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FAQ: What Is Transfer Pricing — When Must FDI Enterprises Prepare Documentation in Vietnam

15 min readFLAT LAW FIRM
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"Transfer pricing" is a phrase that makes many CFOs of FDI enterprises flinch at every tax audit season. But what exactly is transfer pricing, when does an intra-group transaction become a "related-party transaction" subject to declaration, and when is an enterprise legally required to prepare a full set of transfer pricing documentation — these are questions that demand precise answers under the instruments currently in force, including when to prepare transfer pricing documentation in Vietnam.

From 01/7/2026, the tax framework for related-party transactions has changed fundamentally: Decree 255/2026/ND-CP (Nghi dinh 255/2026/ND-CP) replaces Decree 132/2020/ND-CP and Decree 20/2025/ND-CP, applicable from the 2026 corporate income tax (CIT) year. This article answers the most frequently asked questions in strict accordance with the rules in force as of 27/9/2026.

Contents

1. What is transfer pricing? Is transfer pricing always illegal? {#muc-1}

Short answer: Transfer pricing is the pricing of transactions between related parties — for example, a Vietnamese subsidiary buying raw materials from its overseas parent, or paying service fees to a fellow group company. Transfer pricing is not illegal in itself; what is unlawful is pricing that departs from the arm's length principle in order to shift profits offshore or evade tax.

Explanation: Inside a multinational group, member companies buy from, sell to, lend to and provide services to one another every day — ordinary commercial activity. Tax law does not prohibit these transactions; it requires that their prices match what independent parties would agree on under comparable conditions. Only when an enterprise deliberately sets abnormally high purchase prices or abnormally low sale prices with related parties to "shift" profits to a lower-tax jurisdiction does the conduct cross the line into abusive transfer pricing.

Legal basis: Decree 255/2026/ND-CP (Nghi dinh 255/2026/ND-CP) on tax administration of related-party transactions (effective 01/7/2026, applicable from the 2026 CIT tax year).

What the enterprise should do: Before worrying about documentation, first determine correctly which parties your enterprise has related-party relationships with — that is question 2 below.

Short answer: When it meets one of the cases in Clause 2, Article 5 of Decree 255/2026/ND-CP. For FDI enterprises, the most common are: one party directly or indirectly holding at least 25% of the other's owner's contributed capital; two enterprises both having at least 25% of their capital held by a third party; one enterprise guaranteeing or lending to another in any form where the debt-ratio conditions are met; and relationships through lending or borrowing assets — a new point not covered by the previous Decree 132/2020/ND-CP.

Explanation: Many enterprises mistakenly believe that a related-party relationship only arises at 100% ownership — the actual threshold is just 25% of contributed capital. Related-party relationships are not about ownership alone: operational and actual control relationships, guarantees, loans, and asset lending between companies in the same ecosystem can all create related-party relationships. In the typical FDI model — a foreign parent holding 100% of its Vietnamese subsidiary — the related-party relationship is self-evident and beyond dispute.

Legal basis: Clause 2, Article 5 of Decree 255/2026/ND-CP.

What the enterprise should do: Map the ownership of the entire group and list every loan, guarantee and asset-lending arrangement among member companies — this "related-party map" is the foundation for all subsequent filing and documentation obligations.

Short answer: Every transaction arising between related parties is a related-party transaction: sale and purchase of goods, provision of services, lending and borrowing of funds, guarantees, leasing or borrowing of assets, transfer and exploitation of intangibles, and allocation of shared group costs.

Explanation: The key point that is most often misunderstood: the law identifies a related-party transaction by the nature of the relationship between the parties, not by whether the transaction generates a profit or charges a fee. An interest-free loan to a related company, an intra-group "no-charge" service contract, or the free use of a group brand without paying royalties — all remain related-party transactions and fall within the scope of declaration. "No fee charged" does not mean "no declaration required".

Legal basis: Articles 5 and 18 of Decree 255/2026/ND-CP.

What the enterprise should do: Compile a complete list of related-party transactions arising during the fiscal year — including non-fee and zero-interest transactions — before each tax finalization season.

4. What is the arm's length principle and how does the tax authority determine prices? {#muc-4}

Short answer: The arm's length principle requires the price of a related-party transaction to match what independent parties would agree on under comparable conditions. To verify this, tax authorities apply the prescribed related-party pricing methods: the comparable uncontrolled price method, the resale price method, the cost plus method, the profit split method and the transactional net margin method.

Explanation: Each method suits a different type of transaction. For example, the comparable uncontrolled price method is commonly used for goods where comparable market prices can be found; the cost plus method is typical for toll manufacturing or made-to-order production; the transactional net margin method is used where directly comparable uncontrolled transactions are hard to find. The common thread: the tax authority always needs comparability data — and an enterprise that proactively prepares its own benchmarking analysis is in a far stronger position than one that scrambles for historical data only once an audit begins.

Legal basis: the related-party pricing methods under Decree 255/2026/ND-CP.

What the enterprise should do: For each material group of related-party transactions, prepare a benchmarking analysis and supporting files at the time the transactions arise, instead of waiting until year-end.

