Vietnam: Decree 20 of 2025 replaces Appendix I on related-party transactions of Decree 132

Vietnam: Decree 20 of 2025 replaces Appendix I on related-party transactions of Decree 132

The Government of Vietnam has recently issued Decree 20/2025/ND-CP, which amends and supplements certain articles of Decree 132/2020/ND-CP concerning tax management for enterprises engaging in related-party transactions.

Decree 20 of 2025 will take effect on March 27, 2025, and will be applicable from the 2024 corporate income tax period.

Decree 20 of 2025 issued Appendix I to replace Appendix I Information on Associated Relationships and related-party transactions issued with Decree 132/2020/ND-CP.

The content of Appendix I issued with Decree 20/2025/ND-CP consists of four sections as follows:

- Section I: Information on affiliated parties;

- Section II: Cases exempt from declaration and preparation of related-party transactions documentation;

- Section III: Information to determine related-party transactions;

- Section IV: Business results after determination of related-party transactions.

In addition to the four sections above, detailed guidance on how to declare the indicators is included.

Thus, enterprises will officially apply the template for Information on Associated Relationships and related-party transactions in Appendix I issued with Decree 20/2025/ND-CP from the 2024 corporate income tax period.

Vietnam: Decree 20 of 2025 replaces Appendix I on related-party transactions of Decree 132 (Image from the Internet)

What are the principles for related-party transactions in Vietnam?

According to Article 3 of Decree 132/2020/ND-CP, the principles for applying related-party transactions are specified as follows:

- Taxpayers with related-party transactions must eliminate factors that reduce tax obligations due to influence or control by associated relationships to declare and determine tax obligations for related-party transactions equivalent to independent transactions under similar conditions.

- Tax authorities manage, inspect, and audit taxpayers' related-party transactions according to the principle of independent transactions and the nature of activities and transactions deciding tax obligations corresponding to the values created from the nature of those transactions, not recognizing related-party transactions that do not follow the principle of independent transactions that reduce business tax obligations to the state budget, and make adjustments to those transfer prices to correctly determine tax obligations as prescribed by Decree 132/2020/ND-CP.

What are procedures for determination of costs for tax calculation for enterprises with related-party transactions in Vietnam?

According to Article 16 of Decree 132/2020/ND-CP, the determination of costs for tax calculation for enterprises with related-party transactions is as follows:

(1) Costs of related-party transactions not in line with the nature of independent transactions or not contributing to revenue and income generation for the taxpayer's production and business activities are not deductible when determining taxable corporate income, including:

- Payments to affiliated parties not involved in any production, business activities related to the taxpayer's industry, activities; having no interest or responsibility regarding assets, goods, services provided to the taxpayer;

- Payments to affiliated parties conducting production or business activities but with asset scale, employee number, and production and business functions not commensurate with the transaction value received from the taxpayer;

- Payments to affiliated parties residing in countries or territories not imposing corporate income tax, not contributing to the taxpayer's revenue, added value in production and business activities.

(2) Service costs between affiliated parties:

- Except for expenses specified at point b, clause 2, Article 16 Decree 132/2020/ND-CP, taxpayers can deduct service costs in the taxable expenses for the period if they meet the following conditions: The service provided has commercial, financial, economic value and directly serves the taxpayer's production and business activities; services from affiliated parties are identified as provided under conditions similar to those independent parties pay for these services; the service fee is paid based on the principle of independent transactions and the related-party transactions calculation method or allocation of service fees among affiliated parties must be uniformly applied within the entire group for similar services, and the taxpayer must provide contracts, documents, invoices, and information about the calculation method, allocation factors, and pricing policy of the group for the provided services.

In cases involving centers performing specialized function and synergy to create added value of the group, taxpayers must determine the total value created from these functions, determine an appropriate profit allocation corresponding to the contributions of affiliated parties after deducting (-) the equivalent service fee for affiliated parties performing coordination functions, providing services of similar independent transactions.

- Service costs are not deductible when determining taxable income, including: Costs incurred from services provided solely for the benefit or create value for other affiliated parties; services serving the interests of shareholders of affiliated parties; duplicate service charges provided by multiple affiliated parties for the same type of service, without determining any added value for the taxpayer; services essentially benefits received due to being a member of a group and costs that affiliated parties add for services provided by third parties through intermediaries not contributing additional value to the services.

(3) Total deductible loan interest expenses when determining taxable corporate income for enterprises with related-party transactions:

- Total loan interest expenses after deducting interest from deposits and loans incurred during the period, can be deducted when determining taxable corporate income, not exceeding 30% of the total net profit from business activities in the period plus loan interest expenses after deducting interest from deposits and loans incurred during the period plus depreciation expenses incurred during the taxpayer's period;

- The portion of non-deductible loan interest expenses as specified in point a of this clause can be carried forward to the next tax period when determining the total deductible loan interest expenses if the deductible expenses in the next tax period fall short of the cap specified in point a, clause 2, Article 16 of Decree 132/2020/ND-CP. The continuous carry-forward period for undeducted loan interest expenses is up to 5 years from the year following the year the expenses were incurred;

- The regulation at point a, clause 2, Article 16 Decree 132/2020/ND-CP does not apply to loans of taxpayers who are credit institutions under the Law on Credit Institutions; insurance business organizations under the Law on Insurance Business; official development assistance (ODA) loans, preferential loans of the Government of Vietnam for businesses to relend; loans for implementing national target programs (new rural development program and sustainable poverty reduction); loans for investment programs, projects executing the social welfare policies of the state (resettlement housing, housing for workers, students, social housing, and other public welfare projects);

- Taxpayers declare the interest expense ratio in the tax period according to Appendix I issued with Decree 132/2020/ND-CP.