Services

In addition to declaration and documentation obligations, enterprises with related-party transactions are subject to a cap on deductible interest expenses for CIT purposes. This is one of the items most frequently adjusted by the tax authority during audits.

1. The interest expense cap

Under Decree 132/2020/ND-CP (in Vietnamese) (as amended and supplemented), total interest expenses incurred in the period (after deducting deposit interest and lending interest income) deductible for CIT purposes must not exceed 30% of the sum of net profit from business activities, plus interest expenses (after deducting deposit interest and lending interest income), plus depreciation expenses incurred in the period – commonly called 30% of EBITDA.

• Non-deductible interest is carried forward to subsequent tax periods when determining deductible interest, for a continuous period of no more than 5 years from the year following the year it arose.
• The cap applies to the total interest expenses of an enterprise with related-party transactions, not only to loans from related parties.
• The CIT Law No. 67/2025/QH15 continues to treat interest paid by enterprises with related-party transactions in excess of the limit under tax administration regulations as non-deductible.

2. Example

In 2025, Company A (with related-party transactions) has net profit from business activities of VND 10 billion, net interest expenses of VND 8 billion and depreciation of VND 2 billion. EBITDA = 10 + 8 + 2 = VND 20 billion. Maximum deductible interest = 30% × 20 = VND 6 billion. The remaining VND 2 billion of interest is non-deductible in 2025 and carried forward to subsequent years (up to 5 years).

3. Common risks in related-party transaction audits

• Failing to declare or under-declaring related parties and transactions on Form 01.
• Not preparing or preparing a weak Local File, or failing to provide it on time when requested – giving the tax authority grounds to assess tax under the Law on Tax Administration and Decree 252/2026/ND-CP.
• Continuous losses while the group is profitable, or profit margins below the arm's length range.
• Intra-group service fees, management fees and royalties paid to the parent company without evidence of actual benefit.
• Inappropriate comparables or outdated comparable data.
• Miscalculating the interest cap, omitting deposit interest, lending interest or depreciation.

4. ATAX recommendations

1. Calculate the interest cap when preparing financial plans and consider the debt-to-equity structure.
2. Prepare complete transfer pricing documentation before the CIT finalisation deadline and be ready to provide it on request.
3. Establish a clear transfer pricing policy and intra-group agreements, keeping evidence of service benefits.
4. Review related-party transactions periodically, especially when the business model changes.

See also: What are related-party transactions? Key information for enterprises (in Vietnamese).

Contact ATAX for an initial free consultation and a fee proposal for transfer pricing documentation: https://atax.vn.