5. What does transfer pricing documentation comprise? {#muc-5}

Short answer: Transfer pricing documentation is a three-tier package: the Local File (per Appendix II), the Master File (per Appendix III) and the Country-by-Country Report (per Appendix IV).

Explanation: The three tiers serve three different perspectives of the tax authority. The Local File describes the enterprise in Vietnam, its related-party transactions and the analysis proving those transactions comply with the arm's length principle — this is the tier most FDI enterprises in Vietnam must prepare. The Master File describes the organizational structure, business activities and transfer pricing policy of the entire group. The Country-by-Country Report aggregates information on the allocation of revenue, profit and taxes paid by country — it applies only at the global scale threshold (see question 10).

Legal basis: Article 18 of Decree 255/2026/ND-CP.

What the enterprise should do: First answer this question — when to prepare transfer pricing documentation Vietnam: must your enterprise prepare all three tiers or only the Local File? Most mid-sized FDI enterprises in Vietnam only need to focus on the Local File and the filing obligations.

6. When is an FDI enterprise exempt from preparing transfer pricing documentation? {#muc-6}

Short answer: Article 20 of Decree 255/2026/ND-CP provides two exemption tiers. The highest tier (Clause 1): an enterprise that only transacts with related parties that are CIT payers in Vietnam, subject to the same tax rate and with no party enjoying tax incentives — it is exempt from declaring the pricing determination in Sections III and IV of Appendix I and fully exempt from preparing documentation. The second tier (Clause 2): still files Appendix I in full but is exempt from preparing documentation if it falls into one of three cases — (a) total revenue for the tax year below VND 50 billion and total related-party transaction value below VND 30 billion; (b) having signed an Advance Pricing Agreement (APA) and submitted the full annual report; (c) generating no revenue or expenses from the exploitation or use of intangibles, with revenue below VND 500 billion and a net profit margin before interest and CIT over net revenue meeting the sector minimums: at least 5% for distribution, 10% for manufacturing, 15% for toll manufacturing.

Explanation: For FDI enterprises with an overseas parent or related parties abroad, the highest tier (Clause 1) is rarely available in practice because it requires all related parties to be in Vietnam. The more realistic route is the three cases under Clause 2 — particularly the 50/30 billion VND scale threshold for smaller enterprises and the profit-margin "safe harbor" for enterprises with revenue below VND 500 billion. Note that the VND 500 billion threshold is a significant relaxation from the VND 200 billion threshold under the previous Decree 132/2020/ND-CP.

Legal basis: Article 20 of Decree 255/2026/ND-CP.

What the enterprise should do: Assess the exemption conditions for each fiscal year, since revenue, transaction structure and profit margins change year to year — an exemption this year does not guarantee one next year.

7. If exempt from documentation, what must the enterprise still do? {#muc-7}

Short answer: Plenty. Exemption from preparing transfer pricing documentation does not mean exemption from all related-party obligations. Depending on the exemption tier, the enterprise must still declare its related-party relationships and the basis for exemption (Sections I and II of Appendix I) or file Appendix I in full — and in every case it must still determine total deductible interest expense under the 30% cap itself.

Explanation: This is the most common trap: many enterprises hear "exempt from documentation" and assume no related-party obligations remain. In fact, Clause 3, Article 20 is explicit: even where exempt, the taxpayer must still determine total deductible interest expense under Clause 3, Article 16 — i.e., total interest expense after deducting deposit interest and lending interest arising in the year may not exceed 30% of EBITDA (net business profit plus net interest expense plus depreciation); the excess is carried forward to subsequent tax years for no more than 05 years. Skipping this step means computing CIT incorrectly.

Legal basis: Clause 3, Article 20 and Clause 3, Article 16 of Decree 255/2026/ND-CP.

What the enterprise should do: Even when exempt from documentation, keep an annual obligations checklist: file Appendix I, compute the 30% interest cap, and retain documents proving the basis for the exemption.

8. What are the deadlines for preparing and submitting transfer pricing documentation? {#muc-8}

Short answer: The enterprise must prepare and keep on hand transfer pricing documentation before the annual CIT finalization return is due — because Appendix I, the related-party declaration, must be filed together with the finalization return. When the tax authority requests the documentation, the deadline is 30 working days, extendable only once by no more than 15 working days for a legitimate reason.

Explanation: This means the documentation must already exist before the tax authority asks — not built after an audit decision arrives. In practice many enterprises are caught off guard because they think "we will prepare it when asked", while 30 working days is far too short to build a compliant file from scratch, especially since benchmarking analysis requires a full year's data.

Legal basis: Article 18 of Decree 255/2026/ND-CP.

What the enterprise should do: Answer the question of when to prepare transfer pricing documentation Vietnam by building documentation into the enterprise's annual tax finalization timeline — start collecting data at the beginning of the fiscal year and finalize the file before the finalization return deadline.

9. What happens if an enterprise fails to prepare documentation when required? {#muc-9}

Short answer: The most severe consequence is that the tax authority may make a tax assessment (ấn định thuế) — reassessing the transaction prices, taxable income and tax payable of the enterprise itself. On top of that come back taxes, a 20% underdeclaration penalty on the tax shortfall (or a penalty of 1 to 3 times the evaded tax if the conduct is determined to be tax evasion) and late-payment interest.

