“Should I establish a company or a business household?”, a question that makes many people confuse when they want to start a business. Most people still do not know the advantages and disadvantages of each type on the business operations. So, establishing a business household or a company is more profitable? To answer the question, LSX legal firm would like to provide you this article: “Establish company or business household in Vietnam?”
Legal grounds
- Law on Enterprise 2020
- Decree 01/2021/ND-CP
The difference between a company and a business household
Before choosing a business model, you need to carefully evaluate each type of business. If you only do small business, should you set up a company? In your specific conditions, is it more profitable to establish a business household or a company? When should you convert from a business household to a company? Follow the article to have an insight:
Company
Legal status: have legal status (except for Sole Proprietorship)
Member:
- A limited liability company with two or more members has from 02 to 50 members who are organizations and individuals.
- Single-member limited liability company is an enterprise owned by an organization or individual (hereinafter referred to as the company owner).
- Joint Stock Company: Shareholders can be organizations or individuals and the minimum number of shareholders is 03. Besides, the law does not limit the maximum number.
- A sole proprietorship is a business owned by an individual.
Business location: Can do business in many different locations, not limited in quantity and scope.
Business scale: Large scale, unlimited.
Invoice: allowed to issue VAT invoice, but must carry out the procedures in accordance with the law.
Seal: Have the seal of the business.
Tax:
- License tax: Tax based on the charter capital of the enterprise: Capital from 10 billion or less: 2 million/year; Capital over 10 billion: 3 million/year.
- Corporate income tax: The tax rate of 20% applies to all businesses established under Vietnamese law.
Procedures: Business registration and tax declaration procedures are relatively complicated.
Business household
Legal status: do not have legal status.
Member: Business household registered to be established by an individual or household members.
Business Location: A business household can operate at many locations, but must choose one location to register its head office. Also, Business households must notify the tax administration agency, the market management agency where they conduct business for the remaining business locations.
Business scale: Small scale, personal and household nature.
Invoice: Only direct sales invoices and can not issue VAT invoices (red invoices).
Seal: Do not have the seal of the business.
Tax:
- License tax: Revenue over 100 million VND to 300 million VND: 300k/year; Revenue over 300 million VND to 500 million VND: 500k/year; Revenue over 500 million: 1 million/year.
- Personal income tax: Depending on each industry and business line, the tax rate ranges from 0.5% to 2%.
- Value-added tax: Depending on each industry or business line, the tax rate ranges from 1% to 5%.
Procedures: Simple establishment procedure, easy tax declaration, and payment.
Establish a company or a business household
With each type of business, there will be certain advantages and disadvantages. But whether it is advisable to establish a company or household business at the present time, as well as to suit most people’s circumstances, LSX advises you, if you have the opportunity, to register to establish as a business household.
Previously, according to Article 66 of Decree 78/2015/ND-CP (which has expired):
- Business households are owned by an individual or a group of individuals (Vietnamese citizens) who are full 18 years old, have full civil act capacity, or are owned by a household.
- Can only register the business at one location.
- Employing less than 10 employees.
- Liability with all the assets for business activities (limitless liability).
However, in the Decree 01/2021/ND-CP that takes effect from January 4, 2021, the regulations on business households have more incentives than before. Specifically:
- According to Article 86. Business location of a household business: “A household business may carry out business operations at multiple locations but must select a location as its headquarters and notify it to tax authorities and market surveillance authorities at places of other business locations.”
- Decree 01/2021 no longer specifies the number of employees. The old regulations in Decree 78/2015/ND-CP limit the number of employees of a household business to 10 people, so if there are more than 10 employees, a company must be established. Thus, from January 4, 2021, business households will not be limited in the number of employees as before.
Disadvantages of business household
Although the regulations on business households have changed a lot, this model still has disadvantages:
- Firstly, in terms of business scope: Some business lines can not register for individual business households. That means the scope of business is narrower than that of a company.
- Secondly, in terms of capital: Since a household business is a model of a household, there is a reciprocal relationship between its members, so there is no complexity in capital management. But usually, no one invests in a household business because the percentage division among family members not really focused and separated.
- Thirdly, in terms of import and export, the law limits household businesses more than companies.
- Fourthly, about signing contracts: Signing a contract with a company always creates more certainty than with a individual business household. Because household businesses operate in a small model.
Therefore, if you want to start a business but have little capital and do business in lines such as selling coffee, clothes, etc., you should register to establish an individual business household. Then, if you have enough capital and want to expand, you can completely convert from a business model to a company.
Related articles
- Procedures to establish company manufacturing household appliances in Vietnam
- Should clothing & coffee business establish company or business household in Vietnam?
- Things to pay attention to when importing the latest household registration in Vietnam
Related questions
Clothing and coffee businesses should register to establish an individual business household for cheaper, simpler, easier service fees, dossiers, and operating taxes.
For startups, optimizing the model to survive is important. At least for individual business households, they no need to hire an accountant to do reporting. They also face little risk of sanctioning by the management agency.
Business household registered by an individual or household members; take responsibility for all their assets for the business operations of the household.
In case household members register as business households, they shall authorize one member to act as the business household representative.
For individual registering business households, in another word, the person authorized by household members to act as the business household representative is the owner of the business household.
A company means a larger, more progressive, and more complex form of management than a business household. On the other hand, establishing a company is a way to professionalize business operations when the division of rights and responsibilities is very clear. The law does not limited companies in terms of using employees and business locations in the territory of Vietnam – very convenient to expand the business model.
However, when establishing a company, the business owner is under a lot of management from state agencies, especially from the business registration office, and tax authorities… And of course, taking a higher risk of paying administrative fines. For companies, corporate income tax is 20% of profits. When paying dividends, company members will be subject to personal income tax according to each income level (the highest is 35%).
Contact LSX
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