Philippine Nexus: Setting up Withholding Tax Code for Non VAT Entities

There are qualifications that makes a Company a VAT-Registered Entity within the Philippines.

When entities are non VAT-registered, the treatment of VAT and calculation of Withholding Taxes are different.

They do not record VAT as input tax and the Withholding Tax is calculated based on the Gross Amount less VAT Amount.

*** [WH Tax Rate * (100%/112%)].

This can be done in NetSuite Withholding Tax Bundle by setting Withholding Tax Code correctly.

Example:

Purchase Amount = 1,000.00

VAT (12%) = 120.00

Withholding Tax Rate = 10%

Withholding Tax Base = 1,000.00

The Inventory Amount should be recorded as the total of 1,120.00 while Accounts Payable is recorded, net of Withholding Tax as 1,020.00.

To set this up in NetSuite, Users may do the following steps:

1. Navigate to Setup>Withholding Tax>Withholding Tax Codes>New.

2. Enter a name for the Tax Code.

3. Enter the Rate.

4. On the Percentage Base, we need to indicate the basis of calculating the Withholding Tax Amount.

100% / (100% + VAT Rate)

or

100% / 112% = 89.2857143%

5. Complete the mandatory fields below and click Save.

• Withholding Tax Type
• Tax Agency
• Available On
• Subsidiaries (if required)

Since the Withholding Tax bundle uses the Amount column as the Withholding Tax Base, the Vendor Bill should have the Rate/Amount column as gross of VAT but the VAT Code used should be a 0% rated one.

Item	Quantity	Rate	Amount	VAT Rate	Tax	Gross Amount	WH Tax Code	WH Tax Rate	WH Tax Base Amount	WH Tax Amount
Item A	1	1,120.00	1,120.00	0%	0.00	1,120.00	WT 10%	10%	1,000.00	1,000.00

The GL Impact should now be:

Credt: Accounts Payable                                                    1,020.00

Debit: Inventory                                    1,120.00

Credit: Withholding Tax                                                        100.00