Contractor tax on foreign loan interest is an important issue that Vietnamese enterprises that borrow capital from foreign organizations, banks or investors need to understand. From October 1, 2025, the corporate income tax (CIT) rate on loan interest paid to foreign contractors will officially increase from 5% to 10% according to the draft Decree guiding the Law on CIT No. 67/2025.
This article will analyze in detail the contractor tax on foreign loan interest, including tax calculation, applicable cases, tax declaration and payment procedures, as well as tax optimization strategies for businesses to ensure legal compliance and effective management of financial costs.
Corporate income tax rate on foreign loan interest
Understanding corporate income tax rate Foreign loan interest is very important for businesses to estimate financial costs and fulfill tax obligations on time. According to the draft Decree guiding the Law Corporate Income Tax No. 67/2025, the current tax rate of 5% will be adjusted to 10% from October 1, 2025. The table below compares the old and new tax rates, scope of application, effective date as well as direct impact on the borrowing costs of enterprises, helping enterprises fully grasp information before making interest payments to foreign contractors.
| Content | Details |
| Current tax rate | 5% for loan interest paid to foreign contractors (before October 1, 2025). |
| Proposed tax rate | 10% for loan interest paid to foreign contractors (from October 1, 2025) according to the draft Decree guiding the Corporate Income Tax Law 67/2025. |
| Scope of application | Most interest payments are made to foreign lenders, including banks, international credit institutions and foreign investors. |
| Effective date | October 1, 2025, subject to transitional provisions and implementation guidance in the Decree. |
| Impact on business | Increasing the tax rate from 5% to 10% will increase financial costs, especially for large or long-term loans, directly affecting financial planning and borrowing cost estimates. |
Cases of contractor tax exemption for foreign loan interest
Some special cases allow businesses to exempt or reduce contractor tax when paying interest to foreign contractors. Specifically:
Double Taxation Agreement (DTA)
Interest from certain foreign governments may be exempt from withholding tax if a Double Taxation Agreement (DTA) applies or based on a separate agreement between the governments. For example:
- Japan: Interest from loan contracts signed between October 1, 2008 and March 31, 2012 by JFC, and from April 1, 2012 onwards by JBIC, may be exempt from withholding tax in Vietnam under Article 11 of the DTA between Vietnam and Japan.
- NEXI (Japan): Interest from loans insured by NEXI may be exempt from contractor tax in Vietnam from November 26, 2015, according to Official dispatch 1755/TCT-HTQT.
To be exempted from contractor tax on foreign loan interest, enterprises need to prove the legality of the loan through the loan contract, confirmation from the lender and related documents; at the same time, comply with the conditions specified in the Decree guiding the Law on Corporate Income Tax, Circular 103/2014/TT-BTC or according to each applicable Double Taxation Agreement (DTA); and keep complete records to present when requested by the tax authorities for inspection.
Borrow from the Government or international organizations
Loans that Vietnamese enterprises receive from foreign governments, international development banks or multilateral credit institutions are often exempt from contractor tax on loan interest. This is a preferential mechanism aimed at:
- Encourage businesses to access capital for project development, especially infrastructure, energy, education and healthcare projects.
- Reduce financial cost burden and increase the ability to undertake large-scale or long-term projects.
- Promote international cooperation and ensure that loans are used effectively.
To be exempted from contractor tax on foreign loan interest, enterprises need to ensure the legality of the loan through a legal loan contract, a certificate from the lender and related documents; at the same time, comply with legal instructions, meet the conditions under the Decree guiding the Law on Corporate Income Tax, Circular 103/2014/TT-BTC or according to specific agreements with the lending institution; and keep complete records to prove the tax exemption when the tax authority inspects.
How to calculate contractor tax on foreign loan interest
When a Vietnamese enterprise pays interest to a foreign contractor, the withholding tax payable by the contractor is calculated based on the applicable corporate income tax rate and the total interest payable. The specific calculation is as follows:
Formula for calculating contractor tax on foreign loan interest
|
Contractor tax = Interest paid to foreign contractors x Applicable corporate income tax rate |
In there:
- Interest paid to foreign contractors: total interest payable under the loan contract, including short-term and long-term loan interest, bond interest or other interest payments.
