Learning Outcomes
By the end of this section, you'll understand:
- How each structure is taxed and total tax obligations
- Setup costs, timelines, and first-year expenses
- Monthly and annual compliance requirements
- The critical difference between limited and unlimited liability
- How each structure supports capital raising and growth
- Conversion paths and costs between structures
Deep Dive: Comparing Business Structures
Now that you understand what each structure is, let's compare them across the dimensions that matter most for fashion entrepreneurs.
Tax Implications Across Structures
Taxation is one of the most consequential differences between structures—especially with the 2026 reforms eliminating household business tax advantages.
Tax Types You Need to Know
Corporate Income Tax (CIT)
Tax on business profits (revenue minus expenses)
- 15% for revenue < $2M
- 17% for revenue $2-4M
- 20% for revenue > $4M
Value Added Tax (VAT)
Tax on sales of goods/services
- 10% standard rate (clothing)
- 5% for certain goods
- 0% for exports
Personal Income Tax (PIT)
Tax on salaries, dividends, profit withdrawals
- Progressive: 5%-35% on salary
- 5% on dividends
- 0.5-2% on business profits (household)
Comprehensive Tax Comparison
| Structure | Corporate Income Tax | VAT | Personal Income Tax | Special Provisions |
|---|---|---|---|---|
| Household Business | N/A (not a company) | 10% (if registered for VAT) | 0.5-2% on gross revenue (business license tax) | ⚠️ 2026 Change: Simplified taxation eliminated, must use declaration-based (full accounting) |
| Sole Proprietorship | N/A (owner taxed personally) | 10% | Owner taxed on business profits at progressive rates (5-35%) | Must maintain full accounting records |
| Limited Liability Company | 15%/17%/20% (tiered by revenue) | 10% | 5% on dividends paid to owners | ✅ New SMEs: 3-year CIT exemption (established 2025-2026) |
| Joint Stock Company | 15%/17%/20% (tiered by revenue) | 10% | 5% on dividends paid to shareholders | ✅ 3-year CIT exemption for new SMEs |
Tax Calculator: Your Expected Obligations
Interactive Tax Calculator
See how much tax you'd pay under different structures at various revenue levels
Example: Strawberry Sunday's Tax Scenarios
Let's calculate actual tax obligations for Strawberry Sunday at expected revenue levels ($60,000-$180,000 annually, 69% gross margin from pitch deck):
Scenario 1: Year 1 Revenue $60,000
Assumptions: 69% gross margin, 30% operating expenses = 39% net profit = $23,400
| Structure | CIT/PIT on Profit | VAT (if applicable) | Total Tax | After-Tax Profit |
|---|---|---|---|---|
| Household (Pre-2026) | ~$1,200 (2% presumptive) | $6,000 (collected, can offset) | ~$1,200 | $22,200 |
| Household (Post-2026) | ~$4,680 (20% on $23.4k) | $6,000 | ~$4,680 | $18,720 |
| LLC (with 3-yr exemption) | $0 (exempted) | $6,000 (offset by input VAT) | $0 | $23,400 |
| LLC (after exemption) | $3,510 (15% on $23.4k) | $6,000 (offset) | $3,510 | $19,890 |
Scenario 2: Year 2 Revenue $180,000
Assumptions: Same margins = $70,200 net profit
| Structure | CIT/PIT on Profit | Total Tax | After-Tax Profit |
|---|---|---|---|
| Household (Post-2026) | ~$14,040 (20%) | ~$14,040 | $56,160 |
| LLC (with 3-yr exemption) | $0 (exempted) | $0 | $70,200 |
| LLC (after exemption) | $10,530 (15%) | $10,530 | $59,670 |
Tax Takeaway for Fashion Startups
The 3-year CIT exemption for new LLCs is a game-changer. Over your first three years, this exemption could save $20,000-$50,000+ depending on profitability—far exceeding the $5,000-$8,000 LLC setup cost.
Household businesses don't qualify for this exemption, and after 2026, face the same accounting complexity without the tax benefit.
Registration Complexity, Costs, and Timeline
Understanding the full cost and time investment required to establish each structure is essential for planning.
