When doing affiliate marketing for U.S. companies, one of the trickiest things for a non-U.S. Internet marketer is to figure out the whole U.S. taxation system. Seems that we "foreigners" need to know these things ourselves, because some of the companies running the affiliate programs don't know the requirements themselves.
I've written about the challenges that non-native english blogger faces, but that is nothing compared to the confusion that surrounds the U.S. taxation system. Seems that no-one has clarified the issue once and for all, and thus everyone is guessing. I am not a lawyer, and this is not legal advice, so proceed with extreme caution, but here's is how I understand it.
DISCLAIMER
I am not a lawyer. Do not take this as any kind of legal advice. This is but my understanding based on information I've found online. Heck, I don't even know if this disclaimer has any validity, because I am not a lawyer, so you should take a notice of that and consult someone who actually knows their taxes, OK?
Non-U.S. Business with No U.S. Activities
Here's a quick guide explaining why most non-U.S. affiliate marketers are not subject to tax withholding in the U.S., hopefully clarifying what we "foreigners" need to know about the U.S. taxation.
This applies to people like me,
- who are not U.S. citizens,
- do not live in the U.S. and
- do not have any employees or equipment in the U.S.
In other words, all my business is done and sourced from where I work (and also happen to live). In my case, Finland. I have a Non-U.S. business with No U.S. activities. If I would have some U.S. Activities, it would be different.
I don't have any U.S. activities, because
- I don't have any employees in the U.S.
- I don't own any equipment in the U.S.
In fact, like many other Internet and affiliate marketers, I don't have any employees and pretty much the only equipment I own is my own computer. Isn't Internet business amazing :)
U.S. Activity and Web Hosting?
Having or not having employees is probably pretty clear to you as well. But owning equipment in the U.S. on the other hand, might sound tricky as many of us have blogs and websites, sitting on web servers in the U.S., right? Well, at least I don't OWN the server...
And unless you have specifically BOUGHT a server that is run in the U.S., you do not own the web server. Hosting websites on a U.S. web hosting service is not owning U.S. equipment. Thus, renting a shared hosting (or even virtual private server) from U.S. based hosting service doesn't mean you have U.S. activities.
To clarify, let me quote Google AdSense Tax Information (they have it right):
Generally, utilizing an unrelated third-party U.S. web hosting service to host your web pages, renting web servers that are located in the U.S. from an unrelated third party, or having your payment sent to a U.S. Post Office Box or mail forwarding address, do not of themselves constitute U.S. Activities.
No Need to Fill the W-8BEN Form
I've had to go through this many times when joining a affiliate program, and every time it's equally confusing. They send or ask me to fill some weird tax forms, even that they shouldn't even need to do that.
Many affiliate programs ask non-U.S. affiliates to fill a W-8BEN form. However, this W8-BEN form is only required to be filled out for U.S. sourced income. Now "U.S. Sourced" doesn't mean where the person writing the check is, it means where the work was done by the payee (or an affiliate).
As the W-8BEN instructions (from IRS) state:
Who must file. You must give Form W-8BEN to the withholding agent or payer if you are a foreign person and you are the beneficial owner of an amount subject to withholding.
In general, as an affiliate for product/service/company X, living in Finland with no employees or owned equipment in the U.S., my affiliate income is foreign sourced income. If that's the case, the foreign sourced income is not subject to tax withholding in the U.S.. No tax forms are required in this instance, e.g. the W-8BEN form.
Source: Forum post, (Why there is usually no need to) fill the W-8BEN form for foreign affiliates
Commission Junction Example
Commission Junction is big affiliate service and for non-U.S. affiliates, they ask affiliates to select either (this is where I first encountered this):
- Certification Of No United States Activities
- W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
I hope this post clarified to you, that in most cases, the choice is to certify that you have "no U.S. activities". The same goes for many other affiliate programs as well. If they know what they're doing, they have similar place to state that you don't have U.S. activities.
If the people running the affiliate program are not sure, they will send you the forms and ask you to fill them (because they think they have to withhold taxes unless they have the form from you), even that they should just ask if you have any U.S. activity (as they already see that you are not from U.S. when they asked which country you are from.
