Withholding Tax on Non-Resident: Example for Consulting Service
ABC Company hired a consultant from foreign country to assist with a new special project in Cambodia for four months starting from 1 August 2018. According to the consulting agreement, ABC Company is required to pay a total consultant fee of $ 20,000 for the four-month period in advance.The consultant had never been to Cambodia before.
For accounting policy,ABC Company recorded this amount as prepaid expenses ( asset type) and amortised it monthly as consulting service expense in the monthly income statement.
Assumption for August 2018 :
– TheToS exchange rate is USD1=KHR4,100.
– The average exchange rate is USD1=KHR4,000.
Required:
- Calculate withholding tax liabilities for August 2018 if any.
- Make Accounting record and any adjustment for August 2018.
Solution
1.Withholding Tax
withholding tax based on recorded cash or accrual basis for tax purpose, so withholding tax for non-resident supplier at 14% tax rate.
Withholding tax = 20,000 x 14% =$2,800 or $2,800 x 4,000 = 11,200,000 KHR
2.Accounting Record
When payment, accounting record as follows.
Dr. Prepayment for Consulting Service..20,000
Cr. Cash……………………………………………..17,200
Cr. Withholding tax payable…………………2,800
Adjustment at end of August.
Dr. Consulting Service expense…….5,000 ( 20,000/4)
Cr. Prepayment of Consulting Service….5,000