I receive cashback on a USD account, which has 30% withholding tax in Belgium deducted before I receive it. I think that I should use account 8311 for the amount that I receive, but what account should I use for the tax paid?
Cashback is not considered as an interest so 8311 is not the correct account. Cashbacks are consideras as a Bonus/discount and should reduce your costs for the specific purchase that genereated the cashback.
i will explain this through an example.
1, First you make a purchase from a supplier with the amount 10 000 SEK. You account for it in this case like below.
1930 Bankaccount Credit 10 000 5460 Consumables Debet 8 000 2641 Incoming VAT Debet 2 000
2. A week later you recieve a 1 000 kr cashback. That cashback will be accounted for in the following way.
Thanks a lot for the detailed answer. The cashback is not actually related to purchases, they call it 'Balance Cashback', and is a percentage on the balance held in the account, which is why I originally treated it as interest.
Do you have any idea how to deal with the withholding tax?
Thanks again Joachim, then I will use account 4732!
The withholding tax (källskatt in swedish maybe?) is a 30% tax, retained by the Belgian government, as that's where the bank operate for tax purposes. I guess I could claim this back, but I will look into that later. I just can't work out how to account for it right now.
The second alernative will be enough to do in this case. The result will be the same in both cases so simplify it by just account for the 700 directly against 4732.
It seems to me that the advice given by Joachim is incorrect, possibly due to a misunderstanding of what Wise Balance Cashback is.
Despite the misleading name, the "Wise Balance Cashback" is interest on money in a Wise bank account, that's why Wise pays withholding tax to the Belgian authorities (30%). According to Sweden's double taxation treaty with Belgium, you can only be taxed for 10% on interest. Therefore, you should be able to claim a refund of 20% from the Belgian authorities.
Would the appropriate accounts here not be something like "8311 Ränteintäkter" (for interest earned) and "1640 Skattefordringar" (for money due from Belgium)? Putting this on "47 Reduktion av inköpspriser" seems incorrect as it's not tied to purchases, rather it's interest on a bank account for money you put into it.
Really confusing name when they use cashback for this which is something completely different in Sweden.
I'm still not convinced that it should be concidered as an interest. If it first is deducted as tax which you later recieve a procentage back it would rather be concidered as tax recieved back.
So if the deduction first is accounted for like tax on account like account 8980 Other taxes and 1640 tax assets.
19XX kredit 1000 (100% of the tax deducted) 8980 Debet 800 (80% of the tax which really is tax) 1640 Debet 200 (20% which later will be recieved back as cashback)
When the cashback (20 % tax is recieved back) a while later it should then be accounted for against only 1640.
19XX Debet 200 1640 Kredit 200
So it should not be concidered as cashback or interest and should not have any effect on the result in the company at the end.
Maybe its helpful if I show what actually happens on the Wise account itself. Let's say there is 1% yearly interest (or "Wise Balance Cashback") and there is 1000 SEK on the Wise account at the end of a period (I'm using SEK for simplicity, typically this would be another currency). At the end of a period, 1% of 1000 SEK is 10 SEK. However, the money that actually gets into our bank account is 7 SEK. Wise has already subtracted the 30% withholding tax (3 SEK), before it even reaches our bank account. To make things a little more complex, this yearly interest (or Wise Balance Cashback) is amortized monthly, so you get this payment every month.
What I conclude from this, is that the 7 SEK would be "8311 Ränteintäkter", 2 SEK would be money Belgium owes us, and 1 SEK would be pre-paid taxes (which we might credit on the tax return).
Just like you, I'm also confused why Wise uses the term "Balance Cashback"... is this for regulatory reasons or is it marketing? Or is it in legal terms a cashback, although it behaves in all ways like an interest?
Thanks for the explanation but i still wouldn't call it an interest even if it behaves like an interest. I still find it more like tax and would still say that my last exemple is more correct then using an interestaccount.
But i recommend any user of wise to contact a consultant or an audithor for more information about this.
There may still be a misunderstanding here. The 1000 SEK in the example described isn't "tax deducted"; it's the gross income before tax (it's the amount on the Wise bank account before we got any interest from Wise).
It seems to me, this is what actually is happening when we get paid the 1% interest ("Wise Balance Cashback") on 1000 SEK:
Thank you, I'm glad we see things the same now. I now also understand where the misunderstanding originated. The question wasn't precise enough that this concerned "Balance Cashbacks" which is Wise's own term for "interest". This is not about credit card cashback awarded for purchases. I'll add our shared response to Ana's thread as well, for anyone googling this in the future.
I agree and a really huge thanks to you for clarifying how it works. This is how a forum should be working. You give some advise and recieve some back.
Thanks for clarifying Michael, "Balance Cashback" always seemed more like a marketing term than a technical financial term to me too due to the way it works.