- Applicable corporate income tax rate: according to the draft Decree guiding the Corporate Income Law 67/2025, the current tax rate is 10% (applied from October 1, 2025), previously 5%.
Illustrative example of how to deal with foreign interest
Suppose a Vietnamese enterprise borrows 1,000,000 USD from a foreign bank at an interest rate of 6%/year. The interest payable during the year is 60,000 USD. When applying contractor tax:
|
Contractor tax = 60,000 x10% = 6000 USD |
The enterprise will deduct 6,000 USD before transferring the payment to the foreign lender and pay this tax to the Vietnamese tax authority.
Procedures for declaring and paying contractor tax on foreign loan interest
Completing the declaration and payment of contractor tax is mandatory when a business pays interest to a foreign contractor. This process not only helps businesses comply with the law, avoid the risk of being fined or having to pay back taxes, but also ensures their rights if they apply incentives such as tax exemption or reduction under the Double Taxation Agreement (DTA) or loans from the Government and international organizations.
The table below details each step, from determining taxable objects, declaring, deducting and paying taxes, to keeping records and important notes, to help businesses carry out procedures completely and accurately.
| Step | Detailed content |
| Identify the subject and amount of tax payable | Identify the lender as an organization or individual not residing in Vietnam; calculate the tax payable based on actual loan interest and applicable corporate income tax rate (10% from October 1, 2025). |
| Tax declaration | Use the contractor tax declaration form according to Circular 103/2014/TT-BTC; fill in information about the contractor, loan contract, interest paid, tax rate, tax payable; if applying DTA, clearly state the basis for tax exemption/reduction. |
| Tax deductions and payments | Directly deduct tax from the interest payable to foreign contractors; pay this tax to the Vietnamese tax authority before transferring payment; the payment deadline is according to the regulations of the tax authority where the enterprise is registered. |
| Record keeping | Keep loan contracts, payment documents, declared tax declarations and tax payment receipts; documents proving benefits if applying DTA or tax exemption/reduction according to the Decree/Circular. |
| Important Note | Declare and pay taxes on time to avoid the risk of being fined, having to pay back taxes and affecting the business's reputation; carefully check the tax exemption conditions for loans from the Government or international organizations to optimize costs. |
Impact of increasing corporate income tax rate on interest paid to foreign contractors
Increasing the corporate income tax rate on interest paid to foreign contractors from 5% to 10% (applied from October 1, 2025 according to the draft guiding Decree Corporate Income Tax Law 67/2025) will have several important impacts on businesses:
Increased financial costs
The increase in the corporate income tax rate on interest paid to foreign contractors from 5% to 10%, effective from October 1, 2025 according to the draft Decree guiding the Corporate Income Tax Law 67/2025, will increase the cost of borrowing for businesses. Businesses must deduct and pay double the amount of tax on the same amount of interest, especially for large or long-term loans, which directly affects cash flow and financial planning.
Impact on profits and budget estimates
Increased tax costs lead to a decrease in a company's net profit and changes in key financial indicators in its financial statements. Therefore, businesses need to adjust their budget estimates and borrowing cost plans to ensure solvency and optimize profits.
Increased need for tax management and compliance
The change in tax rates requires businesses to closely monitor foreign loans, update new tax rates and fully perform their obligations to declare, deduct and pay taxes on time. Failure to comply may lead to the risk of being fined, having to pay back taxes and affecting the business's reputation in the market.
Encourage optimization of borrowing costs
Increasing tax rates also encourages businesses to consider restructuring loans, applying for Double Taxation Agreements (DTAs) or choosing loans from the Government and international organizations. This helps
Important notes when applying contractor tax to foreign loan interest
When applying contractor tax to foreign loan interest, businesses need to understand some important notes to ensure compliance with the law, avoid the risk of penalties and optimize financial costs. Identifying the correct taxable entity, calculating the exact amount of tax payable, keeping complete records and assessing the cost impact are essential steps.
