In the context of a volatile global economy, managing cash flow and optimizing tax costs are top priorities for every business. One of the biggest bottlenecks regarding corporate income tax in Vietnam in recent years has been the question: "Does borrowing from banks constitute a related-party transaction?" The answer lies not only in determining the legal relationship but also in deciding whether a business can deduct billions of dong in interest expenses when settling its taxes.
This article will provide a comprehensive, in-depth, and up-to-date overview in the spirit of Decree 132/2020/ND-CP and especially the landmark amendments at Decree 20/2025/ND-CP.
Are bank loans considered related-party transactions under current regulations?
To understand whether bank loans constitute related-party transactions, let's look back at the time when Decree 20/2017/ND-CP and subsequently Decree 132/2020/ND-CP were issued. The initial goal of these regulations was to combat transfer pricing and the erosion of tax revenue through multinational corporations artificially inflating interest expenses to reduce taxable profits.
However, the definition of related parties in Vietnam includes credit institutions if they meet certain loan-to-value ratio thresholds. This leads to the consequence that even purely commercial loan transactions are labeled as related-party transactions.
Related parties as defined in Decree 132/2020/ND-CP
Based on Article 5 of Decree 132, related-party relationships are defined through control, management, or capital contribution. Regarding borrowing, the question of whether a bank loan constitutes a related-party transaction will be confirmed if both Rule 25% and Rule 50% at Point d, Clause 2 are simultaneously satisfied:
- Equity capital threshold of 25%: Businesses borrow capital from a credit institution in an amount at least equal to 25% of the owner's contributed capital (actual contributed charter capital).
- 50% threshold for medium and long-term debt: This loan exceeds the 50% total value of the company's medium and long-term debt.
For example: If a business has a registered capital of 20 billion VND and borrows 6 billion VND from bank A (representing 30% capital) to invest in a long-term project, and this is its only long-term debt, then according to Decree 132, bank A and your business are related parties. In that case, the interest payment to bank A is considered a related party transaction.
Shortcomings that are suffocating businesses before 2024.
Prior to the latest adjustments, the rigid method of determining whether bank loans constitute related-party transactions, as described above, had put thousands of domestic businesses in a difficult position.
- Limited capital: Startups or businesses operating in capital-intensive sectors (real estate, infrastructure) always need significant financial leverage. Borrowing from banks exceeding equity capital is therefore inevitable.
- Consequences of interest expense cap: Once a related-party transaction is deemed to exist, interest expense will be capped under EBITDA (30%). Any interest paid to the bank exceeding this cap will be excluded from deductible expenses, leading to a significant increase in corporate income tax burden, even though this is a real expense and the interest rate is market rate.
Decree 20/2025/ND-CP: The answer to the question of whether bank loans are considered related-party transactions.
On February 27, 2025, the Government issued Decree 20/2025/ND-CP amending and supplementing Decree 132/2020/ND-CP. This is considered a revolution in tax management thinking regarding loan transactions.
Exclusion clause for independent loans
The most important new feature lies in the addition. Point d.1 in Clause 2, Article 5. This regulation states:
“"In cases where a business borrows capital from a credit institution exceeding the prescribed ratios in point d, but that credit institution does not participate in the management, control, or capital contribution of the business, this borrowing relationship shall not be considered a related-party relationship."”
Therefore, from 2026 onwards, to determine whether a bank loan constitutes a related-party transaction, businesses should not only look at the percentage but also at the nature of the power involved:
- Does the bank appoint representatives to the company's Board of Directors?
- Do banks have the right to determine the business policies of enterprises?
- Do businesses and banks share the same parent company?
If the answer is "No," then even if you borrow 10 times your charter capital from the bank, it's still an independent transaction, not a related-party transaction.
Analyzing the authenticity and legal basis of Decree 20/2025/ND-CP
This decree was issued after a thorough consultation process between the Ministry of Finance and the business community. The authenticity of this regulation aims to protect the legitimate rights of taxpayers, avoiding double taxation or the exclusion of actual business expenses.
This regulation applies to the corporate income tax period from 2024 onwards. This means that when settling taxes in 2025 and 2026, businesses can immediately apply this exclusion to protect their interest expense. This is extremely important information that every accountant needs to understand to avoid mistakenly determining whether bank loans constitute related-party transactions.
When are bank loans still considered related-party transactions?
