Expertis has received many questions from clients regarding the establishment of a "Sole Proprietorship." Expertis will now summarize and answer all these questions to provide readers with a comprehensive overview of this type of business.
- What is the procedure for registering a sole proprietorship?
- Where do I register a sole proprietorship business?
- What are the advantages and disadvantages of a sole proprietorship?
- What are the legal regulations regarding individual business households?
- What is the legal status of a sole proprietorship?
- How much tax do individual business owners pay?
1. How to establish a Sole Proprietorship?
1.1. What is a sole proprietorship?
“A sole proprietorship, owned by an individual who is a Vietnamese citizen aged 18 or older with full legal capacity, or by a household; or by a group of people or a household, may only register its business at one location, employ no more than 10 workers, does not have a seal, and is liable for its business activities with all its assets.” (Excerpt from Article 49 of Decree 43)
Individuals who establish and contribute capital to a sole proprietorship are not allowed to simultaneously be the owner of a private enterprise or a general partner in a partnership company, except with the unanimous consent of all other members.
1.2. Subjects and professions exempt from registration
- Households engaged in agriculture, forestry, fisheries, salt production, street vendors, snack sellers, mobile businesses, and low-income service providers are not required to register as individual business owners. This excludes businesses operating in regulated sectors as stipulated by the state.
- The People's Committee of the province or centrally-governed city will issue a decision on the low income level applicable within its jurisdiction.
- Low income levels are defined as those that do not exceed the personal income tax threshold stipulated by the state.
2. Lump-sum tax for individual business households and how to calculate VAT and personal income tax.
Article 2 of Circular No. 92/2015/TT-BTC stipulates the following regarding lump-sum tax: For individuals paying lump-sum tax, the revenue threshold of VND 100 million/year or less, used to determine whether an individual is exempt from Value Added Tax (VAT) and Personal Income Tax (PIT), is the actual taxable revenue corresponding to the number of months of actual business operations.
In the case of individuals paying flat-rate taxes, if the tax authority notifies them of the amount of tax payable and the business does not operate for the full year, the individual is entitled to a reduction in the flat-rate tax payable corresponding to the number of months of business suspension/cessation during the year.
The value-added tax and personal income tax for individual business households with annual revenue of 100 million VND or more are calculated as follows:
- VAT payable = Taxable revenue x VAT rate
- Personal income tax payable = Taxable income x Personal income tax rate
3. What documents are required for business registration?
Currently, the application file for household business registration is quite simple, including:
- Application form for business registration.
- Copy of household registration documents such as ID card/Citizen Identification Card/Passport
- Tax registration form (to issue the Tax Registration Certificate at the same time as the Business Registration Certificate).
7 important things to know to avoid risks during the business registration process.
First, note the eligibility criteria for registration.
Individuals or households are eligible to register a business household. Specifically, a Vietnamese citizen aged 18 or older with legal capacity and civil capacity is entitled to have their name on the business registration certificate. Alternatively, members of a family, a group of friends, etc., who wish to do business together can also register a business household, and the person whose name appears on the business registration certificate will be the representative of all participants.
A person can only register one business household under their name nationwide. If this person already has a business household, even if they haven't been operating for a long time, but that household business hasn't been dissolved yet, they cannot register a new one under their name (to register a new household business, the old one must be dissolved).
Secondly, pay attention to naming your business.
Similar to establishing a business, sole proprietorships are also required to have a unique name – this name must consist of two elements: "Sole Proprietorship + Sole Proprietorship's Unique Name". Additionally, it's important to note that this name must not include phrases that could be confused with business types, such as adding the elements "company" or "enterprise"; the sole proprietorship's unique name must not be identical to the unique name of other sole proprietorships within the same district; and English names cannot be used. If an English name is used, a dot must be placed between the characters. For example: EMILY Sole Proprietorship
In reality, there used to be many spontaneously established businesses that didn't register as household businesses. For example, if they previously operated under the name ABC, and now they register as a household business, it's not guaranteed that the name will be accepted. If someone else has already established a household business under the name ABC, then this business cannot use the name ABC. Therefore, to be sure whether your household business name will be approved, you will know when you submit your application to the People's Committee of the district/county.
Thirdly, note the location of business registration.
A sole proprietorship can only be located at a single address nationwide and cannot establish branches, business locations, or representative offices like a company. If the address is rented or borrowed, it is necessary to verify whether anyone has previously established a sole proprietorship at this address. If so, has that business been dissolved? To verify this, the landlord should be asked to go to the District/County People's Committee to inquire about the existence of such a business. If a business exists but has not been dissolved, the landlord can go to the District/County People's Committee to request its dissolution, citing the reason that the business owner has left and is no longer operating at the address.
