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Transfer Pricing in Vietnam: Filing, Documentation and Tax Risks

19 min readFLAT LAW FIRM
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This article analyzes transfer pricing Vietnam from a legal perspective. Transfer pricing is one of the areas Vietnam's tax authorities audit and inspect most aggressively for FDI companies. Almost every multinational group operating in Vietnam has related-party transactions — buying raw materials from the parent company, selling finished goods to sister companies, intra-group lending, and paying royalties and management fees. If these transactions are not priced under the arm's-length principle, the tax authority may reassess them, recover additional tax, and impose penalties. This guide covers transfer pricing in Vietnam: identifying related-party relationships, the arm's-length principle, filing duties, documentation requirements, the interest expense cap, and how to prepare for a transfer pricing audit.

Table of contents

1. What is transfer pricing and why do tax authorities care?

Transfer pricing is the setting of prices for goods, services, assets, and intellectual property in transactions between related parties — for example, a parent selling raw materials to its subsidiary, the subsidiary paying management fees to the parent, or group companies lending to one another. Because the parties share common control, transaction prices may not reflect market prices but instead serve profit allocation goals across countries — for instance, shifting profit out of Vietnam (where the tax rate is relatively high) to a lower-tax jurisdiction.

This is why transfer pricing is a tax-control priority in almost every country, and Vietnam is no exception. Vietnam's tax authorities may reassess related-party transaction prices under the arm's-length principle: the price that independent parties would have agreed under comparable conditions. If a company sets prices below arm's-length when selling to a related party (reducing taxable profit in Vietnam), the tax authority will reassess and recover the tax difference.

An important distinction: having related-party transactions does not equal a transfer pricing violation. What the tax authority examines is whether transaction prices comply with the arm's-length principle — and whether the company can prove it with documentation and data.

  • Decree 255/2026/ND-CP (promulgated 30/6/2026, effective 1/7/2026, applicable from the 2026 CIT period): the current instrument on tax administration for enterprises with related-party transactions — replacing Decree 132/2020/ND-CP and Decree 20/2025/ND-CP under Article 23 of Decree 255/2026/ND-CP. The Decree carries over the transfer pricing tax administration framework (definition of related-party relationships, comparability analysis principles, pricing methods, declaration and documentation duties, exemption thresholds, the simplified method, the interest expense cap) and adds several new points: raising the safe-harbor documentation exemption threshold from below VND 200 billion to below VND 500 billion in revenue; moving the Country-by-Country Report (CbCR) threshold to the 750-million-EUR OECD standard; expanding related-party determination to "borrowing and lending" transactions; and prescribing the priority order of comparable data sources.
  • The Law on Corporate Income Tax 67/2025/QH15 (effective 1/10/2025, applicable from the 2025 tax period): point d, clause 2, Article 9 authorizes the Government to cap interest expense for enterprises with related-party transactions; Article 16 allows loss carryforward for up to 5 years — a mechanism independent of the interest carryforward (see section 9).
  • The Law on Tax Administration 108/2025/QH15 (mainly effective from 1/7/2026): general rules on the tax authority's power to assess tax, conduct inspections, and impose administrative penalties for tax violations.
  • Ministry of Finance / tax authority guidance on related-party transaction audits and advance pricing agreements (APAs).

A timing note: Decree 132/2020/ND-CP and Decree 20/2025/ND-CP expired on 1/7/2026 and were replaced by Decree 255/2026/ND-CP (Article 23). For tax periods from 2026, companies apply Decree 255/2026/ND-CP; the provisions of Decree 132/2020 retain only historical reference value for pre-2026 tax periods. Companies currently carrying forward non-deductible interest expense under Decree 20/2025/ND-CP continue to carry it forward for the remaining period (Article 23 of Decree 255/2026).

