Transfer Pricing of Intercompany Loans and Interest Expenses in Vietnam

Intercompany loans involving a Vietnamese company are subject to two distinct tax tests. Vietnam can adjust the pricing of financing between related parties where it does not satisfy the arm’s-length principle, while a separate rule restricts the amount of net interest expense deductible for corporate income tax (CIT) purposes.

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Vietnam updated its transfer pricing framework in July 2026. The new rules, effective from July 1 and applicable from the 2026 CIT period, cover related-party relationships, arm’s-length analysis, interest deductibility, transfer pricing documentation, and tax administration.

When an intercompany loan falls within Vietnam’s transfer pricing rules

Vietnam’s related-party rules can apply to financing between a Vietnamese company and its foreign parent, entities under common ownership or control, and certain relationships created through lending or guarantees.

Financing itself can create a related-party relationship. In specified lending or guarantee relationships, the outstanding financing must be at least 25 percent of the borrower’s owner’s equity and exceed 50 percent of its total outstanding medium- and long-term debt.

This can bring financing within the related-party rules even where the lender does not hold an equity interest in the Vietnamese borrower.

How Vietnam determines an arm’s-length interest rate

An intercompany interest rate must reflect the conditions that independent parties would have agreed in comparable circumstances. Neither a general market lending rate nor a group-wide internal rate establishes an arm’s-length price where the Vietnamese borrower’s credit profile or financing terms differ materially from those underlying the reference rate.

For financing transactions, comparability can depend on the currency, maturity, security, repayment structure, seniority, borrower creditworthiness, and market conditions when the loan was entered.

A five-year unsecured loan to a Vietnamese subsidiary with limited credit history, for example, is not directly comparable with a short-term secured bank facility solely because both are denominated in the same currency.

Vietnam’s standard arm’s-length range runs from the 35th to the 75th percentile, with the 50th percentile representing the median. Where sufficiently reliable comparables are available, and material differences can be eliminated, a taxpayer whose pricing falls within the relevant arm’s-length range is generally not required to adjust. Where the tax authority makes an assessment using the standard range, the median is used.

For loan benchmarking, Vietnam’s 2026 framework establishes an order of priority for transfer pricing data: public and official sources receive the highest priority, followed by commercial databases and then tax-administration databases. The rules separately prioritize internal comparables when selecting independent comparables, followed by comparables from the same country or territory and then suitable regional comparables.

How the 30 percent EBITDA interest limitation applies

For enterprises with related-party transactions, Vietnam generally limits deductible net interest expense to 30 percent of the applicable EBITDA measure. Net interest expense for this calculation is determined after subtracting deposit and lending interest income arising during the tax period.

Qualifying interest exceeding the ceiling can be carried forward when deduction capacity becomes available in subsequent periods. The carry-forward is limited to five consecutive years following the year in which the non-deductible interest arose.

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The 30 percent limitation does not apply to specified categories, including borrowing by credit institutions and insurers, qualifying official development assistance and government concessional financing, loans implementing national target programs, and financing for specified social-welfare projects.

Tax treatment of interest paid to an overseas related party

Interest paid by a Vietnamese company to a foreign related-party lender can constitute Vietnam-sourced income of the foreign recipient and be subject to Vietnamese tax. Following changes to Vietnam’s corporate income tax framework in 2026, the treatment depends on the applicable domestic regime, the status of the foreign lender, the timing and terms of the financing arrangement, and any double taxation agreement with the lender’s jurisdiction.

A treaty provision affecting Vietnam’s taxation of the foreign lender does not determine whether the corresponding interest expense satisfies Vietnam’s transfer pricing requirements or the 30 percent interest deduction limitation.

How an interest adjustment affects the Vietnamese borrower

If the tax authority determines that the interest charged by a related party exceeds an arm’s-length amount, reducing the deductible expense increases the Vietnamese borrower’s taxable income.

For a company subject to the standard 20 percent CIT rate, for example, a VND 5 billion (US$191,300) reduction in deductible interest would correspond to VND 1 billion (US$38,300) in additional CIT, before applicable late-payment interest or penalties.

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The treatment differs where the interest rate is arm’s length but part of the expense exceeds the 30 percent limitation. Qualifying excess interest can remain available under the five-year carry-forward mechanism. An amount rejected because the related-party pricing itself is not arm’s length does not become deductible simply because unused interest-deduction capacity becomes available in a later period.

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