Understanding Withholding Tax (WHT)

What is Withholding Tax

A withholding tax is an income tax to be paid to the government by the payor of the income rather than by the recipient of the income. The tax is thus withheld or deducted from the payment due to the vendor.  In certain areas of the world, the payor is required to withhold tax from the vendor payment and usually relate to payments for services, such as legal, repairs, transportation, advertising, accounting, etc.  

The amount of withholding tax on income payments varies by jurisdiction but is usually a fixed percentage - for example - 3% on Advertising, 5% on Rent, 1% on Transportation, etc.

Nearly all systems imposing withholding tax requirements also require reporting of amounts withheld in a specified manner. Copies of such reporting are usually required to be provided to both the person on whom the tax is imposed and to the levying government. Withheld taxes are to be remitted to tax authorities within specified time limits. Penalties for delay or failure to remit withheld taxes to tax authorities can be severe. 

  NOTE  Rootstock Withholding Tax does not pertain to employee-related payroll withholding tax.  This RS functionality is for use in certain countries where the payor is required to withhold taxes on certain vendor services. 

Withholding Tax in Rootstock

In Rootstock, you identify the taxable status for a given transaction by specifying the WHT applicability for a transaction. For taxable lines, WHT must be calculated at the rate applicable to the goods or services being purchased, as defined by the tax authorities in each country.

Withholding Tax Accounting in Rootstock

In order to facilitate accounting for WHT in Rootstock, WHT Classes are set up to specify the rate at which WHT is calculated. You use the WHT Class to classify and categorize transactions at a more detailed level for both WHT reporting and accounting. These are specified for each transaction line when you enter a transaction.

For the system to track and process WHT, you must first set up some basic information - this process is described in detail in Withholding Tax (WHT) Setup Requirements.

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