At the same time, businesses also need to check the conditions for applying tax incentives from the Double Taxation Avoidance Agreement (DTA) or loans from the Government and international organizations to ensure their rights and optimize their financial strategies. The table below summarizes in detail the important notes that businesses need to implement.
| Important Note | Detailed content |
| Comply with the law | Enterprises need to fully perform the obligations to declare, deduct and pay contractor tax according to Circular 103/2014/TT-BTC, Decree guiding the Law on Corporate Income Tax 67/2025, as well as Double Taxation Avoidance Agreements (DTAs) if any. |
| Correctly identify taxable entities | Only applies to interest payments made to organizations and individuals not residing in Vietnam. Incorrect identification of the subject may lead to incorrect declaration and tax arrears. |
| Calculate the exact tax payable | Contractor tax is calculated on the total interest payable, applying the prescribed tax rate (10% from October 1, 2025). Enterprises need to ensure accurate data to avoid errors when paying taxes. |
| Keep complete records | Loan contracts, payment documents, tax declarations and tax payment receipts must be fully retained to prove tax obligations fulfilled and tax exemption/reduction benefits if DTA or preferential loans are applied. |
| Cost impact assessment | The increase in tax rate from 5% to 10% directly affects financial costs and profits. Businesses need to calculate and reserve costs to effectively manage cash flow. |
| Check tax incentive conditions | Before applying for tax exemption or reduction, businesses need to check the legal conditions of the loan and specific regulations from the Government, international organizations or DTA to optimize tax costs. |
Optimizing contractor tax strategy for foreign loan interest
To minimize the impact of tax rate increases and optimize financial costs, businesses need to develop an optimal contractor tax strategy for foreign interest. This strategy not only helps take advantage of incentives from Double Taxation Agreements (DTA) and loans from the Government or international organizations, but also ensures legal compliance, transparent loan contract management and tax records.
By planning for costs, providing for taxes and restructuring loans when necessary, businesses can minimize tax burdens, optimize cash flow and improve financial efficiency.
Using a Double Taxation Agreement (DTA)
Enterprises should take advantage of the Double Taxation Avoidance Agreements that Vietnam has signed with the country of the foreign contractor. If applied correctly, enterprises can have their contractor tax reduced or exempted, helping to save significant financial costs. This requires enterprises to clearly understand the conditions and procedures to prove their rights under the DTA.
Priority loans from the Government or international organizations
Loans from foreign governments, international development banks or multilateral credit institutions often come with a contractor tax exemption or reduction. Businesses should consider these sources of capital before choosing a borrowing partner, especially for large, long-term or priority development projects.
Loan contract and document management
An important strategy is to manage loan contracts, payment documents and tax records in a complete and transparent manner. Valid records will help businesses demonstrate tax exemption or reduction rights when tax authorities inspect, while avoiding the risk of collection or penalties for violations.
Calculating and provisioning for tax expenses
Businesses should carefully plan their borrowing costs and contractor tax before signing a loan agreement. Cost provisions will help businesses ensure stable cash flow, balance their budgets and avoid financial surprises when the tax rate increases from 5% to 10% from October 1, 2025.
Loan restructuring when necessary
In some cases, businesses may consider restructuring loans or changing the form of interest payments to optimize tax obligations. For example, dividing loans according to preferential sources, applying DTA, or choosing international credit institutions with tax exemption policies.
Conclude
Contractor tax on foreign loan interest is an important factor that directly affects the financial costs and borrowing strategies of enterprises. The increase in tax rate from 5% to 10% from October 1, 2025 requires enterprises to have a firm grasp of legal regulations, calculate tax costs accurately and apply incentives such as Double Taxation Avoidance Agreements (DTA) or loans from the Government and international organizations. Understanding this mechanism helps enterprises minimize legal risks and optimize cash flow.
Contractor tax on foreign loan interest is not only a legal obligation but also an opportunity for businesses to optimize financial costs if they implement the right strategy. Managing loan contracts, documents and tax declarations transparently will help businesses protect their rights, avoid the risk of tax collection and penalties for violations. At the same time, a reasonable tax optimization strategy will improve capital efficiency and profits.
If the business needs professional support in declaring and paying contractor tax on foreign loan interest, MAN – Master Accountant Network is a reputable partner. We provide full corporate income tax consulting and declaration services, helping businesses apply regulations correctly, optimize costs and operate finances with peace of mind. Contact MAN today for detailed advice and to accompany businesses in all tax obligations.
Service contact information at MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
