Official Dispatch 3269/CTHN-TTHT 2021 tax policies for interests on bank loans and loans to individual borrowers

To: Mrs Nguyen Thi Hien

(Address: No. 17 Nguyen Son, Long Bien, Hanoi)

In response to the unnumbered document dated December 17, 2020 of Mrs. Nguyen Thi Hien asking about tax policies on interest on bank loans and interest on loans to individual borrowers, Hanoi Tax Department gives the opinions as follows:

- Pursuant to Article 4 of the Ministry of Finance’s Circular No. 96/2015/TT-BTC dated June 22, 2015, amending and supplementing Article 6 of Circular No. 78/2014/TT-BTC (amended and supplemented in Clause 2, Article 6 of Circular No. 119/2014/TT-BTC and Article 1 of Circular No. 151/2014/TT-BTC) prescribing deductible and non-deductible expenses when determining taxable income:

“Article 4. To amend and supplement Article 6 of Circular No. 78/2014/TT-BTC (amended and supplemented in Clause 2, Article 6 of Circular No. 119/2014/TT-BTC, and Article 1 of Circular No. 151/2014/TTBTC) as follows:

“Article 6. Deductible and non-deductible expenses when determining taxable income

1. Except for the non-deductible expenses prescribed in Clause 2 of this Article, enterprises may deduct any expense that fully satisfies the following conditions:

a) Actual expenses related to their production and business activities.

b) Expenses with adequate lawful invoices and documents in accordance with law regulations.

c) Expenses for purchase of goods or services valued at VND 20 million or more (VAT-inclusive prices) per invoice with non-cash payment documents.

Non-cash payment documents must comply with legal documents on value-added tax.

...”

2. Non-deductible expenses for determining taxable income include:

...

2.17. Interests paid for production and business loans borrowed from those other than credit institutions or economic organizations in excess of 150% of the prime interest rate announced by the State Bank of Vietnam at the time of borrowing.

2.18. Interests paid for loans corresponding to the deficit of registered charter capital (or investment capital for private enterprises) according to the capital contribution schedule stated in the charter of the enterprise, even when the enterprise has commenced its production and business activities. Interests paid for loans borrowed during the investment process have been included in the value of invested assets or works.

If, during its business operation, the enterprise that has contributed sufficient charter capital pays interest on a loan for investment in another enterprise, such interest may be included in deductible expenses for determining taxable income...”

- Pursuant to Point b, Clause 8, Article 4 of the Ministry of Finance’s Circular No. 219/2013/TT-BTC dated December 31, 2013 guiding the implementation of the Law on Value-Added Tax and the Government’s Decree No. 209/2013/ND-CP dated December 18, 2013, detailing and guiding a number of articles of the Law on Value-Added Tax, specifying objects not liable to VAT:

“8. The following financial, banking and securities trading services:

....

b) Provision of loans outside the regular business or supply operation of taxpayers other than credit institutions”

- Pursuant to Point a, Clause 7, Article 3 of the Ministry of Finance’s Circular No. 26/2015/TT-BTC dated February 27, 2015 amending and supplementing a number of articles of Circular No. 39/2014/TT-BTC dated March 31, 2014 guiding the implementation of the Government’s Decree No. 51/2010/ND-CP dated May 14, 2010 and Decree No. 04/2014/ND-CP dated January 17, 2014 on goods sale and service provision invoices as follows:

“7. To amend and supplement Article 16 as follows:

a) To amend and supplement Point b, Clause 1 of Article 16 (amended and supplemented in Clause 3, Article 5 of Circular No. 119/2014/TT-BTC) as follows:

“b) A seller shall issue an invoice when selling goods or providing services, including goods or services for promotion or advertising or use as samples; goods and services donated, presented as gifts, exchanged or given as salary to employees (except goods internally circulated or consumed for further production).”

- Pursuant to Point 2.1, Clause 2, Appendix No. 04 to the Ministry of Finance’s Circular No. 39/2014/TT-BTC dated March 31, 2014 defining a number of cases of using and fill in invoices, documents as follows:

“2.1. For organizations paying value-added tax according to the tax credit method that sell goods or provide services not liable to value-added tax, or subjects exempt from value-added tax, use added-value invoices, in value-added invoices, write selling prices being prices of payment and cross out the VAT rate and amount lines”

- Pursuant to Clause 2 Article 3, Clause 1 Article 4 of the Ministry of Finance’s Circular No. 09/2015/TT-BTC dated January 29, 2015 guiding enterprises’ financial transactions specified in Article 6 of the Government’s Decree No. 222/2013/ND-CP of December 31, 2013, on cash payment:

“Article 3. Modes of payment in capital contribution transactions and in the purchase, sale and transfer of capital contributions at other enterprises

2. When conducting capital contribution transactions and when purchasing, selling or transferring capital contributions at other enterprises, enterprises shall:

a) Pay by check;

b) Pay by payment order - money transfer; or

c) Pay by other non-cash payment modes in accordance with current regulations.

Article 4. Modes of payment in mutual borrowing and lending activities between enterprises other than credit institutions

1. When carrying out mutual borrowing and lending activities, enterprises other than credit institutions (enterprises not established, organized and operating under the Law on Credit Institutions) shall apply the modes of payment specified in Clause 2, Article 3 of this Circular...”

Based on the above-mentioned provisions, the Hanoi Tax Department gives the opinions as follows:

- In case your company has contributed sufficient charter capital and has loans borrowed from banks for its production and business activities with the interest amounts not exceeding 150% of the prime interest rate announced by the State Bank of Vietnam at the time of borrowing, such interest payment shall be included in deductible expenses when determining taxable income if the conditions specified in Article 4 of the Ministry of Finance’s Circular No. 96/2015/TT-BTC are satisfied.

- In case your company has a separate lending activity (providing loans for individuals in the Company), such lending activity is not subject to VAT. When collecting money, the Company shall make value-added invoices; in the invoices, clearly write “collect loan interests” in VAT rate line, cross out the VAT amount line in accordance with Point a, Clause 7, Article 3 of Circular No. 26/2015/TT-BTC and Point 2.1, Clause 2, Appendix No. 04 to Circular No. 39/2014/TT-BTC of the Ministry of Finance.

- Your problem related to modes of payment in lending and borrowing transactions is not within the jurisdiction of the tax agency. Please contact the competent agency for guidance on settlement.

For any problems arising in the process of implementing tax regulations, you can refer to the Hanoi Tax Department’s guiding documents posted on the website http://hanoi.gdt.gov.vn or contact the tax agency directly managing the Company for assistance in settlement.