The Government introduced Decree No. 20/2025/NĐ-CP (“Decree 20”) on 10 February 2025, to amend and improve certain aspects of Decree No. 132/2020/ND-CP (“Decree 132”) concerning the tax administration for enterprises involved in related-party transactions. This new decree will come into effect on 27 March 2025 and will apply to the 2024 fiscal year.
This article highlights the significant updates in Decree 20:
1. Clarification on Related Party relationships:
- The decree refines the definition of related-party relationships for credit institutions and independent branches, emphasizing the principle of substance over form.
- If guarantors or lenders are credit institutions without direct or indirect management, control, capital contribution, or investment in the borrowing enterprise or the entity receiving the loan guarantee, they will not be classified as related parties.
- Independent branches are explicitly included in the definition of related parties.
- Subsidiaries, controlling companies, or affiliated companies of credit institutions are considered related parties.
2. Enhanced Responsibilities of the State Bank of Vietnam (SBV):
The SBV is tasked with coordinating the provision of information regarding related persons associated with key positions within credit institutions, including members of the Board of Directors, General Directors, and shareholders holding at least 1% of the charter capital.
3. Treatment of Non-Deductible Interest Expenses:
- For enterprises that engaged in related-party transactions exclusively with credit institutions during the 2020–2023 period, the tax treatment from the 2024 tax period onward will vary based on their related-party relationships.
- If an enterprise does not have related-party transactions, any non-deductible interest expenses not yet carried forward by the end of the 2023 tax period will be evenly allocated and carried forward to future tax periods.
- Conversely, if related-party transactions exist, the handling of non-deductible interest expenses will align with the provisions of Decree No. 132.
4. Amendments to Appendix I:
Due to the updates in Decree 20, Appendix I of Decree No. 132 has been amended to ensure consistency with the new regulations.
Recommendations from RBA Group:
With these changes in related-party transactions and transfer pricing reporting, it is crucial for enterprises to proactively review and update their compliance strategies. This will ensure adherence to the new regulations and minimize potential tax risks.
For the latest insights and expert guidance on tax compliance related to related-party transactions in Vietnam, please contact us.
Disclaimer: This regulatory update is intended for general informational purposes only and is not tailored to any specific organization or individual. While we strive to provide accurate information, we cannot guarantee its accuracy at the time of reading. We recommend consulting with tax professionals to tailor our advice to your specific situations.
