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Deductibility of Interest Loan for Company With Related Party Transactions – What Should Be Aware?

November 29, 2021

In recent tax audits performed by tax authorities national wide, especially in big cities and provinces where the tax contribution accounting for large part of the state budget like Ho Chi Minh City, Hanoi, Hai Phong or Binh Duong, Ba ria-Vung Tau…, one of a typical issue of tax challenge is the deductibility of interest loan when a company falls in the position triggering related party transactions with a lender.

Vietnam does not have a thin capital rules in place except for certain business sectors and as normal practice, a lot of Vietnam companies operate with thin capital. They tend to use bank loans or shareholder loan or even non-bank third party loan for business, especially with real estate companies. For the past tax audit, interest paid for a bank loans are generally not scrutinized by tax authorities given the interest rate offered by a commercial bank are most considered as on market price but now those could be a material issue for a company as transacted with a commercial bank can be subject to related party limitations and cap deduction of interest loan for corporate income tax purpose.


Thuan is an experienced tax and accounting adviser with over 15 years of work experience. He has advised on the tax implications of large construction and engineering projects, major acquisitions, and on several highly publicized real estate developments in Vietnam, Cambodia, Laos, and Myanmar. Thuan has assisted property funds with their divestiture in Vietnam and advised multinationals on their corporate restructuring projects. He oversaw the team that reorganized the supply chain for a cosmetic multinational in Vietnam, including customs duty aspects. He specializes in corporate tax strategies for multinationals, banks and investment funds.
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