Vietnam's 30% EBITDA interest cap: how it is calculated and how to plan financing

The short answer

Businesses with related-party transactions may deduct total net interest expense for CIT only up to 30% of:

Net operating profit + net interest expense + depreciation for the period

Net interest expense is interest expense after deducting deposit and lending interest income.

Three points to remember:

• The cap applies to all interest expense, including interest on loans from independent banks, not just related-party loans.

• Any excess may be carried forward for up to 5 years, under Article 16(3) of Decree No. 255/2026/ND-CP.

• The cap operates separately from Decree No. 320/2025/ND-CP's rule on loans from non-credit institutions (interest above the Civil Code maximum is not deductible).

Why will this stay a hot topic?

Vietnam's interest cap follows the OECD's base erosion recommendations (BEPS Action 4). There is no sign of relaxation: Decree No. 255/2026/ND-CP keeps the 30% level.

Meanwhile, borrowing needs are growing, especially in manufacturing, real estate and infrastructure. In addition, the scope of related-party relationships has widened, including loans or borrowings from directors of 10% or more of owner's equity. Many domestic companies that were never caught before may now fall within the rule.

How it works: a worked example

Company AA has related-party transactions. Its 2026 figures are as follows:

Item	VND billion
Net operating profit	10
Interest expense	32
Deposit and lending interest income	2
Net interest expense (32 – 2)	30
Depreciation	20
Cap base (10 + 30 + 20)	60
Deductible cap (30% × 60)	18
Interest not deductible this year	12

Consequences:

• VND 12 billion is excluded from deductible expenses for 2026, increasing taxable income accordingly (about VND 2.4 billion of additional CIT at 20%);

• the excess is carried forward for up to 5 years and becomes deductible in later years with headroom, i.e. where net interest expense is below that year's cap.

Exclusions

The rules exclude certain loans and certain types of business, such as credit institutions, insurers and some loans under State programmes. Businesses should check the exact text of Decree No. 255/2026/ND-CP to see whether their loans fall within an exclusion.

Do not assume that "bank loans are not capped". Once a business has related-party transactions, the 30% cap applies to its total net interest expense.

Six sensible financing strategies

1. Balance debt and equity. For projects with a long lead time to profit, increasing capital rather than borrowing intra-group may reduce disallowed interest. Opportunity costs and the tax on repatriating profits also need to be weighed.

2. Plan across the project life cycle. In the early years, EBITDA is low, so the cap is low and the excess may be large. Businesses need to project whether they can use the carry-forward within 5 years, so that it does not expire.

3. Consider capitalised interest. Interest on borrowings to construct or acquire assets before they are put into use is capitalised into cost under accounting standards, rather than expensed in the period. The specific tax treatment should be assessed under the rules.

4. Review related-party relationships. Some loans or borrowings with individuals may create unnecessary related-party relationships. Businesses can restructure funding to avoid bringing themselves within the cap, provided the substance is genuine.

5. Control intra-group interest rates. Interest rates on related-party loans must be at arm's length. For lenders that are not credit institutions, interest above the Civil Code maximum is not deductible.

6. Track and document the carry-forward. Keep a schedule of non-deductible interest for each year, its expiry and the amounts used. Report it correctly in the finalisation appendices.

Illustrative case

Company BB is a real estate developer within a private group. It borrows VND 500 billion from its parent at 10% a year to develop a project. In the first three years, no revenue is recognised and EBITDA is low. Most of the interest is disallowed and carried forward. In year four, the project is handed over and profits rise sharply.

The risk is that part of the first year's interest could expire under the 5-year limit before it can be used.

The group responded in three ways:

• it converted part of the loan into equity;

• it clearly identified the interest capitalised into the project's value;

• it scheduled the use of the carry-forward against the handover plan.

As a result, the amount of interest permanently "lost" was minimised.

FAQs

Who is subject to the 30% EBITDA interest cap?

CIT taxpayers with transactions with related parties under Decree No. 255/2026/ND-CP, except in the excluded cases.

Does bank interest count towards the 30% cap?

Yes. Once a business falls within the rule, the cap applies to total net interest expense, including interest on loans from independent banks.

Is the excess interest lost for good?

Not immediately. It is carried forward to subsequent tax periods for up to 5 years and can be deducted where there is headroom under the cap.

Is there a way to avoid the cap?

There is no lawful "workaround" for a business that has related-party transactions. It can, however, plan its capital structure, the timing of borrowing and the recognition of interest to reduce disallowances and make full use of the carry-forward.

Legal basis

• Decree No. 255/2026/ND-CP on tax administration of related-party transactions (Articles 5 and 16).

• CIT Law No. 67/2025/QH15 and Decree No. 320/2025/ND-CP (non-deductible interest).

• Civil Code 2015, Article 468 (interest rates).

• OECD BEPS Action 4 recommendations (for reference).

How W&A can help

Disallowed interest is a "hidden tax cost" of the capital structure. Planning from the start can save significant amounts over a project's life. W&A supports businesses with:

• Interest cap and carry-forward calculations for each year, with a 5-year tracking schedule.

• Debt and equity modelling for new projects and financial restructurings.

• Review of related-party relationships arising from loans and borrowings, including with managing or controlling individuals.

• Arm's length intra-group interest rates and supporting documentation.

• Related-party disclosure appendices and support with explanations in tax audits.