Required settings #

Withholding functionality can be enabled during the SetupWizard or under Admin Panel – Tax settings.

As per local legislation requirements Withholding tax should be applied upon either invoicing or upon payment. The default setting is to apply the Withholding tax upon invoicing.

If the Withholding tax should be applied upon payment, tick the checkbox, without this option, the tax will be calculated in invoices. by accrual basic.

How to start accounting for Withholding tax #

1. Create a new Withholding tax. Please refer to the Create a Tax and Tax rates articles.
2. Maintain tax setting in the Vendor. Please refer to the article.
3. Set the default accounts for Creditable WHT and WHT liability in the Accounting settings.

After all steps of set up you will have Withholding Tax with different rates in it. Then you need to set up Tax group and Assign Tax group to an Item.

Accounting #

Depending on the setting in the General settings, on whether the Withholding tax should be applied upon payment or upon invocing, the following transactions in the General Journal shall be made.

Withholding applied upon invoicing #

Vendor side #

Document	Debit side	Amount	Credit side	Amount
Sales invoice	Dr Accounts receivable Dr COGS Dr Creditable WHT	1000 800 100	Cr Sales Cr Inventory Dr Accounts receivable (set WHT aside of AR)	1000 800 100
Payment received (no effect on WHT, as WHT charged upon invoicing)	Dr Bank	900	Cr Accounts receivable	900

Customer side #

Document	Debit side	Amount	Credit side	Amount
Bill	Dr Inventory Dr Accounts payable (set WHT aside of AP)	1000 100	Cr Accounts payable Cr WHT Liability	1000 100
Bill payment (no effect on WHT, as WHT charged upon invoicing)	Dr Accounts payable	900	Cr Bank	900
WHT payment to tax authority	Dr WHT Liability	100	Cr Bank	100

Withholding applied upon payment #

Withholding tax is not recognized on the advance payment. At the moment of settlement, the prepayment is applied to the invoice through an Apply Credit posting, and the applicable withholding tax is calculated and posted.

Vendor side #

Document	Debit side	Amount	Credit side	Amount
Sales invoice	Dr Accounts receivable Dr COGS	1000 800	Cr Sales Cr Inventory	1000 800
Payment received	Dr Bank account Dr Creditable WHT	900 100	Cr Accounts receivable	1000
Cash sale (WHT liability recorded by Vendor, as customer is not capable of withdrawing)	Dr Bank Dr COGS	1100 800	Cr Sales Cr Inventory Cr WHT Liability	1000 800 100

Customer side #

Document	Debit side	Amount	Credit side	Amount
Bill	Dr Inventory	1000	Cr Accounts payable	1000
Bill payment	Dr Accounts payable	1000	Cr Bank Cr WHT Liability	900 100
WHT payment to tax authority	Dr WHT Liability	100	Cr Bank	100