Vietnam Abolishes Flat Tax for Business Households from 1/1/2026

In an effort to support and promote the development of the private sector, the Vietnamese Government has issued various policies and resolutions. One of the most significant is the abolition of the flat tax for individual business households, effective from January 1, 2026. This article by Viet An Law provides detailed updates and legal insights into this policy shift.

What is the presumptive tax regime?

Currently, individual business households in Vietnam can pay taxes under two methods: the declaration method and the flat tax for business households. According to Clauses 7 and 9, Article 3 of Circular 40/2021/TT-BTC, the flat tax regime for individual business households is defined as follows:

• The flat tax for business households is a tax calculation method based on a fixed percentage of presumed revenue determined by the tax authority, in accordance with Article 51 of the Law on Tax Administration 2019.
• The flat tax amount includes taxes and other amounts payable to the state budget, as determined by the tax authority for business households or individuals applying the flat tax for business households.

In essence, the flat tax for individual business households is a tax calculated on estimated revenue, where the revenue is determined by the tax authority. This method is applied to business households and individuals who are not eligible to use the declaration method or the per-occurrence method of tax payment.

• The flat tax for business households is applicable to those not required to declare taxes monthly or quarterly and not subject to taxation per each business transaction.
• Business households using the flat tax for business households (commonly referred to as “flat-tax households”) are not obligated to maintain accounting books. If these households use individual sales invoices, they must retain and present them along with related contracts and legal documents when requesting the issuance of such invoices.
• Once the flat-tax households are notified of their fixed tax amount by the tax authority at the beginning of the year, they are required to pay taxes in accordance with that notification.

Vietnam Abolishes Flat Tax for Business Households from 1/1/2026

On May 4, 2025, the Politburo issued Resolution No. 68-NQ/TW on the development of the private economy, in which one of the proposed solutions is to “abolish flat tax for business households for individual business households no later than in 2026.”

To implement Resolution No. 68-NQ/TW, the National Assembly issued Resolution No. 198/2025/QH15 on May 17, 2025, regarding special mechanisms and policies to promote the private economy. This Resolution applies to enterprises, individual business households, business individuals, and other related organizations and individuals.

Specifically, Clause 6, Article 10 of Resolution No. 198/2025/QH15 provides as follows:

“Tax, fee, and charge support

…6. Individual business households and business individuals shall no longer apply the flat tax method from January 1, 2026. Individual business households and business individuals shall pay taxes in accordance with the law on tax administration.”

In addition, according to Resolution No. 139/NQ-CP issued by the Government, which promulgates the Government’s Implementation Plan for Resolution No. 198/2025/QH15 dated May 17, 2025 of the National Assembly on specific mechanisms and policies to develop the private economy, a requirement is also set for the Ministry of Finance: “To review, amend, supplement, or report to the competent authority for the amendment and supplementation of relevant legal documents regarding the non-application of the flat tax method by individual business households and business individuals from January 1, 2026.”

Thus, under Resolution No. 198/2025/QH15, the flat tax method shall be applied to individual business households and business individuals from January 1, 2026.

Why Did Vietnam Abolishes Flat Tax for Business Households from 1/1/2026?

According to data from the General Department of Taxation (Ministry of Finance), as of the end of March 2025, the number of business households and individuals submitting tax declarations under the flat tax method was 1.975.373 while 6.142 households declared tax under the declaration method. In the near future, an additional 61.329 business households will be brought under tax management using the declaration method through the implementation of the digital map of business households.

Tax administration has so far mainly relied on the flat tax method, in which the Tax Authority determines a fixed annual revenue, and the business household pays tax based on that estimate. The main advantages of this method are its simplicity, ease of implementation, and suitability for households with limited management capacity.

However, the flat tax method also reveals several shortcomings, such as:

• Does not encourage revenue transparency: Because business households may underreport their actual revenue to reduce the flat tax payable.
• Causes difficulties for the Tax Authority: In controlling revenue, which may lead to state budget losses.
• Creates inequality among business households: As some households may have significantly higher actual revenue than the estimated amount but still pay less tax compared to those with lower actual revenue but a higher fixed tax rate.
• The abolition of the flat tax for individual business households is expected to bring about a “revolution” in tax administration, contributing to income and expense transparency, ensuring fair tax obligations across different business models, and preventing tax losses.

New E-Invoice Obligations Following Vietnam Abolishes Flat Tax for Business Households from 1/1/2026

To address the shortcomings of the flat tax method, Article 11 of Decree No. 123/2020/NĐ-CP, as amended by Clause 8, Article 1 of Decree No. 70/2025/NĐ-CP on e-invoices generated from cash registers, provides that from June 1, 2025, business households that:

• Annual revenue from VND 1 billion or more and;
• Enterprises engaged in the sale of goods or provision of services, including direct-to-consumer activities such as: shopping malls, supermarkets, retail (excluding automobiles, motorcycles, motorbikes, and other motor vehicles); food and beverage services; restaurants; hotels; passenger transportation services; direct support services for road transport; arts; entertainment; recreational activities; cinema operations; and other personal services as defined in the Vietnam Standard Industrial Classification.

Shall be required to use e-invoices generated from cash registers connected to the tax authority.

• This policy is considered a significant turning point in the modernization of tax administration, not only improving the efficiency of state budget revenue collection but also promoting digitalization, transparency, and fairness in the business environment within the individual household economic sector.
• The use of e-invoices is no longer voluntary but has become mandatory. In particular, invoices must be issued at the time of sale or service provision and payment, rather than being issued collectively at the end of the day as previously practiced.
• This also serves as a stepping stone for a long-term orientation, in which all individual business households will gradually shift to the tax declaration method, following the principle of “self-declaration – self-payment”, accurately reflecting actual revenue and minimizing fraud and shortcomings of the flat tax mechanism.

Tax Declaration Method Applicable After Vietnam Abolishes the Flat Tax for Business Households from January 1, 2026

In the case of the abolition of the flat tax for individual business households, tax shall be declared under the declaration method, as stipulated in Article 5 of Circular No. 40/2021/TT-BTC, as follows:

• The declaration method applies to large-scale individual business households and business individuals; and to those not classified as large-scale but who opt to pay taxes under the declaration method.
• Individual business households and business individuals using the declaration method shall declare taxes on a monthly basis, except for newly established households or those eligible to declare quarterly and have opted for quarterly declarations in accordance with Article 9 of Decree No. 126/2020/NĐ-CP.
• If the taxable revenue declared by the household or individual does not match actual conditions, the tax authority shall impose the taxable revenue in accordance with Article 50 of the Law on Tax Administration 2019.
• Households and individuals paying tax under the declaration method must comply with accounting, invoicing, and document regulations. In cases where the household or individual operates in a field with verifiable revenue confirmed by a competent authority, the accounting regime is not required.
• Individual business households and business individuals using the declaration method are not required to conduct tax finalization.

The above is legal advice regarding Vietnam abolishes flat tax for business households from 1/1/2026. Should you have any related questions or need legal consultation on tax matters, please contact Viet An Law – Tax Agent for the best support and assistance.