Extended Withholding Tax: Customizing
Activating Extended Withholding Tax
To be able to use extended withholding tax, you must first activate it in Customizing. To do this, access the Implementation Guide (IMG) and follow the menu path Financial Accounting® Financial Accounting Global Settings ® Company Code ® Activate extended withholding tax.
Statutory Reporting: Settings
Statutory reporting of withholding tax requires you to make settings in Customizing under two main menu paths, as follows:
Under Financial Accounting® Financial Accounting Global Settings ® Withholding Tax ® Extended Withholding Tax ® Basic Settings you define the countries in which withholding tax is reported, the official withholding tax codes, and reasons for exemption.
Under Financial Accounting® General Ledger Accounting ® Business Transactions ® Closing ® Reporting ® Extended Withholding Tax: Reporting you make the settings for the forms on which the tax is to be reported. Further information on reporting withholding tax can be found in FI - Closing and Reporting.
Withholding Tax Type
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:
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).
Assigning Withholding Tax Types to Company Codes
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.
Withholding Tax Type: Posting at Time of Invoice
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:
The withholding tax base amount is the line item net amount.
The withholding tax base amount is equal to line item net amount plus a number of specific tax amounts. The processing keys for the tax amounts to be totaled have to be specified for this withholding tax type in a separate activity in Customizing. Further information on this subject can be found in the Financial Accounting Implementation Guide in the activity "Define processing key for modified net amount".
Withholding tax base amount equals the line item gross amount.
Withholding tax base amount equals the tax amount of the line item.
The withholding tax base amount is equal to the total of certain specific tax amounts. The processing keys for the tax amounts to be totaled have to be specified for this withholding tax type in a separate activity in Customizing. Further information on this subject can be found in the Financial Accounting Implementation Guide in the activity "Define processing key for 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.
Withholding Tax Type for Posting at Time of Payment
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.
The central invoice entry method is not used for this withholding tax type.
If you use this withholding tax type, the whole withholding tax amount is posted when the first partial payment is made for the open item. This function is used to calculate the withholding tax using the sales/purchase tax (Sales Tax Withholding) in Argentina.
The withholding tax base amount is adjusted against the minimum amount using the grand total of the withholding tax base amounts of the open item together with the related documents, whether or not these were previously selected.
The withholding tax amount is distributed across all partial payments in proportion to the payment amount in the open items. In Argentina, this function is used to calculate withholding tax on income tax and social insurance tax.
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.
Withholding Tax Codes
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:
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.
All calculations are made in the local currency. This means that the amounts you enter as minimum/maximum amounts for the withholding tax base amount, withholding tax base exemption amount, and scales must be maintained in the local currency of the company code.
Withholding Tax Base Amount
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.
Minimum and Maximum Amounts
If the withholding tax base amount is lower than the minimum amount you specify here, then the system calculates the withholding tax amount as being zero. If you need to enter a withholding tax base exemption amount (as distinct from the exemption that can be entered under vendor/company code), you must select the level "company code".
If the withholding tax amount calculated by the system is lower than the minimum or greater than the maximum (only if you did not select the maximum field), the withholding tax amount is set to zero.
All calculations are made in the local currency of the company code in which you are working. This means that the amounts you enter as minimum/maximum amounts for the withholding tax base amount, withholding tax base exemption amount, and scales must be maintained in the local currency of the company code.
Defining Accounts for Withholding Tax
Further information on withholding tax scales can be found by accessing the activity Define accounts for withholding tax under Financial Accounting Global Settings.
Configuring Certificate Numbering for Withholding Tax
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.
Numbering class assigned to company code(s), with no distinction as to withholding tax type
Company code Numbering class
Numbering class assigned to combinations of withholding tax type/company code
Company code Withholding tax type Numbering class
0001 T1 A
0001 T2 B
0002 T1 A
Numbering class assigned to a combination of withholding tax type/branches /company code
Company code W/tax type Branch Numbering class
0001 T1 XXXX A
0001 T2 YYYY B
0002 T1 YYYY A
Procedure for Configuring Certificate Numbering
The above settings are made in Customizing by following the menu path Financial Accounting Global Settings® Withholding tax ® Extended Withholding Tax ® Postings ® Certificate Numbering for Withholding Tax.