It was recently brought to my attention that Xbox Live Indie Game Developers who are considered to be “non-resident aliens”, in other words foreigners living in another country without US citizenship, have been having trouble getting paid for their royalties through Microsoft.
After reviewing the site, I can see why, Microsoft provides no legal advice to game devs, and strictly forbids it in their forums. Being able to wrap your head around getting an ITIN, applying for zero withholding due to tax treaty status, and dealing with the IRS can be very challenging.
I hope to clear this up for those people.
In order to get paid from Microsoft and you are a non-resident without US citizenship, you must:
1) Have or get an ITIN (W7) or EIN (SS-4)
2) Submit a form W8-BEN
Seems simple, right? Well there is a lot of tricky information on these forms. Also, I read in a couple areas of the Forum that people simply got an EIN number. That would be impossible without an ITIN or SS#, so I am not sure how they were able to do that. My advice is to not listen to them, and proceed with an ITIN.
First I have filled out a W7 based on the way that most people would use them:
The assumption in that form is that your country falls into a “tax treaty” zone. See this page Table 1, Column 12 – Copyright Royalties, Other, and Footnotes). If your country has a 0 in that field you are in a tax treaty country. If you are not in a tax treaty country, the US will unfortunately withhold your money and you must file a US tax return. I can touch on that in a later post.
IRS Publication 901 (All Countries) – http://www.irs.gov/pub/irs-pdf/p901.pdf
For the section of the W7 (section H) that requires your country’s article number. You can find that here:
Search for your country, click on it, find “income tax treaty”, click on it, find “Royalties”, notate the article number on the W7
You must include identification with the W7 when you mail it in. Ideally send in a Properly Notarized color copy of your passport, the notary MUST be properly licensed or from a United States Consulate. If you can’t find a notary, you will have to mail in the original passport. I would recommend using a courier so they do not lose the passport. You will get the passport back, the US is pretty good about that.
Alternatively, the IRS will accept other forms of identity. You must submit two forms of ID from the list. One must have your picture on it. If you submit notarized copies and not the originals they must be copies showing the front and back of the card.
- Birth Certificate
- Drivers License
- Military ID Card
- Foreign Voter Card
In addition to the ID, you must include the letter from Microsoft. I have not seen this letter, but the requirement are:
“A signed letter or document from the withholding agent, on official letterhead, showing your name and verifying that an ITIN is required to make distributions to you during the current tax year that are subject to IRS information reporting or federal tax withholding.”
Next is the W8-Ben. Almost every one of you will submit this version. If you question this, see a tax professional.
Follow the instructions that I put on the form. This one is pretty simple, pretty much every one of you will use the same information.
A couple of notes:
- Make sure you use the exact same name for your Microsoft account that you use with your W7 and W8.
- If you are confused with the information that I provide, you must seek the help of a tax professional. This information is set up to be a guide and not meant to be specific to you and your situation. It is not meant as direct legal advice and I cannot be held responsible for the use of this information.
- I realize this process is difficult, but look at the bright side, once you are done with it, you never have to do it again!
- I will keep brainstorming alternatives, but it seems right now that this way is the least expensive way of doing it. Email if you are willing to bypass all of this and are willing to pay $500 to set up a corporation in the US. I may add to this post if enough people are interested.