Accounting for loans from the director involves recording in the accounting books the amount of money that the director (or a member of the company's executive board) lends to the business to supplement working capital. From January 1, 2026, this amount will be accounted for in Account 3411. Circular 99/2025/TT-BTC, and it is also necessary to determine whether the transaction is related to Decree 132/2020/ND-CP Should you or shouldn't you avoid the risk of being taxed?.
Summary of key points regarding accounting for director's borrowings.
In many small and medium-sized enterprises (SMEs) in Vietnam, temporary working capital shortages are not uncommon. And one of the quickest and least bureaucratic solutions is to replace the director. It sounds simple, but behind this seemingly minor task lie two major risks that not every accountant anticipates:
- Incorrect account entries or timing of recording can lead to inaccurate financial statements.
- Failing to properly determine whether a transaction constitutes a related-party transaction can lead to the risk of the tax authorities assessing income and collecting back taxes.
This article will help you fully resolve both of these issues, based on three of the most important and recent legal grounds: Enterprise Law 2020, Circular 99/2025/TT-BTC and Decree 132/2020/ND-CP.
Regulations regarding directors lending money to businesses.
When accounting for loans from the director, businesses need to base their decisions on relevant legal regulations to correctly determine the nature of the received funds and how to record them in the accounting system. Some important legal grounds include:
Enterprise Law 2020
According to the 2020 Enterprise Law, businesses have the right to raise capital from various sources, including borrowing from organizations and individuals. Therefore, a director lending money to the company is considered a legitimate civil transaction if it is carried out in accordance with regulations and has complete supporting documentation.
Circular 99/2025/TT-BTC
According to Circular 99/2025/TT-BTC on the accounting regime for enterprises, loans must be accurately reflected in financial statements. Enterprises need to clearly distinguish between loans payable and equity to avoid discrepancies in accounting data.
For loans that accrue interest, businesses need to record interest expense in accordance with accounting principles, ensuring that this expense is fully justified.
Decree 132/2020/ND-CP on related-party transactions
In some cases, loans between a company and its director may be considered related-party transactions under Decree 132/2020/ND-CP. In such cases, the business needs to fulfill obligations related to declaration, determination of transfer pricing, and supporting documentation as required.
Documents required when accounting for loans from the director.
To ensure the loan is approved by tax authorities and auditors, businesses need to prepare a complete set of documents before accounting for the director's loan. Important documents include:
Loan agreement between the director and the company
This document clearly demonstrates the loan relationship between the two parties and should include the following information:
- Loan amount
- Loan term
- Payment methods
- Refund Policy
- Interest rate or confirmation of a loan that does not charge interest.
If the loan is interest-free, the business should clearly state this in the contract to avoid disputes about the nature of the transaction.
Receipts, payment vouchers, or bank documents.
In the case where the director transfers money to the company:
- If receiving in cash: issue a receipt.
- If receiving payment via bank transfer: keep the bank confirmation slip and transaction statement.
When a company repays a loan, it needs a corresponding payment voucher or transfer document.
The accounting ledger tracks the loan.
Accountants need to track this amount separately through:
- General logbook;
- Related account ledger;
- Loan details ledger.
Detailed tracking helps businesses control loan balances, payment deadlines, and avoid confusion with other payables.
Accounting methods for borrowing money from the director, depending on the specific case.
Depending on the purpose and nature of the funds received, the accounting treatment for loans from the director will vary. Accountants need to clearly identify whether this is a capital contribution, an interest-free loan, or a loan with interest.
Cases of borrowing money without interest.
This is the most common scenario in practice: a director provides financial support to the company without requesting any interest.
When the company receives the loan:
- Debit Account 112 (Bank Deposits)
- There is account 3411 (Loans).
When the company repays the loan:
- Debit account 3411
- There is account number 112.
