As the 2026 fiscal year approaches its tax settlement period, businesses in Vietnam are facing landmark changes in the tax legal system. In particular, the Corporate Income Tax Law 2025 officially came into effect on October 1, 2025, bringing with it a series of new regulations regarding the conditions for recognizing legitimate expenses.
Among the recurring expense items subject to tax audits and adjustments, financial expenses in general, and interest expenses in particular, are always a sensitive focus, especially for businesses with related-party transactions. To address these practical difficulties for taxpayers, the Tax Department has issued regulations. Official document No. 5129/CT-CS The year 2025 will provide specific guidance on the application of regulations controlling interest rates on loans.
This article will provide a comprehensive analysis of how to determine deductible interest expenses when calculating corporate income tax in accordance with the spirit of Circular 5129/CT-CS 2025 and update the latest conditions and tax rates applicable for 2026.
Interest expenses are deductible when calculating corporate income tax in related-party transactions according to Official Letter 5129/CT-CS.
On November 12, 2025, the Tax Department officially issued Official Letter No. 5129/CT-CS of 2025 regarding tax policy for related party interest expense This arises from businesses with related-party transactions. This is considered an extremely important reference document that helps shape the method of handling financial expenses for this year's tax settlement period.
Direct reference to Decree No. 132/2020/ND-CP
The core content of Official Letter 5129/CT-CS stipulates that in cases where organizations producing and trading goods and services (collectively referred to as taxpayers) are subject to corporate income tax and have transactions with related parties, the determination of deductible interest expenses when calculating corporate income tax must be carried out simultaneously under two levels of strict control:
- Strictly adhere to the general regulations in current legal documents on corporate income tax (regarding documents, invoices, and the purpose of using borrowed capital).
- At the same time, cost limits must be determined in accordance with specific regulations. Clause 3, Article 16 of Decree No. 132/2020/ND-CP Regarding tax management for businesses with related-party transactions (with a ceiling on total interest expense after deducting interest on deposits and loans not exceeding 30% EBITDA).
See also: Interest expense limits are implemented according to Decree 132.
Applicable to all types of businesses.
A crucial point emphasized in the Official Letter is the applicability of the regulation. This mechanism for controlling deductible interest expenses when calculating corporate income tax applies generally to all businesses with related-party transactions, without distinction between foreign direct investment (FDI) companies and domestic private corporations and enterprises.
Therefore, any domestic enterprise that engages in borrowing, guaranteeing, or trading activities exceeding the prescribed limit for related-party transactions as stipulated in Decree 132 is subject to this cost control policy.
Conditions for recognizing interest expense as deductible when calculating corporate income tax.
To avoid having an actual interest expense disallowed during a tax audit, in addition to complying with the related-party transaction limit, businesses must meet all the basic conditions for a deductible expense.
According to Clause 1, Article 9 of the Corporate Income Tax Law 2025, Except for non-deductible expenses as stipulated in Clause 2, Article 9, enterprises will be allowed to record deductible interest expenses when calculating corporate income tax if they meet all three of the following prerequisite conditions:
Condition 1: Actual expenses incurred related to production and business activities.
Loan capital must be proven to be directly used to support the operation and investment activities that generate taxable revenue for the enterprise. In particular, the new law also expands incentives by allowing the inclusion of additional deductible expenses based on a percentage of actual expenses incurred during the tax period related to the enterprise's research and development (R&D) activities.
Condition 2: Other actual expenses incurred as prescribed by law.
Besides direct operational activities, the Corporate Income Tax Law 2025 has codified and expanded the list of other actual expenses that are allowed to be recognized as deductible expenses. For businesses, allocating financial resources to these activities also indirectly strengthens the validity of the total expense fund. These expenses include:
- Expenditures are used for national defense and security education, training, operations of militia forces, and other national defense and security tasks.
- Expenditures to support the activities of Party organizations and socio-political organizations within enterprises.
- Expenditures for vocational education and training for workers.
- Actual expenditure on HIV/AIDS prevention and control activities in the workplace by the enterprise.
- Funding for education, healthcare, and culture; disaster prevention, mitigation, and recovery; construction of solidarity houses, houses of compassion, and houses for policy beneficiaries; funding as stipulated by the Government and the Prime Minister for localities in areas with particularly difficult socio-economic conditions; funding for scientific research, technological development, innovation, and digital transformation.
- Direct expenditure on scientific research, technological development, innovation, and digital transformation.
- The portion of the value lost due to natural disasters, epidemics, and other force majeure events is not eligible for compensation.
- Actual expenditure for seconded personnel participating in the management, operation, and control of credit institutions under special supervision and commercial banks subject to mandatory transfer under the Law on Credit Institutions 2024.
- Some expenses incurred for production and business activities did not correspond to the revenue generated during the period, as stipulated by the Government.
- Some expenditures support the construction of public works, while also serving the production and business activities of enterprises.
- The costs associated with reducing greenhouse gas emissions to achieve carbon neutrality and net zero, reduce environmental pollution, and are also related to the production and business activities of enterprises.
- Some contributions to funds are established by decision of the Prime Minister and regulations of the Government.
Condition 3: Complete invoices and non-cash payment documents.
All financial expenses in general, and interest expenses in particular, must be supported by valid invoices and documents. For interest payments, non-cash payment documents are mandatory as required by law (except for certain specific cases stipulated by the Government). Paying interest in cash on commercial loans will directly deprive businesses of the right to deduct interest expenses when calculating corporate income tax.
