Tax Reporting of Royalties Paid to Foreign Receipients by American Companies
American companies must use IRS Form 1042 and 1042-S to report royalty income of $10.00 or more paid to foreign persons, including nonresident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts.
The Forms 1042 and 1042-S must be filed by March 15 of the year following the calendar year in which the income subject to reporting was paid.
If you file Form 1042 late, or fail to pay or deposit the tax when due, you may be liable for penalties and interest unless you can show that the failure to file or pay was due to reasonable cause and not willful neglect.
In general, you are required to withhold taxes from the foreign author; at a rate of 30%, unless a tax treaty exists between the country of the author's residence and the United States of America which sets the withholding rate at a lower rate; which is usually zero for authors residing in Western Europe or Japan AND the foreign author provides a tax payer identification number.
Foreign authors can apply for a ITIN by mailing IRS Form W-7 and nortorized or certified copies of twos of accepted identification or one copy of the author's passport.
Links:
- Instructions for Form 1042-S
- Individual Taxpayer Identification Number for Foreign Royalty Recipients