Example: Posting Withholding Tax
You received an invoice to the amount of 1140 DEM from a vendor who is liable to withholding tax. The invoice amount contains 14 percent input tax. For posting withholding tax, you defined withholding tax code 10 as follows:
- The base for tax/SI contributions is net. That is, the tax on sales/purchases is not taken into account when calculating the withholding tax
- The taxable portion is 100 percent
- The tax rate is 30 percent
No tax exemption exists for the vendor. You have entered the withholding tax code in the master record of the vendor.
The posting procedure is as follows:
- You post the invoice amount of 1140 DEM to the vendor account and to an expense account. The input tax (140 DEM) is automatically calculated and posted. The system stores the withholding tax base amount (1000 DEM) and the withholding tax code in the line item.
- When clearing the open item, the withholding tax (300 DEM) is calculated from the base amount and posted to the withholding tax account. On the vendor account, the open item is cleared. For the bank posting, the invoice amount is reduced by the withholding tax portion. 840 DEM is paid.