Closing a Sole Proprietorship in the Philippines: BIR and DTI Closure When Records Are Incomplete

This article provides general legal-information for the Philippine context. It is not a substitute for tailored advice from your lawyer or tax professional.

Overview

Shutting down a Philippine sole proprietorship involves two distinct tracks:

BIR (Bureau of Internal Revenue) — to retire/deregister your tax registration and stop future filing obligations, and
DTI (Department of Trade and Industry) — to cancel the business name registration.

In practice, local government (barangay and city/municipality) retirement is often requested by the BIR as supporting proof that the business has ceased. While this article focuses on BIR and DTI, expect to gather LGU retirement documents when you deal with the BIR.

When books, receipts, or returns are missing, you can still close the business, but you’ll need to reconstruct records as best you can, swear affidavits for losses, and settle any open tax exposures.

Part I — BIR Retirement of Business

A. Goals and Outcomes

Stop future filing obligations (monthly/quarterly/annual returns).
Deregister as VAT or Percentage Tax taxpayer, and as Withholding Agent if applicable.
Cancel ATP/permit for receipts/invoices, and your BIR Certificate of Registration (2303).
Settle any open liabilities and obtain proof of deregistration from your RDO (Revenue District Office).

B. Core Forms and Typical Supporting Papers

BIR Form 1905 — Application for Registration Information Update/Correction/Cancellation (tick “cancellation of registration/closure”).
BIR Form 1905 attachments, typically:
- Original Certificate of Registration (BIR 2303) for surrender.
- Inventory and surrender of unused Official Receipts/Sales Invoices (and/or letter explaining loss/unavailability).
- Books of accounts (manual/loose-leaf/CRM system permit), or Affidavit of Loss if missing.
- Latest filed tax returns and proof of payment.
- LGU retirement documents (Barangay clearance, City/Municipal closure/retirement certificate), if the RDO requires them.
- Valid ID of the proprietor; SPA if filed by a representative.
- If proprietor is deceased: Death Certificate, proof of authority of the administrator/executor/heir, and Estate TIN (if applicable).

Note: Specific RDO checklists vary; ask your RDO for its current list. Bring extra photocopies.

C. Filing Steps (Typical Sequence)

File a “Notice/Intent to Close” via BIR Form 1905 with your RDO.
- Do this promptly after cessation of operations.
- Surrender the BIR 2303 and any unused receipts/invoices.
- If you cannot surrender receipts or books, attach Affidavit(s) of Loss (see templates below) and begin reconstruction (see Section E).
File short-period/final returns up to cessation date and settle taxes due.
- Income Tax (BIR 1701) for sole proprietors (short period if ceasing mid-year).
- VAT (2550Q) or Percentage Tax (2551Q) up to cessation date.
- Withholding Tax returns (if registered as withholding agent) and alphalist submissions.
- Annual Information Returns (e.g., for taxes withheld), if still required for that final year.
- Pay surcharges/interest/compromise where late or missing.
Respond to “Open Cases/Delinquencies” that the RDO identifies.
- The RDO will check stop-filer/open-case lists for missing returns.
- You may need to file substitute/estimated returns using reconstructed data (see Section E).
Turn over and cancel ATP/receipt permits (or support with Affidavit of Loss).
- Submit an Inventory of Unused Receipts/Invoices.
- If none remain or they’re lost, explain in detail (circumstances, last known serials if remembered, efforts to locate).
Deregistration as VAT/Percentage/Withholding Agent.
- Ensure 1905 covers all tax types you were registered for.
- For VAT deregistration, the RDO may ask about capital goods disposition and any output VAT implications.
Secure proof of closure/deregistration from the RDO.
- Keep the RDO’s acknowledgment and any order/notice that confirms closure, for your records and DTI/LGU use.

D. Common Issues and How to Handle Them

Missing 2303, books, or receipts Use Affidavit of Loss + reconstruction (see E). Expect compromise penalties for record-keeping lapses.
No returns filed for months/years File the missing returns using reconstructed figures. Penalties apply. If assessments were issued, you may need to protest or settle per BIR rules and timelines.
Different RDO than expected If you moved without updating registration, you may have filings across RDOs. Coordinate to transfer or close where registered; follow your current RDO’s instructions.
Deceased proprietor Closure proceeds through the estate representative. The estate may need its own TIN, and the representative signs forms and affidavits.

