Withheld tax management for customer invoices and payments

Use this procedure to manage withheld tax on customer invoices and payments in Accounts Receivable. Learn about the programs and prerequisites for handling withheld tax transactions generated during order invoicing, and how to register withheld tax as write‑offs during manual payment entry.

Limitations

If you enable 'Compress FIM transactions' in 'Settings - Customer Order Invoicing' (CRS722), 'Settings - Service Order Invoicing' (CRS790), 'Settings - Project Invoicing' (CRS792), or 'Settings - Maintenance CO Invoicing' (COS822), you must also enable 'Separate voucher number' for the function to work correctly.

Invoice adjustment applies only to divisions configured with the 'Country version' set to Colombia in 'Company. Connect Division' (MNS100).

Overview

'Withheld Tax AR. Open' (ARS425) enables you to store and review withheld tax transactions created during order invoicing and to register withheld tax when you record Accounts Receivable payments.

Withheld tax on invoices

To store and display withheld tax transactions in 'Withheld Tax AR. Open' (ARS425) during order invoicing, first complete the setup described in Manage Withheld Tax on Customer Invoices.

If 'Compress FIM transactions' is enabled in 'Settings - Customer Order Invoicing' (CRS722), 'Settings - Service Order Invoicing' (CRS790), 'Settings - Project Invoicing' (CRS792), or 'Settings - Maintenance CO Invoicing' (COS822), you must also enable 'Separate voucher number' for the function to work correctly.

To populate withheld tax transactions with an external tax calculation code, specify an external withholding tax code for each tax code in 'Tax Calculation Code. Open' (CMS236). Manage external withholding tax codes in 'External Withholding Tax Code. Open' (CMS239).

After completing the setup, M3 creates withheld tax transactions when you create a sales, service, maintenance, or project order invoice. You can then review the transactions in (ARS425):

Amounts are positive for debit invoices and negative for credit invoices.
The 'Tax type' field indicates whether the withheld tax transaction is perception or retention.
The transaction stores the base amount, withheld tax amount, withholding percentage, and related invoice voucher details.

Prerequisites for creating withheld tax on payments and invoice adjustments

To create withheld tax transactions in 'Withheld Tax AR. Open' (ARS425), first complete the setup described in Manage Withheld Tax on Customer Invoices to make tax calculation codes available. During payment entry, you can use only retention tax calculation codes.

Follow Create Accounting Options for Customer Payments to create an accounting option in 'AR Accounting Option. Open' (ARS020).

Set 'Withholding option' to 1-'Payment' or 2-'Invoice Adjustment'.

Note: Alternative 2-'Invoice Adjustment' applies only to the Colombian country version.

You can select the withholding option only when:

'VAT calc method' is disabled
'Write-off mtd' is set to 1-'Invoice level'

You must also specify the second accounting string displayed. This accounting string is used to post differences caused by exchange rate differences between the invoice and the withheld tax write-off.

In 'Accounting Identity. Open' (CRS630), define the dimension 1 account used for withheld tax posting and exchange rate differences with 'VAT account type' set to 0-'Not VAT A/C', because no VAT can be created for these transactions.

Withheld tax on payments

When you use an accounting option configured with withholding option 1-'Payment' on an invoice in 'Payment Received. Record' (ARS112) or (ARS118), these fields are required for specifying withholding tax:

Tax calculation code (retention tax only)
Base amount
Withheld tax amount in local currency
Withholding percentage (if no value is specified, it is retrieved from the tax code)

Optional fields for specifying a certificate number and the certificate date are displayed.

When you press Enter, a preliminary record is first created in 'Withheld Tax AR. Open' (ARS425) with the specified information. When you complete the payment entry, the record is updated.

Adjustment of withheld tax on invoices

Invoice adjustment applies only to the Colombia country version.

When you use an accounting option configured with withholding option 2-'Invoice Adjustment', the displayed fields depend on how the option is used. The purpose is to create a new withheld tax transaction in 'Withheld Tax AR. Open' (ARS425) to replace the existing transaction and account for the difference.

Payment entries in 'Payment Received. Record' (ARS112) and (ARS118) are always made in the invoice currency, regardless of whether the invoice is in local or foreign currency. This means the difference between the original withheld tax transaction and the adjustment is always displayed in the 'Foreign currency amount' field.

Note: You can make invoice adjustments only on invoices stored in (ARS425), meaning a record must exist before an adjustment is possible. However, you can register an invoice adjustment using a new tax calculation code, for example, if a tax calculation code was missed during invoicing.

Invoices in local currency

Change the values for the new withheld tax transaction, and then press Enter. The 'Foreign currency amount' field is recalculated as the difference between the stored amount and the newly specified 'Withheld tax – local currency' amount. An information message is displayed to indicate this update.

