Pursuant to Clause 3, Article 7 of Circular 103/2014/TT-BTC “…Income from Loan Interest: is the income of the Lender from loans in any form, whether or not the loan is secured by mortgage, whether or not the lender is entitled to the borrower's income…”
When a company in Vietnam signs a loan contract with a foreign organization (foreign company, foreign bank, etc.), the loan interest that the Vietnamese company must pay to the foreign organization is subject to contractor tax in Vietnam according to the above regulations.
If the foreign lender writes off the loan interest debt to the company in Vietnam, then in essence the lender has no income from the loan interest.
On August 15, 2024, the General Department of Taxation issued Official Dispatch No. 3602/TCT-CS in response to the Long An Provincial Tax Department to provide guidance on the application of contractor tax in this case, specifically as follows:
- Regarding contractor tax: Because there is no interest payment to a foreign organization, the Vietnamese company does not have to declare and pay contractor tax on behalf of the foreign organization.
- Regarding accounting for loan interest expenses in the accounting books: The company in Vietnam must account for the loan interest that has been forgiven into other income to determine income subject to corporate income tax according to regulations.
References
Official Dispatch No. 3602/TCT-CS issued by the General Department of Taxation on August 15, 2024.
