Against the backdrop of increasingly stringent tax regulations in 2026, the process of reporting related-party loan transactions involving company directors is no longer a simple internal task that can be overlooked. Effective July 1, 2026, Decree 255/2026/ND-CP It officially takes effect and applies starting with the 2026 corporate income tax filing period, replacing Decree No. 132/2020/ND-CP and Decree No. 20/2025/ND-CP.
The most notable point about this topic: Decree 255 officially added trading “"borrow, lend"” regarding the criteria for determining related-party relationships with individuals who manage or control the business. If businesses fail to correctly identify these relationships and file their returns in accordance with the new regulations, they will face the risk of having taxes assessed, interest expense disallowed, and being subject to late-payment penalties. This article, written from the perspective of a tax consultant specializing in related-party transactions, provides detailed guidance on how to identify related-party relationships, calculation methods, and the filing process in accordance with the new Appendix I.
Is a loan from a director considered a related-party transaction?
In the day-to-day operations of businesses in Vietnam, temporary working capital shortfalls are often quickly resolved by borrowing money from owners or managers. From a tax management perspective, the answer depends on two factors: whether the lender or borrower is an individual who manages or controls the business (or a relative of such an individual), and whether the transaction value reaches the 10% threshold of the owner’s capital contribution.
The confusion between “borrowing” and “taking out a loan” is addressed in the official regulations set forth in Decree 255
Under the Civil Code, a property loan agreement is typically interest-free, and the borrower must return the exact property in question. Previously, Decree 132/2020/NĐ-CP only referred to “borrowing and lending,” so many businesses labeled their contracts as “loans” to claim they fell outside the scope of reporting requirements.
Decree No. 255/2026/ND-CP has put an end to this interpretation. Paragraph 1 of Article 4 defines related-party transactions as including transactions involving “purchase, sale, exchange, lease, rental, borrowing, and lending” as well as “borrowing, lending, financial services, financial guarantees, and other financial instruments” between related parties. Point l of Paragraph 2 of Article 5 also adds the phrase “borrowing and lending” alongside “taking out loans and granting loans.”.
In other words, starting with the 2026 tax year, the term “loan” in a contract will no longer allow a business to avoid the obligation to report related-party transactions involving loans to the director.
Why are the tax authorities paying special attention to this transaction?
Tax audits for the 2025–2030 period indicate that tax authorities are making extensive use of big data to scrutinize unusual cash flow fluctuations in businesses’ bank accounts. Inaccurate reporting of related-party transactions involving loans from the director, or the intentional omission of such transactions, is often suspected of being a means of transferring profits or evading the director’s personal income tax obligations through the receipt of hidden interest payments or the use of funds of unknown origin.
Arm's Length Principle
This is the overarching “guiding principle” for the management of transfer pricing. Paragraph 1 of Article 3 of Decree No. 255/2026/ND-CP provides as follows:
Taxpayers engaged in related-party transactions must exclude factors that reduce their tax liability due to the influence of the related-party relationship, so that their tax liability for such transactions is determined on a basis equivalent to that of independent transactions under the same conditions.
With regard to loans taken out by a director without a contract, or with a contract that does not reflect the actual circumstances, Article 6, paragraph 1, subparagraph a clearly stipulates:
In cases where a taxpayer engages in a related-party transaction but there is no written agreement, or the agreement does not conform to the arm’s-length principle, or the actual execution of the transaction does not conform to the arm’s-length principle that would apply between unrelated parties, the related-party transaction must be determined in accordance with the true nature of a business transaction between independent parties.
