Withholding Tax Vs. Extended Withholding Tax
The withholding tax for an invoice or a down payment is calculated at header level. That is, only one withholding tax code can be used for a down payment or invoice.
This implies that an invoice cannot contain items with different withholding tax rates. It can, however, contain one or more items with the same withholding tax rate and one or more items with no withholding tax. This can be handled by specifying the base amount on which withholding tax is to be calculated. On account of calculation at header level, companies have to instruct their suppliers not to include items with different withholding tax rates in a single invoice, but issue separate invoices for different tax rates.
Extended Withholding Tax:
With extended withholding tax, you can process withholding tax from both the vendor and customer view.
In Accounts Payable, the vendor is the person subject to tax, and the company code is obligated to deduct withholding tax and pay this over to the tax authorities on the vendor’s behalf. In Accounts Receivable, the company code itself is subject to tax, and the customers that do business with this company code deduct withholding tax and pay this over to the tax authorities on the company code’s behalf. In both cases, the business partner of the person/entity subject to tax deducts the tax and pays it over to the tax authorities.
The key concept in extended withholding tax is the distinction between withholding tax type and withholding tax code. While withholding tax types represent basic calculation rules, specific features of these rules - in particular the percentage rate - are represented by the withholding tax code. You can define any number of withholding tax codes for a given withholding tax type.
If a particular transaction requires more than one kind of withholding tax, this is covered in the SAP System by defining more than one withholding tax type.
When entering a line item, you can enter withholding tax data for each of these withholding tax types.