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Withholding VAT Settings

Withholding VAT is an indirect tax where the payer deducts a portion of VAT from the payment due to their vendors. The withheld amount is then paid to a withholding agent, who submits it to the Kenya Revenue Authority (KRA) on an accrual basis.

In Zoho Spend, you can enable Withholding VAT for your organisation, apply the fixed 2% rate to bills, and record vendor payments that account for the withheld amount. Withholding VAT applies to bills only.

Scenario: Patricia, a withholding agent at Zylker, receives a bill from one of Zylker’s vendors for KES 11,600, which includes KES 1,600 in VAT. She applies Withholding VAT (2%) on the bill in Zoho Spend, which deducts KES 200 from the payment due. When she records payment, Zylker pays the vendor KES 11,400 and remits the withheld KES 200 directly to the KRA. The vendor receives an email with the withholding certificate, which they can use to record the withheld payment in their books.

Enable Withholding VAT

Before you can apply Withholding VAT to your bills, you’ll need to enable it for your organisation. Here’s how:

  • Go to Settings on the left sidebar.
    (OR)
    Click Settings in the top right corner of the page.
  • Click VAT under Taxes & Compliance.
  • In the VAT pane, click Withholding VAT Settings.
  • Toggle Withholding VAT to Enabled.
  • Click Save.

Withholding VAT is now enabled for your organisation.

Enable Withholding VAT for a Vendor

After enabling Withholding VAT for your organisation, you’ll need to enable it for each vendor it applies to. Here’s how:

  • Go to Vendors on the left sidebar.
  • Create a new vendor or open an existing vendor and click Edit.
  • In the Other Details section:
    • Set the VAT Treatment to VAT Registered and enter the VAT Registration Number.
    • Check Apply Withholding VAT for this vendor? next to Withholding VAT.
  • Click Save.

Withholding VAT is now enabled for the vendor.

Apply Withholding VAT to Bills

When you create a bill for a vendor with Withholding VAT enabled, you can apply Withholding VAT to the bill. When you record payment, the withheld amount is deducted from the payment due to the vendor, and you remit it to the KRA.

To apply Withholding VAT to a bill:

  • Go to Bills under Payables on the left sidebar.
  • Create a new bill or open an existing bill and click Edit.
  • Enter the required details.
  • Select Withholding VAT at the top of the Items table. The Withholding VAT is fixed at 2%.
  • To apply Withholding VAT to specific line items only, click the More icon next to a line item, select Show Additional Information from the dropdown, and ensure that Withhold VAT is checked for the line item.
  • Click Save as Draft or Save as Open.

The bill is created with Withholding VAT applied. You can now record payment for the bill, excluding the withheld amount.

Record a Bill Payment with Withholding VAT

When recording payment for a bill that has Withholding VAT applied, record the payment for the bill amount excluding the Withholding VAT. Pay the withheld amount directly to the KRA. On payment, your vendor will receive an email with the details, which they can record in their books.

To record a bill payment with Withholding VAT:

  • Go to Bills under Payables on the left sidebar.
  • Select the bill for which you want to record payment.
  • Click Record Payment at the top of the bill’s Details page.
  • On the Payment page:
    • Enter the required details.
    • Select Yes next to Withholding VAT Deducted? The Withholding VAT amount deducted from the bill will be displayed.
    • Enter the withholding certificate number in the Reference # field, if required.
  • Click Save as Paid.

The payment will be recorded for the remaining bill amount.

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