On November 5, 2020, Decree 132 on related-party transactions was officially issued and came into effect on December 20, 2020, marking a significant turning point in tax management for businesses with related-party transactions in Vietnam. The Decree is notable for its expanded scope of related parties, updated methods for determining transfer pricing based on the arm's length principle, and adjustments to the threshold. Controlling interest expense according to Decree 132 and add more cases Exemption from filing related-party transaction records.. Complying with Decree 132 on related-party transactions helps businesses optimize tax benefits, reduce legal risks, and enhance transparency in financial management.
Key highlights of Decree 132 on related-party transactions.
Among the highlights of Decree 132 on related-party transactions, the most significant and widely discussed changes concern the regulations on related parties. These regulations not only broaden the scope of defining related parties but also detail how to identify control and management relationships between businesses, thereby creating a transparent and fair legal basis for tax management of related-party transactions.
Regulations regarding related parties under Decree 132 on related-party transactions.
Previously at Decree 20/2017/ND-CP While the regulations previously only defined related-party transactions as transactions within business operations, now... Decree 132/2020/ND-CP Expanding the scope of related-party transactions to include:
- Buy, sell, exchange, rent, lease, borrow, lend, transfer, assign goods.
- Providing services between related parties.
- Borrow, lend, provide financial services, financial security.
- Other financial instruments used between related parties.
- Buy, sell, exchange, rent, lease, borrow, lend, transfer, assign tangible and intangible assets.
- Agreement to buy, sell, and share resources such as assets, capital, and labor.
- Sharing costs among related parties.
After clearly defining the types of transactions falling within the scope of related-party transactions, Decree 132 on related-party transactions further adds many specific cases of related parties. These additions help to broaden the scope of application, while creating a clear and transparent legal basis for tax management and determining transaction prices between related parties.
Decree 132 on related-party transactions adds further provisions regarding related parties.
While Decree 20/2017/ND-CP only mentioned 10 cases of related-party transactions, Decree 132 on related-party transactions adds one more case, specifically:
- Businesses that have transactions involving the transfer or acquisition of at least 25% of owner's capital contributions during the tax period; or borrowing or lending at least 10% of owner's capital contributions at the time of the transaction during the tax period with individuals managing or controlling the business or with individuals in a relationship as stipulated in point g, clause 2, Article 5 of Decree 132 on related-party transactions.
Decree 132 on related-party transactions continues to introduce regulations on interest expense deductions to ensure transparency and fairness in determining taxable profits. These regulations not only limit interest expense deductions related to related-party transactions but also provide guidance on how to handle expenses exceeding the limit, helping businesses optimize tax benefits and reduce legal risks.
Decree 132 on related-party transactions stipulates regulations regarding interest expense.
Decree 132 on related-party transactions has made significant adjustments regarding interest expense, aiming to ensure transparency, fairness, and conformity with international practices in tax management. Specifically:
- Raising the limit on interest expense deductions from 20% to 30%: Previously, Decree 20/2017/ND-CP only allowed businesses to deduct interest expenses up to a maximum of 20% EBITDA, but Decree 132 on related-party transactions has raised this ratio to 30%, creating more favorable conditions for businesses in balancing their finances, while still maintaining a limit to prevent abuse of interest expense deductions to reduce tax obligations.
- Allowing deduction of interest expenses after deducting deposit and loan interest: When calculating interest expenses, enterprises are allowed to calculate based on the actual loan interest after deducting deposit interest or interest from other loans. This regulation helps accurately reflect the actual financial costs arising from related transactions, improving transparency and compliance with tax laws.
- Transferring excess interest expense to subsequent tax years: If interest expense exceeds the limit set in Decree 30%, the excess amount is not discarded but carried forward to subsequent tax years, helping businesses optimize interest expense over time while ensuring compliance with the regulations of Decree 132 on related-party transactions.
These regulations demonstrate the efforts of tax authorities to balance the interests of enterprises and the obligation to comply with the law, while creating a clear and transparent legal basis for related-party transactions.
Decree 132 adds a category of related-party transactions that are exempt from the interest expense limitation.
To clarify the differences between Decree 132 on related-party transactions and the previous Decree 20/2017, particularly regarding loans recognized within the scope of related-party transactions, the table below summarizes the important additions. These changes not only expand the scope of legal loans but also create a clear and transparent legal basis for tax management for businesses participating in development loan programs, national target programs, and social welfare projects.
| Decree 20/2017 | Decree 132/2020/ND-CP |
Not specified for the stated subject. | Official development assistance (ODA) loans and preferential loans from the Government are implemented in the form of the Government borrowing from foreign countries and re-lending to businesses. Loans to implement national target programs (new rural programs, sustainable poverty reduction). Loans for investment in programs and projects implementing the State's social welfare policies (resettlement housing, housing for workers, students, social housing and other public welfare projects). |
From the comparison table above, it can be seen that Decree 132 on related-party transactions has expanded the scope of recognized loans compared to the previous Decree 20. These additions not only help businesses participate in development loan programs, national target programs, or social welfare projects to legally count them as related-party transactions, but also increase transparency and fairness in tax management.