Although Decree 20/2025/ND-CP has relaxed regulations, there are four typical scenarios where the question of whether bank loans require related-party transactions will still be answered: HAVE:
Case 1: Parent-subsidiary relationship or within the same ecosystem
If your business is part of a financial or banking group.
For example: Company B is a subsidiary of Bank X, or both B and Bank X are subsidiaries of a Group X. In this case, the related-party relationship is established based on ownership of capital (Points a and b, Clause 2, Article 5 of Decree 132/2020/ND-CP). The loan transaction here is definitely a related-party transaction.
Case 2: Does borrowing from a bank require a related-party transaction through a guarantee from an affiliated party?
This is the most common case nowadays.
For example: Company C (the parent company) guarantees a loan for Company D (the subsidiary) at Bank F. Although Bank F is independent, the guarantee from the parent company C (an affiliated party of D) means this loan transaction is still considered an affiliated transaction. Why? Because without the affiliated party's guarantee, Company D might not have been able to obtain the loan or the preferential interest rate. The purpose of this bank loan being considered an affiliated transaction is to prevent transfer pricing through guarantee fees and loan interest rates.
Case 3: There is overlap in executive personnel.
If a member of the bank's Board of Directors or Management Board simultaneously holds an executive position in the borrowing enterprise, or has a family relationship (spouse, parent, etc.) with the enterprise's executive as stipulated in Points g and l, Clause 2, Article 5, then a control element is established and the loan transaction becomes a related-party transaction.
Case 4: Personal Loan
Many businesses confuse bank loans with personal loans. If you borrow capital from the Director or major shareholder with a loan amount exceeding 10% of owner's equity, this is always considered a related-party transaction without the exclusion clauses applicable to credit institutions and banks as stipulated in Decree 20/2025/ND-CP.
The 30% EBITDA interest rate cap rule and its practical impact.
When a business's transaction falls under the category of a bank loan, the most significant consequence is the regulation in Article 15 of Decree 132/2020/ND-CP.
EBITDA calculation formula for tax purposes.
The EBITDA used to calculate the interest expense ceiling is not exactly the same as the EBITDA in the financial statements.
The formula is then determined:
EBITDA = Net profit from business operations + Interest expense + Depreciation expense |
Note: The net profit here excludes interest expenses and depreciation costs, but includes financial revenue.
How to apply the 30% ceiling
Suppose the company has interest expenses of 10 billion VND, but its EBITDA is only 7 billion VND.
- The difference of 3 billion VND will be disallowed when calculating corporate income tax for the current year.
- Additional corporate income tax payable: 3 billion x 20% = 600 million VND. This is why businesses always want an answer to the question of whether borrowing from banks constitutes a related-party transaction. ARE NOT.
See details: How to calculate interest costs according to Decree 132
Interest expense transfer rights
The disallowed portion of interest expense (VND 3 billion in the example above) is not permanently lost. According to Decree 132, and as stipulated in Decree 20/2025, businesses are allowed to carry forward this expense to the next tax period if the total interest expense in that year does not exceed 30% EBITDA. The maximum carry-forward period is 5 years.
A real-world case study on whether bank loans constitute related-party transactions.
Situation: Company V, a packaging manufacturing company, has a registered capital of 50 billion VND. In 2025, the company borrowed 200 billion VND from Commercial Joint Stock Bank Y to build a new factory.
- The loan is equal to 400% of equity capital.
- This loan is the only long-term debt (accounting for 100% of medium- and long-term debt).
- Bank Y does not own shares and has not appointed any representatives to Company V.
Analysis according to Decree 132/2020/ND-CP
Because both the 25% and 50% thresholds were exceeded, Company V and Bank Y are related parties. The entire interest expense on this 200 billion VND loan is capped at 30% EBITDA. Company X could lose billions of VND in expenses each year.
Analysis according to Decree 20/2025/ND-CP
Since Bank Y does not manage, control, or invest in Company X, according to the newly added Point d.1, this relationship is not considered an affiliated relationship. The 200 billion VND loan transaction is not considered an affiliated transaction. Company V is allowed to deduct all actual interest expenses incurred from its taxable corporate income without being subject to the 30% EBITDA ceiling.
This is the clearest evidence of how correctly understanding whether bank loans are related-party transactions can help businesses save enormous tax costs.
