Withholding tax and social contributions - concepts and components
Business partner tax classification
The Business partner tax classification is way to indicate that payments of invoices from an invoice-from business partner are subject to withholding tax and social contributions, and to group business partners that have the same tax aspects for your company, for example, subcontractors, or agents.
If you set up tax exceptions, you can only select a group tax code if you use the tax classification as a selection criterion.
In the Invoice-from Business Partner (tccom4122s000) session, you can select your suppliers'tax classification.
Collection office
A collection office is an authority to which the tax or social contribution must be paid. In LN, a collection office is defined as a business partner with only the invoice-from and pay-to roles.
You can set up tax declarations for each collection office to which you must report and pay tax.
If the tax declaration and payments to the collection office are due on specific days of the month, you can define payment terms for the due dates and link the payment terms to the collection office.
Exclude from Withholding tax
This kind of tax code is used for invoiced expenses that are not subject to withholding tax but which must be reported to the collection office because they are related to transactions that are subject to withholding tax.
For example, a purchase invoice can contain an invoice line for labor and one for hotel expenses. The labor line is subject to VAT and income tax, and the expense is only subject to VAT. For withholding tax, the taxable amount and the tax amount are both zero. The taxable base amount of the expense for VAT must be reported to the withholding collection office as ‘amount excluded’.
For this requirement, you must define a tax code with kind of tax Exclude from Withholding. You cannot define tax rates or posting data for such a tax code. Next, define a group tax code that contains the Exclude from Withholding tax code and a VAT tax code.
If you link the group tax code to a transaction, LN lists the taxable transaction amount as ‘Amount Excluded’ in the withholding tax report.
Fiscal number
A number used to identify corporate bodies as well as natural persons for income tax and social contribution registration.
Withheld income tax and social contributions must be registered with the supplier's fiscal number. Your business partners must supply you with their fiscal number. This number can differ from their tax number.
You can specify the business partner's fiscal number in the Business Partner Withholding Tax Data (tccom4127s000) session.
Tax base amount
In some cases, withholding income tax and social contributions must not always be calculated over part of the invoice amount rather than over the full amount. To calculate the tax amounts correctly, you can define a tax base formula which is the algorithm LN uses to calculate the base amount for the income tax and social contributions.
You can optionally define the tax base formulas for the various kinds of withholding income tax and social contributions in the Tax Base Value Formulas (tctax0111m000) session. If you do not define a tax base formula, LN bases the tax calculations on the net purchase order amount or the net purchase invoice amount.
To ensure that the tax base value is the same for the Withholding Social Contribution and the Social Contribution (Company Expense) component, the tax base value formula must be the same for each combination of tax country and tax category.
Tax category
A way to distinguish and/or group kinds of withholding income tax and social contributions for inquiries, reporting, and tax payment selections. For example, in Italy a number of social contributions are distinguished such as Enasarco, FIRR, ISC, SDC and INPS.
Using tax categories is optional. If you use tax categories, you can define specific tax declaration masters for each combination of:
- Tax Country
- Collection Office
- Tax Declaration Type
- Tax Category
You can perform tax analysis, tax reports, and tax payment selections by tax category.
Tax declaration master
The definition of a specific tax declaration. You must define a tax declaration master for every combination of type of tax declaration and collection office. For declarations of withholding tax and social contributions, you can define separate tax declaration masters per tax category if this is required.
Tax Settlement tax codes
This kind of tax code is only used to the tax declaration in the general ledger. If you pay the tax, LN links this tax code to the reversal postings of the tax amounts on the interim accounts and to the tax payments you make to the collection office. On the tax analysis reports, tax payments to the collection office are represented by the Tax Settlement tax code.
You cannot assign Tax Settlement tax codes to transactions or add them to a group tax code.
You cannot define tax rates and posting data for Tax Settlement tax codes.