What is the Decree 20 2025 on guidelines for declaring the Annex on related-party transactions in Vietnam?

What is the Decree 20 2025 on guidelines for declaring the Annex on related-party transactions in Vietnam?

On February 10, 2025, Decree 20/2025/ND-CP amending Decree 132/2020/ND-CP on tax administration for enterprises with related-party transactions was issued.

Decree 20/2025/ND-CP, effective from March 27, 2025, amends and supplements certain articles of Decree 132/2020/ND-CP regarding tax administration for enterprises engaged in related-party transactions.

Decree 20/2025/ND-CP replaces Appendix I - Information on Affiliate Relationships and related-party transactions, issued with Decree 132/2020/ND-CP, with Appendix I issued along with Decree 20/2025/ND-CP.

See detailed guidelines for declaring the annex on related-party transactions in Decree 20/2025/ND-CP: Click here

What is the Decree 20 2025 on guidelines for declaring the Annex on related-party transactions in Vietnam? (Image from the Internet)

What are the regulations regarding parties with related transactions in Vietnam?

According to Clause 2, Article 5 of Decree 132/2020/ND-CP, the specific provisions regarding parties with related transactions are as follows:

- An enterprise directly or indirectly holds at least 25% of the capital contribution of the owner of another enterprise;

- Both enterprises have at least 25% of capital contribution of the owner held directly or indirectly by a third party;

- An enterprise is the largest shareholder in terms of owner’s capital contribution and holds directly or indirectly at least 10% of the total shares of the other enterprise;

- An enterprise guarantees or lends to another enterprise under any form (including loans from a third party guaranteed by the financial resources of the affiliated party and similar financial transactions) with the condition that the loan amount is at least equal to 25% of the owner's capital contribution of the borrowing enterprise and accounts for over 50% of the total value of the medium and long-term liabilities of the borrowing enterprise;

- An enterprise appoints members of the executive management board or controls another enterprise with the condition that the number of members appointed by the first enterprise accounts for over 50% of the total number of members of the executive management board or controls of the second enterprise; or a member appointed by the first enterprise has the right to decide financial policies or business activities of the second enterprise;

- Two enterprises have more than 50% of the executive management members in common or have one executive management member with decision-making authority on financial policies or business activities appointed by a third party;

- Two enterprises are managed or controlled in respect of personnel, finance, and business activities by individuals who have one of the following relationships: husband, wife; biological parents, adoptive parents, stepparents, in-laws; biological children, adopted children, stepchildren of the wife or husband, daughter-in-law, son-in-law; siblings of full blood, half-blood on the father’s side, half-blood on the mother’s side, brothers-in-law, sisters-in-law of people with full blood, half-blood on the father’s side, half-blood on the mother’s side; paternal or maternal grandparents; grandchildren; uncle, aunt, uncle-in-law, cousins and nephews/nieces;

- Two business establishments have a relationship of headquarters and branch or both are branches of a foreign organization/individual;

- Enterprises controlled by an individual through that individual’s equity contribution into the enterprise or directly involved in managing the enterprise;

- Other cases where one enterprise has actual management, control, or decisive influence over the production and business activities of another enterprise;

- Enterprises have transactions involving a transfer or receipt of at least 25% of the capital contribution of the owner of the enterprise during the tax period; loans or borrowings at least 10% of the owner’s capital contribution at the time the transaction arises in the tax period with an individual managing, controlling the enterprise or with an individual having one of the relationships stipulated in point g, clause 2, Article 5 of Decree 132/2020/ND-CP.

What are the principles for determining taxable prices in related transactions in Vietnam?

According to Clause 5, Article 42 of the Law on Tax Administration 2019, the principles for tax declaration and calculation are regulated as follows:

Principles of Tax Declaration and Calculation

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5. Principles for declaration and determination of taxable prices for related transactions are regulated as follows:

a) Declaration and determination of related transaction prices according to the principles of analysis and comparison with independent transactions and the nature of transactions and activities that determine tax obligations to calculate tax obligations as if the transactions were between independent parties;

b) Related transaction prices are adjusted according to independent transactions to declare and determine the tax amount payable on the principle of not reducing taxable income;

c) Taxpayers of small scale, low tax risk are exempted from implementing regulations at point a, point b of this clause and are allowed to apply simplified mechanisms in the declaration, determination of related transaction prices.

6. Principles for tax declaration related to advance pricing agreements are regulated as follows:

a) The application of advance pricing agreements is based on requests from taxpayers, agreement between tax authorities and taxpayers through unilateral, bilateral, and multilateral agreements between tax authorities, taxpayers and foreign tax authorities, related territories;

b) The application of advance pricing agreements must be based on taxpayer information, commercial data with verified legal status;

c) The application of advance pricing agreements must be approved by the Minister of Finance prior to implementation; for bilateral or multilateral agreements with the participation of foreign tax authorities, it follows the law on international treaties, international agreements.

Thus, the principles for determining taxable prices in related transactions are as follows:

- Determining related transaction prices by analysis and comparison with independent transactions and the nature of transactions and activities that determine tax obligations to calculate tax obligations akin to conditions between independent parties;

- Related transaction prices are adjusted according to independent transactions to determine the tax amount payable on the principle of not reducing taxable income;

- Taxpayers of small scale, low tax risk are exempted from implementing regulations at point a clause 5 Article 42 of the Law on Tax Administration 2019, point b clause 5 Article 42 of the Law on Tax Administration 2019 of this clause and eligible to apply simplified mechanisms in determining related transaction prices.