Transfer pricing documentation: What you need to know in 2026
If the business is subject to related-party transactions, it needs to prepare a set of documents according to the 3-level standard:
- National Profile of Related-Party Transactions (Local File): Focus on demonstrating that the bank loan interest rate is in line with market rates. You need to compare it to similar loans from other banks or businesses with comparable credit ratings.
- Global Corporate File (Master File): If the business is part of a multinational corporation, it prepares this report.
- Country-Based Profit Report (CbCR): For large corporations with consolidated revenue exceeding VND 18 trillion.
Furthermore, submitting Appendix I with the corporate income tax return is mandatory. If a business incorrectly identifies whether a bank loan constitutes a related-party transaction and fails to declare it, the penalties for tax procedural errors and late payment of taxes will be very heavy.
Steps to control tax risks related to interest expenses for businesses.
To ensure legal security in 2026, businesses should take the following steps:
- Step 1 – Check the terms of the loan agreement: Ensure there are no clauses that allow the bank to interfere with personnel or core business decisions (except for standard loan security conditions). This is the basis for confirming that there is no related party relationship when borrowing from the bank, which may lead to questions from the tax authorities regarding related-party transactions.
- Step 2 – Prepare a projected EBITDA spreadsheet: Accountants should calculate quarterly EBITDA to forecast the amount of interest expense deductible, avoiding surprises at the year-end settlement.
- Step 3 – Archiving documents proving independence: Board meeting minutes, shareholder lists, and organizational charts are crucial evidence demonstrating that the business and the bank are completely independent.
- Step 4 – Consult with experts: The regulations in Decree 20/2025/ND-CP are still quite new, so consulting with experts is recommended. related party transaction advisory services We seek advice from reputable and experienced organizations like MAN – Master Accountant Network to defend our position when answering the question of whether bank loans constitute related-party transactions.
Conclude
Determining whether bank loans constitute related-party transactions is a complex issue involving a combination of accounting data and legal considerations. With the introduction of Decree 20/2025/ND-CP, the government has created a more transparent and fair tax environment, encouraging businesses to confidently raise capital for development.
However, the oversight of disregarding guarantee relationships or related personal relationships can still lead to the risk of having interest expense disallowed. Businesses need to understand the changes in Decree 20/2025/ND-CP and Decree 132/2020/ND-CP to not only comply with the law but also optimize cash flow, contributing to enhanced competitiveness in the digital economy era of 2026.
Contact MAN – Master Accountant Network for free support and advice!
Contact information MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
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- Email: man@man.net.vn
Content is moderated by: Mr. Le Hoang Tuyen – Founder & CEO of Man, CPA Vietnam Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Frequently Asked Questions: Are bank loans considered related-party transactions?
This decree clarifies the independent nature of credit transactions by excluding any affiliation with commercial banks. This helps businesses minimize errors in corporate income tax declarations.
The company's charter, shareholder list, minutes of the general meeting of shareholders, and standard loan agreement should be kept on file. These documents demonstrate that the bank only exercises its lending rights and does not participate in the entity's core governance or financial decisions.
This is a related-party transaction subject to guarantee. Businesses need to truthfully declare it in Appendix I and prepare documentation to determine the price in order to ensure transparency. Concealing this transaction may damage their reputation during inspections by regulatory authorities.
Taxable EBITDA excludes profits from tax-exempt activities and adjustments to financial revenue as defined by tax laws. Understanding the formula correctly helps businesses accurately forecast their tax obligations, avoid back taxes and late payment penalties, and maintain a clean compliance record.
Businesses track and directly transfer this information on their annual Corporate Income Tax Return. However, businesses should prepare a detailed list of uncredited interest expenses for each year to be ready to explain in case of an audit.
According to Decree 20/2025/ND-CP, if a bank is completely independent in terms of governance, this risk is significantly eliminated. However, businesses still need to review personal loans from management, as these transactions always carry the potential risk of being identified as related-party transactions.
Businesses must submit supplementary tax return forms and provide explanations based on exclusion clauses.How do the new provisions of Decree 20/2025/ND-CP affect businesses?
What records does a business need to keep to prove that there is no affiliated relationship between the bank and the business?
How does obtaining a bank loan through a parent company guarantee affect the process?
How does tax-related EBITDA differ from financial reporting EBITDA in risk management?
Does the portion of interest expense carried forward for 5 years require registration procedures?
Do businesses with limited capital and large bank loans still face the risk of related-party transaction tax?
What procedures should a business follow to correct an incorrect identification of a business relationship?