The regulations on controlling interest expenses under Decree 20 are one of the issues that businesses with related-party transactions need to pay special attention to when determining deductible expenses for corporate income tax purposes. Decree 20/2025/ND-CP has amended and supplemented some regulations of Decree 132/2020/ND-CP, This includes content related to the handling of non-deductible interest expenses and the mechanism for carrying forward interest expenses across tax periods.
Understanding how to properly identify, calculate, and track the controlled portion of interest expense helps businesses mitigate risks during tax settlement, especially for businesses with loans from related parties or complex financial transactions.
What does the regulation on interest expense limits under Decree 20 mean?
Control interest costs Decree No. 20 sets limits on the portion of net interest expenses that may be included as deductible expenses when determining corporate income tax (CIT) liability for businesses engaged in related-party transactions.
According to regulations on tax management for businesses with related-party transactions, interest expenses incurred cannot be automatically included entirely as deductible expenses; they must meet the legally prescribed limit on the percentage.
The objective of this regulation is to control the practice of businesses using related-party loans to inflate financial costs and reduce tax obligations in a manner inconsistent with the nature of the transaction.
New points regarding interest expense control.
One of the notable points of Decree 20/2025/ND-CP is the amendment of the criteria for determining related-party relationships in cases where enterprises borrow capital or receive loan guarantees.
According to the new regulations, determining the affiliation in this case is based on:
- Total outstanding debt of loans between borrowing enterprises and lending or guaranteeing enterprises;
- The outstanding debt has reached the minimum threshold in proportion to the owner's equity contribution.;
- At the same time, it accounts for a certain proportion of the total medium and long-term debt of the borrowing enterprise.
This change helps to more accurately determine whether a business falls within the scope of related-party transaction regulations based on its actual borrowing situation.
See also: Decree 20 on related-party transactions.
How is deductible interest expense determined?
Businesses need to understand this. Formula for calculating interest on related-party transactions to determine the portion of interest expense that is deductible and the portion that is carried forward to the next period.
Basic method of determination:
Net interest expense deductible = 30% x Total net profit from business operations + Net interest expense + Depreciation expense during the period |
In there:
- Net interest expense: This is the difference between the interest expense incurred and the revenue from lending and deposit activities.
- Any interest expense that is not deductible due to exceeding the limit may be carried forward to the next tax period under the specified conditions.
The Master Accountant Network (MAN) recommends that businesses create a separate tracking system to avoid overlooking expenses carried over between years.
How are non-deductible interest expenses handled?
According to regulations on interest expense deductions, if net interest expense for the period exceeds the deductible limit, the excess amount cannot be immediately included in deductible expenses when determining taxable corporate income.
However, this undeductible interest expense is not completely eliminated; instead, the business can track it and carry it over to subsequent tax periods for continued consideration of deduction if it meets the prescribed conditions. The maximum carry-over period is no more than 5 consecutive years, subject to the legal limits on managing interest expense in related-party transactions.
To protect their interests during tax settlement, businesses need to establish a separate tracking mechanism for interest expense deductions that are subject to limitations each year, including:
- Accurately determine the deductible interest expense in each tax period: Businesses need to calculate the net interest expense incurred and compare it with the deductible amount according to the formula for calculating interest on related-party transactions to determine the excess.
- Track the balance of uncredited interest expense carried over to the next period: This expense needs to be recorded separately for each year it is incurred, avoiding omissions or confusion when the business has interest expense exceeding the limit for several consecutive years.
- Checking the deductibility when filing corporate income tax returns: In subsequent periods, businesses need to compare the carry-forward interest expense with the current year's deduction limit to determine the amount that can be included as a deductible expense.
If a business does not adequately manage data on forward interest expenses, the following risks may arise:
- Incorrect calculation of deductible expenses when settling corporate income tax.
- The carry-forward interest expense was not utilized.
- Incorrect tax declaration due to lack of justification.
- Difficulties arise when tax authorities request an inspection of related-party transaction records and calculation methods.
