Closing the Business of a Deceased Parent in the Philippines

A comprehensive, step‑by‑step legal guide (updated July 2025)

Important: This article summarises Philippine laws and procedures but is not a substitute for personalised advice from a qualified lawyer, tax practitioner, or accountant.

1. Why the Form of the Business Matters

Legal form at time of death	Governing law	Core closing route
Sole Proprietorship	Civil Code, Tax Code, DTI Act	Cancel business name, wind up via the Estate
Partnership	Civil Code, SEC Revised Corporation Code (for registered partnerships)	Dissolve by partners/estate, SEC filing, BIR closure
Corporation (family‑held)	Revised Corporation Code	Board/shareholder resolution, SEC dissolution/liquidation, BIR closure

Tip: Obtain a copy of the Certificate of Registration (DTI or SEC) to confirm the exact legal form.

2. Immediate Administrative Actions (First 30 Days)

Secure a PSA death certificate – every agency will require it.
Identify an Executor/Administrator
- If there is a notarised Last Will, the named executor petitions the court for probate.
- If none, the heirs appoint an extrajudicial administrator (via public instrument) or file a petition for letters of administration.
Inventory all business assets and books as of date of death (cash, inventory, receivables, liabilities, fixed assets).
Safeguard point‑of‑sale machines, invoices, ORs – the BIR will examine them.

3. Estate Tax Compliance

Step	BIR Form	Deadline	Notes
Apply for Estate TIN	In‑Person	ASAP after death	Separate taxpayer; post‑death income is filed here.
File Estate Tax Return	BIR Form 1801	Within 1 year from death (extendable for meritorious reasons)	Includes a sworn Schedule of Assets & Liabilities.
Pay/secure clearance		Same as filing	You may pay in installments (RR 12‑2023) if amount > ₱2 million.

Estate tax rates: 6 % flat on the net estate after standard deductions (₱5 million) and family home deduction (max ₱10 million).

4. Income & VAT Obligations During Winding‑Up

Period	Taxpayer Name	Return to File
Up to date of death	Deceased’s TIN	Final ITR, VAT/Percentage, Excise, Withholding
After death until closure/transfer	“Estate of the Late ___” (new TIN)	Quarterly ITR (1702‑EX), VAT or Percentage, Annual ITR

The estate may continue operations temporarily to liquidate inventory. Once all assets are sold or transferred to heirs, apply for cancellation of the TIN.

5. BIR Closure Procedure

Prepare:
- BIR Form 1905 – Application for Cancellation of Registration
- Inventory list of unused invoices/ORs (ask for Authority to Dispose)
- Latest tax returns & proof of payment
- Books of Accounts for audit
Report & Surrender:
- Unused principal & supplementary receipts
- Permit to Use (PTU) POS or CAS machines
Settle Open Cases/Audits: Revenue District Office (RDO) issues assessments if any.
Secure a Tax Clearance for Closure – required by SEC, DTI, LGU.

6. Cancellation with Other Agencies

6.1 Sole Proprietorship (DTI & Local Government)

Agency	Form	Notes
DTI	Request for Cancellation	Attach death cert. & tax clearance.
Barangay	Closure certificate	Pay any unpaid Barangay fees.
City/Municipality (BPLO)	Surrender Mayor’s Permit	Present BIR & barangay clearances; pay pro‑rated business tax.

6.2 Partnership or Corporation

Board/Partners’ Resolution to Dissolve
SEC Filings
- Short Form Application (no creditors) or Long Form (with creditors)
- Publish a notice of dissolution once a week for three consecutive weeks in a newspaper.
Liquidation
- Appoint a liquidator (can be the estate representative).
- Settle debts, then distribute residual assets to shareholders/heirs.
SEC Certificate of Dissolution – issued after clearance from:
- BIR (tax)
- SSS / PhilHealth / Pag‑IBIG (social contributions)

7. Labor & Employment Closure

Notify DOLE (Department of Labor and Employment) at least 30 days before effectivity.
Separation Pay
- Closure not due to serious business losses → ½ month pay per year of service (Art. 298, Labor Code).
Issue Certificates of Employment & BIR Form 2316 to workers.
Settle remittances: SSS R‑5, PhilHealth RF‑1, Pag‑IBIG MCRF.

