Many businesses, when incurring loans from commercial banks, simply consider this a routine financial transaction, unrelated to the obligation to declare related-party transactions. In reality, this is not entirely true. Determining whether a bank loan constitutes a related-party transaction depends on several factors, such as the ratio of outstanding debt to equity, the proportion of medium and long-term debt, and especially the ownership and management relationship between the lender and the borrower. Ignoring this review step can easily lead to under-declaration, resulting in tax assessments or the exclusion of interest expense during corporate income tax settlement.
Effective from July 1, 2026, Decree 255/2026/ND-CP Regarding tax management for businesses with officially effective related-party transactions, replacing Decree 132/2020/ND-CP and Decree 20/2025/ND-CP, and applicable immediately from the corporate income tax period of 2026, this article, reviewed by MAN – Master Accountant Network's team of related-party transaction experts, will help businesses understand the principles, conditions, and specific cases to self-assess the determination of related-party transactions when borrowing from banks in their operations.
Why is it important to consider identifying related-party transactions when applying for bank loans?
For most businesses, bank loans are the most common source of financing for production, business operations, and expansion investments. However, not all bank loans fall outside the scope of the law on related-party transactions. As a general principle, Decree 255/2026/ND-CP stipulates that taxpayers with related-party transactions must exclude factors that reduce tax liability due to the influence of the related-party relationship, in order to declare and determine tax obligations equivalent to transactions between independent parties under the same conditions. This is the Arm's Length Principle, the overarching foundation of all anti-transfer pricing policies in Vietnam.
If a bank loan is identified as a related-party transaction, the business will face at least three consequences:
- Information regarding related-party relationships and transactions must be declared in the Appendix attached to the annual corporate income tax return.
- It may be necessary to create a Transfer Pricing Documentation file (except in cases eligible for exemption under the new revenue threshold).
- The corresponding interest expense risks being capped at the ceiling on deductible interest expenses when calculating corporate income tax, instead of being fully deductible like a regular commercial loan.
Because of the direct impact on deductible expenses and tax liabilities, it is advisable to identify related-party transactions when borrowing from banks at the beginning of the tax period, rather than waiting until the tax settlement date.
Principles for determining related-party transactions when borrowing from banks according to Decree 255/2026/ND-CP
Conditions regarding the ratio of outstanding loan balances and guarantees
According to Clause 2, Article 5 of Decree 255/2026/ND-CP, one of the most important criteria for determining related-party transactions when borrowing from banks is the condition regarding the loan-to-equity ratio. Accordingly, a related-party relationship is formed when one enterprise guarantees or lends capital to another enterprise in any form, including loans from third parties secured by the related-party's financial resources and financial transactions of a similar nature, provided that two factors are simultaneously satisfied:
- The total outstanding debt of the borrowing enterprise to the lending or guaranteeing enterprise must be at least equal to 25% of the owner's equity of the borrowing enterprise.
- At the same time, that total outstanding debt accounts for over 50% of the total outstanding debt of all medium and long-term loans of the borrowing enterprise.
This is a point that businesses must verify whenever a large loan is incurred. Only when both the 25% capital contribution threshold and the 50% medium- and long-term debt threshold are met can the relationship between the borrower and the lender or guarantor be determined as an affiliated relationship.
Exclusions specific to credit institutions
The key point that causes many businesses to misunderstand is that simply borrowing from banks exceeding 25% of equity capital and over 50% of total medium- and long-term debt does not automatically result in related-party transactions.
Decree 255/2026/ND-CP continues to inherit and update the regulations on capital exclusion that were established in Decree 20/2025/ND-CP: if the lender or guarantor is an economic organization operating under the Law on Credit Institutions 2024 (amended and supplemented by the Law on Credit Institutions 2025) and does not directly or indirectly participate in the management, control, capital contribution, or investment in the borrowing or guaranteed enterprise, then that loan is not considered a related-party transaction, regardless of whether the outstanding loan ratio exceeds the threshold or not.
In other words, when determining related-party transactions when borrowing from a bank, businesses need to answer two questions in the correct order:
- Is the lender a credit institution operating under the Law on Credit Institutions?
- If it is indeed a credit institution, does that bank simultaneously own equity stakes, appoint managers, or oversee the operations of the borrowing enterprise?
Only when a bank both provides a loan and holds equity or controlling interest in the borrowing company does the loan actually fall under the category of related-party transactions that must be declared.
