Important Changes for Non-US Authors/Affiliates/Service Providers

[collis]

Hi all, before I jump into answers …

A number of authors have asked about partnerships for non-US authors. I’d written in the original announcement that we have looked into what it would take to have features to allow partnerships and it was a complex administrative burden.

Enough authors have asked and been concerned, that we’re looking into it again urgently. I was hoping to find a few authors with partnerships who’d be comfortable having a quick phone call with me so I can understand better the requirements and concerns with putting one partner forward.

If you have a registered partnership - in other words you’ve registered a business that is a partnership - and wouldn’t mind chatting, can you email me (collis at envato) to set up some time on Skype? It would be enormously helpful.

Note that at minimum there are extra forms for the partnership and each partner, and the tax rate applied will be the highest of all the partners, and there’s a few other requirements we’re already aware of that might mean withdrawals of this kind only get processed less frequently. We’re trying to look into the others and see how feasible it would be to make a manual workaround somehow.

OK … answers!

Hi Collis and thanks for the reply.I must invoice Envato to comply with italian rules (even if you don’t receive my invoices).

You can turn my question into: will money come from Australia or USA?

Thanks LC, for non-US authors you’ll receive funds in the same way as you currently do.

Hi, can you explain for me one thing.

I’m not U.S. author. Announcement says: “US RWHT won’t be applied on items sold with a Tools license”. Is that means, if I selling only items with Tools License, I don’t need to fill W-8 form? Or I need to fill this form, but this tax wouldn’t apply to my sales?

Thank you.

The W-8 Form has two main purposes: 1) it let’s us know your country of residence so we can figure out what treaty rate to apply (if applicable) and 2) it confirms that you’re not a U.S. resident. If you’re a non-US author and you don’t complete a W-8 Form, we must presume you are a US resident who has not completed a W-9 Form and withhold 28% tax on all sales regardless of license type.

If you’re a non-U.S. author who only sells items with a Tools License and you complete a valid W-8 Form, no U.S. RWHT will be applied.

1. If Envato didn’t get 3x sales from US buyers with in the next year (jan 2016 - dec -2016) will you shutdown your US office? or will you keep it without any additional profit for you and loss for Non US authors?

2. I wonder, expanding to US, should be a problem to US authors, but that was wrong, in the other thread there was only less than 30 replies, and for Non US authors, 750+ replies. it’s all between Envato & US. Why all burden to Non-US authors?

3. You will not withhold any amount from US authors if W 9 is submitted, So, why do you still withhold if a Non-US author submitted W 8 ?

4. a) If Envato is acting as a platform, as we as sellers, Why we can’t limit the purchases to US people? Why we can’t set our own prices?

(eg: If I tried to book an item from Amazon, they will say its not available to your country.)

b) If Envato is acting as a seller, as we are giving work to you, Why we should pay tax?

Please tell mew whether you, Envato is A or B?

Hi surjithctly, here are the answers to your questions:

1. We are opening up in the US to grow the community and revenue overall. I think you’re asking at what point does it become an overall win. The answer is not simple because there is so much variance between authors. For an author in country with no tax treaty, who has the worst tax rate, who gets no tax credits, who is selling only royalty items (no tools license, no item support, no studio services, etc), then we estimate about one third of sales will have US RWHT applied which is about 30% x ⅓ of sales = 10% of sales paid in tax. So we would need to expand revenue overall by about 11% for such an author to be comfortable or be better off overall.

For many authors, a much smaller increase will be an overall improvement. For authors in countries with a 0% rate, or tax credits, then any increase should improve the overall revenue. Note that for simplicity, I’m not accounting for any changes in administrative process (i.e. completing a form, etc).

2. & 3) Unfortunately, these are the US rules and we don’t really have any choice in their application.

3. Envato Market remains a platform that connects buyers to sellers (authors). We’ve recently introduced author-driven pricing for some GraphicRiver categories and will continue to look for opportunities like this that give authors more control. Unfortunately, however, we’ve ruled out location-based selling for now due to the technical complexities involved.

As I know, the individual iOS developer from my country doesn’t need to sign the W-8BEN any more, it’s required before. And also there is no withhold tax for the app sales in US. What’s the difference between sell app in Apple’s App store and sell item in Envato here?