Setup Costs Comparison
| Structure | Government Fees | Professional Services | Other Costs | Total First-Year |
|---|---|---|---|---|
| Household Business | $50 | $0 (DIY) | $0 | ~$50 |
| Sole Proprietorship | $20 | $0-500 | $0 | ~$20-520 |
| LLC (Vietnamese-owned) | $50-100 | $1,000-2,000 | $500-1,000 (office, notary) | ~$1,500-3,100 |
| LLC (Foreign-owned) | $50-100 | $3,000-6,000 | $2,000-3,000 (office deposit, translations, charter capital) | ~$5,000-8,000 |
| Joint Stock Company | $50-100 | $4,000-25,000 | $1,000-5,000 | ~$5,000-30,000 |
What's Included in Foreign-Owned LLC Costs ($5,000-$8,000)?
- IRC (Investment Registration Certificate) filing
- ERC (Enterprise Registration Certificate) filing
- Legal consultation and charter drafting
- Liaison with authorities
- Tax registration
- First-year compliance setup
- Registered office address (3-month deposit)
- Lease agreement notarization
- Passport notarization and legalization
- Document translations (Vietnamese)
- Apostille services (if required)
- Minimum $10,000 for foreign investors
- Must be deposited in business bank account
- Can be used for operations after registration
Timeline Comparison
Document Requirements Matrix
| Document | Household | Sole Prop | LLC | JSC |
|---|---|---|---|---|
| ID Card/Passport | ✓ | ✓ | ✓ | ✓ |
| Business Location Proof | Sometimes | ✓ | ✓ | ✓ |
| Company Charter | ✗ | ✗ | ✓ | ✓ |
| Investment Registration (foreign) | ✗ | ✗ | ✓ | ✓ |
| Member/Shareholder List | ✗ | ✗ | ✓ | ✓ |
| Notarized Documents | ✗ | Sometimes | ✓ (extensive) | ✓ (extensive) |
| Translated Documents | ✗ | ✗ | ✓ (foreign) | ✓ (foreign) |
🏢 Recommended Professional Service Providers
For foreign-owned LLC formation, these firms specialize in Vietnam market entry:
Emerhub
Full-service market entry, strong e-commerce expertise
Cost: $4,000-6,000
Acclime
Regional accounting and corporate services network
Cost: $3,500-5,500
Dezan Shira & Associates
Pan-Asia legal and business intelligence
Cost: $5,000-8,000
Ongoing Compliance and Reporting Requirements
Setup costs are one-time, but compliance is ongoing. Understanding monthly, quarterly, and annual obligations is critical for budgeting.
Compliance Calendar: What You Must File When
Monthly
- Household (pre-2026): Not required if using presumptive method
- Household (post-2026): Required
- All Enterprises: Required by 20th of following month
- All structures with employees must withhold and remit PIT
- Due by 20th of following month
- Household (pre-2026): Simple records
- Household (post-2026): Full VAS accounting
- All Enterprises: Full VAS accounting
Quarterly
- Enterprises only (LLCs, JSCs)
- Pay estimated tax on quarterly profits
- Due by last day of first month of following quarter
- Income statement and balance sheet
- Required for management and tax authorities
Annually
- Due by March 31 of following year
- Reconcile provisional payments vs. actual tax
- File audited financial statements (if required)
- Mandatory for: Foreign-owned enterprises, JSCs, entities above certain revenue thresholds
- Must be performed by licensed Vietnamese auditor
- Cost: $1,500-$3,000
- Business license renewal fees
- Trading license fees (if applicable)
Monthly Compliance Cost Comparison
| Structure | Pre-2026 | Post-2026 | What's Included |
|---|---|---|---|
| Household Business | $0-100/month (DIY or minimal help) |
$200-400/month (full accounting required) |
Bookkeeping, VAT filing, PIT withholding (if employees) |
| LLC (Vietnamese-owned) | $320-500/month | Full VAS accounting, monthly VAT, quarterly CIT, annual audit preparation | |
| LLC (Foreign-owned) | $500-800/month | Full VAS accounting, monthly VAT, quarterly CIT, mandatory annual audit ($1,500-3,000 annually), IRC/ERC reporting | |
| JSC | $800-1,500/month | All LLC requirements plus Board of Directors meeting minutes, shareholder records, more complex governance | |
Why Household Business Compliance Costs Are Rising
Before 2026, household businesses could use presumptive taxation—pay a simple percentage of revenue without detailed accounting. This made them cheap to run ($0-100/month).
From January 2026, household businesses must:
- Maintain full Vietnamese Accounting Standards (VAS) books
- File monthly VAT declarations
- Track all income and expenses with supporting documents
- Prepare financial statements
This is the same complexity as an LLC, but without:
- ❌ Limited liability protection
- ❌ 3-year tax exemption
- ❌ Scalability (still capped at 10 employees, 1 location)
- ❌ Investment capability
You're paying $200-400/month for accounting anyway—might as well get the benefits of formal corporate structure.
Annual Audit Requirements
Who Must Conduct Annual Audits?
| Business Type | Audit Required? | Cost |
|---|---|---|
| Household Business | ❌ No | $0 |
| LLC (Vietnamese-owned, revenue <$2M) | ⚠️ Optional (recommended) | $1,000-2,000 |
| LLC (Foreign-owned) | ✅ Mandatory | $1,500-3,000 |
| JSC (all) | ✅ Mandatory | $2,000-5,000 |
Liability Protection: The Critical Difference
For product-based businesses like fashion retail, liability protection is perhaps the most important structural difference. Understanding unlimited vs. limited liability could save your personal financial future.
Unlimited Liability vs. Limited Liability
Unlimited Liability
Applies to: Household businesses, Sole proprietorships, General partners in partnerships
What It Means:
You are personally responsible for all business debts and obligations. If your business cannot pay, creditors can seize your personal assets:
- Your home/apartment
- Your car
- Your personal savings accounts
- Your investments
- Your spouse's assets (in some cases)
No separation between business assets and personal assets.
Limited Liability
Applies to: LLCs, JSCs, Limited partners in partnerships
What It Means:
Your liability is limited to your capital contribution. If the business fails, you lose what you invested, but creditors cannot touch:
- ✅ Your home/apartment (protected)
- ✅ Your car (protected)
- ✅ Your personal savings (protected)
- ✅ Your investments (protected)
- ✅ Your family's assets (protected)
Clear separation: Business debts stay with the business.
Real-World Scenarios for Fashion Businesses
Scenario 1: Supplier Lawsuit ($50,000)
Situation: You order 2,000 dresses from a manufacturer ($40,000). Before you can sell them, you discover quality issues and refuse to pay. The supplier sues for $50,000 (order value + damages) and wins.
❌ With Unlimited Liability (Household Business)
What happens:
- Court awards supplier $50,000
- Your business has only $5,000
- Creditor can seize:
- Your apartment (forced sale)
- Your car (seized)
- Your bank accounts (garnished)
- You personally owe the $45,000 difference
Impact: Personal bankruptcy possible. Your family's financial security at risk.
✅ With Limited Liability (LLC)
What happens:
- Court awards supplier $50,000
- LLC has $10,000 (charter capital) + $5,000 in bank = $15,000
- Supplier receives $15,000 from LLC assets
- Your personal assets are protected
- You lose your $10,000 capital contribution (maximum loss)
Impact: LLC closes, but your home, savings, and personal life unaffected. You can start another business.
Scenario 2: Customer Product Claim
Situation: A customer claims your dress caused an allergic reaction (formaldehyde exposure). They sue for $30,000 in medical bills and damages.
❌ With Unlimited Liability
- If you lose, the $30,000 judgment follows you personally
- Your personal assets can be seized
- Debt stays with you even if you close the business
- Could take years to pay off
✅ With Limited Liability
- LLC's liability insurance covers claim (if adequate coverage)
- If insurance insufficient, claim paid from LLC assets only
- Your personal assets protected
- Maximum loss: your capital contribution
Scenario 3: Business Failure with Debt
Situation: After 18 months, your business isn't working. You're closing with outstanding debts totaling $80,000 (suppliers, rent, employee salaries).
❌ With Unlimited Liability
- You personally owe the entire $80,000
- Creditors pursue you individually
- Wage garnishment possible (if you get new job)
- Asset seizure likely
- Bankruptcy may be only option
- Debt follows you for years
This debt burden can destroy your ability to start another business or pursue other opportunities.
✅ With Limited Liability
- LLC owes $80,000, but you don't personally
- LLC's assets liquidated ($10,000 charter capital + remaining inventory/equipment)
- Creditors split whatever LLC has
- Once LLC closed, debts die with it
- You can walk away and start fresh
You lose your investment, but your personal financial future intact. You can try again.
