Withholding tax on on-account payments and prepayments using flexible service codes

Background

Withholding tax is applied in certain countries when payments, including advance payments, are made. In M3, prepayments and on-account payments are considered advance payments.

Withholding tax on on-account payments

If the 'Withholding tax on on-account and prep' check box in 'Settings - Supplier Tax' (APS035) is selected, the service code field becomes accessible when generating on-account payment transactions using accounting option 12 in 'Supplier Payment. Enter Manual' (APS120). The default value for the service code is determined by the settings in 'Supplier. Open/Division' (MFS620) or, if not available, in 'Supplier. Define Purchase & Financial' (CRS624). Regardless of the selected reporting level, the amount to be withheld is displayed and calculated during processing in (APS120/I) based on all flexible service codes linked to the supplier in 'Flexible Service Code. Connect to Suppl' (CRS664). Withholding tax is not calculated if the service code is removed.

Withholding tax entries created from on-account payments are reversed when allocated during supplier invoice entry in 'Supplier Invoice. Record' (APS100). In (APS100/K), on-account payments can be selected and matched against the supplier invoice, regardless of the service code on the on-account transaction. After selecting an on-account payment in (APS100/K), the withholding tax reversal entries are generated and displayed in 'Accounting. Open' (GLS120). These entries cannot be changed or deleted. On-account payments can be allocated either partially or in full. The on-account payment balance is reduced by the allocated amount but cannot exceed the invoice amount to be posted. If the on-account payment is allocated partially, the withholding tax is reversed proportionally.

Withholding tax entries from on-account payments are also reversed when netted against a supplier invoice during payment in (APS120) or 'Supplier Payment Proposal. Open' (APS130). On-account payments can be allocated either partially or in full. The on-account payment balance is reduced by the allocated amount but cannot exceed the amount of the invoice being paid. If the on-account payment is allocated partially, the withholding tax is reversed proportionally.

Withholding tax on prepayments

Prepayment withholding tax is processed using these methods:

Prepayment requests (PR)
When a payment request is created in 'Supplier Payment Request. Open' (APS106), the service code field becomes accessible if the check box 'Withholding tax on on-account and prep' is selected in (APS035). The default value for the service code is determined by the settings in (MFS620) or, if not available, in (CRS624). When the payment request is paid in (APS120) or (APS130) and recorded in the AP ledger with information type PR-Payment request, withholding tax is calculated for all flexible service codes connected to the supplier in (CRS664), regardless of the reporting level. If the service code is deleted, no withholding tax is calculated.
Payment requests (PR) that are not matched to prepayment invoices (PI) or final invoices (PF) can be closed using related option 9 -'Close' in the reconciliation FAM function in (APS120). After closing, use an accounting option to create a contra entry. In this case, the withholding tax on the PR transaction is not reversed. A warning message is displayed to indicate that withholding tax exists on the payment request transaction. To reverse the withholding tax, use 'Voucher. Reverse' (GLS900) instead.
Prepayment invoices (PI)
No withholding tax is calculated for prepayment invoice transactions, information type PI-Preinvoice.
Final invoices (PF) - Net Method
Final invoices reflect the remaining balance due after deducting the prepayments made. As in previous versions, the withholding tax applied through flexible service codes on final invoice transactions, information type PF-Final invoice, functions the same way as it does for standard supplier invoices. This applies during both the posting and payment.
Under the Net method, withholding tax entries from paid payment requests (PRs) are reversed during the transaction for the final invoice. To reverse these entries, the payment request (PR) or the prepayment invoice (PI) must be selected in 'Reference Number. Select Invoices' (APS117). The withholding tax reversal entries are displayed in (GLS120) but cannot be changed or deleted. Only entries from flexible service codes with an invoice reporting level are eligible for reversal in this transaction.
Final invoices (PF) - Gross Method
Final invoices reflect the full invoice amount before deducting any prepayments. Similarly, under the Net method, withholding tax applied through flexible service codes on final invoice transactions, information type PF-Final invoice, functions the same way as it does for standard supplier invoices. This applies during both the posting and payment.
Using the Gross method, withholding tax entries from paid payment requests (PR) are reversed only during the reconciliation of the payment request (PR) and final invoice (PF) in (APS120). To enable reconciliation with payment requests in (APS120), the final invoice must be blocked for payment. Only withholding tax entries associated with flexible service codes at the invoice reporting level are reversed in this process. Once no further payment requests are received, the final invoice must be released for payment.

Before you start

To determine and post withholding tax entries on paid payment requests and on-account payments, configure these settings:

Set the '260 Withholding tax using flexible service codes' parameter in 'Accounts Payable – Settings' (APS905/F) to 3 -'Yes, calculated on invoices or payments'.
Select the 'Withholding tax on on-account and prepayment' check box in 'Settings - Supplier Tax' (APS035).
Set up the withholding tax using flexible service codes.
See Withholding supplier tax using flexible service codes.