Gathering info on business closure and taxes

The user asked for a comprehensive legal article on business closure and late tax filing in the Philippines. It seems they want insights into both voluntary and involuntary closure, and how it aligns with tax laws such as VAT, income tax, and percentage tax. I'll include details on required forms like BIR Form 1905 for updates/cancellations, penalties for late filing, and due process for deregistration with BIR, SEC, DTI, and local government. I'll also explain compliance regarding employee termination through DOLE.

Researching business closure process

The user wants information on business closure in the Philippines, including tax compliance, late filing penalties, and legal procedures. I'll provide details on deregistering from agencies like SSS, PhilHealth, and Pag-IBIG, corporate dissolution processes with SEC, and tax clearance requirements. I’ll look for the latest info post-2023, especially regarding BIR tax interest and fines. This will include browsing BIR guidelines, tax filing penalties, and referencing the correct forms, and laws like RR 21-2020 and DOLE directives. I'll organize this as a legal article with citations.

Researching business closure and tax compliance

The user is asking for a comprehensive legal article on business closure in the Philippines, including deregistering from agencies like SSS, PhilHealth, and Pag-IBIG. I need to provide practical steps for compliance, including potential tax audits before closure. I'll browse for the most recent information from BIR, tax penalties, and relevant labor laws. The format will include an introduction, steps for closure, tax compliance, late filing penalties, and dealing with back taxes, along with proper citations.

Confirming interest rate update

The recent changes under TRAIN Law revised the interest rate to 12% per annum, which is double the legal interest rate set by the BSP at 6%. Some documents still refer to 20%, but this change took effect on January 1, 2018. I need to make sure I find the most up-to-date information for 2024, so I’ll search for reliable sources using queries like "interest 12% BIR 2024" to confirm.

Verifying tax rate changes

According to the TRAIN Law, the BIR interest rate is now 12% per annum, as it has been since 2023. This is double the previous legal interest rate of 6%. Additionally, I need to check the late tax filing penalties: 25% surcharge for late payments, 50% for fraudulent returns, and 12% interest per annum. Since the user requested a legal article, I’ll focus on gathering accurate, up-to-date sources for the relevant details and the penalties tied to these changes.

Confirming interest rate and LGU closure

The interest rate now stands at 12% per annum following the TRAIN Law and the change by the BSP. Some sources still cite 20%, but this was updated in 2018. I need to verify the latest rates for 2024. I also need more details on LGU business permit closures, such as how to cancel a mayor's permit. I'll search for "LGU closure business permit cancellation" to gather up-to-date guidance for that.

Verifying interest rates and business closure steps

The interest rate was updated to 12% per annum under the TRAIN Law, an adjustment from the previous 6% legal rate. Some documents still mention 20%, but the change took effect in January 2018. To ensure I'm giving the most accurate info, I'll search "interest rate 12% BIR 2024" to confirm the latest details. We also need to look into LGU business permit closure and compromise penalties for non-filers. I'll gather official references for both topics.

Discussing taxes and business closures

The article will cover early exit taxes, including VAT, final withholding tax, and capital gains tax on asset transfers. I'll explain the dissolution process, including tax audits, SEC closure versus BIR closure, and DTI regulations for sole proprietors. It will also address the handling of unused receipts, the need for BIR tax clearance, employee separation pay, and late tax filings with penalties. We may also discuss compromise penalties, late filings, and possibly share a simplified penalty computation example. The goal is to include all relevant details on business closure.

Creating a formal outline

I need to produce a detailed, formal response. Since the user gave minimal direction, I’ll keep the tone professional. I’ll start with an introduction, then dive into key laws and regulations like NIRC, CREATE, and the SEC rules on dissolution. I’ll address different entity types and types of closure. For clarity, I’ll include a step-by-step guide to compliance, from internal decisions to employee notices and termination pay in labor. I’ll make sure to write in a thorough way but include reminder disclaimers about the accuracy as of May 2025.

Gathering sources for citations

I need to gather specific sources for the article, particularly from the BIR website for late penalty information and interest rates. I also want to get the latest Deloitte highlights for 2024 to confirm the 12% interest rate. Still need to find details for RMC 46-2022 — the document content needs to be checked thoroughly. It seems the search will be more efficient than scrolling through the site directly. It's important to cite these sources clearly to ensure accuracy.