Why is handling interest income exceeding the 30% EBITDA threshold a hot topic for the 2026 tax year?
Handling interest expense exceeding the 30% EBITDA threshold involves determining the portion of net interest expense (interest expense after deducting interest on deposits and loans incurred during the period) that exceeds the 30% EBITDA taxable amount, excluding that excess from deductible expenses when calculating corporate income tax, and tracking it for carry-forward to subsequent tax periods for a period not exceeding 5 years.
Decree 255/2026/ND-CP replaces the old legal framework from July 1, 2026.
Decree 255/2026/ND-CP on tax management for enterprises with related-party transactions was issued by the Government on June 30, 2026, and takes effect from July 1, 2026, applying from the corporate income tax period of 2026. This Decree replaces Decree 132/2020/ND-CP and Decree 20/2025/ND-CP.
Points to emphasize: NThe 30% EBITDA control threshold remains unchanged.. However, the surrounding context has changed significantly, the way related-party relationships are identified has been further clarified (including relationships arising from borrowing and lending), the threshold for exemption from reporting transfer pricing has been raised, the priority order of comparative data sources has been clearly defined, and the threshold for submitting Country-by-Country Reports has shifted to the standard of 750 million EUR in accordance with OECD practice.
The financial consequences of a company ignoring the 30% EBITDA threshold.
Firstly, corporate income tax is being collected retrospectively. The portion of interest expense exceeding the threshold that is disallowed increases taxable income. With the standard tax rate, for every 10 billion VND of disallowed expense, approximately 2 billion VND of additional tax is generated.
Secondly, late payment penalties accumulate. The amount due is subject to interest accrued from the time it should have been paid, meaning that an error from the 2026 period, if discovered in 2029, would significantly increase the cost.
Third, loss of carryforward rights. This is the most significant but insidious loss. If a business does not track excess amounts in its books and disclosures, proving carryforward rights in subsequent periods becomes almost impossible.
What are the consequences for exceeding the 30% EBITDA threshold? How much will be recovered?
The amount of corporate income tax (principal) being collected is not a penalty, but rather the tax that should have been paid but not yet paid, because the portion of interest expense exceeding the deductible limit was excluded from deductible expenses, thus increasing taxable income.
The amount of tax to be collected is then determined:
Tax arrears = Amount of disallowed (undeclared) interest expense x Applicable corporate income tax rate |
For example: Company A incurred interest expenses exceeding the limit by 10 billion VND, but mistakenly recorded them as deductible expenses in its initial tax return. Therefore, the amount of tax to be collected is 10 billion VND × 20% = 2 billion VND.
Late payment penalties are calculated daily.
In addition to the back taxes, the business must pay late payment penalties at a rate of 0.031 TP3T/day calculated on the amount of tax overdue, as stipulated in Article 15 of the Law on Tax Administration.
This amount is calculated continuously from the tax filing deadline of the period in which the error occurred until the actual payment date; the later the error is discovered, the larger this amount will be. For example, if the error from the 2021 period is discovered in 2026 (approximately 1000 days), the late payment penalty alone will be:
Late payment penalty = 2 billion VND x 0.03% x 1000 = 600 million VND |
Administrative penalties for incorrect tax declarations.
If incorrect declaration (failure to properly exclude expenses exceeding the threshold) is determined to be an act of false declaration resulting in an underpayment of tax, the enterprise will also be penalized according to Article 16 of Decree 125/2020/ND-CP (amended by Decree 310/2025/ND-CP) with a penalty of 20% of the underpaid tax amount, along with corrective measures requiring the full payment of the underpaid tax and late payment interest.
Note: The 20% penalty still applies even if the business has prepared market price determination documents or submitted complete related-party transaction appendices, but the tax authorities still determine that the data is underpaid during an audit. However, if the business discovers the discrepancy and files a supplementary declaration and pays the full amount before the audit/inspection decision is made, this still falls within the lightest penalty bracket.
Legal basis for handling interest payments exceeding the 30% EBITDA threshold.
The entire process for handling interest expense exceeding the 30% EBITDA threshold is found in Clause 3, Article 16 of Decree 255/2026/ND-CP, which concerns the determination of expenses for tax calculation purposes for enterprises with related-party transactions. The chief accountant needs to be familiar with points a, b, and c of this clause.
