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:
  1. The buyer calculates, reports, and pays the tax on the supplier’s behalf.
  2. Calculation can be on the invoiced amount or on the paid amount.
  3. The buyer reports, to the government, all transactions and tax deductions withheld from payments to these suppliers.
  4. 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.

In this country, the withholding of tax can be deducted on supplier invoices, mainly for service providers that are located out of the territory. The registration of supplier invoices and the withholding of tax at payment are required by law. These business practices are used in Mexico:

  1. Companies identify suppliers and set a tax withholding rule.
  2. When the supplier invoice is registered, the withheld tax is calculated and deducted from the invoice amount.
  3. Companies report the withheld tax.

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.

For the report, see DIOT reporting.

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 withhold mtd field (Tax withholding method) to 2.

As Mexico reports VAT on the payment date and VAT on payment, other alternative withholding methods cannot be used.
CRS395 Accounting Rule. Set Configure accounting rules for accounting type 396.
APS425 Supplier Tax Report. Display Invoices
APS430 Supplier Tax Report. Create Proposal
APS555 Supplier Tax. Print Details