Visual: What Happens to Your Assets?
Unlimited Liability Structure
All assets vulnerable to business creditors
Limited Liability Structure (LLC)
Personal assets separated and protected
Risk Assessment for Product-Based Businesses
Fashion businesses face unique liability risks that make limited liability especially valuable:
Product Quality Claims
Fabric defects, poor construction, sizing inconsistencies can lead to refund demands and lawsuits
Risk Level: High
Health & Safety
Chemical exposure (formaldehyde, dyes), allergic reactions, choking hazards (buttons, embellishments)
Risk Level: High
Supply Chain Disputes
Manufacturer payment disputes, shipping damage claims, intellectual property conflicts
Risk Level: Medium
Employment Issues
Wrongful termination claims, workplace injury, unpaid wage disputes
Risk Level: Medium
Premises Liability
If you open physical retail: customer slip-and-fall, property damage claims
Risk Level: Low-Medium
IP Infringement
Accidental design similarity to protected patterns, trademark conflicts
Risk Level: Low-Medium
The Insurance Isn't Enough Argument
Some entrepreneurs think: "I'll just buy insurance, I don't need LLC protection." Here's why that's incomplete:
- Insurance has limits: $1M liability policy won't cover $2M judgment
- Insurance has exclusions: Intentional acts, certain violations may not be covered
- Insurance companies can deny claims: If they find policy violations or misrepresentations
- Some debts aren't insurable: Tax debts, unpaid supplier invoices, employee wages
LLC + Insurance = Layered Protection is the right approach. LLC is your last line of defense when insurance fails.
Important Exceptions to Limited Liability
When Limited Liability Doesn't Protect You
LLC protection can be "pierced" (eliminated) in these situations:
- Personal guarantees: If you personally guarantee a loan/lease, you're liable regardless of LLC
- Fraud or intentional wrongdoing: Criminal acts, intentional harm, fraud pierce the veil
- Mixing personal and business finances: Using LLC account for personal expenses undermines protection
- Undercapitalization: Starting LLC with insufficient capital can be seen as fraudulent setup
- Failure to maintain corporate formalities: Not holding meetings, not keeping records, not filing required documents
To maintain protection: Keep business and personal finances completely separate, maintain proper records, capitalize adequately, follow all corporate formalities.
Liability Protection Takeaway
For fashion businesses selling physical products to consumers, limited liability is invaluable protection:
- ✅ Protects your home, savings, and personal assets from business debts
- ✅ Caps your maximum loss at your capital contribution
- ✅ Lets you take calculated business risks without risking personal ruin
- ✅ Provides peace of mind to pursue growth aggressively
- ✅ Allows clean exit if business doesn't work (debt dies with LLC)
The $5,000-8,000 LLC setup cost is insurance worth far more than its price. One product liability claim could cost you everything you own—or nothing at all if properly structured.
Raising Capital & Issuing Equity
Your ability to raise investment capital and bring in partners varies dramatically by business structure. This becomes critical when you need funds to scale.
Capital Raising Options by Structure
Household Business
Sole Proprietorship
Limited Liability Company (LLC)
Joint Stock Company (JSC)
Conversion Path: LLC → JSC When Needed
The smart approach is to start as LLC and convert to JSC when capital needs justify the added complexity:
Start: LLC Formation
Capital needs: $25,000-100,000 (founders, friends, family, angels)
Members: 1-5 founders and early investors
Why LLC works: Simple governance, lower costs, sufficient for early stage
Growth: Remain LLC
Capital needs: $100,000-500,000 (additional angel rounds)
Members: 5-20 (still under 50-member limit)
Why stay LLC: Can still accommodate investors, governance manageable
Scale: Convert to JSC
Capital needs: $500,000-5,000,000+ (Series A, institutional VCs)
Triggers for conversion:
- Approaching 50-member limit
- Institutional VCs requiring JSC structure
- Planning eventual IPO
- Need to issue employee stock options
- Want share transferability
Conversion cost: $5,000-15,000
Timeline: 1-2 months
Vietnam VC Landscape Context
Vietnam Investment Market (2024-2025)
Key sectors: E-commerce, Fintech, Enterprise SaaS, Consumer tech
Fashion e-commerce opportunities: Growing investor interest in D2C brands with proven traction
Typical investment stages:
- Pre-seed/Seed: $50,000-$500,000 (angels, early-stage VCs) - LLC acceptable
- Series A: $1M-$5M (institutional VCs) - Often require JSC
- Series B+: $5M-$20M+ (larger VCs, PE) - JSC required
Capital Raising Matrix: What Each Stage Looks Like
| Stage | Typical Amount | Common Sources | Structure Needed | Use of Funds |
|---|---|---|---|---|
| Bootstrap | $0-$50k | Personal savings, credit cards | Any structure | MVP, first inventory |
| Friends & Family | $25k-$100k | Personal network | LLC minimum (protect relationships) | Initial production, marketing |
| Angel Round | $100k-$500k | Angel investors, accelerators | LLC (sufficient) | Scale production, team hiring |
| Series A | $1M-$5M | Institutional VCs | JSC (often required) | Multi-channel expansion, regional growth |
| Series B+ | $5M-$20M+ | Larger VCs, PE funds | JSC (required) | Pan-Asia expansion, acquisitions |
Real-World Example: Strawberry Sunday Capital Path
Projected Capital Raising Timeline
Why this works: LLC provides flexibility for early stages (cheaper, simpler). Convert to JSC only when capital needs justify additional complexity and cost.
