Basic Withholding Tax (for customers) Process

[rb2020]

Hello - We are in the USA and have foreign customers who withhold tax from their payments on our invoices. This causes them to pay less than we have invoiced.

I am looking for a basic best practice guide to handle this in the system.  Should tax codes be set up for these (countries, customers, materials?) so that the tax is recognized, and the amount sitting in A/R will match the payment when it comes in?

Do we not do any such configuration, and there is a method to post the short payment, and any difference to withholding tax to clear the item?  

I have struggled to find any clear documentation in the help. Most seems to speak about supplier side withholding tax, or already be deep into complexities - just looking for the basic initial setup and best practice process.

[HenrikeGrötecke]

forwarded to experts

[debasis_panda03]

Dear Customer,

Yes, you need to setup the withholding tax codes for customer side documents such that the incoming payments matches your A/R balances.

Steps:
Define WHT type for Payment posting
Define WHT code for the WHT type
Define a Condition type for WHT by Customers
Assign the Condition type to the WHT type
Make the necessary assignments such as WHT tax type to Company code, GL A/c determination etc.
Maintain the Condition type in SD Pricing procedure as statistical
Maintain the Condition record in VK11 with the Withholding tax code.
Maintain the tax code in Customer Master

Best Regards,
Debasis

[Anthony_Santoro]

Hi @rb2020. There's also US-specific withholding tax information for the United States on the Help Portal that may help.

If not, please reply here and we'll take it for expert clarification. We can then post our findings here in this thread and will of course make the necessary changes to the product assistance.

Thanks very much for your time and patience.

[rb2020]

Thanks @Anthony_Santoro. That section of the help portal is again about withholding tax from suppliers that we pay. @ouma_ronald and I are both looking for information regarding configurations and postings when our customers withhold tax from their payments to us.

[Anthony_Santoro]

Ok, @rb2020. Understood. I'll take this question back to the relevant experts and reply here when I have more information. Will also ensure that the relevant updates are made to the Help Portal documentation so that others, like @ouma_ronald, can find the information more easily in the future.

[ouma_ronald]

Hi @rb2020 

Did you get any clear answer or documentation to this? I am also interested in a clear documentation that explains from the customer side how the deduction can be automated so that we don't have to post another document for the withholding tax bit

[AnjaDanneberg]

Hello @rb2020 

you can find the documentation for Withholding Taxes in the Help Portal for SAP S/4HANA Cloud. I hope this helps.

Best regards,

Anja Danneberg, SAP

[rb2020]

Hello Anja - Thank you for your reply. The Help articles are very confusing, and I think may contain errors. For example, in the below critical section see the red text.  This must mean "For Accounts Recivable...." is that correct? If you're dealing with customer transactions, my company code, and my accounts payable functions have nothing to do with it.

That is what I am looking to understand... how do I deal with the witholding tax that my customers deduct/withhold when paying me. The customers are outside of my company.  Almost all of the content in the Help is about Accounts Payable and me paying suppliers (or there are errors, if you can please have them corrected).

The following differences apply to supplier and customer business transactions.

Supplier Business Transactions

In order to be able to post withholding tax in supplier business transactions, for each withholding tax type, the company code must be authorized to deduct withholding tax, and the supplier must be subject to withholding tax.

Use the Assign Withholding Tax Types to Company Codes configuration item to make the necessary settings.

1. For Accounts Payable, you specify whether and for how long the company code is authorized to deduct withholding tax for the specified withholding tax type.

2. Define the following in the supplier master record:

• Make an entry for each withholding tax type.

• Define the supplier as subject to withholding tax.

• If necessary, also define the withholding tax code, type of recipient, withholding tax ID, and details of any withholding tax exemption.

Customer Business Transactions

In order to post withholding tax in customer business transactions, the company code must be subject to withholding tax for the type concerned, and the customer must be authorized to deduct withholding tax.

Use the Assign Withholding Tax Types to Company Codes configuration item to make the necessary settings.

1. For Accounts Payable, you specify whether and for how long the company code is authorized to deduct withholding tax for the specified withholding tax type.

2. Define the following in the customer master record:

• Make an entry for each withholding tax type.

• Define the customer as being authorized to deduct withholding tax and define the validity period for the authorization.

• If necessary, also define the withholding tax code and the withholding tax ID.