Improve Withholding Tax Calculations with the Little-Known Exclusion Functionality in SAP ERP
- by Kees van Westerop, Senior SAP Consultant, Kwest Consulting
- April 10, 2017
Learn about functionality for calculating withholding taxes and the configuration steps to complete for the functionality to work correctly. SAP’s extended withholding tax now has additional functionality to exclude the withholding amount of expense line items.
Reading this article you’ll learn how to:
- Activate additional functionality for excluding certain expenses from the withholding tax
Customize settings to exclude certain expenses
Withholding tax is a common tax policy and is a legal requirement for the payer of an amount of income to withhold or deduct tax from the payment, and pay that tax directly to the government. Although withholding tax legislation and calculation differ from country to country, the principle of withholding amounts and paying to the tax authorities is the same everywhere.
Originally, SAP developed what is now called classic withholding tax. The functionality was very basic and only suitable for accounts payable. Since SAP R/3 release 4.0 SAP has made available a functionality that is called extended withholding tax.
In classic withholding tax you cannot use customer withholding tax and partial payments, whereas in extended withholding tax you can. Be aware that you cannot easily switch from classic withholding tax to extended withholding tax as it involves migration of master data and transactional data. SAP Note 337267 (Converting from Simple to Extended Withholding Tax) describes how to migrate from the classic to extended withholding tax.
In December 2011 SAP released an improvement of the withholding tax calculation. Until then in SAP ERP an invoice was always completely relevant for withholding tax, although that is not always correct. For example, certain services are not relevant for withholding tax and other services are. Without this additional functionality, manual corrections had to be made.
The functionality becomes available by implementing SAP Note 1640876 (Line Item Exclusions for Extended Withholding Taxes). Although this functionality has been available for five years, it is not used much because it is rather unknown.
Activate Business Function FIN_EWHT_EXCL
After you implement SAP Note 1640876, the first step to set up the functionality is to activate business function FIN_EWHT_EXCL. A business function is a piece of SAP functionality that is not activated in the standard SAP system, but that can be activated depending on your requirements.
You can activate business functions in the IMG. You find activation of business functions directly at the top of the IMG structure. You can also start this using transaction code SFW5.
After executing transaction code SFW5, you see two folders as shown in Figure 1. Expand the second folder by clicking the black triangle in front of it.
The initial screen for switching on business functions
You need to scroll down to the function FIN_EWHT_EXCL. Set an indicator in the field under the Planned Status column and click the Activate Changes button found at the top of screen as shown in Figure 2. This action activates the exclusion functionality.
A list of business functions
The burning light bulb shown in Figure 3 in front of the function name indicates that the functionality has been activated.
The activated business function
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