Within Vietnam’s corporate tax system and regulatory framework, managing related party transactions (RPT) and defending transfer pricing arrangements represents a high-priority audit focus for provincial tax authorities. Foreign-invested enterprises (FIEs) operating in Vietnam face intense regulatory scrutiny aimed at preventing base erosion and profit shifting (BEPS) through cross-border intercompany pricing, management fee allocations, and intra-group debt financing.
Transfer pricing administration in Vietnam is governed by Decree No. 255/2026/ND-CP, enacted under Law on Tax Administration No. 108/2025/QH15 and Law on Corporate Income Tax No. 67/2025/QH15, and applies from the 2026 CIT period, building on the wider corporate income tax rules for FDI. The 2025 period and earlier remain under Decree 132/2020/ND-CP as amended by Decree 20/2025/ND-CP. Taxpayers engaging in related party transactions must adhere to OECD-aligned transfer pricing standards, monitor capital and financing thresholds, and comply with annual documentation obligations.
1. Statutory Framework and Core Principles of Decree 255/2026/ND-CP
The Decree establishes two foundational legal principles governing all intercompany purchases, sales, leasing, asset transfers, and financial transactions:
The Arm’s Length Principle
Transactions between associated enterprises must be priced and executed under terms comparable to those agreed upon by independent parties in open-market transactions under similar economic circumstances. The taxpayer bears the burden of proof to demonstrate that intercompany pricing reflects fair market value and does not reduce corporate income tax liabilities payable in Vietnam. Where pricing fails arm’s length scrutiny, tax authorities may issue tax assessments under tax audit and inspection procedures.
Substance Over Form
Tax authorities prioritize commercial and economic reality over legal form. Intercompany arrangements are analyzed based on actual operational functions performed, economic assets utilized, and commercial risks assumed by each party. Cross-border intra-group management fees, headquarters recharge allocations, or technical assistance fees that fail to demonstrate direct, tangible economic benefits to the Vietnamese operating entity are disallowed as deductible expenses.
2. Criteria for Determining Related-Party Relationships Under Article 5
Under Decree 255, two commercial entities are classified as related parties if they meet any of the following thresholds:
Equity Ownership and Voting Control
- Direct or indirect ownership: One enterprise holds directly or indirectly at least 25% of the owner’s equity of the other enterprise.
- Common third-party ownership: Both enterprises have at least 25% of their equity held directly or indirectly by a common third party.
- Largest corporate shareholder: One enterprise is the largest shareholder holding directly or indirectly at least 10% of total shares of the other enterprise.
Loan and Guarantee Relationships
A lending or borrowing relationship triggers related-party status where an entity guarantees or finances another enterprise under the following cumulative conditions:
- The borrowed funds equal at least 25% of the borrower’s equity; and
- The loan accounts for more than 50% of the borrower’s total medium- and long-term debts.
Note: This rule also covers third-party loans secured by the financial resources of a related party. Three cases are carved out:
- Case 1: a credit institution lending or guaranteeing that does not participate in managing, controlling, or investing capital in the borrower.
- Case 2: a credit institution lending or guaranteeing, and a borrower, that are not jointly managed, controlled, or funded by another party.
- Case 3: a debt-trading entity wholly owned by the State acting as creditor or guarantor that does not participate in managing, controlling, or investing capital in the debtor.
An independent commercial bank facility above these thresholds therefore does not by itself create a related-party relationship.
Operational Management and Governance Control
- One enterprise appoints or has the power to appoint more than 50% of the board of directors or key executive officers of the other enterprise.
- Both enterprises have more than 50% of their board members appointed by a common third party.
- One enterprise, in practice, directs, controls or decides the business operations of the other.
Article 5 also covers family relationships between individuals who run both enterprises, head office and permanent establishment relationships, control by an individual through capital contribution or management, and share transfers or loans of at least 25% or 10% of equity with executives or their relatives. Credit institutions and their subsidiaries or affiliates are also covered.
3. The 30% EBITDA Net Interest Deductibility Cap Under Article 16
Decree 255 imposes an aggregate cap on deductible loan interest expenses for enterprises engaging in related party transactions:
Net Interest Expense Formula and Deductibility Limit
Net interest expense incurred during the fiscal year (total loan interest less deposit and lending interest income, covering both related-party debt and third-party bank borrowings) is capped at 30% of adjusted EBITDA:
Five-Year Carryforward Mechanism for Excess Interest
Non-deductible net interest expense exceeding the 30% EBITDA ceiling may be carried forward to subsequent tax years:
- The carryforward period is limited to 5 consecutive tax years, starting from the year immediately following the year in which the excess interest was incurred.
- Carried-forward interest is deductible in subsequent years provided that the total net interest expense in that future year remains below the 30% EBITDA threshold.
- The cap does not apply to the interest expense of taxpayers that are credit institutions or insurers (as borrowers), nor to ODA and preferential Government on-lent loans, national target program loans, and social welfare project loans.
