Your UK Limited company has ventured out to the Wild West to do business and you quickly find a US bank account is required.  The idea of opening a US account seems alluring when you think of the potential business that 400 million consumers can bring. So you jump on the band wagon and file a Form SS-4 to sign up for a US tax identification number, referred to as EIN (employer identification number).

Then it dawns on you: “What did I just do? Is my company now in the Internal Revenue Services (IRS) system?”

Short answer: YES.

Will I have to file a US tax return to Uncle Sam claiming all my profits? That thought alone may drive you to close your account and retract any steps you have taken.

Before you panic, rest assured that you will not have a US tax liability just because you opened a US business account and or obtained an EIN. You will, however, receive a letter from your new US bank requesting for a form W8/ W9.

The W8 forms (W-8BEN-E, W-8IMY, and W-8ECI) are now revamped to include the changes under new FATCA regulations and are being used by the bank or withholding agent to document your US tax classification as a foreign or domestic entity.

Foreign entities, such as a UK Limited company, will generally file a W-8BEN-E.  Although the form may look daunting it is not a tax obligation, it is only a reporting requirement.

If your company is in a treaty country (such as the UK), a US federal tax liability will generally arise if your company has income from US sources and has specific activity in the US that is considered Permanent Establishment (PE). If your company is not in a treaty country a tax liability will arise if it has income “effectively connected” to a US trade or business.

Tax treaties like the UK/US treaty will define what constitutes PE in the US.  In general, PE may exist if the company has a fixed office, place of business or sales agent. This is an extremely complex area of tax so any shades of grey regarding whether your firm has a US trade or business/PE should be addressed immediately. Take the necessary safety precautions by contacting a US international corporate tax specialist to be certain of your tax status and filing requirements.

In certain cases your UK Limited company may want to file a protective return Form 1120-F in order to indicate to the IRS that it has a potential PE issue in the US. The protective return includes a treaty disclosure known as Form 8833. Doing so reduces the risk of losing deductions and credits IF the IRS were to audit and succeed in establishing a PE issue.

To find out more about US trade or business activity, corporate filing requirements, protective returns or FATCA forms please contact us.