I'm pretty sure the US and Canada have a tax treaty which would permit me NOT to pay the 30% tax fee (I am a Canadian citizen). Can anyone explain me what are the steps to save these taxes and/or where can I find information on how to do that?
I personally have neither an ITIN nor an EIN, though I just began epublishing last month and I am in the process of getting my ITIN (I am Canadian as well).
As I understand it, all that you need to do is fill out form W-7 (available on the IRS website), attach a letter from Amazon (apparently Smashwords has a better one) stating that you are making money through an American company and that company is withholding taxes and needs an ITIN to stop withholding, and then send your passport (or a copy of your passport certified by the issuing agency) along with the form W-7 and supporting documentation (i.e. letter from Amazon/Smashwords).
That doesn't sound terribly difficult to me, though from some of the horror stories on here you'd think you would have to don armour in order to get an ITIN.
To fill out tax form W-7, you need to check off (a) and (h) under the "Reason you are submitting form W-7" and after (h) Write in: "Exception 1d - Royalty Income". Since you are from Canada, the treaty country would be Canada and the Treaty Article Number is 12.
I just got mine. It took close to four months (don't ask) I sent the approprate form to the IRS, and they did not accept my copy of the notorized passport and DL so I just tossed my passport in an envelope and they returned it three weeks later. Make sure you fill out the paperwork properly and reasearch the IRS website thoroughly. That's what I did and it took me forever to fill it out correctly. I did it right which was probably a good thing. It still took forever. Prior to that I printed off the Amazon letter and sent it and the w-7 both express post. They got them about five days later. Texas is a long way from BC. haha. Then around three months later I got my ITIN.
My advice is read the amazon tax withholding section, and the appropriate IRS area. Read through the examples too. They will help