Regulations on loans between companies in Vietnam

Regulations on loans between companies in Vietnam

Companies which are not credit institutions in Vietnam (companies not established, organized and operating under the provisions of the Law on Credit Institutions) may make loan transactions in compliance with the provisions of Vietnam law.

1.Regulations on methods of loan payment between companies in Vietnam.

Based on the provisions of Clause 1, Article 4 of Circular 09/2015/TT-BTC, companies which are not credit institutions, conduct credit transactions, loans and repayment of loans with one another, shall use the methods of payment are specified in Clause 2, Article 3 of this Circular, specifically:
- Paid by check;
- Payment by remitting order - money transfer;
- Other forms of non-cash payment in accordance with current regulations.

2. Provisions on loan contracts between companies

The company as lender and company as borrower shall enter an agreement on the loan amount, term and interest rate and method of disbursement. A loan contract may include the following:
- Object of the contract;
- Loan amount;
- Interest rate, mode of payment;
- Duration, location, mode of contract performance;
- Rights and obligations of the parties;
- Responsibility for breach of contract
- Disputes setllement.

The law does not have any mandatory provisions on the form of loan contracts between companies

2.The law provisions on loan taxes between companies:

3.1 For company being lender:

- Value-added tax on lending activities:

Based on the provisions of Point b, Clause 8, Article 4 of Circular 219/2013 / TT-BTC, loan activities among companies are not subject to value added tax. Therefore, the lender is not required to declare and pay VAT when lending to other companies (including principal and interest).

- Corporate income tax on loan interest:

Based on the provisions of Clause 7, Article 7 of Circular 78/2014 /TT-BTC, the loan interest will be offset against the loan interest payment of that company.
In cases where the revenue from loan interest is higher than the loan interest payment, then after clearing, the remaining difference shall be counted into other income when determining taxable income. Conversely, if it is lower, the remaining difference is deducted from the main business income when determining taxable income.

3.3 For company being borrower:

Pursuant to Article 4 of Circular 96/2015/TT-BTC and Article 468 of the 2015 Civil Codes, interest payment is calculated as deductible expenses when calculating corporate income tax if it meets two condition below:
- Interest rate does not exceed 20%/year, unless otherwise prescribed by relevant laws. In case the agreed interest rate exceeds the above interest rate, the excess interest rate has no effect.
- Must contribute the registered charter capital in full according to the capital contribution schedule stated in the charter of the company.

In case the company as borrower has not yet fully contributed charter capital:

Payment of loan interests corresponding to the deficit of charter capital according to the capital contribution schedule stated in the charter of the company must not be deducted when determining taxable income is determined as follows:
- In case the loan amount is smaller or equal to the deficit charter capital, the whole loan interest is a non-deductible expense.
- In case the loan amount is larger than the deficit of charter capital according to the capital contribution schedule:
+ If the company incurs a lot of loans, the loan interest payment cannot be deducted by the ratio (%) between the deficite charter capital to the total loan amount multiplied by (x) the total loan interest.
+ If the company incurs only one loan, the loan interest payment cannot be deducted by the deficit amount of charter capital multiplied by (x) the interest rate of the loan multiplied (x) the time of charter capital contribution is insufficient.

In case of a lending individual, the interest income of the loan to the company is the income from capital investment and the lending individual is subject to personal income tax on this income according to the calculation formula of personal income capital investment.

LAWYER VIETNAM LAW FIRM