Starting, formalizing, legalizing, and registering a business in the Philippines could take time depending on the type of your company. But if the process of business registration takes time, business closure or cessation is even more difficult and could take longer time to actually accomplish, depending on the status of the business.
There are many reasons why a certain business will come to its end. It could be that the business is already causing the owner significant losses and decided to just stop the business or it could be that the business needs to be terminated in order to transform into a new type of business. Not all business closure brings negative news. For example, a single proprietorship business that is transforming into a corporation is required to be closed as a proprietorship. Thus, business closure could also mean expansion.
The process of business closure in the Philippines depends on the type of the company to be ceased. For corporations and partnerships, they should be formally close in the Securities and Exchange Commission (SEC) where they are also registered, unlike sole proprietorship businesses that are not. There are also businesses that should comply with the closure requirements of other government agencies, where they are specially regulated. For example, pawnshops are also required to be closed in Bangko Sentral ng Pilipinas (BSP), where they are also governed or regulated.
Businesses can also be closed voluntarily or involuntarily. Voluntary closure generally means the business owner close the business in his or her own will, usually complying with applicable business regulations. On the other hand, involuntary closure means the business is closed due to events, such as failure to comply with the law or regulations and the government or court has ordered to close the business. In this article, we assume that the business owner is voluntarily closing the business.
Usually a business should be closed in the following government agencies/offices.
• Department of Trade and Industry (DTI) office
• The local City/Municipal Office, where the business is registered
• Department of Labor and Employment (DOLE) office, if the company has employees
• Bureau of Internal Revenue (BIR) office
• Bangko Sentral ng Pilipinas (BSP), if the business is registered with the office
• Securities and Exchange Commission (SEC) for partnership and corporation
• Other agencies or offices where the business is registered, such as SSS, PHIC and HDMF
To guide you on the formal cessation of your business, here are some of the basic steps, procedures and requirements on how to close a business in the Philippines.
Closing a business at DTI
According to the DTI, we still have to inform the office when we voluntarily close our business, and apply for cancellation of our registered business name (BN).
For Sole Proprietor, the following are the requirement for Voluntary Cancellation.
• Letter request signed by the owner
• Affidavit of cancellation of the registered BN, stating the reason/s for the cancellation and that the registered owner has no outstanding financial obligation at the time of closure of establishment
• Original copy of the BN certificate and the duplicate copy of the application form (affidavit of loss if either the business name certificate and/or the duplicate copy of the application form was lost)
For Corporation and Partners, the following are the requirements for Voluntary Cancellation.
If dissolved at the Securities and Exchange Commission (SEC),
• Letter request signed by the authorized signatory (Board Resolution for the authorized signatory)
• Certified photocopy of the SEC certificates of dissolution of the corporation/partnership
• Original copy of the business name certificate of registration and the duplicate copy of the application form. (Affidavit of loss if either the business name certificate and/or the duplicate copy of the application form was lost)
If BN Registration Only,
a. Corporate Name:
• Letter request signed by the authorized signatory (Board Resolution for the authorized signatory)
• Board resolution/partnership agreement for the cancellation of the registered business name stating that the Corporation/Partnership is retiring from business; surrendering the business name certificate for cancellation and that at the time of closure of establishment the business has no outstanding financial obligation, or a certified copy of the Certificate of Dissolution (if applicable)
• Original copy of the business name certificate and the duplicate copy of the application form (Affidavit of loss if either the business name certificate and/or the duplicate copy of the application form was lost)
b. Adopted Name:
• Letter request signed by the authorized signatory (Board Resolution for the authorized signatory)
• Board Resolution/Partnership agreement for the cancellation of the registered business name, stating the reason/s for the cancellation that the corporation/partnership has no outstanding financial obligation at the time of closure in connection with the operation of the said business and if there were creditors copy of notice to them
• Original copy of the business name certificate and the duplicate copy of the application form (Affidavit of loss if either the business name certificate and/or the duplicate copy of the application form was lost)
Closing a business at the local City/Municipal Office
The procedures and requirements on closing a business may vary among different LGUs (Local Government Units). This means that the requirements for business cessation in Makati City can be different in Manila or Pasay City. The typical requirements for business closure at the LGUs are the following:
• Affidavit of Gross (reason for and date of closure)
• Mayor’s Permit
• Business Plate
• Financial Statement/ ITR
• Sketch
• Latest Payment
• Certificate of Closure from the Barangay Captain indicating date of closure
For more complete and accurate procedures and requirements, you may visit and inquire the City or Municipal Office where your business is registered.
