Revenue under 200 billion and net profit margin are regulated in Decree 132/2020/ND-CP and applied to enterprises. simple functional business, no revenue or expenses arise from intangible assets. Detailed guidance on Decree 132/2020/ND-CP, enterprises must simultaneously satisfy the following 2 conditions to be exempted from preparing a Price Determination File, specifically:
- Revenue under 200 billion VND (business with simple functions);
- Minimum profit margin as prescribed.
Then, the minimum profit margin is determined as follows:
- Distribution: from 5% or more on net revenue.
- Production: from 10% or more on net revenue.
- Processing: from 15% or more on net revenue.
Regulations on revenue under 200 billion and net profit margin help businesses reduce paperwork burden affiliate transactions and avoid the risk of being assessed tax by tax authorities.
Legal basis Decree 132/2020/ND-CP
Pursuant to Article 19 Decree 132/2020/ND-CP In case of revenue under 200 billion and net profit margin, the enterprise is responsible for declaring and determining the price of related transactions according to Appendix I but is exempted from preparing the dossier for determining the price of related transactions as follows:
“Taxpayers conducting business with simple functions, not generating revenue or expenses from the exploitation and use of intangible assets, with revenue of less than VND 200 billion, apply the net profit margin excluding interest expenses and corporate income tax (excluding the difference between revenue and expenses of financial activities) on net revenue, including the following areas:
Distribution: From 5% and up.
Production: From 10% and up.
Processing: From 15% and up.”
According to Decree 132/2020/ND-CP stipulating revenue under 200 billion and net profit margin, the legal basis is built to manage taxes for enterprises with related-party transactions, especially in cases of simple functional businesses. The regulation on revenue under 200 billion and net profit margin not only sets out the minimum profit margin for each field (distribution, production, processing) but also clearly defines the conditions of application, helping enterprises easily comply and limit tax risks. Before going into details of the rate, it is necessary to clarify the concept of "taxpayers doing simple functional business" and the absence of revenue and expenses from intangible assets to correctly understand the applicable subjects.
What is a simple function business?
Decree 132/2020/ND-CP describes this group as units that perform simple production or distribution functions, have no strategic decision-making power, create low added value, do not bear large inventory or market risks, and do not generate revenue or costs from exploitation., use of intangible assets. In short, this is a distributor or manufacturer or processor that performs “contract work” or simply resells goods without participating in the creation, exploitation, or protection of intangible assets (e.g., does not develop a brand, does not license intellectual property, does not receive royalty revenue).
For example: Custom manufacturing factory, no own brand or technology. Simply manufacturing according to contract.
What is the absence of revenue or expense from the exploitation or use of intangible assets?
Intangible assets according to Vietnamese accounting standards (VAS 04) are assets that do not have a physical form but have a determined value (for example: patents, trademarks, copyrights, software, technical know-how, technology transfer contracts) - if the enterprise does not have revenue or expenses arising from licensing, leasing, royalties or similar activities, it is considered not to use intangible assets to generate revenue. This is a condition for applying the above standard rate.
Concept and formula for applying net profit margin according to Decree 132/2020/ND-CP
According to Decree 132/2020/ND-CP, the net profit margin does not include interest expenses and corporate income tax (CIT) on net revenue. That is, the net profit from production and business activities (excluding the difference between revenue and financial operating expenses) on net revenue.
The specific formula is as follows:
| Margin = Net earnings before interest and taxes ÷ Net sales |
For example: Company A distributes fertilizers with net revenue of 100 million and net profit (before interest and tax) of 5 billion. From the formula, the ratio is 5%.
Thus, according to Decree 132/2020/ND-CP stipulating revenue under 200 billion and net profit margin, simple functional businesses will have to meet the minimum margin level for each field:
- Distribution from 5%
- Produced from 10%
- Machined from 15%.
However, to properly apply the regulations on revenue under 200 billion and net profit margin, businesses need to clearly understand the calculation and accounting rules in each case, especially when there are many fields of operation or revenue and expenses have not been separated.
Rules apply to revenue under VND 200 billion and net profit margin according to Decree 132/2020/ND-CP
To help businesses easily visualize how to apply Decree 132/2020/ND-CP regulating revenue under 200 billion and net profit margin, below is a summary table of cases of accounting for revenue, expenses and principles of applying the corresponding net profit margin.
Board: Rules apply to revenue under 200 billion and net profit margin according to each accounting case
| Accounting cases | How to apply net profit margin |
| Separately account for revenue and expenses in each area. | Apply net profit margin (excluding interest expense & corporate income tax) on net revenue corresponding to each field. |
| Separately account for revenue but not separately account for costs in each field. | Allocate costs according to the revenue ratio of each area, then apply the corresponding net profit margin. |
| Cannot account for revenue and expenses in each field separately. | Apply the net profit margin to the net revenue of the sector with the highest margin. |
Through the table above, it can be seen that clearly accounting for revenue and expenses by field helps businesses easily apply the correct conditions of revenue under 200 billion and net profit margin according to Decree 132/2020/ND-CP, while reducing the risk of being determined by tax authorities during the inspection and examination process.
Practical note
To effectively implement and avoid risks when applying Decree 132/2020/ND-CP regulating revenue under 200 billion and net profit margin, businesses need to pay attention to the following practical points:
- Decree 132/2020/ND-CP stipulates that with revenue below 200 billion and net profit margin, enterprises must still declare the Associated Transactions Appendix and keep related records. According to Decree 132/2020/ND-CP, with revenue below 200 billion and profit margin, enterprises are exempted from preparing the Associated Transactions Pricing Document but are still required to declare according to the Appendix form.
- If the enterprise does not meet the standard ratio (for example, the manufacturer has a ratio < 10%), it must prepare a Transfer Pricing Determination Document according to regulations to prove the allocation basis, reasonable costs, or accept to adjust taxable income when the tax authority inspects.
- Internal accounting standards: to be safe, revenue/expenses should be separated by field, explanatory documents should be kept (contracts, sales contracts, cost allocation minutes), and the cost allocation method should be presented if allocation is applied.
Decree 132/2020/ND-CP stipulates that for revenue under 200 billion and net profit margin, enterprises are allowed to apply a simpler mechanism in determining tax obligations. However, taxpayers still need to control data, account transparently, keep records and prepare full explanations. Strict compliance with the regulations on declaration and records of related-party transactions not only helps limit the risk of inspection and collection but also contributes to improving the transparency and effectiveness of financial management of enterprises.
Conclude
Compliance with Decree 132/2020/ND-CP stipulating revenue under 200 billion and net profit margin not only helps businesses ensure legal tax obligations but also builds a transparent reputation in financial management. However, to avoid the risk of inspection and collection, businesses need to perform separate accounting, strictly control data and store records according to regulations.
For in-depth consultation and support during the process of preparing related-party transaction documents, businesses please contact us. MAN – Master Accountant Network. Timely and professional support will help businesses optimize costs, comply with the law and develop sustainably.
Contact information MAN – Master Accountant Network
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