Avoid The 30% Tax Witholding For Non-US Amazon Sellers
When it comes to US Tax Law, a lot can be really confusing. Putting it simply, the law requires companies such as Amazon to withhold 30% of any non-US sellers royalties.
If you are an American, then there is really no point in reading this article. However, if you are not an America and have just got accepted to the Merch by Amazon program, you have probably just filled out the tax form and got hit with Amazon automatically keeping 30% of your earnings for tax purposes. Keep in mind that this is not the portion of each shirt that Amazon keeps (base cost + 15%), but 30% of your total royalties that you have earned that you will never see.
This can be really disheartening that you will automatically be losing an extra 30% of your hard earned money after you put in so much work designing and selling those designs on Merch by Amazon.
The direct way to avoid this is to create an LLC for non-US residents. But if you don’t plan on doing that, depending on what country you are from, there is actually a few steps that you can do to actually decrease this tax on you, and sometimes can completely remove it from your account.
This means you make more money, which is what we are all about!
What You Will Learn
- What countries are eligible for reduced Amazon tax withholdings
- What an EIN is and why you need one
- 5 Steps to get your EIN to reduce your tax
Now, before we begin, I AM an American but being in the position that we are in, many of our friends and Merch Informer users are from other countries and have had to deal with this tax. The below steps are what they had to go through in order to save those thousands of dollars that would have otherwise been lost. Please also note that I am not an accountant, financial planner, lawyer, or tax man. If you have any specific questions about how to go and pay taxes on the royalties you receive, I highly recommend that you talk to a trained professional such as an accountant.
Tax Withholding Rate – Country List
If you want to figure out if you are eligible to reduce the US tax withholdings, you need to know that it depends on where you live, where your company is registered, and what tax treaty your country has with the USA. The above picture shows some of the countries and what their withholdings are based on the tax treaty with the USA that is in place. It does NOT matter what nationality you are when looking at this image. What matters is where your business is located or where you live.
As an example, if Cory was a Mercher who was an American but was currently living in Portugal, he would have to pay the Portugal 10%. That being said, if he set up his own company in the USA, he would be able to not pay any taxes and save that 10% tax withholding saving him thousands of dollars on his royalties. The full list of countries on the IRS (internal revenue service), can be found here: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z.
Now that you have taken a look at the above image, you will know if you are eligible or not. If you are, we need to make sure you get a particular tax number called an EIN or Employer Identification Number. You may have also heard of getting an ITIN or an Individual Tax Identification Number but the process of getting one of these requires lots of time, lots of phone calls and is generally just a massive headache.
The American IRS views people who sell on Amazon as small business owners and thus, you can get an EIN. The best part about it, is you can get one from your house without making too much effort.
Quick Note: As of 2017, instead of the following steps we are going to go over, you may be able to use your local tax number when filling out the Amazon forms. This should work for most countries, but there are still some cases where you will need to call the IRS to get your EIN. If this is something you need to do, please follow the instructions below.
Getting Rid Of The Tax Holding: How To Get An EIN
The first thing you need to do is get your EIN number. Fortunatly for you, this is actually a really easy process. You simply need to phone up the IRS and ask them for your EIN number.
Step 1: Call the IRS
A few years ago, you used to be able to fill out a form online but since that has changed in the past few years (requiring a social security number (SSN), or an ITIN), the best way to get around this is simply by calling them.
IRS Phone Number: (1) 267-941-1000
If you want to make this as painless as possible call them at the beginning of their shift when they open. The office hours are 7am-10pm eastern time so give them a call right when they open and you should get right through.
Step 2: Give Information
When you call, you will need to give the IRS some basic information about yourself. They will ask for your first and last name, your address, and sometimes your company if you operate one. If you do operate a company, let them know what your company does.
Step 3: Phone Call Reason
Finally, they will ask you for the reason for your call. Here are two reasons that you could give them:
- I just recently started a merchandise account with Amazon.com and I need to comply with the IRS withholding regulations.
- I need an EIN number to comply with IRS withholding regulations.
Either of these should work as they are true, short, and simple.
Finally, they will ask you some questions about running a company in the US (do you operate heavy machinery?). The answer here is clearly No. Answer the questions truthfully.
Step 4: Grab Your EIN Number
Now that you have answered their questions, they will provide you with your EIN number. Make sure to write this down and you should be good to go. As soon as the IRS gives you an EIN, you can begin using it right away but it can take some time before the IRS updates their own information to reflect the EIN that they have provided you.
Step 5: Update Your Amazon Tax Information
To get to your Merch by Amazon tax information, follow these steps.
First, go to your account and click on “My Account” in the upper right hand corner.
Next, click on your tax information.
From your tax information page, you should see something that looks like this:
Click on “Update Tax Information” and go through the interview.
When they ask if you have a US EIN, click on yes and fill it out with the EIN number the IRS just gave to you. Click on submit for the form and you should be good to go.
Note: It may be possible that Amazon sends you an email saying the IRS records did not match. This is because the IRS takes about a month to update their information. If you get this email, simply wait a few weeks and then do the tax forms over again with your EIN and your witholding rate should be reduced.
Final Tips for MBA Sellers
There are so many people out there that rely on asking Facebook groups questions about taxes or just trying to do them themselves. This is a real business and you need to treat it as one. You need to find an accountant locally where you live that can help you with your taxes.
When they ask you what you do, do NOT tell them that you sell t-shirts on Amazon. It is actually Amazon that sells the shirts and they pay you a royalty. When they ask, say that you receive royalties from Amazon and then they will know how to report those correctly on your local taxes.
Finally, if you decided to switch over from a personal EIN to selling your shirts as a company, you will need to go through a different process. A company can have an EIN as well, but when you apply for that one, it will be your company that is requesting the EIN. This will require another phone call to the IRS and once you receive that EIN, you will need to then go back through and update your Amazon tax information. If you ever decided to change your company name, you will also have to call the IRS and change the tax information in your accounts as well.
Essentially if you restructure or rename, you will need to update your account information as well as call the IRS.
Before I close this out, please contact a local tax accountant. I am not a lawyer, or an accountant and simply sharing information that has been passed on to me.
Good luck, and enjoy your extra royalties in your bank! Until next time, keep selling merch!