Incentives and benefits of converting a household business into an enterprise

In the context where the State is promoting the development of the private economic sector, household businesses converting into enterprises are entitled to various important incentives relating to taxes, fees, and development support. Such conversion not only enhances competitiveness but also establishes a solid legal foundation for long-term business operations. Let us explore this further in the article below.

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1. Why does the State encourage household businesses to convert into enterprises?

Household businesses currently account for a large proportion of the economy; however, most operate on a small scale, face difficulties in expanding their operations, and have limited access to support policies. Therefore, encouraging household businesses to convert into enterprises aims to:

– Standardize production and business activities within a clear legal framework;

– Enhance transparency and management efficiency;

– Promote the sustainable development of the private economic sector.

On this basis, a number of preferential policies specifically applicable to household businesses converting into enterprises have been promulgated, in line with the spirit of Resolution No. 68/NQ-TW and Resolution No. 198/2025/QH15 on orientations for focused development of the private economy in Viet Nam.

2. Key tax incentives when household businesses convert into enterprises

Upon conversion into the enterprise model, business entities may enjoy various significant incentives, including:

(a) Exemption from the business license fee for enterprises from 01 January 2026¹.

(b) Exemption from corporate income tax (CIT) for two consecutive years from the time taxable income is generated², applicable to:

– Enterprises with total annual revenue of more than VND 3 billion and not exceeding VND 50 billion, subject to a CIT rate of 15%.

– Enterprises with total annual revenue of more than VND 3 billion and not exceeding VND 50 billion, subject to a CIT rate of 17%.

(c) 100% exemption from corporate income tax for small and medium-sized enterprises (SMEs) for the first three years from the date of issuance of the initial Enterprise Registration Certificate³, specifically:

+ Micro-enterprises⁴: enterprises employing no more than 10 employees participating in compulsory social insurance on an annual average basis and having revenue or capital within the prescribed thresholds, namely:

(i) Agriculture, forestry, fishery, industry, and construction: annual revenue or total capital not exceeding VND 3 billion;

(ii) Trade and services: annual revenue not exceeding VND 10 billion or total capital not exceeding VND 3 billion.

+ Small enterprises⁵: enterprises with labor scale and revenue/capital limits by sector, including:

(i) Agriculture, forestry, fishery, industry, and construction: no more than 100 employees participating in compulsory social insurance on an annual average basis; annual revenue not exceeding VND 50 billion or total capital not exceeding VND 20 billion;

(ii) Trade and services: no more than 50 employees participating in compulsory social insurance on an annual average basis; annual revenue not exceeding VND 100 billion or total capital not exceeding VND 50 billion.

+ Medium-sized enterprises⁶: enterprises with labor scale and revenue/capital limits by sector, including:

(i) Agriculture, forestry, fishery, industry, and construction: no more than 200 employees participating in compulsory social insurance on an annual average basis; annual revenue not exceeding VND 200 billion or total capital not exceeding VND 100 billion;

(ii) Trade and services: no more than 100 employees participating in compulsory social insurance on an annual average basis; annual revenue not exceeding VND 300 billion or total capital not exceeding VND 100 billion.

(d) Preferential corporate income tax rates may apply if the enterprise satisfies conditions regarding revenue, scale, or business sector⁷, such as:

+ Manufacturing, construction, and transportation enterprises employing a large number of female workers may have their corporate income tax reduced by an amount equivalent to the additional expenses incurred for female employees;

+ Enterprises employing a large number of workers from ethnic minority groups may have their corporate income tax reduced by an amount equivalent to the additional expenses incurred for such employees;

+ Enterprises engaging in technology transfer in priority technology transfer sectors to organizations or individuals in socio-economically disadvantaged areas, or public service units providing public services in such areas, may enjoy a 50% reduction of corporate income tax on income derived from technology transfer or from the provision of public services in socio-economically disadvantaged areas.

3. Other benefits of converting a household business into an enterprise

– In addition to tax incentives, operating as an enterprise enables easier access to capital from banks, investment funds, or State financial support programs, thanks to a transparent legal status and the ability to demonstrate financial capacity.

– Moreover, when operating in the form of an enterprise, the owner is granted legal entity status, thereby clearly separating personal assets from the assets of the enterprise. This mechanism helps mitigate financial risks and protect personal interests in the event of liabilities or disputes. At the same time, legal entity status enhances credibility and trust in dealings with partners, customers, and State authorities, thereby facilitating cooperation with large domestic and foreign partners.

– In addition, enterprises converted from household businesses may benefit from further preferential policies and support measures for private economic development, particularly in relation to land use rights and production or business premises.

From the above analysis, it can be seen that the policy of encouraging household businesses to convert into enterprises not only aims to improve the legal framework and enhance the effectiveness of State management, but also creates favorable conditions for business activities to develop in a stable, sustainable, and professional manner. Conversion enables household businesses to benefit from preferential policies, reduce costs, mitigate risks, and enhance competitiveness. Therefore, for household businesses that meet the statutory conditions, conversion into an enterprise is an appropriate option that offers long-term benefits.

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1. Clause 7 Article 10 Resolution No. 198/2025/QH15 ↩︎
2. Clause 4 Article 15 The Corporate Income Tax Law 2025 ↩︎
3. Clause 4 Article 10 Resolution No. 198/2025/QH15 ↩︎
4. Clause 1 Article 5 Decree No. 80/2021/ND-CP ↩︎
5. Clause 2 Article 5 Decree No. 80/2021/NĐ-CP ↩︎
6. Clause 3 Article 5 Decree No. 80/2021/NĐ-CP ↩︎
7. Clause 1, 2, 3 Article 15 The Corporate Income Tax Law 2025 ↩︎

This article was prepared by Vy Nguyen with consultation from Lawyer Huong Vu.

This article is provided for general informational purposes only and does not constitute legal advice for any specific case. The legal regulations cited herein are effective as of the publication date but may have been amended, supplemented, replaced, or become invalid at the time readers review this article. Accordingly, readers are advised to seek legal counsel before applying the information provided.

For any inquiries or legal service consultation needs, please contact CBI Law Firm for assistance.