They employ millions, deliver everyday goods and services to consumers, and serve as an accessible platform for self-employment, particularly in rural or low-income areas. Yet their informality—once viewed as a strength in a transitional economy—has become a growing liability in Vietnam’s pursuit of sustainable, inclusive development.
Household businesses are typically unregistered, operate on a modest scale, and avoid the financial and legal obligations expected of formal enterprises. Most do not declare their revenues, fail to issue proper invoices, and are not subject to rigorous inspection or tax auditing. This creates an uneven playing field that distorts competition, undermines consumer protection, and leaves a significant portion of economic activity beyond the reach of policymakers. While they have contributed greatly to poverty reduction and employment, their informality is increasingly incompatible with Vietnam’s goals of transparency, efficiency and global economic integration.
One of the most damaging consequences of this informality is the proliferation of counterfeit and low-quality goods. Household businesses often act as distribution channels for unverified products—ranging from fake cosmetics and electronics to unsafe food—precisely because their operations are opaque and difficult to regulate. These goods do not typically pass through registered manufacturers or formal retailers; instead, they circulate through a vast network of informal stalls, mobile vendors and unlicensed shops. The lack of invoice declaration and product traceability makes it nearly impossible for authorities to identify the source of such goods or to hold anyone accountable. Over time, this erodes consumer trust in the domestic market and harms the reputation of legitimate producers.
At the same time, household businesses benefit from cost advantages that are not the result of superior productivity, but of regulatory avoidance. They do not pay social insurance, income taxes or environmental fees at levels comparable to formal enterprises. Nor are they required to provide employment benefits or comply with labour protections. As a result, many small and medium-sized enterprises (SMEs) that operate legally and methodically are placed under intense pricing pressure. The larger these firms grow, the more they must pay to comply with laws—without enjoying any additional competitive edge. This perverse incentive discourages formalisation and investment, and helps explain why so many Vietnamese enterprises remain small or stagnant.
Beyond these economic inefficiencies, the informal nature of the household business sector also creates a serious data gap. Because these businesses are not required to report their operations, government agencies lack accurate statistics about their number, scale, workforce or performance. This makes it difficult to design effective policy interventions or to provide targeted support, particularly in times of crisis. During the COVID-19 pandemic, for example, many household businesses were left out of relief packages because they simply did not exist in any official registry.
Recognising the structural importance of this sector—and the risks of continued neglect—Vietnam’s policymakers have begun laying the groundwork for a long-term transition. A landmark step came in 2025, when the National Assembly passed Resolution 198/2025/QH15, which requires household businesses to declare input and output invoices and abolishes the lump-sum tax regime that had allowed for broad discretion in revenue reporting. Although this reform has met with some resistance, particularly from those who fear rising costs or bureaucratic complexity, it represents a necessary shift toward transparency and legal accountability. It also signals the government’s determination to integrate household businesses into the formal economy, not only to increase tax revenue but to improve market order and consumer protection.
Still, regulation alone cannot drive formalisation. To ensure that household businesses do not see compliance as a threat, the transition must be supported by practical measures that reduce risk and increase opportunity. Financial support will be critical. Many household operators lack collateral or credit history and are effectively shut out of traditional banking services. Preferential loan packages, featuring low interest rates, flexible terms, and minimal collateral requirements, should be designed specifically for this group. Equally important is capacity building. Training in accounting, digital tools, supply chain management and customer service can help informal businesses professionalise and gradually expand.
In parallel, the state must improve its ability to monitor and enforce rules across the board. A fair market can only exist if all actors, formal and informal, are held to the same standards. That means investing in tools like electronic invoicing systems, product traceability mechanisms, and inter-agency cooperation to detect and intercept counterfeit goods. When compliance is rewarded and non-compliance penalised, the incentives to formalise will become clearer and stronger.
The broader goal should not be to eliminate household businesses or to push them prematurely into corporate structures they are not ready for. Rather, the aim is to create a supportive environment in which they can gradually evolve—first by improving transparency and accountability, and then by scaling operations in ways that contribute more meaningfully to national development. Over time, many of these businesses may mature into full-fledged SMEs, becoming a dynamic layer of Vietnam’s indigenous private sector. In doing so, they will enhance the resilience and inclusiveness of the Vietnamese economy, providing both stability and innovation at the grassroots level.
Vietnam’s household businesses have for too long operated in the shadows—ubiquitous but invisible to formal policy and institutional support. The time has come to bring them into the light. With a coherent roadmap, practical assistance and a firm commitment to competitive fairness, these enterprises can transform from informal survivors into formal contributors to growth. It is a long journey, but one that holds the promise of unlocking vast untapped potential at the heart of the Vietnamese economy.
