How to Close a Business in the Philippines

May 9, 2023
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:
For Individuals
 Special Power of Attorney and a valid government-issued ID of the taxpayer and an
authorized representative
For Non-Individuals
 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:
o Put the tax types of the taxpaying company on the “end date”;
o 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;
o Return the destroyed accounting forms to the taxpaying company for proper
disposal;
o 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
Procedure
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
Instructions
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.