New provisions in Decree No. 255/2026/NĐ-CP regarding loans and borrowing by company directors
The 10% threshold for capital contributions and the 30% cap remain unchanged; the changes pertain to the scope of transactions, the threshold for exemption from filing, and the declaration forms. Below is a table summarizing the key changes in Decree 255 compared to the previous regulations under Decree 132.
| Content | Decree 132/2020 | Decree 255/2026 |
| Transactions with individuals who manage or control the entity | Borrowing and lending at least 10% of owners' equity | Borrowing, lending, taking out loans, or extending loans totaling at least 10% of owners’ equity |
| Control interest costs | 30% | Keep 30% as is |
| Grounds for exemption from filing and exemption from preparing documentation | Article 19 | Article 20 |
| Exemption from filing based on the net profit margin | Revenue under 200 billion VND; operated with a simple structure | Revenue under 500 billion VND; simple functional requirements are waived |
| Declaration form | Appendix I (replacing the form attached to Decree No. 20/2025/ND-CP) | Appendix I, issued pursuant to Decree No. 255/2026/ND-CP |
| Validity | Expires July 1, 2026 | Effective July 1, 2026, applicable starting with the 2026 corporate income tax period |
Determining the relationship between the director and the borrower when borrowing money according to Decree 132/2020/ND-CP.
To properly report related-party transactions involving loans from a director, the first step is to identify the related-party relationship in accordance with Clause 2 of Article 5 of Decree No. 255/2026/ND-CP. For loans or borrowings from a director, the direct basis is point l.
Conditions under Point l of Paragraph 2 of Article 5
Point l of Paragraph 2 of Article 5 of Decree No. 255/2026/ND-CP stipulates that affiliated parties include:
Businesses that have transactions involving the transfer or acquisition of at least 25% of owner's capital contributions during the tax period; or borrowing, lending, or lending at least 10% of owner's capital contributions at the time of the transaction during the tax period with individuals managing or controlling the business or with individuals in one of the relationships specified in point g of this clause.
Note: A relationship is established when both of the following factors are present:
- Eligibility: The lender or borrower must be an individual who manages or controls the business (Director, General Director, Chairman of the Board of Directors, Chairman of the Board of Members, etc.) or an individual who is related to such individuals by family ties.
Quantitative: The amount borrowed must be at least 10% of the owners’ contributed capital at the time the transaction occurred during the tax period.
The director's relatives are also included in the scope
Point l refers to the list of family relationships in point g of paragraph 2 of Article 5, which includes relationships such as: spouse; biological parents, adoptive parents, stepfather, stepmother, parents-in-law; biological children, adopted children, stepchildren of the spouse, daughters-in-law, sons-in-law; full siblings; paternal and maternal grandparents; grandchildren; aunts, uncles, and full nieces and nephews (see full list in subparagraph g).
Therefore, if the director’s spouse or child transfers funds to the company as a loan that reaches the 10% threshold for contributed capital, this also constitutes a related-party relationship, even if the person transferring the funds does not hold any position in the company.
Quantitative threshold for capital contribution 10% (Point l, Clause 2, Article 5)
The formula is then determined:
Ratio = (Loan amount at the time the transaction occurred / Shareholders' equity at that time) × 100% |
Points to note regarding timing: Decree No. 255/2026/NĐ-CP uses the phrase “at the time the transaction occurs.” This means that as long as, at any point during the year, the amount the director lends reaches the threshold of 10% of the contributed capital, the enterprise is officially required to report the related-party transaction involving a loan from the director.
Points to Note Regarding Capital Contributions: The decree uses the term “owners” contributed capital,“ not ”authorized capital.” Businesses that have registered a large amount of authorized capital but have not yet fully contributed it must use the amount of capital actually contributed for calculations to avoid underestimating the ratio.
For example: Company X, Ltd. has an authorized capital of 5 billion VND. On August 1, 2026, in order to make an urgent payment for goods, the Director lent the company 600 million VND.
- Loan-to-equity ratio: 600 million / 5 billion is 12%
Since this ratio exceeds the 10% threshold under Point l, Paragraph 2, Article 5, the Director and Company X are related parties. Even if the company has fully repaid its debt by December 31, 2026, when filing the 2026 tax return, the accountant must still report all details on Appendix I issued pursuant to Decree 255/2026/NĐ-CP, to be submitted together with the Corporate Income Tax Final Return (Article 18, Clause 2, Point c).
Economic consequences: Controlling interest expense (EBITDA 30%)
The most significant consequence of reporting related-party transactions involving loans to the director is that the business falls under the interest expense limitation provisions of Clause 3, Article 16 of Decree 255/2026/NĐ-CP.
Total interest expense is capped.
A common misconception is that only interest expenses paid to directors are subject to the cap. In fact, Article 16, Section 3, subparagraph a applies to the total interest expenses of taxpayers engaged in related-party transactions, including interest paid to banks, financial institutions, and other individuals:
The total interest expense after deducting interest on deposits and loans incurred during the period of the taxpayer is deductible when determining taxable income for corporate income tax purposes, provided it does not exceed 30% of the total net profit from business operations during the period plus interest expense after deducting interest on deposits and loans incurred during the period plus depreciation expense incurred during the period of the taxpayer.
This is why monitoring the reporting of related-party loan transactions with the CEO is particularly important for businesses that rely heavily on bank financing: even a small loan from the CEO could cause the entire amount of bank interest to fall under regulatory restrictions.
Important Note: Paragraph 3 of Article 20 stipulates that for taxpayers who are exempt from filing a tax return and from preparing a transfer pricing documentation file, the determination of the total deductible interest expense shall still be conducted in accordance with Paragraph 3 of Article 16. Being exempt from preparing the documentation file does not mean being exempt from the 30% threshold.
How to accurately determine EBITDA
EBITDA used to calculate the interest expense limit in the declaration of related-party transactions and director's loan is calculated using the following formula:
EBITDA = Net operating profit + (Interest expense – Interest income on deposits – Interest income on loans) + Depreciation |
Reference: How to calculate deductible interest expenses under Decree No. 255/2026/NĐ-CP.
Rules for carrying forward interest expense to subsequent years.
The portion of interest expense exceeding the 30% EBITDA threshold after declaring the related-party loan transaction is not completely lost. The enterprise has the right to carry forward this expense to the next tax period for offsetting, with a continuous carry-forward period of no more than 5 years from the year following the year in which the non-deductible interest expense was incurred.
Personal income tax risks for the Director
If the declared interest rate for a related-party transaction involving a loan from the director shows 0%, the tax authorities may exercise their right to assess the tax. They will determine a profit revenue figure for the director (usually using bank deposit interest rates as a reference) and collect 5% personal income tax on the capital investment. Simultaneously, the business may not be able to deduct this assessed interest as an expense if the documentation is not thorough.
Cases exempt from preparing documentation for determining transfer pricing.
Article 20 of Decree No. 255/2026/ND-CP (replacing Article 19 of Decree No. 132/2020/ND-CP) divides businesses into two groups. Being exempt from preparing documentation does not mean being exempt from filing: businesses must still file Appendix I to the corresponding extent.
Group 1: Exempt from filing Sections III and IV and from preparing documentation
This applies when a taxpayer conducts transactions only with related parties that are subject to corporate income tax in Vietnam, are subject to the same corporate income tax rate as the taxpayer, and none of the parties receives any corporate income tax incentives during the tax period, but the grounds for exemption must be reported in Sections I and II of Appendix I.
Note: Loans and borrowings from a director typically do not fall into this category, because a director is an individual (subject to personal income tax) and is not subject to corporate income tax at the same tax rate.
Group 2: Must file a return but are exempt from preparing documentation
In Group 2, there are three cases:
Revenue threshold and total value of related-party transactions
Businesses are exempt from filing documents if they meet both of the following conditions:
- Total revenue for the tax year is less than 50 billion VND.
- The total value of all related-party transactions (including the declared value of related-party transactions involving loans from the director) is less than 30 billion VND.
This threshold remains unchanged from Decree No. 132/2020/NĐ-CP.
Signing a Pre-Agreement on Pricing Methods (APA)
Businesses must enter into an Advance Pricing Agreement (APA) and submit annual reports in accordance with APA regulations.
What's New: Simple Trading with a Standard Profit Margin
Businesses are exempt from filing documents if they simultaneously meet the following criteria:
- Revenue below 500 billion VND;
- At the same time, the requirement to perform simple functions and not own intangible assets is waived.
