Entering 2026, the tax management environment in Vietnam has undergone significant changes with the synchronized application of the 2025 Corporate Income Tax Law and a new system of decrees on tax management for enterprises with related-party transactions. Among the regulations on combating tax base erosion, the regulation on limiting interest expense exceeding EBITDA remains a focal point and a major headache for the business community.
For multinational corporations and domestic businesses with high financial leverage, the 30% EBITDA figure is not just an administrative limit but also an indicator reflecting financial health and tax compliance. Misunderstanding or outdated application of these regulations can lead to the risk of having billions of dong in expenses disallowed. To avoid situations where interest expenses exceed the 30% EBITDA and directly impact cash flow, this article aims to analyze the regulations, as well as how to handle them and optimize strategies for 2026.
Overview of the 30% EBITDA interest rate cap regulations
The regulations controlling interest expense based on EBITDA (Earnings Before Tax, Interest, and Depreciation) in Vietnam are based on recommendations in Action 4 of the OECD-initiated Base Erosion and Profit Shifting (BEPS) program. The core objective is to prevent thin capitalization, where businesses leverage debt to shift profits. When interest expense exceeds EBITDA, tax authorities consider it a sign of leverage abuse to reduce corporate income tax obligations.
From 2025, according to the latest updates in Decree 20/2025/ND-CP, the scope of application has been clarified to protect businesses engaged in practical production while still tightening regulations on transactions involving tax arrangements.
Applicable subjects and new features
The regulations on limiting interest expense apply to taxpayers who are organizations producing and trading goods and services with related-party transactions. Controlling interest expense exceeding 30% EBITDA is based on the total interest expense incurred after deducting interest on deposits and loans incurred during the period.
Important note for 2026: The Corporate Income Tax Law 2025 has clarified the exceptions. Accordingly, the regulation limiting interest expense exceeding 30% EBITDA does not apply to:
- Credit institutions, insurance companies, and specialized financial institutions.
- Government support loans or ODA loans are preferential in nature.
- New features: Loans from commercial banks for key national infrastructure projects may be considered for exclusion under a mechanism if they can demonstrate independence and serve national objectives. For a better understanding of this new point, businesses should refer to the following information. Are bank loans considered related-party transactions?.
The accurate EBITDA calculation formula as prescribed by the tax authorities.
Accurately determining EBITDA is crucial to knowing whether a business is in a situation where interest expenses exceed 30% EBITDA. The formula applicable to the 2026 tax year is as follows:
EBITDA = Net operating profit + Interest expense + Depreciation – Interest on deposits |
Common mistakes to avoid:
- Interest expense in the formula must include all expenses of an interest-related nature, including debt guarantee fees and interest rate hedging costs. Failure to include all such expenses may lead businesses to mistakenly believe that interest expense has not exceeded the 30% EBITDA ceiling.
- Net profit: This must be determined after excluding income from dividends and distributed profits (as this is income that is subject to or exempt from tax at a different level).
- Depreciation: Only the actual depreciation expenses deducted from net profit for the period, as stipulated in Circular 45 and current guiding documents, are added together.
See details: Formula for calculating interest on related-party transactions.
Handling interest expense exceeding the 30% EBITDA threshold.
When interest expenses exceed 30% EBITDA, the excess amount will not be deductible as a deductible expense when determining corporate income tax for that period. However, the 2026 legal framework still maintains a "lifeline" mechanism through expense carryforward.
Accounting and reporting techniques
The portion of interest expense exceeding 30% EBITDA that is disallowed (not deductible) needs to be tracked separately in the tax management records to facilitate the carry-forward of expenses to subsequent years. On the corporate income tax return, the enterprise adjusts the taxable profit upwards (through item B4) corresponding to this non-deductible interest expense.
The technical requirements for accurate reporting are outlined in Appendix I of Decree 132/2020/ND-CP. Transparent reporting of interest expense exceeding 30% EBITDA helps businesses minimize the risk of tax authorities questioning the integrity of their financial statements.
Mechanism for carrying forward interest expense to the next period.
If interest expense exceeds 30% EBITDA in the period in which it arises, the business is allowed to carry forward the difference to deductible expenses in subsequent tax periods.
- Transfer period: Not more than 5 consecutive years from the year following the year in which the interest expense exceeding 30% EBITDA was incurred.
- Condition for carrying forward: The total interest expense deductible in the next period (including both the amount incurred in the current period and the carry-forward portion) must not exceed the 30% EBITDA threshold for that year.
- FIFO principle: Businesses should prioritize carrying forward interest expense exceeding 30% EBITDA from the furthest years to avoid the risk of losing the right to carry forward when the 5-year period expires.