According to Point a, Clause 3, Article 16 of Decree 255/2026/ND-CP:
The total interest expense after deducting interest on deposits and loans incurred during the period of the taxpayer is deductible when determining taxable income for corporate income tax purposes, provided it does not exceed 30% of the total net profit from business operations during the period plus interest expense after deducting interest on deposits and loans incurred during the period plus depreciation expense incurred during the period of the taxpayer.
Point b, Clause 3, Article 16 stipulates that the right of transition shall not exceed 05 years:
The portion of interest expense not deductible under point (a) of this clause shall be carried forward to the next tax period when determining the total deductible interest expense, provided that the total deductible interest expense incurred in the next tax period is lower than the amount stipulated in point (a) of this clause. The carry-forward period for interest expense shall not exceed 5 years from the year following the year in which the non-deductible interest expense was incurred.
Point c, Clause 3, Article 16 specifies the cases where it does not apply:
The limitation stipulated in point a does not apply to loans of taxpayers that are credit institutions under the Law on Credit Institutions; insurance business organizations under the Law on Insurance Business; official development assistance (ODA) loans, preferential loans of the Government implemented through the method of the Government borrowing from foreign countries to lend to enterprises; loans for implementing national target programs; and loans for investment in programs and projects implementing the State's social welfare policies.
Important Note: This is an exception based on the entity and source of funds, not an exception based on the will of the business. A commercial enterprise borrowing from a bank is still subject to the handling of interest payments exceeding the 30% EBITDA threshold if that loan gives rise to an affiliated relationship as per Article 5.
The 30% EBITDA threshold is only applied to related-party transactions that occur during the period. Article 5 of Decree 255/2026/ND-CP adds the case of related-party transactions:
Relationships arising from loan, lending, borrowing, or lending transactions with individuals who manage or control businesses, or individuals with whom they have a family relationship as stipulated, are subject to corresponding capital contribution thresholds.
Decree 255/2026/ND-CP recognizes an important exception: Credit institutions and other organizations that lend but do not participate in the management, control, capital contribution, or investment in the borrowing or guaranteeing enterprise are not considered affiliated parties simply because of that loan. This is a major relief for businesses that purely borrow from banks but require supporting documentation, rather than being automatically considered affiliated.
The three components before processing interest expense exceeding the 30% EBITDA threshold:
The standard formula for handling interest payments exceeding the 30% EBITDA threshold can be summarized as follows:
Net interest expense = Interest expense incurred during the period – (Interest on deposits + Interest expense on loans incurred during the period) |
Taxable EBITDA is determined as follows:
Taxable EBITDA = Net operating profit + Net interest expense + Depreciation expense incurred during the period |
Deduction threshold:
Deduction threshold = 30% x Taxable EBITDA |
The disqualified overtaken has been determined:
Excess amount disallowed = Net interest expense – Deduction threshold (if the result is positive) |
How are interest on deposits and interest on loans offset each other?
This is the stage where mistakes are most likely to occur. Three principles need to be noted:
- Only offset amounts arising during the period: Accrued interest from the previous period or interest received in advance for the next period must be adjusted to the correct period;
- Interest earned on bank deposits and interest from lending activities are offset. Other items included in financial income such as exchange rate differences, dividends, foreign currency gains, and payment discounts are not subject to offsetting.;
- If interest income from deposits and loans exceeds interest expense, resulting in negative net interest expense, there is no obligation to process interest income exceeding the 30% EBITDA threshold, but the company must still declare it fully.
Regulations regarding the preparation and submission of the Country-by-Country Report of Profits (CbCR)
In the regulations on preparing and submitting Country-by-Country Profit Reporting (CbCR), Decree 132/2020/ND-CP also sets out specific requirements for cases where the ultimate parent company is located in Vietnam and cases where the ultimate parent company is located abroad, in order to ensure transparency of tax and profit information. In addition, businesses also need to fully fulfill their declaration obligations according to the prescribed forms to avoid tax risks. Understanding these requirements is crucial. How to declare related-party transactions This will help businesses proactively prepare documents and meet the requirements of the tax authorities when necessary.
The ultimate parent company is located in Vietnam.
According to Decree 132 on related-party transactions, if the ultimate parent company located in Vietnam has consolidated global revenue of VND 18,000 billion or more during the tax period, it is obligated to prepare a Country-by-Country Report (CbCR) and submit it to the tax authorities within 12 months from the end of the fiscal year.
