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% in 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% as well as 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 to go 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 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!
So this is where it gets interesting!
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.
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 are able to register as shown above, the tax withholding rates on your royalty payments based on where you live will be:
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.