If you are a non-U.S. person, a U.S. tax ID is not required in order to be paid your royalties by Amazon for the sale of your book. However, if you do not obtain a U.S. tax ID, your royalties will be subject to tax withholding of 30%.
Here is your guide to reducing this down to 5%.
As Australia has an income tax treaty with the U.S. – Australian permanent residents (the country where you claim to be a resident of for purposes of income tax) are eligible for a reduced rate of 5% U.S. tax withholding, provided you action a couple of steps (detailed below).
As tax withholding is calculated based on the gross amount of your payment (before taking into account any costs associated with receiving payment), the U.S. IRS requires companies operating in the US (i.e. CreateSpace and Kindle KDP) to collect this tax from royalty payments issued to non-U.S. individuals and entities. So the tax withholding will automatically be deducted from royalties before they are paid to you.
If you are publishing with Amazon KDP or CreateSpace, they ask that you submit a W-8BEN to certify that you are a non-U.S. person so they can reduce the amount of withholding (from 30% down to 5%) before sending you the royalties.
Step One – Create your identification number with the IRS:
Similar to a Tax File Number in Australia, the U.S. requires that Australian Publishers apply for an EIN – Employer Identification Number – for Individuals and Non-Individuals.
An EIN may be obtained either:
- By completing the application over the telephone in one session by calling +1 267 941 1099 (this is by far the quickest and easiest, provided you are available to call during US Eastern Time office hours); OR
- By filing Form SS-4, Application for Employer Identification Number (found here: http://www.irs.gov/pub/irs-pdf/fss4.pdf)
Step Two – Fill Out and Submit Form W-8BEN to ensure you get maximum royalties:
Once you have your EIN, this number is placed on Form W-8BEN. Amazon is required to collect a Form W-8BEN from all non-U.S. publishers who are receiving royalties. The purpose of the form is to:
– Establish that you are not a U.S. person
– Claim that you are the beneficial owner of the income for which Form W-8BEN is being provided or a partner in a partnership subject to section 1446; and
– Claim a reduced rate of withholding as a resident of a foreign country with which the United States has an income tax treaty (as mentioned, currently 5% for Australia).
Steps to Submit Form W-8BEN (for Createspace only, it is done electronically for KDP)
1. Complete Form W-8BEN (http://www.irs.gov/pub/irs-pdf/fw8ben.pdf) using IRS W-8BEN Instructions (http://www.irs.gov/pub/irs-pdf/iw8ben.pdf).
2. Sign the form in Part IV – an original signature is required
3. Write your CreateSpace Member ID in the top margin of the form to match it to your account
4. Send the signed original version to:
c/o AP Tax
PO Box 80683
Seattle, WA 98108-0683
You will receive a confirmation by email once your form has been processed. Forms received on, or before the 10th of each month will be processed for regular month-end payments. Forms received after the 10th will apply to the following month’s payments. Refunds will not be issued for taxes withheld.
CreateSpace Tips for successfully submitting your W-8BEN:
Here are some tips directly from the CreateSpace website to make your submission with them as smooth as possible:
- Write the Member ID in the top margin of the form. Without this information, we’re unable to process your form.
- Be sure to enter your information in the correct fields and don’t abbreviate country names.
- Provide an original ink signature in the appropriate section (we’re unable to accept copies).
- Sending the form via regular mail can take several weeks. We recommend sending the form with tracking information to confirm its arrival to our office.
Note: A new W-8BEN form needs to be re-submitted with CreateSpace every 3 years. I know from experience that they don’t tell you when it has expired, they just start withholding 30%. And they do not refund you the difference once you re-submit your W-8BEN, so it’s a good idea to set yourself a calendar reminder to keep it updated.