What is a business household? Latest legal regulations on business households

Business households (“HKD“) is the most compact and primitive business model that every individual starting a business should know. However, what are the legal provisions related to business? Characteristics of individual business households? … many people are still confused and do not understand clearly. Therefore, ANT Legal will summarize all legal regulations related to business as follows:

Legal regulations on business households

1. Law on Enterprises 2020 (effective from January 1, 2021);

2. Decree No. 01/2021/ND-CP on business registration;

3. Decree No. 50/2016/ND-CP regulating penalties for administrative violations in the field of planning and investment;

4. Circular No. 01/2021/TT-BKHDT guiding on business registration;

Regulations on Business Registration

1. What is a business household?

According to Article 79 of Decree 01/2021/ND-CP on business registration, a business enterprise, often called an individual business enterprise, is established by an individual and is responsible for all of that individual’s assets.

So, is HKD a business? HKD is regulated in the Law on Enterprises 2020 but is not a type of enterprise but is only considered an economic organization that carries out business and commercial activities.

2. Who has the right to establish a business household?

The individual is a Vietnamese citizen; have full civil act capacity according to the provisions of the Civil Code and have the right to establish business, except in the following cases:

– Minors, people with limited civil capacity;

– People who have lost civil act capacity;

– People with difficulty in cognition and behavior control;

– People who are being prosecuted for criminal liability, detained, are serving prison sentences, are serving administrative measures at compulsory drug treatment facilities, compulsory education establishments or are banned by the Court from holding certain positions, practicing professions or doing certain jobs;

Compared to the old regulations in Decree 78/2015/ND-CP, Decree 01/2021/ND-CP has removed the subject “group of individuals”. Thus, if individuals do not share a household, they cannot establish a business together as before.

3. In cases where business household registration is not required

Cases that do not require business registration include: (Clause 2, Article 79 of Decree 01/2021/ND-CP)

– Households engaged in agricultural, forestry and fishery production;

– Households making salt;

– People who sell street goods, snacks, business trips, mobile businesses, seasonal businesses, and low-income service providers.

4. Rights and obligations when registering to establish a business household

– Individuals and household members can only register one business nationwide (Clause 2, Article 80 of Decree 01/2021/ND-CP);

– Have the right to contribute capital, buy shares, buy capital contributions in the enterprise as an individual (Clause 2, Article 80 of Decree 01/2021/ND-CP);

– Individuals and household members registering for business cannot simultaneously be owners of private enterprises (Clause 3, Article 80 of Decree 01/2021/ND-CP);

– Individuals and household members who register for business cannot simultaneously be partners of a partnership unless agreed by the remaining partners (Clause 3, Article 80 of Decree 01/2021/ND-CP);

– The business household owner carries out tax obligations, financial obligations and business activities of the business in accordance with the law (Clause 1, Article 81 of Decree 01/2021/ND-CP);

– The business household owner represents the business owner as a requester to resolve civil matters, plaintiff, defendant, person with related rights and obligations before the Arbitrator, Court and other rights and obligations according to the provisions of law (Clause 2, Article 81 of Decree 01/2021/ND-CP);

– The business owner can hire another person to manage and operate the business activities of the household. In this case, the business household owner and household members participating in business registration are still responsible for debts and other property obligations arising from business activities (Clause 3, Article 81 of Decree 01/2021/ND-CP);

– The business household owner and household members participating in business registration are responsible for the business activities of the business (Clause 4, Article 81 of Decree 01/2021/ND-CP);

 Characteristics of individual business households

1. Advantages of business households

– Establishment and dissolution procedures are quite simple;

– Compact business model, very suitable for households;

– Simple accounting and tax bookkeeping regime, not under the management of state agencies;

– No monthly or quarterly tax declaration required, flat tax regime applies;

– Allowed to open multiple business locations (Clause 2, Article 86 of Decree 01/2021/ND-CP);

2. Disadvantages of household businesses

– You can only use a maximum of 09 workers. If you regularly use 10 or more workers, you must establish a company, otherwise you will be fined from 3 to 5 million VND (Article 41 of Decree 50/2016/ND-CP);

– Does not have legal status;

– No seal;

– Do not open a bank account but must use a personal bank account;

– Not allowed to mobilize investment capital in any form like a company;

– Responsible for all assets of individuals and household members;

– Value added invoices (“VAT”) are not allowed;

– Tax is not deductible if revenue is lower than expenses;

– The nature of small business will create little trust with partners and customers;

>> See more: Should you establish a company or business household?

Conditions for establishing a business household

According to Clause 1, Article 82 of Decree 01/2021/ND-CP, HKD will be granted a HKD registration certificate if the following conditions are met:

– Registered business lines and occupations are not prohibited from business investment;

– The name of the business owner is set in accordance with the provisions of Article 88 of Decree 01/2021/ND-CP;

– Have valid business registration documents;

– Pay full business registration fee according to regulations.

Procedures for registration of establishment of HKD

1. Profile element

– Application for business registration according to the form Appendix III-1 of Circular 01/2021/TT-BKHDT guiding on business registration;

– Personal legal documents (ID card, CCCD, Vietnamese Passport) for business owners, household members registering business if household members register business;

– Minutes of meeting of household members on establishment of business if household members register business;

– Authorization document of a household member for a member to own the business if the household members register the business.

– Notarized authorization document from the business owner for the person to submit the application and receive the results if the business owner cannot go and carry out the procedure.

