[UPDATE May 13, 2016: I’ve been receiving emails from authors who live in countries that do not have a tax treaty with the United States and who want to reduce the withholding tax on their royalties. This is not possible. If your country does not have a tax treaty with the U.S., then by default you forfeit 30% tax to the U.S. government on royalties earned on sales in the States. Your own country likely has a tax credit for taxes paid abroad; if so, you can claim your U.S. withholding tax there. The following applies ONLY to those authors who live in countries that have an obligatory tax treaty. It also only applies to Amazon and CreateSpace; if dealing with withholding tax from an aggregator such as Smashwords, you still need to apply to the IRS for an Individual Tax Identification Number (ITIN) or an Employer Identification Number (EIN). Here is a list of countries with tax treaties with the U.S.]
Over the past few years, the popularity of self-publishing has resulted in a deluge of requests for U.S. tax IDs by non-U.S. authors wishing to exercise their tax treaty rights and reduce or eliminate the 30% U.S. withholding tax on U.S. royalties.
The IRS has attempted to deal with the onslaught in a variety of ways, and in September 2014 (just after I published the latest edition of The Global Indie Author, naturally) the IRS issued a directive to Amazon that allows the retailer to accept a non-U.S. author’s national tax number in lieu of a U.S. tax ID. Unfortunately, Amazon did a poor job of explaining the new situation and its repercussions.* The confusion was compounded in late December when Amazon sent out an email to all KDP authors telling us to retake the tax interview if there were changes to one’s contact details. Unfortunately, too many authors missed the part about “if there are changes” and retook the tax interview, only to discover they could no longer select “sole proprietor” if the author has a U.S. Employer Identification Number (EIN), and I began getting emails from panicked authors. (Sorry, due to a busy workload I’m a bit behind in my blogging.)
Essentially, this is what happened: After Amazon were quietly instructed about the IRS’s new policy, Amazon modified their system, inputting the tax treaty details of countries with an agreement in place, and then sent out the email in December (when, exactly, the new system was fully in place is unclear).
When a KDP author now inputs their country of residence and their national tax ID into the KDP tax interview, and answers the relevant legal questions correctly, the KDP system auto-generates the relevant form W-8BEN for the author to sign electronically. If all is done properly, your tax treaty benefits are implemented without the need for a U.S. tax ID.
How do you know if you answered the tax interview properly? For starters, you need to know what the tax treaty benefits are for your country BEFORE you take the interview. Amazon provide a link to the IRS document Publication 515 that lists the countries the U.S. has treaties with, and the amount, if any, withheld under the treaty for royalty income (see pages 53 and 55, Income Code 12: Copyrights). [UPDATE: the IRS has moved the tax tables out of Publication 515 to here.] For example, Canadians’ tax is reduced to 0%, Australians’ tax is reduced to 5%, and so on. Some treaties come with provisions, so if there is a lowercase letter or letters beside the amount specified, you also need to check the footnotes.
Then, when you take the tax interview and the form W-8BEN is generated, you need to check it carefully BEFORE you accept it. (This is a legal document dealing with taxes, and knowingly inputting false information is a criminal offense.) Check that your contact information in Part I is correct, that the country named in section 9a of Part II is correct, and that the amount of withholding tax in section 10 is correct. If any are incorrect, you need to reject the form and retake the tax interview.
When you take the interview you will be asked to declare that you are a resident of your country for the purpose of tax treaty benefits. If you cannot confidently declare so — if you are a non-permanent resident in your country, for example — check with your national tax office before you take the interview.
When Amazon auto-generate the W-8BEN, it will state which treaty article pertains to your royalties. If you want to know more before you take the interview, you can click on your country’s link from the IRS list of treaty countries. From there scroll through your treaty until you find the relevant article. In Canada, for example, Article XII pertains to royalties.
For authors who already have a U.S. tax ID (either an EIN or ITIN), it is still valid. Unless there are changes to your contact information, leave well enough alone and do not retake the KDP tax interview.
So what’s this about no more sole proprietors receiving EINs?
If you check out form SS-4 on the IRS website, you will see that sole proprietor is still a relevant category for an EIN. The policy directive to Amazon, then, means either that changes to the EIN program/SS-4 form are in the wind, or the IRS just doesn’t want any more phone calls from the hordes of KDP/CreateSpace sole proprietor self-publishers. Either way, Amazon can no longer accept sole proprietor as a category for those with an EIN. So what do you do if you are currently using an EIN?
