9/9/22, 10:25 VAT on down-payments | SAP Blogs

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Bohdan Petrushchak
November 21, 2019
| 4 minute read

VAT on down-payments
 16  13  15,073

Follow Hello SAPers!

Here is another post, where I’d like to share a couple of details about SAP’s
 Like functionality. This time about handling of down-payments. I hope you’ll find
something interesting for you.

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1. Introduction
Down-payment is a special payment that the company receives prior to goods
issue to customer or is sending to vendor before goods / service receipt.
Consequently, we can distinguish between incoming and outgoing down-
payments.

SAP specifics for down-payments processing implies use of Special GL indicators

(SGL-indicator). SGL-indicator in the case of down-payment can be considered as
a special attribute of transactional data that re-routes the posting from regular
AP/AR reconciliation account to a dedicated reconciliation account for down-
payments (i.e. down-payments made / down-payments received). Separate
reconciliation account for down-payments is not a mere technical feature, but as
a rule legal requirement.

Certain countries for example Ukraine or Russia consider down-payments as

events which increase companies’ VAT liability / credit. Therefore, certain
customizing and master data prerequisites should be met to ensure that these
events can be accounted for correctly in SAP.

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9/9/22, 10:25 VAT on down-payments | SAP Blogs

This post explains the functionality behind calculation / posting of VAT on down-
payments on so called “gross basis”. “Gross basis” is not official accounting term,
rather a popular description behind the approach. This approach assumes that
total amount of down-payment is a sum of tax base + VAT amount.

Accounting postings for typical vendor down-payment process would be as

follows*:

* Notes:

This example assumes tax rate of 20 %;

Input VAT amount is posted to in correspondence with “VAT on down-
payments made” account, which can be considered as clearing account;
“Deferred” input VAT represents a temporary GL account, which might be
used in some countries to account for VAT amounts before they are re-posted
to “target” GL account i.e. before input VAT can be considered as deductible.
This reposting can be made via deferred tax transfer programs or by special
localization-specific program. This topic by itself is very broad and cannot be
covered as part of this post.

Accounting treatment for incoming down-payments is similar:

https://blogs.sap.com/2019/11/21/vat-on-down-payments/ 2/15
9/9/22, 10:25 VAT on down-payments | SAP Blogs

2. Overview of customizing
Posting scheme for VAT on down-payments requires configuration of clearing
accounts for VAT on down-payments. Configuration of automatic accounts
determination can be reached via t-code OBXB or via the following menu path:

SPRO → Financial Accounting (New) → Accounts Receivable and Accounts

Payable → Business Transactions → Down-Payments Made → Define Account for
Tax Clearing.

Relevant transaction keys for VAT on down-payments are MVA – for incoming
down-payments and VVA for outgoing down-payments:

Add account modification A and clearing GL account for input VAT:

https://blogs.sap.com/2019/11/21/vat-on-down-payments/ 3/15
9/9/22, 10:25 VAT on down-payments | SAP Blogs

Do the same for output tax clearing:

Account determination for clearing VAT accounts can be universal (i.e. the same
GL account will be used regardless of vendor’s / customer’s reconciliation
account) or can be dependent on account modification. Go posting rules’
settings and activate checkbox “Input/output tax clearing” to enable account
modifications:

Once account determination is maintained, proceed to customizing of special GL

indicators in t-code FBKP or via the following menu path:

SPRO → Financial Accounting (New) → Accounts Receivable and Accounts

Payable → Business Transactions → Down-Payments Made → Define Alternative
Reconciliation Account for Down Payments.

As a rule, most companies use SGL-indicator A for down-payments, but other

indicators might be used as well. Check which of them are relevant for your
company and if they have type “Down payment / down payment request”:

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Indicate account modification A for those vendor reconciliation accounts, which

are subject for VAT calculation. If you have several account modifications, you
can have different account determination for example for local vs. foreign down-
payments.

Perform similar customizing for customer down-payments:

3. Master data prerequisites

So far, the setup is complete from configuration point of view. But there are a few
prerequisites for master data of GL accounts / tax codes that are involved into
the posting:
https://blogs.sap.com/2019/11/21/vat-on-down-payments/ 5/15
9/9/22, 10:25 VAT on down-payments | SAP Blogs

Prerequisites for incoming down-payments:

Reconciliation GL account for incoming down-payments should have tax

category +B;
Posting of incoming down-payment should involve tax code with type “A” (i.e.
output tax);
Clearing account for output VAT on down-payments should have tax category
“>” and should not be managed on open items basis.

