Deducting witholding tax from payment to suppliers

I have been struggling to know how to deduct witholding tax from payment to suppliers.

You can create an Item under Non-inventory Items called Withholding tax payable. put all the relevant information and select an already created liability account for it.

see an example from a dummy company i created.

Now during creation of purchases invoices or payments just select this item and enter the Withholding tax to be deducted in *negative* . The amount will reduce the payable to the Supplier but create a liability which will be paid to the tax authority.

@lubos @Bridge and @all interested, by enabling items under receive and spend money you have really solve a very big problem. example, you have made it possible to use the above steps not only in invoice creation but even in spend money situations.

With regards to withholding taxes, focus on making withholding tax field appear in the credit note creation form to make adjustment on withholding tax assets when there are sales returns. Don’t bother making something similar to withholding tax on sales invoices for purchases invoices, the non-Inventory items can handle it perfectly.

The only thing the non-Inventory items can’t do is the tracking of withholding taxes receivable which is not that relevant in purchases but very relevant in sales.

Another issue is how to enable tracking for cash sales. This is a problem because the tracking depends on the customer being set up among the customer list.
To solve this problem I recommend creating a customer and calling him CASHSALES. Use this customer in every cash sales but enter details of the customer very well to make tracking of who owes us what simple when you are accounting for withholding taxes in the future. See example below

inside the withholding tax receivable account

inside the sales invoice record