WITHHOLDING TAX: ACCOUNTING ENTRIES FOR RECEIVABLE INCOME

If a company pays to a beneficiary income which is liable to withholding tax, the tax due is not to be charged to the debtor but rather it is the beneficiary who is taxed, even if the tax is paid by the income debtor.

Normally the tax debt should be recorded  on the date the actual income is paid to the beneficiary because the withholding tax is generated from the payment of the income and not from the decision to allocate this income.

Example of accounting entries : 

Case study

A SOPARFI SA decides at the General Shareholders Meeting to pay 20,000 EUR as a profit sharing bonus to remunerate the faithful and loyal service of its management board.
In accordance with articles 152 and 91 LIR, this remuneration carries with it a withholding tax at a rate of 20%.

The solution

The date the decision is made at the General Shareholders Meeting:

(Debit) 644 - Profit sharing: 20,000

(Credit) 4713 - Liabilities to administrators, managers and auditors: 20,000

The the date the administrators are paid:

(Debit) 4713 - Liabilities to administrators, managers and auditors: 20,000

(Credit) 5131 - Bank current accounts: 16,000 and 46126 - Withholding tax on profit sharing: 4,000

In 8 days

(Debit) 46126 - Withholding tax on profit sharing: 4,000

(Credit) 5131 - Bank current accounts: 4,000

References: Précis de Droit Comptable, Legitech editions