Customizing for Extended Withholding Tax (SAP Library

Customizing for Extended Withholding Tax

Use

If you wish to post your sub-contractor’s tax and social security contributions directly to the authorities, you use the extended withholding tax functions and make the appropriate Customizing settings. This allows the system to calculate the amount for posting to the tax authorities and the amount for posting to the social security authorities, and to post these amounts to the respective withholding tax accounts.

Procedure

Make your Customizing settings as usual, taking account of the following requirements:

You need to define two withholding tax types for posting at the time of payment, one to represent the income tax and one to represent the social security contributions. For more information, see Defining Withholding Tax Types

Recommendation

We strongly recommend that you:

Define the indicator for the withholding tax type representing the social security contributions as W1

Define the indicator for the withholding tax type representing the income tax contributions as W2.

This naming convention is integral to the design of the Smart Form used to generate the legally-required payment advice notes (see Reporting). If you do not use these names, you will have to modify the Smart Form accordingly.

You need to define a withholding tax code for both tax types. In each case, set the base amount to 100%; set the withholding tax rate for the type representing the income tax to the income tax rate, and for the type representing the social security contributions to the social security rate. For more information, see Defining Withholding Tax Codes

You need to define two different accounts to which you can post the withholding tax according to the withholding tax types and code. For more information, see Defining Accounts for Withholding Tax.

Example

Tax type	Tax code	Base amount	Withholding tax rate	For posting to	Withholding tax to be paid to
W1	01	100%	25%	Withholding tax account 1	Social security authority
W2	01	100%	10%	Withholding tax account 2	Tax authority