For the past three years, the pandemic has resulted in significant business losses in the Philippines, causing them to close. Some closed down completely, while others closed to change careers or create a new business venture.
As businesses close down, it is essential to note that companies should follow official protocols when closing down a business to prevent them from incurring penalties. Writing about business closure is a subject that can be very emotional and stressful for many individuals facing the challenge and all that goes with it. If you’re faced with the possibility of shutting down a business, it’s best to do it properly to protect yourself against any possible negative consequences that could happen to you.
BIR Penalties for Failure to Close a Business Properly in the Philippines
If a company has decided to close down its business but has not yet filed for business closure with the Bureau of Internal Revenue (BIR), it will still be required to file regular tax returns. Failure to file the tax returns will cause “Open Cases,” a condition that refers to the list of tax returns in the BIR labeled as “not filed” or “not submitted.”
The BIR requires a company to pay fine(s) for the open cases before it can clear the business and allow it to close. Without proper filing of business closure, fine(s) will continue to accrue, which is why applying for business closure with the BIR is essential.
Fines of P1,000 are also added for every unfiled NIL tax return, with the aggregate penalty amount not exceeding P25,000 for a calendar year. The penalty can reach P250,000 or more for companies with tax insufficiencies.
BIR Documentary Requirements for Closing a Business in the Philippines
To avoid paying costly fines, companies must file for official closure of business with the BIR. Below are the documentary requirements for filing a closure of business according to Revenue Memorandum Circular No. 57-2020:
- Two original BIR Form 1905
- The original inventory of unused sales invoices/official receipts
- The original list of ending inventory of capital goods, goods, and supplies
- Unused sales invoices/official receipts and all other unused accounting forms like credit/debit memos, delivery receipts, purchase orders, vouchers, etc., including business notices and permits and the original Certificate of Registration (BIR Form 2303) to be destroyed and witnessed by BIR personnel and officials
- Photocopy of the death certificate, in case of death of an individual
Meanwhile, here are additional requirements for those who will be using an authorized representative:
- Special Power of Attorney and a valid government-issued ID of the taxpayer and an authorized representative
- Board resolution indicating the purpose and the name of the authorized representative or Secretary’s Certificate and a government-issued ID of the authorized representative.
BIR Process on How to Close a Business in the Philippines
- After submitting documents, the taxpaying company will be given a routing sheet to obtain clearance from various departments of the BIR. This includes the Assessment Section, Client Support Section, Collection Section, and Compliance Section.
- The BIR will conduct a tax audit on the taxpaying company to find any open cases and tax obligations that need settling. The clearance could take months to years, depending on the tax audit results.
- To stop the system from producing any more open cases, the BIR will need to do the following steps:
- Put the tax types of the taxpaying company on the “end date”;
- Destroy any unused accounting forms in front of the taxpaying company or their authorized representative to ensure that the forms will no longer be used;
- Return the destroyed accounting forms to the taxpaying company for proper disposal;
- Provide Tax Clearance to the taxpaying company applying for cancellation of TIN within ten (10) days from the conclusion of investigations and complete settlement of the accountabilities.
City Requirements for Closing a Business in the Philippines
It is not enough that you file for business closure at the BIR. To close a business, a company needs to start from the lowest government office. The first step is to go to your respective Barangays and LGUs to process the closure. These are what you need to close a business in your local government:
Barangay Hall Requirements
- Valid ID
- Letter of request to close business
Head to your office location’s local barangay hall to submit all the requirements and pay the required fees. Wait to claim your barangay clearance and certificate of closure.
City Hall Requirements
- Barangay clearance
- Barangay certificate of closure
- Book of accounts
- Updated business permit
- Business plate
- Financial statement
- Most recent ITR
- Most recent VAT and OPT returns
- Notarized affidavit of closure
- Original and photocopy of BIR form 2303
- Valid ID
Go to your office location’s local city hall, submit all the requirements, and pay the required fees. Wait to claim your city hall clearance.
DOLE, Pag-IBIG, PhilHealth, and SSS
For companies that employ workers, you must send a letter to the Department of Labor and Employment (DOLE) at least a month before the planned date of a business closure. You will be required to pay employees a minimum of 1.5 months’ worth of salary for every year of service of each employee.
The next step after accomplishing requirements from DOLE is to alert Pag-IBIG, PhilHealth, and SSS of the upcoming closure. The purpose of this move is to let the said government agencies know that there will no longer be contributions from your company for your employees.
Get Help for Closing a Business in the Philippines
Get assistance for closing your business legally in the Philippines. Triple i Consultingprovides services to foreign or locally-owned firms that need help in ceasing their operations.
Triple i is the first ISO 9001:2008 company in the Philippines to offer business registration services to its clients. The service provider has extensive knowledge and skills about the Philippine taxation system, Philippine business registration, and Philippine business incorporation that dates back over 15 years.
With a team of Philippine business strategy experts who can extend professional guidance to investors and business managers in the Philippines, Triple i, can help your company apply for the closure of business.
Learn more about our services by contacting us here, filling out the form below, calling us at +63 (02) 8540-9623, or emailing us at firstname.lastname@example.org to book an initial consultation with one of our business closure professional consultants.