In some countries or regions, the buyer is legally responsible for paying withholding tax. Withholding tax is due on frequently serviced, non-inventory deliveries that a supplier who is not an employee of the company delivers.
Withholding tax is:
- A tax on vendors that does not create sales tax transactions.
- A liability if it is calculated on vendor payments. Therefore, only balance sheet accounts or liability accounts are valid accounts for posting withholding tax.
- Reported in fixed reports.
The buyer is legally responsible for withholding a certain percentage of the invoice amount at the time of payment.
The net amount (which equals the invoice amount, reduced by the withholding tax) is paid to the supplier. The tax that is withheld posts to a ledger account for withholding tax, and periodically is paid to the authorities. The buying company is legally responsible for submitting a report to the tax authorities and to the supplier.
The capabilities of the system when dealing with global withholding tax include:
- Item withholding tax group (WHT on the line level) for accounts payable
- Withholding tax payment
- Withholding tax in accounts receivable
- Threshold on invoice amount
- Withholding tax calculation for miscellaneous charges
- Invoice amount to be paid in withholding currency
- Withholding tax payment against vendor account of tax authority.