Most Print On Demand (POD) services are based in the US – even those that boast UK and other overseas operations. Aside from shipping costs, this can have implications for authors who are not US residents.
According to US tax laws, publishers must deduct withholding tax on any royalties paid to authors outside America. This is 30% – a huge chunk of your profit. Fortunately, there are ways of avoiding this. The US is one of a large number of nations that have mutual tax treaties which, among other things, ensure you are not taxed twice on income generated abroad.
If you jump through the right hoops, you may be able to avoid withholding tax altogether, but that depends on where you live. EU countries, such as France where I’m resident, have treaties that allow for 0% tax. If you’re in Australia, you’ll still end up having 10% tax deducted. But that’s still an improvement, and you may want to discuss with your accountant or local authorities whether this qualifies the income as being ‘tax paid’.
Different POD services have slightly different approaches to all this. My experience is with Lulu and CreateSpace, so this information is based on their requirements.
Getting an ITIN
Your first step is to obtain an International Tax Identification Number (ITIN) from the US Internal Revenue Service (IRS).
CreateSpace.com demands an ITIN for all non-US residents before it will put your book on sale. It also requires further steps if you’re to avoid withholding tax, but more on that later.
You’ll also need an ITIN if you’re non-US resident and want to sell e-book editions through the Kindle store.
The situation is both simpler and more complex with Lulu.com. It’s more complex because everything depends on what kind of distribution deal you’ve signed up for. And that’s been further complicated by Lulu’s recent changes in its distribution packages.
If you decide you don’t need an ISBN number and so don’t buy a distribution package, then Lulu.com is deemed to be supplying you with a simple print and mailing service. The income you receive from Lulu.com is ‘earnings’, not ‘royalties’ and thus not subject to withholding tax. The same is true if you opted for the (now-discontinued) ‘Distributed by you’ package or have obtained and used your own ISBN. That makes you the publisher and, again, Lulu.com is just providing a service. However, under the cheaper ‘Published by Lulu’ scheme (now the default), Lulu.com becomes the publisher and pays you royalties. In that case, tax is withheld – unless you have an ITIN and provide Lulu.com with a form W-8BEN.
Go to the IRS website and download form W-7. This form will provide you with hours of amusement, or make you suicidal. Your call.
The form is a single page. The instructions cover seven pages. That tells you a lot.
Most of it is straightforward, and I’m not going to tell you how to fill in your name. But there are a few fields where you need to pay careful attention.
At the top are several checkboxes. You need to check boxes a (Nonresident alien required to obtain ITIN to claim tax treaty benefit) and h (Other).
The h box requires further explanation. Alongside it, you need to enter the ‘exception’ that applies to your case. These exceptions are listed in the explanations. I entered:
1(d) Individuals who are receiving distributions
Below that are two boxes relating to the treaty that applies to your case. The first box is for ‘treaty country’. Easy: I put ‘FRANCE’. The second requires more research.
Each country has its own treaty with the US. You need to find a copy of the treaty and check through it to find which ‘article’ (ie, section) applies to your case. The IRS has an A-Z list of tax treaties on the web, downloadable as PDFs. Article 12 of the treaty with France is headed ‘Royalties’, so I entered ’12’ as the article number.
One minor warning: there are two or three places where you need to enter dates. Remember that this is a US Government form and therefore uses the bizarre and illogical American date format of month/day/year.
The IRS requires that you provide proof of identity – either original documents or certified copies. If you decide to send a passport (more about this later), that’s all you need. If you send anything else, then it has to be two documents. I send the originals of my French ID card (which I never use) and a spare birth certificate I just happen to have (I have two for complicated reasons).
You’re still not done with the documentation.
When you use exception 1(d), the IRS requires that you accompany the form with a letter, on headed paper, from the organisation that will be paying you the royalties, stipulating that you do, indeed, need an ITIN. I contacted Royalty Services at Lulu asking them about this. The same day, they emailed back with an attached letter requesting that the IRS expedite the issuing of the ITIN.
Several weeks after mailing the forms, I received a ‘notice’ from the IRS. This was a standard letter saying that I had failed to supply the necessary supporting documentation. It didn’t say in what way I’d failed. I was naturally nervous that the documents might have been stolen en route (they’d be valuable to anyone wanting to engage in identity theft). So I rang the IRS. A helpful woman took the details, confirmed that the documents had arrived, but couldn’t tell me what the precise problem might be. She referred it to the Austin, TX office and said that I should hear “within 30 days”.
I got another call from the IRS – but not the Austin office. The guy who rang me said that the staff at Austin aren’t allowed to make international phone calls. He told me that the Austin people had rejected the supporting documentation because they “aren’t originals”. I told him they most certainly were and he relayed this information to Austin (while I was on the line). In the end, he said they’d look again and call me back within 48hrs.
They didn’t. Instead I got a letter from the IRS saying that my application had been rejected because I hadn’t responded within the specified period. I had to start again from scratch.
The next time, I sent my passport. I didn’t like sending such an important document through the mail, but I had little choice. It is possible to send a copy – in fact, the IRS recommends this. But a scan or photocopy won’t do. It has to be a notarised copy. What’s more, if the copy is made by a non-US notary, it has to have an attached apostille conforming to the Hague Convention. Our local notaire can’t do this and wasn’t aware of how it could be done. It is possible to pop into your local US Embassy where you will find a US-registered notary capable of making the copy. But our nearest embassy is in Paris – a long and expensive trip.
So off went my passport, by registered mail. And five weeks later I received a letter with my brand new ITIN and (by separate mail the same day) my passport safely returned.
Once you have your ITIN, you also need to send the POD service a signed copy of IRS form W-8BEN. But you can’t fill this in until you have your ITIN. The POD company will simply put this on file, a CYA process that allows them to justify not extracting tax from your payments.
And that’s all there is to it – only hours of tracking down forms, explanations and supporting documents, plus weeks of waiting and I have … tada! … a nine-digit number. Oh the excitement never ends.