On 12 December 2019, the Vietnam Ministry of Finance (MOF) has published the draft Decree amending and supplementing Clause 3, Article 8 of Decree 20/2017/ND-CP to regulated approach on determining the deductibility for interest expense for businesses engaging in related-party transactions. The main measures of the Decree are as follows:
- Propose to increase the deductible interest rate cap from 20% to 30% of earnings before interest, tax, depreciation, and amortisation (EBITDA);
- In case of zero or negative EBITDA, net deductible interest expenses may be fully and consecutively carried forward against income for the next 5 years; and
- Total interest expenses are the net interest expenses incurred during the tax period of the taxpayer (interest expenses are offset with interest income from deposits and loans). The said interest expenses include loan interest expenses and the amounts similar to loan interests, including capitalized interest payments according to the provisions of the law on accounting and tax.
The draft Decree is expected to take effect from the signing date by the Government and is proposed to apply for the tax year 2019.