Organizing the article structure

I need to structure the article carefully. I'll cover topics like tax amnesty, common pitfalls, and practical tips for businesses closing down, such as keeping records for 10 years and not overlooking local tax clearance. The article will end with a conclusion summarizing these points. I'll also need to gather sources, such as BIR’s penalty guidelines, Deloitte highlights for 2024, and RMC 46-2022 to support claims. Accurate citations are crucial, and I need to make sure I cite appropriately for each section.

Finding relevant sources

I need to gather citations for specific claims, including the BIR late penalty information and the 12% interest rate for 2024 from Deloitte’s highlights. I haven’t yet found the content for RMC 46-2022, so I’ll try searching for it, though it may not be about closure. I'll also look for relevant circulars connected to closure, like RMO 23-2014. This search is a bit tricky, but I’ll make sure everything is well-supported with references.

Gathering sources for citations

I plan to include citations for claims, referencing several sources like the BIR's official website for penalty rates and Deloitte’s corporate summary for the 12% interest rate. I’ll also reference the DO 147-15 regarding employee closure, the SEC dissolution process, and local permit cancellation sources. It seems like these sources will back the required points efficiently. I need to ensure these topics are covered accurately and cite them properly, especially for legislative and regulatory procedures.

Gathering citation sources

I need to gather specific sources to cite for the article, including:

The BIR website for late penalty rates.
Deloitte's corporate highlights for the 12% interest rate.
DO 147-15 for employee closure processes.
Local procedures for closure and permit cancellation.
SEC dissolution and BIR requirements for document filings.

These citations will help back up the relevant points and legislative references, making sure each factual claim is verifiable by a reliable source.

Clarifying tax deregistration process

For business deregistration, there are key steps like filing Form 1905 with the BIR, handling asset-related tax returns (VAT, CGT, DST), and ensuring relevant tax clearances. Other steps involve clearance from the LGU, Barangay, and government agencies (e.g. SSS, PhilHealth), as well as reviewing late filing penalties, including surcharges and interest rates. Additionally, there are penalties for failure to comply with registration cancellation or failure to surrender unused official receipts. I might include examples for clarity on penalties.

Thought for 1m 30s

Business Closure & Late Tax Filing in the Philippines

A 2025 practitioner’s guide for owners, accountants, and counsel

1 | Key legal sources

Area	Primary Authority	Recent Issuances to Note
National taxes	National Internal Revenue Code (NIRC) 1997, as amended by TRAIN (2018), CREATE (2021) & EOPT Act (2024)	RR 06-2024 (reduced interest for micro/small), RMO 25-2024 (updated doc list for business closure), RMC 14-2024 (removal of ₱500 Annual Registration Fee)
Corporate entities	Revised Corporation Code (R.A. 11232)	SEC MC 05-2022 (streamlined voluntary dissolution)
Sole proprietorships	Business Name Law (Act 3883) & DTI BN Regulations	—
Labor	Labor Code, as implemented by DO 147-15 s.2015	DOLE notice/separation-pay rules
Local permits	Local Government Code 1991 & LGU revenue ordinances	Sample Pasay/LGU guides on “retirement” of permits

2 | How a Philippine business legally “dies”

Board/owner decision • Corporations: majority board resolution + ⅔ stockholder vote (RCC §134) • Partnerships: consent of partners or judicial decree • Sole props: proprietor’s sworn declaration
Employee-related compliance Give 30 days’ prior written notice to DOLE and each employee; pay separation pay—½-month salary per year of service if closure is not due to serious business losses (Art. 298 [Labor Code]).
SEC or DTI filing Corporations/partnerships: SEC Form D-ISS + audited FS up to cessation date, liquidator’s plan, and request for Certificate of Dissolution. Sole props: file Business-Name Cancellation with DTI online.
Local Government Unit (LGU) Surrender mayor’s/business permit and barangay clearance; pay pro-rated local business tax up to last day of operation.

BIR deregistration (critical step)

Within	Action	BIR Form	Notes
30 days from cessation	File update/cancellation	1905	Tick “Closure of Business.” Attach board resolution/affidavit, ₱2303 COR, inventory of unused receipts.
Same visit	Surrender unused OR/SI for destruction & “CANCELLED” stamp	—	Penalty: ₱20,000–50,000 + 6 mos–2 yrs jail if they leak into commerce (Sec 264, NIRC).
After filing all pending returns	Request Tax Clearance	TCFG app + RMO 25-2024 checklist	Expect field audit before RDO issues Notice of Cancellation and disables your TIN.

Other agencies Notify SSS, PhilHealth, Pag-IBIG, BOC (if importer), and PEZA/BOI if registered, to avoid continued assessments.

