"Withholding Tax" creation using PDI

In my previous blog, Simplified ‘Product Tax Code’ creation using ByD PDI , I had explained about the ease product tax code creation in PDI.

In further to this discussion, I would like to focus on the Withholding tax configuration steps and would like to explain the detailed intricacies while configuring Withholding tax for any country.

For any country, WHT configuration mandatorily needs defining the following elements.

1. Withholding tax type
2. Withholding tax rate type
3. Income type
4. Withholding Tax Event
5. Withholding Tax Code
6. Withholding Tax Configuration
7. Decision tree (For automatic determination)

Generally configuration process for Withholding tax rates is considered as a complex process.  Business By Design PDI tool has simplified this quite along.  However ease of approach comes with a systematic definition process.

So let’s look at some focus points as below, which helps about configuration process.

• In any WHT configuration for a country, one withholding tax type, one withholding tax rate type (marked as Standard) and one income type are mandatory.
• For the withholding tax type, one tax rate type should be marked as “Standard (X)”.
• For any withholding tax event which is marked “Non-Taxable Event”, you must not define tax type determination and tax calculation
  procedure determination. On selecting tax code which is mapped to non-taxable event in UI, you will not see any tax line.
• For automatic tax determination, below configuration is mandatory.
  • You must define a decision tree in PDI.
  • Business partner should have withholding tax configuration with withholding tax type and a tax rate type mapped
  • Product should have withholding tax configuration with withholding tax type and the income type mapped.

            Note: Auto determination is not possible for free text items. However you can select the tax code manually.

• Withholding Tax Rates Configuration is widely divided into three types.

          In addition to the above pictorial representation, here are some mandatory steps to be followed while developing/ choosing withholding tax rate configuration.

When to use case “Defining tax rates with tax rate types”?

• Withholding tax rate determination based on tax rate types is used to classify the business partner (supplier) with different categories, for example resident and non-resident suppliers marking supplier with different tax rate types
• If you want to build this case and classify the suppliers in different categories, then you have to define multiple tax rate types (one for each supplier category) and one income type.
• In this case, a rate will be assign to each tax rate type (rate determination is based on supplier).
• Withholding tax codes should be defined in one to one correspondence to the tax rate types, all of them having the same income
  type assigned.

               Example configuration:

               Tax Type:              Wtaxtype1

               Tax Rate types:    Wtaxtype1 – Wratetype1

                                             Wtaxtype1– Wratetype2

               Tax Rates:            Wratetype1 – 10%

                                             Wratetype2 – 20%

               Income type:        Wtaxtype1 -- Winctype1

                                             Wtaxtype1 – Winctype2 --- Incorrect, only one income type per tax type

               Tax event:             Wtaxevent1 – Wtaxtype1

               Tax Code:             Wtaxcode1 – Wtaxevent1 – Wtaxtype1 – Wtaxratetype1 – Winctype1

                                               Wtaxcode2 – Wtaxevent1 – Wtaxtype1 – Wtaxratetype2 – Winctype1

            When to use case “Defining tax rates with Income types” / “Defining tax rates with Income types and tax base correction”?

• Withholding tax rate determination based on income types is used if withholding tax calculation varies for a group of products like product classification as Commissions, Commercial Discounts, Fees for Services etc.
• In this case you must define multiple income types (one for each category) and one tax rate type (standard).
• Rates must be assigned to each income type (rate determination is based on income type, with or without percentage base amount).
• Withholding tax codes should be defined in one to one correspondence to the withholding tax income types, all of them having the same tax rate type assigned.

               Example configuration:

               Tax Type:              Wtaxtype1

               Tax Rate types:    Wtaxtype1 – Wratetype1

                                             Wtaxtype1– Wratetype2 – incorrect. Only one rate type should be defined

               Income type:        Wtaxtype1 -- Winctype1

                                             Wtaxtype1 – Winctype2

               Tax Rates:            Wtaxtype1 – Winctype1 – 10%

                                             Wtaxtype1 – Winctype2 – 20%

              Tax event:             Wtaxevent1 – Wtaxtype1

               Tax Code:             Wtaxcode1 – Wtaxevent1 – Wtaxtype1 – Wtaxratetype1 – Winctype1

                                               Wtaxcode2 – Wtaxevent1 – Wtaxtype1 – Wtaxratetype1 – Winctype2

• During Withholding Tax configuration, “WHTRateDet” play a key role.  The picture below explains the dependencies with Withholding Tax configuration and Withholding Rate configuration.

• In withholding tax configuration BC, if you choose “Supplier and entire line item base amount” for then you must define tax rate percentages under “WithholdingTaxTypeRateAssignment”.
• In withholding tax configuration BC, If you choose “Income type and entire line item base amount” for WhtRateDet then you must define tax rate percentages under “WithholdingTaxRateIncomeTypeAssignment”
• In withholding tax configuration BC, If you choose “Income type and percentage line item base amount” for WhtRateDet then you must define tax rate percentage under “WithholdingTaxBasePercentageAndRateIncomeTypeAssignment”