Against the backdrop of a global economy undergoing a significant shift toward tax transparency and fairness, the Vietnamese government has officially issued Decree No. 20/2025/NĐ-CP. This is a strategic move aimed at refining the legal framework for tax administration regarding businesses engaged in related-party transactions, in line with international standards on combating base erosion and profit shifting (BEPS).
For Chief Financial Officers (CFOs) and Chief Accountants, understanding the key changes in Decree 20/2025 on related-party transactions is not only a legal compliance requirement but also the key to optimizing costs and ensuring sustainable tax risk management. This article will provide a detailed analysis of the four most significant changes that businesses need to pay special attention to during the 2026 tax filing season.
The Background and Impact of Decree No. 20/2025/NĐ-CP
The Birth of Decree 20/2025/ND-CP This is in line with the trend of tightening tax oversight of multinational corporations and corporate groups with complex ownership structures. After more than four years of operation Decree 132/2020/ND-CP, a number of loopholes and practical difficulties have arisen, particularly regarding the determination of related-party relationships and the limitation of interest expense in various models or internal lending arrangements.
Decree No. 20/2025 is expected to:
- Tax Data Synchronization: Connecting the domestic tax management system with the OECD’s global digital management system.
- Clarifying Legal Concepts: Minimizing disputes between tax authorities and taxpayers through specific guidance on the new provisions of Decree 20/2025 regarding related-party transactions.
- Effective Transfer Pricing Control: Create a level playing field for businesses and prevent the shifting of profits from jurisdictions with high tax rates to those with low tax rates or tax incentives.
Details on 4 New Provisions of Decree 20/2025 on Related-Party Transactions
Below is an in-depth analysis of the four most significant changes that every business needs to address immediately to ensure tax compliance.
Expand and clarify the scope of affiliated parties
One of the most notable new provisions in Decree 20/2025 on related-party transactions is the redefinition and addition of criteria for determining related-party relationships based on actual control.
In the past, businesses typically focused only on equity ownership ratios (direct or indirect 25%). However, under the new decree, tax authorities have expanded the scope of their oversight to include more sophisticated forms:
- Expanding the definition of family relationships: The decree specifies the list of relatives (spouse, parents, children, siblings, aunts, uncles, etc.) who hold management positions at various entities. This prevents the fragmentation of power through individuals with blood ties in order to avoid the 25% capital contribution threshold.
- Practical governance criteria: If Company A has the right to appoint more than 50% members to the supervisory board or executive board of Company B, or has the right to determine key financial policies, then an affiliated relationship is established immediately, regardless of the equity ownership ratio.
- Exclusive business relationships: If a business supplies more than 50% of raw materials to, or purchases more than 50% of products from, another business, this may also be considered a related-party relationship if there are accompanying price-control agreements.
Understanding the key changes in Decree 20/2025 on related-party transactions, as outlined in this section, will help businesses review their entire ecosystem and avoid overlooking related parties, which could lead to incomplete reporting of related-party transactions and the imposition of taxes.
See details: Forms of related party transactions
Amendments to the Regulations on Interest Expense Limits (EBITDA)
Regulations on interest expense caps have always been a matter of survival for capital-intensive businesses. The new provisions in Decree 20/2025 on related-party transactions introduce adjustments that are more practical and business-friendly for companies:
- 30% EBITDA Ratio: The Decree continues to maintain the cap of 30% of total interest expense incurred (after deducting interest on deposits and interest on loans) relative to EBITDA. However, the formula for calculating EBITDA has been clarified: EBITDA = Net profit from business operations + Interest expense + Depreciation expense. Excluding extraordinary income from the denominator provides an accurate reflection of the company’s ability to pay interest from its core operations.
- Interest Expense Carryforward Mechanism: A groundbreaking new provision in Decree 20/2025 on related-party transactions is the regulation regarding the carryforward of excess interest expenses. The entire amount of non-deductible interest expenses for the current year will be carried forward to the next tax period and deducted from taxable income if the total interest expenses for that year do not exceed 30% EBITDA. The maximum carryforward period is five consecutive years.
- Scope of Application: The Decree clarifies which entities are exempt from this cap, such as credit institutions, insurance companies, and investment projects under the public-private partnership (PPP) model. This ensures that key infrastructure projects are not hindered by the tax burden, which could affect their implementation schedule.
