UPDATE
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 dotted around on the web was out of date, so I’ve summarised what I’ve learned, valid as at May 2013, after several days of surfing around US Gov’t websites and corresponding with the US Embassy in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)
https://images-na.ssl-images-amazon.com/images/G/01/opt/general/test/AmazonDigitalServices_ITIN_Letter._V163067125_.pdf
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.