If you have no changes to your contact information, do not retake the tax interview: you’re just opening up a Pandora’s box. If you have changes to your contact information and need to retake the tax interview, you must use your national tax ID instead of your U.S. EIN.
If you have an EIN and are a sole proprietor, be warned that form W-8BEN has an expiration date and must be resubmitted upon expiration.
My contact at Amazon did not know when the form expires, only that when it does you will no longer be able to use your EIN and will need to switch to your national tax ID. If, on the other hand, you are in one of the other categories in section 9 of the SS-4, you will still be able to use your EIN.
If you do not have a tax ID issued by your own country, you will have to apply to the U.S. for an Individual Tax Identification Number (ITIN) or an Employer Identification Number (EIN).
Follow the instructions in chapter 14 of The Global Indie Author, 3rd edition. Note, however, that you will have to contact Amazon for the letter referenced on page 401 as this letter is no longer available on the KDP and CreateSpace websites.
This change to the tax treaty benefits program is not an official legislative change; this is a policy change
that has not been widely broadcast, even at the IRS itself: if you phone the IRS, as I did, and ask about this policy, you will be told that Amazon should not be doing this, that you must have a U.S. tax ID to exercise your tax treaty rights. Ignore this.
Why would such a policy not be widely broadcast? Because currently there is no way for Amazon to check the authenticity of your non-U.S. tax ID. The IRS is gambling on the self-publisher’s honesty, fear of losing one’s Amazon privileges if caught making a false claim, and fear of prosecution under tax laws in the U.S. and the author’s own country. It is also worth pointing out that many countries have signed agreements with the U.S. to share tax information (see Canada’s here), or have signed international tax information sharing agreements, so eventually the IRS and/or your national revenue agency will catch up with you. Never mess with the tax man.
*I made suggestions to my contact at Amazon for textual modifications to be made to the KDP website that would make these changes more understandable. My suggestions were forwarded to KDP and hopefully will be implemented soon.
I just found your article and it was very interesting and useful for me ! I am European and have been self-publishing on Amazon since 2014. I also filled the form for an EIN at that time (I actually called IRS) as it was much easier to obtain than ITIN. I filled it as a sole proprietor, which I am. I did not have any problems with it so far and I did not update the tax interview since then,as there were no changes in my information. Once it will expire, I will use my national SSN number. Thanks again for such a well-documented article.
You’re welcome. 🙂
Hi Michelle,
Very helpful article.
I currently posses an L1 visa, which I use to work in the US. I still reside in Canada Does that make me a ‘US Person?’ I do not have a US TAX ID, nor have I applied for a green card.
Hi Jay,
I have no idea. I think it comes down to whom you pay your income taxes. If you pay taxes to Canada, then I think you are not a resident of the U.S. I would confirm with either the IRS, Canada Revenue, or a CPA who specializes in cross-border income.
The IRS uses two tests the green card test and the substantial presence test for assessing your alien status. If you satisfy the requirements of either one, you re considered a resident alien for income tax purposes; otherwise, you re treated as a non-resident alien.
Hi Michelle,
This information is hopeful, but according to the IRS page updated on Feb 2, 2016:
“A foreign person does not have to provide a U.S. TIN to claim a reduced rate of withholding under a tax treaty if the requirements for the following exceptions are met.
Income from marketable securities (see below).
Unexpected payment to an individual (see below).”
https://www.irs.gov/Individuals/International-Taxpayers/U.S.-Taxpayer-Identification-Number-Requirement
Can you make sense of this new information? I am really hoping that I can just add my foreign tax ID, but Smashwords doesn’t seem to allow 10 digit ID numbers. Thank you!!
It doesn’t apply to the situation of foreign royalty payments. It concerns a completely different issue: market securities and unexpected payment. Royalties do not fall into either of those categories.
Smashwords cannot accept a foreign tax I.D. because they do not have the same agreement with the IRS that Amazon does. As it states in the article, this is a policy change, not a legislative change, that the IRS put into place with Amazon to curb the excessive requests for ITINs from foreign authors. If you do business with Smashwords and want to claim your tax treaty benefits, you have to acquire the appropriate letter from Smashwords that states you are receiving royalty income from them, then use that letter in support of your application for an ITIN: https://www.smashwords.com/about/supportfaq#Royalties.
Hi Michelle,
Great article. Do I have this correct: I fill out the form on KDP as I publish and simply use my SIN as a Canadian Tax Number?
Cheers
Randall
Yes, that is correct: you use your SIN.
