Comparison between Sole Proprietorship and Limited Liability Company (LLC): Legal Aspects – Taxes & Invoicing – Management & Advantages

Many entrepreneurs are uncertain whether to register as a sole proprietorship (hộ kinh doanh) or establish a Limited Liability Company (LLC). This article offers an overview comparing these two popular business models in terms of legal status, taxation, invoicing, financial management, and helps you choose the most suitable structure for your needs and growth plans.

I. Establishing a Limited Liability Company (LLC)

1. Legal Framework & Registration Fees

• Business license fee: VND 2–3 million/year; branch: VND 1 million/year

• First year business license fee exemption; expected to be abolished completely from 2026

• LLCs are registered under the Enterprise Law with independent legal status

2. Business License & Income Taxes

• VAT: Input and output VAT can be offset

• PIT: Applicable to employees, deductible according to regulations

• CIT: 20% on net profit after allowable expenses

• Other taxes depending on industry (import, environment, excise...)

3. Invoicing and Bookkeeping

• Must issue valid invoices for all revenue

• Requires clear payroll and HR management

• Tax declaration monthly or quarterly depending on scale

• Full accounting books and financial reports per Ministry of Finance

II. Sole Proprietorship (Hộ Kinh Doanh Cá Thể)

1. Legal Framework & Registration Fees

• Lower business license fee: VND 300,000–1,000,000/year

• From 2026, business license fee will also be exempted

• Not a legal entity; ideal for small or family-run businesses

2. Business License & Income Taxes

• PIT: 0.5%–5% of revenue depending on sector

• VAT: 0%–5% of revenue

• Revenue below VND 100 million/year is tax-exempt; raised to VND 200 million from 2026

• Other taxes are minimal

3. Invoicing and Bookkeeping

• Lump-sum/declaration basis: only issue invoices when requested; mandatory from 2026 if revenue > VND 200 million/year

• Declared/large proprietorships: must issue invoices and keep records

• Simple bookkeeping as per Circular 88/2021/TT-BTC

• Tax declaration monthly/quarterly or annually depending on type

• From 1/6/2025, if revenue > VND 1 billion/year, must issue e-invoices and use POS systems

III. Overview Comparison Table

Conclusion:

• Choose LLC if you plan to expand, hire staff, seek investment, or need structured management.

• Choose Sole Proprietorship if your business is small-scale, you want simplicity and cost savings.

Viet Australia
Viet Australia Auditing Company is an independent auditing organization licensed and established in 2007 in the Socialist Republic of Vietnam.