Scenario: a parent needs to put USD 10 million into a new subsidiary. Two options: equity or an intercompany loan. In Vietnam, Indonesia, Malaysia — which is tax-cheaper, and what is each country’s trap?
Vietnam: deductible interest but an “EBITDA ceiling”
The loan advantage: interest is deductible for CIT (dividends are not) — at 20% CIT, each USD 1 million of interest saves 200,000 in tax. But Decree 255/2026/ND-CP (replacing Decree 132/2020 from 1/7/2026) imposes thin capitalization: interest exceeding 30% of EBITDA is non-deductible, with the excess carried forward 5 years (commonly published — verify against the decree). Also: outbound interest faces 5% FCT; medium/long-term foreign loans must be registered with the State Bank. Over-borrowing in Vietnam = non-deductible interest + 5% FCT anyway — costly with no tax saving.
Indonesia: a hard 4:1 cap — breach it, lose deduction
Indonesia applies a hard 4:1 thin-cap ratio (debt/equity — PMK 169/2015, commonly published): debt beyond 4× equity loses interest deduction — no carryforward like Vietnam. Outbound interest suffers 20% withholding (or lower under treaty) — far costlier than Vietnam’s 5%. Foreign loans must be reported to BI. Indonesia’s math: small loans deduct but 20% withholding on interest “eats” the benefit; large loans lose deduction — the beneficial borrowing window is far narrower than Vietnam’s.
Malaysia: no hard cap, but a “soft” earnings-stripping ceiling
Malaysia has no hard thin-cap ratio like Indonesia’s, but operates an earnings stripping rule (Section 140C) capping interest deduction (commonly published — verify details) — a “soft cap” harder to predict than a hard one. Outbound interest withholding is 15% — between Vietnam (5%) and Indonesia (20%). No central-bank loan registration like Vietnam/Indonesia — administratively simple. Malaysia suits moderate, flexible borrowing — but model earnings stripping upfront, because a “soft cap” discovered late hurts more.
Bottom line for decision-makers
The three-country math: Vietnam — borrow within the 30% EBITDA cap for the cheapest result (deductible interest + only 5% FCT); Indonesia — borrow little and model carefully given 20% interest withholding; Malaysia — most procedural flexibility but watch earnings stripping. The common rule: borrow for deductible interest, but borrow inside each country’s cap — and never forget FX risk when borrowing in USD against local-currency revenue.
Frequently Asked Questions
Loans vs equity in Vietnam: which is tax-cheaper?
Loans, if inside the cap: interest deductible (saves 20% CIT), dividends not. But Decree 255/2026 caps: interest above 30% EBITDA non-deductible (5-year carryforward); outbound interest faces 5% FCT.
What is Indonesia’s thin-cap ratio?
4:1 (debt/equity, PMK 169/2015) — excess interest non-deductible with no carryforward like Vietnam; outbound interest withholding 20% (or treaty rate).
Does Malaysia have thin capitalization?
No hard ratio, but an earnings stripping rule (Section 140C) caps interest deduction — a less predictable “soft cap”; 15% outbound interest withholding.
What is the common FX risk of USD intercompany loans?
Borrowing USD against local-currency revenue — VND/IDR/MYR depreciation inflates the debt burden; consider hedging or local-currency borrowing.
This article has been quality-reviewed by the FLAW AI Legal Council