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What Is Closure of Business
What Is Closure of Business
Bankruptcy
Debt
Not turning in a profit / business losses
Poor location
Bad business strategy
Low-quality product/service
Lower demand for the industry
Unforeseen events (pandemic, natural disasters, etc.,)
Involuntary closure
As the registered owner, if you fail to close your business properly, you could face a number
of legal issues and tax liabilities.
As mentioned earlier, you can’t simply stop operating. If your business is still registered, your
business is still operational in the eyes of the law.
When closing down your company, consulting services can prove helpful, but entrepreneurs
need to be aware of things they should and should not do.
This includes properly informing both employees and suppliers/partners about their
intentions so that any outstanding dues can be settled and other obligations fulfilled before
the company is deemed as officially closed.
In the Philippines, the complete process can take anywhere from a few months to a year,
possibly even more, depending on the situation.
If you have any outstanding issues (missed BIR filings, for example), expect it to take more
time simply because the government needs to review and settle them all before your
business can be officially recognized as non-operational.
If you’re closing down your business in the Philippines, you’ll need to provide notice
of closure and termination to employees. You should notify DOLE at least 30 days
prior to the planned date of closure. In addition, you’ll need to provide separation pay
to your employees.
Before you proceed with the steps, it’s important to note that the actual process may vary
depending on the type of business classification you have.
For freelancers, self-employed individuals, freelance business owners, and similar groups,
the Department of Trade and Industry (DTI) needs to be notified of your decision to cancel.
For businesses, organizations, and cooperatives, the Securities and Exchange Commission
(SEC) must be notified of your cancellation of business.
Steps to properly close a business in the Philippines
There are several steps required to start the process of business closure in the Philippines.
Here’s a bird’s eye view of the steps for each corresponding regulatory agency/government
unit. Note that you may or may not need to visit each entity, that depends on the type of
business you have (as explained in the previous section).
Before you visit the barangay, make sure to bring all the requirements mentioned below
along with some money to pay for any fees.
Valid ID
For Single Proprietorship :Original copy of Affidavit of Closure bearing exact date the
business was closed
For Partnership: Original Partnership Dissolution document bearing exact date of business
closure signed by all partners
Go to the Barangay hall to request a Barangay Certificate bearing the exact effective date of
closure. You must submit a Letter of Request for Retirement in order to obtain the retirement
certificate. In addition, you will be provided with a Barangay Clearance / Certificate of
Closure.
One of the first documents that you’ll be asked to provide in requesting for a cessation of
your business is an Affidavit of Business Closure. To give you an idea of what it looks like
and what it contains, here’s a sample
Business owners who want to avoid getting assessed further taxes while their business is
closed must file for Closure of Business and Cancellation of TIN with the Bureau of Internal
Revenue (BIR). All business notices and corresponding permits need to be surrendered. You
might also be required to submit an affidavit of loss if the business name certificate or a copy
of the original application form was lost.
Note: Steps may vary depending on your business location. The following are the steps to
close a business in Quezon City (QC LGU).
For businesses established in Quezon City, the City Treasury Department – Examination
Division must be contacted to declare a business closed.
1. Notice of intent to close business addressed to the City Treasurer and copies forwarded
to the Department of Business Permits and Licensing
4. Valid ID
5. Barangay Certificate (the clearance which you obtained from the first section)
According to the BIR, “taxpayers who filed for cancellation of registration due to
closure/cessation of business or termination of business shall be subjected to immediate
investigation by the BIR office concerned to determine the taxpayer’s liabilities”.
1. Visit the nearest BIR office to apply for Closure of Business and Cancellation of TIN along
with the following list of requirements and/or documents:
Unused sales invoices and official receipts (delivery receipts, purchase orders, credit
memos, etc.,)
General Steps:
Taxpayers must file Form 1905, together with the attachments, with the Revenue District
Office (RDO) within ten (10) days after the business ceases operations.
Using the Integrated Tax System (ITS), the RDO determines whether taxpayers have
open cases. If there’s any, the taxpayer will be required to submit the returns and to pay
any corresponding tax due as well as any penalties.
Taxpayers’ delinquent cases are verified through the Assessment, Collection, and Legal
Divisions of the Region. Same will be done in the Collection Enforcement Division, BIR
National Office.
A Case Officer assigned to the case will conduct investigations for the period/s covered
in the Letter of Authority.
Form 0605 is used to pay corresponding deficiency taxes resulting from an audit by the
taxpayer.
RDO updates ITS and cancels TIN of taxpayer for non-individual taxpayer.
If your business type is a partnership or a corporation, the last step is to submit your intent to
stop your business operation.
Business closure requirements of DTI for Sole Proprietors:
A completed and signed Other BN-Related Application Form specified in Annex D must
be submitted;
The owner of the BN must present one (1) valid ID according to Annex A;
Submit your declaration under oath that the cancellation isn’t intended to defraud
creditors, that the business does not have any outstanding financial obligation with
creditors, or that you have notified all creditors of the cancellation;
Presentation of the authorized representative’s valid ID when filing the application if the
application is filed by a representative;
Affidavit of Cancellation
The authorized signatory must sign the letter request (see Board Resolution for
authorized signatory)
The original of the certificate of registration for the business name and a duplicate of the
application form. The affidavit of loss (if the duplicate of the application form or the
certificate of business name was lost