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 Defining Withholding Tax Codes 

Use

You define the tax base and rate in the withholding tax code. You make the settings for each country and withholding tax type. You can therefore define as many withholding tax codes as required for each withholding tax type.

Procedure

To make the settings for the withholding tax codes, proceed as follows from the Implementation Guide for Financial Accounting: Financial Accounting Global Settings

® Withholding Tax ® Extended Withholding Tax ® Calculation ® Withholding Tax Codes ® Define Withholding Tax Codes .

Make the following settings

:
  • General data
  • Define the description of the withholding tax code, and where necessary, the official withholding tax code.

    Official withholding tax codes are used on official forms when reporting taxes, You define the official withholding tax code in a separate section of the Implementation Guide for Financial Accounting: Financial Accounting Global Settings ® Withholding Tax ® Extended Withholding Tax ® Basic Settings ® Define Official Withholding Tax Codes.

    • Base amount

    Define the portion to be taxed. This percentage rate is used to determine the final withholding tax base amount and is applied to the withholding tax base amount calculated as a result of the setting in the withholding tax type.

    • Posting

    Define a posting indicator. This can have one of the following values:

    Value

    Name

    Description

    1

    Normal 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

    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. (This function is only relevant for Argentina, when using the "grossing up" option).

    3

    Offsetting entry to G/L account:

    The system creates two withholding tax line items with opposing debit/credit signs.

     

    • Calculation
    • Define the withholding tax rate or the information for using calculation scales (formulas).

      For the withholding tax rate, you can enter either a percentage rate between 0 and 100, or you can enter a fraction. The system then uses this rate to calculate the withholding tax amount from the withholding tax base amount.

      If you set the indicator Withholding tax formulas, the system calculates the withholding tax amount from the withholding tax base amount using one of the scales defined for this withholding tax type/code combination.
      You define the withholding tax scales in a separate activity in the Implementation Guide for Financial Accounting: Financial Accounting Global Settings ® Withholding Tax ® Extended Withholding Tax ® Calculation ® Withholding Tax Codes ® Define Formulas for Withholding Tax Calculation.

      All calculations are made in the respective local currency. This means that you have to maintain the minimum and maximum for the withholding tax amount, the minimum base amount, the withholding tax exempt base amount, and the scales in the local currency of the company code.

      • Reporting information

      Where necessary, define the region, the provincial code, and the type of income.