The Ministry of Finance proposes a new tax mechanism for business households with revenue exceeding 500 million VND.

The Ministry of Finance is seeking feedback on the second draft of the Decree regulating the declaration, calculation, deduction, payment of taxes, and use of electronic invoices for household businesses and individual businesses. After consulting with relevant ministries and agencies, the draft has been refined with many detailed contents compared to the first version.

According to the draft, households/individuals engaged in production and business activities with annual revenue of 500 million VND or less are exempt from value-added tax and personal income tax.

In cases where revenue exceeds 500 million VND per year, household and individual businesses must pay value-added tax using the direct calculation method on revenue, applying the percentage rate as stipulated in the Value-Added Tax Law and its guiding documents.

The personal income tax for households and individual businesses with annual revenue exceeding 500 million VND is determined by multiplying the taxable income by the corresponding tax rate.

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The Ministry of Finance is seeking feedback on a draft of a new decree that will revise the taxable revenue threshold and the method for calculating personal income tax. (Photo: Thach Thao)

In this context, taxable income is determined by subtracting the costs related to production and business activities during the tax period from the revenue from the sale of goods and services.

Specifically, for household/individual businesses with annual revenue between 500 million and 3 billion VND, the tax rate is 15%; for annual revenue between 3 billion and 50 billion VND, the tax rate is 17%; and for annual revenue exceeding 50 billion VND, the tax rate is 20%.

Household/individual businesses with annual revenue exceeding 500 million VND but not exceeding 3 billion VND can choose to pay tax based on taxable income multiplied by the tax rate, or based on taxable revenue multiplied by the tax rate. Taxable revenue is determined by the portion of revenue exceeding 500 million VND.

In cases where a household/individual has multiple business locations and multiple business activities, they are allowed to deduct 500 million VND from the previous year's revenue when calculating personal income tax for each business location and activity of their choosing, but the total deduction cannot exceed 500 million VND for all business activities.

Notably, the chosen tax calculation method will be applied consistently for two consecutive years, aiming to limit frequent changes that could disrupt the tax obligations of business households.

In the case of household/individual businesses with annual revenue exceeding 500 million VND but not exceeding 3 billion VND, currently applying the personal income tax calculation method based on a percentage of revenue, if for two consecutive years they self-determine or the tax authorities have data confirming that the household/individual business has actual revenue exceeding 3 billion VND, then from the following year onwards they must switch to the personal income tax calculation method based on taxable income.

For households/individuals renting out real estate, excluding accommodation business activities, personal income tax is determined by multiplying the revenue exceeding 500 million VND by a tax rate of 5%.

Deductible and non-deductible expenses when calculating taxes.

The draft also addresses deductible and non-deductible expenses when determining personal income tax. Accordingly, deductible expenses include actual expenses incurred related to business operations, supported by valid invoices and documentation, and non-cash payments for individual payments of 5 million VND or more.

Expenses that household/individual businesses are not allowed to deduct when determining taxable personal income include: expenses unrelated to production or business activities; and expenses without sufficient legal invoices or documents.

Salaries, wages, and other payments of a salary nature to individual business owners, groups of individual business owners, and members of households; salaries, wages, and other payments of a salary nature that have been accounted for but not actually paid or for which there is no payment documentation.

The portion of depreciation expenses for fixed assets exceeding the prescribed limits or depreciation for assets not used in production or business activities. Expenses for administrative fines, contract violations, and compensation due to the fault of the household/individual business.

Residential land and structures serving daily life on the land, automobiles and assets registered in the name of individuals, except for automobiles and assets registered for ownership or use for the purpose of transportation or tourism business.

Expenses for personal and family needs. Individuals engaged in business are responsible for separately accounting for expenses related to business operations and expenses for personal and family needs.

In the case of household/individual businesses with annual revenue exceeding 500 million VND but not exceeding 3 billion VND, if they choose the income-based tax method but have expenses that do not meet the deductible conditions, these expenses will not be included as deductible expenses; in this case, they can switch to the method of paying tax based on the tax rate multiplied by the taxable revenue.

Tax-free revenue threshold set at 500 million VND/year: Business owners rejoice but remain worried. The National Assembly passed the amended Personal Income Tax Law, raising the tax-free revenue threshold to 500 million VND/year. Business owners are delighted but still harbor concerns about invoices, accounting records, and penalties.

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