Issuance of Decree 68/2020 to replace Decree 20/2017 regarding loan interest expenses

The Vietnamese Government has recently issued the Decree No. 68/2020/ND-CP in order to amend and supplement Point 3, Article 8 of Decree No.20/2017/ND-CP with regards to the deductibility of interest expenses for calculation of Corporate Income Tax. Decree 68/2020/ND-CP will take effective from tax year 2019 onward. In this respect, please find below quick noteworthy points for your reference and information:

• Calculation of interest expense for deductibility purpose has changed to net interest expenses, which is defined by excluding financial income from savings and loan from interest expense.
• Maximum deductibility of interest expenses has been raised from 20% of earnings before interest, tax, depreciation and amortization (EBITDA) to 30% of EBITDA.
• Non-deductibile interest expenses which exceed the above 30% cap in current tax year could be carried over to max out the 30% cap of upcoming tax years. Maximum carry-over period shall be five (5) consecutive years.
• The calculation of deductible interest expense per Decree 68 could be retrospectively applied to tax years 2017 and 2018. Impacted enterprises are required to review and revise the Corporate Income tax return and submit the amendment prior to 1 January 2021.

Our recommendations:

• Impacted enterprises shall review the deductible interest expenses in tax years 2017, 2018 and 2019 in order to adapt this new regulations.
• In case there is any adjustment required and/or any further concern regarding such new regulations, please contact your tax advisor for immediate asssistance.

Please feel free to contact us in case you need any further clarification and/or support.