Decree 13 and Beyond

Decree 13/2026/ND-CP, issued in March 2026, introduces substantial changes to corporate income tax administration for enterprises operating in Vietnam. The decree tightens transfer pricing documentation requirements, expands the scope of thin capitalisation rules, and clarifies the tax treatment of cross-border digital services. For enterprises with complex ownership structures or significant related-party transactions, the compliance burden will increase measurably.

Transfer Pricing Documentation Requirements

The most immediate impact of Decree 13 falls on transfer pricing documentation. Under the new rules, enterprises with annual related-party transaction values exceeding VND 50 billion (approximately $1.95 million) must prepare a Local File, Master File, and Country-by-Country Report if they are the ultimate parent of a multinational group. The previous threshold was VND 100 billion, meaning the decree effectively doubles the population of enterprises subject to full documentation requirements.

The Local File must now include a functional analysis that maps the specific activities performed, assets employed, and risks assumed by each entity in Vietnam. This level of detail exceeds the requirements under the 2017 Transfer Pricing Decree and aligns more closely with OECD guidelines. Tax authorities have indicated that benchmarking studies must use Vietnamese comparables where available, and the use of pan-Asian data sets will face greater scrutiny.

Enterprises that fail to submit documentation within 30 days of a tax authority request face penalties of VND 50-100 million, up from VND 20-40 million under the prior regime. More significantly, inadequate documentation creates a rebuttable presumption that related-party transactions are not at arm's length, shifting the burden of proof to the taxpayer.

Thin Capitalisation and Debt Deduction Limits

Decree 13 revises the thin capitalisation rules that limit interest deductibility for corporate borrowers. The maximum debt-to-equity ratio for interest deduction purposes is reduced from 4:1 to 3:1 for most industries, effective for fiscal years beginning on or after 1 January 2026. Real estate and infrastructure projects retain the 4:1 ratio, recognising the capital-intensive nature of these sectors.

The decree also introduces an earnings-stripping rule that operates alongside the ratio test. Net interest expense exceeding 30% of earnings before interest, tax, depreciation, and amortisation (EBITDA) is non-deductible, regardless of the debt-to-equity ratio. This dual-test approach mirrors legislation adopted in several ASEAN jurisdictions and reflects the government's concern about base erosion through excessive interest deductions.

For existing leveraged structures, the transition presents a challenge. Enterprises with debt-to-equity ratios between 3:1 and 4:1 will see a portion of their interest expense become non-deductible, increasing effective tax rates. Refinancing or equity injections may be necessary to restore deductibility, but the costs and regulatory approvals involved should be weighed against the tax savings.

Digital Services and Permanent Establishment

A significant addition in Decree 13 addresses the tax treatment of cross-border digital services. Foreign enterprises providing digital advertising, streaming, cloud computing, and e-commerce platform services to Vietnamese customers are now subject to a 5% withholding tax on gross revenue if they lack a permanent establishment in Vietnam. This applies where annual revenue from Vietnamese customers exceeds VND 100 billion.

The decree also expands the definition of permanent establishment to capture situations where foreign enterprises maintain a "significant economic presence" through user engagement, data collection, or digital intermediation. This represents a departure from the traditional physical presence test under Vietnam's tax treaties and may create conflicts with treaty partners that have not adopted similar digital PE provisions.

For Vietnamese enterprises purchasing digital services from foreign providers, the compliance obligation shifts to the domestic purchaser if the foreign provider does not register for tax in Vietnam. Enterprises should review their vendor agreements to clarify which party bears the withholding obligation and ensure their accounting systems can track and remit the tax.

Implementation Timeline and Compliance Considerations

Decree 13 takes effect on 1 July 2026, with transitional provisions allowing enterprises to apply the new rules prospectively for fiscal years beginning after that date. Enterprises with calendar fiscal years must comply from 1 January 2027. The General Department of Taxation is expected to release detailed guidance circulars by September 2026, which should clarify several ambiguities in the decree text.

Enterprises should consider the following steps in the coming quarter: conducting a transfer pricing documentation gap analysis against the new Local File requirements; modelling the impact of the revised thin capitalisation rules on effective tax rates; reviewing digital service vendor contracts for withholding tax allocation; and assessing whether any restructuring of related-party financing is warranted before the new rules take full effect.

The direction of travel is clear. Vietnam's tax administration is investing heavily in audit capability, data matching, and international information exchange. Enterprises that treat compliance as a reactive, year-end exercise will face increasing risk. Those that build robust documentation and proactive tax governance into their operating models will be better positioned to manage both compliance costs and audit exposure.