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.
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 :)
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.
Thoughts? Your experiences with the U.S. taxes?