Therefore, in addition to understanding the regulations correctly. Related party transactions Decree 20, Therefore, businesses should proactively standardize loan application documents, interest expense calculation sheets, and data storage procedures to ensure that explanations to tax authorities are complete and transparent.
Update on new regulations: How to calculate deductible interest expenses under Decree No. 255/2026/NĐ-CP.
Which businesses need to pay particular attention to interest rate caps?
The regulations on deductible interest expenses in Decree 20 do not apply generally to all businesses, but focus on businesses falling within the scope of regulations on related-party transactions. Therefore, businesses that have loan relationships, financial support, or financial transactions with related parties need to particularly review their tax obligations.
Some groups of businesses with a high level of influence include:
Businesses that have loans from their parent company or affiliated companies.
In cases where a business borrows capital from its parent company, a company within the same group, or an affiliated party, the accrued interest expense may be subject to consideration when applying the regulations on limiting interest expense.
Businesses need to check:
- Does the lender qualify as a linked entity according to the regulations?.
- Does the loan give rise to related-party transactions?.
- Do the incurred interest expenses meet the conditions to be included as deductible expenses?.
This group is often at risk because internal corporate loans can directly impact financial costs and corporate income tax obligations.
Businesses that provide loan guarantees
Not only direct loans between related parties, but also cases where a business has a loan guaranteed by an related party at a credit institution need to be considered.
Businesses need to evaluate:
- Does the guarantor have any affiliated relationship as defined by regulations?.
- Does the guaranteed loan fall within the scope of regulations on related-party transactions?.
- Does the obligation to declare and document related-party transactions arise?.
Omitting guarantee transactions may lead businesses to underestimate the scope of application of the regulation.
Businesses operate under a parent company and subsidiary or corporate model.
Corporate businesses typically have many internal transactions, such as:
- Borrowing between companies within the same system.
- Capital reallocation.
- Financial assistance.
- Paying replacement costs or allocating costs.
These transactions need to be reviewed to determine whether they are related-party transactions, thereby assessing the impact of regulations controlling interest expense deductions.
Businesses that have high financial costs or interest expenses during the period.
Even if a business doesn't have many internal loan transactions, the occurrence of significant interest expenses still needs to be examined if the business is subject to regulations on related-party transactions.
Businesses need to calculate:
- Total interest expense incurred.
- Revenue from interest on deposits and loans (if any).
- Net interest expense.
- The deductible expense is calculated using the formula for interest on related-party transactions.
This helps determine which portion of interest expense is deductible as a deductible expense and which portion needs to be tracked in the future.
Businesses with a high proportion of borrowed capital.
Businesses that use significant financial leverage and frequently raise capital to expand their operations or invest in projects are likely to incur substantial interest expenses.
When interest expenses increase, the risk of these expenses exceeding the deductible amount also increases, leading to an impact on taxable income and corporate income tax obligations.
Therefore, businesses need to be proactive:
- Review the list of related parties.
- Review loan agreements and loan guarantees.
- Create a table to track interest expense by period.
- Prepare all necessary supporting documents when requested by the tax authorities.
For businesses that do not have a team specializing in tax and related-party transactions, consulting a professional is recommended. specialized and experienced organizations such as MAN – Master Accountant Network This will help in accurately assessing the scope of application, verifying calculation methods, and mitigating risks during the tax settlement process.
The role of service providers in controlling related-party transaction interest costs.
The regulations on interest expense deductions in Decree 20 not only require businesses to understand the legal provisions but also demand the ability to analyze financial data, correctly identify related-party transactions, and control supporting documentation. These are often complex tasks for businesses that do not have a team specializing in tax and related-party transactions.
MAN – Master Accountant Network plays a role in supporting businesses in controlling the entire process from review and calculation to completion of documentation, specifically:
Assess whether the business falls within the scope of regulations on related-party transactions.
MAN will assist businesses in reviewing the relationships between parties such as:
- Capital ownership relationships;
- Executive and control relationships;
- Loan, guarantee, or financial assistance transactions;
- Transactions arising with related parties.
