How UK authors can escape US withholding tax on their royalties

Several UK-based authors, publishers, and one literary agency have asked me how to avoid paying 30% tax on earnings from amazon.com and other US-based retailers such as Smashwords and Createspace. I’m most of the way through the process now, and so it’s time to share how I’ve got to this point.

The most important thing I’ve learned, is that the process has been considerably less painful than I thought it would be. If you find tax forms to be complicated and unpleasant — and foreign tax ten-times so — then read on, because it needn’t be in this case.

In a nutshell

If you self-publish eBooks or print books in the US through amazon.com, Createspace, Smashwords or similar, then that organisation is required by the US tax authorities (IRS) to deduct 30% of your royalties and give it to the US government. Here’s what you do to avoid that:

  • While you’re going through the tax process (it will take a few months) contact Amazon/ Createspace/ Smashwords (through Smashwords Account – Edit my payee info) and tell them to withhold your payments while you acquire an ITIN (they are used to this request).
  • Ask your US-based organisation to send you a letter confirming that you need an ITIN. I got mine from Smashwords. There are many good reasons to use Smashwords and this in one of them. You can read more about how to do this here.
  • Fill in IRS form W-7. This gets you a US tax number called an ITIN.
  • Go to the US Embassy in London (the IRS have their own section there) with your W-7 form, the letter from Smashwords (or whoever) and your passport. Don’t annoy the policemen with machine guns.
  • Explain to the embassy people that you need an ITIN. They will check your passport and your W-7 and then do all the communication with America for you. I found them to be extremely helpful.
  • Wait a couple of months
  • Receive a letter from the IRS in Austin, Texas. This will have your ITIN. Make a note of it. In my copy the ink is rubbing off the paper!
  • Now fill in another IRS form (W-8BEN) and post one copy to each of the US-based organisations that are withholding your royalties. This form gives them the proof that you have a valid ITIN and that they can now stop withholding tax. They can do this because there is a ‘double-taxation treaty’ between the UK and USA, which means you only have to pay tax in the country where you live. Unfortunately, this means that…
  • Although you no longer pay US tax, you must still declare your foreign earnings on your UK tax return, and pay your normal rate of income tax to the HMRC. If you’re a higher-rate UK taxpayer, then none of this will actually save you money (unless you are into tax evasion).

Here are a few more details

Getting your ITIN (W-7 form)

Smashwords have a lot of information on this and allow you to defer your income and ask for a letter requesting an ITIN by clicking buttons on the Edit payee information section of your Smashwords account. See here. You need $10 of income from Smashwords before they’ll do this. The idea is that you need to tell the IRS (the US tax people) that there is a genuine US-based company that’s paying you money. And to do this you need a letter from a US-based company as evidence.

To get your ITIN, you need to fill in form W-7. You can download this from the US Embassy website here: http://london.usembassy.gov/irs/irsitinappy.html

You can fill in the W-7 using pen, pencil, possibly not crayon, or (if you’ve got a fairly recent copy of Adobe Reader) you can open the PDF and fill it in on your computer.

Click for a full-size version

Here’s the one I filled in. It worked for me. One tip: do not use abbreviations anywhere. For example, some people have made the mistake of entering “U.K.” That will be rejected; use “United Kingdom”

Depending on where you live, a trip to London might be expensive. But the IRS need your passport, and the cost of getting your passport officially notarised so you can send a copy is almost certainly more than the cost of a trip to London. Plus, if you’re apprehensive about whether you’ve filled everything in correctly, or about sending your passport around the world, it is much more satisfying to have an IRS person tell you face-to-face that you’ve filled in everything right, and that they will handle it from there. So make a day of it, pop in at the Palace to have tea with the Queen or whatever, but make a detour to the London Embassy first.

For visitor information & times, see the US London Embassy website http://london.usembassy.gov/irs/index.html  When I visited, the IRS section offered a walk-in service on Tuesday through Thursday. You turn up and wait your turn; you don’t make an appointment.