Example: On May 8, 2025, the director of Company A transferred VND 300,000,000 to the company to supplement working capital, without interest, with a commitment to repay within 6 months. The accountant recorded:
- Debit Account 112: 300,000,000 VND
- Account 3411 has a balance of 300,000,000 VND.
By November 8, 2025, the company will have fully reimbursed the above amount:
- Debit account 3411: 300,000,000 VND
- Account 112 has a balance of 300,000,000 VND.
In cases where interest accrues on borrowed money...
When the director lends money to the company with interest, the accountant needs to record the interest expense. The interest expense is recorded periodically as follows:
- Debit Account 635 (Financial Expenses)
- Account number 3411 exists.
When repaying principal and interest:
- Debit account 3411
- Debit account 635
- There is account number 112.
Important note regarding interest rates: Article 468 of the 2015 Civil Code stipulates that agreed-upon interest rates must not exceed 20%/year. Furthermore, if the company pays interest to an individual (director), the company is obligated to deduct 5% of personal income tax on the interest before payment, in accordance with regulations on personal income tax on capital investment income. In addition, for interest expenses to be considered deductible expenses when settling corporate income tax, the interest rate must be consistent with the average interest rate for the same term offered by banks, avoiding the possibility of being disallowed as an expense exceeding the reasonable rate.
Cases where capital contributions have been made but the procedures have not been completed.
A common mistake when accounting for director's borrowings is confusing loans with capital contributions. This often occurs when the director is also the owner or contributing member, transferring money to the company but not yet completing the capital contribution procedures as stipulated in the 2020 Enterprise Law.
If identified as a capital contribution, the accounting entry should be:
- Debit Account 112
- There is account 411 (Equity).
If the capital contribution procedure is not completed after the committed deadline, this amount needs to be converted into a loan from the director and re-accounted for under account 3411 as instructed in the two cases above. Correctly identifying the nature of the transaction from the outset is a prerequisite for accurately accounting for the director's loan, avoiding the need for retrospective adjustments later.
Is borrowing money from the director considered a related-party transaction?
This is an issue that many accountants and business owners are unclear about, while incorrect identification can lead to significant tax consequences. Correct identification is also a mandatory step before finalizing the accounting for director's loans on the annual financial statements.
Conditions for determining related-party transactions according to Decree 132/2020/ND-CP
Based on point l, clause 2, Article 5 of Decree 132/2020/ND-CP, a loan or borrowing transaction between a business and its director is determined to be a related-party transaction when it simultaneously satisfies both of the following conditions:
- The CEO, or a member of the Board of Directors, is the person directly managing and controlling the business; this condition applies even in cases where the loan is interest-free.
- The loan value is equal to or greater than the owner's equity at the time the transaction occurs during the tax period.
Only when both of the above conditions are met will the transaction be considered a related-party transaction under current regulations.
This case does not involve related-party transactions.
If the loan does not meet the 10% equity contribution of the owner, or the director does not belong to the group of individuals who manage and control the business (for example, the director is only nominal but has no real power to manage, or the title is purely symbolic), this transaction is not considered a related-party transaction.
In this case, the accounting for the director's loan is treated as a normal civil loan according to the guidelines above; the business does not need to prepare a separate entry. related-party transaction pricing documentation, not subject to ceiling pressure interest expense According to Decree 132/2020/ND-CP.
This applies to related-party transactions.
When a loan from a director is identified as a related-party transaction, the business incurs additional obligations:
- Declaration of related-party transactions involving loans to the director. in the corporate income tax return
- Prepare documentation to determine transfer pricing, demonstrating that the transaction complies with the arm's length principle.
- Interest expenses are then capped at a level equal to the total net profit plus interest expenses and depreciation expenses for the period, in accordance with regulations on anti-transfer pricing.
Specifically, if the loan is interest-free or has an interest rate lower than the market rate, the tax authorities have grounds to consider this interest rate difference as taxable income for the director and proceed to assess the corresponding personal income tax, according to the principle of tax assessment for non-market price transactions as stipulated in Article 50 of the Law on Tax Administration No. 38/2019/QH14.