Accurately identifying whether a business falls under the scope of regulations on related-party transactions is a crucial step, as it forms the basis for determining declaration obligations, documentation requirements, and the application of regulations limiting interest expense deductions.
Verify and calculate interest expenses in accordance with regulations.
MAN provides consulting and support services to businesses in reviewing financial data, including:
- Interest expense incurred during the period.
- Revenue from lending and deposit activities (if any).
- Net profit from operations.
- Depreciation expense is the basis for determining the deduction limit.
From there, businesses can accurately determine the portion of interest expense that is deductible and the portion that needs to be tracked and carried over to the next period.
Review the validity of the loan and related documents.
In addition to calculations, MAN also assists in checking the completeness of documents, such as:
- Loan agreement.
- Documents proving the purpose of using the funds.
- Loan interest payment receipts.
- Terms and conditions of the transaction between the parties.
Pre-auditing helps businesses identify inconsistencies and proactively make adjustments before the tax authorities conduct an inspection.
Assistance in preparing and completing related party transaction documents.
For businesses that are required to prepare transfer pricing documentation, MAN can provide support:
- Collect and analyze data.
- Identify the transactions that need to be declared.
- Prepare the required documents.
- Ensure that benchmarking data and pricing methods are appropriate for the industry in which the business operates.
This helps businesses reduce the risk of discrepancies between accounting figures, tax records, and actual transactions.
Assisting businesses in providing explanations during tax audits.
During tax audits and inspections, issues related to interest expenses on related-party transactions are often carefully considered by tax authorities due to their direct impact on taxable income.
MAN supports businesses:
- Explain the calculation method.
- Provide a legal basis.
- Prepare supporting documents.
- We will assist you throughout the process of communicating with the tax authorities.
Conclude
Controlling interest expense: Decree 20 requires businesses to more strictly manage loans, financial expenses, and related-party transaction records. Changes in Decree 20/2025/ND-CP clarify how to determine related-party relationships and handle undeductible interest expense.
To avoid errors when filing taxes, businesses should proactively review their financial data and update themselves on new regulations to ensure that calculations, documentation, and explanations are done correctly.
Contact MAN – Master Accountant Network For free support and advice!
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
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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.
Frequently Asked Questions about Controlling Interest Expenses under Decree 20
Not all cases where interest expense exceeds the deductible limit result in the loss of the right to deduct it. Undeducted interest expense from the period can be tracked and carried over to subsequent tax periods for continued consideration of deduction if it meets the prescribed conditions. Businesses need to manage this expense separately to avoid missing out on the right to include it as a deductible expense in later periods.
Borrowing from a bank does not automatically mean a business must always comply with regulations limiting interest expense. Businesses need to consider the overall nature of related-party transactions as required by regulations. However, if the bank loan involves an affiliated party, such as a guarantee or support from that party, the business needs to reassess the scope of application to avoid underestimating its obligations.
Businesses should maintain complete records of documents such as: loan agreements; records related to transactions between parties; interest payment receipts; records identifying related-party transactions; and tables calculating deductible interest expense and carryforward (if any). Having complete documentation provides businesses with a basis for explanation during tax audits.
Businesses with a high proportion of borrowed capital or incurring significant interest expenses need to pay special attention because the portion of interest expenses exceeding the limit may not be deductible for the period. This can increase taxable income and affect the amount of corporate income tax payable if the business does not monitor and handle it properly.
Businesses need to perform calculations based on relevant financial indicators such as net interest expense, net profit from business operations, and depreciation expense for the period. They must also ensure that the data used for calculations matches financial statements and tax records.Will the limitations on interest expenses be completely eliminated?
Are businesses that borrow from banks subject to limits on interest expense deductions?
What documents does a business need to prepare to prove that interest expense is legitimate?
How does Decree 20 on related-party transactions affect businesses with large outstanding loans?
How do you determine the deductible portion of interest expense?