The rules that make a payment a royalty payment (and therefore subject to US Royalty Withholding Tax) are quite complicated. So for example, purchasing a tool such as a Photoshop add-on doesn’t create a royalty payment because of how the software regulations work in the US tax code. I’m not familiar with the Appstore, but would guess that apps would also fall within the software regulations. (Keep in mind I’m neither a lawyer nor a tax advisor, and if you really want to investigate this subject you should talk to one of those)

We have exhaustively (and expensively) researched how to classify the things sold on Envato Market in an effort to ensure we didn’t apply taxes any more than absolutely necessary.

The other reason we require a W-8 form is to identify an author as a non-US author. I’m not sure how Apple has set up their Appstore, and they may have different requirements in this regard too.

I have a question.

1. The account is under one name
2. The account holder works with several partners (one designs, one makes the frontend, one makes the wordpress, etc.)
3. A single withdrawal per month is allowed= The account holder (the one who makes the withdrawal) has to pay the taxes for ALL the earnings?

Legally, even if he’s splitting the money with his partners, since the earnings go into his bank account, he has to pay the taxes for the whole amount himself. Or, he has to create a company, and receive invoices from his partners, and those will be treated as expenses?

You’ll need to speak to a tax advisor for answers on this specific question and case. In most countries that I am aware of, taxes are paid on business profit (i.e. revenue minus expenses = profit). However the rules in different countries and for businesses and non-businesses are very variable so you really need to speak to someone about your particular case who is qualified to give advice.

@collis @natman or whoever will answer me:Just one more question before filling the W-8 Form:
My country of citizenship is Syria which is banned from your system, so I can’t select it in Country of Citizenship field, what should I fill that field?(I live in Saudi Arabia which is not banned like Syria).
Thanks!

Hi Osama, this was actually a mistake on our end so thanks for bringing it to our attention! We’ve updated the list of countries for citizenship and you should now be able to select Syria from the dropdown menu, so long as you are resident in a country that is not on the list of sanctioned countries (like Saudi).

Sorry for any confusion caused, and thanks for raising it!

Regarding your comments to Dream_Theme, we are also an Elite Author in the same boat they are so please let us know what you decide here. We are an Incorporated Company in Canada with numerous employees and we are unable (and unwilling) to illegally file a fraudulent Individual W8 to the IRS just so Envato can slide out from underneath it’s tax obligations to the US government. If you can’t set something up for companies and partnerships then we are going to have to say goodbye as well.

We collect the money from Envato and pay Corporate Tax (as a corporation in Canada) on the money when it comes into our company, then we pay our employees a salary on which the employees all pay Income Tax (in Canada). To claim it on an individual level on one of our employees is not only unethical, it is dishonest and illegal, and we aren’t going to take on this liability just so Envato can save some more money.

Hi themesuite, with the W-8 Form you have the option to complete it as an individual or a corporation.

Your situation sounds a little different to Dream-Theme’s due to the type of entity involved - yours being an Incorporated Company and theirs being a Limited Liability Partnership. Corporations are commonplace on Envato Market and this latest set of changes shouldn’t prohibit them from continuing to sell with us in any way.

We’re also looking more into partnerships, so if you have in fact got a partnership, please contact me (collis at envato).

@collis can you confirm what is exact formula for taking 30%? Is that amount deducted from item price or from author final profit (which is 50%-70% of item price)? Can we get official example for a WordPress theme priced 45$ how much will exclusive/nonexclusive or elite/nonelite authors get as final profit when 30% USA tax fee is applied?

I’ll do my best!

So, using your example, I’m going to look at the sale of a $45 WordPress theme to a U.S. buyer.

The first thing is that in a $45 WP theme sale, $9 (20%) of that is our Envato Buyer Fee directly to the buyer. So the author’s Item Price is in fact just the $36.

Step 1: $45 - $9 = $36 is the author’s Item Price

Next, we apply US Royalty Withholding Tax (RWHT) and send this to the IRS. This changes based on the treaty rate between your country and the USA. Again, using your example, let’s say the author’s country doesn’t have a treaty with the US and the RWHT rate is 30%.

Step 2 (part 1): 30% of $36 = $10.80 to the IRS

The other thing that happens (at virtually the same time as the RWHT is applied) is that we take our Author Fee. This will be based on the kind of author you are (exclusive or non-exclusive) and the amount you have sold on Envato Market. You can see these rates here.

Let’s say for the purposes of this example that the author is an exclusive Elite author with an Author Fee of 12.5%.

Step 2 (part 2): 12.5% of $36 = $4.50 to Envato

These amounts are deducted in sequence from the author’s earnings of $36:

$36 - $10.80 (to the IRS) = $25.20
$25.20 - $4.50 (author fee to Envato) = $20.70

Therefore the author will have a net earning of $20.70.