Achieve the following net profit margin (before deducting interest expenses and corporate income tax – EBIT) on net revenue for each sector:
- Distribution area: From 5% onwards.
- Manufacturing sector: From 10% onwards.
- Processing field: From 15% onwards.
Compared to Decree 132, the revenue threshold has been raised from less than 200 billion VND to less than 500 billion VND, and the requirement to “conduct business with simple functions” has been removed. If the above ratio is not met, subparagraph c stipulates that “a transfer pricing documentation file must be prepared in accordance with regulations.”.
Note: In the case of declaring related-party transactions involving loans, the director is usually not subject to this category because the director is an individual (paying personal income tax), not a legal entity paying corporate income tax at the same tax rate.
Instructions for declaring related-party transactions involving loans from the director.
Pursuant to Point c, Clause 2, Article 18, taxpayers must report information on related-party relationships and transactions in accordance with Appendix I issued pursuant to Decree No. 255/2026/ND-CP and submit it along with the corporate income tax return. The procedure for reporting related-party transactions involving loans to directors consists of the following steps.
Step 1: Declare information about affiliated parties in Section I.
In Appendix I issued pursuant to Decree 255, accountants must fill in:
- Affiliate Name: For individuals in Vietnam, enter the information as it appears on their CCCD card, passport, or other personal identification documents;
- Country: Enter the country or territory where the director is a resident;
- Tax ID Number: If the related party is an individual in Vietnam, enter the full tax ID number;
- Relationship: Select code “L” (related to a minimum lending/borrowing threshold of 10% equity). This is fundamental information for the tax authorities to determine the scope of declaring related-party transactions involving loans from directors.
Step 2: Exemptions under Section III
In the summary table of related-party transactions, find the line "Loans/Lending":
- Transaction value: Enter the total amount borrowed during the year (not the year-end balance).
- Pricing method: Businesses often choose the method of comparing prices of independent transactions. However, if borrowing without interest, documentation proving equivalence is required, or the company must accept declaring the price at a fixed rate for legal safety when declaring related-party transactions involving loans from the director.
In addition, if you qualify for an exemption under Article 20, check the corresponding box.
Step 3: Information for Determining the Price of Related-Party Transactions in Section III
The new form no longer includes a separate “Loans/Lending” line. Transactions with the director are reported under Line 2.4.2 “Interest Expense” under Group 2.4 “Financial Activities,” broken down by each related party:
- Businesses must prepare a report specifying: the recognized value of related-party transactions (Column 7), the value restated based on arm’s-length prices (Column 8), the difference (Column 9), and the pricing method (Column 10).
- Businesses exempt from filing a report under subparagraph (a) or (c) of paragraph 2 of Article 20: Fill in only columns (3), (7), and (12); leave columns (4), (5), (6), (8), (9), (10), and (11) should be left blank.
Under subparagraph a of paragraph 2 of Article 20, the total value of related-party transactions used to determine the 30 billion VND threshold is the sum of the values in column (3) and column (7) of the line “Total value of transactions arising from related-party activities.”.
Step 4: Determine the deductible interest expense
This is the most challenging part of the disclosure report on related-party loan transactions involving the CEO. For manufacturing, trading, and service companies, the key indicators include:
| Indicators | Content | How to determine |
| 8.1 | Interest on Deposits and Interest on Loans | In financial income |
| 9.1 | Interest expense | In financial expenses |
| 9.1a | Interest expense recognized during the period | After applying the 30% threshold |
| 9.1b | The portion of interest expense that is not deductible is carried forward to the next period | Pursuant to subparagraph b of paragraph 3 of Article 16 |
| 10 | Depreciation expense incurred during the period | According to the accounting records |
| 13 | EBITDA as defined by the Decree | (13) = (11) + (9.1) – (8.1) + (10) |
| 14 | Net Interest Expense-to-EBITDA Ratio | (14) = [(9.1) – (8.1)] / (13) |
| 15 | Interest expense carried forward from prior periods | (15) = (15.1) + … + (15.5), broken down by year from (n-1) to (n-5) |
| 16 | The percentage includes the portion transferred | (16) = [(9.1) – (8.1) + (15)] / (13) |
See details: Declare related party transactions on HTKK
Develop Transfer Pricing Documentation (TP Documentation).