Article 5 of Decree 255/2026/ND-CP (carried over from Decree 132/2020 and Decree 20/2025) lists the cases deemed related-party relationships. The most common for FDI companies:

  • One enterprise directly or indirectly holds at least 25% of the owner's capital of the other enterprise.
  • Both enterprises have at least 25% of the owner's capital directly or indirectly held by a third party (for example, two subsidiaries of the same parent).
  • One enterprise is the largest shareholder in terms of owner's capital and directly or indirectly holds at least 10% of the total shares of the other enterprise.
  • One enterprise guarantees or lends to another enterprise in any form (including loans from third parties secured financially and financial transactions of a similar nature), where the loan is at least 25% of the borrower's owner's capital and accounts for more than 50% of the borrower's total medium- and long-term debt. New: Decree 255/2026 adds a related-party case where an enterprise enters into "borrowing or lending" transactions with an individual who manages or controls the enterprise, or with an individual in one of the family relationships listed at point g of the same clause, amounting to at least 10% of the owner's capital at the time the transaction arises during the tax period (point l, clause 2, Article 5) — previously there was no rule on related-party relationships through borrowing/lending. Note: the rule does not identify which types of assets are covered by "borrowing or lending", nor how the 10% threshold is measured (at what point in time, book value vs. market value, etc.); companies should adopt a prudent measurement approach, keep supporting records, and watch for further tax authority guidance. For guarantee and loan transactions, the applicable test remains a loan of at least 25% of the owner's capital. Decree 255 also adds an exclusion for certain organizations 100% state-owned with debt purchase, sale and resolution functions.
  • One enterprise appoints members of the executive management or controlling body of another enterprise where the appointed members exceed 50% of the total, or an appointed member has the power to decide the financial or business policies of the other enterprise.
  • Family relationships: two enterprises operated or controlled in personnel, finance, and business by individuals in a marital relationship.

A key practical point: related-party relationships are not limited to the corporate group. A Vietnamese company borrowing heavily from a bank with a loan guaranteed by its parent may also fall into the related-party category under the loan criterion. Related-party reviews must therefore cover financial transactions, not just purchases and sales of goods and services. For more on the nature of these transactions, see related-party transactions in companies in Vietnam.

4. The arm's-length principle and pricing methods

The arm's-length principle is the core rule: a related-party transaction price is deemed compliant if it equals the price that independent, unrelated parties would agree under comparable transaction conditions. Applying the principle relies on comparability analysis — comparing the related-party transaction with comparable uncontrolled transactions, adjusting for material differences in functions, assets, risks, contractual terms, and economic circumstances.

Decree 255/2026/ND-CP (carrying over Decree 132/2020) sets out the transfer pricing methods, consistent with OECD guidance:

  • Comparable uncontrolled price method: directly comparing the related-party price with the price of a comparable uncontrolled transaction. Suitable for goods and services with public markets.
  • Resale price method: from the resale price to an independent party, deducting a reasonable gross margin to determine the appropriate purchase price. Commonly used for distributors.
  • Cost plus method: from cost plus a reasonable gross margin to determine the selling price. Commonly used for manufacturers and service providers.
  • Profit split method: allocating the combined profit of the related-party transaction among the parties according to functional, asset, and risk contributions. Used for complex transactions and intangibles.
  • Transactional net margin method: comparing the tested party's net profit margin with that of comparable independent companies. This is the most commonly used method in Vietnamese practice.

Companies must select the method most appropriate to the nature of the transaction and the quality of available comparable data, and must justify that choice in their documentation.

Every enterprise with related-party transactions in a tax period must declare information on related-party relationships and transactions under Appendix I issued with Decree 255/2026/ND-CP, filed with the CIT finalization return (the declaration duty is set out in Article 18 of Decree 255/2026/ND-CP). This is a duty independent of documentation preparation — even companies exempt from documentation must still file Appendix I.

Appendix I requires: information on related parties; the form of the related-party relationship; related-party transactions arising in the period (revenue and expenses by transaction type); the pricing method applied; and information on documentation exemption (if applicable).

A common mistake: many FDI companies assume "exempt from documentation" means "nothing to do on transfer pricing" and leave Appendix I blank or file it perfunctorily. In reality, Appendix I is the tax authority's "map" for selecting audit targets — incomplete or inconsistent declarations are the first red flag.

6. Transfer pricing documentation

Depending on scale and nature, companies with related-party transactions may need to prepare:

  • Appendix I: declared with the CIT finalization (mandatory for every company with related-party transactions).
  • The local file: describing the Vietnamese entity in detail — organizational structure, business operations, related-party transactions arising, functional-asset-risk analysis, the pricing method, and comparable data.
  • The master file: describing the multinational group as a whole — global organizational structure, business operations, intangibles, intra-group financial activities, and the group's financial and tax position.
  • The Country-by-Country Report (CbCR): applying to multinational groups whose ultimate parent must prepare this report, providing revenue, profit, and tax-paid figures by country.

Documentation must be prepared before the annual CIT finalization filing, retained, and presented at the tax authority's request (Article 18 of Decree 255/2026/ND-CP). When the tax authority requests documentation during the pre-audit consultation phase, the company must provide it within 30 working days of receiving the written request; where there is a legitimate reason, a one-time extension of up to 15 working days may be granted (Article 18 of Decree 255/2026/ND-CP).

For the Country-by-Country Report (CbCR): under Article 19 of Decree 255/2026/ND-CP, the ultimate parent company of a multinational group headquartered in Vietnam with consolidated global revenue in the fiscal year immediately preceding the reporting year equivalent to EUR 750 million or more must prepare and file the report per Appendix IV, no later than 12 months after the end of the ultimate parent's fiscal year. For Vietnamese taxpayers whose ultimate parent is abroad, Decree 255 also sets out CbCR-related obligations where the group meets the equivalent threshold — the report is filed in encrypted XML format through the tax administration information system. This changes the old rule (the VND 18,000 billion threshold under Decree 132/2020). New: taxpayers in scope must also file a Notification of CbCR filing entities on Form 01/TB-BCLN — filed only once, when the obligation first arises (from the Decree's effective date), no later than the end of the ultimate parent's fiscal year for the reporting year; any change to the notified information (including termination of the obligation) must be updated within 90 days of the change. Companies should complete documentation alongside their financial statements and tax finalization — preparing it late after receiving an audit notice is usually too late and undermines the documentation's credibility.

7. Declaration and documentation exemption cases

Article 20 of Decree 255/2026/ND-CP (carrying over and amending clause 2, Article 19 of Decree 132/2020) sets out the cases exempt from declaration and from preparing transfer pricing documentation. The main cases:

  • Exemption from declaration (sections III and IV of Appendix I) and from documentation when the company only transacts with related parties that are CIT taxpayers in Vietnam, applying the same CIT rate as the company and with neither side enjoying CIT incentives in the tax period — but the company must still declare the exemption basis in sections I and II of Appendix I (clause 1, Article 20).
  • The enterprise has revenue below VND 50 billion in the period and total related-party transaction value below VND 30 billion (point a, clause 2, Article 20).
  • The enterprise has signed an advance pricing agreement (APA) and complies with it (point b, clause 2, Article 20).
  • The enterprise earns no revenue and incurs no expenses from exploiting or using intangibles, has revenue below VND 500 billion (raised from below VND 200 billion under the old rule), and applies minimum net profit margins before interest and CIT at the prescribed levels for each sector (point c, clause 2, Article 20). An important new point: Decree 255 removes the "simple-function business" criterion — the exemption conditions are now entirely quantitative and objective.

An important caveat: documentation exemption does not mean related-party transactions are deemed accepted. The tax authority retains the right to examine arm's-length compliance; the company must still substantiate with data and explanations — it is simply not required to maintain the full prescribed documentation set.

8. The simplified method (safe harbor by profit margin)

Point c, clause 2, Article 20 of Decree 255/2026/ND-CP allows a simplified method as a "safe harbor": a company meeting all of the following conditions is exempt from preparing transfer pricing documentation (but must still file Appendix I in full):

  • It earns no revenue and incurs no expenses from exploiting or using intangibles.
  • Its revenue for the tax period is below VND 500 billion.
  • It applies a net profit margin before interest expense and CIT (excluding differences in financial-activity revenue and expenses) on net revenue of at least: distribution 5%, manufacturing 10%, processing 15%.

Compared with the old rule at point c, clause 2, Article 19 of Decree 132/2020, Decree 255/2026 has dropped the "simple-function business" condition and raised the revenue threshold from VND 200 billion to VND 500 billion — significantly widening the companies eligible. Even so, many companies consider themselves "simple" while actually conducting R&D, owning trademarks, or bearing significant market risk — in which case they do not qualify. Note: documentation exemption is not exemption from the declaration duty or from the duty to prove the conditions are met.