A specific case for the organization buying and selling, handling state-owned debt 100%.
One notable new point of Decree 255/2026/ND-CPThis regulation adds an exclusion clause for creditors and guarantors that are state-owned organizations with the function of buying, selling, and handling debt. If these organizations do not directly or indirectly participate in the management, control, capital contribution, or investment in the debtor or guaranteed enterprise, the resulting relationship will not be classified as a related-party transaction. This regulation helps to accurately reflect the nature of debt trading transactions as technical handling operations, not aimed at controlling the enterprise.
Identifying related-party transactions when borrowing from banks: Common business scenarios.
To make identifying related-party transactions when borrowing from banks easier to understand, businesses can refer to the following common real-world scenarios:
Situation 1: Ordinary commercial loan
Company A borrowed 100 billion VND from a commercial bank to supplement its working capital. The bank does not own any equity stake in Company A, nor does it appoint representatives to the Board of Directors or the Executive Board. In this case, even if the outstanding loan balance exceeds 25% of equity capital and over 50% of medium- and long-term debt, the loan would not be classified as a related-party transaction, as it falls under the exclusion clause for independent credit institutions.
Situation 2: The bank is also a major shareholder.
Company B borrows capital from Bank X, and Bank X also owns 151 TP3T of Company B's charter capital and has a member on Company B's Board of Directors. If Company B's outstanding loan balance to Bank X reaches 251 TP3T of equity capital or more and accounts for over 501 TP3T of total medium- and long-term debt, the relationship between the two parties will be classified as an related-party transaction, because Bank X both lends and has ownership and participation in management.
Situation 3: Credit institutions and their subsidiaries and affiliated companies
According to Decree 255/2026/ND-CP, the relationship between a credit institution and its subsidiaries, companies controlled by the credit institution, or affiliated companies under the Law on Credit Institutions 2024 is always defined as an affiliated relationship, regardless of the loan balance ratio. This group of entities has a unique ownership structure within the banking and financial ecosystem, and therefore is regulated separately, distinct from the conditions of 25% equity capital and 50% total medium- and long-term debt.
Situation 4: Loan Guarantee from a Third Party
Company C borrows funds from another bank, but the loan is guaranteed by Company C's parent company. This case still falls within the scope of identifying related-party transactions when borrowing from a bank, because the economic nature of the transaction is that the parent company is indirectly providing credit to the subsidiary through a guarantee, even though the borrowed funds nominally originate from the bank.
From the four situations above, it can be seen that determining related-party transactions when borrowing from a bank cannot be done simply by looking at the name "bank loan" on the credit agreement, but must necessarily trace the nature of the ownership, management, and guarantee relationship behind that loan.
The impact of identifying related-party transactions when borrowing from banks on interest expense.
One of the most practical consequences of a bank loan being identified as a related-party transaction is that interest expenses may be subject to limitations when calculating corporate income tax. Under current regulations, the total deductible interest expense for determining taxable income of a related-party transaction enterprise cannot exceed a certain percentage of total net profit from business operations plus interest expense and depreciation expense (EBITDA). Any interest expense exceeding this threshold will not be deductible, increasing taxable income and the amount of corporate income tax payable.
Remarkable: The regulations on limiting interest expense do not apply to certain specific loan groups, including loans to taxpayers who are credit institutions under the Law on Credit Institutions 2024, loans to insurance companies, official development assistance (ODA) loans or preferential government loans, loans for national target programs, and loans for state-funded social welfare programs.
These are the cases that businesses need to carefully review before concluding whether their loans are subject to interest expense limits.
Because the impact on the amount of tax payable is very large, identifying related-party transactions when borrowing from banks should be done in parallel with reviewing the capital structure and debt-to-equity ratio right from the loan agreement negotiation stage, rather than waiting until the tax settlement period to address it.
What steps should businesses take to identify related-party transactions when borrowing from banks in accordance with regulations?
To proactively comply with Decree 255/2026/ND-CP and avoid the risk of having taxes assessed or interest expense disallowed during inspections, businesses should follow these steps sequentially:
- Review all currently valid credit agreements, clearly identifying whether the lender is a credit institution or another organization or individual, and also check the ratio of outstanding loans to equity capital and their proportion in total medium- and long-term debt.
- Verify the ownership and management relationship between the lender or guarantor and the business, including the capital contribution ratio and the number of members of the Board of Directors or Executive Board appointed by the lender.
