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Almost every FDI company has related party transactions: buying goods from the parent company, paying management fees, borrowing from the group. The problem is that many of these transactions are not labelled as "purchases" or "sales", so they are easily missed in tax filings, even though this is a group of transactions the tax authority pays particular attention to. This article explains the concept, how to identify related parties and how to build a tracking list. It was prepared by the accounting team at ACCA Consulting Vietnam.
1. What is a related party transaction?
A related party transaction (giao dịch liên kết) is a transaction between parties that have a related party relationship. Two parties are considered related when one participates directly or indirectly in the management, control or capital of the other, or when both are under the management or control of a third party. Because prices between such parties may not be set by the market, tax law requires these transactions to be declared and priced according to the arm's length principle.
| Vietnamese term | English | In simple terms |
|---|---|---|
| Bên liên kết | Related party / associated enterprise | A party with an ownership, management or control relationship with the company |
| Giao dịch liên kết | Related party transaction | Any purchase, sale, loan, service or asset transfer with a related party |
| Nguyên tắc giao dịch độc lập | Arm's length principle | The price must be what it would be with an unrelated party under the same conditions |
| Giá chuyển giao | Transfer pricing | The price applied to transactions between related parties |
| Hồ sơ xác định giá | Transfer pricing documentation | Documents proving that related party prices comply with the arm's length principle |
2. Identifying related parties: 4 types of relationship
The current regulations list many specific cases, each tied to a certain level of ownership, guarantee value or loan amount. Here we group them into four easy-to-remember categories; when filing, the accountant must check each criterion and threshold in detail against the regulations in force.
- Ownership relationships: parent company, subsidiaries, "sister" companies under the same parent, and investors holding capital directly or indirectly.
- Management relationships: companies sharing a director or members of the management board, or controlled by the same group of people.
- Financial relationships: a party that guarantees or lends an amount that is large relative to equity or total debt, according to the prescribed thresholds.
- Family and contractual relationships: companies run by relatives of the company's managers; business arrangements that allow one party to control the other.
- 1Obtain the group chart
Ask the parent company for an up-to-date ownership chart, including direct and indirect percentages.
- 2List the managers
Record the directors, members of the Members' Council (HĐTV) and equivalent positions at the related companies.
- 3Review guarantees and loans
List lenders and guarantors and compare them with the prescribed thresholds.
- 4Cross-check customer and supplier lists
Flag any party that appears in the group chart or shares managers with the company.
- 5Update annually
Keep dated versions and update them when the group makes acquisitions, disposals or restructures.
3. Related party transactions that are often missed
Purchases from and sales to the parent company are rarely forgotten. The transactions below are the ones most easily missed, because there is no invoice or because they are recorded on the group's side:
| Transaction | Sign in the books | Question to ask |
|---|---|---|
| Loan guarantees | No journal entry, only a guarantee letter | Is a guarantee fee paid? If not, why not? |
| Seconded staff | An expatriate works here but is paid abroad | Is there a cost allocation agreement, and is PIT declared? |
| Shared software and systems | Per-head IT charges from the group | What is the allocation basis, and is there a contract? |
| Payments made on behalf | Intercompany balances rising with no clear description | Whose cost is this, and is there an invoice? |
| Management fees and royalties | Invoices/debit notes from the parent at year-end | What service was actually provided, and how is the benefit measured? |
Management fees and royalties in particular tend to be closely scrutinized; see management fees paid to the parent company: conditions for deductibility.
4. Example: the related party transaction mix of an FDI company
- Raw materials bought from the parent60%
- Loans from the parent20%
- Management and IT fees15%
- Other (guarantees, payments on behalf)5%
Illustrative example with hypothetical figures. Used to prioritize which transactions need pricing documentation first.
View as table
| Raw materials bought from the parent | 60% |
| Loans from the parent | 20% |
| Management and IT fees | 15% |
| Other (guarantees, payments on behalf) | 5% |
A chart like this shows the board of directors at a glance which transactions carry the most weight and need pricing evidence first. For Company Z, raw material purchases and loans from the parent account for 80% of the value, so they are the top two priorities when preparing the related party transaction appendix for the tax finalization.
FAQ
Do domestic companies have related party transactions?
Yes. The concept is not limited to FDI companies; a Vietnamese company with subsidiaries or companies under common ownership can also have them.
Do transactions with no payment need to be declared?
They need to be reviewed. Transactions such as free-of-charge guarantees or seconded staff can still be related party transactions and affect tax obligations.
What ownership percentage makes a party related?
The specific thresholds are set out in the current regulations on tax administration for enterprises with related party transactions. Check the latest regulations or contact an adviser.
Where can we get information on related parties?
From the parent company (group chart), enterprise registration documents, the list of managers, and loan and guarantee agreements.
Build your related party list before tax finalization season
ACCA Consulting Vietnam helps FDI companies identify and track related party transactions in their monthly books. Get advice on our accounting services.
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