9. The interest expense cap

Clause 3, Article 16 of Decree 255/2026/ND-CP caps interest expense for companies with related-party transactions — one of the rules hitting FDI companies borrowing from parents or related parties hardest:

  • Total interest expense after deducting deposit interest and lending interest arising in the period, deductible in determining taxable CIT income, may not exceed 30% of the sum of net profit from business activities in the period plus interest expense after deducting deposit interest and lending interest arising in the period plus depreciation expense arising in the period.
  • Non-deductible interest expense may be carried forward to subsequent tax periods when determining total deductible interest expense, where the deductible interest arising in the subsequent period is below the prescribed level; the carryforward period runs continuously for no more than 5 years from the year following the year the non-deductible interest arose. This interest carryforward mechanism is independent of the loss carryforward under Article 16 of CIT Law 67/2025 — the two mechanisms must not be conflated.
  • The cap does not apply to loans of taxpayers that are credit institutions or insurance businesses; ODA loans and government preferential loans; loans implementing national target programs; and loans for programs and projects implementing state social welfare policies.

In other words, the "denominator" for the 30% cap is an EBITDA-like indicator specifically defined in the Decree — not pure accounting profit. Highly leveraged FDI companies should compute their deductible interest when preparing annual tax plans. Interest and royalties paid to foreign related parties may also attract foreign contractor tax — see foreign contractor tax in contracts with foreign partners.

10. Five typical transfer pricing risks for FDI companies

Risk 1: Multi-year losses while the group is profitable. A Vietnamese subsidiary losing money for 3–5 consecutive years while other group companies are profitable is a classic red flag triggering audits. The usual causes: overpriced raw materials from the parent or excessive service and royalty fees.

Risk 2: Management and royalty fees to the parent without substance. Tax authorities increasingly scrutinize intra-group service fees: were the services actually provided, did they benefit the Vietnamese company, and is the fee at market level? Vague fees without detailed contracts and work reports are easily disallowed in full.

Risk 3: Intra-group borrowing at off-market interest rates. Borrowing from the parent at rates significantly above bank rates for equivalent loans both violates the arm's-length principle and faces the 30% cap under clause 3, Article 16 of Decree 255/2026/ND-CP. Companies need comparable market interest rate analysis.

Risk 4: Inconsistency across reports. Related-party figures in Appendix I that do not match audited financial statements, CIT returns, or the group's CbCR prompt auditors to dig deeper. Data consistency must be checked before filing.

Risk 5: Documentation prepared after the fact, in response to an audit notice. Documentation hastily "built" after receiving an audit notice typically lacks updated comparable data and solid analysis, and its timestamps betray it. The tax authority discounts after-the-fact documentation — early preparation always costs less than reassessment.

For deeper analysis of risk scenarios, see transfer pricing risks in Vietnam.

11. Preparing for a transfer pricing audit

When receiving an inspection notice covering related-party transactions, companies should immediately:

  1. Review all existing documentation: Appendix I filings for prior years, local file, master file, CbCR (if any); check completeness and cross-document consistency.
  2. Reassess risk positions: identify transactions likely to be challenged (abnormally low margins, large intra-group fees, prolonged losses) and prepare explanations with supporting data.
  3. Prepare updated comparable data: ensure independent comparable company data remains valid for the audit period; supplement analysis where old documentation is thin.
  4. Assign a single point of contact: designate who compiles documents and responds to the audit team; every written explanation should be legally reviewed before submission.
  5. Evaluate negotiation and appeal options: if the audit concludes with a materially adverse reassessment, the company has the right to complain and litigate under the Law on Tax Administration — lawyers should assess this early during the audit, not after the final decision.

A note on risk management (Article 21 of Decree 255/2026/ND-CP). The tax authority applies risk-based management in transfer-pricing audits — focusing resources on files showing high-risk indicators rather than blanket audits. At the same time, the Country-by-Country Report (CbCR) may only be used for risk assessment and analysis; it must not be used as a direct basis for adjusting or determining the prices of related-party transactions. Companies should understand this limitation when building their defense strategy.

