In light of the economic challenges posed by the pandemic, many businesses in the Philippines have faced closure over the past three years. Companies must adhere to official protocols when ceasing operations to avoid potential penalties and legal repercussions, whether due to financial constraints, career redirection, or pursuing new ventures.
Business closure is a significant decision that can evoke emotional and stressful responses. Thus, it is imperative to handle the process meticulously to safeguard against any potential adverse consequences.
Steps to close a business in the Philippines
Bureau of Internal Revenue (BIR) Compliance:
- Filing for Closure: Companies intending to close must file for business closure with the BIR. Failure to do so may result in penalties, including fines for unfiled tax returns.
- Penalty Structure: Noncompliance penalties vary, with fines imposed for each unfiled tax return. The aggregate penalty amount should not exceed specified limits determined by the company’s tax insufficiencies.
- Documentary Requirements: Businesses must submit the following documents to the BIR:
- Two original BIR Form 1905
- Original inventory of unused sales invoices/official receipts
- Original list of ending inventory of capital goods, goods, and supplies
- Unused accounting forms, business notices, permits, and Certificate of Registration (BIR Form 2303) for destruction, witnessed by BIR personnel
- Additional requirements for authorized representatives include a Special Power of Attorney, valid IDs for individuals, and a Board resolution or Secretary’s Certificate for non-individuals.
BIR Closure Process:
- Document Submission: Upon submission of required documents, the company receives a routing sheet to obtain clearance from various BIR departments.
- Tax Audit: The BIR conducts a tax audit to identify any outstanding tax obligations or open cases that require settlement.
- Closure Procedures: To halt the generation of open cases, the BIR undertakes the following actions:
- Terminates tax types of the company
- Destroys unused accounting forms in the presence of the company or its authorized representative
- Provides Tax Clearance within ten days of completing investigations and settling accountabilities.
Local Government Requirements:
- Barangay Hall:
- Submission of valid ID and letter of request to close business
- Processing of closure requests and payment of fees
- Receipt of barangay clearance and certificate of closure.
- City Hall:
- Submission of barangay clearance, certificate of closure, book of accounts, updated business permit, financial statements, tax returns, affidavit of closure, and BIR form 2303
- Payment of fees and completion of procedures to obtain city hall clearance.
Labor and Social Security Compliance:
- Department of Labor and Employment (DOLE):
- Notification of business closure at least one month in advance
- Payment of employees’ separation pay equivalent to 1.5 months’ salary per year of service.
- Pag-IBIG, PhilHealth, and SSS:
- Alerting government agencies of impending closure to cease contributions for employees.
By following these procedures and requirements, businesses can ensure a smooth and compliant closure process in the Philippines, mitigating potential risks and liabilities associated with non-compliance.
Are you seeking help to close your business in the Philippines?
BusinessRegistrationPhilippines (Triple i Consulting) offers expert assistance for legally closing foreign or locally-owned businesses. As the pioneering ISO 9001:2008 certified company in the Philippines specializing in business registration services, Triple i boasts over 15 years of experience in Philippine tax consulting, business registration, and incorporation.
Our team comprises seasoned Philippine business strategy experts ready to provide professional guidance to investors and business managers. Let Triple i assist your company with closure, ensuring compliance and smooth transition.
Contact us via the channels below to schedule an initial consultation with one of our business closure consultants and learn more about our services: