Transfer pricing in Vietnam is becoming the focus of tax authorities' supervision in the context of deep integration and the strong increase of FDI enterprises. 2025 marks a period of tightening the management of related-party transactions through Decree 132/2020/ND-CP and new guidance documents. This article provides an overview of the nature, legal regulations, risks and compliance strategies against transfer pricing, helping businesses proactively prevent tax risks, ensure transparency and sustainable development.
Transfer Pricing Status in Vietnam
Transfer pricing In Vietnam, it is the activity of businesses, especially multinational corporations, to price internal transactions. (such as buying and selling goods and services) not at market prices to optimize profits and reduce tax obligations. Although it is a legitimate financial management tool when it complies with the market price principle (Arm's Length Principle), transfer pricing becomes a sensitive issue when it is abused to transfer profits from high-tax countries to low-tax countries, causing losses to the State budget.
It is necessary to clearly distinguish transfer pricing (internal price adjustment) from tax avoidance (taking advantage of legal loopholes to legally reduce taxes) and tax fraud (which is an illegal act).
Common forms of Transfer Pricing in Vietnam
To better understand how businesses can implement Transfer Pricing in Vietnam, it is necessary to consider the most common forms that are often applied in practice. Each form has its own mechanism but all aim at the common goal of transferring profits between related parties to optimize tax obligations. The table below illustrates each form specifically, with practical examples to help businesses easily visualize and identify potential risks:
| Transfer Pricing Form | Describe | Illustrative example |
| Through the prices of goods and services | Adjusting the purchase price of raw materials, semi-finished products or internal services higher or lower than market prices to change profits between related parties. | Company A (Vietnam, high tax rate) imports raw materials from Parent Company B (Country X, low tax rate) at $120/unit, while the market price is only $100/unit. This increases costs in Vietnam and transfers $20 of profit to Company B. |
| Through loan interest | Making internal loans at unusually high interest rates (increasing financial costs in Vietnam) or unusually low interest rates (reducing interest revenue abroad). | Company C (Vietnam) borrows capital from associated company D with an interest rate of 15%/year, while the commercial bank only charges 8%/year. The difference of 7% is included in financial expenses, reducing corporate income tax in Vietnam. |
| Through intangible assets | Imposing excessive or disproportionate royalties, management fees, or trademark fees relative to the actual value received. | Company E (Vietnam) pays 5% in brand royalties to its affiliated company F, while the industry average is only 1-2%. This difference is considered an unreasonable expense, aimed at transferring profits abroad. |
| Through the value of contributed assets | Overvaluation of capital assets increases depreciation expenses and reduces taxable profits over many years. | Company G contributed capital in the form of a used production line, with an actual value of 5 billion VND but valued at 20 billion VND when contributing to Company H (Vietnam). Company H recorded depreciation of over 20 billion, increasing costs and reducing taxable profits. |
Through the above examples, it can be seen that transfer pricing behavior in Vietnam does not only take place in a single form but is often carried out in a sophisticated and diverse manner through commodity prices, loan interest rates, intangible assets or capital contribution values. Early identification of these signs helps businesses proactively adjust internal policies, ensure compliance with the principle of independent transactions and avoid the risk of being subject to tax collection and penalties in future inspections.
Official legal basis on anti-Transfer pricing in Vietnam
To ensure compliance and build trust, every FDI enterprise needs to master the following official legal documents. This is considered the most important anti-transfer pricing law today:
| Legal documents | Focus on anti-Transfer pricing regulations in Vietnam | Important Quotes |
| Decree 132/2020/ND-CP | Detailed and comprehensive regulations on Tax Management for enterprises with related transactions. | Article 5: Determining parties with related transactions. Articles 6 and 7: Principles and methods for determining independent transaction prices. |
| Circular 66/2020/TT-BTC | Instructions for implementing Decree 132/2020/ND-CP. | Detailed regulations on declaration and preparation of Transfer Pricing Determination Documents. |
| Tax Administration Law No. 38/2019/QH14 | General principles on risk management, tax audits and base erosion measures (BEPS). | Regulations on rights and obligations of taxpayers and tax authorities. |
From the above legal documents, it can be seen that the legal framework on anti-transfer pricing in Vietnam is increasingly being improved and approaching international standards (BEPS - OECD). Enterprises need to regularly update and review related party transaction records and fully comply with the provisions of Decree 132/2020/ND-CP, Circular 66/2020/TT-BTC as Tax Administration Law No. 38/2019/QH14Strict compliance not only helps businesses minimize tax inspection risks but also enhances transparency and reputation in investment activities in Vietnam.