There’s a security building outside the embassy where you’ll go through security scanners etc. The website says don’t bring mobile phones or electronic equipment. In fact, people were leaving these things in numbered boxes in the security building. I wouldn’t bring a big rucksack, though. The train stations have left luggage services where you can dump large items of baggage.

Once you’re through the security section, turn left to the tradesman’s entrance round the side. Don’t do what I did and turn right, because a man with a machine gun will suddenly take a close personal interest…

Once in the building, the IRS section is down the steps to the left in a little cupboard.

I found the people there very helpful and the wait was about ten minutes. Explain that you want an ITIN. They’ll probably ask why you deserve one. The answer is that you’re paid royalties by a US-domiciled company and they deduct withholding tax.

Filling in the W-8BEN

Smashwords give the latest info about where to find the form here.

The organization that pays you the royalties needs to match your ITIN with the account they hold for you. For example, if you publish through Amazon KDP, then you need to give Amazon your publisher code. You do this on Line 10 of the W-8BEN form.

Click for a full-size version

Here’s a filled-in version.

What about non-UK authors?

Most authors paying US withholding tax live in countries with a tax treaty with the US. The forms and IDs (W-7, ITIN, W-8BEN) are the same but you might have to pay a reduced amount of US withholding tax rather than none at all. In some cases you need to give more information at the bottom of the W8-BEN if your tax treaty has different rates of withholding tax for different types of royalties (which is not the case in the UK where you don’t need to pay any withholding tax at all). Hopefully, if you’re non UK-based and you’ve read this far, then I’ve helped to get you started, but I suggest you do some more Googling for advice local to your country. Good luck.

Further information

On matters like this, I would always Google around for a second opinion or two. For me, though, the key thing was to go to the London Embassy in person because even if I had made a mistake in the W-7 form-filling, they would have guided me through filling in a fresh form until I got it right.

Good luck!

Update: June 1st — Createspace sent me an email last night confirming they had received all the right tax records and were now deducting 0% witholding tax.

Update: June 14th — Amazon and Smashwords have also completed the tax preceedings and are paying at 0% US tax rate. Neither have informed me through email, but Amazon sent a dollar-denominated cheque with no withheld tax, and Smashwords made a note that they had received the W8-BEN at the top of the “Edit Payee information” part of my “Account” screen… job done!

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About Tim C. Taylor

Science fiction publisher and author of the bestselling Human Legion series. I live with my wife and young family in an English village. I am currently writing full time, when I'm not roped into building Lego.
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7 Responses to How UK authors can escape US withholding tax on their royalties

  1. Glynis says:

    Very interesting. My daughter is trying to fill in the 1040NR form to get the tax rebate due to double taxation treaty. Don´t suppose you have filled one of those in and can help?

    • timctaylor says:

      Sorry, no I didn’t need a 1040NR. The exercise I described in my blog post was to be able to fill in a W8-BEN. All that provides is proof to the US-domiciled organizations that pay me royalties that they do not need to deduct tax at source to pay the American IRS. All my tax gets paid to the UK HMRC, which is the point of the double taxation treaty. As I understand it, I’d have to be running a business in the US or earning money there in some other way to require a 1040NR.
      If there’s a US Embassy in your country, get in touch and see if they have an IRS branch or someone to help you understand US tax. I found the IRS people at the US embassy in London to be very helpful. I wish I’d gone to them sooner.
      Good luck!

  2. You know that there is a much easier way than this–ring the IRS to obtain an EIN number. Enter this on the W8-BEN form and you’re done. No need to fill in any further forms or to travel anywhere.

    • timctaylor says:

      Thanks for the advice. I was talking to someone else recently who got himself an EIN. He had set himself up as a limited company, whereas I’m a sole trader. Not sure if that’s significant. Certainly a takeaway for me was that the US Embassy staff were knowledgeable and helpful. If anyone’s thinking of going ahead with this, I suggest you follow Catholic Way’s advice and ring the embassy first. After all, they are the people who know this best of all.
      Thanks

  3. Pingback: Final Book Cover. And it's done... | Learco Finck

  4. Mark West says:

    You, sir, are a star

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