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Basic Withholding Tax (for customers) Process

rb2020
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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
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AnjaDanneberg
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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
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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.