Non-US persons (whether individuals or entities, such as foreign corporations) are subject to US. tax at a flat 30% rate on certain kinds of income they receive from US sources. Sometimes an Income Tax Treaty negotiated with the US and another country can be used to reduce this tax rate.
Example: If you are based in Germany and your song sells or streams in a USA territory, then withholding will only occur for any download or stream in the USA territory and the withholding will be based off whatever treaty the USA has with Germany. In this case 0%.
The tax is withheld at source by the payor of the income. This payor, also known as a “withholding agent”, has responsibility for withholding the required tax and paying it over to the US Internal Revenue Service (IRS). In the event withholding is required and the withholding agent fails in its duties, the agent can be held personally liable for the tax. For this reason, payors are usually very careful to ensure they have undertaken all the necessary actions, part of which is to obtain a certification from the payee as to whether the payee is a US person or a foreign person.
The 30% (or lower Treaty rate) withholding tax is required only for payments made to foreign payees, it is not required when the payee is a US person. Foreign persons complete one of the forms in the Form W-8 series (e.g., Form W-8 BEN). US persons do not complete a form in the W-8 series. Instead, they use Form W-9.
Example: To keep this simple and relate it to you. Let's say you are in Spain, if you made 200 sales in USA and 200 sales in Spain, then only the sales in Spain would have withholding of 5% due to the tax treaty that the USA and Spain may have. If 200 sales = $50 then it's only $2.50 that is withheld. Every penny counts and whenever we make payments we will seek to lower any fee through Pay Pal and others to ensure your withholding is a non issue.
When the payor of the income has the W-8BEN on file, the payor will be apprised that the payee is a non-US person and will undertake its withholding duties. If the payee is a US person with a completed Form W-9, the payor will know it does not have to withhold this 30% tax.
You can claim some of the funds back potentially within your country. Check out this guide from the USA Internal Revenue Service to further understand. We additionally recommend you seek advice from a tax professional within your country.
Do I have to complete a W-8BEN form if my label/company is not registered in the U.S.?
Agreements with Symphonic can be completed for non-U.S. based labels without completing a W-8 form, however if we do not receive a completed tax form we are required to deduct U.S. withholding tax at the full rate of 30% from all your payments. If you are based outside the U.S. and are not a U.S Citizen you must submit a valid U.S. Internal Revenue Service W-8 tax form to take advantage of any tax treaty rates. You should consult your in-house tax department or an outside tax advisor to determine which W-8 form you are required to complete.