How to Deduct Withholding Tax from Subcontractor Payments
Deducting withholding tax from a domestic subcontractor's payment as required by local tax law.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Accounts Payable (Subcontractor) | Liability (-) | 100,000.00 | - |
| Withholding Tax Payable (ISTD) | Liability (+) | - | 5,000.00 |
| Cash in Bank | Asset (-) | - | 95,000.00 |
💡 Accountant's Note
In Jordan, companies must withhold 5% tax from payments to certain domestic contractors and subcontractors and remit it to the ISTD. The subcontractor receives the net amount.
Practitioner & Systems Framework
💻 ERP Architecture
Configure WHT tax codes in the AP module. The system should automatically calculate the withholding amount upon invoice posting or payment generation, booking the liability while clearing the vendor AP.
⚠️ Audit Flags
Compliance checks by tax authorities. Failure to withhold tax makes the main contractor liable for the subcontractor's tax debt plus severe penalties.
📄 Required Documentation
Subcontractor invoice, WHT deduction certificate issued to subcontractor, and monthly tax authority filing.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.