In the Vietnamese business landscape of 2025, the lines between household businesses and enterprises are blurring. The transition from a household business to an enterprise is not just a change in legal form; it's a decision to restructure operational capabilities, standardize governance, and enhance capital mobilization capacity. The government has introduced numerous preferential policies to encourage household businesses to convert into enterprises—from waiving or reducing startup fees to providing tax and accounting consulting packages in the early years—ensuring your future business not only better complies with regulations but also has a foundation for optimizing costs and expanding the market in a controlled manner.
I. Household businesses and enterprises
1. Limitations of the Sole Proprietorship Business Model
A sole proprietorship, or simply a household business, is a small-scale business model suitable for individuals or families. While simple and easy to manage, this model has many limitations and is not suitable for future business expansion. Specifically:
- Without legal personality or a company seal, only a business license, the household business owner is liable with all their assets.
- Value Added Tax (VAT) invoices cannot be issued, and VAT cannot be deducted (except in cases where VAT is paid using the deduction method).
- Each household business is only allowed to register one representative, one registered office address, and is not permitted to open branches or representative offices. This is the biggest difficulty for businesses with multiple business locations.
- The number of permitted business activities is limited (import and export activities are not allowed).
- Small scale of operation, difficulty in raising capital.
2. Why should you convert to a business entity?
As businesses grow in scale, the household business model becomes increasingly restrictive and reveals many limitations. Converting to a corporate model offers strategic solutions such as:
- Legal status: A business is a legal entity with its own seal issued by the State; it may have one or more legal representatives; and it is more convenient for signing contracts, opening bank accounts, issuing invoices, participating in tenders, etc.
- Limited liability: Individuals are only liable to the extent of their registered capital or contributed capital to the company (limited liability company, joint-stock company), instead of unlimited liability with respect to their personal assets as in the household business model.
- Policies and regulations: They are entitled to special policies for businesses such as tax deductions, tax exemptions and reductions; they can open branches and representative offices; there is no limit on the number of business lines they can register; etc.
- Capital raising capacity: The business model facilitates raising capital from investors through equity contributions and stock issuance; and provides opportunities to access bank loans.
- Cost and risk management: A clear and transparent legal framework regarding taxes and invoices, along with standardized accounting, tax, and insurance systems, facilitates cost control and risk management.
- Business opportunity: A professional, reputable, and transparent brand image strengthens the trust of partners and customers, thereby enhancing competitive position, expanding production and business development, and creating opportunities to participate in supply chains and access large-scale domestic and international markets.
In particular, in 2025, a series of new practical incentive policies were approved by the State to encourage and create favorable leverage for household businesses to carry out transformation.
3. Challenges of the Business Model
Besides the advantages mentioned above, this business model also comes with certain challenges, such as:
- The accounting and tax system is relatively complex, requiring books and reports to be kept on time, in compliance with the law, and according to prescribed accounting standards;
- Businesses are required to pay more types of taxes compared to household businesses, such as corporate income tax (CIT), value-added tax (VAT), and other specific taxes such as environmental protection tax, import and export tax, and special consumption tax, depending on the industry and business activities of the enterprise;
- Tax reports must be filed monthly/quarterly/annually.
II. Policy framework and incentives for businesses converting from household businesses.
1. Conditions apply
According to the Article 16, Section 2 Law on Supporting Small and Medium-Sized Enterprises 2017:
- Before converting to a business entity, the household business Registered and operating in accordance with the law.;
- HKD has continuous production and business operations. at least one year as of the date the initial Business Registration Certificate was issued.
Note:
Immediately converting a household business that has just been established into a company will not qualify for the incentives.
2. Incentive policies
a) Free consultation and guidance on application procedures and administrative processes.
According to Article 15 Decree 80 / 2021 / ND-CPThe Department of Planning and Investment is responsible for providing free consultation and guidance to household businesses regarding the procedures, documents, and required paperwork. Registering for business establishment, registering for business eligibility certificates for conditional business sectors. (if).
