What does Decree 255 stipulate regarding interest-free loans?

In practice, interest-free loans are often used by businesses as a flexible tool to support internal cash flow, assist employees, or provide relief to partners. However, from a tax management perspective, this is one of the transactions most likely to come under scrutiny due to violations of the arm’s-length principle.

Without a reasonable explanation, an interest-free loan may cause the tax authorities to assess financial revenue, adjust expenses, and collect back taxes. For related parties, the risks are even more stringent under Decree 255/2026/ND-CP. The Decree takes effect on July 1, 2026, applies to the 2026 corporate income tax filing period, and replaces Decree No. 132/2020/ND-CP and Decree No. 20/2025/ND-CP.

The most notable aspect of this topic: for the first time, the borrow, lend A relationship between a business and an individual who manages or controls it (or their relatives) is identified as the basis for the existence of an affiliated relationship.

The legal nature of interest-free loans

Interest-free lending is a voluntary right between parties according to the 2015 Civil Code. However, from a tax management perspective, this is a completely different issue.

Independent Trading Principle

Paragraph 1 of Article 3 of Decree No. 255/2026/ND-CP provides as follows:

Taxpayers engaged in related-party transactions must exclude factors that reduce their tax liability due to the influence of the related-party relationship, so that their tax liability for such transactions is determined on a basis equivalent to that of independent transactions under the same conditions.

The Decree also clearly defines the scope of related-party transactions in Article 4, paragraph 1, which includes lending and borrowing activities:

Related-party transactions include the purchase, sale, exchange, lease, rental, borrowing, lending, transfer, and assignment of goods; the provision of services; borrowing, lending, financial services, financial guarantees, and other financial instruments; …

In other words, the interest rate in transactions between related parties must be equivalent to the rate that independent parties would agree upon under similar conditions. An interest-free loan, by its very nature, deviates from this principle, since no financial institution in the capital market provides funds without expecting a return.

Pursuant to Point a, Paragraph 1, Article 6 of Decree No. 255/2026/ND-CP:

In cases where a taxpayer engages in a related-party transaction but there is no written agreement, or the agreement does not conform to the arm’s-length principle, or the actual execution of the transaction does not conform to the arm’s-length principle that would apply between unrelated parties, the related-party transaction must be determined in accordance with the true nature of a business transaction between independent parties.

Therefore, a contract specifying an “0% interest rate” is not automatically accepted if the nature of the transaction does not demonstrate an economic rationale.

The authority to determine taxes

Effective July 1, 2026, the regulation of transfer pricing shall be governed by Decree No. 255/2026/ND-CP and the Tax Administration Law No. 108/2025/QH15. This Law serves as the legal basis for the issuance of the Decree and takes effect at the same time.

Pursuant to Paragraph 2 of Article 21 of Decree 255, the tax authority determines the tax liability based on the principles of analysis and comparison, methods for determining the price of related-party transactions, and the information declared by the enterprise. This scope includes cases where a taxpayer violates tax laws even though they have fully complied with accounting, invoicing, and documentation requirements, as well as other cases specified in Article 24. Law on Tax Administration No. 108/2025/QH15.

For interest-free loans between related parties, the tax authority typically follows three steps:

• Determine the nature of the transaction: Compare the contract with the actual implementation in accordance with Article 6 of Decree 255 to assess whether the 0% loan reduces tax liabilities due to a controlling affiliate relationship;
• Select the comparative method: The method of comparing related-party transaction prices with independent transaction prices is applied to interest payments in borrowing and lending activities. Database for Managing Related-Party Transaction Prices shall be selected in the order of priority specified in Article 17;
• Determination of Interest Rates: In cases where the tax authority adjusts or sets a taxpayer’s price, profit margin, or profit allocation ratio, the adjusted or set value is the median value of the range of standard arm’s-length transaction values. The benchmark range consists of values from the 35th to the 75th percentile, and the median is the 50th percentile.

Decree 255 does not apply to loans between unrelated parties. Any assessment (if any) is conducted in accordance with the general provisions of tax law.

See details: Cases for assessing related-party transaction tax according to Decree 255/2026/ND-CP

Decree 255/2026/ND-CP on related-party transactions

When it comes to interest-free loans, Decree 255/2026/NĐ-CP is the core regulatory document governing related-party transactions in Vietnam starting with the 2026 tax year. The decree retains many of the principles of Decree No. 132/2020/ND-CP but significantly expands the criteria for identifying related-party relationships arising from lending and borrowing activities.

