What is the tax rate applicable to household business engaged in goods processing in Vietnam?

What is considered a household business in Vietnam?

Based on Clause 1, Article 3 of Circular 40/2021/TT-BTC, it is stipulated:

Terminology Explanation

In addition to terms already explained in the Law on Tax Administration, Tax Laws, and related Decrees, some other terms in this Circular are understood as follows:

1. "Household business" is a production, business establishment registered and established by an individual or members of a household and responsible with their entire assets for the business activities of the household according to the provisions at Article 79 of Decree No. 01/2021/ND-CP dated January 4, 2021, of the Government of Vietnam on Enterprise Registration and guiding or amending, supplementing or replacing documents (if any). In cases where members of the household register the household business, they authorize one member to represent the household business. The individual registering the household business, the person authorized by the household members to represent the household business, is the head of the household business. Farming, forestry, fishery, salt-making families, and those engaged in peddling, concessions, itinerant trading, seasonal business, and low-income service providers are not required to register as a household business, except for cases engaged in conditional business sectors, where the provincial People's Committee specifies local low-income thresholds.

A household business is a business establishment established by an individual or household, financially responsible with all assets for its business activities. The head of the household business is the individual who self-registers the household business or is authorized by the household.

In addition, Clause 2, Article 3 of Circular 40/2021/TT-BTC further clarifies large-scale household businesses as follows:

A household business is categorized as large-scale if its revenue and labor scale meet the highest criteria for micro-enterprises or higher. Specifically:

- Household businesses in agriculture, forestry, fishery, industry, construction with an average annual number of social insurance participants from 10 people or more or total revenue of the preceding year from 3 billion VND or more;

- Household businesses in commerce, services with an average annual number of social insurance participants from 10 people or more or total revenue of the preceding year from 10 billion VND or more.

What is the tax rate applicable to household business engaged in goods processing in Vietnam? (Image from the Internet)

What is the tax rate applicable to household business engaged in goods processing in Vietnam?

Based on Appendix I issued with Circular 40/2021/TT-BTC stipulating the list of sectors subject to VAT, personal income tax (PIT) at % rates on revenue for household businesses, individual businesses as follows:

Accordingly, household businesses engaged in goods processing must pay a 3% VAT and a 1.5% PIT on total revenue.

Additionally, special attention is needed according to Point b, Clause 2, Article 10 of Circular 40/2021/TT-BTC, if the household business, besides goods processing, also conducts other business activities, it must not apply the general tax rates of 3% VAT and 1.5% PIT to all activities.

Instead, it is necessary to allocate revenue and apply tax rates according to the specific criteria of each sector. If it is not possible to distinctly segment revenue, the tax authority will estimate revenue and calculate appropriate tax.

How to determine taxable revenue for a household business in Vietnam?

According to Clause 1, Article 10 of Circular 40/2021/TT-BTC, taxable revenue for VAT and PIT for household businesses is defined as:

- Revenue including taxes (in cases subject to taxation) from all proceeds from sales, processing fees, commissions, and service supply during the tax period from production, business of goods, services, including bonuses, support achieving sales, promotions, commercial discounts, payment discounts, monetary or non-monetary support;

- Subsidies, surcharges, added fees enjoyed according to regulations;

- Compensation for contract violations, other compensations (only calculated into PIT taxable revenue);

- Other revenues that household businesses, individual businesses are entitled to, regardless of whether the money has been collected or not.