Withholding Tax and EIN numbers - Legal and Financial Issues Part 3

This next Legal issue is a biggy.  For some of us *cough, cough* getting this part sorted can take months if not done correctly, or not done at all... *cough, cough*

Withholding tax

First of all, you need to know that Amazon, Smashwords and CreateSpace keep 30% of your royalties to pay withholding tax on your behalf to the IRS in America.  If you live in New Zealand then you can apply for a tax number to reduce this withholding tax amount to 5% – yes, that's right – you will save 25% if you get yourself a US tax number and let your publishing platform know what that number is.

Is this legal that they keep that much?  Yes it is, they are required to by their law to make sure withholding tax is paid.  Why is it reduced so much?  We (NZ) have a double tax agreement with the States which means that we can ask to reduce the amount of tax we pay through the publisher.

Keep in mind some important things you need to know – you agreed to the terms and conditions regarding withholding tax when you signed up with Amazon/Smashwords/CreateSpace.  You also agreed to the 30% amount at this time if you couldn't produce for them a US tax number.  So, how do you get a US tax number?

US Tax Numbers

There are two parts to this – applying for a tax number and reporting this tax number to the publishing platform.

Applying for a US Tax number: there are two numbers you are entitled to get – an Employee International Number (EIN) or an Individual Tax International Number (ITIN).  Keep things simple for yourself and get yourself on the phone to the US Tax Department and apply for an EIN number.  It should be complete in less than 20 minutes if done right and won't cost you fees at all – just tolls on the call to the States.

Otherwise you have to get your photo ID Passport verified by a court secretary, then send that off with the ITIN application form to the States and you may or may not get it processed without it getting lost in the post.

My friend Sarah at Pondera Ebooks got her ITIN number by post and her mother's application is still being processed – 6 months later.

Step-by-Step to getting your EIN number

** First thing to remember: you are presenting yourself as a business.  I publish under Findlay Books and this is my business.  I am applying for a tax number under this business that is NOT based in the States. **

1) Call (from NZ) 001 267 941 1099.  Press 1 for the relevant department.  This is the department that deals with foreign entities applying for EIN.  They are based in Philadelphia and are about 16 hours behind us.  If you want to call them at their 9:00am, you will need to ring them at our 1:00am.  The earlier the better, as they have some sort of quota that if filled for their day they will decline your application and you will need to ring back the next day.

2) 'Applying for an EIN for a foreign entity' – ask for this and be sure to let them know that you are the sole business owner for your business, based outside of the USA.

3) When/if they inform you that you need to fill out an SS-4 Form, say no you don't and if they disagree, politely hang up and start again.  You may not even be given that information if all goes well.  (This means more form filling, fees and delays that are not necessary).

4) They will ask for your name and your contact details.  Make sure you speak clearly and don't abbreviate anything.

5) They will ask if this is for 'Compliance with Withholding?' – say YES.

6) They will ask if this is 'for ebooks?' – say YES.

7) They will then give you your EIN number over the phone.  WRITE IT DOWN and keep multiple records of this number.

Remember – you are not based in the US, you are not present in the US, and you have no employees in the US.

I found Catherine, Caffeinated's post on this whole subject fantastic: http://catherineryanhoward.com/2012/02/24/non-us-self-publisher-tax-issues-dont-need-to-be-taxing/

You will need to report your EIN number to all of your Publishing Platforms – one completed form for each platform.  In my case, I am informing Amazon what my EIN number is by using a W-8BEN form.  Downloaded from here: Form W-8BEN, instructions here: IRS W-8BEN Instructions.

The following diagram is the form.  The highlighted parts are what you need to fill in, blue pen needs to be used, and if you have any questions, comment below.

The following diagram is the form. This is a publicly available form. The highlighted parts are what you need to fill in, blue pen needs to be used. 

For more information on applying for an EIN number visit IRS' website here:
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-to-Apply-for-an-EIN

AMAZON
From Amazon's website regarding Tax Numbers for Non-US Publishers (https://kdp.amazon.com/self-publishing/help?topicId=A1VDYJ32T5D3U4):

Steps to Submit Form W-8BEN
1. Complete Form W-8BEN using IRS W-8BEN Instructions.
2. Sign the form in Part IV – an original signature is required.
3. Write your KDP Publisher Code in the top margin of the form to match it to your account. (Your Publisher Code is found on the right side of the KDP "Your Account" page under the FAQs.)
4. Send the signed original version to:
Amazon.com
c/o AP Tax
PO Box 80683
Seattle, WA 98108-0683
United States of America

DRAFT2DIGITAL
Once you have your EIN number, fill in the W-8BEN form and scan it and email it to Draft2Digital here: sales@draft2digital.com. The form will require a publisher reference number - Draft2Digital require the email address that you signed up with instead of a reference number. Easy-peasy - fill in the form, scan and attached it, send to them via email. Done.

SMASHWORDS
Smashwords wants you to use your screen name or your log in email address in the reference number section of your W-8BEN form. You will then need to send the signed original form to Smashwords here:
Smashwords, Inc.
Attn:  Tax Compliance Dept.
PO Box 11817
Bainbridge Island, WA   USA  98110 
They say they do not accept faxed or emailed submissions. For more information on submitting your EIN number to Smashwords, visit their site here: http://www.smashwords.com/about/taxforms

Paying NZ Tax

On top of paying Withholding Tax in the states, you also need to pay Income Tax here in NZ.  At the end of the financial year you will need to fill in an IR3 form from the Inland Revenue Department (IRD) and an IR10 for your expenses.  There is a place for declaring how much tax you have already paid overseas.  Keep records of everything, and only declare income that has cleared in your business account within the financial year for which you are submitting the forms.

I hope all of that is as clear as mud.  If you have any questions, please read Catherine, Caffeinated's web post on the whole subject – fantastic advice for all of us Non-US resident self-publishers.

All the best for getting your tax numbers, and remember the best time to do this is before you begin publishing.

~ Joy Findlay