It took me a while to work get my head round this “Witholding Tax” .
This is my current understanding of what this is all about. (But don’t take this as being the complete, definitive version).
Business A is a registered tax payer and employs the services of Mister B who cannot or won’t produce an official invoice (called a Fatura )
Business A wants ( or needs ) to account for the costs of the services of Mister B as a business expense.
Since Mister B is not going to account for the payment to the tax man, Business A has to pay the tax for him. This is what is called “Witholding Tax”.
A possible situation is that a Maintenance Company needs to show services as having been paid for in their accounts, but they have used non-tax paying workers. The Maintenance company would then pay the Tax on all the payments they show in their accounts.
There wouldn’t be any exemptions.
So the obvious question is why doesn't Company A use workers that will provide a Fatura. The answer is that Mister B would then charge more if he is going to account for and pay his own tax.
In the end Company A probably pays the same either way.
I now wait to be severely corrected by others who probably know better than me…………….