Furthermore, Article 19 Furthermore, the regulations stipulate that the Department of Finance is responsible for providing free advice and guidance to small and medium-sized enterprises (SMEs) converting from household businesses regarding administrative procedures. Taxes and accounting within 03 years from the date of initial issuance of the Business Registration Certificate.
b) Exemption from initial business registration fees
According to the Article 16 According to Decree 80/2021/ND-CP, small and medium-sized enterprises (SMEs) converting from household businesses are exempt from the initial business registration fee at the business registration authority and from the fee for publishing the initial business registration information. National Business Registration Portal.
c) Exemption from business license fees for 03 years
According to the Article 18 According to Decree 80/2021/ND-CP, small and medium-sized enterprises (SMEs) that convert from household businesses are exempt from business license fees. 03 years calculated from the date the Business Registration Certificate was first issued.
👉 See more: Things startups need to know: Policies on exemption from business license fees for new businesses.
Note:
According to Resolution 198/2025/QH15 issued on May 17, 2025, business license fees will officially be implemented. Repealed effective January 1, 2026.
d) Temporary exemption or reduction of Corporate Income Tax (CIT)
According to Clause 4 Article 15 Corporate Income Tax Law 2025Newly established businesses that convert from household businesses are eligible. Exemption from corporate income tax for two consecutive years. calculated from the time the business generates taxable income.
➤ In addition, if the business implements new investment project eligible for preferential tax rates according to regulations on preferential industries and preferential geographical areas. Clause 4 Article 13 If it's under the same law, then it's allowed. A 50% reduction in the amount of tax payable, for a maximum of four subsequent years..
e) Tax rates and tax incentives
According to the Article 10 According to the Corporate Income Tax Law 2025, the general corporate income tax rate applicable for 2025 is 20%. However, businesses are entitled to a special tax rate if their total annual revenue falls into one of the following categories:
- Total annual revenue not exceeding 03 billion VNDTax rate 15%.
- Total annual revenue from over 03 billion VND to not exceeding 50 billion VNDTax rate 17%.
In addition, businesses are also entitled to other preferential tax rates if they meet the eligibility criteria based on industry and geographical location as stipulated in the regulations. Article 13 in accordance with the law.
👉 See more: The latest cases eligible for preferential tax rates, tax exemptions, and tax reductions in 2025.
Note:
In cases where a business simultaneously qualifies for multiple different tax incentives based on industry and geographical location, the business is entitled to... Choose the most advantageous offer.. But Not cumulative special offers.
3. Some other notes
➤ Small and medium-sized enterprises transitioning from household businesses. inherit all legal rights, obligations, and benefits. of HKD in accordance with the law.
➤ In the case of a limited liability company or joint-stock company established on the basis of conversion from a household business, The household business owner is liable with all their assets. his outstanding debts of HKD (unless otherwise agreed upon by law).
III. Documents and procedures for registering the conversion from a Household Business to a Company
1. Registration documents
According to the Article 27 Decree 168 / 2025 / ND-CP Regarding the registration of a business established through conversion from a household business, the business registration dossier corresponding to each type of business is as follows:
a) Private enterprises:
- Business registration application form;
- A copy of the business registration certificate;
- Copies of the individual's legal documents for the owner of a private business. (*)
(*) In cases where the owner of a private enterprise declares their personal identification number, the application does not include copies of personal legal documents.
b) Partnership company:
- Business registration application form;
- Company charter;
- Member list, list business owners benefit (if any);
- Copies of legal documents of individual or organization members (*);
- A copy of the business registration certificate.
(*) In cases where members are individuals, or the authorized representative of a member organization declares the personal identification number, the application does not include copies of the legal documents of these individuals.
c) Limited liability company (with one or two or more members):
- Business registration application form;
- Company charter;
- A copy of the business registration certificate;
- List of members, list of beneficial owners of the business (if any) (*);
- Copies of the following documents (**):
- Personal legal documents of the legal representative or individual member;
- Legal documents for organizational members, including the letter appointing an authorized representative and personal legal documents for the authorized representative of the organizational member. If the member is a foreign organization, a copy of the organization's legal documents must be consular legalized.
(*) In the case of registering a single-member limited liability company, the application dossier does not include a list of members or a list of beneficial owners.
