What Canadians who sell Kindle e-books need to know

This post is for all my Canadian author friends who sell – or are thinking of selling – their books as e-books using Amazon’s Kindle service.

I started selling Kindle books last year. This week, I got a surprise in the mail from Amazon, a “Foreign Person’s U.S. Source Income Subject to Withholding”. Amazon will withhold 30% of the royalties they paid on the Kindle books. They are required to do this by the IRS.

However, those of us living and working in Canada are exempt from royalty tax withholding. As I understand it (and I could be wrong here, but this is what I have been able to ascertain from talking to both the Canada Revenue Agency and the Internal Revenue Service (IRS) in the U.S.), the reason for the exemption is that if you are honest about your royalty income and report it at tax time, the Canadian government will tax you on that income. The level of that tax depends on your total annual income, but it would be reasonable to say that it might be around 30% or so.

When Amazon withholds the tax, you’re essentially taxed twice… 30% on the U.S. side and another 30% by the Canadian side, totaling about 60% tax.

So, the American and Canadian governments came to an agreement that more or less says, “Canadians are exempt from U.S. taxes on royalties because they have to pay tax on their income in Canada.” (Again… I am paraphrasing according to what I understand… and I could be wrong.)

However, a problem arises when Canadians sign up for a Kindle account. Canadian authors must “claim treaty benefits” in order to not be taxed by both the U.S. and Canadian governments. (No one tells you this when you sign up for a Kindle account.) You need to correctly fill out, sign and submit a W8-BEN form in order to claim these “treaty benefits”. You can get a W8-BEN form online form here: http://www.irs.gov/pub/irs-pdf/fw8ben.pdf

Amazon will not process the form without a TIN (Tax Identification Number).

There are two types of TINs:

Steps to follow:

  1. Figure out what type of TIN you need.
  2. Apply for the correct type of TIN with the IRS. You can do this over the phone, by mail or by fax. (Canadians are not eligible to apply for these numbers online.)
  3. Fill out the W8-BEN form. You must include either your ITIN or your EIN on your form or Amazon will not process it.
  4. Send your completed, signed form to Amazon. You can scan your form and e-mail it to them through the e-mail address they provide on their site.

Do all this as soon as you set up your Kindle Direct Publishing (KDP) account. That means, do it before you make your first sale on Amazon. Do not wait! Get it done right away.

If you do not claim the correct treaty benefits using the W8-BEN form, Amazon will withhold tax. (They are just following the rules required by the IRS).

Then, you will need to fill out both a W8-BEN form AND an affidavit form to backtrack. (I am still waiting for confirmation that they will reimburse me for the taxes they withheld for 2011).

Today I spent over three hours on the phone with the IRS (much of the time I was on hold). In total, I spoke with nine different IRS agents to try and figure this all out. (No, I am not kidding).

Most of them could not help. What I can tell you is that there are two different sets of phone numbers to call. Americans can call the toll-free 1-800 number. The folks who answer those lines can’t help foreign nationals much. There are different numbers for foreigners to call. Today I called 1-267-941-1000 and eventually got through to someone who could help.

The best answer I got was “All this e-commerce stuff is new… We’re not trained in it… But basically, if you are a Canadian working and producing your writing in Canada, paying your taxes in Canada and you do not live in the US, you should be able to claim treaty benefits.”

The one question no one was able to answer clearly for me was, “If I have a TIN will I be required to file US taxes?” The best answer that came was, “Probably not, because you are claiming treaty benefits. You may have to fill out a form to claim exemption.” But whether or not this is actually the case remains to be seen…

My big disclaimer: I am not an expert in US taxes, or Canadian taxes either, for that matter. I claim no authority or expertise in these matters. This information is provided for informational and educational purposes only. I am simply sharing my own experience and what I learned as a result of it. It is your responsibility to do your own research and adhere to all the tax laws of your jurisdiction.

Resources for Canadian writers and publishers to check out:

W8-BEN Instructions

Article 901 – US Tax Treaties

IRS Publication 515

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30 Responses to What Canadians who sell Kindle e-books need to know

  1. Dixie Strauss says:

    What if I am an American citizen living/working in Canada? Will I be treated as a Canadian or will I end up somewhere in between in these situations?

  2. Joanne Chase says:

    My husband has been selling ebooks on kindle this year and has made about 20k so far this year. He has filled out the proper paper work with the IRS, and is not paying taxes in the States. My question is when filing his taxes in Canada, how does he declare this royalty income? Can’t seem to find anything on Canadian govt taxation site….

