Detailed instructions on foreign contractor tax accounting

Among the current taxes, contractor tax is considered a complex tax and requires high meticulousness when performing related operations. In fact, even tax officials who work and come into contact with this type of tax sometimes have “headaches”, not just tax accountants at businesses. Specifically, contractor tax accounting causes many difficulties for accountants. S4B Vietnam would like to summarize and share information about contractor tax accounting in the article below.

1. Formula for calculating contractor tax

After completing the contractor tax calculation, the accountant needs to perform accounting in the books. Because the contractor tax calculation is divided into three cases including:

Calculated according to NET price: contract value does not include tax

  • VAT = Revenue to calculate VAT x Percentage to calculate VAT on revenue
  • Corporate income tax = Revenue subject to corporate income tax x corporate income tax rate

Calculated according to GROSS price: contract value including tax

  • VAT = Value on contract x Percentage to calculate VAT on revenue
  • Corporate income tax = (Contract value – VAT) x Corporate income tax rate

Calculated according to contract value excluding VAT (CIT paid by the contractor)

  • VAT = Revenue to calculate VAT x Percentage to calculate VAT on revenue
  • Corporate income tax = Contract value x Corporate income tax rate

In particular, the formula for calculating VAT taxable revenue is:

  • Taxable revenue = (Contract value) / (1 – VAT calculation rate on revenue)

For each method of calculating contractor tax, there will be a separate accounting method for each case.

A Complete Guide to Foreign Contractor Tax Vietnam

2. Information on paying contractor tax in Vietnam

2.1 Tax payment method – Deduction method

2.1.1. Subjects subject to contractor tax must register and pay VAT, VAT declaration and corporate income tax like Vietnamese businesses, the corporate income tax rate is 20% on profits.

2.1.2. Conditions of application:

  • Contract business term in Vietnam: > 183 days
  • Have a permanent establishment or be a resident in the territory of Vietnam
  • Apply Vietnamese accounting regime
  • Complete the tax registration declaration and be issued a contractor identification number

2.2 Rate fixing method

Foreign contractors do not register and declare and pay contractor tax, but the Vietnam Tax Authority will declare and pay tax at a set rate on taxable revenue at a rate determined based on the operating situation of foreign contractors.

2.3 Mixed method

Allow foreign contractors to register to pay VAT according to the deduction method and pay CIT according to the fixed rate method

3. Committing late payment of contractor tax

If the foreign contractor does not pay taxes in full and on time, the foreign contractor must also pay a fine for “late payment to the state budget”. S4B Vietnam accounting service can set up periodic reminders such as tax declaration and payment deadlines. Thanks to that, accountants will avoid missing work and do not need to worry about late payment of contractor tax.

What taxes do foreign contractors pay?

4. What should business accountants pay attention to about contractor tax?

Currently, the Socialist Republic of Vietnam has signed double taxation avoidance agreements with nearly 80 countries and territories and continues to negotiate a number of other agreements. Therefore, the State has issued many instructions related to the application of double taxation avoidance agreements, including instructions related to regulations on beneficial beneficiaries and regulations on preventing tax evasion.

The reason for this is because many foreign contractors rely on double tax avoidance agreements to reduce taxes or avoid paying taxes. The main point of the guidelines related to the agreement is that the issue of tax exemption or reduction under the Double Taxation Avoidance Agreement will not be accepted if the contract’s main purpose is to enjoy tax exemption/reduction or the subject of the request is not the beneficiary.

The task of tax accountants at businesses is to perfect tax operations and ensure that businesses fully and on time pay the tax payable to the State Budget. To do this, accountants need to be meticulous and careful and have a deep understanding of tax operations. For simple cases such as common taxes of Vietnamese businesses or for complex taxes such as contractor tax, the support of accounting service is essential.

These support tax accounting service in general and contractor tax accounting in particular so that tax accountants at businesses can “breathe a sigh of relief” when doing their work. Corporate accountants who are interested and want to experience outsource accounting service, please quickly contact us today.

>>>Read more: Assistance compliance management of ROs

S4B Vietnam

  • Address: Unit 602A, Tower A, Handi Resco Office Building. 521 Kim Ma Street, Ba Dinh District, Hanoi
  • Tel: + 84 24 3974 4181
  • Email: service@s4b.com.vn

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