Your country's taxes and withholdings
How VAT (input and output tax), withholding taxes and municipal taxes work, with sample journal entries, and how to set rates, minimum bases and accounts in GoSoft.
Almost every country in the Americas has a consumption tax (VAT, IGV, ITBIS, ISV, GST/HST, state sales taxes…) and a withholding system through which the state collects in advance. Understanding their accounting mechanics is essential to avoid paying too much or too little.
- Explain VAT with input and output tax and compute the amount payable.
- Record purchases and sales with VAT and withholdings.
- Set rates, minimum bases and tax accounts in GoSoft.
VAT in one sentence
VAT taxes the value added at each stage. The company charges VAT on its sales (output tax, a debt to the tax authority) and pays VAT on its purchases (input tax, a right to deduct). Each period:
> VAT payable = output tax − input tax
If input tax is higher, a credit carries forward to the next period (or, in some countries, is refunded).
The US has no federal VAT: states and cities levy a sales tax charged only to the final consumer. Canada uses GST/HST (a VAT) plus provincial taxes. The mechanics below apply to VAT/GST countries; see the United States and Canada pages.
Example with 19% VAT (Colombia)
Buying materials from a supplier
Base 1,000,000 + VAT 190,000 = 1,190,000. The company is a withholding agent and withholds 2.5% of the base (25,000) as income tax.
| Account | Debit | Credit |
|---|---|---|
| Materials and supplies | 1,000,000.00 | |
| Input VAT (deductible) | 190,000.00 | |
| Withholding tax payable | 25,000.00 | |
| Accounts payable | 1,165,000.00 | |
| Equal totals | 1,190,000.00 | 1,190,000.00 |
Sale of taxable services
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable | 2,380,000.00 | |
| Service revenue | 2,000,000.00 | |
| Output VAT | 380,000.00 | |
| Equal totals | 2,380,000.00 | 2,380,000.00 |
Month's VAT = 380,000 − 190,000 = 190,000 payable.
In many countries the sale of homes or lots is exempt or excluded from VAT, or has a special regime. That is why Empresa 01 S.A.'s sales VAT book may be empty. Always check your country page.
Withholdings
A withholding is part of a payment that the buyer does not hand to the supplier but to the tax authority, as an advance on the supplier's tax. There are two sides:
| Situation | Account | Nature |
|---|---|---|
| I withhold when paying a supplier | Withholdings payable | Liability: I owe it to the authority |
| I am withheld when a customer pays me | Withholdings receivable (tax prepayments) | Asset: I deduct it from my taxes |
The first are covered in Withholdings made; the second in Withholdings your customers make.
In GoSoft, step by step
Open Financial reports → Taxes and withholdings. GoSoft loads the country's reference taxes.
gosoft.app
The country's taxes and withholdings, with rate, minimum base and account Review each row: code, name, rate and minimum base (the amount from which it applies).
Click Edit to assign the account where each tax is recorded. Rows showing No account must be resolved before use.
Add taxes specific to your activity or municipality with Add.
Choose units and dates and click View: the table shows debits, credits and the balance to file for each tax in the period.
Loaded rates are a reference. They depend on the company's regime and change with tax reforms. Confirm them with your accountant and the tax authority (links on each country page).
- Recording a purchase's VAT as extra cost when it is deductible (or the opposite).
- Ignoring the minimum base: withholding on small purchases that do not require it.
- Confusing withholdings payable (liability) with withholdings receivable (asset).
What is output tax?
VAT charged on sales: a debt to the tax authority.
In a month output tax is 500 and input tax 650. How much VAT do you pay?
Nothing. A credit of 150 carries forward to the next period.
When paying for a service you withhold 4%. Is that withholding an asset or a liability for your company?
A liability: you must pay it to the tax authority.
Where do you assign each tax's ledger account in GoSoft?
In Taxes and withholdings, the Edit button on each row.