By local law (Ecuador), every company must act as a retention agent for income tax.
Basically speaking, for every sale I make, the customer must collect a small percentage of my income tax in behalf of the IRS. They have to forward that tax on the next month to a collection agency
So, if I sell a $10 service I have to charge 14% IVA (VAT) and deduce 1% from the net value, so I get $13
Likewise, for every purchase I make I must collect a small percentage in behalf of the IRS and pay on the next month. So I end up paying a little less but then I have to pay that the the collection agency
The amounts vary on the type of goods or service that are being purchased.
How can I manage this on ERP next?
What I was doing is adding a negative tax for both sales and purchases so the payment entries balance out with the payments.
Is this correct?
I don’t manage the whole accounting of my company, this is handled by a third party but I’m implementing ERP next as an internal control mechanism and with plans of moving accounting in-house in the future so I want to do this correctly but I don’t want to incurr in customization costs yet.
Second question, related but unrelated.
I have to pay taxes every month. Should I just create “fake purchase invoices” without taxes to manage those?
Likewise, for VAT, every month I have to declare and pay the VAT difference to the revenue agency. Should I just create a “fake invoice” to cross reference that payment against the VAT account?