Change in deductible interest expenses (Decree 68)

On 24 June 2020, the Government issued Decree No. 68/2020/ND-CP (Decree 68), which amends and supplements Clause 3, Article 8, Decree No. 20/2017/ND-CP, regulating tax treatments on related party transactions. The main contents are as follows:

  • When calculating corporate income tax, the total deductible interest expense of a given year shall not exceed 30% of EBITDA (earnings before interest, tax, depreciation and amortization).
  • Organizations and loans not subject to this Decree on deductible interest expenses include Credit instituions that follow the Law on credit institutions, Commercial insurance organizations that follow the Law on commercial insurance organizations, Official Development Assitances (ODAs), Foreign loans guaranteed by the Vietnames Government, loans to further the implementation of National goals including rural development and poverty elimination, loans to further the implementation of social welfare governmental policies and programs.

Decree 68 takes effect on 24 June 2020 and is applicable to 2019 tax year. In addition, companies are allowed to submit revised corporate income tax returns for the tax years 2017 and 2018 to adjust deductible interest expenses and corporate income tax liabilities of such tax years before 1 January 2021.