Overseas ultimate parent company
Decree 132 on related-party transactions specifies in detail the obligation to submit the Country-by-Country Report (CbCR) for cases where the ultimate parent company is located abroad. The table below clearly summarizes the cases where submission is not mandatory and those where it is mandatory, making it easier for businesses to compare and comply.
| Case | Decree 132/2020/ND-CP |
| Not required to submit | Enterprises in Vietnam are not required to file CbCR if the Vietnamese tax authorities can receive the report through the automatic exchange of information (AEOI) mechanism with the country or territory where the ultimate parent company is resident. |
| Required submission | The country/territory where the ultimate parent company resides has an international tax agreement with Vietnam but does not have an agreement from the competent authority at the time of the report submission deadline. The country/territory where the ultimate parent company resides has an Agreement between the Competent Authorities and Vietnam but has suspended the information exchange mechanism or cannot automatically provide it to Vietnam. In case a foreign corporation has more than one subsidiary in Vietnam, the ultimate parent company must notify the Vietnamese tax authority in writing of the subsidiary designated to submit CbCR on behalf of the corporation. |
As shown in the table above, Decree 132 on related-party transactions has very specific regulations on the obligation to submit the Country-by-Country Report (CbCR) in cases where the ultimate parent company is located abroad. Clearly defining when Vietnamese businesses are not required to submit this report and when they are required to does so helps ensure transparency, consistency with international standards, and limits tax evasion. Businesses need to thoroughly understand these regulations to avoid penalties and proactively develop effective compliance strategies.
Updated Decree 255/2026/ND-CP on Country-by-Country Profit Reporting
Decree 255/2026/ND-CP inherits and replaces Decree 132/2020/ND-CP. Specifically, what changes does Decree 255 bring compared to the old regulations? Let's take a look at the following table with MAN – Master Accountant Network:
| Content | Decree 132 | Decree 255 |
| Consolidated revenue threshold | From 18,000 billion VND or more | 750 million EUR, converted according to the exchange rate published by the State Bank of Vietnam. |
| Determination period | Revenue during the tax period | The fiscal year immediately preceding the reporting year |
| Submission deadline | Submit annually | Submit once, and update within 90 days if changes occur. |
| Form | There are no specific regulations yet. | XML file |
| Conditions for submission in Vietnam | Not yet | Businesses in Vietnam must meet conditions regarding confidentiality, consistency, proper use, and transparency. |
| Differences in thresholds between countries. | Not yet | Cases where payment is not required have been recorded. |
Note: From July 1st, 2026, Decree 255/2026/ND-CP officially takes effect, and taxpayers only need to submit the Notification. once When the obligation first arises, the deadline is no later than the end of the fiscal year of the ultimate parent company of the reporting year. When there are changes to the information in the most recently submitted Notice, including cases of termination of the obligation, the enterprise must submit an updated Notice no later than the deadline. 90 days since the date the change occurred.
Conclude
Overall, Decree 255 on related-party transactions has brought about many significant changes compared to the previous Decree 132, from expanding the definition of related-party transactions, related parties, conditions for exemption from filing, to adding specific loans and stricter regulations on the obligation to submit the Country-by-Country Report (CbCR). These new points not only help the Vietnamese legal system approach international standards, but also enhance transparency, limit transfer pricing practices, and ensure fairness among businesses.
However, this comes with stricter compliance requirements. Therefore, businesses need to prepare complete documentation, clear evidence, and an effective tax management strategy to avoid the risk of tax assessments or penalties. This is especially important for businesses without prior experience. declaration of related party transactions, How to calculate EBITDA or if you require a more in-depth tax risk review, please refer to related party transaction advisory services This will help ensure compliance with regulations, optimize resources, and minimize errors during tax audits and inspections.
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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 (FAQs)
Do businesses with no related-party transactions have to treat interest income exceeding the 30% EBITDA threshold?
No. The limitation stipulated in point a, clause 3, Article 16 only applies to taxpayers who are related parties and have related-party transactions during the period.
Are any interest expenses that exceed the limit permanently lost?
No. According to point b, clause 3, Article 16, the non-deductible portion can be carried forward to the next tax period when the total deductible interest expense for that period is lower than the threshold, with a continuous carry-forward period of no more than 5 years from the year following the year in which it occurred.
Can exchange rate gains be deducted when calculating net interest expense?
No. Only interest on deposits and interest on loans arising during the period are offset in accordance with point a, clause 3, Article 16.
Does borrowing from commercial banks give rise to an obligation to process interest payments exceeding the 30% EBITDA threshold?
It depends on the case. If the lending institution does not participate in the management, control, capital contribution, or investment in the borrowing or guaranteeing enterprise, then that loan alone does not create an affiliated relationship. Conversely, when the loan simultaneously reaches the threshold of 25% of owner's equity and over 50% of the total value of medium and long-term debts in the context of other affiliated factors, the enterprise falls within the scope of application.
If no related-party transactions occur in a tax period, is it possible to carry forward non-deductible interest expense from the previous period?
No. The carryforward under point b, clause 3, Article 16 is only applicable when determining the total deductible interest expense according to point a, and this determination only applies to taxpayers who have related-party transactions during the period. In periods without related-party transactions, the enterprise is not within the scope of application and cannot include the outstanding balance from the previous period for deduction, while the 5-year period continues indefinitely.