01 Mar Foreign Withholding Tax on Royalties
When selling books into international markets, say hello to foreign withholding tax on royalties!
Please note that the information given in this article is based purely on our own experience. We are not specialized in international tax matters nor do we pretend to be. We urge you to talk to your accountant and/or tax advisor to see which rules and forms apply to your specific situation.
By Marleen Seegers – first posted in March 2014.
In spite of technological progress, publishing a book in translation can still be a lengthy process. Once the back-and-forth negotiation emails and phone calls have led to a specific agreement, acquiring publishers are given on the average 18 months from the date of the agreement to have the work translated and publish their edition of the work. 1
Albeit less visible (and definitely less sexy) than the actual translation and publication of the work, the administrational side to rights selling can also be a lengthy procedure. Most international publishers still require a paper copy of the signed agreement—in spite of the increasing possibilities to use electronic signatures with for example Adobe Acrobat Sign. Mail gets lost somewhere between China and France, new agreements have to be drafted and the signature process starts all over again.
Once the agreement is signed by all parties, the (portion of the) advance payment on royalties becomes due. When money is wired from one country to another, we enter into the realm of international tax treaties. This means that depending on whether the “paying country” and the “receiving country” have signed a tax treaty, the tax authorities of the paying country will withhold taxes on the royalties due.
Some countries seem to have signed no tax treaties at all, and withhold a percentage no matter what (Brazil, China, Taiwan, Korea…)—though correct me if I’m wrong. In case a tax treaty exists between the two countries, the rights seller has to provide a certificate of tax residency, or tax exemption form, to reduce or avoid such withholding taxes.
It has proven to be quite a challenge to find information on the Internet about the existence of such treaties, which percentages are withheld, and which certificates need to be provided to reduce/avoid double taxation. This website or this one are a useful start, as it will let you compare tax treaty rates between two countries (big thanks to Filip Wojciechowksi at the Graal Agency in Poland, who pointed out its existence!).
To take it one step further, I propose to you rights sellers out there to bundle our forces: let’s start sharing our experiences!
We’ve started filling in below table based on foreign rights agreements we’ve concluded for our clients, and would like you to help us make this list as complete as possible.
Please note that the percentages are always calculated on the gross proceeds.
* The percentage for Mainland China depends on the specific region in China and there are slight variations, but 16.72% seems to be applied the most.
** You can download a tax report from the Spanish Publishers Association here. The last page mentions a list with all the withholding taxes between Spain and the countries with a special agreement (those for which one can ask a tax exemption form).
*** For Taiwan, as of 2013, French, UK and Canadian publishers can have a reduced 10% tax with the appropriate tax certificate (which apparently is more difficult to get hold of than the other ones, all tax officers not being informed of its existence—we’ll post the details here as soon as we know more).
Specific Tax Forms
For most of the paying countries, a certificate of tax residency from the receiving country will suffice. Some paying countries however need specific tax forms, often combined with the tax certificate from the receiving country:
- Belgium: Foreign tax residents need to fill out form 276R;
- Croatia: Foreign tax residents need to apply for a personal identification number OIB here and fill out a double taxation form;
- France: Foreign tax residents need to fill out forms 5000 and 5003 (US tax residents are not required to have the IRS sign form 5000, their bank can do it instead);
- Germany: Please refer to this website of the German tax authorities for information on specific tax forms per receiving country; There’s a special tax guideline in Germany, which allows German publishers to transfer payments once per title under 5.500,- € into foreign countries without any tax deduction even if they haven’t received a valid tax exemption form.
- Greece: Find more information about requesting double taxation relief on royalty payments and a list of downloadable forms per country here;
- Iceland: Foreign tax residents need to fill out form RSK 5.42;
- Italy: Italian publishers might require foreign tax residents to fill out this form on top of delivering their country’s tax certificate;
- Japan: Foreign publishers need to submit a certificate of residency such as this one;
- Portugal: Portuguese publishers might require foreign tax residents to fill out this form on top of delivering their country’s tax certificate;
- UK: Find more information about requesting double taxation relief on royalty payments and a list of downloadable forms per country here;
- USA: Foreign tax residents (individuals/sole proprietors) need to fill out a W-8BEN form, foreign entities (companies) need to fill out a W-8BEN-E. Both need to obtain a US tax identification number (TIN) via form SS-4 in order to reduce the double taxation to the maximum. A TIN may be an EIN (for individuals and businesses) or an ITIN (for individuals only). A list of countries that the USA has signed tax treaties with can be found here.
The above table and tax form listing are living documents—as you can see they are far from being complete. Once again, we would appreciate you contacting us if you can provide missing or additional information, or see errors that need to be corrected.
The 2 Seas team and no doubt many other rights sellers will be grateful for your contributions!
- This doesn’t always mean that they will actually take 18 months to publish. A good example is the Dutch edition of GAY PROPAGANDA. RUSSIAN LOVE STORIES, published by Lebowski Publishers at the eve of the opening ceremony for the Sochi Winter Olympics. The publication of the original English edition by OR Books took place at the same time. Timing was essential here, which meant that the Dutch translation had to be carried out in a few months (the deal was closed after the 2013 Frankfurt Book Fair). We just received our voucher copy and congratulate Lebowski on their great job! ↩