| # Withholding tax and social contributions In many countries, in specific situations, companies are legally required to retain payable income tax and/or social contribution from the payments of purchase invoices, and pay the amount directly to the tax collector’s office. For example, withholding income tax and social contributions can apply to services provided by subcontracting companies, employment agencies, and self employed workers. The withheld tax and social contribution usually consists of a fixed percentage. In some countries, different rates apply to different portions of the transaction amounts. The amounts to be withheld can consist of combinations of income taxes and social contributions. Depending on local rules, the payment is due either when the invoice is paid, or periodically. Companies must periodically submit a report to declare the amount of withheld and paid tax and social contribution. In addition, in some countries part of the social contribution must be paid by the customer. This part of the social contribution is charged over the invoice amount and must be posted as extra costs, or company expenses. As a result, various kinds of tax can apply to an invoice. Separate tax codes are required to calculate the amounts of withholding income tax and social contributions, and to register the tax amounts of the invoice in the tax analysis. Group tax codes are used to link a number of tax codes to a transaction. To register and declare withholding tax and social contributions You can apply withholding tax and social contributions in combination with value added tax (VAT) and sales tax. The set up procedure is described in Setting up withholding tax and social contributions. If you pay the tax periodically, the procedure to set up and prepare the withholding tax and social contributions declaration is similar to the set up and preparation of value added tax declarations. Withholding tax payable at invoice payment If the withholding tax and social contributions is payable immediately at invoice payment, you must specify the collection office and the settlement tax code for the tax code in the Tax Codes by Country (tcmcs0136s000) session. When you generate a tax declaration, LN does not include tax codes for which you select At Invoice Payment. When you pay a purchase invoice with such a tax code, LN automatically generates a standing order in Cash Management to pay the tax to the collection office. The standing orders for withholding tax are created at the moment when the open invoice balance for the business partner is reduced. In the Anticipated Payments/Receipts (tfcmg2504m000) session, on the appropriate menu, you can click Withholding Tax amounts by Payment Document. This command starts the Withholding Tax amounts by Payment Document (tfcmg1517m000) session, which displays the details of the generated payment documents. In the Withholding Tax Amounts (tfcmg2503s000) session, you can view the withholding tax amounts. You can use the Tax Analysis (tfgld1520m000) session to generate a report of the tax amounts paid at invoice payment. Related topics Setting up withholding tax and social contributions Setting up a tax declaration Processing tax declarations Withholding tax postings Withholding tax on payment postings |