Creating Withholding Tax Types - Philippines
In the Philippines, there are two general types of withholding tax:
-
Creditable Withholding Tax – A kind of withholding tax is prescribed on certain income payments and is creditable against the income tax due of the payee for the taxable quarter/year in which the particular income was earned. The income payor issues a creditable withholding tax certificate (BIR Form 2307) to the payee, who submits the certificate to the BIR to get a deduction from his income tax liability at the end of the quarter or the taxable year. In NetSuite, as a buyer, you can create or select a default tax liability account where taxes withheld on purchase or payment transactions can be posted. For payments received as a seller in transactions where tax has been withheld, you can create or select a default asset account where the taxes withheld (which can be used as a credit on your future income tax liabilities) can be posted.
-
Final Withholding Tax – A kind of withholding tax prescribed on certain income payments and is not creditable against the income tax due of the payee for the taxable year. The tax withheld by the payor already constitutes the full and final payment of the income tax due from the payee. In NetSuite, as a buyer, you can create or select a default tax liability account where taxes withheld from purchase or payment transactions can be posted. For payments received as a seller in transactions where tax has been withheld, you can create or select a default account where the taxes withheld can be posted (either as a reduction in income, or as an expense).
On installation, the Withholding Tax SuiteApp automatically creates a withholding tax type to support Philippines expanded or creditable withholding taxes plus the related creditable withholding tax codes. The SuiteApp does not automatically provide a withholding tax type to support final withholding tax, but you can manually add this later along with other types of withholding tax such as VAT withholding. You must also define the tax control accounts to manage and track withholding tax liability and creditable income tax, and this can be done by selecting an account from the chart of accounts as the withholding tax control account both for purchase transactions (as a buyer) or payment transactions (as a seller). For more information, see Setting Up Withholding Tax Types.