A sole proprietorship is a form of business organization established and operated by an individual or a group of members within the same household. Due to this unique characteristic, the regulations regarding tax obligations for sole proprietorships differ significantly from those for businesses. Understanding the types of taxes payable and how to fulfill these obligations will help sole proprietorships comply with the law and avoid administrative violations.

This article provides a comprehensive overview of all taxes and fees that individual business owners need to be aware of, along with detailed instructions on how to declare and pay taxes in accordance with current regulations of the Ministry of Finance.

Taxable revenue threshold

According to Circular 40/2021/TT-BTC, business households with annual revenue from production and business activities of VND 100 million or less are exempt from Value Added Tax (VAT) and Personal Income Tax (PIT). However, even without paying taxes, business households are still responsible for making complete, accurate, and timely declarations as required.

For individual or household businesses, the revenue threshold of 100 million VND/year is calculated for a single representative of the entire group during the tax year, not separately for each member.

Types of taxes and fees that household businesses must pay

Business registration fee

This is a one-time fee for registering a household business with the competent authority. The exact amount is regulated in each locality and is usually not high.

Business license fee

Business license fees are annual fees that business households must pay, calculated based on the revenue of the immediately preceding year. According to Circular 65/2020/TT-BTC, the fee varies depending on the scale of revenue and is divided into different levels.

Deadline for paying business license fees:

Businesses that start operating in the first six months of the year will have to pay the full annual business license fee. If they start operating in the last six months of the year, they only have to pay 50% of the annual fee.

In cases where a business household requests a temporary suspension of operations and submits a written request to the tax authority or business registration authority before January 30th of each year, and has not yet paid the business license fee for that year, it will be exempt from paying the fee for the year of suspension.

How to determine revenue for fee calculation:

The revenue used as the basis for calculating business license fees is the total taxable income from personal income tax in the immediately preceding year, excluding rental income. For newly established businesses or businesses resuming operations after dissolution, revenue is determined based on the scale of businesses in the same industry and geographical area.

Cases exempt from business license fees:

Household businesses are exempt from business license fees in the following situations: annual revenue of VND 100 million or less; no fixed business location and not operating regularly; salt production; aquaculture, fishing or fisheries logistics services; the first year of establishment or commencement of business operations.

Value Added Tax

Value Added Tax (VAT) is applied to business households with annual revenue of 100 million VND or more. The tax rate is calculated as a percentage of revenue, depending on the specific business sector.

Formula for calculating VAT:

VAT payable = Taxable revenue × VAT rate

Taxable revenue includes all income from sales, provision of services, processing, commissions, as well as bonuses, promotions, discounts, subsidies, surcharges, additional charges, and compensation for breach of contract.

Personal income tax

Similar to VAT, personal income tax (PIT) is also applied to business households with annual revenue of 100 million VND or more. The PIT rates are specified in detail for each industry in Appendix I issued with Circular 40/2021/TT-BTC.

Formula for calculating personal income tax:

Personal income tax payable = Taxable income × Personal income tax rate

For business households operating in multiple fields and sectors, separate tax declarations and calculations are required for each sector according to the prescribed rates. If the revenue from each sector cannot be determined or the declared revenue does not reflect reality, the tax authorities will make an assessment in accordance with the law on tax administration.

Other taxes and fees

Depending on the specifics of their business, household businesses may have to pay additional taxes such as environmental protection tax (for gasoline and plastic bag businesses), resource tax (for natural resource exploitation), or other fees and charges as prescribed by law.

Tax payment methods

Household businesses can apply one of the following tax payment methods, depending on their size and operational characteristics:

Declaration method

This applies to large-scale business households or business households that do not yet meet the large-scale criteria but voluntarily choose this method.

The deadline for filing monthly tax returns is the 20th day of the following month. For quarterly tax returns, the deadline is the last day of the first month of the following quarter.

The deadline for tax payment coincides with the deadline for filing tax returns. Household businesses are not required to maintain a complete accounting system, but they need to keep invoices, documents, and contracts to prove the legality of goods and services.

Contract method

This applies to business households that are not subject to tax payment by declaration or on a transaction-by-transaction basis.

The deadline for filing tax returns is December 15th of the year preceding the tax year. For newly established businesses, those changing their tax calculation method, or those changing their business sector or scale, the deadline is the 10th day from the date the change occurs.

Important note: From 2026, according to the tax sector's digital transformation roadmap, all business households will have to switch from the lump-sum method to the declaration method. This requires business households to prepare sales management systems, electronic invoices, and transparent tax declarations.

The method of filing tax returns on a transaction-by-transaction basis.

This applies to household businesses that operate irregularly and do not have a fixed business location.

The deadline for filing tax returns is the 10th day after the tax liability arises. The deadline for paying taxes coincides with the deadline for filing tax returns.

Tax filing and payment methods

In some special cases, organizations or individuals will file and pay taxes on behalf of household businesses. For example: organizations leasing property from individuals, organizations cooperating in business with individuals, organizations paying sales-based bonuses, and owners of e-commerce platforms.

Specific methods

This applies specifically to certain cases such as individuals renting out property, individuals directly signing contracts as lottery agents, insurance agents, or multi-level marketing agents. Each case has its own regulations regarding the tax filing period and payment deadline.

Tax registration deadline

According to Article 33 of the 2019 Tax Administration Law, business households have 10 working days from the date of issuance of the business registration certificate to register for tax with the tax authority. Timely tax registration is mandatory to avoid administrative penalties.

Consequences of not filing taxes on time.

Late submission or failure to submit tax registration documents or tax returns will result in administrative penalties according to Circular 166/2013/TT-BTC, with fines ranging from a warning to VND 5,000,000, depending on the severity of the violation and the length of the delay.

Specifically, late filing of tax returns by 1-10 days may result in a fine of VND 700,000, from 10-20 days a fine of VND 1,400,000, from 20-30 days a fine of VND 2,100,000, from 30-40 days a fine of VND 2,800,000, and over 40 days a fine of VND 3,500,000. In addition, business households will also be subject to late payment penalties calculated on the outstanding tax amount as stipulated.

Conclude

Understanding tax regulations not only helps businesses comply with the law but also creates a solid foundation for sustainable development in an increasingly professionalized business environment.