Withholding Tax Invoices in Oracle AP:

Withholding tax (WHT) is the amount withheld while making a payment to

a supplier/contractor/any payee. Instead it is paid to the tax authorities.

You may be required to withhold taxes from your employee expense

reports and supplier invoices. Payables lets you to automatically withhold
tax based on the certain conditions you specify in Withholding Tax region
of the Payables Options window.

We will now cover the steps required to automate the Withholding tax
processing.

Pre-Requisites:
1. Enable Withholding Tax option:
Navigation: Payables Responsibility > Setup > Options > Payables
Options > Withholding Tax tab

a.Tick the Check box “Use Withholding Tax.

b.Enter Tax Group name. This is optional

c.Under Apply Withholding Tax section, you will specify at what point of
time, the tax should be withheld.

d. Under Create Withholding Invoice section, you will specify when

Withholding invoice will be created.
2. Define your Tax Authority as a Supplier.
Navigation: Payables Responsibility > Suppliers > Entry

Create Tax Authority as Supplier along with the necessary sites.

The Tax Authority has to be setup as a supplier with a supplier type “Tax
Authority”. Atleast one supplier site for the Tax Authority needs to be
setup as well.

Site:
Under Tax details tab, enter the below:

a.Allow Withholding Tax: Check “Allow Withholding Tax” Check box. This
can set either at the supplier level or the supplier site level.

b.Invoice Withholding Tax Code: Enter the WTH tax code. If you have not
created yet, come back and enter once it has been created.

c.Payment Withholding Tax Code: Enter the WTH tax code. If you have
not created yet, come back and enter once it has been created.

Optional Components for the Tax Authority setups are:

A unique Pay Group (so you can separate the payments to the Tax
Authorities from the other payments)
A payment format that uses the Tax Authority Remittance Advice as its
Separate remittance Advice
6. Define withholding Tax calendar.
In order to automate withholding tax, we need to define periods using the
special calendar if you choose Period Limit

Navigation: Payables Responsibility > Setup > Calendar > Special

Calendar

a. Name: Enter a unique name for this calendar.

b.Description: Enter a meaningful description

c. Periods per year: Enter how many periods you wish to have in your
calendar. Eg: 12,8, 4 etc.

d. Type of Calendar: Choose Withholding Tax

e.Periods: Define your periods, their names , start date and end date for
a period.

Save the work.

2. Withholding Tax Code Setup.

Navigation: Payables responsibility > Setup > Tax > Withholding > Codes

a. Operating Unit: Enter the Operating unit

b.Tax Authority and Site: Enter Tax Authority that you have created in
Step 2 and its supplier site.

c. Tax Code: Give a unique name

d. Description: Enter a meaningful description

e. GL Account: Enter the GL Account that should be used to hold the

withheld amount

f. Rate Structure:

Period Limit: Choose this option, if you want to have a limit on the
amount withheld during a withholding tax calendar period. Once withheld
amount exceeds this limit, Payables will not withhold anymore.Also it’s
mandatory to enter the Withholding Tax calendar and period limit fields if
you choose Period Limit option.

Amount Range: Choose this option, when your WHT rate depends on what
you already have paid during a time period. For the amount basis you can
choose between Gross Amount and Withheld Amount. The time period is
either per withholding tax calendar period or per invoice.

Flat Rate: Choose this if have no amount limit or period limit.

g. Tax Rate: Define the tax rates for each day.

Save the work.

3. Withholding Tax Group Setup

In the Withholding Tax Groups window you can add multiple Withholding
Tax Codes to a group. WHT codes can be assigned to more than one
group.
If this is used, Payables calculates invoice withholding tax based on every
tax code in the withholding tax group (Based on the ranking).
Because you can only apply Withholding Tax Groups to an invoice (and
not an individual Withholding Tax Code) you have to create a Withholding
Tax Group even if it only applies to one Withholding Tax Code. You can
enforce this by clicking the Create Tax Group field in the Withholding Tax
Code form.
Payables>>Setup>>Tax>>Withholding>>Groups

5. Define WHT on Supplier / Supplier Site for standard suppliers

Navigation: Payables Responsibility > Suppliers > Entry

Query for the supplier that you want to withhold the amount and go to
Tax Details tab.

Check “Withholding Tax” Checkbox and enter the Withholding tax group
at Supplier and site level.

Steps to create Withholding Tax automatically:

Create a Standard Invoice in AP.

Navigation: Payables responsibility > Invoices > Entry > Invoices

Enter the header details and line details and save.

Validate the invoice by going to Actions button > Validate.

If you remember, we have setup in such a way that whenever an invoice

is validated, the withholding amount will be generated.

Now if you go back to the lines, you will notice an additional line with type
Withholding Tax. Rate defined in Tax Code screen will be withheld.

Now you can create accounting for the same and make the payment. You
will only have to pay $2240.90 because 20% will be paid to tax authority
and has been withheld from being paid to the supplier.
At the same time, a new invoice with type “Withholding Tax” will be
created with the same amount as the one it has withheld in the invoice
“w4”.

If you notice, the supplier will be a tax authority that we have created
above. Description will have the original invoice number.

You can validate , create accounting and make a payment for this invoice
as well.