Identifying stakeholders

The following cases typically involve interest-free loans and fall under the scope of Decree 255:

• The parent company lends capital to the subsidiary to implement the project.
• Companies within the same group support each other's cash flow.
• A company executive (Director, Chairman) or their relatives lends money to the company, borrows money from the company, or vice versa. This is a case newly added by Decree 255 under Point l, Clause 2, Article 5.

If a business falls within the scope of application, the interest-free loan will entail a reporting obligation. Specifically, taxpayers must report information on related-party relationships and transactions in accordance with Appendix I, Appendix II, and Appendix III issued alongside this Decree and submit this information along with the corporate income tax return. In Appendix I, interest transactions with each related party are reported under the “Interest Expense” line item within the “Financial Activities” category.”

Risk of deductible interest expense (Ceiling 30% EBITDA)

A crucial point is that Article 15 of Decree 132/2020/ND-CP stipulates that the total deductible interest expense when determining corporate income tax shall not exceed the total net profit from business operations plus interest expense and depreciation expense (EBITDA).

The portion of interest expenses that exceeds the threshold is carried forward to the next tax period. The carryforward period may not exceed five years, starting from the year following the year in which the expenses were incurred.

When a company borrows money from a bank (and pays interest) but then lends that capital to another entity interest-free, the risks accumulate:

• The lender may be subject to a financial revenue assessment, which would increase its taxable income.
• The lender may not be able to deduct the corresponding bank interest expenses under corporate income tax law, since the borrowed funds are not used for that enterprise’s own production and business operations.
• The formula in point a of paragraph 3 of Article 16 allows “interest on loans accrued during the period” to be deducted from interest expense. The 0% loan does not generate interest income to offset it, so the lender’s net interest expense is higher and is more likely to exceed the 30% EBITDA threshold.

Reference: How to Calculate Deductible Interest Expenses

Financial consequences of implementing interest-free loans.

Granting interest-free loans is not simply an accounting entry; it has ripple effects on the balance sheet and tax obligations.

Collection of back taxes on corporate income tax.

Suppose Company A lends 10 billion VND to its affiliate B interest-free. If the median of the standard arm’s-length interest rate range is 6% per year, the tax authority may assess financial income of 600 million VND. With a corporate income tax rate of 20%, Company A must pay an additional 120 million VND in taxes, not including late payment charges and penalties (if any) in accordance with tax administration laws.

Impact on Value Added Tax (VAT)

According to Circular No. 69/2025/TT-BTC, lending activities are exempt from VAT. However, if a business fails to report revenue from interest-free loans (even if it is deemed revenue), the allocation of input VAT shared between taxable and non-taxable activities will be inaccurate. This results in the business being required to pay additional VAT on input VAT that was incorrectly claimed as a deduction.

Risks related to Personal Income Tax (PIT)

In cases where a business provides interest-free loans to employees or managers, the tax authorities may consider this a monetary benefit in the nature of salary or wages. The difference between the actual interest rate (0%) and the market interest rate may be converted into taxable personal income for that individual.

Solutions for preparing a justification document when facing tax assessment.

To protect interest-free loans, chief accountants and business owners need to build a solid legal dossier based on the following arguments:

Accountability based on benefits and talent retention.

This is the optimal approach when lending money to employees. Instead of presenting it as a purely financial transaction, turn the interest-free loan into part of a compensation system.

The required documents include:

• Employment contracts and collective bargaining agreements must include a clause stating that the company has a welfare fund to assist employees with loans for purchasing homes, cars, or medical expenses.
• Internal financial regulations: Clearly define eligible borrowers (those with over 5 years of service and outstanding performance), loan limits, and repayment periods.
• Employee loan applications must clearly state the reason for financial hardship or the legitimate purpose for which the funds are needed.

With all the necessary documentation, the interest-free loan is considered an operating expense (retaining key personnel), thereby minimizing the possibility of being subject to tax assessment.

Explanation based on the objective of preserving the supply chain.

In parent-subsidiary or strategic partnership relationships, granting interest-free loans can be interpreted as an emergency solution to avoid supply chain collapse.

Arguments to prepare:

• Proof that the borrower is in a state of temporary insolvency (Financial statements showing losses, notice of bad debt from the bank).
• Demonstrate that if the borrower goes bankrupt, the lending business will suffer greater losses (loss of raw materials, loss of market).
• Draw up an agreement on providing short-term, interest-free support to help restore production.

Explanation of borrowing money from the Director/Owner

This is the most common borrowing situation. As analyzed, this case poses the least risk to the company in terms of corporate income tax. However, the following still needs to be ensured:

• The loan agreement clearly states: "To supplement working capital to cover salary and supplier payments due to the inability to access bank financing.".
• Bank documents: Money must be transferred from the Director's personal account to the company account.
• Minutes of the Board of Directors/Members Meeting approving the borrowing of personal funds to salvage the financial situation.