Practical experience: transfer pricing audits are typically lengthy and drill into business detail. Companies with well-prepared documentation, consistent data, and a professional response team close audits at far lower cost than companies reacting defensively. See also our guide to tax inspection for FDI companies.

12. Frequently asked questions

What is transfer pricing? Transfer pricing is the setting of prices for transactions between related parties that may not reflect market prices. Vietnam's tax authorities reassess related-party transaction prices under the arm's-length principle set out in Decree 255/2026/ND-CP (effective 1/7/2026, replacing Decree 132/2020/ND-CP and Decree 20/2025/ND-CP). Next step: check whether your company has related-party relationships under Article 5 of Decree 255/2026/ND-CP.

When is a company exempt from preparing transfer pricing documentation? Documentation exemption (the duty to declare related-party information still applies) applies when the tax period's revenue is below VND 50 billion and total related-party transaction value is below VND 30 billion — or in other exemption cases under Article 20 of Decree 255/2026/ND-CP (including revenue below VND 500 billion meeting the minimum sectoral profit margins). Exemption from documentation does not mean exemption from declaration. Next step: check the current period's revenue and related-party transaction value.

What does transfer pricing documentation include? Under Decree 255/2026/ND-CP, depending on scale: Appendix I filed with the CIT finalization; the master file; the local file; and the Country-by-Country Report (CbCR) for multinational groups meeting the threshold. Next step: determine which documentation your company must prepare and complete it with the tax finalization.

How is interest expense capped for companies with related-party transactions? Under clause 3, Article 16 of Decree 255/2026/ND-CP, deductible interest expense for CIT purposes is capped at 30% of the sum of net profit from business activities plus interest expense (after deducting deposit interest and lending interest) plus depreciation for the period — the excess may be carried forward for up to 5 years. This carryforward is independent of the loss carryforward under Article 16 of CIT Law 67/2025/QH15. Next step: compute deductible interest when preparing the annual tax plan.

How are transfer pricing violations penalized? The tax authority reassesses transaction prices under the arm's-length principle, recovers additional tax, and imposes late-payment interest and administrative penalties under the Law on Tax Administration; serious fraud may lead to criminal liability. Next step: self-review and adjust transaction prices before the tax authority audits.

How should a company prepare for a transfer pricing audit? Prepare complete Appendix I filings, master/local files (if required), independent comparable data, contracts and market-price evidence; check consistency across reports; and have a strategy for responding to the audit team. Next step: assign a point of contact and legally review every written explanation.

13. When to work with a lawyer

Transfer pricing matters call for lawyers — alongside tax/accounting specialists — in these situations:

  • The company is under audit or inspection on related-party transactions and needs a strategy for responding to and negotiating with the audit team.
  • The tax authority has issued an adverse reassessment conclusion; the company needs to evaluate complaint and litigation options.
  • The group is restructuring its supply chain or business model in Vietnam (converting from full-risk to limited-risk distributor, transferring intangibles) — transactions with major transfer pricing and tax consequences.
  • The company wants to sign an advance pricing agreement (APA) with the tax authority for legal certainty in future tax periods.
  • Large intra-group loan or guarantee transactions need structuring that complies with both transfer pricing rules and the interest cap.

Within an overall tax compliance framework for FDI enterprises, periodic reviews of related-party transaction risks help companies catch issues early. If your company faces any of these situations, contact FLAT Law Firm — hotline 0988424851.

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References

  • Decree 255/2026/ND-CP dated 30/6/2026 of the Government on tax administration for enterprises with related-party transactions, effective 1/7/2026, applicable from the 2026 CIT period (replacing Decree 132/2020/ND-CP and Decree 20/2025/ND-CP under Article 23)
  • Decree 132/2020/ND-CP (expired 1/7/2026; historical reference for pre-2026 tax periods only)
  • Decree 20/2025/ND-CP (expired 1/7/2026; transitional interest carryforward under Article 3 continues for the remaining period per clause 3, Article 23 of Decree 255/2026)
  • Law on Corporate Income Tax 67/2025/QH15, effective 1/10/2025, applicable from the 2025 tax period
  • Law on Tax Administration 108/2025/QH15, mainly effective from 1/7/2026
  • OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (reference)