Sunday 1 November 2009

Planning ahead - paying tax in the right country

I am a UK citizen and resident. However, I intend to sell The Octogenarian Ski-jumper in the USA as well. And lulu (and, I assume, other US-based organisations) have to withhold tax on US sales at 30%. There is, however, a way to get your US-sale royalties paid without this deduction of tax (didn't somebody once say 'no taxation without representation'?) In this post I describe what I did to achieve this. I should preface it by saying that I am not an accountant or tax adviser - I'm just recording what I did.
The steps are (1) get an International Tax Identification Number (ITIN) from the IRS (the US government's tax department), and then (2) record that information with lulu. The first step requires the completion of the W-7 form, and the second step requires completion of a W8-BEN form. Both forms can be downloaded from the IRS website at www.irs.gov.
the W8-BEN form is pretty straightforward. The W-7 has boxes to complete which vary from the trivial (you do know your name and address, don't you) to the arcane. And there are lots of stories on the internet of people submitting forms only to have them rejected three months later.
I am fortunate in that I live within striking distance of London, and there is an IRS office at the US Embassy. I opted for this route since the instructions on how to get an ITIN by post require not only the form but also either the submission of your passport, or notarised copies of various documents. I tried really hard to understand these instructions, and didn't get anywhere - if you have to follow this route, I recommend telephoning the IRS to determine precisely how to get the acceptable copies of your passport or other information.
Anyway, to the W-7 form itself.
  1. For most lulu authors for whom this is relevant, you are trying to get an ITIN so that you can avoid the 30% withholding tax on US sales. I was, so I was concerned about withholding tax on royalties. Therefore, I checked boxes A and H in section 1. Next to H I wrote 'Exception 1d-royalties'. My treaty country is 'United Kingdom', rather than 'England' or 'Scotland', for example.
  2. For the treaty article number - I wrote 12 for royalties. You can read the actual text of the treaty at http://www.treas.gov/offices/tax-policy/library/uktreaty.pdf, and there is a summary of treaties between the US and other governments which can be found at http://www.irs.gov/pub/irs-pdf/p901.pdf. Table 1 in this document (on p39 in the 2009 edition) indicates that column 12, and therefore number 12 applies for royalties.
  3. The form's written instructions do tell you to write 'N/A' for 'not applicable', rather than leaving any boxes blank.
  4. I used by passport for ID - I asked what I should put for 'Issued by' and was told that 'UK' was fine.
  5. If you are going to the office in person as I did, you will need ID (e.g. a UK passport), and you should NOT bring anything electronic (so no mobile phone, no iPod - I was even asked if I had electronic car keys). Leave stuff like that at home - you don't want to be turned away and have to make another trip.
  6. I had to queue up in the 'Citizen Services' queue at the US embassy in London in order to get into the IRS office.
I was told that it would take about three months to get the ITIN.

2 comments:

  1. That's very useful information, Martin - thank you.

    Lexi

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  2. Do you need to do this if you are using Lulu where the price of you book etc is in £s, where the book is printed in the UK as Lulu can do.

    I understand I will need to do this for Wordclay or CReate Space - but where on the Lulu account do you ahve to enter this info / where does it talk about Tax withholding. If you want to email me I am r.denning@btinternet.com
    or leave a comment here and I will check back.

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