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Unformatted text preview: s. The vendor gives a Withholding tax certificate to the customer fo r
the withholding tax deducted.
The customer can claim this withholding tax (as advance income tax paid) in
his annual returns to Income tax authorities.
In some countries (like India) the withholding tax is deducted on Invoice or
payment whichever is earlier. Thus when an advance is paid to the vendor the
customer is required to deduct withholding tax o n the advance payment.
When the Vendor submits an Invoice the customer is now required to deduct
tax on the Invoice amount reduced by the advance amount.
To calculate pay and report the withholding tax, the SAP system provides two
functions:Classic Withholding tax
Extended Withholding tax
Extended Withholding tax includes all the functions of classic withholding
tax; SAP therefore recommends the use of extended withholding tax.
We will cover the Extended withholding tax functionality in this e-book.
We will try to cover the broad configuration aspects of extended withholding
tax, without getting into each country specifics. Since each country has its
own forms and different reporting requirements. www.sapficoconsultant.com Page 4 of 57 With Extended Withholding tax, we can process withholding tax from both the
vendor and customer view.
From the Accounts Payable perspective, the vendor is the person subject to
tax and the company code is obligated to deduct withholding tax and pay to
From the Accounts Receivable perspective the company code itself is subject
to tax and the customers that do business with the company deduct
withholding tax and pay to the tax authorities.
Generally the Accounts Payable perspective is used by majority of the
Let us proceed for the configuration. www.sapficoconsultant.com Page 5 of 57 1. Basic Settings
1.1 Check Withholding Tax Countries For configuration we use the following path on the SAP application screen:SAP Menu à Tools à Customizing à IMG à SPRO – Edit Project à IMG à Financial Accounting à Financial Accounting Global Settings à
Withholding Taxà Extended Withholding Tax à Basic Settings à Check
Withholding Tax Countries
The withholding tax country is needed for printing the withholding tax form and
also for maintaining the tax codes in the vendor master and customer master
Update the withholding tax country. Click on Click on www.sapficoconsultant.com Page 6 of 57 1.2 Define Official Withholding Tax Codes
IMG à Financial Accounting à Financial Accounting Global Settings à
Withholding Taxà Extended Withholding Tax à B asic Settings à Define
Official Withholding Tax Codes
If the national tax authorities use official withholding tax keys to identify the
different withholding tax types, you can define these official names...
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