IMPORTANT UPDATE: The IRS recently revised instructions for form W8-BEN. A US Tax ID number is no longer required for claiming tax treaty benefits. However, you MUST supply a US Tax ID Number in the US TIN box OR your country’s issued Tax ID number in the Foreign Tax ID number box on form W8-BEN..
For non-US residents (called non-resident aliens), there’s a bit of good ‘ole USA bureaucracy involved in getting paid all, or as much of your royalties as allowed, under US Tax law from your stock music and sound effects sales.
First, all royalty payments are subject to 30% tax withholding. This means that from the royalties we pay you, we have to deduct and remit 30% of your royalty earnings to the IRS. Sucks for you, and it’s a lot of work for us. However, there are Tax Treaties in place between the US and most countries that allow for a reduced withholding rate. In many cases, the Tax Treaty benefit is a 0% withholding rate. (P.S. We’re not making this up. Check out this awesome post by Amazon.com on the same topic: https://kdp.amazon.com/self-publishing/help?topicId=A1VDYJ32T5D3U4 — if you don’t believe us, this is what a larger company with many more lawyers and accountants has to say.)
But to get this reduced rate, you have to claim it by filing some paperwork with Productiontrax, and the US Government.
Here’s how you do it:
1) Apply for a US ITIN. (Note: If you already have an EIN, SSN, or ITIN, skip this step.) A US International Tax ID number is required to claim tax treaty benefits. You do this by filling out Form W-7. Be sure to follow the instructions. For our purposes, make sure you check box a and box h, and quote Exception 1(d) – Royalties. You will also need to enclose a letter from us – you can email us for a copy. Send that completed form and supporting evidence to the address on the instructions. In about 6 weeks or less, you will receive your ID number in the mail.
UPDATE: We’ve learned that the IRS requires an original letter from us. Please email us to have a letter mailed to you.
2) Fill out Form W8-BEN. (Instructions: http://www.irs.gov/pub/irs-pdf/iw8ben.pdf) This form certifies to Productiontrax.com that you are a foreign person claiming a tax treaty benefit. Be sure to complete part 10, enter your new EIN, SSN, or ITIN on line 6, and don’t forget to sign the form. And for goodness sake, don’t check the box in Part III — it doesn’t apply to you (wikipedia it if you don’t believe me). You send this completed form to Productiontrax.com.
3) If you’re not an individual, get an Employer Identification Number
Foreign entities that are not individuals (i.e., foreign corporations, etc.) that are required to have a federal Employer Identification Number (EIN) in order to claim an exemption from withholding because of a tax treaty (claimed on Form W-8BEN) should submit Form SS-4 Application for Employer Identification Number to the Internal Revenue Service in order to apply for such an EIN. Those foreign entities filing Form SS-4 for the purpose of obtaining an EIN in order to claim a tax treaty exemption and which otherwise have no requirements to file a U.S. income tax return, employment tax return, or excise tax return, should comply with the following special instructions when filling out Form SS-4.
When completing line 7b of Form SS-4, the applicant should write “N/A” in the block asking for an SSN or ITIN, unless the applicant already has an SSN or ITIN. When answering question 10 on Form SS-4, the applicant should check the “other” block and write or type in immediately after it one of the following phrases as most appropriate:
“For W-8BEN Purposes Only”
“For Tax Treaty Purposes Only”
If questions 11 through 17 on Form SS-4 do not apply to the applicant because he has no U.S. tax return filing requirement, such questions should be annotated “N/A”. A foreign entity that completes Form SS-4 in the manner described above should be entered into IRS records as not having a filing requirement for any U.S. tax returns. However, if the foreign entity receives a letter from the IRS soliciting the filing of a U.S. tax return, the foreign entity should respond to the letter immediately by stating that it has no requirement to file any U.S. tax returns. Failure to respond to the IRS letter may result in a procedural assessment of tax by the IRS against the foreign entity. If the foreign entity later becomes liable to file a U.S. tax return, the foreign entity should not apply for a new EIN, but should instead use the EIN it was first issued on all U.S. tax returns filed thereafter.
Here are the forms again:
Find your withholding rate (copyright royalties): Tax Treaties by Country
Form W7 – Application for US TIN. (instructions)
Form W8-BEN – Foreign Person Claim of Tax Treaty Benefits (instructions)
Form SS-4 – Application for an Employer ID Number. (instructions)