We already shared you the information of foreign contractor tax such as the concept, the tax payer, the exemption from foreign contractor tax, the identification of foreign contractor tax when arising foreign elements.
A kind reminder, foreign contractor tax roughly is a tax collected from foreign organizations and individuals that do not register their business in Vietnam, but have benefits in land, sea, airspace, underground, cyberspace in the territory of Vietnam.
Today, we discuss the calculation of foreign contractor tax for foreign enterprise by the direct method. If the contractor is a foreign enterprise, the foreign contractor tax includes value added tax and corporate income tax. We have the formula:
The payable value-added tax, is equal to the revenue subject to value-added tax, multiplied by the percentage of added value. In which, the revenue subject to value added tax is equal to the revenue excluding value added tax divided by, one minus the percentage of added value.
The payable value-added tax = The revenue subject to value-added tax X Percentage of added value. In which, the revenue subject to value-added tax = The revenue excluding value added tax/(1- Percentage of added value)
The payable corporate income tax, is equal to the revenue subject to corporate income tax, multiplied by percentage of corporate income. In which, the revenue subject to corporate income tax, is equal to the revenue excluding corporate income divided by, one minus the percentage of corporate income.
The payable corporate income tax = The revenue subject to corporate income tax X Percentage of corporate income. In which, the revenue subject to corporate income tax = the revenue excluding corporate income/ (1 - Percentage of corporate income tax).
Please be noted that the revenue subject to value added tax, including corporate income tax. The revenue subject to corporate income tax, excluding value added tax.
This notable point is usually omitted, leading to errors in tax calculation. Please refer to the presentation hereunder.
A Vietnamese enterprise purchases a service from a Company of Chicago USA, which provides a full service in Vietnam with a price of one hundred dongs (100 dongs). We presume that the value-added tax is five percent (5%), corporate income tax is one percent (1%). We calculate foreign contractor tax as follows:
Step 1:
The value-added tax, is equal to one hundred dongs, multiplied by five percent, is equal to five dongs (100 dongs X 5% =5 dongs)
Step 2:
The corporate income tax, is equal to one hundred dongs, minus 5 dongs of value-added tax, multiplied by five percent of 5 dongs of value-added tax, is equal to zero point ninety five dongs (100 dongs - 5 dongs of value-added tax x 5% = 0,95 dongs).
Calculation result:
The payable foreign contractor tax, is equal to five dongs, plus zero point ninety-five dongs, is equal to five point ninety five dongs (5 dongs + 0.95 dongs = 5,95 dongs)
Thus, the actual service price, is equal to one hundred dongs, minus five dongs of value-added tax, minus zero point ninety-five dongs of corporate income tax, equal to ninety-four point zero five dongs (100 dongs - 5 dongs value-added tax - 0.95 dongs of corporate income tax = 94.05 dongs).
On the other hand, a Company in Chicago USA agrees that they do not acknowledge the foreign contractor tax of Vietnam, only provides service in Vietnam, receives total of the amount of ninety-four point five dongs (94.05 dongs). Therefore, the Vietnamese Company must calculate the foreign contractor tax as follows:
Step 1:
Determine the revenue subject to corporate income tax is equal to, ninety-four point zero five dongs, divided by one, minus 1 percentage, is equal to ninety-five dongs (the revenue subject to corporate income tax = 94.05 dongs/ (1-1%) = 95 dongs)
The payable corporate income tax, is equal to ninety-five dongs, multiplied by 1 percent, is equal to zero point ninety-five dongs (The payable corporate income tax = 95 dongs x 1% = 0.95 dongs)
Step 2:
Determine the revenue subject to corporate income tax, is equal to ninety five point five dongs, plus zero point ninety five dongs, sum of them shall be divided by one, minus 5 percentage, is equal to one hundred dongs (the revenue subject to corporate income tax = 94.05 dongs + 0.95 dongs)/(1-5%) = 100 dongs)
The payable value-added tax, is equal to one hundred dongs, multiplied by five percent, is equal to five dongs (The payable value-added tax = 100 dongs X 5% =5 dongs)
Calculation result:
The payable foreign contractor tax, is equal to zero point ninety-five dongs, plus five dongs, is equal to five point ninety five dongs (The payable foreign contractor tax = 0.95 dongs + 5 dongs = 5,95 dongs)
In summary, through the above specific calculation, we have the basic principles to calculate foreign contractor tax at Gross price and Net price as follows:
+ If the contract is Gross price, we will perform the calculation in turn, which means to calculate value added tax (VAT) first and then calculate corporate income tax (CIT).
+ If the contract is Net price, we will perform the calculation in turn, which means to calculate corporate income tax (CIT) first and then calculate value added tax (VAT)
Hope the above presentation is useful, and help you to calculate the foreign contractor tax right, and support you to negotiate the purchase price of goods and services with foreign partners.
