What is VAT WITHHOLDING?
VAT Withholding is a new Government process to withhold 40% of the VAT due on payments for specific goods and services from vendors. This withholding is not a tax, but a way to boost the collection of a portion of VAT due from suppliers. This process only applies to supplies that attract the standard (10%) VAT rate for payments $10,000 and above.
Who is a VAT withholding AGENT?
As of August 1, 2022, the Ministry of Education & Vocational and Technical Studies, The Ministry of Works and Utilities, The Ministry of Public Service and the Treasury Department will be appointed as VAT Withholding Agents who are required to withhold 40% of the VAT charge for payments to suppliers for the procurement, construction, repair or maintenance of capital goods, building supplies, or commercial leases or rentals by the Ministry of Public Service.
HOW DOES IT WORK? (FOR VAT-REGISTRANT)
- VAT Withholding agent purchases capital goods or pays rent for a government office space worth $100,000 from a VAT registrant named John.
- John gives the Withholding Agent an invoice of $100,000 + $10,000 VAT for a total of $110,000.
- Withholding agent pays the invoice and issues a VAT Withholding certificate in the amount of $4,000 (which is 40% of the $10,000 VAT due) and remits it to the VAT Department on John’s behalf.
- John receives $106,000 from the VAT Withholding Agent and the VAT Withholding Certificate in the amount of $4,000. He files his VAT return and attaches the VAT Withholding certificate to show the payment made on his behalf to the VAT Department.
HOW DOES IT WORK? (FOR NON-REGISTRANTS)
- VAT Withholding agent purchases capital goods or pays rent for a government office space worth $12,000 from a non-registrant named Jane.
- Jane provides the VAT Withholding Agent with an invoice of $12,000 but did not include a VAT charge (because she is unable to charge VAT).
- The VAT Withholding Agent then calculates the imputed VAT using the following formula: VAT Fraction= R / (100+R) R= rate of VAt ~ (10%).
- The imputed VAT, in this case, is = Invoice amount x VAT fraction ~ $12,000 x (10/110) = $1,090.91
- The VAT Withholding Agent deducts 40% of the imputed VAT ($1090.91 x 40% = $436.36). Then remits $436.36 to the VAT Department on Jane’s behalf. The agent issues a VAT Withholding Certificate of $436.36 and pays Jane ($12,000 – $436.36) which equals $11,563.64.
Click the link below for VAT Withholding Certificate
VAT Withholding Certificate (fillable)
Click here to view the Quick Reference Guide
Click here to view the Guidance on VAT Withholding