Two Methods for Calculating Personal Income Tax (PIT) for Household Businesses under Decree 68/2026/ND-CP

On March 5, 2026, the Government issued Decree 68/2026/ND-CP, which regulates tax policies and tax administration for household businesses and individual businesspersons. This decree clearly defines two main methods for calculating Personal Income Tax (PIT) applicable to these subjects.

Choosing the appropriate tax calculation method not only affects the amount of tax payable but also directly impacts accounting documentation requirements and cost management practices of household businesses. Below is a detailed analysis of the two tax calculation methods under the new regulation.

A. Two Methods for Calculating PIT for Household Businesses

According to Clause 5, Article 4 of Decree 68/2026/ND-CP, PIT for individual businesspersons is determined based on two primary methods, depending on annual revenue scale.

Method 1: Tax Rate Applied to Revenue

This is the simplest method, applicable to individual businesses with annual revenue ranging from over VND 500 million to VND 3 billion.

Formula:

PIT payable = Taxable revenue × Tax rate

The tax rate is specified according to each business sector under the Personal Income Tax Law 2025.

Illustrative Example

Ms. M operates an online cosmetics business with total revenue in 2026 reaching VND 800 million. She chooses to apply the revenue-based tax method.

According to regulations, the PIT rate for retail activities is 0.5%.

Assuming her taxable revenue is VND 300 million, the payable tax is calculated as follows:

PIT = 300,000,000 × 0.5% = VND 1,500,000

Characteristics of This Method

The revenue-based method is typically suitable for:

• Small and medium-sized household businesses

• Businesses with low input costs

• Cases where collecting sufficient invoices and documents is difficult

Key advantage: Simple, easy to apply, and does not require a detailed accounting system.

Method 2: Tax Rate Applied to Taxable Income

This method requires determining actual income after deducting expenses, similar to corporate tax calculation.

Formula:

PIT payable = Taxable income × Tax rate

Where:
Taxable income = Revenue – Deductible expenses

The applicable tax rate follows the Personal Income Tax Law 2025.

Applicable Subjects

This method applies in two cases:

• Individual businesses with annual revenue exceeding VND 3 billion (mandatory)

• Individuals with revenue from VND 500 million to VND 3 billion who voluntarily choose this method

Illustrative Example

Mr. T runs an electrical equipment business with revenue of VND 5 billion in 2026. Therefore, he is required to apply the income-based method.

Assumptions:

• Revenue: VND 5 billion

• Deductible expenses: VND 3.5 billion

Taxable income:

Taxable income = 5 billion – 3.5 billion = VND 1.5 billion

If applying a 17% tax rate:

PIT = 1.5 billion × 17% = VND 255 million

Case of Choosing the Tax Method

Returning to Ms. M’s case, if she chooses the income-based method, she must:

• Maintain purchase invoices

• Keep rental agreements/documents

• Maintain payroll records

• Record other valid expenses

If sufficient documentation is not available, expenses cannot be deducted, which may significantly increase tax payable.

Therefore, this method is only effective when the business has a well-organized cost management system.

B. Revenue Used for PIT Calculation

According to Article 5 of Decree 68/2026/ND-CP, revenue used for PIT calculation includes all amounts received from business activities.

Revenue includes:

• Sales of goods

• Processing/manufacturing income

• Service provision income

• Subsidies and surcharges

• Sales bonuses

• Payment discounts

• Contract compensation

• Financial or in-kind support

Important note: Revenue is recognized regardless of whether payment has been received.

Revenue does NOT include:

• Trade discounts

• Sales discounts

• Returned goods

Revenue in Special Cases

The Decree also specifies revenue determination for certain business activities:

Goods processing: Includes total income such as labor, auxiliary materials, and fuel costs

Installment sales: Revenue is based on lump-sum selling price (excluding interest)

Agency activities:

• Fixed-price agents: revenue = commission

• Buy-sell agents: revenue = total sales

Asset leasing:

Revenue = rental income under contract

If paid upfront for multiple years → may allocate by year or record as lump sum

Construction activities:

Revenue = project value or accepted workload

C. Timing of Revenue Recognition

According to regulations:

• Sale of goods: when ownership or usage rights are transferred

• Provision of services: when services are completed (fully or partially)

Correct timing is essential to ensure accurate tax obligations.

D. Deductible Expenses

According to Article 6, deductible expenses must meet three conditions:

• Actually incurred and related to business activities

• Supported by valid invoices/documents

• Non-cash payment for transactions ≥ VND 5 million

Examples of Deductible Expenses:

• Cost of goods and materials

• Salaries and wages

• Mandatory insurance

• Depreciation of fixed assets

• Utilities (electricity, water, internet)

• Rental expenses

• Outsourced services

• Loan interest for business purposes

E. Non-Deductible Expenses

Expenses not allowed include:

• Non-business-related expenses

• Expenses without valid documentation

• Owner’s personal salary

• Depreciation of non-business assets

• Administrative fines or contract penalties

• Personal or family expenses

Additionally, personal-use assets (e.g., housing, personal cars) are not deductible unless used for transportation or tourism business.

F. Important Notes When Choosing Tax Method

According to Decree 68/2026/ND-CP:

• If choosing the income-based method, it must be maintained for at least 2 consecutive years

• If applying the revenue-based method but actual revenue exceeds VND 3 billion/year → must switch to income-based method in the following year

Therefore, forecasting revenue and managing costs from the beginning is crucial.

Conclusion

Understanding the two PIT calculation methods under Decree 68/2026/ND-CP helps individual businesses:

• Proactively choose the optimal tax method

• Manage costs effectively

• Minimize tax risks during inspections

In the context of increasingly strict tax regulations, establishing a proper accounting and documentation system will help businesses optimize tax obligations and achieve sustainable growth.