Article 4 of Circular 96/2015/TT-BTC stipulates the expenses that are not deductible when determining taxable income:
"2.17. The portion of interest expense on loans for production and business activities of entities other than credit institutions or economic organizations that exceeds 150% of the basic interest rate announced by the State Bank of Vietnam at the time of borrowing.
2.18. Payment of interest on loans corresponding to the remaining portion of registered charter capital (for private enterprises, this is investment capital) according to the capital contribution schedule stipulated in the enterprise's charter, even if the enterprise has already commenced production and business operations. Interest payments on loans during the investment process have been recorded in the value of assets and investment projects.
If a business has fully contributed its charter capital, and during its operation incurs interest payments on loans used to invest in other businesses, these payments are deductible expenses when determining taxable income.
Interest payments on loans corresponding to the remaining capital contribution according to the capital contribution schedule stipulated in the company's charter are not deductible when determining taxable income.
Article 4 of Circular 219/2013/TT-BTC stipulates the subjects not subject to Value Added Tax (VAT):
b) Individual lending activities, not considered business activities or regular provision of services by taxpayers who are not credit institutions.”
-> Accordingly, individual lending activities are not subject to VAT, and tax authorities do not issue invoices to individuals who do not engage in the business of selling goods or services that are exempt from VAT.
Therefore, in cases where a business has contributed its full charter capital, if the interest payment on loans the business borrows from individuals to finance its production and business activities does not exceed 150% of the basic interest rate announced by the State Bank of Vietnam at the time of borrowing, then the business needs to:
– Personal loan contract
– Payment documents (if the amount exceeds 20 million VND, payment must be made via bank transfer)
– Personal income tax must be declared and paid according to regulations.
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Solution:
If a business incurs interest expenses on personal loans after contributing its full charter capital, it must prepare and maintain complete documentation and records to justify these expenses, which will then be considered deductible when determining taxable income.
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