Capital Raising Takeaway
Key insight: Your business structure determines your fundraising ceiling.
- ❌ Household business: Cannot raise formal investment—dead end for scaling
- ✅ LLC: Can raise $50,000-$500,000 comfortably (sufficient for most early-stage fashion brands)
- ✅✅ JSC: Can raise unlimited capital, but overkill for early stage
Best practice: Start as LLC, convert to JSC when you have concrete plans for Series A+ funding ($1M+). This saves costs and complexity in early years while keeping options open.
Scalability & Growth
Business structure directly impacts your ability to grow. Some structures have hard ceilings; others scale indefinitely.
Growth Limitations by Structure
Household Business
Maximum scale:
- ❌ 10 employees maximum (including owner)
- ❌ Single location only
- ❌ No branches, no warehouses in different locations
- ❌ Owner must directly manage all operations
- ❌ Cannot hire professional CEO/management
Real-world impact: Can maybe run 1 small boutique or online shop. Cannot build a multi-store brand.
Example ceiling: ~$200,000 annual revenue, 1 location, 8-10 employees max
LLC / JSC
Maximum scale:
- ✅ Unlimited employees
- ✅ Unlimited locations (domestic and international)
- ✅ Multiple warehouses, offices, retail stores
- ✅ Professional management team
- ✅ Franchise opportunities
- ✅ Regional and international expansion
Real-world impact: Can build from 1 dress to 300-store national chain (see YODY, Blue Exchange)
Example potential: $50M+ annual revenue, 50-300+ locations, 500-5,000 employees
Case Studies: Vietnamese Fashion Success Stories
YODY: Vietnam's Fastest-Growing Fashion Brand
From 1 Store to National Champion
Growth Journey:
Why Structure Mattered:
- ✅ LLC from start: Enabled multi-location licensing immediately
- ✅ Professional governance: Attracted institutional investors with clean structure
- ✅ Scalable operations: Could hire 2,000+ employees, operate nationwide
- ✅ Capital access: Raised multiple funding rounds for expansion
- ✅ Credibility: Negotiated favorable terms with suppliers, landlords at scale
Critical insight: YODY's founders chose formal corporate structure despite higher initial costs. This decision enabled the explosive growth that would have been impossible as household business (10-employee, 1-location limits would have capped them at ~$200k revenue).
Blue Exchange: Accessible Fashion at Scale
300+ Stores Across Vietnam
Strategic Choices:
- Structure: Started as Joint Stock Company (JSC) from inception
- Why JSC: Founders had aggressive expansion plans requiring significant capital
- Capital strategy: Raised multiple investment rounds from VCs and strategic partners
- Growth model: Rapid multi-location rollout focusing on secondary cities
Scale Achievements:
- ✅ 300+ stores across all 63 provinces
- ✅ Vertically integrated supply chain (design, manufacturing, retail)
- ✅ 3,000+ employees
- ✅ Multiple brand lines (denim, casual, work wear)
- ✅ E-commerce integration alongside physical retail
Critical insight: Blue Exchange chose JSC (more complex than LLC) strategically for capital-raising ambitions. The share structure facilitated multiple investment rounds enabling aggressive 300-store expansion. Could not have achieved this scale as household business or even sole proprietorship.
