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Foreign Withholding Tax

I'm US based and do some work for company in Canada. I sent them an invoice for, say, $1,000. They paid it but the check it was for $950. When I called they told me that Canadian tax laws require them to withhold for work done in Canada, but not for work done on the project in the US. Their rules are arcane so I can't predict how much they withhold. For example, they withhold based on how long the flight is over Canadian territory, so any guess on my invoice for taxes is just a guess.

Does anyone know how to handle the withholding? I tried creating an account for it but I couldn't get my underpayment into it.

Thanks.

James

Reply to
James
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One way to account for this would be to receive payment for $1000 to clear the invoice. Post the payment to Undeposited funds. Next make deposit with the first line being the $1000 "payment". On the second line post a negative $500 to Foreign Tax expense (or something like that) so that the net deposit is $950.

Or you receive payment for the amount received. Then use the Discount button to record the taxes paid as a "discount".

Either way will match the amount received plus clear the invoice in total.

Reply to
Laura

The discount method seems to do it. Thanks.

Reply to
James

Just remember to make that "discount" account an expense account.

Reply to
Laura

Are you incorporated or proprietor. As a incorporated company, you should be able to declare that you are a US company and not required to pay income tax, or are you doing work in Canada, then I would recommend that you separate the services performed in the two countries on your invoice to avoid arbitrary separation by your client. The withheld tax should probably be refundable, but you would have to check with a Canadian accountant.

Reply to
EXT

might not be exactly like your situation and doesn't address your QB question but, I'm a US corporation selling a service, I have a Canadian company that sells my service in Canada. We have worked out a sales commission agreement, they withhold 10%, some Canadian law, but they do send me a form (can't remember the CDN form number) at the end of the year with the total withholding amount listed, my CPA then deducts the CDN withholding from what I owe in US tax since it's already been paid, I'm not an accountant but we've been doing this for a few years now and my CPA says its fine.

Brian

Reply to
BrianT

I have a Canadian corporation that sells to clients in the US. US tax law says they have to withhold a portion of my payment unless I send a signed "W-8BEN" form certifying that we are not US citizens, nor a US business. I am sure that similar things work the other way, it may pay to hire a Canadian accountant to set you up, because if they are withholding tax money, Revenue Canada is going to be looking for a tax return to match it, and you don't want that -- double tax form preparation!

Reply to
EXT

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