Define Payables Setup for Withholding Tax

You may be required to withhold tax from your supplier invoices and pay it to a tax authority on behalf of the supplier. Set withholding tax options on the Manage Tax Reporting and Withholding Tax Options page and on the supplier setup.

The withheld amount is calculated according to how you set the Calculation Point option. If you apply withholding tax at invoice validation, then the withheld amount is based on the invoice amount. However, if you apply withholding tax at payment, then the withheld amount is based on the payment amount.

Review withheld amounts online or run the standard reports.

Setting Up Automatic Withholding Tax

To automatically withhold tax, perform the following steps:

1. Enable the Apply Withholding option and set the other withholding tax options in the Withholding Tax Options section on the Manage Tax Reporting and Withholding Tax Options page.

2. Create each tax authority as a supplier with a supplier type of Tax Authority.

3. Create withholding tax codes.

4. Create withholding tax classifications.

5. Specify withholding tax details for suppliers.

6. Define withholding tax certificates to handle rate exceptions.

Withholding Tax Automatically

To perform automatic withholding, you assign a withholding tax classification to an invoice line. You can accept the default withholding tax classification or select another classification. When applying withholding tax, Oracle Fusion Tax creates one or more withholding tax type invoice lines, updates the withheld amount on the invoice, and updates the unpaid amount on the installment.

For example, if an invoice for 100 USD has withholding tax of 20 USD, Oracle Fusion Tax creates a withholding tax type invoice line for -20 USD. The withheld amount is -20 USD, and the unpaid amount on the installment is 80 USD.

Caution:

• Automatic withholding tax is calculated only once.

• Automatic withholding tax isn't calculated:

  • For a specific tax after you enter a manual withholding line for that tax.

  • If you pay an invoice with a manual payment or a refund, and the option to apply withholding is at payment time.

Creating Withholding Invoices

After you deduct withholding tax from an invoice, you can optionally create invoices to remit the withheld tax to a tax authority. Oracle Fusion Tax can automatically create withholding tax invoices, or you can perform this task manually. To create withholding tax invoices automatically, set the Tax Invoice Creation Point option to specify whether to create withholding invoices at invoice validation or payment.

Reporting on Withheld Tax

You can run the following reports to satisfy tax authority, supplier, and management reporting requirements:

• Withholding Tax Reports by Invoice, Payment, and Supplier

• Payables Withholding Tax by Tax Authority Report

• Payables Withholding Tax Letter