(**) In cases where the owner or member is an individual, or the legal representative or authorized representative of the owner or member is an organization declaring the personal identification number, the dossier does not include copies of legal documents of these individuals.
d) Joint-stock company:
- Business registration application form;
- Company charter;
- List of founding shareholders, list of shareholders who are foreign investors, list of beneficial owners of the business (if any);
- A copy of the business registration certificate;
- Copies of the following documents (*):
- Personal legal documents of founding shareholders and foreign investor shareholders who are individuals, and their legal representatives;
- Legal documents for corporate shareholders, documents appointing authorized representatives, and personal legal documents for authorized representatives of founding shareholders and foreign investor shareholders who are organizations. If the shareholder is a foreign organization, a copy of the organization's legal documents must be legalized by consular authorities.
(*) In cases where the founding shareholder and foreign investor shareholder are individuals, or the legal representative or authorized representative of the founding shareholder and foreign investor shareholder is an organization and declares their personal identification number, the dossier does not include copies of the legal documents of these individuals.
Note:
"In cases where a business is converted from a household business with foreign investors, or economic organizations with foreign investment capital participating in capital contribution, share purchase, or equity purchase, and the registration procedures for capital contribution, share purchase, or equity purchase are required under the Investment Law, the application dossier must include a copy of the document from the Investment Registration Authority approving the capital contribution, share purchase, or equity purchase by the foreign investor or economic organization with foreign investment capital.
– Clause 2, Article 27 of Decree 168/2025/ND-CP
2. Registration process
Step 1: Prepare the necessary documents corresponding to the type of business you wish to register, as instructed.
- Electronic documents in the file, in “.pdf” format, accurately and completely reflect the content and format of paper documents. The names of the documents must correspond to the type of document as prescribed.
- Electronic documents must be signed directly using a digital signature or signed directly on the paper document and scanned in color.
Step 2: Submit your application online at National portal for business registration Using your personal VNeID account.
Note:
According to the Article 31 Decree 168/2025/ND-CP, effective from July 1, 2025, stipulates that Business registration must be done online..
Step 3: The system for receiving applications and delivering results.
- In 03 days From the date of receiving the application, the Business Registration Department checks the validity and completeness of the application and issues the Business Registration Certificate.
- If the application is incomplete or the business registration is rejected, the Business Registration Office will notify the business founder in writing of the necessary amendments or additions, or the reasons for rejection.
- Within 60 days of the notification date, the business registrant must submit the amended and supplementary documents. After this deadline, the registration documents will no longer be valid and will be automatically canceled.
Converting from a sole proprietorship to a business enterprise is a strategic step aimed at enhancing business capacity and achieving sustainable development through standardized governance and optimized legal benefits. While this decision presents many challenges, it also opens up numerous new opportunities. This reflects a deeply ingrained business philosophy. "Understand correctly - Do correctly"Leveraging supportive government policies, pioneering the transformation and strengthening of financial discipline, creating a strong competitive advantage, enhancing business capabilities, and building a transparent and efficient operational foundation.
📑 Excerpt from the law:
- Law on Supporting Small and Medium-Sized Enterprises 2017 (04/2017/QH14) – Article 16. Support for small and medium-sized enterprises transitioning from household businesses.
- Decree 80 / 2021 / ND-CP
- Article 15. Support and advice on documents and procedures for establishing businesses;
- Article 16. Support for business registration and disclosure of business information;
- Article 18. Support for business license fees;
- Article 19. Support and advice on tax administrative procedures and accounting regulations.
- Resolution 198/2025/QH15 - Clause 7, Article 10. Support for taxes, fees, and charges.
- Corporate Income Tax Law 2025 (67/2025/QH15)
- Article 10. Tax rates;
- Clause 4, Article 13. Preferential tax rates;
- Clause 4, Article 15. Other cases of tax exemption and reduction.
- Decree 168 / 2025 / ND-CP
- Article 27. Registration of business establishment based on conversion from household business;
- Clause 1, Article 31. Receiving and processing business registration applications on the National Information System on Business Registration through direct submission at the Business Registration Authority and registration via postal services.