  3. I recently received my ITIN. Smashword instructions said I needed a letter, which I could only get after I sold something. I did, and they graciously forwarded me the letter. Next I had to pay someone to look at my passport. Since it seemed to be about $200 (no Canadian notaries or lawyers acceptable), I decided to mail my passport off to Texas. (It is up in a few months anyway, and a new one at $85 is less than this fee.). In 6 weeks, back came the passport, and the ITIN number. I am now at 0% at both Smashwords and Amazon.
    Good luck!
    Bruce Corbett

  4. Ooops, about amazon Kindle tax, miscalculation. 30% from the remaining 70 is 21%, leaving 49%. right?

  5. You write it is 30% for US tax plus 30% Canadian tax, making it 60% tax. Not so, since Canada takes 30% from the remaining amount so that makes it 48% total instead of 60%. Still…

  6. Marco says:

    Oh okay. I appreciate your help! This blog has been an incredible resource!

  7. Marco says:

    I intend to self-publish on Amazon Kindle. It is my understanding that I have the right to be a sole proprietor under my own name and therefore it is not necessary to publish under the umbrella of an incorporated company to obtain an EIN.

    However, as a Canadian, is it required to have a business license to publish on Amazon?

    Thanks for your help.

  8. jon says:

    I’m based in Canada and i faced this but found a solution from chatting to several people in the UK here

    http://catherineryanhoward.com/2012/02/24/non-us-self-publisher-tax-issues-dont-need-to-be-taxing/

    Its very simple and it works as I have received an email from amazon accounts dpt to say my tax withholding is set to 0% now.

    All you need is the EIN number, you can phone 1 267 941 1099 this is the IRS and it deals with it, then you need a W-8BEN for kindle, and if you list with smashwords and createspace the same again. ( so three W-8BENs ) only 1 is needed if you just want to do ebooks with amazon.com

    Once you get the Ein over the phone, fill out W-8ben, mail it to them express and within a week at least for amazon and createspace you will be ok. Smashwords im still waiting on they seem slower

    • Thanks so much for sharing your tips and insights. Very useful, indeed.

      • Marco says:

        Hello, and thanks to jon for that link! Very helpful!

        Sarah, you wrote this: “ITIN – Individual Taxpayer ID Number – This number is for individuals (e.g. freelance writers and sole proprietors) ”

        Are you sure the ITIN applies to sole proprietors? Because if you scroll down to the comments section of jon’s link, a number of people claim to have received an EIN by identifying themselves as self-proprietors.

        Any clarifications would be helpful! Thanks!

      • I won’t claim to be an expert on how the IRS works! I know that as someone who owns an incorporated business, I was not eligible for an ITIN. I had to get and EIN. It also depends on if you employ others. If you are a sole proprietor who employs others (even a book keeper), I think you may need an EIN. The ITIN is for the freelancer / DIY person, I think. I could be wrong…

      • Marco says:

        According to the comments section of this thread:

        http://nailyournovel.wordpress.com/2011/08/31/how-i-got-my-itin-us-individual-taxpayer-identification-number/

        Self-publishers are sole-proprietors and thus qualify for EINs. *Phew* Apparently, ITINs are only required by US citizens who are published by trade publishers.

      • I think it depends on if you are an individual who is self-publishing or doing so under the umbrella of an incorporated company (set up by you).

  9. Jodie Renner says:

    Hi Sarah,

    I’m a Canadian about to publish my first book through Kindle. I haven’t started the actual process yet. I’ve heard that I should open a US bank account. Do you know anything about that? I have a USD account at RBC here in Canada, but I don’t think that’s good enough…? Any tips you or your readers/followers can offer would be greatly appreciated! Thanks a lot!

    • I didn’t. They send a cheque in USD and I take it to my bank and they convert it into CAD for me there at the bank. You have to stand in line have the bank teller do the conversion for you, instead of just putting the cheque in the ATM, but otherwise, it is pretty straight forward.

      • Jodie Renner says:

        Thanks, Sarah. I actually have a USD account at RBC here in Ontario, and a USD Visa to go with it. You could open a USD account at Royal Bank and maybe other Canadian banks, to avoid paying for the switch-over. But if you have no use for US dollars, I guess that would be pointless…
        Thanks for responding to my question!🙂

  10. This is very useful for people who don’t know about this. I’ve had an ITIN for years and I send each of my clients in the U.S. a W8-BEN form. Some ask if they should send me some tax form or another, and I say no. The whole POINT of having an ITIN is so you DON’T have to fill out any U.S. tax forms or pay any U.S. taxes.

    • Very interesting… I can’t say as I saw that clearly explained anywhere. I found every single form and set of instructions *painfully* difficult to understand… And I have 2 degrees in languages, and a Ph.D.! Seriously… they don’t make it easy, do they? Thanks for sharing your insights.

  11. […] What Canadians who sell Kindle e-books need to know [Literacy, Languages and Leadership] (via @BonnieZink) […]

  12. Joe Clark says:

    You need to use an acceptance agent to fill out and verify the forms correctly. There are a couple in Toronto and many across Canada. Do not assume you can just fill in every box on the form and mail it in and everything will just happen tickety-boo.

  13. SpeakersGold says:

    I can imagine how frustrating it must be.

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