Closing a business at DOLE
If your business has employees or was required to be registered with the DOLE, you also have to ensure that you notify the DOLE office and comply with the labor requirements to avoid labor relation liabilities. The following are the basic requirements in closing a business and be cleared at the DOLE office:
• Service of a written notice to the employees and the DOLE at least one (1) month before the intended date of closure/cessation
• The closure or cessation of business operations is bona fide in character.
• Payment to the employees of termination pay amounting to at least one-half (1/2) month pay for every year of service, or one (1) month pay whichever is higher, per Philippine Labor Code mandate.
Closing a business at the BIR
The process of business cessation at the BIR is perhaps the most tedious one among others. And if you have unpaid tax liabilities or delinquencies due to the government, the process could even get more problematic. Among the government offices, where your business is registered, the BIR is the one which records and monitors your internal revenue taxes, such as income and business taxes (Value Added Tax or Percentage Tax). And to formally close and clear your business with the BIR, the bureau has to ensure that you have already paid all your tax obligations.
BIR Form 1905 (Application for Registration Information Update) is the tax form used in applying for closure of a business. The following are the requirements and procedures for closure of business at the BIR.
Documentary Requirements
1) Letter of request stating reason for termination of business
2) Original Certificate of Registration
3) Books of Accounts
4) Inventory List of Unused Receipts and Invoices
5) Unused Receipts and Invoices for cancellation
6) Board Resolution / Notice of Dissolution (if Corporation / Partnership)
Additional Requirements in Case of Death of Individual Taxpayer:
1) Death Certificate
2) Payment of Estate Tax, if any
Procedures
1) Taxpayer applicant files BIR Form 1905, together with the attachments at the RDO where they are registered within ten (10) days from retirement of business.
2) Taxpayer files short period return for income tax purposes.
3) RDO verifies if taxpayer has open cases reflected in the Integrated Tax System (ITS). If YES, ask taxpayer to submit required returns and pay the corresponding tax due/s and penalties if any.
4) RDO verifies if taxpayer has delinquent cases at the Assessment, Collection, and Legal Divisions of the Region;
5) RDO verifies if taxpayer has delinquent cases at the Collection Enforcement Division, BIR National Office
6) RDO requests for Letter of Authority to investigate internal revenue taxes for all un-audited taxable years prior to cancellation of business.
7) Assigned Case officer conducts investigations for period/s covered in the issued Letter of Authority.
8) Taxpayer complies with requirements of audit and pays corresponding deficiency taxes resulting from audit using Form 0605.
9) RDO issues tax clearance for closure of business.
10) RDO updates ITS and cancels TIN of taxpayer (for non-individual taxpayer).
Closing a business at SEC
For corporations and partnerships, they cannot process closure of business with the SEC if they are not yet done in securing tax clearance from the BIR and endorsements or certificate of registration cancellation from other government offices, if applicable. Thus, even though the business is already non-operating, it still remains as a registered business. Though, the business owners, partners, or shareholders can already start the liquidation process of its assets, subject to applicable taxes.
For corporations, corporate dissolution can be voluntary or involuntary. In this discussion, we assume that we are voluntarily dissolving a corporation. Moreover, voluntary dissolution of a corporation may have different procedures, depending on whether the dissolution will affect creditors or not. One way to voluntarily dissolve a corporation with the SEC is by shortening its corporate term. The following are the requirements for corporate dissolution by shortening its term.
1. Directors’ Certificate – A Notarized document signed by majority of the directors and corporate secretary certifying the amendment of the articles of incorporation shortening the corporate term, the votes of the directors and stockholders thereto, and the date and place of the stockholders meeting
2. Amended Articles of Incorporation
3. Audited financial statements as of date of the stockholders meeting approving dissolution or any date thereafter
4. List of creditors, if any, and their consent, or certification as to non- existence of creditors
5. BIR Tax Clearance
6. Publisher’s affidavit of the publication of the dissolution of the corporation (once a week for three (3) consecutive weeks)
7. Endorsements/clearances from other government agencies, if applicable
Take note that if there are creditors and their consent was not secured, the application should be in the form of a petition to be filed with Office of General Counsel of the SEC.
