The pressing need for transformation

Currently, Viet Nam has more than 5 million household businesses, contributing approximately 30% of GDP and creating over 10 million jobs. However, most of this sector remains unaccounted for in official statistical systems and contributes only about 1.6% of total state budget revenue.

The transformation from household business to enterprise has been encouraged by the state for many years, but the implementation progress remains limited. This is mainly due to legal barriers, operational costs, management capacity, and a lack of digital tools suited to the capabilities of small-scale businesses.

In fact, a large number of household businesses in Viet Nam have reached the size of small and medium-sized enterprises. There are millions of trucks transporting goods and passengers under household business licences; tens of thousands of restaurant chains generating billions of Vietnamese dong in monthly revenue and employing hundreds of workers; and many production households, e-commerce shops, and agricultural farms operating complex business models with high turnover, yet they are still classified as household businesses due to the absence of a simple, safe, and gradual transformation mechanism.

Household businesses account for nearly 60% of the GDP of the private sector, yet they contribute only about 5.3% of the tax revenues generated by this sector. In reality, although they make up the majority of the private sector’s GDP, their tax obligations remain very limited, leading to long-term revenue losses and reduced resources for public investment and social welfare.

Although household businesses currently contribute around 30% of GDP, most of their activities are not fully reflected in official statistics due to a lack of invoices, bookkeeping, and financial control. Once transformed into enterprises, all economic activities will be transparently recorded, thereby improving the accuracy and reliability of actual GDP indicators and enhancing macroeconomic policy-making capacity.

At present, household businesses contribute only about 1.6% of total state budget revenue, mainly through fixed tax schemes. Once transformed into enterprises, they will be subject to value-added tax, corporate income tax, personal income tax, and social insurance contributions, thus broadening the sustainable tax base, reducing the burden on existing enterprises, and helping to increase state revenue in a fair and transparent manner.

Operating under the enterprise model will also facilitate household businesses' access to credit, digital technology, and the application of science and technology in production and business operations, ensuring more transparency and professionalism.

The transformation into enterprises will promote labour contract agreements, social insurance, and health insurance participation, thereby ensuring full protection of workers' rights. This will also help in reducing informal employment rates and improving the overall quality of the national labour market.

The expansion of the formal economy will help Viet Nam enhance its financial transparency and business environment indices, strengthen national credibility, and attract higher-quality foreign direct investment (FDI).

While the private enterprise sector contributes around 8% of GDP, the household business sector contributes up to 30% of GDP, yet it receives relatively little corresponding development policy support. This highlights the urgent need for a new, flexible, and effective approach to upgrading household businesses into a formal enterprise force within the national economy.

If the transformation of over 5 million household businesses into enterprises is implemented systematically, with proper supervision and support, Viet Nam’s economy will experience substantial positive changes with long-term strategic implications.

The Politburo’s Resolution No. 68-NQ/TW (dated May 4, 2025) on private sector development clearly states: “Review and improve the legal framework on household business; minimise disparities; and create all favourable conditions in management structures, financial and accounting regimes to encourage household businesses to transform into enterprises. Promote digitalisation, transparency, simplification, and ease of compliance and implementation in accounting, tax and insurance systems to encourage household businesses to shift towards operating under the enterprise model.”

Therefore, establishing a suitable economic model to help more than 5 million household businesses transform into enterprises is necessary and aligns with the Party’s guidelines and policies.

Proposal for digital cooperative model

According to researcher Nguyen Xuan Tuan from the Institute of Educational and Environmental Sciences, in order to realise the goal of developing 1.5 million enterprises by 2030, it is essential to establish an intermediary model that both enables household businesses to operate according to enterprise standards and reduces the risks and costs associated with conversion.

“Therefore, we have submitted a proposal to the prime minister for a digital cooperative model — an intermediary organisation applying digital technology, with the aim of supporting household businesses to digitise their operations; jointly operating accounting, taxation, and invoicing; setting up e-wallet accounts linked to the cooperative to ensure transparency of cash flow and promote cashless payments; creating platforms for market, technology, and finance connectivity; and, importantly, gradually converting household businesses into companies within the cooperative in a natural, safe and sustainable manner.

