Tax management for businesses with control transactions has always been one of the most central, complex, and potentially risky audit issues in Vietnam. To improve the legal framework and thoroughly address practical bottlenecks for taxpayers, the Government officially issued the relevant regulations on February 10, 2025. Decree 20/2025/ND-CP with the aim of amending and supplementing certain articles of Decree 132/2020/ND-CP November 5, 2020. Proactively updating and thoroughly understanding the regulations on related-party transactions under Decree 20 is a mandatory requirement for all businesses in this tax settlement period to ensure maximum legal compliance and optimize deductible expenses in a legitimate manner.
Overview of regulations on related-party transactions under Decree 20/2025/ND-CP
Decree 20/2025/ND-CP was signed and promulgated on February 10, 2025. The creation of this legal document is the result of listening to and incorporating feedback from the business community and professional consulting organizations. Throughout the period from 2020 to 2023, the practical application of Decree 132/2020/ND-CP revealed several major bottlenecks, particularly regarding the control of interest expense for businesses borrowing from financial institutions and commercial banks, which inadvertently led to the classification of related-party transactions due to overly broad quantitative criteria. Recognizing the need to address these difficulties, the mechanism for controlling related-party transactions in Decree 20 has been adjusted to be more reasonable, creating favorable conditions for businesses to recover their production and business activities.
In terms of legal effect, Decree 20/2025/ND-CP officially takes effect from March 27, 2025. However, the most significant and beneficial provision for taxpayers is the regulation allowing retroactive application starting from the 2024 corporate income tax (CIT) period. This means that in the 2024 CIT settlement period, businesses can immediately apply the flexible mechanisms and new reporting forms stipulated in this document.
The importance of updating related-party transactions under Decree 20.
Changes in tax policy are always accompanied by strategic adjustments in corporate financial management. Understanding the regulations on related-party transactions under Decree 20 helps businesses achieve the following:
- Legal risk control: Accurately identifying the company's affiliated position eliminates the risk of being subjected to price assessments, late payment penalties, or administrative tax penalties by tax authorities.
- Cash flow optimization: Clarifying and implementing flexible mechanisms regarding interest expense helps businesses release billions of dong in outstanding expenses from previous years, thereby significantly increasing after-tax profits.
- Proactive planning: This helps the accounting and finance department proactively prepare data, documentation, and transfer pricing records to meet the requirements of related-party transactions under Decree 20.
The subjects to which the regulations on related-party transactions of Decree 20 apply.
Since Decree 20/2025/ND-CP amends and supplements several articles of Decree 132/2020/ND-CP, the subjects regulated by related-party transactions under Decree 20 are entirely consistent with the scope of regulations in Decree 132. Specifically, the applicable groups include:
Organizations involved in the production and sale of goods and services give rise to linkage relationships.
This is the central group and the one most directly and strongly affected. Specifically, organizations producing and trading goods and services (hereinafter referred to as taxpayers) are subject to corporate income tax in Vietnam and have commercial and financial transactions with related parties. Regardless of whether the business operates in the manufacturing, trading, service, or technology sectors, as long as it meets the criteria for identifying related parties, it must fulfill its reporting obligations according to the regulations on related-party transactions in Decree 20.
Tax authorities and related government agencies
The second group of entities consists of the tax administration system directly responsible for enforcing, guiding, and supervising compliance with transfer pricing regulations in Vietnam, including:
- General Department of Taxation: The highest-level agency for planning and directing tax operations.
- Provincial and centrally-administered city tax departments: These units are directly responsible for managing and organizing in-depth inspections and audits of related-party transactions of large enterprises and FDI enterprises in their respective areas.
- District and regional tax offices: The tax management unit for small and medium-sized enterprises that have a supervisory relationship with the tax authorities.
Furthermore, this regulation also applies to other state agencies, organizations, and individuals involved in the application, verification, comparison, or provision of information to support tax management in cases falling under the scope of related-party transactions as stipulated in Decree 20.
Key amendments and additions to Decree 20 regarding related-party transactions.
Decree 20/2025/ND-CP focuses on amending several provisions of Decree 132/2020/ND-CP to address shortcomings in its practical application over the past period. The new points include:
Amend the regulations regarding the identification of related parties.