Other notes to remember
When closing a business in the Philippines, we have to formally close the business in the government agencies where it is registered. We have to notify those offices and comply with their requirements to get a clearance or certificate of termination (cancellation of registration) of our business. Thus, a business owner has to ensure that his or her business is cleared in every government agency it is registered aside from the ones discussed above.
For businesses registered and regulated by the Bangko Sentral ng Pilipinas (BSP), such as pawnshops, money changers, banks, and financing companies, they have to comply with the closure requirements of the office. For cooperatives, instead of closure at the SEC, it should comply with the CDA (Cooperative Development Authority) Office for cessation or dissolution.
Furthermore, if your business employs people and is contributing to SSS (Social Security System), PHIC (Philippine Health Insurance Corporation) and HDMF (Home Development Mutual Fund) for employees as mandated by our laws, then you also have to apply for cancellation of your business or employer’s registration when you close your business to stop your obligation as a contributing employer.
Reference:
Department of Trade and Industry, Security and Exchange Commission, Bureau of Internal Revenue, Philhealth, Social Security System, Department of Labor and Employment, Department of Interior and Local Government, Bangko Sentral ng Pilipinas
Disclaimer: This article was written and published for informational use only. There may be other important information that we might have missed to discuss in relation to the topic discussed above. Furthermore, new and subsequent rulings, issuances, laws, and mandates related to the topic that will occur in the future may render the whole or part of the article obsolete or inaccurate. Moreover, the content in this article is not provided to serve as legal, tax, or investment advice. Hence, we do not guarantee and is not liable for the accuracy or completeness of any information provided herein or in any outcome as a result for using this information.
Victorino Q. Abrugar is a marketing strategist and business consultant from Tacloban City, Philippines. Vic has been in the online marketing industry for more than 7 years, practicing problogging, web development, content marketing, SEO, social media marketing, and consulting.
hi sir/anyone,
hoping anyone could clarify please. We have a franchise business and we decided to return it last august 2016. As per this writing, our accountant told us that we have to pay hundreds of thousands for the Local business tax for 2016 before the city hall could issue business clearance. My question is, we file bankruptcy last Aug, then why are we going to pay still the LBT which has the same amount paid last 2015. Is it legit or our accountant made it up? Please anyone help.
Thank you. BTW, business location is Manila.
Sir, wala po bang data ung BIR regarding sa mga receipts mo na binayaran every month? Mag close na po kasi sana ung Bakery namin. Pero na misplace po ni mama ung ibang resibo. Updated o nagbabayad naman po si mama monthly sa BIR nang municipyo namin. Pro ang sabi daw po, babayaran pa ulit ni mama ung mga buwan na namisplace nya ang resibo nya. Kasi di rin po namin alam na kailangang itago ung receipts. 2012 pa nag start ung business ni mama at ung ibang resibo nya, di na nya mahanap. Prang unfair naman po kasi na nagbabayad ka naman monthly, tapos nawala mo lang ung resibo pababayarin ka pa ulit. Is there any way po ba pra ma waive un? Wala po ba silang record pra doon? Sana po matulongan mo kami. Thank u po.
Is there any format or downloadable sample of certificates of dissolution of the partnership?
is it different from the resolution of partnership that BIR requires?
Hi! Good day,
I am currently connected in an international NGO. Last December 15 our organization had decided to end the contracts of all staff for reason that there were no more donors interested in our project proposals. I was the only one extended to represent the organization as we will be processing its eventual closure. During the process I was confused between this term: Dormant Compliant feed by our HQ. What does this mean? Are the process and requirements lighter than that of closure?
Thanks in advance for enlightenment that you can provide.
Hi Jo Ann Grace,
The best way to enlighten us with regard to this matter is to personally visit the BIR or the applicable government agency and inquire them. Honestly, I have not encountered that yet, but for just a quick idea, I think Dormant Compliant is different from a permanent business closure, as the first may give the business the option to resume again once it decides to operate again. Accordingly, its requirements may be lighter than the requirements in a permanent closure. Again, I recommend that you personally visit the BIR to be enlightened, not only with that matter, but also with other related matters.
We formally close our business last 2013, lgu, dti, and bir. We pay for our open cases (BIR) amounting 8k, then last 2016 nakatanggap ako ng notice, i still have open cases, bayad ulit ako, sabi na “in date” na. then kahapon another open cases, sakit sa ulo talaga c BIR. Tinanong ko ang examiner if wala na bang darating in the future, sagot : depende sa system, hindi ako ang may hawak non.
