Tax Withholdings on Sales
In several countries, when a customer pays you an invoice they are legally required to withhold a percentage of VAT/sales tax or income tax instead of paying it to you, and to give you a withholding certificate for it. The Tax Withholdings on Sales feature records that certificate: it reduces the invoice's outstanding balance by the withheld amount, exactly as if it were a payment, and generates the accounting entry that moves that amount into a recoverable-withholding account, so you can later offset it against your own taxes payable.
What it is and what it's for
Each withholding is linked to one or more credit sales invoices of the same customer. For each invoice you record how much the customer withheld and which type of withholding it was:
- VAT / sales-tax withholding: calculated on the invoice's tax amount.
- Income-tax withholding: calculated on the invoice's total amount.
Both withholding types are picked from your company's Taxes catalog: only taxes flagged as "this is a withholding", with the VAT or Earnings/income-tax calculation method, show up there. If the catalog has no withholding tax configured yet, you need to create it in Taxes before you can register this document.
When you save, the system increases the affected invoice's applied amount by the withheld amount (leaving it with less outstanding balance, just as if you had received a partial payment) and posts the accounting entry: a credit to the customer's receivable account and a debit to the matching VAT or income-tax withholding account.
Screens in this area
| Screen | What it does |
|---|---|
| List | Lists every registered withholding, with filters by date range, customer and subsidiary, and customizable columns (number, date, reference, customer, currency, total amount, fiscal receipt and notes). From here you create, delete or open the summarized and detailed reports. |
| Create / Edit | The form with the general data (customer, subsidiary, date, currency, fiscal data), the table of invoices affected by the withholding, and the attachments section to save the certificate the customer gave you. |
| Details | The same withholding in read-only mode, with the create, edit, duplicate, view journal entry, print, delete and void buttons based on your permissions. |
| The printable format of the document, with the customer's data and the detail of the invoices and withheld amounts. Supports custom HTML templates created under HTML Templates. |
How to register a withholding, step by step
- Open the list and click New. You need the "add" level of the withholdings permission; if you don't see the button, ask your administrator for access.
- Select the customer who withheld the tax from you and, if your company has subsidiaries enabled, the matching subsidiary.
- Add the affected invoice(s) to the documents table: each line represents one of the customer's credit invoices the withholding was applied to.
- For each line, choose the withholding type (VAT/sales tax or income tax) and enter the withheld amount from the physical or digital certificate the customer gave you. Each line only accepts one withholding type at a time.
- Fill in the fiscal data if your country requires it for this document, and add a reference or notes if needed.
- Attach the withholding certificate the customer gave you, as backup.
- Save. The system validates the data, reduces each invoice's outstanding balance by the withheld amount, and posts the accounting entry.
Key fields
| Field | What it's for |
|---|---|
| Customer | Who withheld the tax from you. Determines which invoices you can pick in the documents table. |
| Subsidiary / Location | Which subsidiary the document belongs to for accounting purposes, with subsidiaries enabled; the location defaults from your session. |
| Date | Date of the withholding certificate; it must fall within an open Accounts Receivable accounting period. |
| Document number | Numbered automatically according to this screen's configured sequence; you can also type it in yourself, but it can't repeat or be changed once saved. |
| Currency and exchange rate | The document's currency and its rate against your functional currency. |
| Affected invoices | Each line links one of the customer's sales invoices with the withholding type and the amount withheld on it. At least one line with a valid invoice and withholding is required. |
| VAT / sales-tax withholding | Withholding type picked from the Taxes catalog, calculated on the invoice's tax amount. Can't be combined on the same line with a total-based withholding amount. |
| Income-tax withholding | Withholding type picked from the Taxes catalog, calculated on the invoice's total amount. Can't be combined on the same line with a tax-based withholding amount. |
| Fiscal receipt (and related fiscal fields) | Fiscal fields for the document where your country uses them; the system validates their format if you fill them in. |
| Reference | Free text to note a receipt number or an external reference from the customer. |
| Notes | Free text for any additional information about the withholding. |
| Attachments | The withholding certificate the customer gave you (photo, scan or PDF), subject to your edition's file limit. |
Validations on save
- Customer required and not void.
- Open accounting period for the document's date in Accounts Receivable.
- At least one valid document line: with an invoice selected and a withholding amount of zero or more.
- Every line must have a withholding type assigned (VAT/sales tax or income tax); a line with an invoice but no withholding is not allowed.
- The two amounts can't be combined on the same line: if the line uses a VAT/sales-tax withholding, the total-based amount must be zero, and vice versa for an income-tax withholding.
- The affected invoice must exist, not be void, and belong to the same subsidiary as the withholding.
- Compatibility with the source invoice's electronic invoicing status, where applicable.
- Correctly formatted fiscal receipt, where your country uses one for this document.
- Unique document number: it can't repeat, and can't be changed once the document is saved.
Managing the document
From an already saved withholding's detail screen, depending on your permissions, you can:
- Edit it, while its date's accounting period is still open.
- Void it, which gives back each affected invoice the balance that had been withheld from it; it can't be voided if the affected invoices' electronic invoicing status blocks it, or if the accounting period is already closed.
- Delete it, if the accounting period is still open and it has no active linked records; this also gives the withheld balance back to the affected invoices.
- Duplicate it to create a new document from its data.
- Review the accounting entry generated when it was saved.
- Print it, with the standard format or a custom template.
Availability and permissions
- Access is controlled by the "Tax Withholdings on Sales" permission on the user group, with separate levels for view, add, edit, delete and void.
- Available from the Basic plan and up (not on the Billing or Start plans). On the Enterprise plan, it requires the Sales module to be active.
- This is a beta feature: besides the required plan, your company needs it turned on specifically. If you don't see "Tax Withholdings on Sales" in the Sales menu, contact AdmCloud support to request its activation.
- With subsidiaries enabled, the subsidiary is required and every withholding is tied to it.
- Before using this feature, you need at least one VAT/sales-tax or income-tax withholding configured in your company's Taxes catalog.
Tips and common mistakes
Set up your withholding taxes in the Taxes catalog first. If you can't find the withholding type you need when creating the document, check that a tax is flagged as "this is a withholding" with the correct calculation method (VAT or Earnings/income tax).
Don't mix the two amounts on the same line. Each invoice line is either a VAT/sales-tax withholding (calculated on the tax) or an income-tax withholding (calculated on the total); if the system flags an error on save, check that only one amount is entered on the line.
Register the withholding as soon as you receive the customer's certificate. Until you do, the invoice will still show the amount the customer already withheld as outstanding, and the customer won't pay it to you directly.
Voiding or deleting the withholding gives the balance back to the affected invoice. Use it if you entered the wrong amount or the wrong invoice, instead of trying to fix it with another document.