Business Central 2026 release wave 1 (BC28): Calculate withholding taxes for vendors (Withholding Tax)

Hi, Readers.
Dynamics 365 Business Central 2026 wave 1 (BC28) is generally available. More details: General Available: Dynamics 365 Business Central 2026 release wave 1 (BC28)

I will continue to test and share some new features that I hope will be helpful. In this post, I would like to talk about Calculate withholding taxes for vendors.

Calculate withholding taxes for vendors:

Business value:
Business Central customers can benefit from features for setting up, calculating, and reporting withholding taxes for vendors in all countries/regions where it’s relevant. You no longer need to source a non-Microsoft application or create a customization because withholding tax functionality is built into the standard version of Business Central.

Feature details:
In some countries/regions, companies must pay withholding tax to the government for certain third‑party services or vendor purchases. Business Central calculates withholding tax when you pay a vendor invoice, or when you post it, based on your setup. The tax amount is withheld from the payment and reduces the total amount owed to the vendor.

https://learn.microsoft.com/en-us/dynamics365/release-plan/2026wave1/smb/dynamics365-business-central/calculate-withholding-taxes-vendors?wt.mc_id=DX-MVP-5004336

In Business Central 2026 release wave 1 (BC28), Microsoft introduced a new app, Withholding Tax.

App id: c31ee575-3fc7-4388-98ee-d75aa2fc5f87
PS: Dynamics 365 Business Central: Newly added standard extensions missing in upgraded environments (Uninstalled apps will now remain uninstalled)

To enable withholding tax calculation, we need to open the General Ledger Setup page and turn it on first. 

Enable Withholding Tax
Specifies if the company enabled withholding tax functionality.

Note:

Withholding Tax feature is currently in preview. We strongly recommend that you first enable and test this feature on a sandbox environment that has a copy of production data before doing this on a production environment.
Are you sure you want to enable this feature?

If you want to round payment amount, please enable the following option.

Round Payment Amount for Withholding Tax
Specifies if payments applied to withholding tax entries will be rounded. The original withholding tax entries will not be modified.

Done.

Next, configure the Withholding Tax Revenue Types, including their sequences and posting groups.

• Withholding Tax Revenue Types

Then, set up the following:

• Withholding Tax Bus. Post. Group and apply it to vendors that are subject to withholding tax.

Withholding Tax Bus. Post. Group:

Vendor Card:

Withholding Tax Liable
Specifies if the vendor is liable for withholding tax.

Withholding Tax Bus. Post. Group
Specifies the withholding tax business posting group for the vendor.

PS: There’s a simple control here: you can only configure Withholding Tax Bus. Post. Group when Withholding Tax Liable is enabled.

• Withholding Tax Prod. Post. Group and apply it to items or general ledger accounts.

Withholding Tax Prod. Post. Group:

Item Card: There is no such control on the Item Card, similar to the Vendor Card.

Withholding Tax Prod. Post. Group
Specifies the withholding tax product posting group for the item.

G/L Account Card:

• Withholding Tax Posting Setup (using the two groups above): This is similar to other posting settings, where the posting G/L Accounts are determined by the combination of Withholding Tax Bus. Post. Group and Withholding Tax Prod. Post. Group.

Some important settings:

Withholding Tax Calculation Rule
Specifies the calculation rule for withholding tax, which is used with the amount specified in the withholding tax Minimum Invoice Amount field. This helps identify the transactions for which withholding tax isn’t deducted. For example, if you select the Less than option here and enter 100 in the withholding tax Minimum Invoice Amount field, then withholding tax isn’t deducted for those transactions with an amount less than 100.

Withholding Tax Minimum Invoice Amount
Specifies the threshold amount for Withholding Tax, below which there will not be any Withholding Tax deduction.

Realized Withholding Type
Specifies when the withholding tax is realized for the transaction. Choose whether the withholding is realized when the invoice is posted, when the payment is posted, or at the earliest of the two.

Withholding Tax Report Line No. Series
Specifies the number series for the withholding tax report line.

For example,

• Withholding Tax Certificate Nos.

That concludes all the settings.
Withholding tax applies automatically when you’re working with purchase documents. When you post a document that includes withholding tax, Business Central creates a withholding tax entry. 
Let’s create a Purchase Invoice to test it out.

Preview Posting:

You can see a new Related Entry, Withholding Tax Entry.

Withholding Tax Entries:

Additionally, there is a field in the Purchase line called Withholding Tax Absorb Base, which defaults to 0. If you manually enter a value, the Withholding Tax will be calculated based on this value.

Withholding Tax Absorb Base
Specifies the Amount when you want Withholding Tax to be calculated on the Amount other than the Line Amount.

For example,

PS: The same applies to Purchase Credit Memo.

You can also use the Calculate and post withholding tax settlements action to process withholding tax for a specific period based on the withholding tax entries you already posted.
Calc. and Post Settlement:

In addition, some minor updates can be found in the standard code.

Purchase Invoice Statistics:

Purch. Credit Memo Statistics:

G/L Registers:

Source Code Setup:

If you need more information, you can also check out Microsoft’s introduction below.
Introducing: Withholding Taxes

Here are some key points:

Great, give it a try!!!😁

END

Hope this will help.

Thanks for reading.

ZHU