In the context of increasing scrutiny by tax authorities regarding related-party transactions and transfer pricing activities, accurately determining EBITDA according to Decree 132 has become a crucial factor in helping businesses control deductible interest expenses when calculating corporate income tax. More than just a financial indicator, EBITDA under Decree 132 also serves as a basis for determining limits. related party interest expense These deductions, as stipulated by regulations, directly impact tax obligations and the efficiency of a company's capital management. This article will provide detailed guidance. How to calculate EBITDA according to Decree 132, This includes how to identify each component in the formula, practical examples, and important considerations to help businesses minimize risks during tax settlements and audits.
Key takeaways on controlling interest expense in related-party transactions.
Decree 132/2020/ND-CP was issued to combat transfer pricing, prevent the erosion of the tax base, and stop profit shifting through the artificial inflation of interest expenses. Article 16, Clause 3 of this Decree, which regulates the limitation of interest expenses, creates a ceiling at which businesses are compelled to understand the true nature of EBITDA as defined in Decree 132.
Simply put, according to Decree 132, EBITDA is a measure of profit before interest, taxes, and depreciation accepted by the tax authorities as a basis for calculating the deductible interest expense threshold. If actual interest expense exceeds this threshold (30% EBITDA), the excess amount will not be considered a deductible expense when settling corporate income tax. This is a crucial point that every Chief Accountant and CFO needs to understand to avoid the risk of tax arrears.
What is EBITDA according to Decree 132? And how to determine it accurately?
Many businesses often confuse EBITDA in conventional corporate financial management with EBITDA as defined by Decree 132. In a legal context, businesses need to strictly adhere to the formula stipulated in Article 16 to ensure that the figures included in the tax return are transparent.
| Indicators | Meaning |
| Profit from business operations (HĐSXKD) | Net income from core business operations (before interest and taxes). |
| Interest expense | All interest expenses incurred by the business during the period. |
| Depreciation expense | Total depreciation expense of fixed assets and allocation of investment properties during the period. |
General formula:
According to Decree 132, EBITDA = Profit from business operations + Interest expense + Depreciation expense |
Note: When determining the components in the EBITDA formula according to Decree 132, these figures must be taken directly from the audited or tax-settled Income Statement. Incorrectly extracting depreciation or interest expense figures between accounting records will lead to inaccurate EBITDA calculation according to Decree 132, resulting in incorrect calculation of the deductible interest expense limit.
Practical example: Calculating interest rate limits based on EBITDA
To help you visualize this, consider the following specific example of a business with related-party transactions:
Let's assume the data is for 2025:
- Profit from business operations: 5,000,000,000 VND
- Interest expense: 2,000,000,000 VND
- Depreciation cost: 1,000,000,000 VND
Calculate EBITDA according to Decree 132:
EBITDA according to Decree 132 = 5,000,000,000 + 2,000,000,000 + 1,000,000,000 = 8,000,000,000 VND |
Calculate the limit for deductible interest expense under code 30%:
Ceiling amount = EBITDA x 30% = 8,000,000,000 x 30% = 2,400,000,000 VND |
Result: The company has actual interest expense of VND 2 billion, but the EBITDA ceiling is higher than the actual interest expense. The company will be entitled to a deduction. all interest expenses during the corporate income tax period.
Detailed analysis of application scenarios
The application of the EBITDA regulations under Decree 132 does not apply to all cases:
Exempted subjects
Loans under national target programs, preferential loans from the government, or public projects are generally outside this scope. Therefore, before calculating EBITDA according to Decree 132, accountants need to review the entire loan portfolio to exclude those not subject to adjustment.
Handling situations when a business incurs losses or negative profits.
This is the most complex situation. When the EBITDA target under Decree 132 is zero or negative, it means the business has no limit on deductible interest expense (according to the 30% limit). However, businesses need to be aware of the regulation allowing the carry-forward of non-deductible interest expense to the next period. Strict management of this balance requires absolute accuracy in monitoring EBITDA under Decree 132 annually.
Optimizing EBITDA according to Decree 132 to ensure maximum interest expense.
Instead of trying to circumvent the law, the smart strategy is to optimize capital structure. Businesses should maintain a reasonable debt-to-equity ratio to ensure that EBITDA, as per Decree 132, always meets safe thresholds. This will maximize the use of the 30% ceiling on deductible interest expenses, helping to legally optimize corporate income tax payable.
