Where is the Withholding Tax Rate Defined?

The Tax Rate by Transaction Value

Sometimes the amount of tax to be withheld from the transactions on an account depends on the value of the taxable transactions for the account. The rate of tax can vary according to:

  • the value of the selected taxable transactions alone, or the accumulated total of all the taxable transactions for the account for the tax period. See 'What are the Withholding Tax Cumulative Totals?'
  • other transaction criteria, for example account code, analysis codes, product codes, transaction references and so on. See 'What are Selection Criteria?'
  • the transaction dates.

For example:

  • the withheld tax rate on interest payments might be 1.5% in the Southern province and 1.75% in the Northern province and the province is identified by an analysis code on each transaction.
  • the tax rate begins at 0.5% for cumulative purchases below 5000, rises to 1% on total purchases between 5000 and 10000, and then rises to 1.5% on all subsequent purchases for the period from the same supplier.

The transaction level tax rules for a withholding tax code are maintained as withholding tax calculation rules. A calculation rule identifies:

  • the range of dates for which the tax rules apply, for example, different rates may be set each year.
  • a set of up to five key constraint selection criteria that control the transactions on which the tax is calculated, for example where different rates of tax apply by product group, area or supplier type.
  • the tax percentage to apply, or a table of value ranges, tax amounts and rates that determine the amount and/or rate of tax to be withheld for each range.
Note:  The Calculation Type setting for the withholding tax type determines whether the withholding tax is calculated on cumulative taxable values for the tax time frame, or only on the taxable transactions selected for the run. If the tax is calculated on cumulative values, a table of value ranges is required to define the tax percentages.

A Tax Exemption for an Account

Sometimes an account might be granted a withholding tax exemption or discount. For example, some countries offer very large organizations a discount on the withheld tax.

This rate is defined for the account on Withholding Tax Exemption (WTE). The exemption or discount percent is entered in the Exemption Rate field. The withholding tax is calculated for the account using the standard tax rates, and then this percentage is deducted to determine the final tax amount.