Decree 20/2025/ND-CP amends and supplements several important provisions related to the determination of related-party relationships as stipulated in Article 5 of Decree 132/2020/ND-CP. The changes focus on improving the criteria for determining related-party relationships through borrowing, financial guarantees, and expanding the scope of entities subject to actual management and control. These adjustments not only clarify the legal basis but also enhance transparency in tax declaration and management for enterprises with related-party transactions. The table below summarizes the notable changes. Decree 132 on related-party transactions and related-party transactions under Decree 20.
| Revised content | Decree 132/2020/ND-CP | Decree 20/2025/ND-CP | Meaning changed |
| Applicable to loan and guarantee relationships. | This applies to businesses that provide guarantees or loans in any form, including loans from third parties guaranteed by affiliated parties and financial transactions of a similar nature. | The scope of application remains unchanged for businesses providing loans or guarantees in any form, including third-party loans secured by affiliated parties. | There are no changes to the scope of application, ensuring the continuity of the current regulations. |
| Criteria for determining the relationship through lending activities | An affiliated relationship is defined when the loan has a minimum value equal to 25% of the owner's equity of the borrowing enterprise and accounts for more than 50% of the total value of the borrowing enterprise's medium and long-term debts. | The related party relationship is determined based on the total outstanding debt between the borrowing enterprise and the lending or guaranteeing enterprise, provided that the total outstanding debt reaches a minimum of 25% of the owner's equity and accounts for over 50% of the total outstanding medium and long-term debt. | Shifting from evaluating each loan individually to considering the total outstanding debt more accurately reflects the level of financial dependence between the parties. |
| Basis for determining the linkage threshold | Based on the value of the loan incurred. | Based on the total outstanding loan balance at the time of determination. | Increase transparency and limit the splitting of loans to avoid thresholds for determining the relationship between the borrower and the lender. |
| Regulations concerning operational and control relationships | This only provides general regulations regarding cases where a business is subject to the actual management, control, or decision-making power of another business in terms of its production and business activities. | The case of a branch with independent accounting that declares and pays corporate income tax is also included in the scope of consideration when it is subject to actual management, control, or decision-making. | Expanding and clarifying the scope of application helps to more fully identify related-party relationships in tax administration practice. |
| Scope of entities subject to management and control. | This only refers to businesses. | This includes businesses and independently accounting branches that are obligated to declare and pay corporate income tax. | Addressing legal loopholes and improving management efficiency for organizational models with multi-level structures or numerous dependent units. |
Decree 20/2025/ND-CP does not change the fundamental nature of regulations on related-party transactions but has added and clarified many important criteria. Most notably, it shifts the criterion from "loan amount" to "total outstanding loan balance" when determining related-party relationships and expands the scope of entities subject to actual management and control to include independently accounting branches, thereby enhancing transparency and efficiency in tax management for businesses with related-party transactions.
Changes to the responsibilities of the State Bank and replacement of the Appendix I form.
Besides clarifying related parties, the new Decree amends and supplements Clause 2, Article 21 of Decree 132/2020/ND-CP, which specifically stipulates the responsibilities of the State Bank of Vietnam in coordinating tax management. The State Bank is responsible for coordinating the provision of information and data on foreign loans of enterprises with related-party transactions, assisting tax authorities in controlling cash flows and verifying the soundness of cross-border financial transactions in accordance with the regulations on related-party transactions in Decree 20.
Simultaneously, Article 2 of Decree 20/2025/ND-CP stipulates the replacement of the entire Appendix I – Information on related party relationships and related party transactions issued with Decree 132/2020/ND-CP – with the new Appendix I issued with Decree 20/2025/ND-CP. The reform of the related party transaction declaration form in Decree 20 helps standardize information flow, minimize redundant indicators, and integrate declaration content in accordance with the new amendments, supporting businesses in fulfilling their self-declaration and self-responsibility obligations more easily.
To help businesses proactively adapt, it is advisable to consult... related party transaction advisory services Consulting with specialized and experienced units will help minimize compliance risks and optimize tax administration efficiency.
Transitional provisions for interest expense deductions related to related-party transactions - Decree 20
One of the most important issues for the business community is the mechanism for handling non-deductible interest expenses (the portion exceeding the 30% EBITDA threshold) accumulated from previous years. The related-party transactions provisions of Decree 20 have established a very detailed and beneficial transitional framework for taxpayers.
Conditions for the application of transitional provisions
Transitional provisions apply specifically to cases where, during the corporate income tax periods from 2020 to 2023, the borrowing enterprise fully meets the following conditions:
- The borrowing enterprise must only have an affiliated relationship with an economic organization operating in accordance with the Law on Credit Institutions as stipulated in point d, clause 2, Article 5 of Decree 132/2020/ND-CP.