Prerequisites for outgoing down-payments:

Reconciliation GL account for outgoing down-payments should have tax

category -B;
Posting of outgoing down-payment should involve tax code with type “V” (i.e.
input tax);
Clearing account for input VAT on down-payments should have tax category
“<” and should not be managed on open items basis.

Tax categories of GL accounts can be checked in t-code FSS0, whereas settings

of tax codes can be verified in t-code FTXP.

4. Examples in the system

Example of incoming down-payment can be found below*:

* Note: just in case, transaction key UAM is a custom key for output VAT, instead
of standard key MWS.

Example of customer invoice can be found below:

Example of clearing of customer’s open items can be also found below:

https://blogs.sap.com/2019/11/21/vat-on-down-payments/ 6/15
9/9/22, 10:25 VAT on down-payments | SAP Blogs

Alert Moderator

Assigned Tags
I hope that you have learn something useful once you reached this sentcen. I’m
looking forward to your comments and remarks.
FIN (Finance)

advance payments Best regards, 

down payment Bohdan Petrushchak

FBKP

OBXB

sgl indicator

vat

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https://blogs.sap.com/2019/11/21/vat-on-down-payments/ 7/15
9/9/22, 10:25 VAT on down-payments | SAP Blogs

16 Comments

You must be Logged on to comment or reply to a post.

James Tyler
May 5, 2020 at 3:15 pm

Dear Bohdan,

From your example of customer down payment, what if the event of down payment received (let say period
4) is in the different period with the event of customer invoice (say period 6)?

Account Def. Output Tax must be paid first according to local tax law since it is a liability in the balance
sheet. This account will be cleared by a payment to tax office. In this case, when customer invoice is
posted, no more open item of Def Outout Tax to match. Hope my question is clear to you and you still
around to read this.

Need your enlightments on this.

Thank you and regards,

JT

Like 0 | Share

Bohdan Petrushchak | Blog Post Author

May 6, 2020 at 11:52 am

Hi James,

From accounting perspective everything is fine. Please note that this GL account i.e. deferred
output VAT was posted to three times:

1. Cr. posting to def. output VAT can be cleared by a payment to tax office. No changes here;
2. Cr. posting in sales invoice;
3. Dr. posted in clearing document.

As a result, credit posted in sales invoice will be cleared by debit posting from clearing document.
Please note - clearing document in this case is used for clearing of customer's open items. In other
words, if your GL account for deferred output VAT is managed on open item basis, you might have
additional clearing of VAT.

We have exactly the same treatment of VAT in Ukraine as you mentioned and this posting scheme
works fine.

Regards,

https://blogs.sap.com/2019/11/21/vat-on-down-payments/ 8/15
9/9/22, 10:25 VAT on down-payments | SAP Blogs

Bohdan

Like 1 | Share

James Tyler
May 7, 2020 at 5:43 am

Thank you very much Bohdan. This article and your explanation are very helpful.

Regards

JT

Like 0 | Share

Shishir Kumar
July 28, 2020 at 7:25 am

Hi, Bohdan,

My client's demand is to cut the withholding tax with the down payment. So in that case what will be the
configuration?

Regards,

S Kumar.

Like 0 | Share

Bohdan Petrushchak | Blog Post Author

July 28, 2020 at 11:31 am

Hi Shishir Kumar,

Well, I'm not the biggest expert on withholding taxes, but I would say that in this context these are
two functionalities, which can work independently from one another. Do the configuration for
withholding tax, update vendor master data accordingly and see how it works together with VAT.

Regards,

https://blogs.sap.com/2019/11/21/vat-on-down-payments/ 9/15
9/9/22, 10:25 VAT on down-payments | SAP Blogs

Bohdan

Like 0 | Share

Shahid Islam
July 30, 2020 at 8:09 am

HI Bohdan,

Thanks for sharing the knowledge. What a great blog. I have done all the setting according to your blog for
VAT on down-payments. All steps are working fine but during the clearing of customer’s open items I am
facing this issue the output tax amount posted twice. Screen Short has been attached for your
understanding.

