Processing Withholding Tax 
Processing Withholding Tax
Korea uses the
extended withholding tax in the R/3 System. Make sure that the new withholding tax is set for your company code. Choose the IMG path: Financial Accounting ® Global Settings ® Company Code ® Activate extended withholding tax. Here you see whether the flag or your company is set or not.
Tax codes:
To differentiate between the standard withholding tax and the local tax that is a surtax (e.g. inhabitant tax) two withholding tax types are used for Korea. Type K1 represents the general tax and type K2 represents the local tax (inhabitant tax). By using two different tax types it is possible to post the tax amount to two different amounts as well (it is even possible to post the tax to different accounts for each tax code). The problem is that K2 cannot refer to the tax amount of K1 as the basis amount. It means that all tax codes of type K2 must have the same tax base amount like K1. To customize the local tax rate you must divide the tax rate by 10 (10% local tax e.g. inhabitant tax). So if you have a tax rate of 25%, you must enter 2.5 % as the tax rate for K2. To get the right K2 tax code for each K1 tax code the same codes are used for both types as a convention for Korea. E.g. tax code 06 of K2 is the local tax for tax code 06 of K1. Some tax codes are not reliable to local tax. In this case no tax code of type K2 exists. All withholding reports are using this assumption. So this convention must be kept if you create your own withholding tax codes. Please, refer to the example below for a better understanding.
Several withholding tax rates can be created as withholding tax codes in the system. These withholding tax codes can be assigned to the vendor master records. Every time an open item is posted to a vendor account, the withholding tax code from the vendor master record is defaulted in the posting screen and can be overwritten. The tax withholding is then posted when the payment is made.
Several withholding tax codes have been created for Korea. If you need to create new tax codes, choose IMG path: Financial Accounting ® Global Settings ® Withholding Tax ® Extended Withholding tax ® Calculation ® Withholding Tax Codes ® Define Withholding Tax Codes.
K1: The withholding tax rate for interest income is 20%. In addition to this rate of 20%, a rate of 10% inhabitant tax must be withheld. The taxable portion of the income paid is 100%. 20% of this income is withheld as income tax.
K2: All settings are like K1 but the tax rate is set to 2% (10% of 20%).
For several withholding tax codes, the percentage rate depends on the income amount. For example, the percentage rate for other global taxation is 0% for incomes of an amount lower than 20.000 KRW. For incomes higher than this amount, the tax percentage rate is 20%. For this type of calculation, a withholding tax formula is applied for both tax types. See in the IMG under Financial Accounting ® Global Settings ® Withholding Tax ® Extended Withholding tax ® …
A special case is restricted withholding tax rates. Korea has special arrangements with some other countries such as Japan. Japanese citizens working in Korea are liable to a certain percentage rate of income tax withheld. In contrary to the normal withholding tax procedure, no inhabitant tax is levied on top of this income tax withheld, but the inhabitant tax is already included in the percentage rate withheld. In these cases the tax base amount and the tax amount should be entered manually. The reports do not have a special treatment of exceptions. They just get the portion of the income tax and inhabitant tax from posted amounts. In general you can post amounts manually, if you have just an exceptional case which does not fit to any of the withholding tax codes.
The withholding tax is posted on the account entered in the account allocation table for withholding tax: Financial Accounting ® Financial Accounting Global Settings ®Withholding tax ® Posting®Accounts for withholding tax ®Define accounts for withholding tax to be paid over. The presetting for Korea is that the accounts for types K1 and K2 are different, i.e. the income tax and the local tax (surtax) are posted into different accounts. You can even assign different accounts for each tax code. Please refer to the manual of
extended withholding tax for further information on that topic.
Posting:
Withholding tax reporting must be done on section code level. Therefore, you have to enter section code in the field business place when posting an invoice relevant for tax withholding. The field business place can only be filled if a tax code has been entered in the line item. Therefore, always enter a tax code when posting documents relevant for tax withholding. If the tax rate is 0%, enter V0 as tax code.
In several of the reports on taxes withheld, the number of the corporation must be printed out. This corporation number is assigned to the company code in the customizing of the company code for Korea. Choose Financial Accounting ® Financial Accounting Global Settings ® Customizing Entries for Korean Requirements ® Maintain Company Codes for Korea