Formula – Instructions on how to calculate contractor tax based on net price and gross price (VAT – CIT – PIT) for individuals or foreign organizations and enterprises.
I. Determining taxable revenue for foreign contractors
To determine the revenue subject to contractor tax, you must determine whether the value of the contract between Vietnam and the foreign contractor generating income in Vietnam includes tax or not.
- Tax included:
- Calculate contractor tax based on Gross price;
- Revenue for calculating main contractor tax is equal to the contract value between an enterprise in Vietnam and a foreign contractor;
- Calculate VAT first, then calculate CIT.
- Tax not included:
- Calculate contractor tax based on Net price;
- Revenue subject to contractor tax must be converted to tax-inclusive revenue before calculating tax;
- Calculate corporate income tax first, then calculate VAT.
II. How to calculate VAT and CIT for contractors who are foreign organizations and enterprises
1. How to calculate contractor tax when the contract value is Net
➤ Calculate corporate income tax (CIT)
Revenue subject to corporate income tax = (Revenue excluding corporate income tax)/(1 – Rate (%) for calculating corporate income tax on revenue)
In which: Revenue excluding corporate income tax is the contract value.
Corporate income tax = (CIT taxable revenue) x (CIT tax rate (%))
➤ Calculate value added tax (VAT)
Revenue subject to VAT = (Revenue excluding VAT)/(1 – % rate for calculating VAT on revenue)
In which: Revenue excluding VAT is revenue subject to corporate income tax.
VAT = (VAT taxable revenue) x (VAT taxable % of revenue)
2. How to calculate contractor tax when the contract value is Gross
➤ Calculate value added tax
VAT = (Contract value) x (VAT % rate on revenue)
➤ Calculate corporate income tax
Corporate income tax = (CIT taxable revenue) x (CIT tax rate)
In which: Revenue subject to corporate income tax = Contract value – VAT payable
3. Percentage to calculate corporate income tax and VAT
➤ Corporate income tax rate
According to Clause 2, Article 3, Circular 103/2014/TT-BTC, the corporate income tax rate calculated on taxable revenue for business sectors is as follows:
| STT | Business sector | Rate (%)
corporate income tax calculated on taxable revenue |
| 1 | Trade: distribution, supply of goods, raw materials, supplies, machinery, equipment; distribution, supply of goods, raw materials, supplies, machinery, equipment associated with services in Vietnam {including supply of goods in the form of on-site import and export (except for cases of processing goods for foreign organizations and individuals); supply of goods according to delivery conditions of International Commercial Terms – Incoterms} | 1 |
| 2 | Services, equipment rental, insurance, rig rental | 5 |
| Private: Restaurant, hotel, casino management services | 10 | |
| Derivative financial services | 2 | |
| 3 | Aircraft, aircraft engines, aircraft and ship spare parts for lease | 2 |
| 4 | Construction and installation with or without contract for materials, machinery and equipment | 2 |
| 5 | Other production, business and transportation activities (including sea transport and air transport) | 2 |
| 6 | Transfer of securities, certificates of deposit, reinsurance abroad, reinsurance transfer commission | 0,1 |
| 7 | Loan interest | 5 |
| 8 | Copyright income | 10 |
➤ VAT calculation rate
According to Clause 2, Article 12, Circular 103/2014/TT-BTC, the VAT rate on revenue for business sectors is as follows:
| STT | Business sector | Percentage
to calculate VAT |
| 1 | Services, equipment rental, insurance; construction, installation excluding materials, machinery, equipment | 5 |
| 2 | Production, transportation, services associated with goods; construction, installation with contracted materials, machinery, equipment | 3 |
| 3 | Other business activities | 2 |
Example 1 : Foreign contractor H provides construction supervision consulting services to company T in Vietnam, the contract price excluding VAT and corporate income tax is 532,000 USD. According to the contract, company T is responsible for paying all taxes incurred on behalf of the foreign contractor. The percentage of VAT and corporate income tax is 5%.
In that case, tax will be calculated based on Net price because the contract value received by foreign contractors does not include tax.
- Revenue subject to corporate income tax = 532,000 / (1 – 5%) = 560,000 USD
>> Corporate income tax payable = 560,000 x 5% = 28,000 USD
- Revenue subject to VAT = 560,000 / (1 – 5%) = 589,474 USD
>> VAT payable = 589,474 x 5% = 29,474 USD
Example 2: Foreign contractor N provides company T in Vietnam with construction supervision services for factory D, the contract value including tax is 256,500 USD. According to the contract, the foreign contractor is responsible for paying all arising taxes. The VAT and CIT rates are 5%.
In that case, tax will be calculated based on Gross price because the value received by the foreign contractor includes tax.
