Deductibility conditions: real benefit, arm’s length price, full documents
A guarantee fee paid by the Vietnamese subsidiary to its foreign parent is a related-party transaction cost, and its deductibility is tested on two tiers. Tier one is the general deductible expense conditions under Corporate Income Tax Law No. 67/2025/QH15: an expense actually incurred in connection with the enterprise’s production and business activities, with sufficient lawful invoices and documents, and non-cash payment where required. Tier two is the related-party specific conditions: the guarantee service must actually benefit the guaranteed party and the fee must follow the arm’s length principle under the current related-party framework (Decree 255/2026/ND-CP from 1 July 2026). Pass both tiers and the fee is deductible; fail one and the expense is disallowed on finalisation, with back tax and late payment interest.
The real benefit condition — the benefit test — is where guarantee fees are most often denied. A parent guarantee has economic value only when it changes the subsidiary’s borrowing terms: enabling a loan the subsidiary could not obtain standing alone, or a lower interest rate, higher limit, longer tenor, or no asset collateral that would otherwise be required. The reverse cases are treated as no real service: the subsidiary already had the credit standing and collateral to borrow on identical terms without the guarantee; the bank lent entirely against the subsidiary’s own pledged assets; or the “guarantee” is a formality creating no substantive obligation for the parent under the governing law. In those cases the fee, however complete its contract and payment vouchers, is still disallowed because in substance it pays for a service that does not exist — close to a shareholder activity, which on principle may not be charged to the subsidiary.
What fee level is reasonable: two pricing approaches
No instrument fixes a rate for guarantee fees; the reasonable level is determined by a case-by-case transfer pricing analysis. The first approach is the yield approach: measure the interest the subsidiary saves thanks to the guarantee — the spread between the hypothetical borrowing rate without the guarantee (on the subsidiary’s standalone credit rating) and the actual rate with it (reflecting the parent’s rating) — multiplied by the guaranteed balance; a reasonable guarantee fee sits inside that saving, typically as a share of the saving or a percentage of the guaranteed loan balance. The second approach is market comparison: guarantee and standby letter of credit fees charged by independent banks and financial institutions for borrowers of similar risk profile — the most direct corroborating data where comparable transactions can be found.
In practice, intragroup guarantee fees usually land at a low percentage of the guaranteed balance, and a fee far exceeding the interest saving cannot be defended: if the guarantee cuts the loan rate by 1% while the fee runs to 2% of the balance, the subsidiary pays more than the value received — a conclusion any analysis reaches. Note also the interaction with the related-party interest cap: total deductible interest expense (net of deposit and lending interest) is capped at 30% of EBITDA under the related-party framework; a guarantee fee is not interest, but auditors commonly review it within the same related-party financing cost cluster, and on the recipient’s side the fee paid abroad is also subject to foreign contractor tax under current rules (contractor CIT on financial and guarantee service revenue at the prescribed ratio).
The document set that makes the fee stand up
The file for a guarantee fee has five groups. One: a legally effective guarantee instrument (the guarantee agreement or the parent’s guarantee commitment to the bank, stating scope, maximum balance and term) — it must show the parent genuinely bears the obligation to pay if the subsidiary defaults. Two: the loan agreement and bank documents showing the borrowing terms are tied to the guarantee (the credit approval letter naming the parent guarantee as a disbursement condition, or the rate sheet with and without the guarantee). Three: the guarantee fee pricing analysis in that year’s transfer pricing file — benefit analysis, the yield approach or market corroboration, the subsidiary’s standalone credit rating if available. Four: fee payment evidence (the recipient’s invoice or receipt, the remittance order, the foreign contractor tax declaration and payment vouchers). Five: evidence of the parent’s capacity to perform the guarantee — the parent’s financial statements showing the guarantee sits within the guarantor’s financial capacity.
One practice error to avoid: signing the guarantee agreement and paying the fee retroactively at year-end for loans disbursed long before, with no guarantee instrument in place at disbursement. A guarantee has economic effect only from when it binds the guarantor in the lending bank’s eyes; a file assembled afterwards, however fully signed, is still assessed as formality because at the moment the credit decision was made, the guarantee did not exist. Complete the guarantee instrument at or before disbursement, and revisit it whenever the loan is extended or its limit raised — the fee applies only to the balance actually guaranteed in each period.
Frequently asked questions
The parent guarantees a loan and charges a fee — is it deductible?
Deductible if both tiers are met: an actual business-related expense with sufficient documents under CIT Law 67/2025/QH15; and a guarantee bringing real benefit to the subsidiary (access to the loan, a lower rate, better terms) at an arm’s length fee evidenced in the transfer pricing file. A paper guarantee that changes no borrowing term gets the fee disallowed on finalisation.
How much guarantee fee is reasonable?
No fixed statutory rate: the level is priced case by case — usually by the yield approach, keeping the fee inside the interest saving the guarantee produces on the guaranteed balance, or by comparison with bank guarantee and standby letter fees for similar risk profiles. A fee exceeding the interest saving cannot be defended on audit.
What documents are needed?
Five groups: an effective guarantee instrument with the bank; the loan agreement and bank papers tying terms to the guarantee; the fee pricing analysis in the transfer pricing file; fee payment evidence and foreign contractor tax payment; and evidence of the parent’s financial capacity as guarantor. The guarantee must exist at or before disbursement, not retroactively.