See details: Declare related-party transactions involving loans to directors according to Decree 132.

Interest-free loans and related-party transactions under Decree 132

There is a very close connection between interest-free loans and Decree No. 255/2026/NĐ-CP. Businesses need to be fully aware of the control thresholds to avoid falling into a tax trap.

When is a relationship considered an affiliation?

In addition to cases involving equity ownership (for example, where one enterprise directly or indirectly holds at least 25% of the other enterprise’s equity capital, pursuant to Point a, Paragraph 2, Article 5), Decree 255 stipulates two criteria directly related to borrowing and lending activities.

First, intercompany relationships arising from borrowing between businesses:

An enterprise guarantees or lends capital to another enterprise in any form (including third-party loans secured by related-party financing and similar financial transactions) provided that the total outstanding debt of the borrowing enterprise to the lending or guaranteeing enterprise is at least equal to 25% of the owner's equity of the borrowing enterprise and accounts for more than 50% of the total outstanding debt of all medium and long-term debts of the borrowing enterprise.

Second, relationships formed through lending and borrowing with individuals:

A business that engages in transactions involving the transfer or acquisition of at least 25% of the business owner’s equity interest during the tax period; borrow, lend, or borrow from or lend to individuals who manage or control the business, or to individuals with whom the business has one of the relationships specified in subparagraph g of this paragraph, in an amount equal to at least 10% of the business’s owners’ capital contributions at the time the transaction occurs during the tax period;

If any of the above circumstances apply, the interest-free loan will be subject to a thorough review. The tax authority may apply the arm’s-length transaction pricing method to recalculate the interest rate in accordance with the arm’s-length principle.

See details: What constitutes a related-party transaction? Detailed explanation according to Decree 255.

Transfer pricing determination dossier

If a business is required to prepare a Transfer Pricing Documentation, it must clearly explain why it has an interest-free loan. Without a reasonable economic justification, the fixed interest income will be included in its taxable corporate income and will not be eligible for any tax deductions.

List of documents subject to periodic review and inspection for businesses.

To prepare for future tax settlements, the accounting department needs to periodically review non-interest-bearing loans according to the following list:

To minimize the risk of being assessed taxes and enhance their ability to provide explanations during an audit, businesses need to standardize all documentation related to interest-free loans so that it is complete, consistent, and supported by factual evidence. The review should not be limited to surface-level documentation. The records must also ensure logical consistency between the intended use of funds, internal policies, and current legal regulations, particularly Decree 255/2026/NĐ-CP.

Advice from MAN – Master Accountant Network

Managing interest-free loans requires finesse and a deep understanding of tax law. At MAN, we always emphasize that: “Every interest-free transaction must have a legitimate business purpose behind it.”

Change the format if possible.

If the loan period extends for too long, the company should consider converting the interest-free loan into additional equity or joint venture capital. This approach helps formalize the source of funds on the balance sheet and avoids the risk of having a fixed interest rate on the loan.

Take advantage of internal audits.

Businesses should conduct tax reviews every six months to identify overdue interest-free loans at an early stage. Settling these loans in a timely manner or adjusting the interest rate is sometimes a safer option than maintaining the 0% interest rate.

However, for transactions between related parties, the adjusted interest rate must fall within the range of arm’s-length transaction values. A nominal interest rate (such as the interest rate on a demand deposit) may still be adjusted if it falls below this range.

The role of professional consultants

Use related party transaction advisory services The services of reputable tax consulting firms like MAN – Master Accountant Network will help businesses:

• Standard contract templates and regulations are provided, closely adhering to Decree 132/2020/ND-CP.
• Authorized to represent the taxpayer in explaining the legitimacy of interest-free loans.
• Optimize corporate income tax payments through smart financial structuring.

Conclude

Interest-free loans are a useful financial tool but carry many risks from the perspective of regulatory authorities. Starting with the 2026 tax period, Decree 255/2026/NĐ-CP expands the definition of related-party relationships to include borrowing and lending activities with individuals who manage or control the entity.

The key to security lies in transparency and consistency of records. Ensure that every interest-free loan has a sound financial story and is supported by a robust system of legal documentation. Don't let a good cash flow support initiative become a financial burden due to tax management errors.

Contact MAN – Master Accountant Network For free support and advice on everything related to affiliate trading!

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Responsible for production and professional content review by: Mr. 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.