Decree 20/2025: A Comprehensive Shift in Transfer Pricing Management & Golden Opportunity for Enterprises

On February 10, 2025, the Vietnamese government issued Decree 20/2025/ND-CP, amending and supplementing several provisions of Decree 132/2020/ND-CP regarding tax management for enterprises with related-party transactions. This decree will take effect on March 27, 2025, and will be applied from the corporate income tax assessment period of 2024. With the aim of improving the business environment, enhancing transparency in related-party transactions, and reducing administrative burdens on businesses, the new decree has created a positive impact on Vietnam’s economic dynamics.

In the article below, we will explore the key changes in Decree 20/2025/ND-CP, analyze its direct and indirect effects on business operations and economic movements, and provide useful recommendations for enterprises.

Overview of Decree 20/2025/ND-CP

Context of Issuance

In the context of deeper international economic integration, Vietnam has continuously improved its tax legal framework to ensure fairness and transparency in business operations. Decree 132/2020/ND-CP laid the foundation for managing tax on related-party transactions, but during its implementation, many businesses still faced challenges regarding the legal framework and administrative procedures. To address these issues, the government issued Decree 20/2025/ND-CP with the following objectives:

• Update and clarify the definitions and criteria for identifying related parties.

• Reduce administrative burdens for businesses, particularly in preparing transfer pricing documentation.

• Create more favorable conditions for businesses to access credit, reducing unnecessary financial costs.

Key Highlights of the Decree

Decree 20/2025/ND-CP introduces several amendments and additions compared to Decree 132/2020/ND-CP, including the following major changes:

Amendments to the Definition and Criteria for Identifying Related Parties

• Point d, Clause 2, Article 5: The regulation on related-party relationships has been revised to clarify situations where a business guarantees or lends money. Specifically, the total outstanding loans must reach at least 25% of the contributed capital and account for more than 50% of the total outstanding medium and long-term debt of the borrowing company. This provision does not apply to cases where the lender or guarantor is a credit institution operating under the Law on Credit Institutions, provided it does not participate in managing or controlling the borrowing business.

• Point k, Clause 2, Article 5: An expansion of the “related-party” concept now includes cases where a business is under actual management or control by independent accounting branches. This helps tax authorities monitor and assess related-party transactions more accurately.

• Point m, Clause 2, Article 5: A new provision includes related parties of credit institutions, including subsidiaries, controlled companies, and affiliated companies of credit institutions. This aims to tighten control over financial transactions between these entities.t sinh giữa các bên này.

Addition of the State Bank of Vietnam’s Responsibility

• Clause 2, Article 21: The decree amends and adds the State Bank of Vietnam’s responsibility to cooperate in providing information and data on loans and repayments of businesses with related-party transactions. Specifically, the State Bank will provide information on related parties of credit institutions when requested by tax authorities, enhancing tax risk monitoring and control.

Replacement of Annex I on Related-Party Transactions

• Decree 20 replaces Annex I of Decree 132/2020/ND-CP with a new version, providing more detailed information about the relationships and transactions of related parties. This change ensures businesses report more accurately and fully, reducing risks during tax audits.hi bị cơ quan thuế thanh tra.

Transitional Provisions for Non-Deductible Interest Costs

• For businesses with related-party transactions from the tax years 2020 to 2023, if non-deductible interest costs arose under the old regulations, starting from 2024, these costs will be handled in two ways:

  • No longer a related party relationship: The non-deductible interest cost will be evenly distributed and carried forward to subsequent tax periods.

  • Still a related-party transaction: The interest cost will continue to be carried forward under the 30% EBITDA limitation as before.

Impact of Decree 20/2025/ND-CP on Economic Dynamics

Positive Impacts

Enhancing Transparency and Increasing Access to Capital

• Reducing Administrative Burdens: By removing certain restrictions on related-party relationships between businesses and commercial banks, businesses are no longer required to prepare complex transfer pricing documentation. This reduces time, resources, and administrative costs, making it easier for businesses, especially small and medium-sized enterprises (SMEs), to operate.

• Increasing Access to Capital: With businesses no longer limited by the 30% EBITDA interest cost deduction cap due to being categorized under related-party transactions, they can access financing under more favorable conditions. This contributes to generating cash flow, allowing businesses to invest in expanding production, which in turn stimulates economic growth.

Promoting a Healthy and Fair Business Environment

• Transparency in Tax Management: The clarification of the definition and criteria for related-party transactions makes it easier for tax authorities to control and minimize profit shifting and tax evasion. This not only protects the state budget but also fosters a fair business environment for all enterprises.

• Boosting Investor Confidence: A transparent and efficient legal system helps enhance the confidence of both domestic and foreign investors. When businesses feel that their operations are supported by a stable and fair tax system, they are more likely to invest in expansion projects, which drives economic development.

