Hello, I am a develoepr from outside the US, and I realized there is a US withholding tax. May I ask is such tax only applied to the amount paid by the buyers within the US? Or it would apply to all the purchaes regardless where buy is?
Thank you.
withholding tax means you (the developer) lose 30% + itch.io % + paypal or Stripe fee. No one in the USA gets withhold tax fees, however most common indie developer uses one of these listed in the IRS website https://www.irs.gov/businesses/small-businesses-self-employed/sole-proprietorshi...
The person who buys your game/art will not do anything, only you are taxed.
If your country has an agreement with the USA to lower your tax, you should take it as it can save you money.
There are 2 taxes applicable to games -
VAT (value added tax) or GST (General Sales Tax) - this is country specific.
If you're a vendor for VAT or GST you have to charge that to your customers and remit the amount to your tax authority. Itch.io, if I'm correct, automatically collects that for the EU and pays it over so that the EU vendors don't have to register for that themselves. In general, most developers earn too little to have to worry about this, as most countries have a threshold - you only have to register if you earn more than a fixed amount per year. Often the tax authorities have bypassed the individual sellers and gone to the stores for example Google will charge VAT to the buyers from certain countries / states etc. and remit that to the relevant tax authorities themselves, so that the individual sellers don't have to. In this case you have a setting in the Google Play store that allows you to choose your price to be inclusive of this tax or exclude it. This is a tax that the buyer pays.
Income tax
Itch.io is registered in the USA and is required by law to withhold taxes on the earnings of the developers selling through itch.io and pay that over to the USA revenue authorities. However, certain countries have a double taxation agreement with the USA. This is where they say, the people will pay tax on these earnings in the country they live so it's not fair that they also pay tax on it again in the USA - they would end up paying double tax. Where such an agreement is in place then itch.io doesn't have to withhold tax from our earnings. That is why itch.io has implemented the tax certificate requirement that vendors must fill in. This will determine whether or not itch.io must withhold tax from your earning. This is a tax that only the sellers / developers would pay.