Thanks

Regards

Shahid

Like 0 | Share

Bohdan Petrushchak | Blog Post Author

July 31, 2020 at 8:28 am

Hi Shahid Islam,

https://blogs.sap.com/2019/11/21/vat-on-down-payments/ 10/15
9/9/22, 10:25 VAT on down-payments | SAP Blogs

It's difficult to tell why you have two pairs of output VAT without access to the system. My
suggestion is: could you please check if there are any differences in CO-assignments for Output
VAT in particular profit center?

Regards,

Bohdan

Like 0 | Share

Shahid Islam
August 4, 2020 at 4:57 am

Hi Bohdan

Thanks for your reply actually I am using the wrong clearing T.Code for this process. Later
on I found the right clearing T.code (FB15 - Assign/Clear Open Items ) for that process. So
I have resolved the issue may self. Screen short of clearing document is attached.

Thanks
Regards

Shahid

Like 0 | Share

https://blogs.sap.com/2019/11/21/vat-on-down-payments/ 11/15
9/9/22, 10:25 VAT on down-payments | SAP Blogs

Gyanaranjan Samantaray
August 3, 2020 at 2:20 pm

Hi Bohdan,

Do we need any custom code to be added for the solution to work?

I have done all the configuration required and while I simulate, VAT is not getting calculated for vendor
advance payment.

LR

Like 0 | Share

Bohdan Petrushchak | Blog Post Author

August 3, 2020 at 8:09 pm

Hi Gyanaranjan Samantaray, 

No custom coding is necessary for the solution to work. Please check carefully step by step all
requisites, maybe you missed someting.

Regards,

Bohdan

Like 0 | Share

Gyanaranjan Samantaray
August 4, 2020 at 12:18 pm

Hi Bohdan,

Thanks for the quick revert.

I have done all the configurations following your blog.

I tried to post down payment from ME2DP and calculate tax check box is disappearing
automatically while simulating. Because of this, VAT line item is not appearing.

Please advice.

Thanks,

LR

Like 0 | Share

https://blogs.sap.com/2019/11/21/vat-on-down-payments/ 12/15
9/9/22, 10:25 VAT on down-payments | SAP Blogs

asier san miguel

September 8, 2021 at 4:54 pm

Congrats, really good explanation.

I have a question. We are facing a problem for a Customer downpayment posted. After the payment but
before delivery the customer is allowed to cancel the order, thus we need to give the money back.

We don't manage to created the opposite entry via standard and get the taxes posted correctly as it seems
"credit note cannot be posted to the advance account".

Did you see anything similar or do you have any suggestion on how to process the refund with the
corresponding cancelation of the 1st downpayment?

Many thanks

Like 0 | Share

Paul Van Belle

October 6, 2021 at 10:33 am

I do not want to post the VAT lines during the incoming payment.

How could this be done?

Like 0 | Share

Bohdan Petrushchak | Blog Post Author

October 6, 2021 at 11:03 am

Hi Paul Van Belle ,

There are two options: if VAT on down-payment is not relevant for a country at all, you can adjust
the tax category of reconciliation GL accounts by removing +B/-B tax indicators. During entry of
down-payments make sure to use a tax code with a 0% rate i.e. ideally speaking it should be the
same tax code as it is configured in t-code OBCL.

https://blogs.sap.com/2019/11/21/vat-on-down-payments/ 13/15
9/9/22, 10:25 VAT on down-payments | SAP Blogs

If you have VAT on down-payments in some cases, but no VAT in other cases - you can control it
solely via use of tax codes with zero and non-zero tax rates.

Like 0 | Share

LIANG ZHOU
March 16, 2022 at 2:16 am

Thanks for the input, I did the same setting but I used standard account key MWS instead of UAM. when
post down payment only one line for VAT. Another one of MVA is not poped when simulating. Could you
know what's the reason maybe?

Like 0 | Share

Bohdan Petrushchak | Blog Post Author

March 16, 2022 at 8:18 am

Hi LIANG ZHOU,

It's not  a problem to use MWS. MWS or UAM is just a key in tax calculation procedure. If you post a
down-payment, but it is posted with one line only, then you probably missed some configuration or
master data requirement. Please check once more all configurations & master data step by step. If
you do everything the same way, it should work.

Regards,

Bohdan

Like 0 | Share

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