Hi Michelle,
Thank you! I”m so happy someone is replying to me 🙂
I wish I could email you but cannot find any of your info.
Could you please explain in very simple language what it means?
0% means Amazon cannot withhold anything for taxes, right?
But they will still withhold their share on the sales of books, right?
It seems so complicated all…Where are you from Michelle?
Thanks again.
My email is on the About page. 0% means that Amazon cannot withhold any tax, but yes, they will keep their share of book sales (their commission). I am in Vancouver, Canada. I will email you privately. (And I will remove your email from your comment so as to keep it from spambots.)
Hi,
I”m in a panic mode ….I’m in the Netherlands and terrified of all these small letters and taxes.
I read that Table op p53-54 provided on their website and still don’t get it.
I have NOT yet a book published but am about to, so what exactly do I do?
sorry to sound so stupid but it’s so confusing and I get discouraged.
Thank you so so much
Rachel
Hi Rachel,
Page 55: Income Code Number 12, Copyrights. For the Netherlands, the U.S. tax withheld is reduced to 0%. There are no provisions.
Hello,
Thanks for your great article!
I have a book on Amazon. I live in a foreign, tax treaty, country, and have a foreign corporation. I rec’d my EIN in late 2014 or early 2015, and filled out W8BEN-E at same time. Then,I was able to tick the first 2 boxes in Part III, but now I wish to join amazon associates and find with their form, those boxes won’t fill. If I’m already on with Amazon to sell books, do I need to redo this? Can you please let me know how I notify them that they already hold the info?
Thanks so much.
Regards,
Lizzi Tremayne
Hi Lizzi,
You can try calling Amazon directly — not their customer service — and ask for the accounting or legal department: +1 206-266-1000. Years ago, when I first had an issue with the W-8BEN, I called Amazon directly and asked for their legal department. I actually not only got an answer but also the paperwork I needed.
Bear in mind that Amazon Associates is a different beast altogether from KDP, and the rules differ from country to country. KDP pays royalties but income from Affiliates I would think would be treated as regular business income earned in the U.S.
Hi,
If you don’t have a tax treaty with the United States then you will be taxed at 30% by the IRS for sales in the United States. For sales outside the U.S. no withholding tax applies except for Brazil where it is taxed according to your country of residence. Dubai is not listed (see https://kdp.amazon.com/help?topicId=A1CTSIBPDAAJ0M).
Have you tried to complete Amazon’s tax interview without inputting a tax number? If not, try that first. Common sense would dictate that in your situation you simply forfeit the 30%, and it should not prevent you from opening an Amazon account and selling your ebooks.
If Amazon will not sell your ebooks without a tax number of some kind then you will have to apply for a U.S. tax number, an ITIN, and provide Amazon with that number.
Can you please clarify the tax status on royalty (for books) received by an author residing in Dubai & selling her book through Amazon? There is no Tax Treaty with US and more importantly, no income tax in Dubai, so, cannot provide Dubai tax identity number.
Would be grateful for any advice. Thanks.
For withholding tax purposes, treat Nonresident Aliens according to the special withholding rules that apply to nonresidents.
Hi Harveykn,
Could you elaborate, please? What are the special withholding rules that apply to Nonresident Aliens?
You’re most welcome. Alas, too many indie bloggers just repeat what they read elsewhere rather than do any actual research, so misinformation spreads quickly.
Hello Demers, I can’t thank you enough for this valuable information. I published 3 titles on Amazon mid-September, 2015 and decided to forget all about it by moving to my next project. By chance, I checked my e-mail address on 21st October and that is when I saw the e-mail from Amazon informing me that I would not be allowed to publish or re-publish on Amazon after 23rd October, 2015 because my EIN was invalid. I was in panic mood.
I tried re-entering my EIN as had been prescribed by some indie bloggers but it was rejected. I knew I was finished. I have been thinking about the ITIN and all the nightmarish stories that I had heard when acquiring it.
I had applied for my EIN on 14th September, 2015 and no one at IRS told me that they were now invalid. I was contemplating my next move until I landed on you. Thanks again.
Did you input your national (i.e., Australian) tax I.D.? If so, then all should be well and your tax withheld should be reduced to 5%. You may be able to claim that 5% back on your national tax return. Check with the Australian tax office for that.