Changes to the Process for Preparing and Filing Related-Party Transaction Pricing Documentation
Data transparency and consistency are prerequisites under the new provisions of Decree 20/2025 on related-party transactions. The new regulations require businesses to prepare a set of documentation comprising three levels:
- Country File (Local File): Requires a detailed analysis of related-party transactions and a comparison of sale and purchase prices with those of comparable independent parties in the market. The company must demonstrate differences in business conditions, risks, and intangible assets.
- Global Group Master File: Provides an overview of the group’s business model, global transfer pricing policies, and how profits are allocated among countries. This is a critical document for tax authorities to assess whether profits are being “eroded” out of Vietnam.
- Country-by-Country Reporting (CbCR): Applies only to corporate groups with consolidated revenue above the specified threshold (typically 18,000 tỷ đồng).
In addition, another significant new provision in Decree 20/2025 on related-party transactions is the standardization of reporting forms (Forms No. 01, 02, 03, and 04). These forms require the provision of more detailed information about foreign related parties, making it easier for tax authorities to conduct automatic exchange of information with other countries. If a business is unclear about these standards, using related party transaction documentation service Professional expertise will help ensure the highest level of accuracy and compliance.
Strengthening Tax Administration Mechanisms Through Technology and Big Data
Starting in 2026, the Vietnamese tax authority will implement a data-driven smart audit system. This is the most significant deterrent provision in Decree 20/2025 on related-party transactions:
- AI and Big Data Systems: The tax authority will use algorithms to cross-check data from businesses’ tax returns against data from related parties, customs data, and international data. Businesses with profit margins below the industry average for several consecutive years without a reasonable business justification will automatically be placed on the priority audit list.
- Automated Risk Management: Risk classification is performed entirely by computer. If a business has new items subject to Decree 20/2025 on related-party transactions but fails to file a complete report or intentionally conceals related-party relationships, the system will issue a warning and require an immediate explanation.
- Penalties: Decree 20/2025 introduces strict penalties for providing inaccurate information or failing to file documents on time. If a business cannot demonstrate the reasonableness of its transfer pricing, the tax authority has the right to determine the profit margin or transaction price based on its own data. To minimize this risk, businesses should consult related party transaction advisory services to review and improve the document management system.
Challenges and Opportunities for Businesses in 2026
From the perspective of an expert on related-party transactions, MAN—Master Accountant Network—notes that the new provisions of Decree 20/2025 on related-party transactions are creating a new landscape for the market:
A Major Challenge for the Accounting and Finance Department
Businesses need an extremely accurate data management system. Even the slightest error in calculating EBITDA or misidentifying an affiliated party can lead to massive financial consequences. The time pressure involved in preparing the valuation report is also a significant challenge, as requirements for comparable data become increasingly stringent.
An Opportunity to Standardize Corporate Governance
Compliance with the new provisions of Decree 20/2025 on related-party transactions helps businesses review the operational efficiency of each business segment. The mechanism for transferring interest expense allows companies in the investment phase or experiencing planned losses to preserve their future tax benefits. Furthermore, tax transparency is a major advantage when a business seeks to raise international capital or conduct an IPO.
Compliance Roadmap for Businesses
To best adapt to the new provisions of Decree 20/2025 on related-party transactions, businesses should follow the four-step roadmap below:
- Step 1: Review Related-Party Relationships: Use the new criteria set forth in Decree 20/2025 to redraw the related-party relationship diagram, including both executives and their relatives.
- Step 2: EBITDA Analysis and Forecast: Calculate the maximum deductible interest expense. If the forecast exceeds the 30% cap, consider options to restructure cash flow or convert debt into equity, if appropriate. At the same time, carefully review the conditions to determine whether the company qualifies for Exemption from filing related-party transaction records. or not, to save on compliance costs.
- Step 3: Prepare a pricing documentation file early: Don’t wait until the end of the year. Benchmarking should be conducted on a quarterly basis to promptly adjust transfer prices to the arm’s-length range.
- Step 4: Digitize Tax Processes: Use tax management software to store documentation related to related-party transactions. Remember that in the age of AI, complete and logically organized documentation is your business’s best defense.
Conclude
A thorough understanding and flexible application of the new provisions in Decree 20/2025 on related-party transactions not only help businesses avoid legal risks but also demonstrate business ethics and social responsibility. Decree 20/2025 is a major step forward, bringing fairness to the market but also requiring businesses to elevate their financial management capabilities.
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Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.