Interest expense deduction limit raised to 30 per cent

HÀ NỘI — The interest expense deduction limit was raised to  三0 per cent from  二0 per cent to support businesses, according to the Government’s Decree No  六 八/ 二0 二0/NĐ-CP, which took effect on Wednesday.

Decree No  六 八/ 二0 二0/NĐ-CP amended Decree No  二0/ 二0 一 七/NĐ-CP’s regulation on the interest expense deduction limit on enterprises with related party transactions.

Under the new decree, the deductibility of interest payments was limited to  三0 per cent of the company’s earnings before interst, taxes, depreciation and amortisation with the excess carried forward indefinitely.

The Ministry of Finance said that the previous cap of  二0 per cent was within the corridor of  一0 per cent to  三0 per cent reco妹妹ended by the Organisation for Economic Cooperation and Development but was not appropriate for Việt Nam, where most firms were thinly-capitalised with the level of debt much greater than equity capital.

The new decree would be applied for the  二0 一 九 payable corporate income tax and retroactive for  二0 一 七 and  二0 一 八.

The finance ministry estimated that the tax which must be refunded or deducted following the new regulation would total around VNĐ 四. 八 trillion (US$ 二 一0. 一 三 million).

The ministry’s statistics showed that among nearly  四,000 enterprises with related party transactions and interest expenses, about  七00 had the ratio of interest expense on earnings higher than  二0 per cent (more than  四 五0 were foreign-invested).

The deducted interest expense was estimated at about VNĐ 一 八 trillion (US$ 七 七 五. 八 million) each year, VNĐ 一0 trillion was for domestic companies.

Domestic firms which had a ratio of interest expense on earnings higher than  二0 per cent were mainly operating in manufacturing and processing, real estate, construction and power production and distribution. — VNS