Real-world scenario: An export processing enterprise (Enterprise A) owes its parent company in Singapore (Enterprise B) $1.6 million USD, with the debt being offset gradually each month. When Enterprise A needs to replace its fixed assets from China, Enterprise B signs the contract and pays the supplier directly. The question is: how can Enterprise A record the increase in assets, make legitimate depreciation calculations, and handle this debt without violating strict regulations on related-party transactions, fixed asset imports, and interest expense?
Foreign-invested enterprises (FDI), especially export processing enterprises (EPEs), frequently encounter the aforementioned scenario. Managing outstanding debt, interest expenses, and asset ownership for depreciation purposes is a challenging task for chief accountants. This article will analyze the risks and solutions in detail, based on the latest legal framework in 2026.
Identifying related party relationships and related-party transactions in the import of fixed assets.
To assess the validity of incurred expenses, businesses first need to clearly define their position in relation to the parties involved in the transaction, as stipulated by current law.
Conditions for determining the relationship
Based on Decree 132/2020/ND-CP and Decree 20/2025/ND-CP supplementing and amending Decree 132 regarding the conditions for determining related-party relationships, businesses should refer to the detailed conditions for formation. affiliated relationship.
In this case, the export processing enterprise (A) and the parent company in Singapore (B) are affiliated with each other.
The nature of related-party transactions in this case
The fact that the parent company in Singapore paid for machinery purchased by enterprise A from a third party (China) is considered a related-party transaction. All related costs must comply with the "Free Market Cost" principle. If enterprise A independently creates a loan agreement to generate interest expenses, the tax authorities may consider this a transfer pricing practice aimed at reducing taxable income in Vietnam.
Options for handling fixed assets
To help businesses with related-party transactions gain a clear understanding and accurately assess the safety of each handling option, the following is a detailed comparison table of the handling options for this case regarding the import of fixed assets by related parties. This table focuses on analyzing asset ownership, depreciation potential, transfer pricing risk, and foreign exchange management obligations – factors that tax authorities pay particular attention to during tax settlement.
| Criteria | Option 1: Loan Agreement | Option 2: B is named on the purchase and sale contract. | Option 3: Payment Agreement |
| Ownership | Belongs to A | Belongs to B | Belongs to A |
| Depreciation of fixed assets | Depreciable | No depreciation is allowed. | Depreciation is permitted (if records are complete). |
| Interest expense | Controlled 30% EBITDA | No issues arose. | No issues arose. |
| Tax Risk | Very high (Involves transfer pricing, thin capitalization) | High (May be excluded from management or operating costs) | Low (True commercial nature) |
| State Bank Procedures | Registration is required if borrowing for one year. | Do not have | Do not have |
From the comparison table above, it can be seen that, in the context of increased tax control under Decree 132/2020/ND-CP, the option of "payment on behalf of the buyer in accordance with the commercial nature" is the choice with the lowest risk level when handling related-party transactions involving the import of fixed assets.
Conversely, converting commercial debt into interest-bearing loan contracts not only creates restrictions on EBITDA under Article 30% but also generates additional risks related to transfer pricing and foreign exchange management. This is especially true for export processing enterprises with large outstanding debts to their parent companies.
Why is borrowing money a risky option?
The conversion from a regular commercial debt to an interest-bearing loan relationship between related parties is not simply an accounting operation, but also a key subject of scrutiny by tax authorities due to the potential risks of transfer pricing and violations of the following foreign exchange management regulations.
Interest expense control risk (30% EBITDA)
If Option 1 (Loan Agreement) is chosen, Enterprise A will face obstacles from Article 16 of Decree 132/2020/ND-CP:
- Interest expense ceiling: The total interest expense (after deducting interest on deposits and loans) incurred during the period by the taxpayer that is deductible when determining taxable corporate income shall not exceed the total net profit from business operations plus interest expense and depreciation expense (EBITDA).
- Low EBITDA: For businesses in the initial stages of investing and gradually replacing machinery, EBITDA is often not large enough to cover interest expenses. Any profit exceeding the limit will be disallowed when calculating corporate income tax.
- Legitimate loan: The tax authorities may question: “Why is company A, which owes company B $1.6 million USD interest-free (trade debt), converting it into an interest-bearing loan?” This is considered a misuse of capital and the transfer of profits back to Singapore through interest payments.
Warning regarding foreign exchange management and the State Bank.
According to Circular 12/2022/TT-NHNN:
- Loan registration: All medium- and long-term (over 1 year) foreign loans must be registered with the State Bank of Vietnam.
