How to deal with payout setup on the Windows Phone Marketplace (Getting a Tax Identification Number (TIN) and Submitting the W-8 form)

[Update: (that's what happens when you prepare the blog post for many days, things can change!) Microsoft has confirmed that ITINs are NO longer needed for publishers outside the US (link: http://forums.create.msdn.com/forums/t/92840.aspx). It is unclear though if this also holds true for TINs in general (namely SSNs and EINs) since the “Certification Instructions” in the App Hub have yet to be updated. However, you still need to send the W-8 form, so instructions for the form still apply, and of course read on to learn all about these terms and what they mean]

[This is a guest post from George Karavias of Anlock Ltd. creators of the Windows Phone 7 educational game First Words: Learning Animals]

So you’ve gotten over the hoopla of Geotrust and you have been registered as a Windows Phone developer. You are anxious to start submitting your applications. Hoping that Nokia and Microsoft get it together in the meantime and start selling smartphones, so the money starts rolling in! One thing is left though, filling out your “payout setup” …

And that is when you come across some rather unclear and quite disturbing “Certification Instructions” about contacting the IRS and getting a US Taxpayer Identification Number. Otherwise you are subject to an automatic 30% US tax withholding, say what? 30%?, US Taxing? Why? Harsh truth is that if you are not based in the US and if you do not figure out the “Certifications Instructions”, Microsoft is going to withhold 30% of your sales, on top of the 30% commission to give to the IRS in the US.

Fear not, we have been through it successfully (we have 0% Tax withholding) and we will give you some pointers on how we did it. But before we start we will quote Microsoft: “Note that Microsoft does not provide tax advice and that the following information is only to provide guidance. For more information, see the United States Internal Revenue Service website or your tax professional”, and emphasize that this is also true with us. All we are going to do is give you a few pointers, hoping that they will help. We are in no position to offer any further advice whatsoever, keep that in mind! Plus, we make no warranties about this, we are just mentioning our personal (but successful) experience.

Your Goal:

In a nutshell, acquire a Taxpayer Identification Number (TIN) from the IRS (Internal Revenue Service, the US Tax Authority) and submit it to Microsoft using the W-8 (an IRS form) in order to take advantage of the tax treaty between the US and you country .

 

Step 1: Determine if there is a tax treaty between your country and the US and what is the corresponding rate.

Download publication 901: http://www.irs.gov/pub/irs-pdf/p901.pdf , feel free to read through it, but what you are interested in is on Table 1. Find your country and check out the number under column 12/copyrights. Most countries have 0%, and several others, rates that are lower than the 30%. This is the rate that Microsoft will withhold instead of 30%.

Step 2: Determine what Tax Identification Number (TIN) you need.

There are different TINs depending on what type of tax entity the IRS considers you are, here they are:

#

Tax Entity

TIN

1

Individual

SSN/ITIN

2

Sole Proprietorship

SSN (preferred)/EIN

3

Partnership

EIN

4

Corporation

EIN

5

LLC-Class C

EIN

6

LLC-Class E

Owner’s SSN/EIN

7

LLC-Class D

EIN

– SSN, stands for Social Security Number. You need to follow the instructions here: http://www.ssa.gov/online/ss-5.pdf . It did not apply to us so I cannot provide further information, although I am not certain that you can get a SSN if you are not a US citizen or US immigrant.

– ITIN, stands for Individual Tax Identification Number: This applies to individuals (probably individual or student registration, *not* for companies). For an overview of what to do, go to your “Account profile” and then check under the “Payout Setup” tab. The information and the links are under point 1, right bellow point b. Again this did not apply to us (since we are registered as a company) so I cannot provide more information (you may also want to go through http://www.irs.gov/individuals/article/0,,id=96287,00.html .)

– EIN, stands for Employer Identification Number that is for us right there. So I will let you know how we got one.

Step 3. Get your TIN (EIN in our case).

You need to get the TIN, otherwise you cannot send the W-8 form and take advantage of the tax treaty. As I said the TIN we were required to get was the EIN, and here is how we got one. The information can be found here: http://www.irs.gov/businesses/small/article/0,,id=98350,00.html . You can do it online or over the phone: http://www.irs.gov/businesses/small/article/0,,id=97860,00.html . We did it over the phone by calling +1 267 941-1099 (US number); here is how to do it:

1) You must have in front of you the W-8 form: http://www.irs.gov/pub/irs-pdf/fw8ben.pdf filled out according to the instructions: http://www.irs.gov/pub/irs-pdf/iw8ben.pdf. These instructions are rather difficult to read and include Tax and Legal terms but you have to figure it out. The IRS representative that will answer the phone will need this information; otherwise he will not be able to help you.

2) Make the call and be prepared to be on hold for quite some time for the IRS to pick up.

3) The IRS representative will talk fast over the phone, so be prepared for that, and ask them to talk slowly to avoid any mistakes.

Finally some light, if you are successful with this call and provide all the information, the IRS representative will give you the EIN on the spot. That is right with one phone call, difficult as it may be, you will have the much sought after TIN/EIN!!!

Step 4: Validating the W-8 prior to sending it.

Now that you have the TIN, it is time to fill it in the W-8 form (that you have already filled out above), and validate it through Microsoft before sending it out. The W-8 must be dated, stamped and signed and the identification data must be those of your developer account. For more you should definitely read: http://msdn.microsoft.com/en-us/library/hh202925(v=VS.92).aspx , because there are some details that need attention (especially if you are from Canada, France, Italy, or Spain). Scan it and e-mail it to: mplcomm@microsoft.com . They will get back you with their feedback in roughly ten days.

Step 4: Sending out the W-8.

Hopefully by now Microsoft has validated the W-8 form and everything is in order. Now you need to send it out. Pay attention to the following:

1) You must use a courier to have a delivery receipt and to make sure that they get it. This is not mail that you need misplaced or lost.

2) You need to send it to :

Microsoft Windows Phone Marketplace
Attn: Finance Department
29011 Commerce Center Drive
Valencia, CA 91355
USA

3) After your courier confirms that they have delivered it, send Microsoft an e-mail again at mplcomm@microsoft.com, asking them if they actually got it and everything is in order.

That is it you are done, congratulations, you have just saved 30% (if the tax rate that Microsoft has to withhold is 0%).

As a bonus here are some more hints and tips:

1) If you send the W-8 form without the TIN, Microsoft will withhold the 30%, without a TIN you cannot take advantage of the tax treaty between your country and the US
2) Your W-8 form will not be processed until you are eligible for a payout by Microsoft that is why your Payout Details will read that Microsoft has not received the W-8 even if they have.
3) You will only know what tax rate they actually did withhold when you get the first payment report. Microsoft will not confirm anything through e-mail even after confirming that they have received the W-8.
4) A payout is possible when you reach 285$ in sales since the threshold of 200$ mentioned is after deducting Microsoft’s 30%.
5) If your business is in the EU (not Luxemburg) do not forget to also provide your VAT in order to be exempted from VAT as well.
6) Microsoft pays at the end of each month for the sales realized the past two months. Since Microsoft also uses operator billing, meaning that applications are also sold through carriers (Vodafone, etc.) clearing sales through them takes longer. Microsoft will not pay you until they actually collect from the credit card of the user or from the carrier. This clearing takes some time so be prepared that your payments may not match the actual sales realized.

Hope we have shed some light on a rather complex issue.

Don’t forget to check kids' apps for WP7 that I have co-developed here: http://www.windowsphone.com/en-US/search?q=anlock

First Words: Learning Animals

 

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