3 | Tax returns still required after you stop operating

Tax	Final/Short-period Return	Usual deadline
Income tax	Annual ITR covering start of fiscal year up to closure date	15th day of 4th month after cessation (Sec 52, NIRC)
VAT/Percentage tax	Last monthly/quarterly return	20th day (non-eFPS) or 25th (eFPS) following the taxable month/quarter
Withholding taxes	0619-E/F (monthly) & 1604CF/1604E (annual); file even if “0”	Regular due dates

Failing to file these—even if no tax is due—triggers late-filing penalties.

4 | Late filing & payment: the mathematics of pain

Component	Statutory Rule	Current Rate
Surcharge	§248 NIRC	25 % of tax for any late filing/payment; 50 % if return is false or fraudulent
Interest	§249 NIRC (TRAIN)	12 % p.a. (double the BSP legal interest of 6 %) —reduced to 6 % for micro & small taxpayers under RR 06-2024
Compromise	RMO 07-2015 schedule	₱1,000 – ₱50,000 (depends on tax & gross sales); halved for micro/small per RR 06-2024

Illustrative computation Unpaid VAT ₱500,000 due 25 March 2024, paid 25 May 2025 (426 days late) by a medium taxpayer: • Surcharge: ₱500,000 × 25 % = ₱125,000 • Interest: ₱500,000 × 12 % × (426 / 365) ≈ ₱70,082 • Compromise: ₱10,000 (per schedule) Total penalty: ₱205,082 plus basic tax. (If the firm qualified as “small,” interest would halve to 6 %, saving ~₱35k.)

5 | Taxes on liquidation of remaining assets

Distribution of real property → 6 % Capital Gains Tax + 1.5 % DST on deeds of assignment.
Inventory/other goods → Final VAT/percentage tax if transferred for consideration.
Foreign shareholders → 15 % final withholding on gains if tax-sparred treaty does not apply.
Share cancellations → BIR usually checks documentary stamp taxes on original issuance before it grants clearance.

Plan the liquidating steps to minimize cascading taxes.

6 | Prescriptive periods & audit exposure

Ordinary assessment – 3 years from the deadline or actual filing (Sec 203). No return/fraudulent – 10 years (Sec 222). Filing late keeps these clocks running even after the business is closed—hence the BIR’s insistence on an exit audit before issuing Tax Clearance.

7 | Special relief & amnesty windows

Program	Coverage	Effect
Voluntary Assessment & Payment Program (VAPP) – RR 21-2020	TY 2018 only	Immunity from audit upon paying prescribed percentage of gross sales/income
State-of-Calamity RMCs (e.g., 44-2021)	Extensions during COVID or natural disasters	May retroactively erase late-filing penalties if you invoke them with proof.

No general tax-amnesty bill has yet passed as of May 2025.

8 | Common pitfalls (and how to avoid them)

“We stopped years ago but never filed Form 1905.” The BIR treats you as alive; automatic penalties accrue each time a return is due. Deregister first, then tackle back returns.
Un-cancelled receipts in storage boxes. These are contraband once the business is closed; surrender and destroy them formally to avoid criminal exposure.
Local permit left open. Many LGUs bill retroactive local business tax until an approved retirement certificate is secured.
Payroll records discarded too early. Keep books & supporting docs for 10 years after final ITR filing; the SEC and BIR both use this horizon.

9 | Practical closing checklist (2025 edition)

Board/owner resolution & disclosure to stakeholders
30-day DOLE notice + separation pay computation
SEC / DTI dissolution papers filed
File all pending BIR returns up to cessation date
BIR Form 1905 + attachments lodged within 30 days
Surrender unused OR/SI, “Ask-for-Receipt” poster, and books for stamping
Apply for Tax Clearance; attend exit audit if required
Retire mayor’s permit & barangay clearance; settle local taxes
Notify SSS, PhilHealth, Pag-IBIG, BOC, PEZA/BOI, etc.
Secure clearance letters & archive them for 10 years

10 | Take-aways

Closing a Philippine business is not automatic once operations cease. Until you deregister across all fronts—BIR, SEC/DTI, LGU, and labor—the entity continues to incur filings, taxes, and penalties. Late tax filing is particularly unforgiving: a single missed VAT return can snowball into six-figure liabilities within a year. Time the closure steps, file a short-period return promptly, and keep documentary proof of every stage.

Need tailored advice? The rules above are current to May 10 2025 (UTC+08). Because penalties and documentary requirements shift with new revenue issuances, engage a Philippine tax professional before implementing a closure plan.

Prepared by: [Your Name], Philippine tax & corporate counsel