VAT Calculation Basics — Net Amount, Tax, Gross and the Reverse Formula
What VAT-exclusive and VAT-inclusive mean, getting the gross from the net amount, the ÷1.1 formula for working back to the net amount, rounding the tax amount, and common mistakes — with South Korea's 10% VAT as the example.
Value-added tax (VAT) is a tax added when goods and services are traded. In South Korea the VAT rate is 10% (Value-Added Tax Act), and on price tags and quotes you often see the phrases 'VAT excluded' and 'VAT included'.
Three amounts
- Net amount (supply value): the price of the goods or service without tax
- Tax (VAT): net amount × tax rate
- Gross (total consideration): net amount + tax, the amount actually paid
VAT excluded → gross
If a quote says '$500,000 per month (VAT excluded)', the net amount is $500,000.
Tax = net × 0.1, gross = net × 1.1
- Tax $50,000, gross $550,000
VAT included → net amount (working back)
If a receipt total is $33,000, the tax is already included. Find the net amount by dividing the total by 1.1.
Net = gross ÷ 1.1, tax = gross − net (= gross ÷ 11)
- 33,000 ÷ 1.1 = $30,000, tax $3,000
Common mistake: taking 10% off the total (33,000 × 0.9 = $29,700) is wrong. The tax is 10% of the net amount, not of the total. Calculating this way overstates the tax as $3,300.
Rounding the tax amount
Dividing a total by 1.1 often leaves decimals. For example, a total of 10,001 gives a tax of 909.18….
- In South Korea, dropping (truncating) fractions of a won from the tax amount is common practice on tax invoices and receipts. In that case the tax is 909 and the net amount is 9,092.
- In South Korea, when paying national taxes, fractions under 10 won are not counted, under Article 47 of the National Treasury Management Act.
- Some trading partners and accounting software round instead, so use the calculator's Tax rounding option to switch between truncate, round and round up and change the unit until the result matches.
Combining several items
Calculating the tax for each item, truncating and then adding them up can differ by a few units from adding up all the net amounts first and calculating the tax once. In South Korea, tax invoices usually compute the tax on the total net amount, so if your per-item calculation differs, check whether this is the reason.
VAT in other countries
The structure of VAT is similar across countries, but the rates differ. Japan's consumption tax is 10% (8% reduced rate for food and some other items), the UK 20%, Germany 19% and Singapore's GST 9%. The United States has no federal VAT and uses state sales taxes instead. See the VAT rates page for details.
Exempt and zero-rated
- Exempt: some transactions, such as unprocessed agricultural, livestock and fishery products, medical care and education, carry no VAT (in South Korea).
- Zero-rated: transactions such as exports are taxed at 0%. Unlike exempt supplies, the VAT paid on purchases can be refunded.
Because you can enter the tax rate directly in this calculator, 0% and reduced-rate calculations also work.
This article explains general calculation methods. For actual filing and payment, follow the guidance of the National Tax Service (in South Korea) or your local tax authority, or consult a tax professional.