Taxes (FI-AP/AR)

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Purpose

You can use the SAP System to manage various types of tax according to the legal requirements of
a country or a region. The Financial Accounting components Accounts Receivable (FI-
AR) , Accounts Payable (FI/AP) , and General Ledger provide the following comprehensive tax
functions:

 Tax calculation

The system calculates tax amounts with or without cash discount based on the tax base amount.

Tax codes are used to calculate and check the amounts.

 Tax posting

The system posts the tax amounts to defined tax accounts.

 Adjustments

The system corrects tax amounts, in the case of cash discount or other deductions, for example.

 Tax reporting

You can use the system to create tax returns.

Implementation considerations

To make use of the various tax types, make the relevant settings in the Implementation Guide (IMG)
for Financial Accounting under Financial Accounting Global Settings .

For more information, see the individual activities in the IMG.

Integration

You can process tax in all components in which tax is incurred as a result of business transactions
that are later posted to Financial Accounting.

Features

The SAP System supports the following tax types for calculating, posting, and correcting tax, as well
as for tax reporting.

Tax type Description

Tax on sales and Taxes on sales and purchases are levied on every sales transaction in accordance with the
purchases principles of VAT. This applies to input and output tax, for example.

Input tax is calculated using the net invoice amount and is charged by the vendor.

Output tax is calculated using the net price of products and is charged to the customer.

Companies can offset input tax against output tax, paying the balance to the tax
authorities. Tax authorities can set a nondeductible portion for input tax which cannot
then be claimed from the tax authorities.

Additional tax Additional taxes are taxes that are posted in addition to tax on sales/purchases. They are
usually country-specific, such as investment tax in Norway, or sales equalization tax in
Belgium.

Sales tax An example of sales tax is the sales and use tax that exists in the USA. Sales transactions
that are taxed must be kept strictly separate from sales transactions that are not taxed.

In general, goods that are intended for production or for resale to a third party are
procured untaxed; that is, the vendor does not calculate tax on the sale of these goods
(sales tax). Procurement transactions for individual consumption, on the other hand, are
taxable (use tax).
 The principle of sales tax does not permit the option of offsetting input tax against output
tax. The vendor must pay the taxes to the tax authorities.

The system calculates sales tax based on material and customer location and posts it in
Sales and Distribution (SD) and Materials Management (MM). If customers or vendors
are exempt from taxation, you can specify this in their master records by entering the
appropriate indicator.

Withholding tax In some countries, a portion of the invoice amount must be withheld for certain vendors
and paid or reported directly to the tax authorities.

SAP currently provides two functions for calculating withholding tax: Classic
withholding tax and extended withholding tax .

Extended withholding tax includes all the features of classic withholding tax and, in
addition, also fulfills a number of further country-specific requirements.

If you wish to implement the withholding tax functions in your organization, you should
choose extended withholding tax.

For more information about changing over from classic withholding tax to extended
withholding tax, see Withholding Tax Changeover .

The SAP System provides the following types of taxation:

Taxation type Description

At national level Tax calculation with standard tax rates

At regional/jurisdiction Tax calculation with tax rates levied for the region or the tax jurisdiction
level
 USA: In the USA, there are more than 67,000 tax jurisdictions. Software from third
rties is used in this case, and supported by SAP using generic interface software
(see also the SAP Library under Country-Specific Documentation ).

Taxes on sales/purchases, additional taxes, and sales taxes are determined and calculated using
condition methods. For the calculation, the system requires details of the calculation procedure, the
tax code, the jurisdiction code if applicable, and so on. These taxes are posted when the documents
are processed.

Withholding tax, by contrast, is not calculated using condition methods, nor is it posted during
document processing. Withholding tax is not considered until the outgoing payment is made.