An intra-group loan between parent and subsidiary may look like “family business,” but Vietnamese law treats it as a fully obligated transaction: the related-party relationship must be identified, internal approval must come before signing, interest is subject to a statutory cap, and interest expense is subject to a tax deduction cap. Missing any link can render the contract voidable or get the interest expense disallowed at tax finalization.
1. Identify the related-party relationship before signing
Decree 255/2026/ND-CP on tax administration for enterprises with related-party transactions (effective 1 July 2026, replacing Decrees 132/2020/ND-CP and 20/2025/ND-CP per Article 23) provides in Article 5, Clause 2(a): an enterprise directly or indirectly holding at least 25% of the owner contributed capital of another enterprise creates a related-party relationship. A parent holding 25% or more of the subsidiary charter capital is therefore already in a tax-law related-party relationship — triggering the full transfer pricing duty set (arm’s length pricing, disclosure, documentation). Never cite Decree 132/2020 for any current related-party content (the 25% threshold, the interest cap, disclosure) — everything now sits under Decree 255/2026.
2. Internal approval is a validity condition — sign first, approve later is a risk
Multi-member LLC — Article 67 of the Enterprise Law 59/2020: Clause 1(c)–(d) — contracts and transactions between the company and managers of the parent company, persons authorized to appoint managers of the parent company and their related persons → must be approved by the Members Council. Clause 2: the signatory must notify Members Council members and Controllers of the related counterparty and interests, enclosing the draft contract; the Members Council decides to approve or not within 15 days (unless the charter provides otherwise); members with related interests are excluded from voting. Clause 3: contracts signed in breach → void under a court decision; the signatory and related members must compensate damages and return gains to the company.
Joint-stock company — Article 167 of the Enterprise Law: Clause 2 — the Board of Directors approves contracts and transactions with related persons (including shareholders holding over 10% of ordinary shares and their related persons) valued at less than 35% of total asset value in the latest financial statements; decision within 15 days; BOD members with related interests do not vote. A parent company is typically a shareholder above 10% → a parent–subsidiary loan very easily falls into the pre-signing approval category.
Article-number note: the LLC rule is Article 67 (not Article 162 — that was the 2014 Enterprise Law numbering); the JSC rule is Article 167 of the 2020 Enterprise Law. Signing first and approving later is a direct legal risk to the contract.
3. Arm’s length interest and the 20% annual cap
Article 468 of the 2015 Civil Code:
- Clause 1: interest is agreed by the parties but must not exceed 20% per year of the loan amount; the excess portion is ineffective;
- Clause 2: where the parties agree on interest payment but do not clearly determine the rate and a dispute arises → the rate is 50% of the limit at the time of repayment, i.e. 10% per year.
On the tax principle: 0% or abnormally low interest versus the market rate → risk of tax imposition under the arm’s length principle within the Tax Administration Law 108/2025/QH15 (replacing Law 38/2019 from 1 July 2026). Do not advise “0% loans to avoid tax” or ways around the cap — that is imposition risk, not optimization. Enterprises may lend to each other under Article 463 of the Civil Code and Article 7 of the Enterprise Law where lending is not regular and not of a business nature.
4. The 30% deductible interest expense cap
Within the Decree 255/2026 related-party framework (inheriting the old framework): total interest expense after deducting deposit interest and lending interest deductible in determining corporate income taxable income must not exceed 30% of the sum of net profit from business operations plus interest expense after deduction plus depreciation expense; the excess portion is carried forward to subsequent tax periods, maximum 5 consecutive years.
In practice: compute this deduction cap before finalizing the interest rate and loan size — a high rate or large loan can create immediately non-deductible expense affecting tax cash flow. Run the calculation within the new progressive rate framework of the Corporate Income Tax Law 67/2025/QH15 (effective 1 October 2025): 15% (prior-year revenue up to VND 3 billion), 17% (over 3 to 50 billion), 20% (standard rate) — never cite Law 14/2008 with a fixed 20% rate. Additional note: Vietnamese law has no separate thin capitalisation rule beyond the 30% interest deduction cap in the related-party framework — do not write “the law caps the debt-to-equity ratio” as a hard rule.
5. Related-party disclosure and foreign exchange duties
Disclosure: related-party transaction information is disclosed under Appendix I of Decree 255/2026, filed with the annual corporate income tax finalization return (applicable from tax year 2026). Never use the old Appendix I form of Decree 132/2020.
Foreign element: if the parent is overseas, check the duty to register the foreign loan with the State Bank of Vietnam under the SBV’s current documents (no article numbers cited without checking the latest consolidated text). On contractor tax for the loan: Circular 103/2014/TT-BTC expired on 1 July 2026; the new framework is Circular 20/2026/TT-BTC and Circular 69/2025/TT-BTC — do not cite Circular 103/2014 for loan tax duties.
Documentation discipline: the loan contract in writing, payment by bank transfer, full records of disbursement – repayment – interest payment kept. This article is limited to the case where the parent is an organization directly holding capital; indirect or more complex ownership structures are mentioned only as a warning to seek separate advice.
Frequently asked questions
What holding creates a related-party relationship?
Directly or indirectly at least 25% of the other enterprise’s owner contributed capital (Article 5, Clause 2(a) of Decree 255/2026).
Does a parent–subsidiary loan need internal approval?
Yes. LLC: Members Council approval before signing (Article 67); JSC: BOD approval if valued at less than 35% of total assets (Article 167, Clause 2). Improperly signed contracts may be declared void with compensation.
What is the maximum loan interest rate?
Not exceeding 20% per year as agreed (Article 468 of the Civil Code); the excess is ineffective. Unclear rate in dispute → 10% per year applies.
How much interest expense is deductible?
Not exceeding 30% (after deducting deposit and lending interest), the excess carried forward up to 5 consecutive years — within the Decree 255/2026 related-party framework.
Legal references
- Decree 255/2026/ND-CP (effective 1 July 2026, replacing Decrees 132/2020 and 20/2025): Article 5 (related-party relationship); Appendix I (related-party disclosure).
- Enterprise Law 59/2020/QH14 (amended by Law 76/2025): Article 7 (enterprise rights); Article 67 (related-person transaction approval — LLC); Article 167 (related-person transaction approval — JSC).
- Civil Code 91/2015/QH13: Article 463 (property loan contracts); Article 468 (interest rate).
- Corporate Income Tax Law 67/2025/QH15 (effective 1 October 2025): progressive rates 15%/17%/20%.
- Tax Administration Law 108/2025/QH15 (effective 1 July 2026, replacing Law 38/2019): tax imposition framework.
Planning an intercompany loan between parent and subsidiary and need a review of internal approvals and transfer pricing obligations? Contact FLAT Law Firm via the Contact page.
The information above is for reference only and does not constitute legal advice.
Transparency note: This article was drafted by FLAT Law Firm’s AI content production system and will be reviewed by the internal review board (AI Legal Council) before publication; it has not been reviewed by a human lawyer.