4. Safe Harbor Exemptions from Transfer Pricing Documentation Under Article 20
Decree 255 exempts qualifying taxpayers from the obligation to compile detailed Transfer Pricing Documentation (Local File and Master File):
| Exemption Category | Criteria | Specific Operational Conditions | Compliance Requirement |
|---|---|---|---|
| Small-Scale Operations | Revenue < VND 50 billion & total RPT < VND 30 billion | Evaluated within the annual fiscal tax year | Appendix I declaration remains mandatory |
| Concluded APA | No monetary revenue ceiling | Formal Advance Pricing Agreement signed with tax authorities; transactions outside the APA scope remain subject to Article 18 | Submit Annual APA Compliance Report |
| Simple Functions | Revenue < VND 500 billion without intangibles | Net profit margin (EBIT/Revenue) meets: Distribution ≥ 5%, Manufacturing ≥ 10%, Processing ≥ 15% | Appendix I declaration remains mandatory |
| Purely Domestic RPT | All associated parties are taxpayers in Vietnam | Parties share identical CIT rates and neither enjoys tax incentives | Sections III and IV of Appendix I waived; Sections I and II still declared |
Important Compliance Reminder: Being exempt from preparing the Local File and Master File does not exempt the taxpayer from declaration obligations. Taxpayers must still declare Appendix I alongside their annual CIT return, and the interest cap still applies.
5. Mandatory Annual Filing of Appendix I and Three-Tiered TP Dossiers
Taxpayers with related party transactions face structured compliance obligations under Decree 255:
Mandatory Annual Disclosure: Appendix I
Every enterprise with related party transactions must declare related-party relationships and transactions on Appendix I (Information on Related-Party Relationships and Transactions) and submit it with the annual CIT finalization return, no later than the last day of the third month after the fiscal year ends (filing deadline under Article 10 of Decree 252/2026/ND-CP).
On Appendix I, the taxpayer must formally declare whether it qualifies for documentation exemptions or certify that required transfer pricing dossiers have been completed.
Three-Tiered Transfer Pricing Documentation Package
Enterprises not exempt from the dossier must also file Appendices II and III and maintain a three-tiered documentation structure:
- Local File (Phụ lục II): Detailed entity-level documentation containing functional, asset, and risk (FAR) analyses, local value chain breakdowns, and economic benchmarking studies applying approved transfer pricing methods (CUP, RPM, Cost Plus, TNMM, or Profit Split).
- Master File (Phụ lục III): Global corporate group overview detailing global business operations, supply chains, intellectual property policies, and intra-group financing structures.
- Country-by-Country Report (CbCR - Phụ lục IV): Required for multinational enterprise (MNE) groups with consolidated global revenue of EUR 750 million or more in the fiscal year preceding the reporting year (Article 19). The filing deadline is 12 months after the ultimate parent entity’s fiscal year-end. The obligation to file in Vietnam falls on an ultimate parent resident in Vietnam; a Vietnamese subsidiary of a foreign group generally files only a one-time notice on Form 01/TB-BCLN, unless a statutory exception applies.
Documentation Timeline and Presentation Deadlines
Transfer pricing documentation must be finalized prior to the annual CIT finalization submission deadline. Upon receiving a written request from the tax authority during the pre-audit consultation, the enterprise must provide the complete documentation within 30 working days, extendable once by up to 15 working days for a justified reason.
6. Audit Triggers, Tax Assessment Mechanisms, and Statutory Penalties
Tax authorities select transfer pricing audit targets using risk signals such as the following:
Primary Transfer Pricing Audit Triggers
- Consecutive operating losses spanning multiple years alongside expanding revenue and operational capacity.
- Operating profit margins significantly below industry benchmark medians for comparable independent companies.
- Disproportionate royalty payments, head-office management charges, or intercompany interest expenses.
- Procuring production machinery or raw materials from foreign affiliates at prices significantly exceeding independent market rates.
Statutory Enforcement and Penalty Exposure
Failure to submit Appendix I, late presentation of transfer pricing dossiers, or reliance on flawed benchmarking data triggers administrative enforcement:
- Direct Tax Assessment: Tax authorities assess prices, profit margins and taxable income using independent comparables when Appendix I is missing or inaccurate, the dossier is not produced on time, or comparable data is unreliable.
- Administrative Penalties (Decree 125/2020/ND-CP, as amended): Failure to file the related-party appendices with the CIT finalization return carries a fine of VND 8 million to 15 million for organizations (Article 13); a tax shortfall from misdeclaration carries a 20% penalty on the underdeclared tax (Article 44 of the Tax Administration Law).
- Late-Payment Interest (Tax Administration Law): Interest of 0.03% per day is charged on retroactive tax assessments, accumulating substantial liabilities over multi-year audit cycles.
Review profit margins annually and complete the Local and Master Files before the annual filing. For the wider corporate tax picture, see our guide on Vietnam corporate income tax compliance. ICLV’s tax compliance team can prepare the dossiers and support you through a transfer pricing audit; contact our Certified CPAs and tax compliance team to get started.
