Closing or Retiring your Business: What are the process and requirements?

Business closure or retirement is something that no business owner wants to do. It can happen for a variety of reasons. Most of the time, it's a financial issue, such as a loss or low profits. Whatever the reason, formally closing a business in the Philippines is a must if you want to keep clean records.

In the Philippines, closing a business is a lengthy and laborious process. The requirements and processes differ depending on the type of company, city, and government agency.

Requirements For Business Closure

It's worth repeating that this only covers the fundamentals.

Different requirements apply depending on the circumstances, such as foreign-owned corporations, or if you have a PEZA registration, or if you have less than three years of operations.

Here's a list for your convenience. Please keep in mind that these are totaled across all cities. Others may add additional items, but the ones listed here are required.

Barangay

1. Barangay Clearance, latest (original and copy)

2. Letter of Request for Retirement

Bureau of Internal Revenue (BIR)

1. Letter Request stating the reason for termination

2. Original BIR Certificate of Registration

3. Books of Account / Ask for Receipts Poster

4. Inventory List of Unused Receipts / Invoices

5. Unused Receipts / Invoices for Cancellation

6. Board Resolution / Notice of Dissolution

Latest ITR with Financial Status (for 3 years)

7. Interim ITR with Financial Statement

8. Verification Slip (CMS)

Department of Trade and Industry (DTI)

1. Letter Request stating the reason for termination

2. 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

3. 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)

Securities and Exchange Commission (SEC)

If Partnership:

1. Articles of Partnership

2. Affidavit of Dissolution

3. BIR Tax Clearance

If Corporation:

1. Director’s Certificate

2. Articles of Incorporation

3. Amended Articles of Incorporation (if any)

4. Audited Financial Statements (AFS)

5. Certification by President and Treasurer

6. BIR Tax Clearance Certificate

7. Publisher’s Affidavit of Publication

8. Endorsement / Clearance from Other Departments / Government Agencies (if applicable)

9. Notarized Secretary’s Certificate

EXPECTATIONS AND REMINDER

Reminder 1: Act as if everything is operational.

You cannot simply cease operations if you are registered. Regardless of the circumstances — bankruptcy, death, etc. You will only incur penalties if you fail to comply with the government's requirements (monthly tax returns, SEC annual filing, and so on).

You are still operating in the eyes of the law (government). You are still operational if you do not complete the business closure and retirement process. And if you continue to operate while not complying with these requirements, the government will penalize you. Ignorance of the law does not excuse oneself from the law.

Reminder 2: Timeline

The entire procedure can take up to a year. Yup! It depends on the circumstances of your retirement, such as whether or not you missed any BIR filings.

The longer this takes, the more "open cases" you have.

The timeline also varies depending on the type of business. A corporation is more difficult to dissolve than a sole proprietorship.

A company that has been in operation for 5 years usually takes longer than one that has been in operation for less than a year.

Now that we've gone over the list of requirements and established some expectations, the next step is to actually process the business's closure.

BUSINESS CLOSURE PROCEDURE

The process of closing a business is commonly referred to as retiring a business. The normal procedure begins with the LGU, then the BIR, and finally the SEC or DTI.

Business Closure at the Barangay Level

The first thing you do is close your business at the barangay. It's also the simplest.

Complete the above-mentioned requirements, then go to the barangay hall where your business is registered and submit the requirements.

According to our experience, there is no form to fill out. And if they do, you should be able to do so easily because it should be available at the barangay. They will receive the files once you arrive.

On occasion, you may receive the Certificate of Closure on the same day. Otherwise, you return the following day.

When the certificate is complete, you must pay the fees before it can be released.

Business Closure at the City Level

If you have all of the requirements and receive the closure certificate from the barangay, you can proceed directly to the city hall. A form signed by the owner is required here. It is easily accessible at your registered business's city hall. After submitting the form, you must have it notarized. You submit the notarized form along with the remaining requirements. They will evaluate this and notify you if you need to offer something else. After that, you'll be given a stub with your contact information. They'll frequently set a deadline for when they'll follow up again. That's usually at least a month away. So, after the assessment is completed, you follow up and the city hall informs you that the certificate of closure is ready; you return to the city hall and pay the corresponding fees.

They will issue your closure certificate.

Again, the first reminder I gave above is important: act as if operational. If your documents became "stuck" for a longer period of time than expected and were carried over into the new year, you will still need to renew your permits. That also means that even if you are no longer in business, you continue to file zero tax returns.

Business Closure at BIR

Now that the Local Government Unit (LGU) is finished, i.e. you have the certificate of closure at the barangay and city hall, it is time to tackle the retirement at the BIR level.

The procedure is the same: gather the requirements, complete a BIR form 1905, and submit it to your RDO.

You'll be directed to the TIN Issuance group. That's where they'll get their receipts and so on.

If they have no further questions, they will give you a stamped copy of the BIR form 1905 as proof that you have already cancelled your TIN.

That is, you only stop filing tax returns at that point. Following that, you submit the remaining requirements to the RDO's examiner.

Again, in our experience, they will look over to see if you are missing anything. If not, they will tell you to contact them again in 1-2 weeks.

They check within the RDO to see if you have any open cases (or missed returns). They usually find something even if you have complied with everything.

They'll tell you, for example, that you missed the February 2551M. All you need to do is print the form you submitted and the confirmation email from eBIR Forms.

Include a copy of the bank payment slip if you paid something in the bank. Once you have everything, submit everything and wait again.

They will then transfer this to the National level. They check here to see if you have other open cases in other RDOs. The same holds true.

If they discover something, submit, comply, and wait.

If you did fail to file some returns, file the form online, print the confirmation slip, and pay the penalties at the bank. Photocopy the payment proof and submit it to the BIR.

When the national office gives the go signal, the documents are returned to the RDO. They will then issue a Certificate of No Liability.

Business Closure at SEC / DTI

We've arrived at the final stage. Take all of the requirements and submit them to the SEC and DTI.

Because most requirements were already provided during the previous steps, the SEC and DTI are unlikely to request anything new. As a result, this will be quicker.

Once again, this will be a game of waiting. It may take up to 2-4 weeks to receive the certificate.

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Written by: Jac Cantos, 2023, Upcloud Accounting