If you’ve tried self-publishing a book on Amazon Kindle Direct Publishing as a non-U.S. person (i.e. not a U.S. citizen, resident, or business with direct connections to the U.S.), then you may have experienced the 30% withholding tax levied on your U.S. royalty payments.
As required by U.S. tax laws, Amazon will, by default, deduct the full 30% tax from royalties earned on your Kindle book sales.
The problem with this is that you end up paying taxes twice: U.S. taxes of 30% and taxes in your own country. Talk about double taxation!
If the country you are a resident of (for tax purposes) has a tax treaty with the U.S., I will show you how to reduce the tax withheld in the U.S. or pay nothing at all.
How To Avoid or Reduce the 30% Withholding Tax For Non-U.S. Self-Publishers
In the past, to avoid paying or to reduce the withholding tax, individual publishers either had to obtain a U.S. Individual Tax Identification Number (ITIN) or an Employee Identification Number (EIN).
After providing one of these identification numbers in your tax information, the tax withheld will depend on the tax treaty between your country of residence and the U.S.
Non-U.S. publishers preferred the EIN route by calling the U.S. Internal Revenue Service and requesting their EIN. After answering a few questions and receiving the number, they update their tax information (on the W-8BEN form) and voila, they can now keep more of their earnings!
The other alternative, ITIN, is a notoriously difficult process involving lots of paperwork, fees, and potentially several months to get it sorted out. I have heard of people who spent 6 months to a year to get their ITIN!
Bad News: The EIN appears to no longer be an option on Amazon Kindle for non-U.S. individuals or sole proprietors. The options available to you now are a U.S. TIN (i.e. social insurance number or ITIN) or a foreign (non-U.S. income tax identification number).
So this is where it gets interesting!
As per Amazon:
If you are a non-U.S. publisher interested in claiming tax treaty benefits to reduce your withholding, you will have to provide a tax identification number (TIN). If you have a U.S. TIN (ITIN for individuals, EIN for non-individuals), you must provide it. If you do not have a U.S. TIN and the tax authority in your country of residence issues an income tax identification number, you may enter it to claim treaty benefits.
Amazon
As a self-publisher, you actually no longer need to go through the hassle of obtaining an ITIN, or waste your time calling to request the EIN…you can now simply enter your tax identification number from your own country!
Easier, don’t you think?
So, if you are a Canadian resident, you can use your Social Insurance Number (SIN).
Other examples of identification numbers that are applicable include United Kingdom residents (National Insurance (NI) number), Australia (Tax File Number), Finland (Personal Identity Code – HETU), Netherlands (Citizen’s Service Number – BSN), France (INSEE code), etc.
Completing Amazon’s Tax Information Interview – Step by Step
Step 1: Choose Individual/Sole Proprietorship, and “No” if you’re a non-U.S. person.
Step 2: Complete the information at the top of page 2 of the form (name and address, etc.) and for the Tax Identification number section, choose the “foreign (non-U.S.) income tax identification number option.
Step 3: Enter your foreign income tax identification number (SIN for Canadian residents, NI for UK residents, and so on).
Step 4: Review your tax information on the W-8BEN form for accuracy. As you can see, my royalty payments will now be subject to 0.0% U.S. withholding tax!
Step 5: Consent to electronic delivery of form 1042-S and electronic signature.
Step 6: Woo-hoo! Your tax interview is completed.
Final Thoughts
In my opinion, the ability to use a foreign tax identification number significantly simplifies the process of reducing or avoiding the U.S. 30% withholding tax.
Your eventual “savings” will depend on the terms of the tax treaty between your country of residence and the U.S.
If you can register, as shown above, the tax withholding rates on your royalty payments based on where you live will be:
Australia: 5%; Austria: 0%; Bangladesh: 10%; Belgium: 0%; Canada: 0%; China: 10%; Denmark: 0%; Finland: 0%; France: 0%; Germany: 0%; Jamaica: 10%; Mexico: 10%; Netherlands: 0%; New Zealand: 5%; Pakistan: 0%; Philippines: 15%; Poland: 10%; Russia: 0%; South Africa: 0%; Sweden: 0%; Tunisia: 15%; Turkey: 10%; United Kingdom: 0%.
You can also confirm what withholding rate applies to your country of residence via the IRS’ Tax Treaty publication 901.
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If you have any questions, please feel free to drop them in the comments section below.
Thanks for the info. How much tax will the CRA take from our royalties on amazon kdp? Is it 5%? And does the canadian tax only apply to sales to canada?
@Fola: CRA taxes will depend on your marginal tax rate which varies depending on your overall income as a sole proprietor. Canadian taxes will apply to sales revenue everywhere. If you already pay taxes in other jurisdictions, there may be a way to recover those taxes when filing your return if Canada has a tax afgreement with those countries.
Hi Mr. Omololu,
Thank you for the information. I was wondering if you had any insight as to how one could go through the same process, as a corporation? For example, I can use my corporate business number as the TIN (from what I can tell, it works), however, I’m then asked if I will derive the income from which I am claiming tax treaty benefits, which I assume is a Yes, and then I have to select from the limitation of benefits, but have no idea which one applies to a corporation within Canada. Do you have any knowledge or advice in this regard?
Thank you for your time.
Regards,
J. Mac
@JMac: It’s been a while since I did this, but I think the process is the same. That is, you just use your corporation number and complete the other details as yourself.