Withholding Taxes in S4 HANA Cloud
Through this blog I will try to provide a brief overview of the Withholding Tax Process in S4 HANA Cloud.
What is Withholding Tax
When business buys goods or services from a vendor/supplier it may be required to retain a certain percentage of the payment relating to the such goods or services and pay the same to the government on behalf of the vendor/supplier. So in effect the amount deducted and paid to the government relates to the tax payable by the vendor/supplier. Business in this case merely acts as an agent for deducting taxes on behalf of the government. However, business is duty bound to make such deduction, maintain appropriate records and furnish certificates, returns and necessary documentation as mandated by statute.
Modes of Withholding Tax deduction
- WHT Deduction on Invoice
In this case, the amount of Withholding tax is determined and deducted when the Invoice is created.
- WHT Deduction on Payment
In this case, the amount of withholding tax is determined at the time of raising the invoice but deducted at the time of payment.
How is Withholding Tax requirement addressed in S4 HANA Cloud
Withholding Tax deduction is dictated by the statutory requirements of the applicable country and hence it is purely a localization topic. In S4 HANA Cloud it is addressed through the scope item 1J2- Advance Compliance Reporting.
Prerequisites for Withholding Tax Deduction
The concerned Business partner master data for the Supplier/Vendor must be affixed with the applicable Tax Type and Tax Code.
This is maintained in the BP role Supplier (Fin. Accounting) -> Company Code Data-> Vendor: Withholding Tax. Please ensure that “Subject to Withholding tax” checkbox is activated as shown below.
Tax Type denotes the nature of the expense/service.
Tax Code denotes further categorization of the tax type based on the type of entity for which the Withholding tax is deductible such as Individual, Company etc.
The applicable Withholding tax percentage is determined by combination of the Tax type and tax code.
SAP S4 HANA Cloud provides a set of pre configured Tax Types and Tax codes with applicable WHT percentages on both Invoice posting and Payment posting based on the legal requirement of the applicable localization country.
Example of Withholding tax Deduction on Invoice Posting is given below:
Example of Withholding tax deduction on Payment posting is given below:
Please note that it is possible to manually change the Withholding tax base amount or the amount of Withholding tax payable at the time of Invoice creation. So the business has the freedom to apply the Withholding tax percentage to an amount lesser than the gross invoice amount.
Procedure for requesting new Withholding Tax Type and tax Code
As has been mentioned above, SAP S4 HANA Cloud provides a set of preconfigured Tax Types and Tax codes with applicable WHT percentages on both Invoice posting and Payment posting based on the legal requirement of the applicable localization country. However, if business feels that additional tax types/tax codes are required as per legal statute then a non-preapproved expert configuration request needs to be raised.
Once the additional Tax types and Tax codes are configured by the expert configuration team, the account determination for the same needs to be maintained in SSCUI 100297 (Automatic Account Determination).
Enter Area Details as per below screenshot:
Enter Parameters as per below screenshot:
Finally maintain the Account assignments (DR and CR GL Accounts)
Statutory Compliance Reporting for Withholding taxes
Business will be required to furnish Withholding Tax deduction certificates, statements to suppliers / vendors and will be also be required to submit periodic returns and declarations to statutory authorities in predefined formats. SAP S4 HANA cloud provides statutory forms and reports that need to be submitted as per applicable legal requirements for the concerned localization country.
Please refer to scope item 1J2- Advance Compliance Reporting for the list of countries covered and check your applicable country version for the details.
Please refer to the test script in the Details section for step by step guide on how to generate necessary compliance reporting through the system.