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Tuesday, June 05, 2012

A Fast-Track Route for non-US Authors to Avoid Paying US Tax on Royalties?

Last year I published a guest post by UK author Ali Cooper on how self-publishing non-US authors on Amazon (Createspace and Kindle) and Smashwords can reclaim the 30 percent tax otherwise automatically deducted by these US companies.

The post attracted a lot of comment (and still does today). The method set out by Ali is basically sound, but it does involve a lot of hard work with no absolute guarantee of success at the end of it.

In particular, the method involves applying for a US ITIN (Individual Tax Identification Number), for which applicants have to jump through an inordinate number of hurdles, including either visiting the US embassy in person or sending their passport by registered post to America (rather you than me).

Recently, however, word has gone round that a simpler method can work just as well. This involves applying for an EIN (Employer Identification Number) rather than an ITIN.

According to this article on Catherine Ryan Howard's blog, all you have to do to obtain an EIN is phone +1 267 941 1099. This is a direct line to a dedicated IRS unit in Philadelphia that deals with foreign businesses and individuals who need an EIN. A growing number of authors have done this and been issued with an EIN over the phone after answering a few questions.

Catherine's blog has a very helpful, step-by-step guide to the process. One point to note is that to get an EIN you are meant to be running a business, so ideally you will have set up a limited company for your self-publishing operations. Of course, this won't apply to most freelance writers, but thankfully it does appear that the IRS will also accept EIN applications from self-employed writers (as long as they don't live in the US).

My own thought is that it might help if you use a trading name such as XYZ Publishing. You can then describe yourself as John/Jane Doe trading as XYZ Publishing (which is a perfectly legitmate business description).You can explain that you are a sole trader if asked.

The (otherwise excellent) advice given in Catherine's blog post is (in my view) a bit misleading at the end, where she writes, "This will require you to have a company, even if that means just registering as a sole trader." In UK business law anyway, this statement is meaningless. Either you are in business as a (limited) company or a sole trader - you can't be both. It seems to me that as long as you are set up in a businesslike manner, whether as a limited company, partnership or sole trader, you should be OK to apply for a non-US EIN.

It is, as ever, a pity that definitive advice on this is so hard to find, and some of the advice on offer online is contradictory. You might, however, like to check out this topic on my forum, where a number of writers discuss their experiences of going down the EIN route. The good news is that all of them so far appear to have been successful.

Once you have your EIN, it's then just a matter of completing form W8-BEN for each relevant company (Amazon KDP, Smashwords, CreateSpace, Lulu, and so on). Once your form has been received and processed, the companies should stop making deductions from your income and possibly refund any money that was deducted previously.

Good luck, and please do post details of your own experiences below. I'd love to hear if applying for an EIN has worked for you!

Photo Credit: Tax by Phillip on Flickr. Reproduced under Creative Commons Attribution-NoDerivs 2.0 Generic Licence.

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Blogger DW96 said...

I followed Ali's advice last year, Nick, and had my ITIN inside 6 weeks. Getting both Amazon and Smashwords to recongise it was the major problem. Both took a further two months.

1:06 PM  
Blogger Nick said...

Thanks for your feedback, David. I'm glad that at least you are receiving your payments without deductions now.

1:32 PM  
Anonymous Karen Inglis said...

Hi Nick - I blogged about this exact same thing in early Feb of this year - I discovered how easy it was pretty much by accident and wanted to share my experience with others - but you do need to be a limited company. And having done quite a bit of work for the UK tax authorities here (as a writer!) I felt duty bound to share my experience! My take on it is here in case it's of help... and I've since had paperwork from the IRS to confirm that I am exempt from US tax...

8:34 PM  
Blogger Rachel Morgan said...

I did the whole "jumping through hurdles" thing! Went into the city center to find the US embassy, got my passport notarised, filled out the forms, posted everything, waited forever. Finally got a letter in the post with my ITIN second time around, since something was wrong the first time (oh, that was HAPPY, HAPPY day!) and sent the final forms to Amazon and Smashwords... *sigh* Kinda feels like I ran marathon!

9:06 PM  
Blogger Karen Inglis said...

Apologies for leaving a 'dead' link earlier - here is my post from the start of the year on getting an EIN by phone

10:47 PM  
Blogger Nick said...

Thanks for your comment, Karen. I read your interesting and informative post, and would strongly encourage any of my readers with an interest in this subject to do likewise.

I suspect that you are right that, strictly speaking, you should have a limited company to go down the EIN route. However, in practice a lot of writers are succeeding in obtaining an EIN, even if they are only operating as sole traders. Confusion reigns, as ever!

9:24 AM  
Blogger Nick said...

Thanks, Rachel. I'm delighted that, like David, going down the ITIN route proved successful for you.

9:24 AM  
Blogger Sarah White said...

I phoned, explained I was trading as a self employed writer, so my business name was my name, got my number straight away. It only took a couple of weeks for Amazon to confirm they had received my W8-BEN and it was all sorted - it was so quick and easy doing it via a phone call (I'd previously downloaded all the 'required forms' and nearly gave myself heart failure trying to work it all out!)

12:19 PM  
Blogger Nick said...

Thanks, Sarah. Pretty much confirms what I thought. Definitely no need to have a limited company, then.

12:38 PM  
Anonymous Donna A said...

Hi Nick, your advice and others on this blog have certainly opened my eyes. i'm very new to writing and in july slef published my first book on amazon. you may not be able to help with my question but hopefully someone else might......i was wondering how long i should wait till i try and sort this out. i have currently sold about £70 worth of ebooks. do i have to wait until i actually get a payment from amazon or can i go ahead and do it, its really confusing me.

2:12 PM  
Blogger Nick said...

Hi Donna. I would definitely start the process now. If you use this 'fast track' method, there is no reason why you should have to wait until you have received a payment.

3:52 PM  
Anonymous Donna A said...

Thanks, I will let you know how i get on.

6:18 PM  
Blogger Ravinder Gill said...

Thanks for the tips. I am planning to self-publish my book with Amazon. The EIN number tips sure will help. But there are some problem. My country, Malaysia doesn't have tax treaty with USA. How can I avoid paying US Tax on Royalties?

4:44 AM  
Blogger Nick said...

I've no idea, I'm afraid. Maybe another reader (from Malaysia?) might be able to offer some suggestions?

9:19 AM  

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