Simply filing a report on related-party loan transactions involving the director is not sufficient for businesses that are not eligible for an exemption. According to Paragraph 3 of Article 18, the documentation for determining the price of related-party transactions “must be prepared prior to the filing of the annual corporate income tax return and must be retained and presented upon request by the tax authority.”.
Paragraph 4 of Article 18 stipulates that the deadline for submitting documents is “no later than 30 working days from the date of receipt of the tax authority’s written request”; if there is a valid reason, the deadline may be extended once for no more than 15 working days.
Local File
This document focuses on analyzing the practical aspects of borrowing money. Required content:
- Purpose of the loan or borrowing: Clearly explain why the company needs capital from the director (for example, to supplement working capital for purchasing raw materials to fulfill export orders).
- Functional and Risk Analysis: The director assumes the risk of capital loss when lending money to the company without collateral. This serves as the basis for justifying low interest rates or the "0%" interest rate in special circumstances.
Cash flow documentation requirements
In 2026, cash vouchers will no longer be accepted for large-value transactions between related parties. For a related-party transaction involving a director's loan to be recognized, the cash flow must:
- Transfer funds from the director's personal account to the company account.
- The transfer details should clearly state: “Business loan under Contract No….”.
- There are complete receipts/payment vouchers and periodic debt reconciliation statements.
In addition, Point a of Paragraph 1 of Article 6 of Decree 255 requires that the contract be compared with actual performance. Loan and borrowing contracts must clearly specify the interest rate, term, and repayment terms, and must be carried out exactly as agreed.
Solutions for optimizing tax management of related-party transactions.
To ensure that the process of declaring related-party transactions involving loans from directors does not create financial risks, businesses need to take thorough preparatory steps:
- Proactively increasing charter capital: Instead of maintaining long-term loans exceeding the 10% threshold, businesses should consider increasing their charter capital. This not only enhances financial credibility but also allows the business to legally "break free" from affiliated relationships.
Monitor loans from the director’s relatives as well: Since subparagraph l refers to family relationships mentioned in subparagraph g, it is necessary to review cash flows from the executive’s spouse, parents, children, and siblings.
- Consult a professional firm: Due to the complexity of Decree 255, finding a related party transaction advisory services Credibility is absolutely essential. Related party transaction experts will help businesses review their entire documentation system, optimize EBITDA levels, and ensure that the declaration of related party loans from directors remains within safe tax limits.
- Establishing an internal interest rate policy: Instead of borrowing at interest rates, businesses should reference the average interbank interest rate to build a suitable interest rate framework, minimizing the risk of being subject to personal income tax assessments for directors.
Reference: Price list for related party transactions
Conclude
Decree No. 255/2026/ND-CP does not change the 10% threshold for capital contributions or the 30% limit on interest expenses, but it has officially included “borrowing and lending” as a criterion for determining related-party relationships with individuals who manage or control the company. Starting with the 2026 tax period, any amount that a director “lends to the company” that reaches the threshold must be reported on the new Appendix I.
Hopefully, this detailed guide on declaring related-party transactions involving loans from directors has provided your business with a comprehensive overview and specific steps to manage tax risks most effectively.
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Responsible for production and professional content review by: Mr. Le Hoang Tuyen – Founder & CEO of MAN – Master Accountant Network. He is a Vietnamese CPA with over 30 years of in-depth experience in the fields of accounting, auditing, taxation, and corporate legal consulting
References and legal basis:
- Decree No. 255/2026/NĐ-CP, dated June 30, 2026, stipulates tax administration for related-party transactions of enterprises with related-party relationships (replacing Decree No. 132/2020/ND-CP and Decree No. 20/2025/ND-CP).
- Tax Administration Law No. 108/2025/QH15.
- Corporate Income Tax Law No. 67/2025/QH15.
- The 2020 Enterprise Law: Provisions on Enterprise Managers and Executives.