Common mistakes when calculating EBITDA according to Decree 132
During the process Consulting on controlling interest expense under Decree 132 and support testing Affiliated transaction records, MAN has observed that many businesses often make the following serious mistakes:
- Errors in excluding depreciation expense: Many accountants confuse taxable depreciation expense with accounting depreciation. When calculating EBITDA according to Decree 132, it is necessary to adhere closely to the depreciation allocation schedule registered with the tax authorities.
- Confusion between financial reports: Using figures from management reports instead of audited financial statements. This inconsistency attracts the attention of tax authorities.
- Consequences of miscalculating EBITDA under Decree 132: When tax inspectors discover errors, businesses not only have to pay the outstanding corporate income tax but also face late payment penalties and reputational risks related to related-party transactions.
Advice from affiliate trading experts
To proactively manage interest expenses and optimize EBITDA in accordance with Decree 132, businesses need to prepare related-party transaction documentation early. Instead of waiting until the end of the year for final settlement, perform quarterly forecasts.
- Developing a financial management solution centered around EBITDA according to Decree 132: Establish a dashboard to periodically monitor interest expense and EBITDA. Close monitoring helps businesses adjust their financial plans (e.g., debt plans, fixed asset investment plans) to avoid exceeding the limits.
- The importance of transparent accounting data: Ensure all documents regarding interest payments and related-party loan agreements are systematically stored. Transparency is the strongest defense when explaining EBITDA figures to regulatory authorities under Decree 132.
Frequently Asked Questions about EBITDA under Decree 132
According to Decree 132, EBITDA is an indicator used to determine the deductible interest expense when calculating corporate income tax for businesses with related-party transactions within the scope of regulation. This indicator helps tax authorities assess the ability of a business to generate profit before interest, taxes, and depreciation, thereby providing a basis for applying the prescribed limit on interest expense.
According to the regulations on interest expense deductions in Decree 132/2020/ND-CP, the total net interest expense deductible when determining taxable income must not exceed 30% EBITDA as stipulated in Decree 132. If the net interest expense exceeds the limit, the non-deductible portion will be carried forward to subsequent tax periods as per regulations.
When the EBITDA ratio under Decree 132 is negative or insufficient to generate a limit on interest expense deductions, businesses risk not being able to deduct all or part of the interest expense incurred during the period. Any undeductible interest expense (if any) needs to be tracked separately and carried forward to subsequent tax periods within the prescribed timeframe.
The regulations on deductible interest expenses under Decree 132 apply to businesses falling within the scope of related-party transactions. Therefore, businesses need to determine in advance whether they are subject to the regulations on related-party transactions. Incorrectly identifying the applicable entities may lead to under-declaration or incorrect application of the method for calculating deductible interest expenses.
Businesses should establish a process for periodically monitoring interest expense and EBITDA instead of only reviewing them at tax settlement time. Solutions include tracking the ratio of interest expense to EBITDA on a quarterly basis; developing a borrowing plan that aligns with financial capacity; controlling borrowing transactions with related parties; and standardizing accounting records, documents, and reports for accountability purposes.What is EBITDA used for in businesses according to Decree 132?
According to current regulations, what percentage of EBITDA is the interest expense limit?
If the EBITDA figure according to Decree 132 is negative, is the business allowed to deduct interest expense?
Do businesses with no related-party transactions have to calculate EBITDA according to Decree 132?
What should businesses do to optimize EBITDA according to Decree 132 and mitigate tax risks?
Conclude
Accurately determining EBITDA according to Decree 132 plays a crucial role in managing interest expense and complying with regulations on related-party transactions. This is not only a calculation for tax settlement purposes but also serves as a basis for businesses to assess profitability, control capital structure, and mitigate risks arising during tax audits and inspections.
To ensure compliance, businesses need to pay special attention to correctly identifying the components of the EBITDA formula, using consistent data from their accounting system, and separately tracking uncredited interest expenses carried over to the next period. Proactive periodic review, rather than only addressing them at the time of tax settlement, will help businesses better control their tax obligations and optimize financial performance.
In the context of increasing emphasis on regulations governing related-party transactions, establishing a systematic process for calculating and controlling EBITDA in accordance with Decree 132 will be fundamental for businesses to minimize risks, enhance transparency, and be prepared to explain their transactions to tax authorities. If businesses need to review their EBITDA calculation methods, check interest expense limits, or complete related-party transaction documentation, consulting with experts is highly recommended. Transfer pricing consultancy This will help ensure accuracy and safety during the process.
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Responsible for production and professional content review by: Grandfather 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.