Withholding Tax Code (SAP Library

Withholding Tax Code

Definition

Use

Whereas you use withholding tax types to define the different sorts of withholding tax – for example, income tax or value-added tax (VAT) – you use the tax codes to specify exactly what the tax rates are and any exemptions that apply.

When you create a company code using the template for Mexico, the system creates sample withholding tax codes for income tax and VAT as follows (for more information about the taxes, see Withholding Tax):

Tax type	Tax code	Tax withholding
01	01	Income tax (15%)
02	01	VAT (5%, half of VAT at 10%)
02	02	VAT (7.5%, half of VAT at 15%)

The two tax codes for VAT reflect the different tax rates (10% and 15%). You only have to withhold half of the VAT, which works out at 5% and 7.5% of the invoiced amount respectively.