- Consequences: If business A fails to register, it will be subject to an administrative fine of 200-300 million VND, and all interest expenses will be permanently disallowed as deductible expenses.
The "Payment on behalf of" process and accounting entries.
This solution allows company A to acquire assets and depreciate them without incurring interest expense.
The legal documents that need to be prepared.
To prove ownership of the assets for Company A, the dossier must include:
- Sales contract: Signed between company A and the Chinese supplier (company B acts as the payment agent).
- Payment agreement: Company A authorizes Company B to pay for machinery from a Chinese supplier.
- Import documents: Customs declaration (Importer is A), Invoice, Packing List.
- Payment documents from B: A wire transfer (Swift) from B to the Chinese supplier, along with a confirmation notice that payment has been made on behalf of A.
Detailed accounting at company A
Accountants perform the following journal entries to ensure transparency:
Phase 1 – When the machinery arrives at the warehouse and clears customs.
Increase the original cost of fixed assets:
- Debit Account 211 (Original cost of machinery)
- Account 331 (Payable to company B – payment made on behalf of the company)
Record import duties (if any):
- Debit Account 133/211
- There is account 333.
Phase 2 – Monthly Depreciation
At this stage, perform the following accounting entries to ensure transparency:
- Debit accounts 627, 642 (Depreciation expense)
- There is account 214 (Accumulated depreciation).
Phase 3 – Offsetting debts when exporting goods to B
Record export revenue for B:
- Debit Account 131 (Accounts Receivable from B)
- There is account 511.
Perform the offsetting entry (Based on the Debt Offsetting Report):
- Debit Account 331 (Machinery and outstanding debt: USD 1.6 million)
- There is account 131 (Accounts receivable from exported goods).
The risks involved in this situation if the wrong solution is chosen.
In practice, during tax audits, tax authorities not only consider whether a business has had related-party transactions involving the import of fixed assets, but also evaluate the entire chain of documents: contracts, ownership, cash flow, nature of payment, and the economic objectives of the transaction.
Just one illogical link (for example, the parent company is named on the contract but the subsidiary depreciates it; or converting trade debt into interest-bearing loans) can expose a business to a host of risks:
- Depreciation expense of fixed assets is disallowed.
- Interest expense was disallowed due to exceeding the 30% EBITDA ceiling.
- Re-fixed related-party transaction prices
- Penalized for violations of foreign exchange management regulations.
- Subject to back taxes and late payment penalties for many years.
Ownership and depreciation risks
If the parent company is listed as the buyer or importer, the tax authorities may conclude that the asset does not belong to the business in Vietnam, in which case all depreciation expenses will be disallowed and corporate income tax will be collected retrospectively for several years.
Thin Capitalization Risk
When converting commercial debt into interest-bearing loans, businesses may be criticized for unnecessarily increasing financial leverage in order to transfer profits abroad through interest expenses.
Risks of price fixing and upward adjustment of taxable income.
If it cannot be proven that the price of the machinery is the market price, the tax authorities may reassess the transaction price and adjust the taxable income upwards.
Foreign exchange management risks
According to Circular 12/2022/TT-NHNN, medium and long-term foreign loans must be registered with the State Bank of Vietnam. Failure to register in accordance with regulations may result in heavy administrative penalties and disallowance of interest expenses.
Customs risks for export processing enterprises
If import documents are inconsistent between the contract, the customs declaration, and the payment, the business may be required to re-explain the customs value and the intended use of the asset.
Conclusion and recommendations
In the context of tax audits increasingly focusing on related-party transactions involving the import of fixed assets, FDI enterprises not only need to handle accounting procedures correctly but also ensure that the economic nature of the transaction complies with the regulations in Decree 132/2020/ND-CP and other regulations on foreign exchange management.
Converting commercial debt into interest-bearing loan agreements can create risks such as EBITDA constraints, suspected transfer pricing, and foreign loan registration obligations. Meanwhile, a payment arrangement that is genuinely commercial, with complete documentation and transparent cash flow, will benefit businesses in the following ways:
- Protecting depreciation costs of fixed assets.
- Avoid the risk of interest expense.
- Limit the risk of price fixing in related-party transactions.
- Minimize tax arrears and late payment penalties.
For businesses with significant outstanding debt to their parent company or those that frequently import assets from related parties, reviewing the transaction structure from the outset is a crucial precautionary measure ahead of the 2026 tax year.
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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.