Statutory reporting of withholding tax requires you to make settings in Customizing under two main menu paths, as follows:

The withholding tax type governs the way in which withholding tax is calculated. There are essentially two different withholding tax types according to the time at which the withholding tax amounts are posted. These are the:

• Withholding tax type for Posting at time of invoice

• Withholding tax type for Posting at time of payment

You must ensure that you enter the withholding tax type in the withholding tax master data for your business partners (customer/vendor) and for the company code.

Further information about withholding tax types can be found for the activities listed under Withholding Tax Type (accessed via Financial Accounting Global Settings).

The withholding tax types you wish to use must be assigned to each of the company codes you work with. These withholding tax types must be defined for the country of the company code.

For Accounts Payable, you specify whether (and if so for how long) the company code is entitled to deduct withholding tax for the specified withholding tax type.

Similarly, for Accounts Receivable, you specify whether the company code is subject to withholding tax or if it is authorized for self-withholding tax. If necessary, you can also enter details concerning withholding tax exemption.

You enter a description for the withholding tax type under general data.

Under Calculation you specify details concerning how the tax base amount is calculated and the rounding rules. You also determine here whether the withholding tax amount is to be both calculated and posted or only calculated.

The withholding tax base amount can be calculated in one of the following five ways:

• Net amount

• Modified net amount

• Gross amount

• Tax amount

• Modified tax amount

Under Accumulation type you specify whether you want accumulation to take place and if so over what period.

Here you define whether or not the withholding tax base amounts and the withholding tax amounts are to be accumulated for this withholding tax type. When calculating the withholding tax amount for the open item to be processed, the system takes into account the (already) accumulated values for the withholding tax amount and withholding tax base amount. You select whether accumulation takes place per month, quarter or annually.

If you have activated accumulation for a withholding tax type, the accumulated withholding tax base amount in the current period (month, quarter, year) is added to the withholding tax base amount of the line item of the document for which the withholding tax amount is to be calculated. The withholding tax amount is determined by applying the withholding tax rate (or scale) to this sum, and subtracting the withholding tax amount accumulated in the relevant period. The term "scale" refers to a range of staggered withholding tax rates valid for different withholding tax base amount intervals. The current withholding tax base amount and the tax amount itself are added to the corresponding values in the accumulation table. Accumulation is entered per customer/vendor account, withholding tax type and withholding tax code in the local currency.

Under Control data you stipulate whether the withholding tax base amount or withholding tax amount can be entered manually, and whether you want to suppress withholding tax certificate numbering.

You also stipulate whether self-withholding is permitted for this withholding tax type and if tax already withheld can be deducted.

Under Information for regional withholding tax, you can enter a regional code. Regional codes are used for reporting purposes, and are used in Argentina, for example, where withholding tax varies from region to region.

Under Define minimum and maximum amounts, you determine whether you want to maintain minimum and maximum amounts at withholding tax type level or withholding tax code level.

The settings you can make for this withholding tax type are essentially identical to those found under Posting at time of invoice, with the exception of the following:

Under Calculation you specify how the base amount is to be calculated and enter details concerning the rounding rules. You also determine whether the withholding tax amount is to be both calculated and posted or only calculated.

Under Cash discount, you specify whether the withholding tax amount is to be calculated before or after subtraction of cash discount.

Central invoice covers a special procedure used in Argentina to calculate withholding tax on invoices and debit/credit memos linked by the field Invoice reference.

• Standard case

• Central invoice and first partial payment (Argentina)

• Proportional distribution of withholding tax (Argentina)

Under Minimum base amount check you specify whether you want such a check to take place and if so whether at payment document or invoice document level.

If you selected Minimum base amount check at payment document level, the system uses the full withholding tax base amount for all items as the basis for the payment proposal for the relevant payment. This function is used in Argentina to calculate withholding tax on income tax.

If you selected Minimum base amount check at invoice document level, when you come to pay a given invoice item, the system calculates the amount for the minimum base amount check using the total of all items in the invoice.

For each withholding tax type, you can define any number of withholding tax codes.

When defining a withholding tax code, under General data enter a description for the code and, if necessary, the official withholding tax code.

Official withholding tax codes are used on official forms when reporting taxes, and are defined on a separate screen.

Under Base amount, enter the taxable portion. This percentage is used to determine the withholding tax base amount - independently of the influence of the withholding tax type on the withholding tax base amount.

Under Posting, enter a posting code. This can represent one of the following types of posting:

1. Standard posting
   The withholding tax amount is deducted from the vendor line item amount (posting at invoice entry) or from the payment amount (posting at time of payment), and the system creates a line item for the withholding tax.
2. Offsetting entry to G/L account/No reduction in subledger ("grossing up"):
   The withholding tax amount is multiplied by the factor 1/(1-p), where p stands for the withholding tax rate of the withholding tax code. The system creates two withholding tax line items with opposing debit/credit signs. This option is incompatible with withholding tax scales.
3. Offsetting entry to G/L account:
   The system creates two withholding tax line items with opposing debit/credit signs.

You specify the withholding tax rate and, where necessary, the use of calculation scales for withholding tax under Calculation.

A rate of between 0% and 100% can be entered as the withholding tax rate. The system then uses this rate to calculate the withholding tax amount on the withholding tax base amount.

If you set the indicator Withholding tax formulas, the system calculates the withholding amount on the withholding tax base amount using one of the scales defined for this withholding tax type/code combination. You define these scales in a separate Customizing activity. Further information on withholding tax scales can be found in the Financial Accounting Implementation Guide for the activity "Define withholding tax formulas", located under Financial Accounting Global Settings.

Under Reporting information you can specify a provincial tax code and income type.

To calculate the tax base amount, you can define certain characteristics such as the processing key required to calculate the modified net amount or the modified tax amount. These characteristics are defined independently of the withholding tax type. For further information about withholding tax base amounts, refer to the activities under Withholding Tax Base Amount in the Financial Accounting Global Settings section of the Implementation Guide.

• Withholding tax amount

Further information on withholding tax scales can be found by accessing the activity Define accounts for withholding tax under Financial Accounting Global Settings.

Withholding tax certificates are proof for the vendor and the tax authorities that tax was withheld. In certain countries including Argentina for example, it is the law that withholding tax certificates are numbered clearly and consecutively.

To be able to exercise as much control as possible over the way withholding tax certificates are numbered, the R/3 System offers you a range of numbering methods of which three are currently available. You can assign one of these methods to any given country.

How does the system determine these numbers? Each number is taken in sequence from a number range allocated to a numbering group.

In turn, numbering groups are assigned to numbering classes. The number then is determined according to the numbering class the method is assigned to.

• Method 1:

• Method 2:

• Method 3:

• Define numbering classes, for example one class per withholding tax type.

• Assign numbering groups to the numbering classes. In this activity, you enter the company code and numbering class. When you save the data, the system creates the numbering group and assigns it to a numbering class automatically.

• Assign your numbering classes in accordance with the numbering method chosen.