- Determine whether the loan falls under the exclusion clause for independent credit institutions or state-owned debt resolution organizations (100%) to avoid over- or under-declaration.
- Prepare documentation proving the nature of the transaction, including the credit agreement, minutes of the Board of Directors meeting (if related to personnel appointments), and financial statements showing the debt and equity structure.
- Keep in mind the key implementation timelines: Decree 255/2026/ND-CP takes effect from July 1, 2026, applies from the corporate income tax period of 2026, and takes effect at the same time as Law on Tax Administration No. 108/2025/QH15.
This review process requires a deep understanding of both tax law and banking credit operations, which is why many businesses choose to undergo it. related party transaction advisory services From specialized units, experience ensures that related-party transactions when borrowing from banks are accurately identified from the beginning of the period, instead of having to passively explain them when tax authorities conduct an audit.
We work alongside businesses in identifying related-party transactions in accordance with Decree 255.
With over 30 years of experience in accounting, auditing, and taxation, MAN – Master Accountant Network understands that each credit agreement has its own unique characteristics regarding ownership structure and loan conditions. MAN's team of experts is ready to support businesses:
- Conduct a comprehensive review of all loans and bank guarantees to accurately identify which loans fall under the category of related-party transactions as stipulated in Decree 255/2026/ND-CP.
- Consulting services for preparing Transfer Pricing Documentation, or determining eligibility. Exemption from filing transfer pricing documentation..
- Calculate and control deductible interest expenses within the prescribed limits to avoid them being disallowed during corporate income tax settlement.
- Representing and defending related-party transaction records before tax authorities when requested for inspection or audit.
MAN – Master Accountant Network is a member of the Vietnam Association of Chartered Certified Accountants (VACPA), adhering to international accounting and auditing standards, giving businesses peace of mind regarding accuracy and legal validity throughout the entire consulting process., Create related party transaction records.
Conclude
Identifying related-party transactions when borrowing from a bank is not simply a matter of checking the name of the loan agreement, but rather a process of simultaneously comparing two elements:
- The ratio of outstanding debt to equity;
- And the total medium- and long-term debt, along with the nature of the ownership and management relationship between the lender and the borrowing enterprise.
According to Decree 255/2026/ND-CP, most loans from independent credit institutions, which do not participate in capital contribution or management, will not be considered related-party transactions. Conversely, when a bank is also a shareholder, a party that designates management personnel, or when a loan is guaranteed by a related party, the enterprise is required to declare and fully comply with its obligations regarding related-party transaction pricing.
Proactively reviewing the tax situation right from the beginning of the 2026 tax year will help businesses not only avoid the risk of tax assessments and disallowance of interest expense deductions, but also build a transparent and sustainable financial management foundation in the long term.
Contact MAN – Master Accountant Network To receive free expert support and advice on identifying related-party transactions when applying for bank loans for your business!
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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 Identifying Related-Party Transactions When Applying for Bank Loans
Is borrowing from a regular commercial bank considered a related-party transaction?
No, if the bank only performs lending or guarantee activities in accordance with its functions as a credit institution, without directly or indirectly participating in the management, control, capital contribution, or investment in the borrowing enterprise. This is an exception clearly stipulated in Clause 2, Article 5 of Decree 255/2026/ND-CP.
What loan-to-deposit ratio allows for related-party transactions when borrowing from a bank?
In principle, a related-party relationship is only formed when two conditions are simultaneously met: the outstanding loan balance reaches at least 25% of the owner's equity of the borrowing enterprise, and accounts for over 50% of the total outstanding medium and long-term debt of that enterprise. However, if the lender is an independent credit institution with no ownership or management stake, then even if the above two thresholds are met, it will not be classified as a related-party transaction.
Does a loan guaranteed by the parent company qualify as a related-party transaction when borrowing from a bank?
Yes. When a parent company guarantees a bank loan for its subsidiary, and the total guaranteed debt meets the conditions regarding the equity ratio and medium- and long-term debt, this transaction is still considered an related-party transaction, due to the economic nature of the parent company indirectly providing credit through the guarantee.
If a business has a parent company that is a credit institution, are loans from that bank always considered related-party transactions?
Yes. According to Decree 255/2026/ND-CP, the relationship between a credit institution and its subsidiary, controlled company, or affiliated company under the Law on Credit Institutions 2024 is always defined as an affiliated relationship, regardless of whether it meets the threshold of 25% capital contribution and 50% medium- and long-term debt.