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On February 10, 2025, the Vietnamese government issued Decree No. 20/2025/ND-CP, introducing significant amendments to Decree 132/2020/ND-CP. The new decree, effective from March 27, 2025, aims to enhance transparency in tax compliance related to transfer pricing and will apply from the financial year 2024 onwards.
Key Changes in Related Party Transactions
1. Revised Criteria for Determining Related Parties in Financial Borrowings
Decree 20 introduces new conditions for identifying an entity as a related party in financial borrowing transactions:
- The outstanding balance of covered borrowings must be:
- At least 25% of the borrower’s equity; and
- At least 50% of the total medium- and long-term liabilities.
Additionally, the decree exempts financial institutions from related party classification under two conditions:
- No Common Controllership
- The lender (financial institution) and borrower do not directly or indirectly control each other.
- The financial institution does not participate in the borrower’s management, capital contribution, or investment decisions.
- Shared Controllership
- Both the lender and borrower operate under the common control of a third party.
2. Supplementary Related Party Cases
Decree 20 expands definitions of related parties as follows:
- Branches as Related Parties
- A branch is considered a related party if it meets all of the following conditions:
- Operates independently;
- Pays Corporate Income Tax (CIT); and
- Is subject to actual management, control, and decision-making by another enterprise regarding its production or business activities.
- A branch is considered a related party if it meets all of the following conditions:
- Credit Institutions with Subsidiaries or Affiliates
- A credit institution is regarded as a related party if it has subsidiaries, controlling companies, or affiliates that meet the criteria outlined in the Law on Credit Institutions and its amendments.
3. Introduction of a New Appendix I Template
Decree 20 replaces the previous Appendix I – Disclosure of Related Parties and Related Party Transactions from Decree 132 with a revised version. The updated template, which takes effect from the financial year 2024, includes a more detailed classification of related party relationships.
Supervising Related Party Transactions
Under Decree 20, the State Bank of Vietnam (SBV) is responsible for providing foreign loan and debt repayment data to the Tax Authority upon request. The required information includes:
- Loan turnover
- Interest rates
- Interest and principal payment schedules
- Actual capital withdrawals
- Debt repayments (principal and interest)
- Other relevant financial details
Additionally, the SBV must coordinate the sharing of information regarding:
- Related persons of company executives, such as:
- Board of Directors members
- Board of Members members
- Board of Supervisors members
- General Director (Director), Deputy General Director (Deputy Director), and equivalent positions
- Shareholders owning 1% or more of the charter capital of the credit institution
- Affiliated companies of the credit institution, as listed in the SBV’s management database
Transitional Provisions for Taxpayers
For taxpayers that engaged in related party borrowing transactions with financial institutions under Decree 132 (2020-2023) but no longer qualify as related parties under Decree 20 (2024 onwards), the decree provides transitional relief that non-deductible interest expenses from 2020 can be allocated equally across 2024 and 2025 for deduction.
With the introduction of Decree 20, Vietnam strengthens its transfer pricing framework, ensuring greater transparency and compliance in related party transactions.
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