E. Reconstructing Records When Incomplete

When books, receipts, or returns are missing, the BIR expects good-faith, best-effort reconstruction:

Bank statements and passbooks — incoming deposits as proxies for sales; withdrawals/cheques for expenses.
Supplier and customer confirmations — statements of account, copies of invoices, delivery receipts.
Third-party certificates — BIR 2307 (tax withheld by clients) to evidence income; loan statements; lease contracts.
E-mails and digital trails — order confirmations, POS exports, accounting system backups (if any).
Inventory lists at cessation date — even if estimated; support with purchase records and sales trends.
Payroll records (if any) — payslips, SSS/PhilHealth/Pag-IBIG remittances (also helps reconcile withholding tax).
Affidavits detailing gaps, methods, and assumptions used.

Document your methodology and keep a reconciliation file tying reconstructed figures to source documents. The more transparent and traceable your reconstruction, the smoother the review.

F. Penalties and Exposure

Surcharge and interest for late or unfiled returns.
Compromise penalties for:
- Failure to file returns,
- Failure to keep/preserve books and invoices,
- Late registration updates, etc.

If assessments have been issued, you must follow protest/appeal procedures within statutory timelines.

Part II — DTI Business Name Cancellation

A. What DTI Cancellation Does (and Doesn’t Do)

Cancels the right to use the registered business name going forward.
It does not by itself close tax obligations or LGU permits; those track through BIR and the LGU.
DTI may require proof that the business has ceased operations and that you are the registrant or authorized representative.

B. Typical Requirements

Application for Business Name Cancellation (filed online via BNRS or at a DTI office).
Valid government-issued ID of the proprietor.
Letter/Declaration of Cessation (stating date of cessation and reason).
Supporting evidence that the business has closed (e.g., LGU retirement, BIR acknowledgment of closure filing).
Special cases:
- Deceased owner — death certificate and proof of authority of the heir/administrator.
- Lost ID or documents — Affidavit of Loss.
- Representatives — SPA or authorization letter with IDs.

Fees are modest; the BNRS system typically issues an acknowledgment of cancellation.

C. Filing Steps

Prepare your cancellation request with ID and supporting documents.
File via BNRS (online) or DTI office.
Track and secure the DTI Cancellation Acknowledgment; keep it on file with your BIR/LGU closure papers.

Practical Sequencing (BIR & DTI, with LGU Touchpoints)

Although there’s no single mandated “national” sequence, a practical order that reduces pushbacks is:

Barangay clearance for closure (if your LGU requires),
City/Municipal Business Permit retirement (secure Certificate/Order of Retirement),
BIR: file 1905, surrender/cancel receipts, file final/short-period returns, settle, and obtain proof of deregistration/acknowledgment,
DTI: cancel the business name using your BIR/LGU proofs.

If your RDO allows you to proceed without LGU retirement, you may do BIR first, but many RDOs will still ask for LGU proof.

Special Situations

1) No Books and No Receipts at All

File 1905 with Affidavit of Loss (books/receipts) and begin reconstruction from bank statements and client/supplier documents.
File substitute returns based on reconstructed data.
Expect compromise penalties for failure to keep books/receipts.

2) You Never Registered Books or ATP

Disclose the lapse in your cover letter and affidavit.
Reconstruct sales/expenses; file late returns; settle penalties.
Proceed with BIR deregistration; RDO may require additional explanations.

3) VAT Deregistration and Capital Goods

If VAT-registered, assess whether output VAT arises on remaining inventory/capital goods upon deregistration; discuss with the RDO.

4) Employees and Final Payroll

Process final pay and withholding/Alphalist if applicable.
While outside DTI/BIR cancellation per se, open payroll issues can delay clean closure.

5) Proprietor Deceased

Act through the estate representative; present authority documents.
Consider estate tax implications separate from business closure.

Timelines and Record-Keeping

Notify BIR promptly after cessation to minimize accruing penalties.
Keep all closure documents (DTI, BIR, LGU acknowledgments, affidavits, bank statements, reconciliations) for at least five (5) years from the last entry/return filed.

Templates (Editable Samples)

Use your full legal name, correct dates, TIN, RDO, business name, and addresses. Notarize where applicable.

A. Cover Letter to the RDO (Closure with Missing Records)

Date: [__________]

The Revenue District Officer
BIR RDO No. [__]
Address: [________________________]

Re: Application for Closure/Deregistration – [Business Name], TIN [_________]

Dear Sir/Madam:

I ceased operating my sole proprietorship on [date]. I am filing BIR Form 1905 to cancel my registration, including [VAT/Percentage Tax/Withholding] as applicable. I enclose available returns and LGU retirement documents.

