Why are millions of home-based businesses in Vietnam ignoring registering as companies?

Of Vietnam's one million home-based businesses, only about 3.5 million have been issued tax identification numbers while over two million operate on a small scale.

Many home-based businesses meet the requirements to register as a company, but prefer to remain in their current status due to tax burdens, fees, and operational challenges.

Under current regulations, home-based and individual businesses with annual revenues of less than VND100 million ($3,900) are exempt from VAT, income tax, and business license tax.

If annual revenue exceeds VND100 million ($3,900), business license tax ranges from VND300,000 ($11.7) to VND1 million ($39) per year. VAT and income tax rates range from 0.5% to 5%, depending on taxable income.

Household businesses must file accurate and timely tax returns. They are legally responsible for the accuracy of their tax records. Meanwhile, companies are subject to a corporate income tax of up to 20% on their profits.

Nguyen Duong, 38, from Thanh Xuan District, has been selling online for nearly six years. "I mainly sell through Facebook to regular customers. I have stores on Shopee and TikTok Shop, but sales are slow," he told The Hanoi Times.

Duong used to run a brick-and-mortar store, registering his business and obtaining a tax code. But after moving, he did not update his business registration and has not received any inquiries about it.

"Sales are slow and no one around knows me, so I have no intention of formalizing my business," he said.

Ngoc Quan, owner of a wedding gift shop, also prefers to remain a household business because of the simpler tax procedures. "Most of our sales come from our Facebook fan page and partnerships with event planners. We have a Shopee store, but it's not very active." .

Quan has registered his business and opted for a fixed tax regime, but has no plans to upgrade to a company. "If I become a corporation, the paperwork will be stricter. Besides, we only have a few employees, and becoming a company would increase personnel costs," he explained.

Hai Yen, a trader at Dong Xuan Market, had a similar view. "Household businesses pay only a fixed tax. But if we register as a business, we have to comply with accounting and invoicing regulations, and the corporate income tax is very high," she said.

Le Duy Binh, Director of Economica Vietnam, pointed out that the biggest obstacle for household businesses is the cost of compliance. "The costs of registering a business, renting office space, accounting, financial reporting, taxes, labor compliance, and social insurance are overwhelming for small business owners." 

Household businesses lack legal status, which limits their ability to engage in certain transactions and industries, such as banking, real estate, and insurance. "Transforming them into companies would increase their professionalism and investment opportunities," Binh said.

Tax exemptions proposed to encourage business registration

In Directive No.10/CT-TTg issued on March 25, 2025, the prime minister aims to have at least one million enterprises by 2030. This means that Vietnam needs to create an average of 200,000 new enterprises per year for the next five years.

As the number of businesses exiting the market exceeds the number of new registrations, experts suggest that the most feasible solution to attain the aforementioned goal is to encourage household businesses to transform into small enterprises.

A three-year tax exemption for household businesses could encourage them to register as companies, said Dau Anh Tuan, Deputy Secretary General and Head of Legal Department at the Vietnam Chamber of Commerce and Industry (VCCI).

"Despite many support policies, private enterprises in Vietnam remain small, fragmented, and weakly competitive," he said at the Vietnam Economic Outlook 2025 conference last month. 

A forthcoming policy on private enterprises is expected to introduce strong measures to address these weaknesses. "We need policies to encourage 5.2 million household businesses to transform into enterprises. This transformation will improve their professionalism and competitiveness," Tuan added.

To Hoai Nam, Permanent Vice Chairman and Secretary-General of the Vietnam Association of Small and Medium Enterprises, said many household businesses want to formalize but policy barriers prevent them from doing so.

Nam said that there are many policies to support businesses but mainly focus on promoting business creation and startups. Therefore, he suggested exempting home-based businesses from corporate income tax for the first one to two years after formalizing into a company.

He also recommended ensuring tailored support, preventing policy abuse, and simplifying administrative procedures.

"We need a business-friendly ecosystem for small and medium enterprises. For the first five years, companies with fewer than ten employees should operate under simplified regulations," said Nam.