Amazon is a company based in the United States. I am a Canadian. When I sell a book through Amazon, 30% of my royalty is held back for income tax in the United States. The way around this is with tax treaties. Read on.
Many countries have tax treaties, allowing a non-resident (like me) sell products in another country and not be taxed in that country, as well as the country I live in. Being taxed on both sides of the border would suck.
Both Canada and the United States have such treaties. In order to be approved for non-taxable status in the United States, I had a LOT of forms to fill out. Trust me when I say it is a convoluted process, but if you take your time and read through it all, it will make sense in the end. The best part is I only had to do this once. If I sell other products in other U.S.-based companies, I have all the tax information ready to go.
For a Canadian selling in the United States, it all starts with a W-8BEN form, which prevents me from being taxed twice, once in the U.S and once in Canada. Complete this form as soon as possible because it could take as much as 4-6 months to complete the process. I began late after realizing 30% of my income was withheld with my first royalty payment. That sucked and there was no way for me to get a retroactive payment. Expensive lesson learned.
Amazon’s instructions can be found here. The instructions are good, but I also encourage you to read all the IRS instructions for the various forms linked in this article.
To send a completed W-8BEN, first you need an EIN (Employee Identification Number) or an ITIN (Individual Taxpayer Identification Number) first. For my purposes, I needed an ITIN so I am focusing this article on that process.
To make that choice, I needed to find out if I required an EIN. I checked out this IRS article to find out. I didn’t require an EIN, but if you do, you need to fill out IRS Form SS-4, Application for Employer Identification Number. The application can be completed over the telephone in one session by calling (267) 941-1099. The application may also be completed by fax in approximately 4 business days and by mail in approximately 4 weeks. More information about Form SS-4 is available on the IRS website.
If you don’t require an EIN, then you need an ITIN, and you need to fill out a W-7 form, which can be found here. Instructions for the W-7 can be found here. I required an ITIN. I suggest reading and following the IRS instructions carefully, but I will share my process.
- I checked [a] “Nonresident alien required to get ITIN to claim tax treaty benefit”, and [h] “Other”. On line [h], I entered the following: “Exception 1d – Royalty Income”. I also needed to enter the treaty country and treaty article number, which can be found in Publication 901, found here. Note that I am not an “employee”, but an “independent contractors or self-employed individual”. Since I am located in Canada, I adhere to Article 7 (Business Profits). Just search for your country and note the treaty article number it makes reference to.
- Since I entered “Exception 1d – Royalty Income”, I am required to include “A signed letter or document from the withholding agent, on official letterhead, showing your name and verifying that an ITIN is required to make distributions to you during the current tax year that are subject to IRS information reporting or federal tax withholding.” Whew. What a mouthful. Luckily Amazon provides one for you here.
- The next section begins with “Enter ‘N/A’ (not applicable) on all lines that do not apply to you. Do not leave any lines blank.” This is important.
- I just followed the instructions to fill in sections 1 through 6. It’s pretty straight forward. In section 6d, you are required to attach documents that prove your identity. The easiest way is to include your original passport (which I wasn’t comfortable with), or a copy of your passport. However, if you attach a copy of your passport, it must be certified by the passport office. Certification by a notary public will be rejected. The passport also cannot expire during the application process. If there is any doubt that it might expire, renew your passport first. If you live in Canada, it’s very easy to do. Currently, certified copies of your Canadian passport are free of charge.
Package up all your materials and mail it to:
Internal Revenue Service
P.O. Box 149342
Austin, TX 78714-9342
Send that off to:
C/O Vendor Maintenance
PO BOX 80683
Seattle, WA 98108-0683
Then you wait. Afterwards, you are good to go.
So to recap, my process went as follows:
- Fill out a W-7 form to apply for an ITIN.
- Fill out an Amazon Digital Services ITIN letter.
- Get an official copy of my passport.
- Send items from steps 1, 2, and 3 to the IRS.
- IRS sends me a ITIN number.
- Fill out a W-8BEN and send it to Amazon.
The steps seem simpler than they did when I went through the process. Good luck!
Did you make it this far? Congratulations. Self-publishing is a a lot of work. 🙂 But wait! There’s more! How are people going to find you book in order to buy it? Self-publishing means self-promotion. I’ll talk about that next Thursday.