Guest Post by Karen Inglis: Non-US Self-Publishers: How To Reclaim Tax Paid on Author Royalties

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Alison Wells

As a non-US self-publisher claiming back tax paid is a logistical nightmare.

This article written by Karen Inglis has been reproduced from the Alliance of Independent Author self-publishing blog by kind permission of Orna Ross.

If you are a non-US author, your royalties from your US book sales will be subject to a 30% withholding tax until or unless you complete the necessary paperwork to claim full or part exemption.

The amount of exemption you can claim depends on the tax treaty your country has with the US. If you’re based in the UK, the withholding rate is 0%, so you can claim full exemption if you wish. (In this case, you then declare the foreign income on your UK personal or company tax return and pay tax on it in the UK.)

You can check which countries have a tax treaty with the USA here. From a quick glance, I can’t see a handy list of withholding rates in this document, so you’ll need to check with your own tax department to get the withholding rate for your country.

KEY STEPS TO CLAIM REDUCED OR NO US WITHHOLDING TAX

In short these are:

  • Obtain a tax identification number – called an ITIN (Individual Tax Identification Number) for individuals or an EIN (Employer Identification Number) for businesses.
  • Complete and send a form W8-BEN, which includes your US tax ID, to each of your US distributors – they will then be able to pay your royalties in line with the exemption amount instead of automatically withholding 30% tax. (You can probably ask them to defer paying you any royalties until they have the form.)

Getting an individual tax ITIN takes many weeks, so make a start as soon as you can. Oddly it takes just half an hour to get an EIN if you’re a business. I’ve outlined both processes below. For info, I have an EIN as I self-publish through my limited company – and it really did only take me 30 minutes to get it!

HOW TO GET AN ITIN IF YOU’RE PUBLISHING AS AN INDIVIDUAL

This process requires you to take or send your passport to the US embassy if you are British. After the bullets I’ve added a link to a UK author who describes the process in detail. (I have an EIN so didn’t use this method.)

  • Request an original hand-signed letter from your US book distributor or publisher, addressed to the IRS, which states that you need an ITIN because you are going to receive royalties and wish to apply for a US withholding tax exemption or reduction. (Your distributor probably has a process for issuing these letters, and may make a small charge. But it can can take time: for example, Smashwords says that it can take them 3-6 weeks to snail-mail the letter to you.)
  • If you’re based in the UK, take (or send special delivery) your completed W-7 form,  your distributor’s hand-signed letter, and your passport to the American Embassy in London.  They need to see your passport as evidence that you are British and they need the hand-signed letter to prove that you are being paid by an American company. Copies won’t be accepted.  Once they have the necessary documents they may take up to six weeks to process them – after which you will be notified from the US of your ITIN.  I’m afraid I don’t have the detailed process for other countries, but assume that it will be similar.
  • Now send your completed form W8-BEN to your US distributor/s in accordance with their instructions. Once they have this they can pay your royalties without applying the full 30% witholding tax.

Note: Reading around, it seems that some self-publishers decide the application process is more hassle than it’s worth until they get a measure of their US sales. For example, if you’re an individual based in the UK and pay 20% tax, by not doing anything you will lose out on 10% of your royalties – you then declare the income as ‘taxed at source’ on your tax return.

HOW TO GET AN EIN IF YOU’RE PUBLISHING AS A COMPANY OR EMPLOYER

Bizarrely, it’s a lot simpler for non-US businesses than it is for individuals to get a US tax ID – in fact, it just took me half an hour! Don’t be put off by the reference to ‘employer’ – if you are a director of your own company you still need an EIN.

  • Read the notes on page 2 of the form – these confirm which questions you can miss off since you are only applying to get this EIN for tax withholding purposes.
  • Complete the form – you can fill the fields in online and then save and print the form. (See the ‘Tips’ section below for answering question 9a.)
  • Next call the IRS’s dedicated line for businesses that are located outside of the US: 1-267-941-1099 (not toll free). You need to have your completed form SS-4 beside you as they will ask you about your entries. (See the ‘Tips’ section below for how to avoid being asked to fax the form.)
  • They then give you the number over the phone and say to expect it and relevant paperwork in the post in the next 2-3 weeks. And it does…
  • Send form W8-BEN to your distributors in line with their instructions.

NB: Non-US publishing companies cannot apply for an EIN online, so ignore any instructions you see on this as they are directed at US corporations.

TIPS FOR WHEN COMPLETING FORM SS-4 AND CALLING THE IRS

  • On form SS-4, at question 9a tick ‘Other’ and enter ‘Limited Company (UK)’. The only other possible option at 9a would be to tick ‘corporation’ – which seems to refer to US incorporated companies. The woman at the IRS I spoke to agreed that my approach seemed the best answer.
  • When you call, make it clear that you are the owner/director of the business. I say this because when I first called, the woman told me I would need to fax the form while I was on the phone to her (impossible as I only have one phone line…).  At that point I had to come off the phone and had planned to call back on my mobile to enable me to fax whoever took the call (it’s a call centre type set-up), but then found it would cost me 72p per minute to do this! So I called from my landline again and the next woman I spoke to said she could do it over the phone without faxing her the form SS-4 because I was the owner of the business.
  • Have the date of incorporation of your company to hand. Even though their page 2 instructions said I didn’t need to fill in that information, they still asked me for it.

You can find general instructions for completing form SS-4 here.

GETTING HELP: US TAX OFFICES BASED IN EUROPE AND CHINA

You can find contact details for IRS offices in the UK, France, Germany or China here. I’ve not yet tried this out, but, according to the IRS website, “The IRS offices listed can answer your federal income tax questions, help with account and refund problems, and assist with the preparation of current and prior year tax returns.”

You can read more about withholding tax on the IRS website.

Guest Post by ALLi member, Karen Inglis. For more  information about Karen and her successfully self-published children’s books, see her website.

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