Explanation: The basis for the assessment is clear: point i, Clause 2, Article 24 of the Law on Tax Administration No. 108/2025/QH15 (Luật Quản lý thuế số 108/2025/QH15) (effective 01/7/2026) allows the tax authority to make a tax assessment where the taxpayer fails to declare related-party transactions, fails to determine related-party prices, or fails to provide information on related-party transactions. In other words, not filing or not preparing documentation when required is effectively an invitation to be assessed — and once assessed, the enterprise loses all leverage in defending its own transaction prices.

Legal basis: point i, Clause 2, Article 24 of the Law on Tax Administration No. 108/2025/QH15; Article 7 of Decree 125/2020/ND-CP as amended by Decree 310/2025/ND-CP (effective 16/01/2026).

What the enterprise should do: Never let the enterprise fall into the position of "required to prepare documentation but having none". If you are unsure whether the exemption applies, assess under Article 20 before the finalization season — preparing documentation is always cheaper than an assessment decision.

10. When must a Country-by-Country Report (CbCR) be prepared? {#muc-10}

Short answer: When the group reaches the global scale threshold: a taxpayer that is an ultimate parent entity in Vietnam with consolidated global revenue in the fiscal year immediately preceding the reporting year of at least EUR 750 million must prepare and file the Country-by-Country Report per Appendix IV. An enterprise in Vietnam whose ultimate parent entity is overseas at the equivalent threshold also has related obligations concerning this report.

Explanation: This is the documentation tier reserved for large multinational groups — the EUR 750 million consolidated global revenue threshold excludes the vast majority of mid-sized and small FDI enterprises in Vietnam. However, even where the Vietnamese subsidiary is not the reporting party, the enterprise still needs to know whether its group is subject to CbCR at the parent level, because tax authorities — including Vietnam's — exchange this report with one another.

Legal basis: Article 19 of Decree 255/2026/ND-CP.

What the enterprise should do: Ask the parent company about the group's consolidated global revenue; if it is approaching the EUR 750 million threshold, coordinate with the parent on CbCR obligations early.

Short answer: The instruments of each respective tax year apply. Decree 255/2026/ND-CP is effective from 01/7/2026 and applies from the 2026 CIT tax year; the 2025 and earlier tax years are governed by Decree 132/2020/ND-CP and Decree 20/2025/ND-CP. The two old decrees expired on 01/7/2026.

Explanation: The most practically significant difference between the two frameworks lies in the profit-margin documentation exemption threshold: Decree 132/2020/ND-CP (Article 19) required revenue below VND 200 billion, while Decree 255/2026/ND-CP (Article 20) relaxes it to below VND 500 billion — the other thresholds (VND 50/30 billion, margins of 5%/10%/15%) are essentially unchanged. Enterprises with multi-year related-party transactions must classify filing and documentation obligations strictly by each tax year: the new rules cannot be applied retroactively to old years — and conversely, a "contract signed before the new decree took effect" is no excuse for skipping the 2026 tax year's obligations.

Legal basis: Article 23 of Decree 255/2026/ND-CP.

What the enterprise should do: Review all ongoing related-party transactions, classify obligations by tax year, and complete any missing documents before the 2026 tax finalization — the first tax year governed by Decree 255/2026/ND-CP.

When an FDI enterprise should work with a lawyer on transfer pricing {#muc-luat-su}

Transfer pricing is an area where "getting it right from the start" is always cheaper than "explaining yourself during an audit". An FDI enterprise should work with a lawyer when: it is newly established or restructuring the group and needs to map its related-party relationships; it is about to sign material transactions with related parties (sale of goods, service fees, loans, transfer of intangibles); it needs to build transfer pricing documentation for the finalization season; it is unsure whether it qualifies for a documentation exemption; or it is under tax audit or inspection and being questioned about related-party transactions.

FLAT LAW FIRM advises FDI enterprises comprehensively on related-party transactions and transfer pricing: reviewing related-party relationships, assessing documentation exemption conditions, building transfer pricing documentation, computing the interest-expense cap, and representing clients before tax authorities during audits and inspections. Contact our hotline 0988424851 for advice on your enterprise's specific situation.

References

  • Decree No. 255/2026/ND-CP dated 30/6/2026 on tax administration of related-party transactions (effective 01/7/2026, applicable from the 2026 CIT tax year)
  • Decree No. 132/2020/ND-CP dated 05/11/2020 (expired 01/7/2026) and Decree No. 20/2025/ND-CP dated 10/02/2025 (expired 01/7/2026) — applicable only to obligations for the 2025 and earlier tax years
  • Law on Tax Administration No. 108/2025/QH15 (effective 01/7/2026)
  • Law on Corporate Income Tax No. 67/2025/QH15 (effective 01/10/2025, applicable from the 2025 tax year)
  • Decree No. 125/2020/ND-CP dated 19/10/2020 on administrative penalties for tax and invoice violations (as amended by Decree No. 310/2025/ND-CP, effective 16/01/2026)