Multi-Location Expansion Requirements
Opening additional locations has specific legal requirements that vary by structure:
| Expansion Type | Household Business | LLC / JSC |
|---|---|---|
| Second retail location (same city) | ❌ Prohibited | ✅ Requires Trading License + Retail Outlet License |
| Warehouse (different location) | ❌ Prohibited | ✅ Simple location registration update |
| Office in different city | ❌ Prohibited | ✅ Register branch office |
| Pop-up shop (temporary location) | ❌ Prohibited (requires same licensing as permanent) | ⚠️ Requires retail licensing (4-6 months) |
| Franchise model | ❌ Impossible | ✅ Possible (requires franchise registration) |
| International expansion | ❌ Impossible | ✅ Establish foreign subsidiaries |
International Expansion Considerations
Southeast Asia Expansion Path
Common structure: Singapore holding company + country subsidiaries
Tax-efficient, international credibility
Why household business can't do this: Cannot establish foreign entities, no corporate structure for subsidiaries to connect to, no ability to consolidate finances across countries.
Growth Ceiling Comparison: 5-Year Projections
Realistic Revenue Ceiling by Structure
| Year | Household Business Max | LLC/JSC Potential |
|---|---|---|
| Year 1 | $60,000 | $60,000 |
| Year 2 | $120,000 | $180,000 |
| Year 3 | $180,000 (hitting limits) | $500,000 (multiple channels) |
| Year 4 | $200,000 (ceiling - 10 employees, 1 location) | $1,500,000 (physical retail + online) |
| Year 5 | $200,000 (cannot grow further) | $5,000,000+ (multi-location scale) |
Scalability Takeaway
Your business structure determines your growth ceiling.
- ❌ Household business: Hard cap at ~$200,000 revenue (10 employees, 1 location max)
- ✅ LLC/JSC: No inherent ceiling—can scale to $100M+ with 300+ locations like YODY and Blue Exchange
If you have any ambition to grow beyond a small single-location operation, household business will become a straightjacket forcing costly conversion later. Start with LLC to keep growth options unlimited.
Converting Between Structures
Many entrepreneurs start with simple structures and convert later. Understanding conversion processes, costs, and timing helps you plan strategically.
Common Conversion Paths
→ Household Business → LLC
Process:
- Apply for new LLC registration (cannot "upgrade" household)
- Transfer assets and operations to LLC
- Close household business registration
- Notify customers, suppliers, platforms of new entity
Timeline: 3-5 working days (fast-track available)
Costs:
- $1,000-$3,000 (professional services for conversion)
- $10,000 charter capital (can use from business cash)
- Asset transfer costs (inventory valuation, equipment)
2026 Incentives:
- ✅ 3-year CIT exemption (if converted 2025-2026)
- ✅ Registration fee exemptions
- ✅ Simplified conversion procedures
→ Sole Proprietorship → LLC
Process: Similar to household → LLC conversion
Timeline: 1-2 weeks
Costs: $1,500-$3,500
Critical issue:
Owner remains personally liable for pre-conversion debts. If sole proprietorship had $20,000 in supplier debt, owner personally owes this even after LLC formed. Only new debts incurred by LLC get liability protection.
Best practice: Clear all debts before converting, or negotiate with creditors to transfer obligations to new LLC (requires creditor consent).
