An owner of a grocery store in Ho Chi Minh City generates an annual revenue of approximately VND1 billion-VND1.2 billion (US$45,899) and employs 2 sales staff. She has adopted electronic invoicing and has fulfilled her tax obligations.
When prompted to transition into an enterprise, she expressed significant concern, as she found operating under the business household model to be relatively straightforward, convenient, and devoid of complex bookkeeping and documentation. Transitioning to an enterprise would necessitate the preparation of quarterly and annual tax reports, hiring an accountant, and addressing social insurance policies for employees. These requirements would undoubtedly lead to increased costs compared to her current situation.
She was wondering where she can continue operating as a business household.
This is a significant concern for business households when deciding whether to transition into an enterprise. For nearly a decade, the country has implemented policies to encourage this shift, yet the outcomes remain limited. Currently, there are approximately 5.2 million business households operating nationwide. Among nearly 100,000 households generating annual revenues exceeding VND1 billion, some are quite large-scale.
In District 5 of Ho Chi Minh City, known for its long-established, large-scale business households, there are entities that contribute billions of Vietnamese dong in taxes each year, surpassing those of enterprises. However, despite encouragement to convert to enterprises, many households remain reluctant.
In response to inquiries before the National Assembly yesterday, Minister of Finance Nguyen Van Thang outlined the primary reasons for this hesitation among business households. The disparity in compliance costs between business households and enterprises is significant, with enterprise costs being considerably higher.
Furthermore, many business households lack a comprehensive understanding of the legal regulations governing enterprises and are apprehensive about the complexities of managing accounting records. Business households typically utilize a lump-sum tax system, which involves a much simpler bookkeeping process compared to that of enterprises.
Nevertheless, business households represent a substantial potential force in achieving the goal of reaching 2 million enterprises by 2030. The advantages of 'becoming an enterprise' are numerous. As an enterprise, one can more easily access capital and participate in budgetary support programs.
With years of experience in consulting and supporting business households and small to medium-sized enterprises (SMEs), Director Nguyen Cam Chi of Sustainable Development Consulting at MCG Management Consulting, highlighted a regrettable issue: many meaningful initiatives are ineligible for government support simply because they are not formally recognized as enterprises.
She cited a compelling example—a cooperative that creates jobs for autistic children. Despite meeting all the criteria to receive funding for building a sales website, the organization was excluded from support because its legal status as a cooperative disqualified it.
To encourage business households to transition into formal enterprises, the Ministry of Finance has proposed a range of solutions. These include improving the legal framework and aligning the management and financial regimes of business households with those of registered enterprises. Specific support measures include a three-year corporate income tax exemption, elimination of business license fees, and free access to digital platforms and shared accounting software.
Additionally, the current lump-sum tax system will be abolished starting January 1, 2026, promoting greater transparency. The ministry also plans to intensify outreach and education efforts to raise awareness and strengthen management capacity, enabling business households to confidently make the transition.
However, encouragement alone is not sufficient. Dr. Tran Du Lich, Chairman of the Advisory Council for the Implementation of the National Assembly's Resolution 98, emphasized that the concept of a business household does not formally exist. In developed countries such as South Korea and Japan, small business owners typically establish formal enterprises. To facilitate the transition of business households into enterprises, the State must go beyond mere advocacy and offer concrete support in two key areas.
First, the Government should handle all enterprise registration procedures on behalf of the households, removing the administrative burden from them entirely. Second, in the early stages, the State should assist with tax declarations, accounting practices, the establishment of local business support funds, and subsidize accounting services—at least for the initial years—to ease the transition and ensure operational stability.
According to Ms. Nguyen Cam Chi, this is an opportune moment for business households considering a transition to enterprises. There are supportive policies in place, such as exemptions from corporate income tax during the initial stages. Additionally, there is a range of policies aimed at assisting with training, digital transformation, management consulting, and sales management software, all of which are available at no cost to households wishing to become enterprises.
Ms. Cam Chi advises that not every business household is suited to transition into an enterprise; those looking to make this change must select an appropriate model.
For retail businesses, it is advisable to opt for a 2-member LLC model, which allows for the calculation of personal salaries as expenses. In contrast, food and beverage businesses should consider a 1-member LLC model to prevent potential issues that may arise when the company develops a brand, as disputes among multiple shareholders could occur. Ms. Cam Chi highlighted that for many instances, transitioning from a lump-sum tax to a declaration is recommended as owners intend to secure funding, establish labor contracts, or expand their operations.
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