Payments received by non-U.S. entities from Google under the AdSense Program are generally subject to a mandatory 30% withholding.
There are a few details that need to be reviewed in order to establish whether or not the 30% withholding can be exempted.
First, the most important concern is who is actually on the AdSense contract. Would that be you as a foreign individual? Your U.S. LLC? An entity in your home country?
Secondly, is there a tax treaty between the U.S. and your country of tax residence? Each of these options would have a different process to avoid the statutory withholding amount.
How Does a Tax Treaty Work?
For example, lets say you reside in Ireland, which is a U.S. treaty country. If the Google contract is sent to you or your entity who’s a tax resident of Ireland, any payments received from Google AdSense are generally exempt to the 30% withholding tax. However, you need to ensure that the Tax Treaty is in play and you’ve uploaded all required documentation.
Many countries have a tax treaty with the United States, under which certain types of income, including advertising revenue from Google AdSense, may be eligible for reduced or eliminated withholding tax. To benefit from the reduced withholding tax rate, you need to submit an IRS Form W-8BEN to Google.
What About U.S. LLCs?
If you have a U.S. LLC as an intermediary, then it’s important to understand who is on the contract with Google. If the U.S. entity is the contracting entity, then a W-9 should exempt the U.S. withholding.
Unless your entity is considered as a “disregarded entity”, then in this case the statutory 30% is required. This may require additional filings in the U.S. to report the income and reclaim the withholding under the treaty.
Ad Revenue is Required to be Reported
Google will attribute the ad revenue to the U.S. and will look for a reporting number to disclose any commission or royalties to the IRS. This would be in the form of an EIN for a business structure or an ITIN for an individual.
At the end of the year they will report any payments on a Form 1099 for domestic companies or a Form 1042-S for foreign entities. In most cases, this forced the recipient to report any income received in the U.S. and pay a tax on what’s called Effectively Connected Taxable Income. This is where you will see the Tax Treaty come into play because in the reporting form you can cite the treaty and exempt any income and reclaim the withholding amount. The W8 series of forms allows the payer (Google) to exempt the amount from withholding.
Additional Forms to Consider
Google Adsense will expect a Form W8BEN-E assuming that the U.S. LLC is a Disregarded Entity owned by a company formed in a Treaty country. If the Disregarded LLC is held by you personally, then a W9BEN will be the appropriate form to file.
Being clear on how your account is structured with Google is crucial so they can recognize you as what you are.
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