New Decree On Tax Management For Enterprises With Related-Party Transactions

On November 5, 2020, the Government issued Decree No. 132/2020/ND-CP to amend and supplement several regulations on tax management for enterprises engaged in related-party transactions. These changes aim to enhance transparency in identifying related-party enterprises and controlling interest expense deductions. 

Part 1: Key Amendments and Supplements 

Section 1: Adjustments to the Definition of Related-Party Enterprises 

An enterprise is considered to have a related-party relationship if it provides guarantees or loans to another enterprise under the following conditions: 

• The total outstanding loan amount from a related party constitutes at least 25% of the borrowing enterprise’s equity. 

• The loan accounts for more than 50% of the borrowing enterprise’s total medium- and long-term outstanding debt. 

Exceptions where entities are not considered related parties: 

• The guarantor or lender is a bank or credit institution that does not participate in controlling or managing the borrowing enterprise. 

• The borrowing enterprise receives loans from a bank or credit institution that is not controlled by the same third party. 

Section 2: Regulations on Business Control 

• An enterprise is considered to have a related-party relationship with another enterprise if it effectively controls or manages the business operations of the other enterprise. 

• The definition of related-party relationships has been expanded to include credit institutions, subsidiaries, affiliated companies, and controlling companies of credit institutions. 

Section 3: Responsibilities of the State Bank of Vietnam 

• The State Bank of Vietnam (SBV) is responsible for providing information regarding loans, interest rates, and debt repayments of enterprises engaged in related-party transactions upon request from the tax authorities. 

• The SBV must also provide information about individuals and entities related to the enterprise as required by law. 

Section 4: Updates to Appendix I on Related-Party Transactions 

• The previous Appendix I has been replaced with a new Appendix I, which updates information on related-party relationships and transactions. 

Part 2: Transitional Regulations on Interest Expense Deductions 

For enterprises borrowing from credit institutions during the 2020–2023 period whose interest expenses were not deductible, starting in 2024, they may: 

• Case 1: If the enterprise no longer has a related-party relationship, the previously non-deductible interest expense can be carried forward to subsequent tax periods. 

• Case 2: If the related-party relationship still exists, the interest expense deduction will continue to follow the existing regulations. 

Part 3: Effective Date of the Decree 

• The Decree takes effect from March 27, 2025. 

• It applies to the corporate income tax (CIT) period starting from 2024. 

If your enterprise requires further consultation on the decree or related services, please contact Viet Uc Audit for free professional advice.

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Viet Australia Auditing Company is an independent auditing organization licensed and established in 2007 in the Socialist Republic of Vietnam.