The withholding entity records the amount of this tax in its balance sheet as a liability as soon as it is withheld, and clears the liability when it is paid to the government. The entity does not record the tax as an expense, only as a liability.

What is withholding tax on invoice?

Withholding tax is a government requirement for the buyer of goods or services to deduct a specific amount from the payment made to the supplier. The withholding amount is then submitted to the tax authority. Withholding tax is usually calculated as a percentage of the net amount of the sale.

What does account for withholding tax withheld at source mean?

Withholding tax receivable – This account records amounts your customers owe to the tax authority on your behalf but have not yet paid. If withholding tax had not been deducted from sales invoice balances, amounts in this account would be included in Accounts receivable.

How is withholding tax calculated on a sales invoice?

When the Deduct withholding tax box is checked on a sales invoice, two options appear in a dropdown box, Rate and Amount: Because withholding tax is independent of any other tax code that may be applied, percentage amounts are calculated on the total due, including other taxes.

What happens to the withheld tax payable account?

When withheld tax is remitted to the tax authority, a payment is posted to the Withholding tax payable account. The liability is cleared, but the reduced Accounts payable balance remains unchanged. The expense account where the purchase was originally posted is also not affected: Comply with local procedures when remitting withheld tax:

Where do you put tax withheld from payments to suppliers?

Tax you withhold from payments to suppliers is a liability of your company, because you owe that tax to the tax authority. So you must add a Withholding tax payable account to the Liabilities group of your chart of accounts. Follow procedures in another Guide to add the account: