CIT Exemption for a Company Set Up in 2025 Whose Owner Still Runs a Household Business

Issues Raised

The asker ran a household business before 2025 and in 2025 set up a company as its owner, while the household business kept operating in parallel (it was not closed to convert into an enterprise). The asker had never been a legal representative, general partner or largest capital contributor in any other enterprise. The question assumes the company meets the SME criteria.

Points on which guidance was requested:

1. Is the company excluded under Article 7.3(b2) of Decree 20/2026/ND-CP because its owner also runs an operating household business?
2. Does the phrase "in enterprises" in point b2 cover household businesses, and is the household owner a "largest capital contributor"?
3. How do the 2-year exemption for enterprises formed from household businesses and the 3-year exemption for SMEs differ, and can an enterprise choose between them under Article 7.4 of Decree 20/2026/ND-CP?
4. How is the exemption period counted when the first tax period has less than 12 months of operation?

Official Guidance

The tax authority answered on the Ministry of Finance Q&A portal, quoting the provisions below.

Case 1: SMEs Registering a Business for the First Time

Under Article 10.4 of Resolution 198/2025/QH15 dated 17 May 2025 and Article 7.3 of Decree 20/2026/ND-CP dated 15 January 2026:

Incentive:

• CIT exemption for 3 years from the date of the first enterprise registration certificate
• The exemption period runs continuously from the first year the first enterprise registration certificate is issued
• An enterprise whose certificate was issued before Resolution 198/2025/QH15 took effect and that still has incentive time left receives the incentive for the remaining period

Exclusion (Article 7.3(b2)): newly established enterprises whose legal representative (unless the legal representative is not a capital contributor), general partner or largest capital contributor has been involved in business in that same role in enterprises that are operating, or that were dissolved less than 12 months before the new enterprise was established.

Case 2: Enterprises Newly Formed from a Household Business

Under Articles 11.2, 11.3 and 21.4 of Decree 320/2025/ND-CP dated 15 December 2025:

Conditions and incentive:

• Applies to enterprises with annual revenue up to VND 50 billion (15% rate up to VND 3 billion, 17% above VND 3 billion up to VND 50 billion) newly formed from a household business, including individual traders converting into an enterprise
• CIT exemption for 2 consecutive years from the first year the enterprise has taxable income; if there is no taxable income in the first 3 years counted from the first year of revenue, the exemption starts from year 4
• The household business or individual trader must have been registered and operating lawfully, with continuous business activity for at least 12 months up to the date of the first enterprise registration certificate
• If the first tax period has less than 12 months of exempt operation, the enterprise may take the exemption in that period or register with the tax authority to start it from the next period; in the latter case it must calculate and pay tax for the first period

Choosing the Most Favourable Incentive

Article 7.4 of Decree 20/2026/ND-CP (quoted in the reply): an SME that qualifies for an exemption or reduction under Article 7 and for another one at the same time may choose the most favourable and must keep it for the whole exemption or reduction period. The reply does not apply this provision specifically to enterprises converted from household businesses.

SME Criteria

Under Article 5 of Decree 80/2021/ND-CP dated 26 August 2021 (annual average employees covered by social insurance; annual revenue or total capital):

Micro enterprises:

• Agriculture, forestry, fisheries; industry, construction: ≤10 employees, revenue ≤VND 3 billion or capital ≤VND 3 billion
• Trade, services: ≤10 employees, revenue ≤VND 10 billion or capital ≤VND 3 billion

Small enterprises:

• Agriculture, forestry, fisheries; industry, construction: ≤100 employees, revenue ≤VND 50 billion or capital ≤VND 20 billion
• Trade, services: ≤50 employees, revenue ≤VND 100 billion or capital ≤VND 50 billion

Medium enterprises:

• Agriculture, forestry, fisheries; industry, construction: ≤200 employees, revenue ≤VND 200 billion or capital ≤VND 100 billion
• Trade, services: ≤100 employees, revenue ≤VND 300 billion or capital ≤VND 100 billion

Conclusion

According to the tax authority's reply:

• A company newly established in 2025 that meets the SME criteria, and whose largest capital contributor's only prior business role was as the registered holder of a household business, is exempt from CIT for 3 years from its first enterprise registration certificate
• An enterprise newly formed from a household business that meets Articles 11.2 and 11.3 of Decree 320/2025/ND-CP is exempt from CIT for 2 consecutive years from its first year of taxable income, or from year 4 if it has no taxable income in the first 3 years counted from its first year of revenue

Businesses should check their own facts against each condition above before filing and finalising tax.