Configuration: Tax Codes
Overview
Tax codes represent a specific tax use case and are used for calculating the
correct tax amounts based on information about country, tax event, tax type,
tax rate type, and in some cases, tax deductibility as well. SAP delivers the
most widely-used tax codes, but you can also create your own tax codes. For
example, this might be necessary in cases with reverse charges, where the
buyer has to self-assess value-added tax (VAT) on receipt of the invoice.
Usually the tax code is determined based on the configuration settings and
the attributes in the document, for example, in a sales order, customer
invoice or a supplier invoice. But you can also manually override this
determined tax code in the document in order to assign the correct tax use
case.
Note
Some simplified tax countries, such as Canada, India, and Mexico do not
maintain any tax codes.
Partial Deductibility of Input Tax
For German VAT purposes, you may also need to define a special "pro-rata
rate" in connection with specific VAT-exempted transactions, for example
renting real estate. In Germany, renting real estate generally is exempt from
VAT resulting in (usually) no input VAT deduction on purchases for the
landlord. However, if you, for example, have a house divided into several
appartments, it is possible to rent a appartment to a company as general
office space. If this is the case, then you have the option (under specific
further requirements) to declare VAT on the office space rentals. Hence, you
can split your costs for the whole house according to the area ratio of the
appartments that are exempt from taxation and the ones that are subject to
VAT. That split is used to calculate your general input VAT deduction rate (in
our example below: 50%).
In this case, you have to create a special tax code that reflects this partial
deductibility.
The following procedure describes how to create a partial deductibility and a
tax code using the newly created deductibility:
1. Go to the Business Configuration work center and choose
the Implementation Projects view.
2. Select your implementation project and click Open Activity List.
3. Select the Fine-Tune phase, then select the Tax Settings for
Purchasing activity from the activity list.
4. Under Available Deductibility Codes, click Copy and create a new
deductibility code with the required percentage that can be taken to
reduce the VAT by subtracting the input tax.
For example,
Country/Region: DE
Tax Type: 1 - VAT
Deductibility Code: an ID for your code, for example DT50
Description: Partially deductible 50%
Valid-From Date: 01.01.2009
Deductibility Rate in %: 50,00
5. Create the tax code in the Tax on Goods and Services > Define Tax
Codes activity. To create the tax code, only use tax events for
incoming tax scenarios, such as input taxes. Typically the Domestic
Acquisition (ID: 10) tax event is used.
To add a tax code, click Add.
Country/Region: DE
Tax Code: DT50
Description: Domestic Acquisition, 50% deductible
Valid-From Date: 01.01.2009
Valid-To Date: 31.12.2009
Tax Event: Domestic Acquisition (ID: 10)
Tax Type: VAT
Tax Rate Type: Standard
Tax Deductibility: Partially deductible 50%
6. Save your data.
Procedure
1. To create a new tax code, click Add Row.
2. Select a country in which this tax code is valid from the dropdown list.
3. Enter an ID for the tax code of your specific tax use case.
4. Enter a description.
5. Enter a date for the start and the end of the validity period.
6. Select a tax event from the dropdown list that characterizes the
business transaction from a taxation point of view.
It is the result of tax determination and the key factor in financial accounting
for tax returns. The tax event is based on the data that is transferred from
the business transaction.
We recommend to use tax events for incoming tax and reverse charge
scenarios.
7. Select a tax type from the dropdown list that is used for this tax code,
for example, Sales and Use Tax or VAT.
8. Select a tax rate type from the dropdown list that is used, for example,
Standard Rate, Reduced Rate, or Zero Rate.
9. For deductible input tax, select an option from the Tax
Deductibility dropdown list. For other types of tax, leave this field
empty.
If applicable, the tax deductibility to apply for deductible input tax in
purchasing events, for example, 100% or 50% deductible.
10. Save your entries.
Note
If you create a new tax code you have to maintain at least the following
settings:
Country/Region
Tax Code
Description
Valid-From Date
Valid-To Date
Tax Event
Tax Type
Tax Rate Type
For some countries such as India, several tax types might apply for a tax
code. You should enter at least one tax type for each tax code created.
The Tax Rate Type is not mandatory for non-taxable transactions. If you
have entered a Tax Rate Type for a non-taxable transaction and you get a
warning message, you should remove the tax rate type. Tax
Deductibility is only necessary for taxable inbound taxes. It is not
necessary at all for the United States. For China, if you create the tax
code 11 and 51, make sure that their deductibility is Not Deductible.
Example
You create a tax code for the United States with the following settings:
Country/Region: USA
Tax Code: Z222
Description: Sales Tax Standard Rate
Valid-From Date: 01/01/2000
Valid-To Date: 12/31/9999
Tax Event: Taxable Sales
Tax Type: Sales and Use Tax
Tax Rate Type: Standard Rate
Tax Deductibility: Not Applicable
