Add a Withholding Tax

Definition

A withholding tax, also called a retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment and pay that tax to the government.

Typically, the withholding tax is treated as a payment on account of the recipient's final tax liability when the withholding is made in advance.

The amount of withholding tax on income payments other than employment income is usually a fixed percentage. In the case of employment income, the amount of withholding tax is often based on an estimate of the employee's final tax liability, determined either by the employee or by the government.

Therefore, the need arises to distinguish the total value of an invoice from the amount actually payable by your client.

Addition

In order to create a withholding tax, from the main menu you select “Settings” > “Taxes” > “Add , and then you fill out the next fields:

Title

The title is related with the name of the retention and affects how the withholding tax will appear on invoices and other sections of the application.

In case you want to save a title in a foreign language, you should click the “Translations” field. Elorus will recognize the language of the document based on the template used, and it will use automatically the right translation for the withholding tax

Tax value as

Percentage

In this case, the withholding tax is calculated as a pre-defined percentage applied on the net value of an invoice or on the net value of a product line, if "let me apply this tax on document lines" option is chosen.

Fixed amount

In this case, the withholding tax will be calculated as a pre-defined fixed amount that will affect negatively the net value of the invoice or the product line.

Variable amount

There are cases where you don't know in advance the percentage or amount of a withholding tax. Such cases occur either in deductions related to legal fees or in deductions related to a withheld amount.

If your organization issues invoices that contain witholding taxes, you can add deductions, with tax value as a variable amount.

By adding the tax, you don't enter a specific amount; instead, each time you select this withholding tax when you invoice, you set the desired amount.

Tax percentage (%)

In this field, the percentage tax rate is defined.

Use this tax only for information purposes

If this option is enabled, the tax will not affect the payable amount, but it will keep on appearing in the invoice, for information purposes.

Let me apply this tax on document lines as well

If this option is enabled, the withholding tax can be implied in one or more of the item entries.

In the example below, this is the way that a withholding tax 8%, used only for information purposes, is created:

When every field is filled out, you press “Save” in order to save the withholding tax in Elorus.