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Shadow to Structure: Vietnam’s Next Step in Economic Transparency
If you’ve ever had a bowl of phở in Hanoi’s Old Quarter, chances are you paid in cash or made a quick bank transfer to a personal account.
There’s no receipt, no mention of a company name—just a delicious meal and a simple, familiar way of doing business.
Behind that simplicity, though, lies a broader story. Vietnam’s informal economy—often referred to as the shadow economy—is estimated to make up around 25% of the country’s GDP, one of the highest levels in Asia. A large share of this comes from household businesses, which are taxed under a fixed presumptive system, and whose real income often goes underreported due to the nature of how transactions are handled.
Recognizing the need for change, Vietnam is implementing measures to encourage these household businesses to formalize:
◾ Elimination of Presumptive Taxation for Sizeable Household Businesses: Starting January 1, 2026, those operating in sectors such as F&B, hospitality, and retail with annual revenues exceeding VND 1 billion will no longer be subject to the presumptive tax regime. Instead, they will be required to adopt standard tax reporting practices in line with formal enterprises.
◾ Tax Incentives for New Enterprises: Under Resolution 198/2025/QH15, newly registered small and medium-sized enterprises (SMEs) will be exempt from corporate income tax for the first three years of operation.
These initiatives aim to gradually integrate household businesses into the formal economy, enhancing transparency, improving tax compliance, and providing better access to financing and growth opportunities. By moving larger informal operators into the standard tax system, the reforms are expected to reduce the size of Vietnam’s shadow economy and help GDP figures more accurately reflect real economic activity. However, it’s important to note that the shadow economy remains a part of daily life, even in developed markets.