2. Where to register an individual business household?

According to the provisions of Article 16 of Decree 01/2021/ND-CP, the district-level business registration authority, specifically the one-stop shop under the district People’s Committee, will have the function of receiving and processing applications for business registration certificates.

Depending on the locality, applicants can choose to register their individual household business online or directly at the district-level People’s Committee one-stop shop.

3. Procedure order

Register for establishment at the District People’s Committee:
Dossier will be processed within 03 working days from the date of receipt of valid dossier.

In case the application is invalid, within 03 working days from the date of receipt, the applicant will receive a written notice of the reason and requests for amendments and supplements (if any).
Register for an individual business household tax code at the tax department:
After receiving the Business Registration Certificate, the business household owner or the household owner’s authorized representative goes to the tax administration agency to apply for a Tax Code Certificate for the business household, prepare a record of applying presumptive tax to the business household and pay license tax, VAT, and personal income tax for the first month.

Dossier to apply for a tax code includes (Clause 8, Article 7 of Circular 105/2020/TT-BTC dated December 3, 2020, guiding tax registration)

– Tax registration declaration form No. 03-DK-TCT Circular 105/2020/TT-BTC;

– List of stores and shops depending on form No. 03-DK-TCT-BK01 Circular 105/2020/TT-BTC (if any);

– Copy without notarization/authentication of Business Registration Certificate (if any);

– Copy without notarization/certification of Citizen Identification Card or copy of valid Identity Card for individuals with Vietnamese nationality; Copy of valid passport for individuals with Vietnamese nationality living abroad.

4. Fee for individual household business registration

State fees for applying for a business registration certificate: Decided by the Provincial People’s Council (according to Circular 85/2019/TT-BTC). Normally, the processing fee is 100,000 VND/time.

State fee for issuance of HKD tax code certificate: 200,000 VND/paper.

 What taxes must individual business households pay

According to the provisions of the Law on Tax Administration, there are 3 types of taxes that HKDs must pay, including:

– License fees;

– Value added tax (“VAT”);

– Personal income tax (“PIT”).

In addition to the taxes mentioned above, business owners may have to pay environmental protection tax, environmental resource tax… if the business entity is subject to tax.

>> See more: Presumptive tax on business households

 Notes to avoid risks when establishing HKD

1. Business lines of individual business households

For conditional business lines (eg: Catering services, pawnshop services…), after having a business registration certificate, the householder needs to contact the competent authorities to apply for a certificate of eligibility before they can operate.

For professions that require degrees and certificates, the head of household must fully meet them.

2. Regulations on fire prevention and fighting for business households

For industries that have the potential to cause fire and explosion (paper production, clothing…), and environmental hazards (food production, chemicals…), they must meet fire prevention and environmental conditions and be fully equipped with equipment as required by law.

3. Attach the sign HKD

HKDs are not required to hang signs, but if they do, they must comply with the provisions of Article 34 of the Law on Advertising 2012 and Circular 04/2018/TT-BXD.

4. Business household invoice

Although HKD is not allowed to issue VAT invoices. So if customers buy goods from HKD, how can they get a valid invoice? That is the retail invoice issued by the tax department. HKD needs to contact the tax department to purchase this invoice. However, this invoice will also be the basis for calculating HKD revenue for the next flat tax period.

VIII. Administrative violations that business households should avoid
Household businesses operate very simply, but if you do not pay attention to the following common issues, you can easily be fined:

– Registering more than one business household: Fine from 3,000,000 VND to 5,000,000 VND (Point a, Clause 1, Article 41 of Decree 50/2016/ND-CP);

– Regularly employing 10 or more workers: Fine from 3,000,000 VND to 5,000,000 VND (Point c, Clause 1, Article 41 of Decree 50/2016/ND-CP);

– Establishing a business household by people who are not authorized to establish: Fine from 3,000,000 VND to 5,000,000 VND (point d, Clause 1, Article 41 of Decree 50/2016/ND-CP);

– Temporarily suspending business without notice or not notifying on time in writing to the district business registration authority where the business household is registered: Warning or fine from 500,000 VND to 1,000,000 VND (Clause 1, Article 42 of Decree 50/2016/ND-CP);

– Failure to conduct business activities within 06 months from the date of issuance of the Business Household Registration Certificate or ceasing business activities for more than 06 consecutive months without notifying the district business registration authority: Fine from 1,000,000 VND to 2,000,000 VND (Clause 2, Article 42 of Decree 50/2016/ND-CP);

.Questions related to the establishment of HKD

1. Does an individual business need an input invoice?

HKDs must declare taxes to the tax authorities, so they need to prove they have input invoices. At the same time, to prove the origin of goods to the Market Management Agency, HKD must have input documents and invoices. If there are no documents or invoices to prove it, it will be considered smuggling.

2. Do individual business households have to pay social insurance?

According to Clause 1, Article 2 of the 2013 Law on Social Insurance, businesses that employ workers under labor contracts of 1 month or more must register to participate in social insurance at the local social insurance agency where the business registered its location.

3. Does the business household have a seal?

The law does not prohibit HKDs from using marks. However, this seal currently does not have the same legal value as a company seal. Cannot be used when signing contracts or other transactions because HKD does not have legal status. The HKD seal is just a brand seal stamped on products or internal documents just to increase brand recognition.

ANT Legal has provided you with all information related to business households. If you have any needs, contact us immediately so that the establishment of HKD can be quick and legal.