- VAT taxable revenue = Contract value = 256,500 USD
>> VAT = 256,500 x 5% = 12,825 USD
- Revenue subject to corporate income tax = 256,500 – 12,825 = 243,675 USD
>> Corporate income tax = 243,675 x 5% = 12,184 USD
III. How to calculate VAT and personal income tax for foreign contractors who are business individuals
Pursuant to Circular No. 103/2014/TT-BTC dated April 6, 2014, clearly stipulating that foreign individuals doing business in Vietnam, generating income in Vietnam or according to Clause 1, Article 1, Chapter 1, Decree 90/2007/ND-CP dated May 31, 2007, stipulating that foreign individuals registering for business in accordance with foreign law, recognized by foreign law as traders must fulfill VAT and personal income tax obligations according to the rate method calculated on revenue.
In addition to the above conditions, another condition must be considered, whether the individual is a resident or non-resident according to Article 2 of the Law on Personal Income Tax and Decree 65/2013/ND-CP, from which the amount of tax payable according to current regulations can be calculated most accurately, specifically:
- For resident individuals, they are individuals who meet the following conditions:
- Being present in Vietnam for 183 days or more in a calendar year or for 12 consecutive months from the first day of presence in Vietnam;
- Have a permanent residence in Vietnam according to the Law on Residence or have a rented house to live in Vietnam according to the provisions of the law on housing with a rental contract term of 183 days or more in the tax year.
- A non-resident individual is an individual who does not satisfy the above conditions.
➤ Determine VAT and personal income tax payable
VAT payable = VAT taxable revenue x VAT rate
Personal income tax payable = Taxable revenue x Personal income tax rate
In there:
>> Revenue subject to VAT and personal income tax is determined based on the revenue that individuals earn from production and business activities in various fields and industries;
>> The percentage of VAT and personal income tax on revenue for business sectors according to Clause 2, Article 12, Circular 103/2014/TT-BTC; Article 2, Circular 92/2015/TT-BTC is determined as follows:
- For resident individuals:
- If the income is less than 100 million/year, there will be no VAT and personal income tax payable;
- If the income is over 100 million/year, the percentage for calculating VAT and personal income tax is as follows:
| Business sector | Tax rate % | |
| VAT | TNCN | |
| Distribution and supply of goods | 1 | 0.5 |
| Services, construction without materials | 5 | 2 |
| Production, transportation, services associated with goods, construction with contracted materials | 3 | 1.5 |
| Other business activities | 2 | 1 |
- For non-resident individuals:
- VAT rate is the same as for resident individuals;
- The personal income tax rate is as follows:
| Business sector | Personal income tax rate % |
| Commodity trading activities | 1 |
| Service business activities | 5 |
| Manufacturing, construction, transportation and other business activities | 2 |
Example 1: Mr. Alex, a British citizen, came to Vietnam for a 3-month vacation. Here, a friend introduced him to consult and design a house plan for ABC LLC worth 70 million VND. In the UK, he has an architect’s practice certificate recognized by British law and allowed to practice. Thus, according to Article 1 of Circular 111/2013/TT-BTC, it can be seen that Mr. Alex is a business individual, but does not reside in Vietnam and is calculated on each occasion of income generation. Assuming that in this case, Mr. Alex is not eligible to declare directly in Vietnam, ABC LLC is responsible for deducting, declaring and paying VAT and personal income tax on behalf of foreign business individuals.
- VAT payable = 70 million x 5% = 3.5 million
- Personal income tax payable = 70 million x 5% = 3.5 million
>> Thus, the total tax payable by Mr. Alex is 7 million VND.
Example 2: Mr. Jack has been living and working in Vietnam for more than a year. Here, he sees that the market demand for take-away drinks in Vietnam is very potential. He decided to register a business for this type of drink and was approved by the law. The business situation is stable, the monthly revenue he receives is 50 million VND/month. Assuming that Mr. Jack started his business from March 202x onwards and has stable revenue and meets the conditions for direct declaration, the tax payable will arise as follows:
- VAT payable = 50 million x 2% = 1 million
- Personal income tax payable = 50 million x 1% = 0.5 million
Thus, the total tax payable by Mr. Jack is 1.5 million VND.
Example 3: Ms. Julie, a Dutch citizen, came to Vietnam to work as a senior advisor for Company A, a member of AA-Group headquartered in the Netherlands. From the first day she was in Vietnam until now, it has been 18 months on business and she has not had any income from salary or wages in Vietnam. Here, a friend introduced her to work as a legal consultant on settlement in the Netherlands for MNC LLC, with a monthly salary of 7 million VND. In the Netherlands, Ms. Julie has a lawyer’s certificate recognized by the law of her country and is allowed to practice. Thus, according to Article 3 of Circular No. 92/2015/TT-BTC dated June 15, 2015, it can be seen that Ms. Julie is a resident individual and her total income does not exceed 100 million VND in the calendar year, so there is no VAT and personal income tax payable.