→ LLC → JSC
Process:
- Pass Members' Council resolution to convert
- Prepare JSC charter and governance documents
- Convert capital contributions to shares
- Register conversion with business registration authority
- Establish Board of Directors and Supervisory Board (if required)
Timeline: 1-2 months
Costs: $5,000-$15,000
When to do it:
- Approaching 50-member limit
- Series A investors require JSC structure
- Planning IPO within 2-3 years
- Want employee stock options
- Need freely transferable shares
Tax Implications of Conversion
What Happens Tax-Wise When You Convert
Asset Transfers:
- Transferring inventory to new LLC may trigger VAT (consult accountant)
- Equipment transfers generally not taxable if properly documented
- Intangible assets (brand, customer list) may have valuation issues
Operating History:
- New LLC starts with clean slate for CIT exemption purposes
- Household business' prior revenue doesn't count toward LLC revenue thresholds
- Can maximize 3-year CIT exemption by converting in 2025-2026 window
Loss of Household Tax Treatment:
- Pre-2026: Lose simplified presumptive taxation (but this is going away anyway)
- Post-2026: No difference (both use declaration-based)
2026 Conversion Incentives: Limited Time Window
Special Government Incentives for 2025-2026 Conversions
Vietnamese government actively encouraging formalization with time-limited benefits:
3-Year CIT Exemption
Household businesses converting to LLC/JSC in 2025-2026 eligible for full 3-year corporate income tax exemption
Value: $20,000-$50,000+ depending on profitability
Registration Fee Exemption
Government fees for enterprise registration waived for conversions
Value: $50-$200 saved
Fast-Track Processing
Priority processing for conversion applications (3-5 days vs. normal 1-2 weeks)
Value: Faster time to market
Simplified Procedures
Reduced documentation requirements for household → enterprise conversions
Value: Lower professional service costs
⏰ Window closing: These incentives apply to conversions registered between January 1, 2025 and December 31, 2026. After this window, standard costs and timelines apply.
Conversion Flowchart: Household → LLC
Evaluate if you're hitting household business limits (10 employees, single location, capital needs)
Hire accountant/lawyer to handle conversion ($1,000-3,000)
LLC charter, member list, asset inventory, office lease
Submit IRC (if foreign) and ERC applications
ERC issued, company officially exists
Open LLC bank account, deposit charter capital, transfer operations
Update platform accounts (TikTok Shop, Shopee) to LLC registration, notify customers
✅ Unlimited employees, ✅ Multiple locations, ✅ Can raise investment, ✅ Liability protection
Common Triggers for Conversion
Most businesses convert when they hit specific growth triggers:
Employee Count
Trigger: Approaching 10 employees (household business limit)
Example: "We have 8 people now—3 in production, 2 in fulfillment, 2 in marketing, 1 admin. Need to hire designer and customer service rep but can't with household license."
Multi-Location Need
Trigger: Want to open second location (warehouse, retail store, office)
Example: "Operating from apartment but sales growing. Need warehouse for inventory and want to test retail store in mall. Household license only allows single registered address."
Investment Opportunity
Trigger: Angel investor wants to invest but needs formal equity structure
Example: "Family friend wants to invest $50,000 for 20% stake. Can't issue ownership in household business—need LLC to formalize partnership."
Liability Concern
Trigger: Growing sales volume increases product liability risk
Example: "Sold 2,000 dresses this year. One quality issue could bankrupt me personally. Need liability protection before scaling further."
Supplier Requirements
Trigger: Better suppliers require corporate entity for credit terms
Example: "High-quality fabric supplier offers 30-day payment terms but only to registered companies, not household businesses. Would improve cash flow significantly."
2026 Tax Reform
Trigger: Household business tax advantage disappearing January 2026
Example: "Post-2026, I'll need full accounting anyway. Might as well convert now and get 3-year CIT exemption plus liability protection—same complexity, better benefits."
Conversion Decision Framework
Should You Convert Now or Later?
✅ Convert NOW if:
- You're within 2 employees of 10-person limit
- You want to open second location within 12 months
- You have investment opportunity requiring formal structure
- Product liability concerns keep you up at night
- You're foreign and operating through Vietnamese partner (risky)
- It's 2025-2026 (government incentives available)
- Annual revenue approaching $150,000+ (economics favor LLC)
⏳ Can Wait if:
- You're under 5 employees with no hiring plans
- Single location sufficient for 12+ months
- Revenue under $100,000 annually
- No partners or investors involved
- Still validating product-market fit
- Capital limited (need to preserve cash)
But remember: After December 31, 2026, household business advantages disappear and conversion incentives end. Don't wait too long.
Conversion Takeaway
Converting between structures is possible but has costs:
- 💰 Financial cost: $1,000-$3,000 for household → LLC conversion
- ⏰ Time cost: 3-5 days processing + 1-2 weeks transition (business interruption)
- 🔄 Operational cost: Platform account updates, customer notifications, supplier communications
- 📉 Opportunity cost: Years without liability protection, unable to raise capital, limited growth
The 2025-2026 window makes conversion attractive (3-year CIT exemption, fee waivers), but the smartest approach is to start with the right structure from day one and avoid conversion altogether.