Writing for Amazon Kindle? Tackle the US Withholding Tax.
Thursday, May 23, 2013 at 11:21PMUPDATE
It may now be possible to use your UK HMRC Tax Reference Number to claim 0% Withholding Tax. I posted an update in 2015 here.
Practical tips for handling US Withholding Tax from the UK perspective
Links and rates were accurate at the time of writing, May 2013
If you’re a UK Amazon Kindle contributor then your royalties will be subjected to US Withholding tax (currently 30%), unless you apply for exemption under a US-UK tax treaty. Unfortunately, the US Internal Revenue Service criteria have tightened in recent years and you’ll face some stringent rules and bureaucracy if you want to deal with your tax affairs properly. I wanted to apply for exemption but found that some of the info. dotted around on the web was out of date, so I’ve summarised what I’ve learned, valid as at May 2013, after several days of surfing around US Gov’t websites and corresponding with the US Embassy in London. This isn’t a thorough analysis, nor was it written by a qualified tax advisor, but it should steer UK contributors with the basics of US tax.
Firstly, as a “non-resident alien” you need to file an IRS tax return once your US-based income exceeds the year’s personal exemption amount (the IRS equivalent of a personal allowance), so says the IRS website Taxation of Non-Resident Aliens.
- For 2013, the personal exemption amount is $3,900 so you don’t have to file an IRS tax return if you earned less than that. See Publication 501 for an introduction to filing tax returns.
As regards your earnings, you can (will!) automatically pay US Withholding tax on ALL royalties and you could opt to leave it at that, or (a lot trickier) you can pay 30% Withholding tax and file an annual IRS return (Form 1040NR Tax Return for Non-Resident Aliens) and claw it back again. In other words, even if you earn less than the personal allowance, you’ll automatically pay 30% US Withholding tax on your royalties unless you apply for an exemption. Once you earn more than $3,900, you’re supposed to file an IRS return anyway: I don’t know what happens if you don’t file such a return. Maybe the MiB's come and take you away.
In order to be exempted from Withholding taxes and receive your full royalty, individuals should apply for an ITIN (Individual Taxpayer Identification Number) with the US Internal Revenue Service. You cannot do this if you have a US Social Security Number (SSN). If you are a limited company or employer, you could apply for an Employer’s Identification Number (EIN) instead of an ITIN. This isn’t discussed here but this link may help.
Basically ITINs are obtained from the IRS using Form W-7. Complete it following the notes in Instructions IW-7. When you get your ITIN a few weeks later, send a Form W8-BEN to Amazon Digital Services in Seattle to complete the process. An ITIN is not for life and you now have to repeat this process every five years. All sounds easy enough...
Note about Photo IDs
As per the Instructions for Form W-7 (here), one way is to simply fill in the W-7 form and send it with original ID (note, a current passport is the only stand-alone ID accepted), and an Amazon covering letter (q.v.) to the IRS in Austin, Texas, USA. That means you’ll be without your ID for 6 weeks+. Hopefully it wouldn’t get lost along the way...
However the W-7 Notes explain other ways of applying for an ITIN, and also list the other forms of ID that can be used to prove your foreign status. If you don’t want to mail your original passport with your Form W-7, then two pieces of ID are required, one of which must (still) be a valid photo ID issued by a UK government agency, or documents certified by the office that originally issued the documents. For most of us in the UK, that still means (a) an original passport anyway or (b) other ID document + photo driver’s licence is needed. There’s no such thing as a ‘certified copy’ issued by the UK Government agencies. As you hold the original already, the UK issuing authorities don’t certify duplicates of passports or driving licences. It appears that a birth certificate could be used for ID, but a UK Photo ID would still be needed. See these IRS notes for information about the ID needed when applying for an ITIN.
In practice it looks like sending an original passport is the easiest route. Contrary to what I’d read elsewhere I found that the US IRS will [now] only accept copies of photo ID documents if they are notarized by the US Consulate in London. That’s right: if you want to use a photocopy of your passport only, you’ll have to pay them a visit to get it certified. It’s free of charge.
For many routine purposes, ID documents can be certified by a UK Notary Public at your expense. To repeat, unfortunately these won’t be acceptable to the IRS. A service such as the Post Office Identity Document Checking Service won’t be acceptable either. As the IRS clearly states: they only accept US-Consulate notarised copies of photo ID, or [UK] Government Agency certified copies [= no such thing].