For example: In 2025, company B has EBITDA of 200 billion VND and interest expense of 80 billion VND. The limit is 60 billion VND. The company recorded interest expense exceeding EBITDA by 20 billion VND. This 20 billion VND will be tracked and carried forward to be deducted from taxable income in the years from 2026 to 2030 if the EBITDA conditions allow.
Special cases and potential risks
Although general regulations are clearly documented, in practice, business situations present unique circumstances that make controlling safety thresholds more complex than anticipated. Below is a detailed analysis of common risk scenarios that businesses face, where exceeding 30% EBITDA in interest expense becomes a direct threat to tax compliance.
In the case of negative or zero EBITDA
This is a particularly dangerous situation. When a business incurs losses resulting in negative EBITDA, the 30% EBITDA threshold will be zero. In this case, any 100% interest expense incurred will be considered as interest expense exceeding the 30% EBITDA. Although it can be carried forward to the following year, the lack of deductible expenses in the current year reduces the reported loss, impacting the ability to offset losses in the future.
Relationship with the bank
Many businesses mistakenly believe that bank loans are independent transactions. However, if a loan exceeds 25% of equity and 50% of total medium- and long-term debt, the bank becomes an affiliated party. In that case, all interest paid to the bank will be scrutinized through the lens of interest expense exceeding 30% of EBITDA. This poses a significant risk to real estate and infrastructure businesses in Vietnam in 2026.
Impact of exchange rates
Interest expenses are often accompanied by exchange rate losses due to the revaluation of foreign currency principal debt. Without clear separation, businesses may miscalculate, leading to interest expenses exceeding EBITDA without their knowledge, causing difficulties in tax settlement.
Tax risks and consequences of violating Regulation 30% EBITDA.
In 2026, the tax authorities will apply digital technology to crack down on transactions showing signs of transfer pricing. The lax management of interest expense exceeding 30% EBITDA leads to:
- Tax assessment: The tax authorities may disallow the entire expense if the business fails to provide sufficient documentation to demonstrate the legitimacy of the loan.
- Late payment penalty: A penalty of 0.031 TP3T/day on the additional tax due to the exclusion of interest expense exceeding 301 TP3T EBITDA can cause significant financial damage.
- Local File: If a company cannot explain why interest expenses exceed 30% EBITDA in its related-party transaction records, it will lose credibility with the auditing authority.
To avoid potential risks, businesses should consult the following. related party transaction advisory services For the quickest support, contact reputable and experienced professional firms such as the Big4 and MAN – Master Accountant Network.
Strategies for optimizing interest costs for businesses.
To proactively address the situation where interest expenses exceed 30% EBITDA, businesses need to implement the following strategic solutions:
Optimizing capital structure and fundraising.
To ensure that the financial leverage ratio remains under control and to avoid falling into the corporate income tax trap, the capital portfolio should be restructured through the following solutions:
- Increasing equity capital: This is the most direct way to reduce the debt ratio, thereby limiting the risk of interest expenses exceeding 30% EBITDA.
- Raising capital through convertible bonds: Consider hybrid financial instruments to provide flexibility in cost accounting.
Proactive and sustainable EBITDA management
Increasing EBITDA is the most effective way to expand interest coverage. Businesses need:
- Focus on core values to increase net profit from business operations.
- Reviewing administrative and selling expenses to optimize pre-tax profit, thereby reducing pressure when interest expenses exceed 30% EBITDA.
Prepare periodic tax estimates.
Businesses should develop a financial forecasting model for the next five years. Early forecasting of the likelihood of interest expenses exceeding 30% EBITDA allows management to make timely adjustments to investment plans or fundraising methods.
Build a robust related-party transaction profile.
The documentation for determining transfer pricing is not only an obligation but also a shield protecting the business. This documentation must clearly explain the market factors leading to the high interest expense, demonstrating that even if the interest expense exceeds EBITDA, these loans still comply with the Arm's Length Principle.
Conclude
The regulation limiting interest expense deductions beyond 30% EBITDA is not merely a legal barrier, but in reality a benchmark to guide Vietnamese businesses towards a transparent and sound financial model in accordance with international standards. In the context of 2026, with tighter controls from tax authorities through interconnected data systems, the proactive approach of businesses in reviewing and planning their taxes is key to protecting profits.
If your business is struggling to determine safe thresholds or requires in-depth support regarding Transfer Pricing Documentation to explain why interest expenses exceed 30% EBITDA, contact MAN – Master Accountant Network's team of transfer pricing experts for expert support and advice.
Contact information MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
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.
References:
- Corporate Income Tax Law 2025 and its implementing regulations.
- Decree 132/2020/ND-CP and Decree 20/2025/ND-CP amending the regulations.
- OECD guidance on related-party transactions
- Circular 20/2026/TT-BTC on the management of corporate tax with related-party transactions.