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Frequent Explorer **

Royalty and foreign tax

Hi, A foreign company pays a monthly royalty to us.  We send them an invoice each month. On the invoice, the foreign company asked us to put an amount that is equal to the royalty + their foreign tax. So if the royalty is $50 and they have to pay $5 tax, they want us to send an invoice that says $55 but they will pay only $50.  How do we apply payment when the paid in full amt is different from the invoice amt? How do we handle the foreign tax? The royalty is under other income. Thanks!

3 Comments
Established Community Backer ***

Re: Royalty and foreign tax

Something sounds fishy to me, I get foreign dividends and foreign tax is withheld from the payment automatically.

 

But use a service item for the tax posting to an income account

then do a credit memo, use the same item and amount, in receive payments apply the credit memo and receive the balance due

Frequent Explorer **

Re: Royalty and foreign tax

@Rustler It is legit. We see their financial statements and the accured taxes. But, since the extra $5 is for taxes, shouldn't it be a tax expense?  

 

 

 

Established Community Backer ***

Re: Royalty and foreign tax


@Novice338 wrote:

@Rustler It is legit. We see their financial statements and the accured taxes. But, since the extra $5 is for taxes, shouldn't it be a tax expense?  

 

 

 


No because you are not paying it.

the credit memo cancels it out

 

in my situation the foreign tax paid is an expense since it lowers the amount I receive