So unless you send either (a) your original passport to the USA or (b) a suitable photo ID + 2nd item of ID to the USA, you’ll have to visit the US Embassy in London and get a copy of your photo ID notarised by them, which is indeed what they invited me to do.
The address is:
Internal Revenue Service
United States Embassy London
24 Grosvenor Square
London
W1K 6AH
You can walk in, but read the times and security information on the US Embassy website here.
An Authorised Acceptance Agent can handle the form-filling for you, for a fee, but I learned that they are now undergoing forensic training in identifying ID documents. It’s not clear if they can submit a copy of your photo ID and let you keep the original. See http://www.irs.gov/Individuals/Acceptance-Agents--United-Kingdom
Obtaining an ITIN with Form W-7 for Exemption from US Withholding Tax
Let’s look at the Form W-7. To start the process, download the IRS Form W-7 from here and you must fetch the Instructions for W-7 (IW7) here. The PDF can be editted and saved/ printed directly in Adobe Reader, so type your answers into the W-7 and print off a hard copy. The basics that cover most ordinary applicants are below, which I found were acceptable to the US Consulate.
Reasons you are submitting Form W-7
[a - tick] Non resident alien required to get ITIN to claim tax treaty benefit
[h - tick] Other (see table in notes IW7) > type in Exception 1(d) ROYALTY INCOME (Why? See my note* below.)
Name 1a Type into the boxes your First / Middle/ Last name
Also fill 1b Name at birth, if different from 1a.
Fill 2 with your full mailing address, zip code and country.
Fill 3 with your non-US address if different from 2.
Fill 4 Date of birth (in US format mm/dd/yyyy), country/ county.
Tick 5 Male or Female. Don’t overlook this box, it’s over on the right of the form!
Fill 6a UNITED KINGDOM
Box 6d is tricky. You’ll probably have to tick 6d Passport
Underneath, fill
Issued by : UK No: [your UK passport number] Exp. Date [expiry date mm/dd/yyyy]
Box 6e tick No/ Do not know
Sign it, Date it [month/ day/ year]
Phone number best in International format + 44, e.g. 01234 5678910 is +44 1234 5678910
* Due to ticking box 1h claiming Exception 1d (per the Exception Tables in W-7 Notes, “Third Party Withholding on Passive Income”), remember to attach a duly completed Amazon ITIN supporting letter with your form.
According to IW-7 Notes you then either send it WITH ORIGINAL ID DOCUMENTS to the IRS in Austin, Texas (see notes in IW-7) or you must attend the US Consulate in London in person to have a US-certified copy of your passport made. The IRS will then complete the W-7 application and your ITIN will follow from the USA within ~ 60 days.
Don’t simply post your form and passport on spec. to the US Embassy in London and expect to receive an ITIN. They will RETURN it if it lacks an IRS-certified copy of your Photo ID, which you have to arrange in person. Alternatively you can send your W-7, full passport and Amazon letter to the IRS in Austin, Texas – if you want to risk it.
Nearly there!
When you finally get an ITIN, complete Form W8-BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding downloadable from here with Instructions from here. It is very straightforward and needs to be snail-mailed to Amazon Digital Services in Seattle, USA. Write your KDP Publisher Code somewhere in the top margin. More details are on the Amazon Kindle Direct Publishing (KDP) site.
Hopefully these details will help you complete your application successfully. You'll have to repeat this every five years.
- As I said at the start, this isn’t a thorough analysis, nor was it written by a qualified tax advisor, but it should steer UK contributors with the basics of US tax. Unfortunately I cannot help with US tax advice but I welcome feedback or comments.
Useful Links
Amazon Tax information
https://kdp.amazon.com/self-publishing/help?topicId=A1VDYJ32T5D3U4
Official Amazon covering letter required with W-7 under Exception 1(d)
IRS website links
There is plenty of online information on the IRS website. It is comprehensive but quite turgid and US bureaucracy is as bad as anything you get in the EU. Here are the main IRS links that I found most useful, correct May 2013.
Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities: http://www.irs.gov/pub/irs-pdf/p515.pdf
http://www.irs.gov/Individuals/International-Taxpayers/Taxation-of-Nonresident-Aliens
http://www.irs.gov/Individuals/General-ITIN-Information
http://www.irs.gov/Individuals/Individual-Taxpayer-Identification-Number-%28ITIN%29
http://www.irs.gov/Individuals/2013-ITIN-Updated-Procedures-Frequently-Asked-Questions
http://www.irs.gov/Individuals/Revised-Application-Standards-for-ITINs
http://www.irs.gov/w7 Form W-7, and
http://www.irs.gov/pub/irs-pdf/iw7.pdf Instructions and notes for Form W-7
http://www.irs.gov/pub/irs-pdf/f1040nr.pdf Form 1040NR Tax Return for Non-resident aliens, and
http://www.irs.gov/pub/irs-pdf/i1040nr.pdf Instructions for Form 1040NR
http://www.irs.gov/Individuals/Acceptance-Agents--United-Kingdom
http://london.usembassy.gov/irs/ London Embassy
http://www.irs.gov/pub/irs-pdf/fw8ben.pdf Form W8-BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, and
http://www.irs.gov/pub/irs-pdf/iw8ben.pdf Instructions for the W8-BEN.
Please report any broken links.
Reader Comments (6)
Hi Alan, great post and very helpful. I suspect I will pop down to the Embassy with my passport, seems the easiest way forward.
I just wanted to check one thing about the section on W-7 'Reason you are submitting form W-7' if I may? I have two further pieces of information under (h) other which are Enter Treaty Country and Treaty Article number. As far as I can see, there was no mention on this in the notes (because it may not be required?)
The country bit is straight forward and, from looking at the IRS website, I think the article number for the UK is 12 (Royalties)? I would be grateful if you have any comment on this.
Many thanks
Phil
In response to your question about the IRS W-7,
ITIN general info, Publication 1915 Understanding your ITIN may be useful
http://www.irs.gov/pub/irs-pdf/p1915.pdf
On your Form W-7,
Reason you are submitting Form W-7
Tick box [a] and therefore you must also tick box [h] as stated in the Instructions for Form W-7 ... under Reasons for Applying (para. a)
Also in the Instructions, Reasons for applying (para. h = Other):
Exception 1 passive income - 3rd party withholding or tax treaty benefits... etc.,
The stuff about tax treaties comes from Publication 515 with the tax treaty tables
http://www.irs.gov/pub/irs-pdf/p515.pdf
Table 1, Income Code Number 12 (Copyrights) -- United Kingdom (pdf page 42)
So from that my understanding was that you fill in W-7 box [h] as Exception 1(d) Royalty Income, and additional info UNITED KINGDOM and treaty article number 12. It might not be compulsory but I am unsure, and it cannot hurt putting it in. I also picked that up from elsewhere, although a lot of the stuff on the web is not quite right.
You can also use an IRS Acceptance Agent in the UK to handle all this for you, I had a price of £140 which is cheaper than a trip to London but at the present time I am monitoring the likely royalties before deciding whether it would be cost-effective to apply for an ITIN etc, and even then I would probably post it all off to the USA.
A suitable Acceptance Agent is
Owner Accounting Services LLP
Warburton House 14B Eagle Brow
Lymm Cheshire WA13 0LJ
Stephen <stephen@owneraccounting.com>
Tel 01925 758330
Fax 01925 758353
There are very stiff restrictions about visiting the US Embassy and their website has more info. You can also phone them for help, there has been some generally good feedback about the UK IRS counter service. Due to the logistics, I haven't yet gone down the route of turning up in London with my passport. I might chuck it all in the post to Austin, Texas (see Pub. 1915 for details).
AW
A withholding tax is also called a retention tax, is government requirement of payer of an item of the income to with hold or deduct tax from the payment, and to pay tax to the government. In general we can say that a person that makes a payment of US source income to a foreign person must with hold the proper amount of tax. This is all done by the with holding agent which is considered to be the one who pays the amount. A with holding person can be an individual, corporation, partnership. trust, association, nominee etc.
In March 2015 I followed a new process on my Kindle account, where a (UK) Tax ID can be entered if you don't have a US ITIN. You can then apply for 0% Withholding Tax. This seems deceptively simple but appears to have worked - see my latest article at http://alanwinstanley.squarespace.com/alan-winstanleys-journal/2015/3/25/new-0-us-tax-withholding-relief-for-uk-kindle-authors.html
I checked the next US $ royalties paid by Createspace (View Reports in your CS account) and can confirm that no US Withholding Tax was deducted. So the method of using your UK HMRC tax reference number has worked. Note that royalties will be subject to UK Income Tax instead.
My business partners needed USCIS I-130 Instructions a few days ago and were informed about a company that hosts a huge forms library . If others are interested in USCIS I-130 Instructions too , here's http://goo.gl/ihZ3is.