Tax on sales and purchases and Withholding tax

Tax on sales and purchasesTaxes on sales and purchases are levied on every sales transaction in accordance with the principles of VAT. This applies to input and output tax, for example.Input tax is calculated using the net invoice amount and is charged by the vendor.Output tax is calculated using the net price of products and is charged to the customer.Companies can offset input tax against output tax, paying the balance to the tax authorities. Tax authorities can set a nondeductible portion for input tax which cannot then be claimed from the tax authorities.

Withholding taxIn some countries, a portion of the invoice amount must be withheld for certain vendors
and paid or reported directly to the tax authorities.SAP currently provides two functions for calculating withholding tax: Classic withholding tax and extended withholding tax.

Extended withholding tax includes all the features of classic withholding tax and, in addition, also fulfills a number of further country-specific requirements.If you wish to implement the withholding tax functions, you should choose extended
withholding tax.