Vietnam: New decree amending transfer pricing regulations

04 Mar 2025    2 minute read

In brief

On 10 February 2025, the government issued Decree No. 20/2025/ND-CP ("Decree No. 20"), amending certain articles of Decree No. 132/2020/ND-CP, which governs transfer pricing regulations ("Decree No. 132"). The amendments introduced in Decree No. 20 seek to address the issue of a deemed related party relationship with financial institutions, which previously caused certain interest expense deductions to be denied under Vietnam's interest limitation rule. Decree No. 20 will take effect on 27 March 2025 and apply from tax year 2024. 

Contents

Key takeaways

The key amendments introduced in Decree No. 20 include the following:

  • Redetermination of a related party relationship between lenders and borrowers
  • Supplementation of new cases where entities are considered related parties
  • Replacement of Form 01 on related parties and related party transactions
  • Retroactive deduction of previously disallowed interest expenses due to a related party relationship under Decree No. 132

In more detail

  1. Redetermination of a related party relationship between lenders and borrowers

Decree No. 20 introduces two key amendments to determine the existence of a related party relationship between lenders and borrowers, as follows:

  • First, a related party relationship between a borrower and a lender (including guarantors) is established if the total outstanding loan balance (or guarantees) is at least 25% of the borrower's owner's equity and accounts for 50% or more of the borrower's total outstanding medium- and long-term loan balance. Under the previous regulations in Decree No. 132, it was not explicitly stated that this threshold applied to the total outstanding loan balance.
  • Second, the above condition does not apply if the lender (or guarantor) is a financial institution operating under the Law on Credit Institutions and does not participate in the management, control, capital contribution or investment in the borrowing entity, or both parties are under common management, control, capital contribution or investment by a third party.
  1. Supplementation of new cases where entities are considered related parties

Under Decree No. 20, an independently accounted branch that declares and pays corporate income tax will be deemed to have a related party relationship if it is effectively managed, controlled or subject to decision-making by another enterprise.

Additionally, Decree No. 20 expands the scope of related party relationships to include credit institutions and their subsidiaries, controlled companies or affiliated companies, as stipulated under the Law on Credit Institutions.

  1. Replacement of Form 01 on related parties and related party transactions

Decree No. 20 replaces Form 01 of Decree No. 132 to provide additional guidance and update the template in light of the newly introduced cases outlined in Section 2 above.

  1. Retroactive deduction of previously disallowed interest expenses due to a related party relationship under Decree No. 132

Due to the redetermination of related party relationships between borrowers and lenders (including guarantors), interest expenses previously disallowed for corporate income tax purposes in tax periods of 2020, 2021, 2022 and 2023 will be reassessed, allocated and carried forward to subsequent tax periods in accordance with the interest expense carryforward provisions under Decree No. 132.

Contact Information
Thanh Vinh Nguyen
Partner at BakerMcKenzie
Ho Chi Minh City
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thanhvinh.nguyen@bmvn.com.vn

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