This FAQ is written for non-U.S. citizens / non-U.S. residents who earn income from Amazon KDP (Kindle Direct Publishing) and are confused about why Amazon withholds U.S. tax, whether a U.S. LLC fixes it, and what legitimate planning options exist.
Educational only (not legal or tax advice). Cross-border tax answers change fast based on where you live, your tax residency, the contract terms, and where the work is performed.
1) Why does Amazon KDP withhold U.S. tax from non-U.S. creators?
Because many KDP payments are treated as royalties, which often fall under the U.S. withholdable category called FDAP income (Fixed, Determinable, Annual, or Periodical). For foreign persons, U.S.-source FDAP is generally subject to withholding tax at a statutory 30 percent rate on the gross amount, unless reduced by a tax treaty.
Key idea: Withholding is collected up front by the payer (Amazon or its withholding agent). You do not get to net expenses first unless you are in a structure that changes the tax treatment.
2) What exactly is FDAP, and how is it different from business income?
For non-U.S. persons, U.S. tax commonly falls into two buckets:
- FDAP (withholding bucket) – Think interest, dividends, royalties, certain rents. These are often taxed by withholding on gross payments.
- ECI (actively connected business bucket) – Think income effectively connected to a U.S. trade or business. ECI is generally taxed on a net basis through a U.S. return.
Most Amazon FBA sellers worry more about business profits and nexus questions. Most KDP creators are dealing with royalty withholding questions.
3) If I form a U.S. LLC, does the withholding go away?
Usually no.
A single-member LLC is typically a disregarded entity for U.S. tax by default. A multi-member LLC is typically a partnership by default. Either way, the U.S. tax system usually looks through the LLC to the foreign owner for withholding purposes.
So if Amazon is withholding because it is paying royalties to a foreign person, routing the payment through an LLC often does not change the result.
Bottom line: A U.S. single-member LLC is often a legal or business tool, not a withholding-elimination tool for KDP royalties.
4) Is the default withholding really 30 percent?
For U.S.-source FDAP paid to foreign persons, the general statutory rate is 30 percent, unless reduced by an applicable tax treaty.
Important nuance: Royalties are generally sourced based on where the intangible is used. Many platforms allocate U.S. versus non-U.S. royalty sourcing internally. Your withholding may apply only to the U.S.-source portion, depending on Amazon reporting and your tax interview answers.
5) Can a tax treaty reduce the withholding on KDP royalties?
Yes, if you qualify for treaty benefits.
Treaties often reduce royalty withholding significantly. For example, the U.S.–Australia treaty historically provided a 5 percent royalty cap in the treaty text.
The treaty rate only applies if you are actually a resident of that treaty country for treaty purposes. Citizenship alone is not enough.
6) I am an Australian citizen but live in Paraguay. Can I still claim the Australia treaty?
Maybe, maybe not.
Treaty benefits generally require that you are a tax resident of the treaty country under that country rules and the treaty resident definition. If you are not a tax resident of Australia, claiming the Australia treaty rate based only on passport creates misrepresentation risk.
If you live in a country with no U.S. income tax treaty, you generally default back to the statutory 30 percent FDAP withholding.
7) What forms does Amazon issue for KDP royalties?
Most commonly, foreign creators receiving U.S.-source FDAP payments receive Form 1042-S.
This form shows:
- Gross royalties reported
- The withholding rate applied
- The amount withheld and remitted
8) If an LLC does not help, what structure can reduce the impact?
Option A: Stay as-is and accept withholding
If your residency or treaty position does not allow reduced withholding, you may be stuck with default withholding on U.S.-source royalties.
Option B: Use a U.S. C-Corporation
If a U.S. corporation receives the royalties, there is typically no 30 percent NRA withholding. The corporation pays U.S. corporate income tax on net taxable income after expenses. Federal corporate tax is commonly discussed as 21 percent. Dividends to foreign shareholders can create a second tax layer.
Option C: Change the business model
Some creators restructure so income is not treated as royalties. This depends heavily on platform contracts and operational facts.
9) What is personal holding company tax, and does it apply?
A Personal Holding Company is a closely held corporation earning substantial passive income. PHC rules can impose an extra tax on undistributed income.
Royalty-heavy corporations may trigger PHC concerns depending on ownership, income composition, and distributions.
10) What if I sell my KDP account instead of receiving royalties?
Some non-U.S. taxpayers sell the business to stop recurring withholding.
Whether the sale is taxable in the U.S. depends on what is sold, where the seller resides, whether payments resemble royalties, and whether a U.S. trade or business exists.
11) Practical compliance checklist
- Confirm how Amazon classifies your payments
- Confirm your tax residency
- Complete the correct W-8 tax interview
- Retain all Forms 1042-S
- Model corporation scenarios carefully
- Avoid treaty shopping without substance
Need help deciding between LLC vs Corporation for KDP royalties?
If you want a professional review of your residency, withholding exposure, and whether a U.S. C-Corp actually lowers your total tax, book a consult here:
