*3rd September 2018 * My non-fiction book How to Self-publish and Market a Children’s Book is out in print from today 🙂 Whether you’re just starting out with self-publishing or are part way through your journey this comprehensive resource will provide practical help based on my seven years of self-publishing. Find out more and see a sneak peek over on my blog page here.
Please note that I am not a tax adviser. If you are in any doubt at all please call the IRS direct using the number given or talk to a tax accountant.
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 (or online interview in the case of Amazon) to claim full or part exemption. Do this as soon as you are ready to publish your first book.
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. (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.)
- And check your country’s rate here – scroll down to Table 1 and within this section see the 2nd and 4th table and look in the far right-hand column – the withholding rate for royalties come under ‘Copyrights’ (‘Income category 12’.)
The key point to bear in mind is that 30% will be deducted if you don’t act.
Key steps to claim reduced or no US withholding tax
The process for how to claim has been simplified in the last few months – albeit the IRS has communicated this very badly, leaving many authors, distributors and bloggers confused! Even the IRS’s own office staff are often confused and unaware of some of these changes!
- When making a claim you no longer need to obtain a US tax ID (ITIN or EIN). Instead you can now supply your own country’s tax ID. And, as far as I can see, this applies whether you are self-publishing as an individual (which includes sole traders) or through a company – however see below that I recommend you double check this if you’re a company.
- To make your claim using Amazon, you complete an online tax interview with CreateSpace and/or KDP – and just follow the online instructions – nice and simple. The questions that appear vary very slightly depending whether you’re applying as an individual or a company – and the final output form that you sign online has a different number for each scenario. Most people reading this will be applying as individuals (includes sole traders). But be sure to check and take a screenshot of what rate of witholding tax will be applied – see my note 24 March below for why.
- For other retailers and distributors, at the time of writing you need to download and complete form W8-BEN for individuals (includes sole traders) or form W8-BEN-E if you’re a company/entity. You send this completed form to the retailer/distributor – not the IRS –by post. I provide links to these forms below.
Below I set out the process in more detail. The first section on CS and KDP covers both individuals (including sole traders) and companies. I’ve split out the later section on different retailers as you’ll need separate forms for these.
Here is a video I made that walks you through the online tax interview. (Made for Alliance of Independent Authors’ fringe event at the 2016 London Book Fair.)
24 March 2015 – mini update
There have been reports on the Alliance of Independent Authors’ FB page from some individual sole traders today saying they have received their tax statements from the IRS having used their NI /own tax numbers as directed by Amazon’s process, yet are still finding they have had US tax deducted. I suppose it’s possible that those statements relate to a previous tax/sales period – ie before they had completed the interview – but I can’t be sure. As I recommend in the sections that follow, when doing the tax interview online be sure to check what rate of witholding tax it says it will be taking before you submit your online form. And on the basis of others’ experience this week, I’d say take a screenshot of that form too (as I’ve not had to complete the online interview myself I’m not sure when and how you get a copy of the form). So far those who had sent an EIN with the paper form seem to be okay. Watch this space and call the IRS or email Amazon if in doubt!
Tax process if you’re self-publishing with CreateSpace or KDP
- Complete their online tax interview in your dashboard (you’ll come across it during set-up, in the sections that relate to royalties and payments).
- The questions are largely self-explanatory so I shan’t go through them all here – however I’ve picked out a couple of useful screenshots along with what to answer.
Where it asks about a Tax Identify Number (TIN)
- If you’re a UK taxpayer and applying as an individual (includes sole traders), enter your National Insurance Number or Unique Taxpayer’s Reference (UTR – found on your tax paperwork)
- If you’re a UK taxpayer and applying as a company, enter your Corporation Tax reference number
- If you’re not based in the UK enter your relevant individual or company tax ID for your country.
- If you’ve already obtained an ITIN or EIN due to confusion with previous instructions you could opt to include that also – by selecting bullet point 3 seen in the screenshot above – but be aware that the IRS no longer gives a sole trader the option to enter an EIN in the screens that follow. So if you’re a sole trader and have an EIN and not an ITIN I’d be inclined to choose bullet 2 and stick with your country’s own tax ID. (Another option would be to go back and identify yourself as a corporation which then also gives you the EIN option – and I have heard of someone doing this – but I’d probably stick with the former suggestion if it were me.)
