Converting household businesses into enterprises – A strategic step toward long-term growth

The transition from a household business to a registered enterprise is becoming increasingly popular among individuals and families looking to expand their operations and engage in more professional markets. However, to ensure a smooth transition, it is crucial to understand the legal process, the benefits of conversion, and the obligations that arise afterward.

1. Legal Basis

The conversion is regulated by the following legal documents:

• Law on Enterprises No. 59/2020/QH14;
• Decree No. 01/2021/ND-CP on enterprise registration;
• Law on Support for Small and Medium Enterprises (SMEs) 2017;
• Decree No. 80/2021/ND-CP guiding certain provisions of the SME Support Law.

2. Conversion Procedures

To convert a household business into a company, the following steps must be completed:

• Prepare application documents, including: household business registration certificate, tax registration, company charter, list of members/shareholders, identity documents of the legal representative, and power of attorney (if any).
• Submit the application to the Business Registration Office under the Department of Planning and Investment of the province/city where the company is based, or online at: dangkykinhdoanh.gov.vn
• Processing time: Approximately 5–7 working days from the date of receiving valid documents.

3. Post-Conversion Requirements

Once the enterprise registration certificate is issued, the business must promptly:

• Create and register an official company seal;
• Set up a company signboard;
• Purchase a digital signature token;
• Open a business bank account;
• Submit initial tax registration;
• File business license fee declaration;
• Register and issue electronic invoices;
• Register for social insurance contributions for employees;
• Fulfill licensing, certification, and capital requirements (if applicable).

👉 Contact KMC for full support with these procedures!

4. Key Considerations After Conversion

• Tax Identification Number (TIN): A new TIN will be issued to the enterprise. The old TIN assigned to the household business will be deactivated and converted into the personal tax code of the business owner.
• Tax Obligations:
  Before conversion, household businesses must fully settle their tax obligations. If unpaid, the new enterprise will inherit all rights and obligations of the previous household business.
  In the case of conversion into an LLC or JSC, the owner of the household business (i.e., the legal representative) remains personally liable for any outstanding debts using their personal assets.

5. Benefits of Converting into an Enterprise

• Legal entity status, enabling easier contract execution, access to credit, and broader partnerships;
• Limited liability for business debts and obligations within the contributed capital;
• Capability to raise capital from external individuals and organizations;
• Government support during the first 3 years, including:
  • Exemption from enterprise registration fees;
  • Exemption from business license fees;
  • Free consulting on documentation procedures;
  • Corporate income tax (CIT) incentives under current policies.

⚠ Note: To be eligible for these supports, the household business must have been in continuous operation for at least one year prior to the date of enterprise registration.

6. Challenges to Consider

Despite the benefits, transitioning to an enterprise also introduces several new responsibilities:

• Obligation to declare and pay multiple types of taxes (CIT, VAT, business license fee...);
• Compliance with accounting standards, periodic tax reporting, hiring an accountant, purchasing a digital signature, and issuing electronic invoices;
• Tighter regulation over labor, insurance, fire safety, and administrative procedures;
• Higher operational and legal compliance costs.

7. Frequently Asked Questions

❓ When should I convert my household business into an enterprise?
👉 When the scale of operations expands, requiring more employees, dealing with larger partners, or needing access to capital.

❓ Do I need to repay all taxes from the beginning upon conversion?
👉 No. You only need to complete outstanding tax obligations of the household business before conversion.

❓ Is it mandatory to hire an accountant right after conversion?
👉 Yes. Enterprises are required to follow standard accounting and tax reporting procedures.

❓ Can I continue using the old tax code after conversion?
👉 No. A new TIN will be issued to the enterprise. The old code becomes the personal tax code of the former business owner.

❓ What are the conditions to enjoy the 3-year business license fee exemption?
👉 The household business must have operated continuously for at least 1 year before receiving the enterprise registration certificate.

Thinking of transitioning your household business into a formal enterprise?
Let KMC guide you—from document consulting and application preparation to initial tax declarations after incorporation.