Learn more: Formula for calculating interest on related-party transactions.
Risks of borrowing money from the director in violation of regulations.
The three main risk groups that businesses may encounter when improperly accounting for loans from directors are summarized in the table below:
| Type of risk | Reason | Consequence |
| Personal income tax assessed | The transaction was identified as a related-party transaction but showed signs of not complying with the independent transaction principle (borrowing at zero interest or interest lower than the market rate). | The tax authorities determined the difference in interest rates as the director's taxable income, applying a tax rate of 5% to the determined income. |
| Interest expense is not deductible when calculating corporate income tax. | Interest paid to directors exceeds the basic interest rate announced by the State Bank of Vietnam, or exceeds the ceiling stipulated in the regulations on anti-transfer pricing (for related-party transactions). | The portion of interest expense exceeding the deductible amount is excluded when determining taxable corporate income, thus increasing the amount of corporate income tax payable. |
| Considered a fictitious transaction | Creating fictitious "borrowing money from the director" contracts to legitimize cash expenditures without valid documentation, or to compensate for cash shortages resulting from previously recorded fictitious expenses. | They may face back taxes, administrative penalties for tax violations, and even criminal charges if the violation is serious. |
Being considered a fictitious transaction is the most serious issue, as it's not just a matter of accounting techniques but also concerns the legality of the entire transaction. This is why accounting for loans from the director must always be accompanied by complete documentation and evidence that accurately reflects the nature of the transaction.
Conclude
Proper management and recording of financial support from directors to businesses is crucial for ensuring the transparency of accounting systems, financial reporting, and especially related-party transactions. Businesses need to clearly identify the nature of the received funds—whether they are loans, capital contributions, or liabilities—in order to choose the appropriate method of handling them.
A small error in loan classification, interest recording, or lack of supporting documentation for a transaction can cause difficulties for a business when settling taxes. Therefore, establishing a rigorous process from the outset will help businesses effectively control cash flow and ensure compliance with legal regulations.
If your business needs assistance reviewing loan applications, handling accounting records, or examining issues related to related-party transactions, you can consult with a professional. Transfer pricing advisory services Specialized and experienced units like MAN – Master Accountant Network help businesses minimize risks and ensure that data is recorded accurately and in compliance with current regulations.
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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 CPA Vietnam auditor with over 30 years of in-depth experience in accounting, auditing, taxation, and corporate legal consulting.
Frequently Asked Questions about Accounting for Director's Loans
It is highly likely to be so. For a single-member limited liability company, the owner almost always holds controlling power, management, or overall control over the business's operations. As long as the loan amount reaches 10% of the owner's contributed capital or more, this transaction is almost certainly classified as a related-party transaction and gives rise to corresponding reporting obligations.
Interest-free loans from directors can still be considered related-party transactions if they meet the requirements for related-party relationships as stipulated in regulations. Businesses should not rely solely on the fact that the loan does not accrue interest to conclude that it falls outside the scope of related-party transactions. A simultaneous assessment of the director's role, the loan ratio, and related conditions is necessary.
In cases where a loan is identified as a related-party transaction, the enterprise needs to consider the arm's length principle as stipulated in the tax regulations for enterprises with related-party transactions. If the interest rate is inconsistent with market conditions or the loan is interest-free despite falling under the arm's length principle, the tax authorities may consider adjusting it accordingly.
Not all businesses that have transactions involving directors are required to prepare transfer pricing documentation. Businesses need to base their obligations on the applicable conditions, revenue levels, value of related-party transactions, and cases exempted from documentation under Decree 132/2020/ND-CP to determine their compliance obligations.Is a related-party transaction considered a transaction between the director of a limited liability company and the company that borrows money?
If a company borrows money from its director without charging interest, is it required to declare this as a related-party transaction?
Should interest be calculated at market rates when a manager lends money?
Do loans from directors require documentation to determine transfer pricing?