What Is WHT on an Invoice? Withholding Tax Explained With Examples
You send an invoice for 118,000. Your client pays 108,000. Nothing is wrong: the client kept 10,000 for the tax authority. That deduction is called withholding tax, or WHT. If you freelance or run a small business, understanding it helps you price your work correctly and avoid surprises when the payment arrives.
WHT in one line: withholding tax is a part of your payment that your client keeps and pays to the tax authority on your behalf, so you receive less cash than the invoice total. Rules, rates and the amount it applies to differ by country and by type of payment.
How withholding tax works
Withholding tax works in three simple steps. First, you send an invoice for your work. Second, when the client pays, they keep a percentage of the payment instead of sending it all to you. Third, the client deposits that amount with the tax authority in your name. You receive the rest.
In many tax systems the amount withheld counts as an advance payment of your own income tax. That means it is not an extra cost on top of your tax bill. It is tax you pay earlier than usual, and it can often be credited when you file your return. Whether and how you can claim it depends on your country, so ask your accountant what applies to you.
WHT is different from GST or VAT
People often mix these up because both show up on an invoice. They work in opposite directions. GST or VAT is added to your price and the customer pays it on top. WHT is taken out of your payment, so you receive less cash than the invoice total.
| GST or VAT | WHT (withholding tax) | |
|---|---|---|
| What happens | Added to the price | Deducted from the payment |
| Who collects it | The seller, from the customer | The payer, from the supplier |
| On the invoice | An extra line that raises the total | A deduction line that lowers the amount you receive |
| Effect on you | The invoice total goes up | The cash you receive goes down |
A worked example
Say you invoice 100,000 for your services and charge 18% GST. The GST is 18,000, so the invoice total is 118,000. Your client deducts 10% WHT. What you actually receive depends on which amount the WHT is applied to.
| WHT applies on | WHT amount | You receive |
|---|---|---|
| The taxable amount (100,000) | 10,000 | 108,000 |
| The total including tax (118,000) | 11,800 | 106,200 |
| The tax amount only (18,000) | 1,800 | 116,200 |
The 10% rate here is only an example. The point is that the same invoice can leave you with three different amounts, so you need to know which base applies to your payment before you quote a price.
Which amount does WHT apply to?
There is no single answer. Some withholding rules apply to the amount before tax, some to the full amount including tax, and some only to the tax portion. It also depends on the type of payment, for example services, goods or contracts, and sometimes on whether you are registered for tax.
The safest habit is to ask the client or your accountant which base they use and write it in your contract. Billfy lets you choose the base on the invoice, so the net amount you see matches what you will actually receive.
How to show WHT on an invoice
There are two common ways. The first is to show a WHT line under the total and then a final line called net payable. The client can see exactly what they should pay you. The second is to invoice the full amount and record the deduction when the money arrives.
Either way, keep it consistent and agree it with your client. If you use the first way, your invoice should clearly show the tax line, the total, the WHT line and the net payable amount. The Billfy invoice generator does this for you when you enter a WHT rate.
How to price your work so you get the amount you need
If you know how much money you need to receive, you can work backwards. When the WHT applies to the taxable amount and there is no discount, the amount to bill before tax is your target divided by (1 + tax rate - WHT rate).
For example, you want to receive 108,000 with 18% GST and 10% WHT on the taxable amount. The factor is 1 + 0.18 - 0.10 = 1.08, and 108,000 divided by 1.08 is 100,000. You should bill 100,000 before tax. The take-home calculator does this for you in its target mode, and it also handles the other WHT bases.
Common WHT mistakes
- Quoting without allowing for WHT. If you quote 100,000 and then receive 90,000, you may be short. Work out the net amount first.
- Treating the invoice as unpaid. If the bank payment is lower because of WHT, the invoice is usually still paid. Record the WHT amount separately.
- Not keeping proof. In many places the payer should give you a certificate or proof of the deduction. Ask for it, because you may need it for your own tax return.
- Mixing up the base. Applying WHT to the wrong amount changes the net payable.
- Assuming every client deducts WHT. Many businesses and institutions are required to, while individual customers often are not. Ask first.
Work out what you will actually receive
Enter your amount, GST or VAT and WHT, and see the result as a 3D chart. Or put a WHT line straight onto an invoice.
Take-home calculatorMake an invoice with WHTFrequently asked questions
Is WHT the same as TDS?
The idea is the same: tax is deducted at source when a payment is made. The name differs by country, and TDS is the term used in India. The rates and rules are different in each country.
Can I get my WHT back?
In many systems the amount withheld can be credited against your own tax when you file a return and hold proof of the deduction. If it is more than your tax, some systems allow a refund. Rules differ, so confirm with your accountant.
Is WHT added on top of the invoice?
No. WHT is deducted from the payment, so you receive less than the invoice total. GST or VAT is the amount that is added on top.
How do I record an invoice that was paid net of WHT?
Mark the invoice as paid and record the WHT amount as the difference between the invoice total and the cash you received. The Billfy invoice tracker shows the WHT deducted as its own total.
What WHT rate should I use?
Use the rate that applies to your type of payment and your tax status. This changes by country and over time, so ask your accountant or check the tax authority for the current rate.
Tax rules, rates and deadlines differ by country and change over time, and they depend on your situation. This guide is general information, not tax or legal advice, so confirm the details with your accountant or tax authority.