Withholding tax

What is Withholding tax?

Withholding tax also is called retention tax. Sometimes the payer has to deduct tax from the payment and pay that tax to the government. That is the withholding tax.

For example, the payer deducts from the employment income the tax and then he pay to the government that retained tax.

The withholding tax applies to several business transactions and SAP gives the possibility of configure them.

Also you have the possibility in SAP of using EWT (Extended Withholding tax) instead of classic withholding tax. It is recommended using EWT.

Configuration of withholding tax. 

To configure the withholding tax you have to navigate to following path:

IMG->Financial Accounting (New)->Financial Accounting Global Settings (New)->Withholding tax->Extended Withholding task->Basic Settings

• Check Withholding tax countries: It’s defined a key for each country.
• Define Withholding tax keys: To identify the different withholding tax types and names.
• Define reasons for exemption: In this point of customizing the reasons for possible exemptions are defined. Later in master data of Vendor or Countries, those reasons are used in the corresponding information about Withholding tax.
• Check Recipient types.
• Check Income types.

In Vendor Master Data (Transaction FK01) is where you have to enter the Withholding tax information for a specific vendor.

After that, if you create a Vendor Invoice for that vendor using SAP transaction FB60 and select checkbox “calculate tax”, the system automatically will calculate the withholding tax amount of the invoice. In the simulation of the posting you'll have all the details.

Calculation of the withholding tax. 

The calculation is configured in following path:

IMG->Financial Accounting (New)->Financial Accounting Global Settings (New)->Withholding tax->Extended Withholding tax->Calculation 

In this point of customizing is configured the withholding tax type, withholding tax code (where rates are defined), max/min amounts for withholding tax are defined, etc.

Activation of the withholding tax. 

Following the below path, extended withholding tax is activated:

IMG->Financial Accounting (New)->Financial Accounting Global Settings (New)->Withholding tax->Extended Withholding tax->Company Code->Activate extended withholding tax 

Account determination. 

In the below path is configured the account determination of withholding tax. The account determination is done at tax type level.

What is a Vendor Invoice?

Following with basic financial concepts, what is a Vendor Invoice?

Easy, a Vendor Invoice is an accounting document.

Yes, but what it represents? It’s a “request” for payment of whichever thing we received from a provider.

There are two types of Vendor Invoices:

- Non-purchase order based invoices.

In this case, we have not any purchase order created previously. We have to pay to the provider for some service, for example the rent. The invoice is posted directly in General Ledger, debiting in the expense account and crediting in the vendor Account.

SAP Transaction to create the Non-PO-Based Invoice is FB60 or following the path:

SAP Menu->Accounting->Financial Accounting->Accounts Payable->Document Entry->FB60 – Invoice

Before save (post) the invoice you can simulate with button ‘Simulate’.

- Purchase order based invoices.

In this case, we have a previous purchase order requesting some good or services. Also, that service or good has been received against the purchasing order creating the “Good Receipt” document in MM module, debiting in the Inventory Account and Crediting GR/IR clearing account (this account is used to post goods/services which have not been invoiced.

Once we have received the goods/services we can create the Vendor Invoice referencing the purchase order previously created, debiting the GR/IR clearing account and crediting the Vendor Account.

SAP transaction to create the PO-Based Invoice is MIRO or following the path: 

SAP Menu->Logistics->Material Management->Logistics Invoice Verification->Document Entry->MIRO-Enter Invoice

When you enter de invoice data including the purchase order and post the document, the invoice number document is created. If that document has the status “Blocked for payment”, it is blocked for payment and has to be released before proceed with the payment.

That blocking is performed by the invoice verification process, consisting on match the price and quantity of PO, GR and Invoice (taking into account tolerances). If they do not match, SAP will block the invoice for payment.

To unblock the invoice you can use SAP transaction MRBR or following the path:

SAP Menu->Logistics->Material Management->Logistics Invoice Verification->Further Processing->MRBR-Release Blocked Invoices

Entering the proper data you will able to select the correct invoice to unblock. With the invoice selected, click on the flag button to release it. The status will change to “Released”.