Certain records are unavailable due to [theft/loss/misplacement/disaster]. I attach an Affidavit of Loss and will submit reconstructed schedules derived from bank statements and third-party documents. I undertake to complete any additional submissions the RDO may require.

Respectfully,
[Signature over Printed Name]
[TIN / Contact Details]

B. Affidavit of Loss – Books of Accounts

AFFIDAVIT OF LOSS

I, [Name], Filipino, of legal age, with address at [address], after having been duly sworn, depose and state:

1. I was the proprietor of [Business Name], TIN [_____], registered with BIR RDO [__].
2. The business ceased operations on [date].
3. The following books of accounts for taxable years [____] to [____] could not be located/found and are believed lost due to [state circumstances: e.g., relocation, flood, theft].
4. Diligent efforts to locate the books were undertaken, including [steps taken], but to no avail.
5. I undertake to reconstruct records from bank statements and third-party documents and to file any outstanding tax returns, and I submit to any verification by the BIR.

IN WITNESS WHEREOF, I sign this [date] at [city].

[Affiant’s Signature]
[Name]

SUBSCRIBED AND SWORN before me this [date] at [city], affiant exhibiting [ID type and number].

C. Affidavit of Loss – Unused Official Receipts/Sales Invoices

AFFIDAVIT OF LOSS

I, [Name], Filipino, of legal age, with address at [address], after being duly sworn, state:

1. I was issued Authority to Print/permit for Official Receipts/Sales Invoices with serial numbers [____ to ____] for [Business Name], TIN [_____].
2. The following unused booklets/leaflets are missing/lost due to [circumstances].
3. Despite diligent search and attempts to recover the same, they could not be found.
4. I undertake to report the loss to the BIR and to ensure no further use of said documents.

[Notarial Acknowledgment]

D. Reconstruction Schedules (Outline)

Prepare and submit:

Sales/Revenue Schedule by month/quarter (source: bank deposits, 2307s, client confirmations).
Purchases/Expenses Schedule by month/quarter (source: supplier statements, bank debits).
Inventory Reconciliation to cessation date.
Tax Computations for each affected return, showing penalties separately.
Cross-reference file (each line item linked to supporting docs).

Frequently Asked Questions

1) Can I close with the BIR even if I cannot find my books and receipts? Yes. File 1905, submit Affidavits of Loss, and reconstruct as best as possible. Expect penalties for lapses and for late/missing returns.

2) Do I need to finish LGU retirement before BIR? Many RDOs ask for LGU retirement proof. Check your RDO; if they allow proceeding first, LGU may still be needed later.

3) What if I stopped operating years ago and never filed anything? You can still close, but you’ll need to file the missing returns (even using reconstructed data) and pay penalties. The longer the delay, the greater the exposure.

4) Is DTI cancellation enough to stop tax filings? No. DTI only cancels the business name. BIR deregistration is required to stop tax filing obligations.

5) How long should I keep my closure papers? Keep for at least five (5) years from the last return/entry.

Practical Tips

Be proactive and candid with the RDO; provide a clear, organized submission.
Number and index your attachments; include a transaction map of your reconstruction.
Use bank statements as the spine of your reconstruction. Tie deposits to sales and cheques/transfers to expenses.
Secure SPAs/authorizations for representatives; bring originals for inspection.
Document timelines (start/cessation dates, last sales, last payroll, last inventory count).

Closing Checklist (BIR + DTI)

BIR

BIR Form 1905 completed and filed.
2303 surrendered (or Affidavit of Loss).
Books submitted (or Affidavit of Loss).
Inventory & surrender of unused OR/SI (or Affidavit of Loss).
Final/short-period returns filed: Income Tax, VAT/Percentage, Withholding (if any).
Payments made (tax, surcharge, interest, compromise).
Open cases cleared; obtain proof of deregistration.

DTI

Application for BN Cancellation (BNRS/DTI office).
Valid ID (and SPA/authorization if represented).
Proofs of closure (LGU/BIR acknowledgments as required).
DTI acknowledgment of cancellation obtained.

(Optional but commonly needed) LGU

Barangay clearance for closure.
City/Municipal business permit retirement certificate.

Final Word

Even without complete records, orderly closure is achievable. The keys are: (1) promptly notify and file with the BIR, (2) reconstruct diligently with bank and third-party documents, (3) swear affidavits for what’s missing, (4) settle penalties, and (5) cancel the DTI business name once tax obligations are wrapped up. Keeping an organized paper trail will protect you long after the business has closed.