough the importance of knowing your way around the legislations and laws before venturing into the world of US banking. Don’t get caught out and leave your business at risk. Moving into the US market can be an extremely prosperous adventure, but you need to get organised to avoid the risk of falling at the first hurdle. Seek expert advice from the people who live and breathe US tax is you’re stuck and make life easy for yourself.