XBox, Game and Steam Foreign Developers and US Taxes

XBox, Game and Steam Foreign Developers and US Taxes

If you are an independent game developer and a non-U.S (Non-Resident Alien) inventor,  then the task of processing your personal and tax information can be very challenging.

This blog post will help  shed some light on the process, and ensure that payment made from the sales of your invention is hassle free.

Foreign or Non-US Independent game developers  may be eligible for a reduction,  or exemption from U.S. income tax on their royalty income, provided their country has a tax treaty with the U.S.

If a treaty exist,  you may be able to take advantage, provided you have a relevant Individual Taxpayer Identification Number (ITIN) and submit a properly completed treaty claim on Form W-8BEN.

Tax treaty information  appears to be  the most difficult and confusing part of the tax process for independent game developers who are not based in the U.S.

  1. You must determine if your country has a tax treaty with the U.S., and
  2. Decide if you would like to take advantage of the tax treaty

Determine if your country has a tax treaty with the U.S.

If your country falls into a “tax treaty” zone. See this page Table 1,  Page 3, Income Code 10, 11 & 12 –  Royalties).

If your country has a ( 0) under the “royalties” category, it means your income will be subjected to 0% withholding.

If you are above 0%, the US will unfortunately withhold at that rate.

Decide if you would like to take advantage of the tax treaty

If your country have a tax treaty with the U.S. then it is in your best interest to apply the treaty  to either reduce or exempt the royalty income.

If you are claiming treaty benefits, you are generally required to provide an ITIN

You may apply for an ITIN by submitting  a properly completed Form W-7 to the IRS.

Note: an ITIN is not strictly required to get paid, although without it you will be subject to an automatic 30% U.S. tax withholding, even if your country provides a lower rate of U.S. taxation.

The  process of applying for an ITIN alone can take weeks / months and it is easy for the ITIN application to be rejected by the IRS if Form W-7 is not completed in the right order.

Almost all the platforms , such as Xbox , steam , etc.  will report your  annual U.S. source income or royalties  on the IRS Form 1042-S.

This form is issued and sent to the foreign seller or developer  on or before March 15 each year, the form will report ONLY your  US sourced royalties and amounts withheld during the prior tax year.

As a foreign developer , you are only taxed on royalties earned on sales made to U.S gamers, consumers or customers , therefore if some of your sales were generated from countries other than the USA , only the US sales will be subject to withholding or taxes in general.

***Disclaimer: I am a tax accountant and a CPA licensed in Massachusetts , but I am not your accountant or advocate (Unless you have signed up to my services). This communication is not intended as tax advice, and no tax accountant -client relationship results**

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