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Withholding Tax

A withholding tax is deducted from a payment to a vendor (or by a customer from a payment to you) and paid to the tax authority on the payee's behalf, such as income tax withheld on supplies (section 153 in Pakistan). The code holds the rate by date and how the amount is worked out. The vendor's or customer's default withholding tax decides which code a payment uses.

Where
Tax Controlling › Withholding Tax › Withholding Tax
Who uses it
The tax accountant
When
At setup, and when a rate changes
Needs first
A withholding tax Posting Profile

What it is for​

On a vendor payment or a customer collection, the screen offers the payee's default withholding tax whose rate line covers the posting date, and takes its account from the default withholding tax posting profile: the line with this code in its Tax Code column and the withholding post key of that kind of payment (W01 or W02). A code with no such profile line is not offered.

Every field in plain words​

FieldWhat it meansWhat to put
Withholding TaxThe codeRequired. Unique
NameThe nameRequired
Legal EntityThe company
CurrencyThe currency of the taxCarried to the payment
Apply OnThe amount the rate is charged onRequired. See below
Rounding FromThe rounding methodNone, down, up or nearest
Rounding OffThe decimals kept by the rounding0 for whole units
Withholding forWhether it is a withholding of sales tax or of income taxRequired. The payment totals the two kinds separately
ledger Posting ProfileA withholding posting profile for this codeOptional
Article Schedule, Article NoThe section of the lawRecorded only
BlockStop using the code
From Date, To Date, Value (lines)The rate in percent for a date rangeFrom Date and To Date required

Apply On​

On a vendor payment the rate is charged on one of:

  • the invoice amount before tax;
  • the tax amount of the invoice;
  • the invoice amount including tax;
  • the amount being paid.

Amount withheld = base × Value ÷ 100, rounded by Rounding From and Rounding Off. A user may overwrite it on the payment line.

How to configure it​

  • Release the code before use.
  • On the withholding tax posting profile, add a line per code with its payable account.
  • On each vendor and customer, mark the code that applies as default.

Scenarios​

  • Income tax withheld at 4.5% on supplies, sales tax withheld at one fifth of the sales tax. Two codes: one on the amount before tax, Withholding for income tax; one on the tax amount, Withholding for sales tax.

If something looks wrong​

  • "Withholding Tax Code - DateFrom cannot be greater than DateTo" Fix the rate line.
  • The payment offers no withholding. Check the payee's default withholding tax, a rate line covering the date, and the posting profile line for the code.