How to configure withholding taxes

What is it for?

For withholding tax to be added automatically, at the right rate, to a supplier's invoices, there are two things to configure: the withholding rules, which say what is withheld (tax, income category, article of law, current rate, Form 10 (Modelo 10) code), and, on each supplier's form, the Default withholding and, when there is one, the Declared withholding exemption.

Once this is done, the supplier invoice line already comes with the withholding tax, and fiscaldoo refuses to confirm an invoice from that supplier without withholding, unless they have declared the exemption.

When to use it?

• When you start working with a supplier subject to withholding, for example a self-employed professional or the office landlord.
• When a supplier hands in the declaration that they are entitled to the withholding exemption.
• To check the current rate of a withholding and the income code that goes into Form 10.
• It is not for payroll: withholdings on employment income (category A) are not in these rules and are handled in payroll (How to prepare the DMR).

Where to find it?

• Accounting › Configure › VAT and withholding › Withholding rules and codes: the Withholding taxes (PT) list, with Code, Name, Tax, Income category, Residence, Nature, Legal article and Current rate (%). The Modelo 10 income codes and Modelo 39 income codes buttons open the official lists of those codes.
• Accounting › Record › Suppliers (Partners and assets group) › supplier form › Sales & Purchase tab, PURCHASES group: Default withholding and Declared withholding exemption.

Before you start

• Rules: the profile is Certified accountant. The Accountant does not see the VAT and withholding menu (see Only the Fiscal officer can).
• Supplier forms: the Accountant or the Administrative profile fill in the withholding fields.
• The rules are the same in all the companies in the database; each company has its own withholding taxes. In a company without journal entries (in the demo, Empresa Teste Filial) the same 10 rules appear, each with that company's taxes.

How to use it

1. With the Certified accountant profile, open Withholding rules and codes. The demo has 10 rules: six Personal Income Tax (IRS) rules for categories B and F (for example IRS cat. B — atividades profissionais da tabela do art. 151.º (professional activities in the art. 151 table), 23 %, and IRS cat. F — rendimentos prediais (rendas) (property income, rents), 25 %), IRS cat. E — rendimentos de capitais (taxa liberatória) (capital income, final withholding rate), IRS — não residentes (taxa liberatória) (non-residents, final withholding rate) and two Corporate Income Tax (IRC) rules (IRC — retenção geral (general withholding) and IRC — membros de órgãos estatutários (members of statutory bodies)).

2. Open the rule for the supplier's situation, for example IRS cat. B — atividades profissionais da tabela do art. 151.º, and check:

   • Current rate (%) (23.0000): you do not type it. It comes from the legal rule shown in Legal rule key (WHT_IRS_B_ART151), with the date from which it applies;
   • Legal article (CIRS art. 101.º n.º 1 alínea b));
   • Modelo 10 income code (B): the code this withholding carries in Form 10. You type it by hand, with a code from the official list that opens with the Modelo 10 income codes button;
   • SAF-T WithholdingTaxType (IRS): the withholding type that goes into the SAF-T;
   • the table at the bottom: the company's Retenção IRS 23% — trabalho independente (art. 151.º) taxes, with the value -23.0000. There are two: one for purchases and one for sales.
   Pending validation by a certified accountant: current rates and articles of each rule (Personal Income Tax Code (CIRS), art. 71.º and art. 101.º; Corporate Income Tax Code (CIRC), art. 94.º) and Form 10 income codes.

3. If the rule has no Modelo 10 income code, type it, after confirming it with the certified accountant, and click Save. In the demo, three rules do not have one: IRS cat. E — rendimentos de capitais (taxa liberatória), IRS — não residentes (taxa liberatória) and IRC — retenção geral.

4. As Accountant, open the supplier's form in Record › Suppliers and the Sales & Purchase tab. In Default withholding, choose the rule. The list shows the IRS rules (the IRC ones are under Search more...). In the demo, the supplier Ana Ferreira has IRS cat. B — atividades profissionais da tabela do art. 151.º.

5. If the supplier handed in the exemption declaration, tick Declared withholding exemption and type the declaration date in Exemption declared on. Exemption yearly limit (15,000.00 in the demo), Category B income this year (1,500.00 for Ana Ferreira: the February and March invoices, of €1,000.00 and €500.00) and Category F income this year also appear. Pending validation by a certified accountant: conditions and limit of the withholding exemption (CIRS, art. 101.º-B, n.º 1, alínea a); VAT Code (CIVA), art. 53.º).

6. Click Save.

7. Check on a new invoice from the supplier (Record › Supplier invoices › New): when you type a line, Taxes already includes Retenção IRS 23% — trabalho independente (art. 151.º). The VAT rate is chosen as usual (see How to enter a supplier invoice).

Expected result

• The supplier's form keeps the Default withholding (and the exemption, with the date, if there is one).
• On a new invoice from that supplier, the line comes with the withholding tax. On a €500.00 invoice with 23 % VAT, the totals are IVA 23% €115.00, Withholding tax -€115.00 and Total €500.00, and the withholding is credited to account 242 Retenção de impostos sobre rendimentos. The full lines are in How to enter a supplier invoice.
• The configuration creates no journal entries: only invoices do.

Important notes

• The rate depends on the date. The rate applied is the one in force on the invoice's Payment/availability date of the income (if empty, the document date). The field's help says: “Date the income is paid or made available to the beneficiary (CIRS art. 101.º n.º 8). The withholding rate is the one in force on this date.” Pending validation by a certified accountant: the date that determines the withholding rate (CIRS, art. 101.º, n.º 8).
• Other invoice fields that affect withholding: Intermediation commission (these commissions never have an exemption) and, in the Other Info tab, Nature of the capital income, for loan interest.
• The exemption is not automatic. Without Declared withholding exemption and the date, fiscaldoo always withholds. The field's help reminds you that the exemption “does not cover intermediation commissions”.

Common problems

Confirming the invoice is refused: the supplier “is subject to withholding”

• Symptom: “Invalid Operation — “Ana Ferreira” is subject to withholding (IRS cat. B — atividades profissionais da tabela do art. 151.º) and this document has none. The supplier has not declared the exemption. Add the withholding tax to the lines, or record the supplier's declaration on his contact (accounting tab) if he is entitled to the exemption of CIRS art. 101.º-B no. 1 a).”
• Cause: the supplier has a Default withholding and the withholding was removed from the line.
• What to do: if the supplier's invoice has withholding, add it in Taxes. If the supplier is entitled to the exemption, record the declaration on the form (step 5): the fields are in the Sales & Purchase tab, not in an accounting tab as the message says.

When saving the form: “Some required fields are empty”

• Symptom: “Some required fields are empty. Fill in the fields marked in red to be able to save.”, with Exemption declared on in red.
• Cause: Declared withholding exemption is ticked without the declaration date.
• What to do: type the date of the supplier's declaration, or untick the exemption.

The Accountant cannot find the withholding rules

• Cause: the Configure › VAT and withholding menu is only for the Certified accountant profile (and the administrator).
• What to do: ask the Certified accountant to check or change the rule. The Accountant can fill in the Default withholding on the supplier's form.