Calculation of the VAT tax

VAT (value added tax) is the main tax at the federal level, which is faced by almost all entrepreneurs and buyers in our country. The peculiarity of this mandatory payment is the fact that its object is not the full price of a product or service, but the added value – the difference between the final cost of selling the product and the costs of the enterprise for the production of this product. How and in what amounts this tax is established and regulated can be found in Chapter 21 of the Tax Code of the Russian Federation, which is the main document of legislation in this industry.

According to the Tax Code of the Russian Federation, organizations (whether commercial or non-commercial legal entities) and individual entrepreneurs of various types and types of activity must pay value added tax. 

Types and features of calculating the VAT tax

The value added tax is divided into 2 groups:

  • Internal, 
  • Import.

The internal tax is paid by those sole proprietors and companies that sell their goods/services on the territory of the Russian Federation. And the import tax must be paid by people who import any goods, raw materials or materials for production on the territory of the Russian Federation. 

But, however, not all people and companies are required to pay VAT. Those legal entities and sole proprietors whose earnings from sales over the past 3 months were no more than 2 million Russian rubles have the legal right to not fulfill the obligations of the taxpayer. They can apply for an exemption from this type of fee for one year. In addition, persons who operate under special tax regimes, such as the simplified or patent taxation system, are exempt from paying VAT. Important: if the listed persons still note VAT when invoicing customers, they must pay it themselves.

What can be the tax rate:

  • 0% (for example, when exporting or in a free customs zone),
  • 10% (for example, when selling meat, dairy and grain products),
  • 20% (for other goods and services not provided for in paragraph 1 and 2).

In addition, there are a number of products that are not subject to VAT at all (for example, some medical equipment).

What does VAT consist of?

The amount of the payment when determining the tax base is considered as the share of the tax base corresponding to the tax rate. As a general rule, the calculation of the VAT tax is based on the prices of goods and services sold. In order to calculate the VAT tax, it is necessary to first calculate: 

  • The total amount of this tax on sales; 
  • The entire amount of deductions for payments; 
  • VAT recovered for payment (i.e., the recovered amount of taxes that was deducted). 

The procedure for how the tax amount should be attributed to the costs of production and sale of goods is described in detail and clearly in paragraph 3 of Article 170 of the Tax Code of the Russian Federation.

The formula for calculating the value added tax = tax base × rate of VAT

How are the calculations of the tax base for VAT? There are two important dates in this process: the day of payment (possibly partial or full) for the services (or goods/materials) and the day of transfer of the final goods and services. The calculation of the tax base for VAT is determined by the date that was earlier.

The tax base in most cases is equal to the cost of goods and services sold, taking into account excise duties. However, there are exceptions to the rule, which are given with all the details of calculating the VAT tax base in Articles 155-162.1 of the Tax Code of the Russian Federation.

The procedure for payment of VAT is different from the payment of other fees and charges. The amount calculated for a certain tax period must be divided into 3 equal parts. Each of these parts must be paid by the 25th day of each of the 3 months of the next quarter. 

What is a tax deduction?

A deduction is a type of tax benefit that allows you to reduce the level of VAT charged at the time of sale by the amount that was paid to the supplier when purchasing the goods sold or components for the implementation of services.

There is another way to reduce VAT – to reduce it by the amount of VAT paid on import, return of goods or in case of refusal of services. The tax deduction is a tangible monetary saving, which, unfortunately, is very difficult to obtain.