New regulations on household businesses: remaining concerns

The Ministry of Planning and Investment is currently in the process of finalizing the Draft Decree on household businesses[1]. This marks the first time regulations concerning household businesses will be consolidated into a single legal document. Essentially, the Draft Decree aims to separate household businesses from the general regulations governing enterprises, thereby creating more favorable conditions for their development. However, several issues still need to be addressed to ensure the Draft Decree fully serves its purpose of paving the way for household businesses.

Source: The Saigon Times

Why is a separate decree on household businesses necessary?

Currently, the registration and operation of household businesses are governed by Decree 01/2021/ND-CP, Circular 01/2021/TT-BKHDT, and Circular 02/2023/TT-BKHDT. Except for Circular 02/2023/TT-BKHDT, the other documents are general regulations for enterprises, with household businesses only forming a small part. Considering the practical operations of household businesses, placing them under enterprise regulations is evidently inappropriate because:

First, although household businesses are regulated under the Law on Enterprises, they do not possess the full characteristics of enterprises, such as legal entity status, charter capital, or organizational structure. Applying enterprise regulations rigidly to household businesses is thus unsuitable.

Second, household businesses are typically small-scale, operate flexibly, and lack the complex governance systems of enterprises. A dedicated Decree would help address specific activities and better reflect practical realities.

Third, Decree 01/2021/ND-CP dedicates only one chapter to household businesses, focusing mainly on registration procedures. It lacks comprehensive provisions for other aspects such as financial regimes, rights and obligations, or support policies.

Therefore, the necessity for a dedicated legal normative document containing specific provisions tailored exclusively to household businesses is undeniable.

Notable new provisions in the Draft Decree on household businesses

The Draft Decree on household businesses introduces several notable new provisions that household businesses should take into account. Specifically:

First, Clause 1, Article 12 of the Draft Decree stipulates that the household business identification number is a numeric code transmitted from the tax registration system to the household business registration information system and issued to the household business upon registration. This identification number is recorded on the household business registration certificate. While this provision is not entirely new—having been previously recognized in Clause 1, Article 1 of Circular 02/2023/TT-BKHDT—it represents a novel regulation within the context of a decree. Currently, under Clause 1, Article 83 of Decree 01/2021/ND-CP, the household business registration number is issued by district-level business registration authorities. As a result, there are currently two identification numbers for household businesses: the household business registration number (issued by district authorities) and the household business identification number (automatically generated by the tax system). This overlap creates redundancy from the very inception of household businesses. The provision in the Draft Decree seeks to unify the issuance and management of household business identification numbers, effectively aligning the system with the management of enterprise registration numbers.

Second, procedures for establishing a household business. Currently, the establishment of household businesses is primarily carried out in person at district-level business registration offices, with only a few provinces and cities implementing online application submissions. This results in prolonged processing times despite the relatively simple nature of the procedure. Additionally, different registration offices often impose varying requirements, creating challenges for applicants. To address this, Article 15 of the Draft Decree introduces changes allowing applicants to submit household business registration applications through multiple methods, including in-person submission, postal services, and electronic systems[2]. Furthermore, Clause 2, Article 11 of the Draft Decree specifies that district-level business registration authorities are prohibited from requesting additional documents or information beyond those required under the Decree. This is a critical provision that ensures greater transparency and facilitates a smoother household business registration process.

Source: Government News

Remaining concerns

Despite introducing certain reforms in the regulations for household businesses, the Draft Decree still contains several unresolved issues that require further consideration:

First, household businesses predominantly operate on a small scale, with a minimal workforce and often lack professional labor management systems comparable to enterprises. Therefore, effective interagency coordination among authorities responsible for business registration, taxation, labor, and social insurance is critical for efficient management. Such coordination would also reduce the administrative burden on household businesses. However, the Draft Decree does not provide specific provisions delineating the responsibilities of the relevant agencies.

Second, the Draft Decree mandates household businesses to include a primary business sector code in their registration application, which may not be entirely appropriate. Given the simplicity and small scale of household businesses, typically family-run or employing a limited number of external workers, they generally engage in one or a few specific activities. Requiring compliance with the national economic sector classification system (VSIC), designed for enterprises, imposes an undue burden. Most household businesses lack the legal or economic expertise to accurately determine and apply sector codes. This leads to challenges in both registration and sectoral management. Additionally, household businesses often adapt flexibly to market changes, altering their operations, scope, or scale as necessary. Fixed sector codes could hinder such flexibility and create obstacles for rapid adjustments. From the perspective of state management, household businesses are primarily regulated at the local level (district or municipal), where oversight focuses on actual operations rather than detailed sector codes. Applying stringent sector classification requirements akin to those for enterprises is unnecessary and adds administrative complexity for both household businesses and government authorities.

Third, according to Clause 1, Article 13 of the Draft Decree requires the personal information of household business owners and family members listed in registration applications to match the data stored in the National Population Database. Any discrepancies must be rectified by the applicant with the relevant authority managing the National Population Database before proceeding with registration. This requirement could extend the registration timeline. If the personal information of the owner or household members does not match the database, they would need to complete an additional process to correct the information before reapplying for registration.

Fourth, according to Clause 4, Article 27 of the Draft Decree, district-level business registration authorities must issue a notice requiring household businesses or their locations to suspend operations if they fail to meet the conditions for engaging in conditional business activities, as indicated by relevant state agencies. If the household business does not comply, the registration authority may demand a compliance report. Furthermore, Clause 3, Article 29 stipulates that failure to submit the required report within one month of the deadline may result in the revocation of the household business registration certificate. While non-compliance with reporting requirements constitutes a legal violation, household business operations typically encompass more than one sector. Revoking a registration certificate due to non-compliance in a specific sector could adversely affect the household business's rights in other sectors.

The Draft Decree on household businesses holds the potential to bring significant changes to their establishment and operation. However, as it introduces relatively novel provisions tailored to this distinctive business model, these regulations will require practical implementation to evaluate their effectiveness and appropriateness. Nonetheless, any innovations aimed at benefiting household businesses and the general public deserve encouragement and support.

Read more at: Quy định mới về hộ kinh doanh: vẫn còn nhiều băn khoăn

Lawyer Nguyen Nhat Duong

HM&P Law Firm