Ok, if you’re under about 30 you aren’t going to be at all interested in this, and if you’re over 30 you probably won’t be much, either. Unless you write books. I’m in the UK. So as far as the US tax department is concerned, I’m an alien. The good news is they have now recognised that I exist and pay taxes in the UK, and by the magic of tax treaties, I will now get all of my royalties for sales in the USA.
If you too are a ‘foreigner’ and publish your books on Kindle Direct Publishing, you should hunt down the menu on the side of the ‘help’ section where it says something like “Information for Non-US authors”. Note that this is absolutely nowhere near your account details, sales information or anything else that you might come across by accident. By contrast, Smashwords and Createspace have it pretty much staring you in the face. Non-US authors have to have 30% of their royalties on sales in the US retained by Amazon (or Smashwords, or Createspace) for tax reasons.
Whether you can get all of your royalties is dependent on your home country. They need to have an agreement with the USA, and in the case of the UK, they do, and it means that the US will release all of my royalties – so I can pay tax on them in the UK, of course.
Once you find this information on Amazon (KDP), Smashwords or Createspace, it is relatively easy to follow, it just takes a lot of reading. It’s tax, ok? That’s just life, as far as I can see. Step 1: get a number known as an ITIN, or an EIN (I did that, it seems easier) from the US Tax people (IRS). There are forms to fill in and send to the USA. There are sample forms on the sites. They try to help you work out what to do. You can phone the USA and they’ll sort it out on the phone; fax it – estimated turn-around time 4 days, or send it by post (mail) – expect 4 weeks. I summoned up the courage to phone the US and managed to get them on a public holiday. Three months later I summoned up the courage again and chickened out, and sent off the forms in the post. 6 weeks later I have my EIN and now I can proceed to step 2.
Step 2: you put your ITIN or EIN number on another tax form W-8BEN, then make three copies of it (if you need all three). You put your KDP reference number on one and send it to Amazon by post, put your Smashwords id number or email on another and send it to Smashwords… and I hope you can now work out what to do with the third if you have a Createspace account. Those companies now have the necessary information to pay you all your royalities and report that to the US IRS on their own tax returns. I think that makes us all happy.
I am not a financial adviser so don’t ask me for advice. There’s some discussion on the Goodreads European Writers Forum if you need more ideas, but most of the Smashwords information was intelligible and helpful. I think you have to have an account to access it, though.
If, like me, you thought, “well, come on, how many books am I going to sell in the USA?” you may end up being surprised. I reckon maybe half my sales are coming from there now. It’s a big market, and the US IRS is going to make a lot of money out of non-US indie authors who don’t negotiate the path to tax-status heaven!