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This guide shows you how to withhold tax on a bill or direct expense, and how to reverse it with a vendor credit. After completing these steps, the record posts the withheld amount to your withholding tax payable account, and the amount appears as an open item you can remit to the tax agency. For how DualEntry calculates and posts withholding tax, see Withholding Tax.

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Prerequisites

Confirm the following before you start:
  • Withholding rate: The company’s country has at least one active withholding rate that’s valid on the record date. See How to Set Up Withholding Tax.
  • Liability account: You have a liability account for withheld tax.
  • Vendor defaults (optional): The vendor has withholding defaults, so the category and payable account fill in for you.

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Withhold tax on a bill

On a bill, you choose a withholding category for each line that tax applies to. DualEntry calculates the withheld amount and reduces the amount you owe the vendor.
  1. Create a bill and select the vendor. If the vendor has withholding defaults, DualEntry fills in Withholding Tax Payable Account and the Withholding category on each line.
  2. On each line, check the Withholding category. Select a different category, or clear it for a line that has no withholding tax. Only active rates for the company’s country that are valid on the bill date are listed.
  3. Check the Withholding rate and Withheld columns. Withheld is the line’s net amount, before VAT, GST, or sales tax, multiplied by the rate.
  4. If Withholding Tax Payable Account is empty, select the liability account for withheld tax. It’s required when any line has a withholding category.
  5. Check the totals. Withholding tax shows the total withheld, and Net payable to vendor shows the amount the vendor is paid.
  6. Post the bill. DualEntry asks you to confirm the withholding before posting, with the gross amount and the withholding tax by category. Review it and confirm.
The bill’s total and amount due are the Net payable to vendor amount. When you pay the bill with a vendor payment, you pay that amount. The withheld amount stays in the withholding tax payable account until you remit it.

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Withhold tax on a direct expense

A direct expense records a purchase you’ve already paid from a bank or credit card account, so the withholding tax reduces the amount paid from that account.
  1. Create a direct expense and select the vendor and the bank or credit card account.
  2. On each line, check or select the Withholding category.
  3. If Withholding Tax Payable Account is empty, select the liability account for withheld tax.
  4. Check the totals. Withholding tax shows the total withheld, and Net paid from bank shows the amount credited to the bank or credit card account.
  5. Post the direct expense and confirm the withholding.
When the direct expense posts, the bank or credit card account is credited for the Net paid from bank amount, which matches what left your bank account. For the full journal entry, see How withholding tax posts to the General Ledger. As on a bill, the vendor’s default payable account fills in when you leave Withholding Tax Payable Account empty. The withheld amount stays in the payable account until you remit it to the tax agency. When you reconcile the bank or credit card account, match the bank transaction to the Net paid from bank amount, not the gross amount.

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Reverse withholding tax with a vendor credit

A vendor credit reverses withholding tax by linking each of its lines to a bill line that withheld tax. The reversed amount is proportional to the amount you credit.
  1. Create a vendor credit for the same vendor, company, and currency as the bill, and select the bill in the Bill field.
  2. On each line that reverses withholding tax, select the bill line in Credits line. Only lines with withholding tax on the selected bill are listed.
  3. Check the Withholding reversed column. The category and rate come from the bill line and can’t be changed.
  4. Check the totals. Withholding tax reversed shows the total reversed, and Net AP reduction shows the amount the credit reduces accounts payable by.
  5. Post the vendor credit.
For example, crediting 400.00 against a 1,000.00 bill line that withheld 10% reverses 40.00. The credit lines that link to one bill line can’t add up to more than that line’s net amount. You can credit one bill line with several vendor credits, or with several lines on one credit. Each credit line reverses withholding tax on its own net amount until the bill line’s withheld amount is fully reversed, so a later credit of 600.00 on the same bill line reverses the remaining 60.00. If the credit lines would go over the bill line’s net amount, DualEntry shows The credit lines on line {position} of bill {bill_number} are more than the net amount of that line. The remaining net amount is {remaining}. You also can’t link a bill line whose withholding tax is on a remittance.

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Troubleshooting

These are the most common messages when you withhold tax on a record:
  • Select a withholding tax payable account. A line has withholding tax.: Select a Withholding Tax Payable Account, or set a default payable account on the vendor.
  • The withholding category is not valid on the record date.: The rate is inactive, or the record date is outside its effective dates. Select a rate that’s valid on the record date, or check the rate under Configuration → Tax Setup → Withholding Rates.
  • The withholding category is not for the country of the company.: Select a rate for the company’s country, and check that the company’s address has a country.
  • Withholding tax is not allowed with an intercompany vendor.: Remove the withholding category. Withholding tax doesn’t apply to intercompany vendors.
  • The linked bill line must be on a posted bill.: Post the bill before you credit it, or link a line from a posted bill.
  • The withholding tax of this line is on remittance {remittance}. Archive the remittance first.: You changed or removed a line whose withholding tax is on a remittance, so it’s locked. Archive the remittance named in the message before you change the line. See Remitted lines are locked.
  • The withholding tax of this record is on remittance {remittance}. Archive the remittance first.: You tried to archive the record, move it out of Posted, or change its company while one of its lines is on a remittance. Archive the remittance named in the message first.

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Next steps

Last modified on November 10, 2026