No back taxes on fixed-rate businesses

During a live Q&A session hosted by VNExpress on June 17, aimed at addressing challenges faced by household businesses transitioning to actual-revenue tax declarations, Hoang Huy from Nam Dinh shared that his family has been selling meals online since 2018.

Recently, the local tax department contacted his family and notified them of over VND 1 billion (approximately USD 39,300) in back taxes, calculated from 2018 to now. Huy inquired whether back taxes are currently applicable and how they are enforced.

Responding to this, Mai Son, Deputy Director of the General Department of Taxation (Ministry of Finance), clarified that there is a distinction between online businesses and fixed-location household businesses under the fixed-rate tax model.

“Online businesses, similar to those operating on e-commerce platforms for which the tax department launched a dedicated portal last year, feature clear financial flows. Therefore, individual or household online sellers must declare and pay taxes each time revenue is generated, monthly or quarterly, based on actual income,” Son explained.

Accordingly, tax obligations are calculated based on declared total revenue and an applicable percentage. For instance, commercial activities are taxed at 1.5%, and services at 5%. In cases where individuals do affiliate marketing or livestream sales for companies, the income is treated as wages.

Fixed-location businesses must declare projected annual revenue. The tax office then evaluates the declaration using data such as shop area, staff size, utility bills, and previous year's revenue.

Son added that through local advisory councils, the estimated revenue is determined and communicated to household businesses by January 20 annually. The tax amount, based on this estimate, is then paid monthly or quarterly. The list of assessed revenues is made public as required.

If a fixed-rate household business changes its scale (e.g., area, workforce, revenue), it must file an amended declaration. If the estimated revenue changes by 50% or more, the tax office will adjust the fixed-rate accordingly.

However, this adjustment only applies to subsequent tax periods and does not trigger retroactive collection for previous months. This distinction separates online and fixed-location businesses, despite both being taxed on revenue percentage by sector.

The tax authority gave an example: if in June, a household business earns VND 300 million (USD 11,800) instead of its usual VND 50 million (USD 1,965), it must declare and pay tax on the higher amount in July. If revenue drops by over 50% the next month, the business can again report and adjust accordingly.

Push for transition to enterprise model

Starting June 1, under Decree 70, household businesses in sectors like food, hospitality, retail, passenger transport, beauty services, and entertainment with annual revenues over VND 1 billion (USD 39,300) must issue e-invoices generated from cash registers connected to the tax office.

Additionally, Politburo Resolution 68 mandates the complete elimination of the fixed-rate tax model for household businesses by 2026.

Son noted that fixed-rate taxation is outdated because business models have evolved significantly. Many no longer operate solely at one location but engage on e-commerce platforms and social networks. Some even manage store chains or engage in cross-border trade.

This tax approach has limitations. The tax sector aims to simplify administrative procedures and make tax declaration and payment more convenient for household businesses.

However, under fixed-rate tax, household businesses cannot access corporate income tax incentives available to registered companies.

Moreover, calculating tax solely on revenue - especially in varied sectors and larger scales - often misrepresents profit and loss, creating inequities.

“The tax office encourages household businesses to shift to micro-enterprise models. They would benefit from government support policies. If profitable, they contribute to the state budget; if not, no tax is owed,” he said.

Nevertheless, many household businesses remain hesitant due to the desire for simplicity, despite local support policies. The tax agency plans to increase communication efforts and explore support solutions to help businesses better understand the long-term benefits and fairness of transitioning.

Nguyen Le