How to Withhold and Remit Tax on Payments to Foreign Oilfield Service Companies
Deducting withholding tax from payments to foreign drilling and oilfield service contractors and remitting to the tax authority.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Accounts Payable (Foreign Contractor) | Liability (-) | 5,000,000.00 | - |
| Withholding Tax Payable (Petroleum Authority) | Liability (+) | - | 250,000.00 |
| Cash / Bank | Asset (-) | - | 4,750,000.00 |
💡 Accountant's Note
Payments to foreign oilfield service companies are subject to WHT. The applicable rate depends on the host country's tax law and any relevant double taxation treaty.
Practitioner & Systems Framework
💻 ERP Architecture
Identify the applicable WHT rate for each contractor based on: (a) the host country's domestic WHT rate for services (often 5–10%), and (b) any reduced rate available under a bilateral double taxation treaty (DTT) between the host country and the contractor's country of residence. Require contractors to provide a tax residence certificate to claim treaty benefits. Withhold the applicable rate on the gross invoice, pay the net to the contractor, and remit the withheld amount to ISTD (Jordan) or the applicable petroleum authority by the due date. For Schlumberger, Halliburton, Baker Hughes — check the applicable DTT each year as treaty application requires current residence certificates.
⚠️ Audit Flags
WHT compliance is one of the most heavily audited areas in petroleum operations. The ISTD will assess penalties for: (a) failure to withhold at the correct rate, (b) late remittance, and (c) failing to obtain residence certificates before applying treaty rates. The WHT liability is not passed on to the contractor (it is deducted from the gross payment) — contractors should factor the net-of-WHT amount into their pricing.
📄 Required Documentation
Contractor's tax residence certificate (current year), DTT analysis confirming the applicable WHT rate, gross invoice amount, WHT deduction calculation, net payment confirmation, ISTD or petroleum authority WHT remittance receipt, annual WHT statement issued to the contractor, and WHT compliance register by contractor.
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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.
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