If you’re applying as an individual (includes sole traders)
- Answer ‘no’ to the question below – unless of course you have US employees or the other points it mentions are true for you!
If you’re applying as a company
- Answer ‘Yes’ to the question shown below – too complicated to explain why! Chances are an accountant will be doing this for you but if in doubt ask.
The rest of the questions are self-explanatory as far as I can see.
Once they are all completed CS/KDP will generate an online version of form W8-BEN (for individuals) or of form W8-BEN-E (for companies).
- Before submitting, take care to check that you have entered all of the information correctly – and that the correct withholding tax rate for your country is showing (if it’s not abort and start again!).
- Once you submit you’ll get an immediate message telling you what rate of withholding tax – if any – will be applied to your royalty income. For the UK this will show as zero.
What happens next?
- At the start of the interview it asks for your consent to be provided with an electronic version of tax reporting forms each year. (For non-US authors this will be a form 1042-S – a report of your royalties earned from US book sales – the income you need to declare on your own country’s tax return.)
- If you provided your consent they will presumably notify you when the form is ready for you to access online – if you didn’t provide consent, they will send you a hard copy in the post on or after 15th March each year.
- If you’re in the UK, declare this income on your tax return and keep the form for your records in case your tax office asks for it.
- If you’re outside the UK, follow the rules for the country where you live – reading around I gather that in some cases this may mean attaching it to your tax return as evidence of your foreign income.
Tax process with other distributors – for individuals (including sole traders)
It sounds as if other retailers such as Apple, Kobo etc might not be up to date with the fact that you no longer need to supply a US Tax ID – though I gather that Smashwords is now up to speed on this. Feel free to update us all in the comments below if you’ve been through this process recently and know differently. They will probably also still require you to send them a paper form W-8BEN in the post. Assuming this is the case proceed as follows:
- Download and complete form W-8BEN from the IRS website
- Leave question 5 blank where it asks for a US Tax ID* – see below for a suggested note to attach to explain this for any supplier who is not up to date with the new rules.
- At question 6 enter your country’s tax ID (if you’re in the UK this will be your National Insurance number or your Unique Taxpayer’s Reference – found on your tax paperwork).
- At question 10 enter the rate of withholding tax applicable for your country – for the UK this is Zero. If you’re in the UK enter ‘12’ where it says ‘Article number’ – otherwise check which article is relevant for your own country’s treaty with the USA using the links provided earlier. (Easier still, you could leave this blank – I was told to ignore this when completing this form a few years back. In fact, it could be ’12’ for everyone – certainly when playing around with Amazon’s online form it seemed to quote ‘Article 12’ in the final output form whichever country I had input…)
- Where it says ‘Explain the reasons the beneficial owner meets the terms of the treaty article’ I expect you could leave this blank too – I’ve not completed it before. (If you prefer you could say something like ‘Royalties from book sales in the USA’)
- Sign and date the form.
- Send it to the address provided by your retailer/distributor who pays you and has requested it.
* In an accompanying note you could point out that the reason you are not supplying an ITIN is that the rules have changed and explain that Amazon already uses foreign Tax IDs and quote them these instructions from the latest W8-BEN instructions (Feb 2014). “To claim certain treaty benefits, you must complete line 5 by submitting an SSN or ITIN, or line 6 by providing a foreign tax identification number (foreign TIN).”
Tax process with other distributors – if you self-publish as a company
Step 1 – get an EIN (Optional I believe…)
Below I set out how to get an EIN, but as far as I understand it, and based on Amazon’s online interviews, this is now optional. However I recommend you call the IRS on the number below to check this, or ask your accountant! You have nothing to lose by getting an EIN – and it’s quick, free and easy – and it could make life easier for you if dealing with retailers who aren’t up to speed on the new rules.
How to obtain an Employer’s Identification Number (EIN) from the IRS:
- 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. Also see the later section ‘Tips for when completing form SS-4 and calling the IRS ‘
- Complete the form – you can fill the fields in online and then save and print the form.
- 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.) NB Since I got my EIN it has become harder to get through and there can be long waiting times so if in the UK try calling at 11am our time – apparently the offices there open at 6am Eastern time and the first hour is the quietest.
