Withholding Tax Configuration Document

Withholding Tax Configuration Document

Withholding tax is applicable in few countries. Some of the countries which have withholding tax are United Kingdom, Slovakia, Turkey, Argentina, Brazil, Chile, Colombia, Mexico, India, Philippines , Thailand and South Korea. SAP has given an excellent solution to map the withholding tax scenario.

Withholding tax is an Income tax which is deducted at the source of the revenue. The party that is subject to tax does not remit the withholding tax to the tax authorities himself.

In any business transaction there are two parties involved. One is the customer and another is the vendor. A customer is authorized to deduct withholding tax for services rendered by the vendor. When the vendor raises the invoice on the customer, the customer deducts the withholding tax as per the rates specified by the tax authorities and pays the balance money to the vendor.

The tax deducted by the vendor is remitted to the tax authorities on specified due dates. The vendor gives a Withholding tax certificate to the customer for the withholding tax deducted.

The customer can claim this withholding tax (as advance income tax paid) in his annual returns to Income tax authorities. In some countries (like India) the withholding tax is deducted on Invoice or payment whichever is earlier. Thus when an advance is paid to the vendor the customer is required to deduct withholding tax o n the advance payment.

When the Vendor submits an Invoice the customer is now required to deduct tax on the Invoice amount reduced by the advance amount.

To calculate pay and report the withholding tax, the SAP system provides two
functions:-

Classic Withholding tax
Extended Withholding tax

Extended Withholding tax includes all the functions of classic withholding tax; SAP therefore recommends the use of extended withholding tax.

This document will cover the Extended withholding tax functionality.

Table of Content

1. Basic Settings 
1.1 Check Withholding Tax Countries 
1.2 Define Official Withholding Tax Codes 
1.3 Define Reasons for Exemption 
1.4 Check Recipient Types  
1.5 Define Business Places  

2. Calculation 
2.1 Withholding Tax Type 
2.1.1 Define Withholding Tax Type for Invoice Posting
2.1.2 Define Withholding Tax Type for Payment Posting 
2.1.3 Define Exchange Rate Type for Withholding Tax Type
2.1.4 Define Rounding Rule for Withholding Tax Type  
2.2 Withholding Tax Codes 
2.2.1 Define Withholding Tax Codes 
2.2.2 Define Formulas for Calculating Withholding Tax 
2.3 Withholding Tax Base Amount 
2.3.1 Define Processing Key for Modified Net Amount  
2.3.2 Define Processing Key for Modified Tax Amount 
2.2.3 Portray Dependencies between Withholding Tax Types 
2.4 Minimum and Maximum Amounts  
2.4.1 Define Min/Max Amounts for Withholding Tax Types  
2.2.2 Define Min/Max Amounts for Withholding Tax Codes

3. Company Code
3.1 Assign Withholding Tax Types to Company Codes
3.2 Activate Extended Withholding Tax 

4. Postings  
4.1 Define Accounts for Withholding Tax to be Paid Over
 
5. Generic Withholding Tax Reporting . 
5.1 Define Output Groups . 
5.2 Define Forms for Withholding Tax Reporting  
5.3 Define Certificate Numbering for Extended Withholding Tax.

6. Vendor Master Data Maintenance 
6.1 Update withholding tax codes in the vendor master 
6.2 Change Field Status used in the down payment account 

7. Go live checks when uploading Vendor Master Data and Vendor open items