If you are a non-US person or you own a business that publishes and sells eBooks via Amazon’s Kindle Direct Publishing, print books through Createspace or audiobooks via Audible, a 30% withholding tax is deducted from your royalties and there’s a high likelihood you are eligible for REDUCED tax withholding on your royalties. In this guide I will show you how to reduce your tax withholding rate.
But, full disclosure – I am not qualified to give you tax, legal or financial advice. I have learned the ins and outs of this process from my own experience and this information is intended for entertainment purposes only…
With that out of the way, let’s dive right in!
Tax Withholding & Double Tax Agreements – How It Works
To put it simply, there is a tax treaty between USA and a number of other countries that has been made to free people from double taxation, i.e. taxing an entity, be it a person or a business, for the same tax twice in two countries.
For example, if a person is a resident of one country and receives income in another country, according to tax laws of each of these countries, said person may have to pay the same income tax two times. To avoid this type of nonsense, most countries have established double taxation agreements between themselves.
So, if you are a foreign person (from the perspective of the US) and USA does have a tax treaty with the country you’re from, then you are eligible for tax withholding (hurray!).
Here’s a comprehensive table that we made, showing you the applicable copyright tax treaty percentage rates. If you’re lucky, your country has a 0% withholding rate. The country I’m from – Latvia, has a 10% double tax treaty rate with the US. Not 0 but 10% is still much better than 30%.
Figuring all of this out on your own may not be all too easy, it certainly wasn’t for me. That’s why we have done our best to let you know how to navigate these waters.
There are a couple of ways you can do this, depending on your specific situation…
Option 1: Use Your National Identification Number
The easiest way to avoid the 30% tax-withholding is to use your National Identification Number (NIN). The NIN is also usually used as a Tax ID in many countries.
If you’re French, this would be your INSEE code, if you hold a UK passport, it’s simply called just that – a NIN. Pretty straight forward.
For more info on National Identification Numbers, you can check Wikipedia’s page on this, it has some solid info.
Then, all you have to do is go to your KDP Select account, then navigate to *Your name* Account in the top right corner.
Next, scroll down to the Tax Information section and click “View/Provide Tax Information” to start the tax interview
Answer all the information that is asked. Be precise.
Enter your NIN in the appropriate field. Follow along all the steps and finish the rest of the tax interview and… voila! The system should now be showing a reduced withholding rate.
For Createspace and ACX, the process is the same – navigate to the tax interview within “account settings”. Then take the tax interview and enter your information.
If everything worked out – congrats, you just gained back a bunch of money that would have gone to the IRS. You most likely will have to pay the remaining difference to your country’s tax institution but 1) it’s likely that the payment is still much lower than before and 2) you may be able to expense many of your publishing costs, thus lowering your total tax payment.
Option 2: Use an EIN to Avoid Tax Withholding
Alternatively, if you’re using the self-publishing platforms as a legal entity, i.e. a company of some sort, then you’ll need an EIN – an Employer Identification Number.
Don’t worry, getting one is a pretty simple process.
How to get an EIN number
First, pick up the phone and call the Internal Revenue Service (IRS): +1-267-941-1099
I usually buy some Skype credit and give them a call through my computer or Skype’s app to avoid an unnecessarily large phone bill.
You’ll have to wait on hold for 30 minutes or so (I usually put the call on speaker phone and do other things in the meanwhile). Once you get through to them, the IRS will ask for details like your company name, company address, registration number, so have them ready.
If you’ve completed everything successfully, now you have an EIN – congratulations!
Do not forget to write this number down to save yourself the trouble of repeat calls, extra hassle and stress.
For more info on applying for an EIN, visit the IRS’s site.
After you have receive your new EIN, the next step is to go to your KDP account and re-do your tax interview. The process is almost exactly as described in option 1.
If for whatever reason the KDP did not accept your tax data:
- Try again – perhaps you have mistyped some of your info
- Get in touch with KDP support – shoot them a quick email explaining the situation. Perhaps there is a technical glitch related to your specific country.
- Apply for an ITIN – an International Tax Payer Identification Number can function as an alternative to the NIN. There are several ways to get one. Learn more about ITIN’s on IRS’s site.
That’s all! I hope this guide helps you make significant tax savings that you can reinvest back in your business or that you can use to have a bit more freedom in your life.