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Progressive withholding tax for Japan

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This article provides information about progressive withholding tax in Japan. Per the legal requirement in Japan, the tax percentage changes, depending on the interval in proportion to the invoice amount. The tax ratio also changes, based on the payment amount.

Tax calculation

  • Percentage of net amount – The Percentage of net amount method is the default value in the Origin field. The withholding tax is calculated as a percentage of the purchase amount, excluding any other sales taxes.
  • Percentage of gross amount – The withholding tax is calculated as a percentage of the gross purchase amount, including any other sales taxes.

You can set up a withholding tax code so that it's calculated based on a whole amount or an interval amount. Use the Calculation method field on the Calculation FastTab of the Withholding tax codes page to select how a withholding tax code is calculated.

  • Whole amount – The tax rate is applied to the whole taxable amount.
  • Interval – The taxable amount is divided into parts, each of which falls in a range that has a specific withholding tax rate. The part of the amount that falls in a given interval is taxed according to the tax rate for that interval. The withholding tax is the sum of the tax amounts that are calculated for each amount interval.

Note: Withholding tax codes of different calculation methods can't be attached in a single withholding tax group.

Prerequisites

Task
Set up withholding tax codes and withholding tax groups.
Create a new payment journal, settle open transactions, and post the payment journal.

  1. On the Withholding tax codes page, create withholding tax codes that have the following information:

    • Origin and calculation method on the Calculation FastTab
    • Limits (taxable amount interval) and values on the Values page

  2. On the Withholding tax groups page, create withholding tax groups, and add the relevant withholding tax codes on the Setup FastTab. You can calculate and post withholding tax on either the Payment journal page in Accounts payable or the General journal page in General ledger. The default withholding tax group for the vendor is shown in the Withholding tax group field.

  3. On the Payment journal page, select a journal or click New to create a journal, and then click Lines.

  4. Enter a payment date, and select the vendor account that is set up to calculate withholding tax. By default, the Withholding tax group field shows the withholding tax group for the vendor. You can select a different group. If no withholding tax should be calculated for the line, you can delete the field value.

  5. Click Functions, and then click Settlement. Select the Mark option for the open invoices to pay.

  6. Verify the Infolog information about the calculated withholding tax, and then close the Infolog.

  7. Optional: Click the Withholding tax tab for each selected line to change or delete the calculated withholding tax. You can also create lines and enter the information.

  8. Close the Settle open transactions page. The payment amount on the journal line is reduced by the withholding tax amount.

  9. Validate and post the payment journal.

Example of Gross amount

In this example, withholding tax is calculated by using an Origin of percentage value of Gross amount and a Calculation method value of Interval. Tax rates are set up as follows.

Minimum and maximum limit (Taxable amount interval) Value (Tax rate)
0.00 to 1,000.00 10 percent
1,001.00 to 2,000.00 15 percent
2,001.00 to 0.00 20 percent

Payment amount: 11,000.00, which includes 10-percent sales tax (that is, 1,000) Full payment – 11,000.00 Calculation:

Taxable amount interval Tax rate Payment amount split, based on the tax interval Withholding tax
0–1,000 10 percent 1,000.00 100.00
1,001–2,000 15 percent 1,000.00 150.00
2,001–0 20 percent 9,000.00 1,800.00
Total WHT amount 2,050.00

Partial payment – 6,000.00 Calculation:

Taxable amount interval Tax rate Payment amount split, based on the tax interval Withholding tax
0–1,000 10 percent 1,000.00 100.00
1,001–2,000 15 percent 1,000.00 150.00
2,001–0 20 percent 4,000.00 800.00
Total WHT amount 1,050.00

Balance payment – 5,000.00 Calculation:

Taxable amount interval Tax rate Payment amount split, based on the tax interval Withholding tax
0–1,000 10 percent 1,000.00 100.00
1,001–2,000 15 percent 1,000.00 150.00
2,001–0 20 percent 3,000.00 600.00
Total WHT amount 850.00

Example of Net amount

In this example, withholding tax is calculated by using an Origin of percentage value of Net amount and a Calculation method value of Interval. Payment amount: 11,000.00, which includes 10-percent sales tax (that is, 1,000) Full payment – 11,000.00 Base for withholding tax calculation, excluding tax = 10,000.00 Calculation:

Taxable amount interval Tax rate Payment amount split based on the tax interval Withholding tax
0–1,000 10 percent 1,000.00 100.00
1,001–2,000 15 percent 1,000.00 150.00
2,001–0 20 percent 8,000.00 1,600.00
Total WHT amount 1,850.00

Partial payment – 6,000.00 Base for withholding tax calculation, excluding tax = 5,455.00 Calculation:

Taxable amount interval Tax rate Payment amount split, based on the tax interval Withholding tax
0–1,000 10 percent 1,000.00 100.00
1,001–2,000 15 percent 1,000.00 150.00
2,001–0 20 percent 3,455.00 691.00
Total WHT amount 941.00

Balance payment – 5,000.00 Base for withholding tax calculation excluding tax = 4,545.00 Calculation:

Taxable amount interval Tax rate Payment amount split, based on the tax interval Withholding tax
0–1,000 10 percent 1,000.00 100.00
1,001–2,000 15 percent 1,000.00 150.00
2,001–0 20 percent 2,545.00 509.00
Total WHT amount 759.00