- Businesses borrowing from lenders or guarantors fall under the cases specified in points d.1 and d.2 of Clause 2, Article 5 of Decree 132/2020/ND-CP, as amended and supplemented by Article 1 of Decree 20/2025/ND-CP.
- There are related-party transactions falling within the scope of regulation under Clause 2, Article 1 of Decree 132/2020/ND-CP.
- There are certain interest expenses that are not deductible according to point a, clause 3, Article 16 of Decree 132/2020/ND-CP.
Starting from the 2024 tax year, the handling of non-deductible and uncashed interest expense amounts up to the end of the 2023 tax year for entities affected by the regulations on limiting interest expense on related-party transactions under Decree 20 will be consistently implemented according to the following two classification approaches:
| Case | Guidelines for handling deductible interest expenses accumulated up to the end of the 2023 tax period. | Legal basis for application |
| The enterprise has no related-party relationship and no related-party transactions as stipulated in Decree 132/2020/ND-CP and Decree 20/2025/ND-CP. | This uncredited portion of interest expense will be allocated evenly and carried forward to subsequent tax periods for the remaining time (not exceeding 05 consecutive years from the year following the year in which the expense was incurred). | According to the regulations on the time period for carrying forward interest expenses at point b, clause 3, Article 16 of Decree 132/2020/ND-CP. |
| Businesses have related-party relationships and related-party transactions as stipulated in Decree 132/2020/ND-CP and Decree 20/2025/ND-CP. | The portion of interest expense that is not deductible and has not been carried forward to subsequent tax periods is carried forward normally (offset against the 30% EBITDA threshold of the carrying year). | In accordance with the usual provisions at point b, clause 3, Article 16 of Decree 132/2020/ND-CP. |
The transitional provisions for related-party transactions in Decree 20 have thoroughly resolved the issue of interest expense for thousands of businesses in the previous period. For businesses that are no longer considered related-party transactions, the mechanism of evenly allocating the remaining time is an extremely favorable way to record reasonable expenses and legitimately minimize the amount of corporate income tax payable.
Frequently Asked Questions about Related-Party Transactions under Decree 20
Decree 20/2025/ND-CP focuses on amending and supplementing several provisions in Article 5 of Decree 132/2020/ND-CP regarding criteria for determining affiliated relationships. The most notable point is the shift from evaluating based on loan amounts to total outstanding loans, and the addition of independently accounting branches to the scope of entities that can be considered when determining the actual management and control relationship between the parties.
The new regulations help to more fully reflect the nature of the financial relationship between the parties. Instead of considering each loan individually, the tax authorities will assess the total actual outstanding loan balance at the time of determining the related-party relationship. This reduces the possibility of splitting loans to avoid the threshold for determining related-party transactions and increases transparency in tax administration.
Generally, loans from independent credit institutions do not constitute related-party transactions. However, if the loan is guaranteed or secured by a related party and meets the criteria regarding the loan-to-equity ratio or total outstanding debt as stipulated in Decree 20/2025/ND-CP, the enterprise may still be identified as having a related-party relationship. Therefore, the nature of the transaction should be considered rather than solely based on the lending entity.
The treatment of non-deductible interest expenses still depends on the related party relationship and related-party transactions of the enterprise. For interest expenses eligible for carryforward as stipulated in Decree 132, the enterprise may continue to allocate and carry forward them to subsequent tax periods for a maximum of 5 years from the year following the year in which the expense was incurred.What are the important provisions regarding related-party transactions in Decree 20 that are amended and supplemented?
How does converting from a loan to total debt affect a business?
Does a business borrowing from a bank constitute a related-party transaction?
How will non-deductible interest expenses incurred before 2024 be handled after Decree 20 comes into effect?
Conclude
The Decree on related-party transactions in Vietnam, specifically Decree 20, marks a significant step in perfecting the legal framework for tax management of related-party transactions in Vietnam. While not fundamentally altering the principles of related-party transactions, the Decree clarifies the criteria for identifying related-party relationships through borrowing and financial guarantees, and expands the scope of entities subject to actual management and control.
In the context of tax authorities increasingly intensifying inspections and audits of businesses with related-party transactions, proactively reviewing ownership structure, internal loans, transfer pricing policies, and declaration obligations is essential. Businesses not only need to understand the new provisions on related-party transactions in Decree 20/2025/ND-CP but also need to assess the actual impact on financial operations, taxation, and compliance to mitigate the risk of penalties, tax arrears, and even tax assessments.
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Content production by: Mr. Le Hoang Tuyen – Founder & CEO of MAN – Master Accountant Network, CPA Vietnam auditors with over 30 years of experience in accounting, auditing, and financial consulting.