Feeling ko even if u already submit your cessation letter and comply all requirements for closing the business, mag pa file pa rin ng monthly percentage, quarterly and annual ( No income ) forms?
To avoid future penalties while your business is not yet formally closed with the BIR, just file the BIR returns applicable to you, with zero income or no operations. BIR may also require some documents that your business is already not operating so please inquire further for this.
for closing of business in LGU. registeres in city hall do the owner of business need to pay one quarter of annual tax?
Hi. Different LGUs have different ordinances and computations of business taxes. We cannot really give some answers unless we see the assessment given by your LGU.
Hello, hope you will answer my query. I closed my business August 4. Should I file pa ng 3rd quarter ng tax? covering July?
Thank you very much!
There should be a certificate/clearance of closure. If the application for closure is not yet approved, then perhaps it’s safe to file current tax return. There are instances where taxpayers were penalized by the BIR for not filing tax returns even though they have already applied for closure since they have not yet formally closed. Please clarify this with the BIR in your RDO to avoid future penalties, like compromise penalty.
good day sir.. nagtry po kami mag open ng business last december and naregister po until manila city hall lang po…. then hindi na po naregister until sa BIR… and ever since makuha ung business plate sa city hall.. hindi na po namin nagamit ung business… for some reason… need pa po ba namin mag punta ng BIR to cancel ? or DTI / BRGY / MANILA CITY HALL nalang po kami mag file ng closure? thank you po
Since, there is no registration with the BIR, then there is no cancellation of registration with the BIR. However, the BIR might imposed a penalty on the business for not registering with them within 30 days from the DTI registration. Also, make sure that the business did not really start operations, because if it did operate, then taxes might be payable with the BIR.
Hello, pwede po ba itemporarily close yung business, ex mga 2 months mo papaclose then after proceed ka na ulit.
Pwede rin po ba pacancel mayors permit at bir, pero di papacancel ang dti?kasi plano ko pa rin ideretso change of address na lng.
Lastly, ano po magiging penalty kung
1. Expiration of bir, mayors permit end of 2017, pero yung lease of contract ayaw ko na ituloy kasi nagmahal ng singil yung nagpaparenta.
Thank you
Hello closing a business requires long process. If you’re not operating for only 2 months, then you will just file BIR returns without no income or no operation if that’s the case. You will need to file returns as usual, but not payment since you will have no operation or income as you said. But you still need to renew your BIR registration and Mayor’s permit and pay annual registration fees.
What if I want to restructure my company to make my current employees (only 3 left) to be a consultant? I am closing my office but I want to retain my employees to work from home and just pay them by the hours worked with no more benefits?
We do online work but it’s no more sustainable. I want to close pero sayang naman ang natitirang clients and also to give the employees income while meron pa naman.
How to properly address this?
Thanks po for your advice.
In that case, you have to terminate the employment of your current employees so they can work with you as professionals instead of as employees. However, since the termination of their employment is not due to their voluntary resignation, you will be required to pay them separation pay and other benefits according to the law. Once they are not already employees, they can still work with you as self-employed professionals/freelancers (no employer-employee relationship). However, you are still required to withhold their tax and remit to the BIR using monthly BIR Form 1601E – expanded withholding tax. But since they are not already your employees, you are not already required to give them employee benefits, such as contributions on SSS, Philhealth and Pag-ibig.
Hello sir, may registered business po ako (sole) since last year pero di ko narenew para netong taon kasi wala ako mahanap na space na bago. Hanggang naisip ko na lang po na mag-aplay ulit as normal employee at natanggap na ko, then kailangan ilipat rdo ko.
Ano po ba gagawin ko?
Yung plano ko kasi temporary closure lang tapos magttrabaho muna ako, pag nakaipon konti baka derecho ko ulit. Pwede po ba yon?
Or kailangan ko na talaga sya irequest na ipasara?
Thank you.
hi sir,
Business was registered with DTI and Barangay for 5-6months already, but the business never started/operated. Also, started applying for Mayor’s Permit, submitted only application form for assessment but did not continue submitting docs at LGU (so, no Mayor’s Permit). Does that mean, I should cancel my registration with DTI and Barangay only?