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ASEAN Tax: Vietnam reforms on Related Party Transactions with Financial Institutions

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​​​On February 10, 2025, the Government of Vietnam issued Decree 20/2025/ND-CP (“Decree 12”), amending and supplementing the provisions of Decree 132/2020/ND-CP (“Decree 132”) governing tax administration for enterprises engaging in related-party transactions. 
     
This new decree is effective from the financial year 2024 onwards and aims to clarify the definition of related parties, to enhance the responsibilities of key regulatory bodies, particularly the State Bank, and tp update the reporting and documentation requirements for related-party transactions, thereby promoting transparency and compliance in tax management.
       

The salient points of Decree 20 are as follows:

  1. Revised definition of related parties to align with changes in the Law on Credit Institutions. Related parties now include affiliates of credit institutions under the new law. 
  2. Limits the classification of third-party lenders or guarantors as related parties. Lenders, guarantors, and credit institutions will not be considered related parties unless they engage in “management, control, capital contribution or investment” in the borrowing entity. 
  3. Under Decree 132, non-deductible interest expenses can be carried forward to subsequent tax years and deducted if the net interest expense / EBIDTA ration is below 30% in those years. The changes to Decree 20 to the definition of related party relationships regarding the borrowing criteria is applicable from 2024 onwards. Decree 20 provides that non-deductible interest expenses as of the end of 2023 shall be equally allocated to the respective remaining years for claiming deduction in such years. 
  4. Extends the responsibilities of the State Bank of Vietnam to provide information on related individuals and companies of credit institutions upon request from tax authorities. 
  5. Includes a new version of Appendix 1 of the TP Declaration Form, incorporating the changes brought about by Decree 20 to enhance transparency and reporting efficiency. 
      
Decree 20 represents a significant step forward in the tax administration of related party transactions. By providing clearer definitions, enhancing inter-agency cooperation, and updating documentation and reporting requirements, Decree 20 is designed to reduce the compliance burden for taxpayers while also increasing transparency and compliance. Taxpayers are advised to review their current tax management systems and update their reporting practices promptly to align with the new regulatory framework and mitigate potential compliance risks. 

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