Anyway, since they don't know what they should do, it's good that now you know better, and you can state that your affiliate income is not subject to tax withholding because you don't have U.S. activities (if that's the case).
Of course, if you do have employees and/or actual U.S. based equipment, the W-8BEN form is quite simple and probably know what to do anyway - or have the resources to get help, as you have employees :)
Conclusion
I say it again, that I am not a lawyer, and this it not legal advice or any kind of fact, but after reading and checking these things many times now, I'm pretty sure this is correct...
In short, I pay and handle my taxes where I work and live, in Finland. This is because I don't have any employees in the U.S. and I don't own any U.S. equipment and thus, don't have any U.S. activities.
If you do have employees in the U.S., or you own equipment in there, your U.S. based income is subject to tax withholding and you do have to fill the required forms and do a whole lot, but unfortunately I can't help you much there. If this is the case, I welcome you to write a part 2 on the subject if you want to share how you do handle the U.S. taxes, just contact me if you're interested in writing such a guest post.
But if you're like me, living somewhere else than the USA, you don't have any employees (or if you do, they're not in the U.S.) and you run your blogs and websites on rented servers (or servers not in the U.S.), all your income is "foreign sourced income" from U.S. point of view.
No IRS tax forms to fill, no U.S. taxes to be paid, just handle the taxes in your own country (which are probably much simpler to manage than the IRS / U.S. system), at least that's the case for me.
Thoughts? Your experiences with the U.S. taxes?
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9 links to this post.
51 comments.
Really useful post as always. It is a bit of a minefield. I've doubled my own confusion recently as I do now have a US company, as well as my European one.
Thanks Mike. I'm happy the issue is relatively simple and clear for myself for now. But overall, I think there is a lack of quality information on this “boring” and bureaucratic side of Internet marketing and running a small business online.
So there's a great idea for a post or two for you – on Mike's Life you can share how you manage the situation (when you're not confused with it anymore), what it takes for an European to run a US company, etc :)
That's a great idea! Thanks – look out for it.
There's no way I'd pay tax to the U.S, being a non-US citizen living outside there. It However, this post is good for people who see those forms and have doubts. Good job, Antti.
BTW, when and what prompted the change in your theme?
The “U.S. activity” is the hard bit. But happily they have rules that using a web hosting service is not owning equipment :) Oh, and it's not about you paying taxes, it's about the affiliate programs withholding money for tax, because they think they might think they have to…
Oh and I didn't change theme, I'm just tweaking the existing one, which is a still my own “design”. So just changed colors, the overall gray got me depressed, so little bit of green cheered me (and the blog) up I think :)
The new colors are definitely more cherry. The gray was a bit depressing. I always ended up crying when I visited your blog. ;)
Aye, super-happy blog beats a blog that makes you cry every time :)
Thanks for this very informative post… clears some query(on W-8BEN) that hanging on my head for sometime! =)
btw, found your link on Grizzly's blog..
Very interesting post! I got here through Griz's blog! I am also from Europe and this has cleared up a lot of the confusion for me! Here in Portugal I have to pay some extra taxes on a lot of stuff I buy online because of the VAT, and it always sounds like a mystery why they charge some things! I have actually avoided some affiliate companies because they wanted me to sign those forms and now I know better! Thanks!
Hi! Thanks for dropping by and taking the time to comment! I'm happy if this helped you – for me, just the form names used to be so confusing that I had to “google” them to figure out what they are. and it took a while to realize I don't even need the forms (as explained in the post) :)
Nice to see you here! Like I mentioned on the post, lot of the U.S. companies are as confused as we are with non U.S. affiliates and they just ask for the form to make sure they don't mess anything…
And there are even affiliate programs who don't take non U.S. affiliates because they have not been able to figure out how to handle taxes with “international” affiliates :(
This is a good article and you are addressing very important topics. However I would also like to know how does the taxation go in our country when talking about internet marketing. For example, if I'm an affiliate marketer selling digital products, what types of taxes I should pay to my country? An ALV of some sort?
In general, affiliate marketing or any kind of Internet marketing/business is taxed like any other business or income… And on taxes for e-products… I would guess the VAT for electronic goods can be different in each country, so I would go and ask/look from the local tax adminitration pages regarding VAT.
