Taxes
Tax handling in FI covers indirect taxes (VAT/GST, sales/use tax) and withholding tax on financial transactions, ensuring the correct tax is calculated, posted and reported to authorities.
Tax is determined in MM (purchasing) and SD (sales) and posted through FI.
- FI determines the tax on transactions (e.
- Tax codes: encode the rate and account determination.
- Tax procedures: the country-specific calculation logic.
- Watch out: Wrong tax code, wrong rate/account.
What tax handling does
FI determines the tax on transactions (e.g. VAT on a vendor invoice or customer billing) using tax codes and procedures, posts it to the correct tax accounts, and supports tax reporting/returns. It handles country-specific rules, which vary widely, so tax configuration is inherently local and detailed.
Key concepts
- Tax codes: encode the rate and account determination.
- Tax procedures: the country-specific calculation logic.
- Input vs output tax: on purchases vs sales.
- Withholding tax for certain payments.
Integration and reporting
Tax is determined in MM (purchasing) and SD (sales) and posted through FI. External tax engines (e.g. for complex US sales/use tax) can be integrated. Tax reporting produces the returns authorities require, an area of constant regulatory change, so staying current matters.
Common pitfalls
- Wrong tax code, wrong rate/account.
- Ignoring country-specific rules.
- Tax reporting not matching postings.