A form of taxation deducted at the beginning of the payment flow. Typically, an amount is withheld and paid over or reported to the tax authorities on behalf of (as opposed to by) the person subject to tax, the exception being self-withholding tax.

If a withholding tax exemption is available, withholding tax is not withheld. The SAP System, distinguishes between:

• Classic withholding tax
• Extended withholding tax

Extended withholding tax enables the assignment of more than one withholding tax types to a business partner. This is necessary for calculating withholding tax in Argentina or Brazil.