Key provisions in Decree 132/2020/ND-CP
To specify the anti-transfer pricing principles, Decree 132 focuses on the following three key provisions:
- Arm's Length Principle: Related transactions must be priced at market prices, as if the parties were independent of each other.
- Control of Interest Expenses (Interest Cap): Total interest expenses deducted when calculating corporate income tax must not exceed 30% of EBITDA (Net profit from business operations plus interest expenses and depreciation expenses). This is a direct regulation to limit transfer pricing through financial channels.
Details of the Regulations Interest Control (Loan Interest Cap) This regulation is one of the hottest points in current tax inspections. The following details should be noted:
The following interest expense items are excluded from the 30% EBITDA limitation:
- Loan interest is implemented according to ODA Agreement, Government loan.
- Interest on loans from international financial institutions (ADB, WB, IMF) and non-governmental organizations.
- Loan interest is made according to the Government's national target programs and projects.
The non-deductible interest expense portion (exceeding 30% EBITDA) is carried forward to the next tax period for 5 consecutive years, starting from the tax period in which the non-deductible interest expense arises.
Enterprises with related transactions must be responsible. declaration and prepare a Transfer Pricing Document to provide to the tax authorities upon request.
Risks and consequences of violating anti-Transfer Pricing Regulations in Vietnam
When tax authorities inspect and detect transfer pricing behavior in Vietnam that does not comply with the principle of independent transactions, enterprises will face the following serious risks:
Tax Collection and Price Adjustment
Direct tax consequences include:
- The tax authority has the right to readjust the transaction price according to the Independent Transaction Principle, leading to the collection of Corporate Income Tax (CIT).
- Loss Reduction Adjustment: Losses arising from transfer pricing will be adjusted down or eliminated, increasing taxable income.
In addition to direct adjustments to tax payable, businesses also face other severe financial sanctions, specifically as follows.
Financial Penalties
Based on the Law on Tax Administration and Decrees on administrative sanctions, the specific financial penalties that enterprises may have to bear are:
- Administrative Penalty for Tax Violations: Apply a fine of 20% on the amount of corporate income tax collected due to false declaration, leading to a shortage of tax payable.
- Late payment penalty: Calculated at 0.03%/day on the amount of corporate income tax collected and administrative fines, from the tax payment deadline to the actual payment date.
- Penalty for late or incorrect declaration: Fine from VND 8 million to VND 25 million for incorrect declaration of related party transaction information.
- Penalty for failure to prepare or provide documents: Enterprises may be subject to heavier administrative penalties and tax assessment if they fail to prepare or provide transfer pricing documents when requested by tax authorities.
In addition to direct financial sanctions, transfer pricing violations also cause serious non-financial and relational losses, specifically:
Impact on reputation and relationship with Tax Authorities
Non-financial but no less serious consequences include:
- Be named and published in the media.
- Negatively affects tax risk rating, leading to more frequent and in-depth audits in subsequent periods.
Faced with these serious financial, legal and reputational risks, moving from a reactive to a proactive state of building and implementing an effective transfer pricing compliance strategy is imperative for every business.
Effective Transfer Pricing Compliance Strategy
To minimize transfer pricing risks, companies, especially FDI companies, need to develop a compliance and transparency strategy:
Prepare a dossier to determine the price of related transactions
This is the most important evidence, built on the three-tier structure of the OECD BEPS standard. The dossier includes:
- Local File: Detailed information on related transactions in Vietnam.
- Master File: General information about multinational corporations.
- Country-by-Country Reporting (CbCR): Only applicable to large corporations with total global consolidated revenue of VND 18,000 billion or more.
However, documenting is only a step to explain the transactions that have occurred. To proactively control risks, businesses need to move to the second step, which is a strategic direction for future transactions.
Building Internal Pricing Policy
Establish clear and transparent rules for pricing among members, ensuring that all transactions are economically sound and comply with the principle of independence.
To achieve the highest level of certainty of compliance and completely eliminate the risk of audit, businesses can seek formal agreement with tax authorities through the following mechanisms:
Advance Pricing Agreement (APA)
This is a mechanism that helps businesses and tax authorities reach an agreement on the method of determining prices for a certain period, providing certainty and minimizing future disputes.
While proactive mechanisms such as APAs help businesses stabilize internal pricing policies and minimize risks with local tax authorities, the international tax landscape has shifted to a more systemic and exotic challenge, the Global Minimum Tax.