The model of developing companies within digital cooperatives is not only a restructuring approach for the informal economic sector, but also a progressive step in the strategy of developing a modern, organised and integrated private economy, in line with the direction of the Party, State and Government of Viet Nam.

Digital cooperatives help reorganise the household business sector in a controlled, digitised and transparent manner, with a roadmap for soft conversion into enterprises once conditions are met. These digital cooperatives involve the participation and linkage of the following three components:

The Researchers: Including institutes and research centres that gather leading experts to design governance models and economic development plans based on knowledge, science and technology, and risk response scenarios.

The People: Household businesses participating in digital cooperatives — a modern, flexible form of collective economy that helps professionalise and make transparent their production and business activities.

The Investors: Members and companies within the cooperative who also contribute capital and resources to build and develop the shared economy.

These three actors form a linked ecosystem, with shared ownership, shared management and shared benefits, all based on a knowledge economy foundation.

The cooperative acts as a digital platform that household businesses can join, from which they gradually transition into enterprises within the cooperative framework. Inside the cooperative, research institutes and technology application centres provide support in governance models, digital techniques, innovation and market access.

Supporting the household and cooperative economy will create a new reality: once appropriate incentive policies are established, household businesses will tend to join forces to establish cooperatives as a form of collective economic organisation.

If well-structured, with research institutes, technology application centres, digital transformation capacity, and the ability to utilise digital economy tools for member management, cooperatives will become ecosystems that lift household businesses to new heights.

From this foundation, cooperatives will serve as intermediaries that gradually help household businesses convert into enterprises while maintaining their linkages within the cooperative. This is the pathway for soft conversion, enabling the development of the enterprise sector while preserving the community-based and sustainable nature of the cooperative economy.

Household businesses joining digital cooperatives is a highly potential solution, well-suited to the realities in Viet Nam, especially as most household businesses hesitate to transition into enterprises due to numerous barriers. This is a “smart intermediary” between household businesses and enterprises, enabling millions of household businesses to gradually enter the digital economy and the formal sector without being forced into or burdened by administrative procedures.

Digital cooperatives operate under the Law on Cooperatives, combined with digital technologies to provide members (household businesses) with services such as digital accounting, issuing invoices on their behalf, electronic contracts; individual sub-wallets within the cooperative’s account to ensure transparent transactions; tax advisory, model conversion guidance, and management skills training; and banking linkages to build credit histories for household businesses. The solution still preserves the essence of the household business and avoids the psychological barrier of “fear of becoming a company.”

Household businesses benefit from the shared digital infrastructure of the cooperative, which can provide technology platforms, software for managing sales, inventory, orders and invoices; payment gateways and e-wallets (supporting credit access, buy-now-pay-later, peer-to-peer lending); internal e-commerce platforms; and consulting services for legal, tax, marketing, and logistics.

They also benefit from shared technology infrastructure to reduce costs, such as using the cooperative’s systems (technology, accounting, legal, logistics, advertising, etc.); negotiating wholesale prices together; sharing premises; and registering collective or individual trademarks.

The operational mechanism of the digital cooperative model can be privately initiated or jointly established by the State and the private sector. The cooperative operates through a digital platform (app/web), digitising the entire activities of household businesses; it has units for accounting, legal, technical, and marketing services for members to choose from; it applies technologies such as digital signatures, e-wallets, electronic contracts, and e-invoices. The cooperative raises funds and mobilises social capital in accordance with state regulations to establish start-up investment funds for household businesses and convert them into enterprises within the cooperative.

In the coming time, it is proposed that relevant authorities allow for research and pilot implementation of the digital cooperative model to support the soft conversion of household businesses into enterprises, contributing to expanding the formal economy, promoting digital transformation and developing a modern collective economy.

If successfully implemented, the digital cooperative model is expected to help more than 5 million household businesses convert into enterprises by 2030, contributing to GDP growth, expanding the state budget revenue base and creating millions of jobs for society.