8. Creditor & Contractual Obligations

Publish a general notice to creditors (required in judicial settlements; recommended even extrajudicially).
Negotiate termination or assignment of leases, supplier contracts, utilities.
Bank Accounts:
- Joint accounts become joint accounts with right of survivorship—banks often freeze half.
- Sole accounts are frozen until the BIR issues Electronic CAR (eCAR) releasing the funds.

9. Liquidating or Transferring Assets

Option	Pros	Cons
Sell all assets, shut down	Clean slate for heirs	Possible capital gains/VAT; goodwill lost
Transfer going concern to heirs	Business continuity, clients retained	Heirs must assume liabilities & re‑register; possible donor’s tax if undervalued
Convert to Corporation with heirs as stockholders	Limits liability; fresh start	More costs, SEC filing, new permits

Tip: A Deed of Assignment (for assets) or Deed of Absolute Sale (for business) must be notarised and annotated in the BIR estate proceedings.

10. Timelines & Penalties Snapshot

Requirement	Ordinary Deadline	Late Penalty & Interest
Estate Tax Return (BIR 1801)	1 year from death	25 % surcharge + 12 % p.a. interest
VAT/Percentage Returns	Within 25 days after close of taxable quarter	Same as above
SEC Dissolution	Within 60–90 days of board resolution	₱10 k + ₱200/day
LGU Permit Closure	Within current quarter	Unpaid taxes accrue 2 % interest/month

11. Checklist (Printable)

PSA Death Certificate
Valid IDs of heirs/executor
Estate TIN & Form 1801 filed
Latest ITRs & VAT/Percentage returns filed
BIR 1905 & tax clearance received
Unused ORs disposed & PTU cancelled
DTI cancellation OR SEC dissolution filed
Barangay & Mayor’s permits cancelled
DOLE, SSS, PhilHealth, Pag‑IBIG clearances
Creditors notified and debts settled
Assets liquidated or transferred (deeds notarised)
Final distribution to heirs (via Deed of Extrajudicial Settlement or probate order)

(Cut here for pocket reference)

12. Frequently Asked Questions

Can we keep operating indefinitely under the Estate TIN? Yes, but the estate becomes a separate taxpayer subject to corporate‑like returns. Practically, courts expect liquidation within a “reasonable” period (often 2–3 years).
Is there estate tax amnesty? The 2023 estate tax amnesty covered deaths up to May 31 2022; it expired on June 14 2025. Future amnesties require new legislation.
Must minors sign the extrajudicial settlement? No; they are represented by a judicially appointed guardian ad litem or the surviving parent (if not disqualified).
What if there are foreign assets? Philippine estate tax still applies to worldwide estates of resident citizens. Coordinate with foreign counsel for ancillary probate and double‑tax relief.

13. Practical Tips & Common Pitfalls

Start with estate tax – many closures stall because eCAR is needed everywhere.
Keep proofs of publication & notarised deeds; SEC and BIR routinely ask years later.
Reconcile books early – BIR field audits focus on inventory shortages right before closure.
Confirm SSS loan clearance – employers often overlook salary‑deduction loans; heirs become liable.
Seek professional help if liabilities > assets to evaluate insolvency or corporate rehabilitation instead of outright closure.

14. Conclusion

Closing a deceased parent’s business in the Philippines intertwines estate administration, taxation, corporate/permit law, and labor compliance. Mapping the process into discrete tracks—estate, tax, regulatory, and labor—helps families finish the task with minimal penalties, preserve value, and avoid successor liability.

Next step: Gather the foundational documents (death certificate, last tax returns, permits) and consult a tax lawyer or CPA within 30 days of death to chart a timeline tailored to your parent’s specific business form and asset mix.

Prepared July 18, 2025 without external web search; based on prevailing Philippine statutes, revenue regulations, and agency circulars.