Latest Corporate Income Tax Rate Update: Things Businesses Need to Note
Accurately determining the amount of corporate income tax payable goes beyond simply optimizing deductible interest expenses to lower taxable income; it also requires businesses to apply the correct tax rate as stipulated in Article 10 of the 2025 Corporate Income Tax Law.
| Type/Sector of Business | Applicable tax rate | Conditions for determining the basis |
| Micro-enterprises | 15% | Total annual revenue must not exceed 3 billion VND. |
| Small and medium enterprises | 17% | Total annual revenue ranges from over 3 billion VND to no more than 50 billion VND. |
| standard tax rate | 20% | This applies to all other cases (except for those eligible for preferential treatment under Article 13). |
| Searching, exploring, and exploiting oil and gas. | 25% – 50% | The Prime Minister will make the specific decision based on the mine, location, and mining conditions. |
| Exploiting rare resources | 50% | Platinum, gold, silver, tin, rare earth elements,... |
| Exploiting rare resources in disadvantaged areas. | 40% | There are 70% mining areas located in particularly difficult terrain. |
Important Note: The revenue used to determine whether a business is eligible for the preferential small-scale tax rate (15% and 17%) is the total revenue of the immediately preceding corporate income tax period. The determination of this total revenue will be carried out specifically according to the detailed guidelines of the Government. Businesses need to closely coordinate between their accounting and financial planning departments to correctly identify their tax bracket, thereby developing a reasonable plan for managing cash flow to pay interest on loans.
Solutions for controlling and optimizing deductible interest expenses when calculating corporate income tax in related-party transactions.
To minimize the risk of expense disallowance during corporate income tax settlements amidst tightened transfer pricing regulations, businesses with related-party transactions should proactively implement the following financial management solutions:
Develop a financial plan based on EBITDA.
Because regulations limit interest expense based on EBITDA, corporate finance departments need to continuously forecast and closely monitor this indicator. Before taking out new loans from related parties (or third parties guaranteed by related parties), cash flows must be simulated and the maximum deductible interest expense allowed for corporate income tax purposes in the fiscal year must be calculated in advance.
Take advantage of the regulations on carrying forward non-deductible interest expense.
According to current regulations in Decree 132/2020/ND-CP, the portion of interest expense that is not deductible due to exceeding the 30% limit may be carried forward to subsequent tax periods when determining the total deductible interest expense. However, this continuous carry-forward period cannot exceed 5 years from the year following the year in which the non-deductible interest expense was incurred. Businesses need to maintain detailed records of this temporarily disallowed expense to reverse the interest expense ceiling when the EBITDA of subsequent years shows strong growth.
Complete the documentation for determining transfer pricing.
Having a complete set of documentation for determining transfer pricing, including the Local File, the Global Group File (Master File), and the Country-by-Country Report of Profit and Loss (CbCR), is the strongest legal safeguard. When a business can explain the objectivity and adherence to the arm's length principle of related-party transactions in its loans, the tax authorities will have a basis to approve the maximum amount of interest expense deductible when calculating corporate income tax that the business declares.
Answers to frequently asked questions regarding deductible interest expenses for corporate income tax purposes in related-party transactions.
Interest expense deductible for corporate income tax purposes is the interest expense arising from borrowing capital for production and business activities, provided it fully meets the conditions of the Corporate Income Tax Law. This expense is accounted for as a deductible expense when determining taxable income, helping businesses reduce the amount of corporate income tax payable.
According to Clause 3, Article 16 of Decree 132/2020/ND-CP, the total net interest expense (after deducting interest on deposits and loans) deductible shall not exceed 30% EBITDA in the tax period. Any amount exceeding this limit will not be included in deductible expenses for the year but may be carried forward to subsequent years as prescribed.
EBITDA is determined based on net profit from business operations plus net interest expense and depreciation expense incurred during the period. This is an important basis for determining the ceiling for deductible interest expense under Article 30% for businesses with related-party transactions.
The portion of interest expense that is not deductible due to exceeding the 30% EBITDA threshold may be carried forward continuously to subsequent tax periods, for a maximum period of 5 years from the year following the year in which the expense was incurred.
Yes, it is possible. If the loan is used for investment, production, or business operations and fully meets the requirements regarding documentation, contracts, and purpose of capital use, then interest expense can be recognized according to regulations. However, in some cases, interest expense incurred during the investment phase may have to be capitalized into the asset value according to accounting standards.What constitutes deductible interest expense when calculating corporate income tax?
What is the maximum amount a business can deduct from related-party transactions?
How is EBITDA used to calculate the interest expense limit?
Will any interest expense exceeding the 30% EBITDA amount be completely lost?
Are interest expenses on loans used to finance project investments deductible?
Conclude
Interest expense deductible for corporate income tax purposes in related-party transactions, as stipulated in Circular 5129/CT-CS, is one of the items that directly impacts a company's tax obligations and financial performance. In the context of increasing scrutiny by tax authorities regarding transfer pricing and related-party transactions, strict adherence to the regulations in Circular 5129/CT-CS is crucial., Decree 132 on related-party transactions And the Corporate Income Tax Law 2025 is a mandatory requirement for all businesses that incur interest expenses.
To avoid the risk of having expenses disallowed during tax settlement, businesses need to proactively review the conditions for recognizing expenses, monitor the limits on interest expense under the 30% EBITDA scheme, closely manage loan documents, and prepare all necessary related-party transactions as required. Simultaneously, developing a suitable financial strategy will help optimize deductible interest expenses for corporate income tax purposes, effectively utilize the mechanism for carrying forward excess interest expenses, and minimize tax pressure in the long term.
In a period where tax regulations are constantly being updated, businesses should regularly monitor new guidance documents or consult with experts to ensure that tax declarations, accounting, and settlements are always in accordance with regulations, minimizing potential legal and financial risks.
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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.