FDI enterprises borrowing from their overseas parent companies should take note: from the 2026 corporate income tax year, the related-party transaction framework has changed comprehensively — Decree 255/2026/ND-CP replaces Decree 132/2020/ND-CP, while the 30% EBITDA cap on interest deductions remains in place.
This article analyzes the interest cap formula, the new scope of application, and what FDI firms should review immediately.
1. New legal framework from 1 July 2026
On 30 June 2026, the Government issued Decree 255/2026/ND-CP on tax administration for related-party transactions, effective 1 July 2026 and applicable from the 2026 corporate income tax year. It simultaneously replaces Decree 132/2020/ND-CP and Decree 20/2025/ND-CP.
Important: any documents still citing Decree 132/2020/ND-CP as current authority are outdated. The parent law is the Law on Tax Administration 108/2025/QH15 (effective 1 July 2026), which tasks the Government with detailing tax administration for related-party transactions.
2. The 30% EBITDA cap formula
Decree 255/2026/ND-CP maintains the rule: total deductible interest expense must not exceed 30% of EBITDA, where:
EBITDA = net profit from business operations + net interest expense (after subtracting deposit interest and lending interest) + depreciation and amortization.
Interest expense exceeding the cap is not deductible in the current period but may be carried forward to subsequent tax years when the interest-to-EBITDA ratio in those years falls below 30%.
Example: a company with net operating profit of VND 50 billion, net interest expense of VND 20 billion and depreciation of VND 10 billion → EBITDA = VND 80 billion → maximum deductible interest = VND 24 billion. The full VND 20 billion is deductible. If interest expense were VND 30 billion, the VND 6 billion excess must be carried forward.
3. Favorable change: bank loans are no longer related-party transactions
Inherited from Decree 20/2025/ND-CP, Decree 255/2026/ND-CP confirms that borrowing from credit institutions (commercial banks) is no longer treated as a related-party transaction, provided the bank has no control or capital-contribution relationship with the borrower.
As a result, the 30% EBITDA deduction limit does not apply to bank loans — removing a major barrier for highly leveraged businesses in real estate, manufacturing and trade.
4. Expanded scope: borrowing/lending transactions also create affiliation
Decree 255/2026/ND-CP adds affiliation through borrowing and lending transactions (similar to loans): where an enterprise borrows from or lends to an individual who operates or controls the enterprise in an amount of at least 10% of the owner’s contributed capital, a related-party relationship arises.
Practical note for FDI and family businesses: many subsidiaries “borrow” money from directors or parent companies interest-free without loan agreements, assuming no interest means no adjustment — such borrowing transactions may now pull the enterprise into the related-party regime with full declaration obligations.
5. What FDI enterprises should review now
- Review all intra-group loans (parent–subsidiary, sister companies) and recalculate the 30% EBITDA cap under the new formula;
- Check interest-free “borrowings” from directors or intra-group — assess whether the 10%-of-capital threshold triggers affiliation;
- Update filing forms: use the new Appendix I issued with Decree 255/2026/ND-CP for 2026 CIT finalization;
- For non-deductible interest arising before 2024: the uncarried balance is allocated evenly to subsequent periods over the remaining time (5 years from the year the expense arose).
6. Frequently asked questions
Q: Is a subsidiary’s loan from its overseas parent subject to the 30% cap?
A: Yes, if the parties are related (control or capital contribution) — intra-group loans are the classic case subject to the 30% EBITDA cap. Only loans from independent banks are excluded.
Q: Is the excess above 30% lost forever?
A: No — the excess is carried forward to subsequent tax years when that year’s interest-to-EBITDA ratio is below 30%, within the prescribed time limit.
Q: Does Decree 132/2020 still apply to the 2025 tax year?
A: Decree 255/2026 applies from the 2026 CIT tax year; earlier tax years follow the framework in effect at that time (Decree 132/2020 and Decree 20/2025). For 2026 finalization, use the new forms and rules.
An FDI enterprise needing to review its intra-group borrowing structure and 2026 related-party obligations? Contact us for advice.
This article was prepared by the FLAW AI Legal Council. The content is pending QA Council review before submission for approval; it is for reference only and does not replace legal advice for your specific situation.