What is Withholding Tax and Extended with holding TAx?
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Answer Posted / srivani
Withholding tax: Tax that is charged at the beginning of
the payment flow in some countries. Usually, the party that
is subject to tax does not pay the withholding tax over to
the tax authorities himself.
When a customer that is authorized to deduct withholding
tax pays invoices from a vendor subject to withholding tax,
the customer reduces the payment amount by the withholding
tax proportion. The customer then pays the tax withheld
directly to the appropriate tax authorities
Extended with holding tax: With extended withholding tax,
you can process withholding tax from both the vendor and
customer view.
In Accounts Payable, the vendor is the person subject to
tax, and the company code is obligated to deduct
withholding tax and pay this over to the tax authorities on
the vendor’s behalf. In Accounts Receivable, the company
code itself is subject to tax, and the customers that do
business with this company code deduct withholding tax and
pay this over to the tax authorities on the company code’s
behalf. In both cases, the business partner of the
person/entity subject to tax deducts the tax and pays it
over to the tax authorities.
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