New Challenge: Global Minimum Tax and its Impact on FDI
Since 2024, Vietnam has officially applied the Global Minimum Tax (GMT) according to the Resolution of the National Assembly. This is a game changer for the tax and transfer pricing strategies of multinational corporations.
Scope of application
The Global Minimum Tax applies a minimum tax rate of 15% to multinational corporations (MNEs) with a total consolidated turnover of €750 million or more in at least two of the last four years.
The application of this minimum tax rate has created fundamental changes in the investment environment and has had far-reaching impacts on the Transfer Pricing policies of corporations, specifically:
Impact on Transfer Pricing
The advent of the Global Minimum Tax has significantly changed the dynamics and strategies of Transfer Pricing of MNEs, as shown in the following points:
- Difference in objectives: Transfer pricing (Decree 132) aims to ensure transaction prices according to market principles. GMT to ensure minimum profit taxable 15% in all areas.
- Reduced incentive incentives: FDI companies in Vietnam that are enjoying CIT incentives (below 15%) may be subject to additional taxes in the parent country (through the Minimum Taxable Income Rule – IIR) to reach 15%.
- New strategy: Corporations must re-evaluate their entire business models, supply chains and especially transfer pricing policies to optimize benefits from non-tariff incentives (such as investment support, land) and minimize the impact of IIR.
- New strategy: Corporations must re-evaluate their entire business model, supply chain and especially transfer pricing policies to optimize benefits from non-tariff incentives (such as investment support, land) and minimize the impact of Transfer Pricing.
Faced with the major impacts on tax policy and investment environment brought about by the Global Minimum Tax, the Vietnamese Government has promptly taken specific actions to protect tax collection rights and maintain the competitiveness of the investment environment.
Vietnam's actions
Vietnam is studying a mechanism to apply the Qualified Domestic Minimum Top-up Tax (QDMTT) to retain the right to collect this tax difference instead of letting foreign countries collect it.
In summary, in the context of tightening domestic regulations under Decree 132/2020/ND-CP and global challenges (GMT) increasingly reshaping the rules of the game, transfer pricing risk management requires a more comprehensive and proactive tax strategy than ever before, leading to the following conclusions.
Conclude
Compliance with anti-transfer pricing regulations in Vietnam is not only a legal obligation but also a key factor to ensure sustainable development and effective tax risk management. Enterprises need to proactively update new regulations (especially Decree 132/2020/ND-CP) and build complete and reasonable transfer pricing documents, and integrate Global Minimum Tax compliance into the overall tax strategy to cope with major changes in international tax administration.
If your business is looking for an optimal solution to transfer pricing risks and ensure compliance with Decree 132/2020/ND-CP, please contact us. MAN – Master Accountant Network for support in building internal pricing policies (Transfer Pricing Policy), creating affiliate transaction profiles and negotiating effective APAs.
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
- E-mail: man@man.net.vn
Frequently Asked Questions (FAQs)
Do loss-making enterprises need to prepare Transfer Pricing Documents?
Yes. The obligation to prepare Transfer Pricing Documents (according to Decree 132/2020/ND-CP) does not depend on whether the business results are profit or loss. As long as the enterprise has related-party transactions arising during the period, it is necessary to declare the related-party transactions and prepare/store documents to provide to the tax authorities upon request.
What are the conditions for an enterprise to be exempted from the obligation to prepare a three-tier Transfer Pricing Profile?
Enterprises are exempted from establishing a Local File and a Master File if they simultaneously meet one of the following two conditions (Clause 2, Article 19 of Decree 132): Total revenue generated in the tax period is less than VND 50 billion and the total value of related-party transactions generated in the period is less than VND 30 billion. Enterprises only perform simple functions, do not generate revenue, do not apply international databases and achieve the minimum profit margin before interest and corporate income tax (EBIT) on net revenue (ROS) as prescribed for each industry (for example: Distribution: 5%; Manufacturing: 6%; Processing: 7%).
If interest expense is excluded due to exceeding Cap 30% EBITDA, do I lose that expense permanently?
No. The deductible interest expense (exceeding 30% EBITDA) is allowed to be carried forward to the next corporate income tax period for a maximum of 5 consecutive years, starting from the tax period in which the non-deductible interest expense arises. This gives the business the opportunity to deduct this expense in the future if it makes a profit.
How does the Global Minimum Tax affect small FDI enterprises in Vietnam?
FDI enterprises with a total global consolidated turnover below the threshold of 750 million Euros will not be directly affected by the GMT. However, they will still face the domestic Anti-Transfer Pricing regulations (Decree 132) as usual, and will have to pay attention to the GMT if the parent group meets the threshold and is re-evaluating the supply chain.