Canadian Developers, Windows Phone 7 and IRS

Recently, Windows Phone 7 developers started receiving cheques (or checks for American readers Smile) which is a good thing. The split between Microsoft and the developer is 30/70 meaning Microsoft will get 30% of sales and the developer will get the remaining 70% of the sale.

If you are a Canadian developer you need to make sure you fill out appropriate IRS paperwork or Microsoft with hold a mandatory 30% for US Federal taxes.  United States and Canada have a treaty so no tax withholdings are made as long as paper work is done.

If you don’t have paperwork here is the revenue you can expect on selling an app for $1.00

IRS = $0.30 of $1.00 (30% of $1)
Microsoft = $0.30 of $1.00 (30% of $1)
Developer = $0.40 of $1.00 (70% of $1 minus 30% tax withholding)

So instead of you being left with $0.70 you will be left with $0.40 if you don’t have the appropriate IRS paperwork.  It sounds like a nothing, only $0.70 cents, but to put it in perspective say you are selling 25 apps per day that will total to about $3,650/year.  With the right IRS paper work submitted to Microsoft, your total would be about $6,300/year which is an extra $2650/year.  A lot of $0.70 cents add up!!

The point to all this is submit your IRS paper work!!  Doesn’t take much time to get everything and is worth it.  Here is what you have to do

**** DISCLAIMER – PLEASE DO YOUR OWN DUE DILIGENCE BUT THIS IS THE INFORMATION I GOT FROM MY ACCOUNTANT AND THE PROCESS FOR A CORPORATION (REDBIT) AND NOT FOR AN INDIVIDUAL ALTHOUGH SHOULD BE PRETTY MUCH THE SAME FOR INDIVIDUAL *****

Basically there are two things you have to do, apply for an EIN, fill out form W-8BEN and send that form to Microsoft

  1. Apply for a US Employer Identification Number or EIN.  All information on this can be found here http://www.irs.gov/businesses/small/article/0,,id=98350,00.html
  2. Apply for a US Employer Identification Number or EIN by doing one of the following
    1. Fill out IRS form SS-4 and complete lines 1–5b, 7a–b (SSN or ITIN optional), 8a, 8b–c (if applicable), 9a, 9b (if applicable), 10, and 18.  Mail it in.
    2. Call 1-215-516-6999 and speak to some one, you’ll get an EIN when done
    3. Fill out the EIN online form
  3. Once you get your EIN or ITIN fill out the W-8BEN form.  Here are the instructions for the W-8BEN form.  I would read it and understand it to make sure you know what your filling out and signing.  But to make life easier here is a W-8BEN form that I already have filled out and you just need to fill in your contact details
  4. Once you have filled out the form mail it to Microsoft at
    Microsoft
    ‘Windows Marketplace for Mobile’
    One Microsoft Way
    Redmond WA 98052

And that is it!  If you do work with other companies in the US, fill out the same W-8BEN form and you are good to go.

ALSO NOTE, even though you have an EIN this does not mean you have to file US Taxes every year.  The tax treaty between Canada and the US allows us to do this. 

Again I’m not a lawyer or accountant and paid to get this information so do your due diligence.  But hopefully this helps some of my fellow Canadian developers out there especially the indie-developers.

Oh and BTW, the numbers above are only an example and it’s not what the RedBit apps make in marketplace Sad smile


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