- 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. The paperwork arrives as promised.
Step 2 – Download and complete form W8-BEN-E and send it to your retailer/distributor
Again, at the time of writing I believe this has to be done by snail mail with everyone apart from Amazon. Please leave an update in the comments section if this changes and I’ll update this section accordingly.
- Disclaimer – the instructions below are based on my reading of the form & helpnotes. I recommend you check with the IRS or a tax specialist that this is correct. Feel free to leave a comment if you know I have something wrong… 🙂
- In Part I at Questions 1 & 2 enter your company name and country of incorporation
- Ignore question 3
- Tick ‘Corporation’ at Question 4 (for info ‘Chapter 3 Status’ relates to withholding tax for royalties amongst other things)
- Ignore Question 5
- Enter your company’s address at question 6 (ignore 7 unless you have a separate mailing address)
- At Question 8 enter your EIN and/or at question 9b enter your own country’s tax ID (in the UK this will be your corporation tax number)
- Ignore Question 10.
- Ignore Part II
- In Part III at Question 14 tick a and b – and at 14’b’ enter the country where your company is based. Ignore 14c.
- At Question 15 enter the rate of withholding tax agreed for your country in its tax treaty with the USA (for the UK enter ‘zero’ or ‘0’). Specify the type of income as ‘Royalties’.
- At Question 15 where it says “Explain the reasons the beneficial owner meets the terms of the treaty article’, I am guessing you can leave this blank – looking back at my old forms I was told to leave this blank. Call the IRS to check if you want to be absolutely sure (If you don’t want to call or leave it blank I’m sure something along the lines of ‘UK based company earning book royalties that will be declared as foreign income in the UK’ would work!)
- Part IV – through to Part XXVIII– leave blank
- Sign and date etc Part XXIX
- Send this form to your distributors (Smashwords, Apple, etc etc) in line with their instructions that you find when setting up your account. I
- If you choose not to get an EIN and only to provide your company’s tax reference from your own country, I would recommend including a cover letter, again quoting what Amazon does and pointing out that the instructions to this form suggest that you don’t have to provide a US Tax ID.
Tips for when completing form SS-4 and calling the IRS – only applies if you’re self-publishing as a company
- 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 info they still asked me for this.
Renewing your tax information every three years – individuals/sole traders and companies
From what I can see there seems to be a requirement to reconfirm details by resubmitting the form every three years. The example the IRS gives is that a Form W-8BEN or W8BEN-E signed on September 30, 2014 remains valid through December 31, 2017.
I think Amazon may get around this using online communication by simply notifying you to check whether your details are up to date and then do nothing if they are (but I may be wrong). Certainly a recent email KDP sent asking me to check whether my tax details were still valid gave this instruction and I left well alone. However I’m not sure how it works with other distributors – the implication is that you’d need to fill in the form and send it all over again. I would suggest you call the IRS to check this if your three-year deadline is approaching. Again, if you know the answer, please leave a comment below.
If you’re a sole trader who previously submitted an EIN…
I have a feeling that where renewals could provide an issue is if you are a sole trader who previoulsy submitted an EIN having followed the IRS’s previous processes.
Logic would suggest that once your three years is up you need to re-complete the Amazon tax interview and/or send in an updated W-8BEN form by post, and provide your own country’s tax ID instead of the EIN.
However, what will happen if you don’t do this I am not sure!
I will try calling the IRS this week to ask – but won’t hold my breath as to whether they will be able to tell me. Internal communication about all of these processes seems to be sorely lacking based on previous experiences – with many IRS offices seeming to be unaware that sole traders and individuals can now provide their own country’s tax ID!
End of update – 22 March 2015. That’s it for now – I am sure I’ll need to make tweaks to this page over the coming days and weeks as/when further comments with updates or corrections come in. And again to remind you that I’m not a tax adviser. If it’s not covered above I probably don’t know the answer!
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 here.
If you’re a UK author and aren’t sure how to declare you income from books sales, check out my related post on paying UK Income Tax on book royalties
Remember any comments below that pre-date 22 March 2015 pertain to the old content from this page – so best ignore all but the most recent, some of which cover the new process.