Why withholding tax exists at all.
Withholding tax (withholding tax) is your tax authority collecting income tax at source rather than waiting for the recipient to file. a withholding section of the your country’s tax code requires prescribed persons (large companies, government, registered AOPs) to deduct tax when paying for goods or services and deposit it with the treasury. The recipient gets a tax credit equal to the withholding tax, claimed in his annual return. If the withholding tax exceeds his tax liability, he gets a refund; if his liability is higher, he pays the balance.
For SMBs, the relevant questions are simple. Am I a withholding agent? If yes, what rate do I deduct on this payment? Did the deduction get deposited and reported? Did I issue the certificate? Get those four right and withholding tax stops being scary. Nonari handles each step automatically once the supplier filer status is set.
The rate table you actually need.
For tax year 2026, the headline the relevant withholding statute rates are: supply of goods 4.5% for filers, 9% for non-filers. Services 11% for filers, 22% for non-filers (exempt category services like transport are 4%/8%). Contracts (execution of contracts) 7.5% for filers, 15% for non-filers. Specific categories override these: advertising commission 12%, sportsperson services 10%, brokerage and commission 12% for filers. The "filer" status is the buyer or recipient on the Active Taxpayers List as of the date of payment.
The standard mistake is treating a software development invoice like a goods invoice. Software development is a service. So is consulting, accounting, legal, marketing, repair, transport, and almost anything where the deliverable is intangible. If the deliverable is a physical thing, it is goods. If the deliverable is human time or expertise, it is services. The withholding tax rate doubles between the two.
- Goods (filer / non-filer): 4.5% / 9%.
- Services (filer / non-filer): 11% / 22%.
- Specified services like transport: 4% / 8%.
- Contracts execution: 7.5% / 15%.
- Commission and brokerage: 12% / 24%.
A worked example with two suppliers.
You run a small distribution company in Manchester. In May 2026 you pay two invoices. Supplier A sells you $500,000 of inventory; he is a filer. withholding tax under the relevant withholding statute(a) at 4.5% = $22,500. You pay him $477,500, deposit $22,500 to your tax authority via tax-payment receipt within seven days, and issue him a withholding certificate. Supplier B is a non-filer consultant who invoices $200,000 for marketing services. withholding tax under the relevant withholding statute(b) at 22% = $44,000. You pay him $156,000, deposit $44,000, and issue the certificate.
In your books, the entries are: DR Inventory 500,000 / CR Bank 477,500 / CR withholding tax Payable 22,500 for supplier A; DR Marketing Expense 200,000 / CR Bank 156,000 / CR withholding tax Payable 44,000 for supplier B. When you deposit the tax-payment receipt: DR withholding tax Payable 66,500 / CR Bank 66,500. Three balanced entries, two suppliers paid net, your tax authority deposited.
When you do not have to deduct.
Not every payment triggers withholding tax. The threshold for the relevant withholding statute(a) goods is $75,000 in aggregate per supplier per financial year, and the relevant withholding statute(b) services is $30,000 per supplier per year. Below that, no deduction. If a supplier holds a tax exemption certificate under the relevant withholding statute, you withhold at the exempt or reduced rate stated. Payments to government, banks, and certain SROs are also outside the relevant withholding statute.
Where SMBs trip up is the cumulative threshold. You buy $40,000 of stationery from one supplier in July, ignore withholding tax because under threshold. You buy another $50,000 in November. Now cumulative is $90,000, you cross the goods threshold of 75,000, and you owe withholding tax on the November invoice plus retroactive coverage. Track cumulative spend per supplier or you will miss this every year.
Filing the withholding tax statement on the tax portal.
Withholding tax deposited must be reported on a monthly statement under the relevant withholding statute, due by the 15th of the following month. The statement lists every deductee with Tax ID/national ID, payment amount, withholding tax rate, withholding tax amount, and tax-payment receipt reference. It is filed via the tax portal under "Withholding Statements". An annual statement under the relevant withholding statute summarizes all monthly statements, due by the 31st of August following year end.
The certificate to the deductee under the relevant statute must be issued within seven days of the deduction. The deductee uses this certificate to claim the credit in his annual return. Failing to issue the certificate is a separate offense from failing to deposit the tax, and your tax authority enforces both.
How filer status changes everything.
The Active Taxpayers List is updated weekly on your tax authority website. A supplier who was a filer when you placed the order may be a non-filer when you make the payment if his return lapsed. The deduction rate is determined on the date of payment, not the date of invoice. So you check ATL the day you cut the cheque. Most accounting systems do not track this automatically, which is why SMBs over-withhold defensively (treating everyone as non-filer) and lose suppliers, or under-withhold and get notices.
Nonari pulls the ATL feed weekly and flags any supplier whose status changed. When you raise a payment, the withholding tax rate is calculated against current status. If a supplier hovers between filer and non-filer, you see the history and can ask for an updated certificate before paying.
withholding tax on payments to non-residents.
Cross-border payments are a whole separate game. the relevant withholding section covers payments to non-residents: 15% on royalties and fees for technical services, 10% on insurance premiums, 8% on shipping, plus tax treaty overrides. If has a Double Tax Treaty with the recipient country (e.g., UK, UAE, Singapore), the treaty rate applies. You collect a Tax Residency Certificate from the recipient before reducing the rate, otherwise default applies.
Practical example: $1,000,000 paid to a UK consultant for a technical report. Under the -UK DTT, fees for technical services are taxed at 12.5%. Without the TRC, you withhold 15% under the relevant withholding section(1A). With the TRC, you withhold 12.5%. Difference is $25,000 on this single payment. Always demand the TRC before payment.