At month-end, Input tax is offset with output tax and balance have to pay/receive the goverment.

Some countries allow setoff of output tax against inout tax which is called VAT in European countries and MODVAT in India ( hta is tax payable on sold items against tax paid against bought out items) based on materials and products.

Input Tax is receivable account and Output Tax is liability account. Output tax is periodically set off against input tax.

Input Tax is occurred when purchasing goods or service

Dr. expense / Inventory acc
Dr. Input Tax (Receive from goverment)(Paid to vendor as tax)
Cr. AP

Output Tax is occurred when sale goods or service

Dr. AR
Cr.Revenue
Cr.Output Tax (Pay to goverment)

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The following step will give you explanation on “how to create a tax code in SAP“. Afterwards these tax codes must be used in the creation of condition tables such as for MWST condition.

• Go to SAP transaction code: FTXP and select the country for which you need to create a tax code.This country is automatically linked to the Tax Procedure which has been set up in the following SAP menu path

SAP IMG – Financial accounting – Financial accounting global settings – tax on sales/purchases – basic settings – Assign country to calculation procedure

• Enter in the field tax code. This must be a 2-digit alphanumeric code i.e. A5, 55, BB, etc.. SAP will ask you to complete other additional fields such as:
  • define the tax type: define whether the tax code is relevant for input or output tax
  • description of the tax code: please give a clear description
  • Indicator which determines that an error message should be issued if the tax amount is not correct. It it recommended to flag this.
  • Eu code: One of the most forgotten parameter. If you do not set this parameter at “1″ then all SAP transactions with this code will be not picked up in the ESL listing of that specific country. This code “1″ represents all the Sales from one EU country to another EU country.
  • The target tax code fields are used in case of deferred taxes. This is applicable for example in France. The VAT needs to be paid for example not when the invoice is issued but when the customer pays the VAT. There are here again special programs available in SAP for deferred taxes.
  • Reporting country: this field needs to be completed when you are using the plants abroad functionality. This means that when you as a German company have a Belgian VAT number and you have sales in Belgium (+ you need to submit a VAT return in Belgium) , then of course these invoices need to be booked in SAP with a Belgian tax code.

 

• Further in the menu you can also allocate the amount where this specific tax code is used to a certain tax account. The tax type fields such as Base Amount, Input tax, Output Tax … can be determined via the calculation procedures. Calculation procedures are defined in the SAP IMG at
  

  Financial accounting – Financial accounting global settings – tax on sales/purchases – basic settings – Assign country to calculation procedure

  Here you will need to define also the calculation levels. For example the Output tax is level 125 and the output tax will be calculated on the basis of the base amount. Therefore you put for the output tax in the field “from level” 100. The level of Base amount is 100. You do the same for the others.

• Account Keys.
  NVV: The non deductible VAT is automatically added to the expenses account
  NAV: Indicate for this key a separate account for the non deductible VAT
  ESA: Output tax in case of Acquisition of EU goods
  ESE: Input tax in case Acquisition of EU goodsLast but not least you also need to complete the tax rate field.

• Tax Percentage & GL Account assignment

Tax percentage can be maintained in two ways & that depends upon the Tax procedure that has been followed i.e. if tax procedure is formula based then percentage can be maintained in FTXP only, where as if the procedure is condition based then percentage has to be maintained under the identified condition type.

Once done GL accounts has to be assigned under OB40 transaction for automatic posting of tax amounts.

Added in SAP Network Wili by Hakan Altinsoy , last edited by Ajay Gupte

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Extended Tax Witholding will be covered in Accounts Payable section

Tax configuration is setup at country level. One country is assigned to one Calculation Procedure. For example, the tax procedure for Thailand is TAXTH.

Calculation procedure consists of condition types i.e. types of tax applicable for the procedure. For example, output tax (selling goods), input tax (buying goods).

Tax code identifies the tax types as

• Tax code is also setup at country level
• The tax code is user defined
• Typical configuration: create a tax code for each relevant G code in the BAS statement

The Tax code is linked to a tax account as GL account

• The tax calculated by the tax procedure is posted to tax accounts in the GL through Account key in Tcode OB40
• The system derives the GL account from the tax types (e.g., output tax, input tax) and tax codes
• Typically, we have 2 tax accounts in SAP; i.e., one for input tax, the other for output tax

The tax base amount can then be configured to be before or after discounts are applied.

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