HOW TO CALCULATE CONTRACTOR TAX BY NET AND GROSS PRICE

HOW TO CALCULATE CONTRACTOR TAX BY NET AND GROSS PRICE

Similar to goods sold domestically, the selling price of goods or services that the buyer pays to the Supplier includes VAT and CIT. According to contractor tax regulations, the revenue subject to VAT is the selling price including CIT and VAT, and the revenue subject to CIT is the selling price including CIT but excluding VAT.

Based on the revenue subject to VAT, the revenue subject to CIT, we can calculate VAT payable and CIT payable in cases of GROSS price or NET price.

1. Calculation of contractor tax at the GROSS price (price including VAT and CIT)

According to the contractor contract, the foreign subcontractor contract stipulates that the contract value includes VAT and CIT. The amount received by foreign contractors and subcontractors is after deducting the VAT and CIT paid by the contractor in Vietnam.

Since the contract amount includes VAT and CIT, So that VAT should be calculated first and CIT calculated later in the following order:

- Step 1: VAT payable = Revenue subject to VAT (Contract value) x VAT % rate

- Step 2: The revenue subject to CIT = Revenue subject to VAT (Contract value) - VAT payable

- Step 3: CIT payable = Revenue subject to CIT x CIT % rate

Example 1: Foreign contractor A signs a contract for the design for cement construction of Z company in Vietnam with a total value of USD 100,000, according to the contract value including VAT and CIT paid by the contractor in Vietnam.

Step 1: VAT payable = 100,000 USD x 5% = 5,000 USD

Step 2: The revenue subject to CIT = 100,000 USD - 5,000 USD = 95,000 USD

Step 3: CIT payable = 95,000 USD x 5% = 4,750 USD

2. Calculation of contractor tax according to the NET price (the price excluding VAT and CIT)

According to contractor contracts, foreign subcontractor contracts stipulate that the contract value exclude VAT and CIT. The amount received by the foreign contractor or foreign subcontractor is the amount under the signed contract.

This means that the value of this contract has been deducted from the VAT and CIT paid by the contractor in Vietnam. Because the revenue subject to VAT is the price including VAT and CIT, we calculate CIT first and VAT calculation later in the following order:

- Step 1: Convert the contract NET price to the price including CIT (Revenue subject to CIT) = Contract NET price/(1-CIT rate)

- Step 2: CIT payable = Revenue subject to CIT x CIT rate

- Step 3: Convert the NET revenue subject to VAT (including CIT, excluding VAT) to the revenue inclusive of CIT and VAT (revenue subject to VAT) = Revenue subject to CIT (step 1)/(1-VAT rate)

- Step 4: VAT payable = Revenue subject to VAT (step 3) x VAT rate

Example 2: Same as example 1, but the contract value does not include VAT and CIT paid by the contractor in Vietnam.

Step 1: Convert the contract NET price to the price including CIT (Revenue subject to CIT) = 100,000 USD: (1-5%) = 105,263 USD

Step 2: CIT payable = 105.263 USD x 5% = 5.263 USD

Step 3: Convert the NET revenue subject to VAT to the revenue inclusive of CIT and VAT (Revenue subject to VAT) = 105.263 : (1-5%) = 110.803 USD

Step 4: VAT payable = 110.803 USD x 5% = 5.540 USD

Note: we can check the NET contract value by taking the revenue subject to VAT (the price includes VAT and CIT) - CIT - VAT = 110,803 USD - 5,263 USD - 5,540 USD = 100,000 USD

3. Calculation of contractor tax at prices inclusive of CIT and exclusive of VAT.

The contract value includes CIT, does not include VAT, this means that this is the revenue subject to CIT, we need to find the revenue subject to VAT by converting from NET to GROSS. Therefore, we calculate VAT first and CIT later in the following order:

- Step 1: Convert the NET revenue subject to VAT (including CIT, excluding VAT) to the revenue including VAT and CIT (Revenue subject to VAT) = Revenue subject to CIT (contract value) / (1 - VAT rate).

- Step 2: VAT payable = Revenue subject to VAT x VAT rate

- Step 3: CIT payable = Revenue  subject to CIT (contract value) x CIT rate.

Example 3: Same as example 1, but the contract price includes CIT but does not include VAT.

Step 1: Conver the NET revenue subject to VAT to the revenue including VAT and CIT (Revenue subject to VAT) = 100,000 USD: (1-5%) = 105,263 USD

Step 2: VAT payable = USD 105,263 x 5% = USD 5,263

Step 3: CIT payable = 100,000 USD x 5% = 5,000 USD