Supplier tax deduction or withholding tax
Requirement
Self-employed suppliers are responsible for their own income tax payments to the tax authorities. In some industries, the buyer can and does agree to manage this obligation:- The buyer calculates, reports, and pays the tax on the supplier’s behalf.
- Calculation can be on the invoiced amount or on the paid amount.
- The buyer reports, to the government, all transactions and tax deductions withheld from payments to these suppliers.
- The supplier receives a tax certificate as proof of the tax that has been paid over to the authorities on their behalf in this process.
M3 solution
Four methods are possible for processing and controlling supplier tax deductions, accounting and reporting. The selected method is determined by country-specific rules:
- The Alt1 method, where supplier payments are reported for tax purposes, but no tax deduction is made
- The Alt2 method, where tax deductions are made on the supplier payment and then reported to tax authorities
- The Alt3 method, where supplier tax deductions are recorded on invoice entry, but are accounted for only when the supplier payment is recorded
- The Alt4 method, where the tax deduction is accounted for at the entry of the supplier invoice
Using the Alt4 method, any tax exemption letter that is received from suppliers can be recorded in the supplier master record.
In Italy, withholding tax can be deducted at supplier invoice entry. Supplier certificates can be printed. This requirement is supported by M3.
Configuration guidelines
| Program ID | Program name | Description or comment |
|---|---|---|
| APS905 | Settings - Accounts Payable | Clear the 260 Withholding tax using flexible service codes check box. |
| CRS063 | Supplier Service Code. Open | Create the service code with the withholding tax percentage. Connection with Supplier. |
| CRS624/F | Supplier. Define Purchase & Financial | Specify the default service code. See the settings for (CRS063). Set the Tax withhol mtd field (Tax withholding method) to 3. |
| CRS395 | Accounting Rule. Set | Configure accounting rules for accounting type 396. |
| APS037 | Supplier Tax. Open Exemption Letter | |
| APS425 | Supplier Tax Report. Display Invoices | |
| APS430 | Supplier Tax Report. Create Proposal | |
| APS555 | Supplier Tax. Print Details | |
| CRIT75 | Settings – General Ledger | Specify the tax withholding method: 1 for tax withholding at invoice entry 2 for tax withholding at payment entry |