This is very useful information, I have many friends abroad who asked me this question and I never really knew the answer. Now I know where to send them. Thank you.
As an American living overseas, I have some knowledge of how the US tax system works, and I am thinking about the way some US states have required their business owners to collect sales tax.
With that in mind, and even though it sounds a bit far out, it wouldn't surprise me if the US tried to argue that US hosting companies are the 'employees' of their subscribers in the sense that you pay them to do a job for you.
That's a cynical outlook, I admit, but it can't be overlooked that all tax authorities, not just the US IRS, continually look for additional ways to collect revenue and will try most anything.
Thanks, for clearing this up. When i joined Commission Junction i was thinking is web hosting an U.S. activity or not ? Now i have some info about that so this post cleared that up. Again, Thanks for sharing your knowledge :)
I live here and earn all my income here, I use a US based/trained accountant and still have tax problems. The IRS will always find a way to make you pay a little more. If you can stay away from them it is in your best interest to do so.
Thanks for this great piece of information! I am into affiliate marketing and this clears lots of clouds of doubts that I had.
Thanks again.
Srinath
Great post. Just a question though:
What if I've hired a US-based freelancer via elance.com? Does that constitute as having an employee in the US?
A bit cynical yes, but I think we are relatively safe as the Organisation for Economic Co-operation and Development (OECD) has determined the “rules” when it comes to web hosting as said, that using the service (“renting”) is not “owning”, and thus not an U.S. activity
Like I said, it's very confusing and hearing that even US accountants have trouble with the system, just proves the point. And I'm not a believer of staying away from “trouble”, but try to figure out how things should be instead, but point taken :)
Hmm, I would think the people at elance (or similar service) would have an idea how that goes, or there might be something in their “FAQs”, as I'm sure you're not alone with your question. In the end it goes down to “what is an employee” from tax point of view – getting an expert to do something sounds more like paying for services, instead of hiring, but that's just me.
THANK YOU! You're an angel, this is one thing that has totally confused me to the point where I ended up not signing up to Commission Junction and have done nothing with Linkshare, even though I signed up with them. I knew, intuitively, that I shouldn't be taxed by the U.S. for affiliate commissions. But the terminology is so confusing, and the way they explain it usually just makes it worse.
I really appreciate you taking the time to figure this out and post such a clear article about it. And I'm glad I found it!
I had a lot of confusion on this issue. Not anymore. Thanks Antti! More power to you…
Welcome to the blog and thanks for the comment, always great to get some feedback. I was so confused about these US taxes myself, I had to clear my thoughts and write a blog post :) I'm happy it helped you too!
Thank you, clarity in a sea of confusion ;-)
Hi Antti, I don't live in the US, I've just joined Commission Junction.. so are you saying that I should choose: Certification Of No United States Activities.. and NOT the W-8BEN Certificate of Foreign Status of Beneficial Owner…!!!
my sites are hosted by US companies.. and the site that I want to promote the advertiser's products (who's on CJ), is a CB store, which is based in the US too.. is there any problem with this ?!!
Thanks..
Hi Raffi. It doesn't matter where the site or the company you promote are located. It matters where you, your employees and equipment you *own* are.
From what I understand from your comment, you can do the “certification of no U.S. activities”, read what it says and ensure you can certify what it says and it's all good (you are not an U.S. citizen, you do not live/work there, you do not have any U.S. based employees(?) and you do not own any equipment in the U.S that is used to generate the income).
With hosting company, even that it is US, you are renting the equipment, not owning it (which is the case unless you have specifically bought the hardware, even if you have “your own” virtual private server, you are still renting it).
US tax issues have bugged me for quite sometime now as I was always scared of having the GREAT IRS on my a** for not complying with their tax policy. If the info contained here within is true, I guess I can now relax and continue with my affiliate marketing as I owe the US nothing, zip, NADA! ;)
I'm crafting my top blog posts for the week and will most DEFINITELY include this post amongst the lot!
The whole U.S. tax situation is hard because there is no clear instructions about this anywhere, and all companies do their own interpretation of it. And if they have understanding that they need W-8BEN, it's hard to convince them otherwise.
Happily the big names like Commission Junction has now changed their system and they allow that “certification of no U.S. activities” too. And I'm trusting that big names like Google and Amazon has figured it out, as they only ask for forms and stuff if one needs to pay taxes in the U.S. (e.g. has employees there).
Antti, do you know what the deal would be if you are a US Citizen, but not living in the US? Living and working in another country permanently for many years?
No sorry, haven't looked into that. I'd go and dive into IRS.gov for more info – there's plenty of info for U.S. citizens there.
But in general, if you are paying taxes to one country (usually where you work or do business), you don't have to pay to another country (taken that the two countries have some kind of tax agreement), but there might be some forms to fill to inform of such arrangement.
Thanks Antti! I suspect you are getting quite a bit of traffic to this post, and you deserve every bit of it!
Thanks for this post. Linkshare seem to insist on us filling out the W-8BEN (I am in the UK) even though I realise it shouldn't apply. I've actually accrued a few $s through them now but haven't got a payment yet!
I wish they had a “Im non-US” button!
I appreciate the comment, but my comment policy asks you to use real name when leaving comments, not website names or keywords (I prefer talking to YOU, not your website, if you know what I mean).
Thus, I'm deleting your comment soon. Feel free to edit your comment / “name” and I can leave it here. Or leave another comment using a name (heck, call yourself “Bob” if you want to) or Twitter connect for example.
Thanks for the comment. Next time, use your name as the commenter name instead of the website name, as that comes off as spam. so Bob@website is cool, just 'website'… not so much :)
Thank you for sharing your experience! Does anybody know how would be the case for advertisement on your site and mobile applications from companies like ADmob for example if the apps are being downloaded also in the US and get advertisement from American companies?
Antti,
I own a non-US company and run a site similar to elance.com. Do you think I have to withhold money for those US citizens who get work from my site? Do the nature of my site constitutes U.S. Activities therefore I have to pay income tax to the IRS?
I would guess you need to withhold, but I don't know for sure. US taxes for non-US people are confusing enough – so I'd contact someone who actually knows how to handle US taxes when you are the one who runs the show.
Hello Antti,
I found your post when I encounter problem while trying to enroll in sketchers affiliate program. I'm also non US struggling female webmaster ;] and I wanted to monetize my blog with some nifty shoe ads :] Sadly I came upon problem with tax forms and I could not finish my sign-up process because I don't have tax number. I tried couple of times and at the end I choosed option 'foreigner' and entered 000000 for tax number. I don't know what will happen with my potential earnings from the shoes. If I make any ;]
Anyhow I just wanted to share my ordeal with the World :]
Cheers all.
Thanks for sharing the story. Personally I've stayed away from all affiliate programs which do not understand non-US affiliates :)
Great information – thank you! I still have a question: does the foreign affiliate need to file the W8-BEN if he/she sells products/services to US residents?
Rebecca, only thing that matters is whether or not a foreign affiliate has US-based employees or equipment. If not, no need to file the W8-BEN.
Great information – thank you! I still have a question: does the foreign affiliate need to file the W8-BEN if he/she sells products/services to US residents?
Rebecca, only thing that matters is whether or not a foreign affiliate has US-based employees or equipment. If not, no need to file the W8-BEN.
Just wanted to say thank you so much for this as I was trying to read US tax forms… but it sent me to sleep :)
Thanks for the post. However, what if you have a “reseller hosting” package and you do not own the server. I assume that means you have non US activities?
I'm interested in this too. I'm assuming if all your employees are non-US than you still fall under non US activities.
As far as I know, the key is owning stuff in the US… And reseller hosting package does not seem that different from “renting” a server for yourself, so my guess would be it still falls under non-US activities like normal hosting, since you do now own the server.
Yes, no US activity means you have no US employees and no equipment (e.g. servers) you own in the US.
I found this helpful in confirming what I knew to be right. Thanks. Commission Junction is easy. LinkShare's tax info page is downright b0rked. I can't get exempt status from them unless I have a US Social Security Number or a US Employee Identification Number. I emailed them and described the problem but also told them it was a bit rough to have a foreigner know more about their tax obligations than they do :)