Is it possible for a company to borrow from other companies or individuals ?

Hi DMS Law office in Vietnam! Is it possible for a company in Vietnam to lend out to other companies, individuals, to earn interest from its idle cash ? How about tax and accounting issue relating to the interest payment ?  

Hi!

Yes, a company in Vietnam may lend out to other companies, individuals.

Invoices issued separately by tax authorities:

The tax authorities shall issue separate invoices for organizations other than companies, households and individuals that are not doing business but sell goods or services irregularly and need invoices for their customers. The tax authorities shall not issue invoice for organizations other than companies, households and individuals that are not doing business but sell goods or services not subject to value added tax (Clause 1 Article 13 Circular 11/VBHN-BTC dated May 9, 2018 providing guidelines for implementation of Decree No. 51/2010/NĐ-CP dated May 14, 2010 and Decree No. 04/2014/NĐ-CP dated Janurary 17, 2014).

Goods and services not subjected to VAT:

Separate loans that are not a business and irregularly given by taxpayers that are not credit institutions. Example 5: Joint-stock company VC has idle money and signs a contract to give a loan to company T, which is due after 06 months, and receives an interest. Such interest is not subject to VAT (Point b Clause 8 Article 4 Circular No. 14/VBHN-BTC dated May 09, 2018 providing guidlelines for implementation of the Law on Value added tax and Decree No. 209/2013/NĐ-CP dated December 18, 2013).

Accounting for interest expenses:

Deductible and non-deductible expenses for determining taxable income:

Except expenses specified in Clause 2 of this Article, enterprises may deduct all expenses that fully satisfy the following conditions:

Actual expenses arising in relation to production and business activities of enterprises;

Expenses with adequate lawful invoices and documents as required by law;

For expenses for purchase of goods or services with invoices valued at VND 20 million or more (VAT-inclusive prices) each, there must be non- cash payment documents;

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

Non-deductible expenses for determining taxable income include:

Interests paid for production and business loans borrowed from subjects 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.

Interests paid for loans corresponding to the deficit of registered charter capital (or investment capital for private enterprises) according to the capital contribution schedule specified in the charter of the enterprise, even when the enterprise has commenced its production and business activities. Interests paid for loans in the process of investment shall be included in the value of assets or constructions invested (Clause 1 and Point 2. 17, 2. 18 Clause 2 Article 6 Circular No.26/VBHN-BTC dated September 14, 2015 providing guidelines on implementation of Decree No. 218/2013/NĐ-CP dated December 26, 2013).

In summary, according to law, separate and irregular lending activities are not subjected to VAT, so the tax authorities shall not issue invoice for organizations other than companies, households and individuals that are not doing business but sell goods or services not subject to value added tax. In case the charter capital is fulled contributed, the interest expenses paid to individuals for its production and business, not exceeding 150% of the prime interest rate announced by the State Bank of Vietnam at the time of borrowing, has loan agreements and payment documents shall be included in the deductible expenses for determining taxable income. Personal income tax on the interest received by individuals shall be declared, paid to the State in accordance with law.  

Therefore, according to law of Vietnam, enterprise in Vietnam may sign lending agreements on idle money, and receive interest from other enterprises, individuals./.

Consulting services:

Phone: 0914 165 703 or Email: dmslawfirm@gmail.com

Can company borrow from other companies, individuals ?