Stability and Economic Growth

• Supporting Businesses to Enhance Competitiveness: By reducing the financial burden of carrying forward excessive interest costs, businesses have more resources to invest in technology, improve production capacity, and enhance product quality. This improves their competitiveness both in the domestic and international markets.

• Contributing to GDP Growth: When businesses have better access to capital and are encouraged to expand operations, the national economy receives additional investment, fostering stable and sustainable GDP growth. This is especially important as Vietnam aims for high growth in the coming years.

Negative Impacts and Challenges

Initial Investment Costs and Resources

• Investment in IT Systems and Training: The update and adjustment of reporting systems and transfer pricing documentation to align with the new format (Annex I) requires businesses to invest in IT systems and train specialized personnel. For some businesses, especially SMEs, these initial costs can create pressure, although in the long term, it will help optimize business operations.

Challenges in Reviewing and Adjusting Internal Processes

• Comprehensive Review of Related-Party Transactions: Businesses must conduct a thorough review of related-party transactions to clearly identify relationships that generate related-party transactions. This requires the involvement of accounting, finance, and legal departments, sometimes leading to significant time and cost commitments to ensure the accuracy and completeness of the documentation.

• Adapting to Policy Changes: Changes in the legal framework always require businesses to quickly adapt. Some businesses may struggle to adjust their financial and accounting strategies to align with the new regulations, which could lead to legal risks if the updates are not implemented in time.

Risks Related to Audit and Price Determination Processes

• Difficulties in Proving and Comparing Transactions: Tax authorities will intensify audits and use databases to determine the pricing of related-party transactions. Businesses need to prepare complete documentation, supporting evidence, and comparable data to prove that their transactions comply with the arm's length principle. Otherwise, businesses may face transfer pricing adjustments, leading to increased tax liabilities.

Impact of the New Decree on Global and Domestic Economic Dynamics

Impact on the Financial and Banking Sectors

• Restructuring the Loan and Borrowing System: By eliminating the related-party relationship between businesses and commercial banks for loan transactions, credit institutions will have the opportunity to restructure their lending systems. This creates a healthier credit environment, allowing businesses to access capital at more competitive interest rates, reducing financial pressure, and enhancing investment capacity.

• Stabilizing the Financial System: With easier access to capital for businesses, the financial system will experience better liquidity, which in turn drives business production activities and contributes to macroeconomic stability.

Impact on the Business and Investment Environment

• Driving Development for SMEs: Small and medium-sized enterprises (SMEs), which often face difficulties in meeting complex reporting requirements related to related-party transactions, will benefit from the new decree. The removal of barriers for borrowing from commercial banks allows SMEs to access more resources for expanding their operations.

• Stimulating Investment Across Various Sectors: When businesses can access capital at reasonable costs, they can invest in technology, expand production, and improve product quality. This not only enhances business competitiveness but also creates more job opportunities and contributes to overall economic growth.

Contributing to GDP Growth and Sustainable Economic Development

• GDP Growth: Improvements in access to capital and reduced financial costs will help businesses enhance production activities, expand operations, and invest in key sectors. This creates favorable conditions for GDP growth, elevating Vietnam’s economic standing on the global stage.

• Sustainable Economic Development: A fair and transparent tax system not only helps businesses operate efficiently but also attracts foreign investment. When investors see the stability and transparency of the legal environment, they are more willing to invest in long-term projects, contributing to sustainable economic development.

"Decree 20/2025 is a breakthrough step in restructuring the management of related-party transactions in Vietnam. The clarification of the definition and criteria for identifying related parties, along with the elimination of unnecessary administrative barriers, has made it easier for businesses to access financing at more reasonable costs. This not only helps businesses optimize financial costs but also stimulates investment, innovation, and sustainable economic growth. If properly implemented, this decree will enhance transparency and fairness in tax administration, creating a dynamic and competitive business environment on the international stage." – shared by Mr. Nguyen Thanh Lam, Partner of RSM Vietnam, Director of RSM Hanoi.

Conclusion

Decree 20/2025/ND-CP marks a significant step forward in improving the business environment and tax management for businesses involved in related-party transactions in Vietnam. The revisions and additions in the decree not only clarify the definitions and criteria for identifying related-party transactions but also reduce administrative burdens on businesses, creating more favorable conditions for accessing loans and expanding business operations.

From a macroeconomic perspective, this decree contributes to stabilizing the financial system, enhancing transparency and fairness in tax management, while stimulating investment and GDP growth. This will help Vietnam make steady progress on the path to sustainable economic development and international integration.

To effectively respond to these changes, businesses need to proactively review their documentation, train personnel, and invest in modern management technologies. Moreover, collaborating with consulting experts will help businesses quickly adapt and fully leverage tax benefits, minimizing legal risks.

Ultimately, as the business environment becomes increasingly improved and transparent, investor confidence will rise, paving the way for Vietnam’s economic development on the international stage. This is the key message of Decree 20/2025/ND-CP, which opens up new opportunities for businesses and the national economy in the context of global competition.