- The registered address for a household business must absolutely not be an apartment building.
- Businesses cannot be established at addresses located within government-planned development zones.
For certain specialized fields, there will be additional requirements as follows:
- The spa industry (haircutting, shampooing, facial massage, manicures, makeup): requires parking facilities.
- Wholesale food and beverage industry: requires a food safety certificate (even if a business license has already been issued) to operate.
- Yoga instructors are required to possess relevant certifications or qualifications.
A more specific case is when establishing a business in a market; a business might be allowed to operate in one district/county but not in another. Or, a particular product might be allowed to be sold at one stall but not at another. These situations depend on the specific characteristics and layout of each market.
Fourth, notes on registered capital for individual business households.
Currently, the law does not specify a minimum or maximum capital requirement for household businesses. Therefore, the amount of registered capital depends on each individual's capabilities and the scale and type of business they wish to pursue. However, it is important to note that the liability for risks in a household business is unlimited (liability extends to all assets). Therefore, when deciding to register a household business, one must carefully consider the future risks. If the business is unsuccessful, you will be liable for all your assets, not just the registered capital.
In addition, household businesses should register with low capital, not high capital, because the tax authorities will base the monthly lump-sum tax on the following three conditions:
- High or low capital
- This business location is in a bustling area, has a convenient location, whether it's on a main street or in an alley.
- Are the products sold by this business considered to have good sales potential?
Fifth, note the maximum number of employees allowed for a household business.
The maximum number of employees a sole proprietorship is allowed to employ is 9. If there are 10 or more employees, the sole proprietorship must register as a company to avoid being penalized by the authorities.
Sixth, note regarding the registered business activities.
Regarding the registered business activities, the household business must indicate the specific business activity they wish to engage in on the registration form, and the registration authority will provide guidance on how to express it in the most appropriate way possible.
Saturday, note the documents required to register a business household.
Lease or loan agreements between landlords and business owners must be signed directly, without intermediaries.
- Land use right certificate (photocopy (if available))
- 2 notarized copies of the ID cards (not older than 3 months) of the household head and other members (if any).
- Certificates and diplomas for professions requiring specific qualifications (certified copies)
4. Procedures, steps, and documents for registering a sole proprietorship.
1. Individuals, groups of individuals, or household representatives submit an application for registration of a sole proprietorship to the district-level business registration authority where the business is located. The application for registration of a sole proprietorship includes the following:
a) Name of the business household, address of the business location;
b) Business sector/activity;
c) Registered business capital;
d) Full name, identity card number and date of issuance, residential address, and signature of the individuals establishing the business household (for business households established by a group of individuals), of the individual (for business households established by an individual), or of the household representative (for business households established by a household).
The application for business registration must be accompanied by copies of the identity cards of the individuals participating in the business or the household representative, and minutes of the meeting of the group of individuals regarding the establishment of the business in the case of a business established by a group of individuals.
For occupations requiring a professional license, the documents specified in Clause 1 of this Article must be accompanied by a valid copy of the professional license of the individual or household representative.
For industries and professions requiring statutory capital, in addition to the documents specified in Clause 1 of this Article, a valid copy of the document confirming the statutory capital issued by the competent authority or organization must be included.
2. Upon receiving the application, the district/county-level business registration authority shall issue a receipt and a business registration certificate to the business household within five working days from the date of receipt of the application, provided that the following conditions are met:
a) The business sector or profession is not on the list of prohibited business sectors or professions;
b) The intended business name must comply with the regulations in Article 56 of this Decree;
c) Pay the full registration fee as required.
If the application is invalid, within five working days from the date of receipt, the business registration authority must notify the applicant in writing of the necessary amendments and additions.
3. If, after five working days from the date of submitting the business registration application, the applicant does not receive the Business Registration Certificate or a notice requesting amendments or additions to the application, the applicant has the right to file a complaint in accordance with the law on complaints and denunciations.
4. Periodically, in the first week of each month, the district-level business registration agency sends a list of business households registered in the previous month to the corresponding tax authority, the Business Registration Department, and the provincial-level economic and technical sector management agency.
5. Conclusion
Generally speaking, registering a sole proprietorship can be much easier than establishing a company because it's less constrained by a fixed framework. However, the process itself faces many more obstacles. Having a framework makes it easier to comply with regulations, while the lack of a framework means it depends on the registration authority and the personnel handling the application.
For example, during the process of establishing a household business, some issues are handled differently depending on the officer processing the application. While the decree doesn't prohibit using English names for household businesses, English names are generally not accepted at every People's Committee. Furthermore, not all People's Committees provide guidance on how to correct the name by adding a period between the characters.
If you are unable or do not have time to perform the above procedures, please contact Expertis for the best support.