I’ve just gone and changed my info on Amazon and Createspace – to say I’m an individual from Australia. It seemed to be easy and different to before, so hopefully all set now. So much conflicting info online. I’m glad I found this page!
p.s. I did call the IRS to get the EIN at the time and explained my situation – they still gave it to me, so I also figured it wasn’t an issue… See why this is so confusing! haha
I followed a step-by-step guide I found online about how to get one, and at that time, it didn’t allow me to tick anything else? I wasn’t at all under the impression it was the wrong thing to do. It seemed to be what authors were doing, and I figured it was just a technical issue…
I do operate as a business here, but I earn income in the US. Everytime I try to contact the IRS to get help, I get cut off after being on hold for an hour!
I think I’m just going to apply for an ITIN now that the rules have changed and start all my Amazon/Smashwords paperwork again.
Thanks for this article… but I’m still so confused!
I got an EIN back in May 2014 and received my first Amazon royalty payments no problem the other day.
However, Smashwords is a different story. They’re saying I have to fill out a paper form for people with an EIN, and it has all these questions about my corporation. Of course, I don’t actually have a corporation, but at the time of getting an EIN, that’s which box I had to tick to get one!
So now I don’t know whether to get an ITIN and fill out the W-8BEN form, or half fill out the W-8BEN-E?
Oh, Lord. This is so confusing. I’m half tempted to forget about it, except that I have hundreds of dollars in royalties from iBookstore sales waiting for me!
Hi Cathryn,
If you don’t have a corporation but said you did to get the EIN, that is a serious tax offence.
If you received the EIN as a sole proprietor, your EIN is valid and still is. You fill out the W-8BEN, not the W-8BEN-E.
Hi Michelle…Do you know of any sites out there that give step by step instructions on how top go about recovering/preventing paying US taxes if you are a Canadian author. I’ve been paying $200-400 monthly for about three years now. Thanks!
Hi Les,
I don’t know of any site that gives step-by-step instructions, but my book The Global Indie Author discusses the importance of obtaining a U.S. tax ID in order to take advantage of the tax treaty between Canada and the U.S. that reduces the tax withheld on royalties from 30% to 0%. Did you not get a U.S. tax ID when you first began selling in the U.S.?
If not, you can mitigate the losses somewhat by claiming a tax credit on your Canadian tax return for the taxes you paid in the U.S. You can redo your taxes for the past three years and get the tax credit. In the alternative, you can apply for a U.S. tax ID now and then file a U.S. tax return for the previous three years for a refund. I discuss these options here.
Thank you again Michelle…I would gladly have you as my account!
CreateSpace didn’t work out for me. The book came out great but when it came time to pay out my royalties, a big fat ZERO. The payouts met the minimum threshold, too. They just gave a bunch of lame excuses that never panned out. At the end, simply stalling tactics. There are also many complaints about CreateSpace underreporting sales. CreateSpace is a Amazon company, but it’s a shady operation. I would stay away from them.
Thank you for the reply Michelle. Ahh, well that’s interesting. My UK address is my father’s so at least I will get the notice.
But the timings weird…what period will it cover? By March I will have already made my French tax return for 2014 so it will be too late to attach to that.
Oh well, I will update my details on KDP and hopefully all will go well.
You’re welcome. See my next post on recovering tax and please share with anyone you know who might benefit.
Hi Dan,
I have often wondered about this myself, both for KDP and CreateSpace. Unless someone does an audit, both could be ripping off authors. But how do you prove it? Do you have hard evidence of underreporting? Did you or a friend order your book off Amazon and it failed to appear in your CreatSpace sales report? I would be very interested to hear about this.
In the U.S., the deadline for tax returns is 15 April. The deadline for sending out form 1099 to American authors for the previous years’ royalties is beginning of February; deadline for form 1042-S for foreign authors for the previous years’ royalties is always around the middle of March. Don’t know why it’s so late, but that’s the rules. The form you will receive at end of March will be for 01 January to 31 December 2014 earnings. If you intend to have your tax return done before you receive your 1042-S, it would be wise to have kept good records of your royalties and simply include that in your income. Then keep the form in case you are later audited.
Oh balls! So I recently changed the address of my EIN from my old address in the UK to my new address in France…so that info is correct and up to date…but what you’re saying is…this EIN info is now of no interest to KDP, or for that matter Createspace?
If I’m all up to date with the IRS do I really need to start messing with Amazon?
Unfortunately, yes. Around March 15, under U.S. law, Amazon must send you a form 1042-S, which states royalties paid and any tax withheld. You will receive one for KDP and one for CreateSpace. These forms are to be attached to your national tax return. If any form 1042-S is returned to Amazon as undeliverable, Amazon may stop payments until the matter is resolved.