Withholding Tax in 3E: From Setup to Settlement
Discover how 3E handles withholding tax across both billing and AP – complete with real-world global use cases.
What is Withholding Tax?
Withholding Tax (WHT) is a mandatory deduction from a payment (usually a percentage) held by the payer and paid directly to tax authorities.
In Elite 3E, it applies to both client billing and accounts payable (AP) transactions, depending on configuration.
Billing
- Deducted from the invoice total.
- Shown on proforma and final bill.
- Requires correct Charge Type setup to avoid indirect tax conflicts.
Triggers
- Deducted from the invoice total.
- Shown on proforma and final bill.
- Requires correct Charge Type setup to avoid indirect tax conflicts.
Pro Tips
- Charge Type category = “Other” instead of “Tax”.
- Why? It prevents conflict with VAT or GST configuration and ensures WHT is calculated and displayed independently on the proforma and bill.
Accounts Payable
- Deducted from the payee (vendor) amount.
- Automatically posted to GL during voucher processing.
- Adjusts payment amount at cheque stage, including partial payments.
Triggers
- The Payee has a WH Tax Code assigned.
- The Voucher contains lines eligible for WHT, validated at entry.
Pro Tips
- Use GL masking and tiered rate setups for flexibility.
- Default WH Code and Expense Type at Payee level for automation.
Real Use Case
Italy
Withholding tax of 20% applies to services by self-employed professionals (e.g., consultants, translators).
3E setup includes:
- WH Tax Code with tiered rate at 20%.
- Minimum threshold defined (e.g., vouchers under €1000 may be excluded).
- Expense Type = “Professional Services”.
- Default WH Code and Expense Type set at Payee level for automation during voucher entry
Kenya
Kenyan tax law requires 5% withholding on professional and consultancy fees.
3E setup includes:
- WH Tax Code at 5% flat rate.
- Calculation Method: Apply only to non-cost expense lines (excluding reimbursable costs).
- Currency code: KES, with rounding set to nearest whole number.
- Payee Maintenance must include:
- Default WH Code.
- Type of Expense = “Consulting” or “Legal” (as appropriate).