Overview of Calculating and Recording Withholding Tax

The Withholding Tax function calculates the amount of tax to be withheld from selected transactions for one or more accounts, and generates the journal transactions required to record the tax values. If the withholding tax is being calculated on the total payments made during the tax period, it also maintains the cumulative payment totals for the period.

It is designed to cater for different withholding tax requirements and as a result is very flexible.

Using Withholding Tax involves the following tasks:

Create a time frame. If withholding tax is to be calculated on the cumulative total of many transactions over a certain period of time, you must first identify the range of dates by setting up the time frame.
Set up the Withholding Tax types. You must identify the different types of withholding tax required.
Define the Withholding Tax calculation rules. You must identify the tax calculation rules.
Define the groups of taxable accounts. You must assign the taxable nominal ledger accounts to the appropriate tax account classes.
Define the Withholding Tax exemptions. If a supplier or customer is granted full or partial exemption or discount from withholding tax.
Allow Withholding Tax on specific journal types. If you are using Argentina Withholding Tax you must select Include Into Withholding Tax in Journal Types (JNT).
If you would like the numerical allocation marker to be updated on the Withholding Tax transaction source account you can set the Withholding Tax Allocation Mkr in Ledger Setup (LES).
Calculate the tax. The calculation process uses the withholding tax rules to determine the type of tax that applies to the account transactions. The net and off-set postings are considered for each gross transaction.
Generate the Withholding Tax journal transactions. Once you have verified the tax values, you can generate the journal transactions required to post the withholding tax to the ledger.
Post the Withholding Tax transactions. The journal transactions are automatically posted to the actuals ledger. The tax amount is posted to the tax account identified for the withholding tax type, and the offset is posted to either the source account of the transactions, or the alternative source account if one is identified on the tax type.