Invoices in foreign currency

The fields 'Withheld tax – foreign currency' and 'Exchange rate' are displayed so you can specify the withheld tax in both foreign and local currency and calculate the exchange rate.

If the calculated exchange rate differs between the invoice transaction and the withheld tax transaction, an accounting for the difference is created. The system uses the accounting string below the 'Withholding option' field on 'AR Accounting Option. Open' (ARS020/E).

The 'Foreign currency amount' field is recalculated as the difference between the stored amount and the newly specified 'Withheld tax - foreign currency' amount.

Negative adjustment

Specifying a negative invoice adjustment increases the withheld tax amount and decreases the amount received by the same amount.

Adjust the difference by using the accounting option at the invoice level for the relevant invoice. When you prompt the 'Tax calculation code' field, all withheld tax transactions for the invoice are listed. When you select a record, the values stored in 'Withheld Tax AR. Open' (ARS425), such as the base amount, withheld tax amount, and withholding percentage, are retrieved and displayed.

After you change the values according to the adjustment, with a greater withheld tax amount, and press Enter, a preliminary record in (ARS425) is created with the specified information. When you complete the entry:

The previous transaction of type 1-'Invoice' is set to status 30-'Cancelled'.
A new transaction is created with transaction type 2-'Invoice adjustment'.
The transaction receives status 19–'Cert req to report' or 20–'Ready to report', depending on whether the tax calculation code is linked to an external tax calculation code and whether 'Certificate required to report' is enabled.

Positive adjustment

Specifying a positive invoice adjustment adds complexity because the paid amount exceeds the invoice amount. To handle this discrepancy, on-account transactions are used. The process depends on whether the certificate or the payment is received first.

Payment received before the certificate

The received amount exceeds the invoice amount. After allocating the payment to the invoice, place the remaining amount on an on‑account using option 12-'Payment on account'.

Create the on‑account entry for the payer or customer and specify the invoice number of the fully paid invoice with a subnumber.

For example, if the original invoice number is 99990314, create the on‑account using invoice number 99990314‑1. This facilitates selecting the correct on‑account when the certificate is received, and the invoice adjustment is created.

When the certificate is received:

Use the accounting option at the invoice level for on‑account 99990314‑1.
Specify the original invoice number 99990314 to apply the adjustment.
Prompt the 'Tax calculation code' field and follow the same procedure used for a negative adjustment, except specify a lower withheld tax amount.

Certificate received before the payment

Open 'Payment Received. Record' (ARS110) with zero amount and create an on-account entry using option 12-'Payment on account'. Use the original invoice number with a sub‑number to identify which on‑account entry to allocate when the payment is received. This ensures that 'left to distribute' matches the allocation and the invoice payment. Specify a negative 'On‑acct amount' equal to the difference between the original withheld tax amount and the adjustment. This creates a positive amount in 'left to distribute'. Then, perform these actions:

Use the accounting option defined for invoice adjustments at the header level to register the adjustment.
Specify the invoice number that the adjustment applies to.
Prompt the 'Tax calculation code' field and follow the same procedure described for a negative adjustment, but specify a lower withheld tax amount.

Limitations for positive adjustments

If you make positive adjustments in 'Payment Received. Record' (ARS112) or (ARS118) and must delete the payment, use action F18‑'Cancel voucher'. Do not use Option 4‑'Del pmt received' because it causes incorrect behavior and must not be used in this scenario.
When you use the accounting option at the header level for foreign currency, ensure that it matches the left‑to‑distribute amount. If you need to make several adjustments, repeat the process for each tax calculation code.

Add a certificate number

You can add a certificate number in 'Withheld Tax AR. Open' (ARS425) in these ways:

Per transaction: Use 'Change' and specify the certificate number on (ARS425/E).
For all applicable transactions on an invoice: Use related option 11-'Add certificate number'.
Note: Option 11 updates only records without a certificate number.
When you create withheld tax write-off transactions, specify the certificate number on (ARS112/G) or (ARS118/G).

The certificate number affects the transaction status in (ARS425):

19-'Cert req to report' (certificate missing)
Assigned when all these conditions apply:
- The tax calculation code in (CMS236) is linked to an external withholding tax code.
- 'Certificate required to report' is enabled for the external code in (CMS239).
- No certificate number is specified on the transaction.
20-'Ready to report'
Assigned in all other cases, for example, when a certificate is not required or when a required certificate number has been specified.

Reverse voucher, including withheld tax transactions

When you reverse a voucher that includes withheld tax transactions, the status of the related records updates to 40-'Reversed, non‑reported' or 41-'Reversed, reported', depending on whether the transactions were included in reporting before the reversal.

If you reverse a voucher to a new accounting date, the status does not update. Instead, the fields in the 'Update of General Ledger' section on (ARS425/E), such as 'Voucher no' and 'Accounting date', are updated.