Didn’t Close Your Business with the BIR? Penalties and How to Settle Old Registrations (Philippines)

A practical, everything-you-need guide for sole proprietors, partnerships, and corporations that stopped operating but never formally closed with the Bureau of Internal Revenue (BIR).

Executive summary

If you stopped doing business but did not cancel your BIR registration, the BIR still expects you to (1) file returns (even nil), (2) pay taxes (if any), and (3) keep books—until you officially cancel your registration. Skipping those filings creates open cases, civil penalties (surcharge, interest, compromise), and, in certain situations, exposure to criminal penalties. The good news: you can clean this up. You’ll (A) reconstruct what returns were due, (B) file the backlog, (C) pay the penalties and any tax, and (D) process cancellation via BIR Form 1905 with the required attachments (including surrender of unused official receipts/sales invoices).

Why this happens

Typical scenarios:

You closed shop quietly and assumed “no sales = nothing to file.”
You changed jobs or moved abroad and forgot the BIR side.
The company ceased operations but SEC/DTI/LGU paperwork—and the BIR closure—were never finished.
You kept the TIN “active” but stopped using certain tax types (e.g., VAT, withholding) without formally cancelling them.

Legal basis (plain-English map to the Tax Code and core rules)

Registration & cancellation: NIRC §236 — you must register before doing business, keep details updated, and apply for cancellation upon closure/cessation.
Books of accounts: NIRC §232, §235; keep and preserve books and source documents (generally for 10 years).
Invoicing/receipts: NIRC §237–§238; use only BIR-authorized invoices/receipts; surrender unused ones upon closure; penalties apply for violations (§264).
Civil penalties:
- Surcharge for late filing/non-payment: 25% of the basic tax (§248), or 50% if due to willful neglect or a false/fraudulent return.
- Interest on unpaid tax (§249): generally per annum interest (post-TRAIN, computed using the “double the legal interest rate” formula; today this usually works out to 12% p.a.) from due date until payment.
- Compromise penalties: administrative amounts the BIR collects for late/ non-filing and other violations (varies by case and RDO; not a substitute for surcharge/interest).
Assessment/collection prescriptive periods:
- Normally 3 years to assess from the last day prescribed for filing (or from actual filing if late) (§203).
- Up to 10 years in case of no return filed, or false/fraudulent returns (§222). Collection is generally 5 years from assessment.
VAT “deemed sale” on closure: NIRC §106(B) — if you’re VAT-registered and you cease business, remaining inventory/capital goods may be subject to output VAT on a “deemed sale.”
Compromise of cases: NIRC §204(A) — BIR may compromise cases (e.g., doubt as to validity or financial incapacity), subject to thresholds.

Note on the annual registration fee (ARF): Recent reforms removed the ₱500 ARF for business taxpayers on a go-forward basis. Unpaid ARF for prior years (before the change took effect) can still appear as liabilities.

What penalties look like if you didn’t close

You must file returns even with zero activity. Failure to file a “no-operation” return still creates an open case. For no-tax-due returns, surcharge/interest on “zero” is zero—but the BIR typically charges a compromise penalty per return (commonly ₱1,000 for no-payment returns; confirm with your RDO).
If there was tax due (e.g., percentage tax, VAT, income tax, withholding):
- Basic tax (the unpaid amount)
- + 25% surcharge (or 50% in fraud/false return scenarios)
- + interest (commonly computed at 12% per annum) from due date until payment
- + compromise penalty under BIR schedules (slides with the size of basic tax and the violation)
Other common penalties
- Late filing/registration updates; late/incomplete books, invoices/receipts cancellation, or ATP (Authority to Print) issues.
- Failure to update withholding tax agent status when you no longer have employees or payees.

Practical tip: Penalties can snowball across each missed return (monthly/quarterly/annual). Cleanups are faster (and cheaper) if you (a) prove long periods of no operations and (b) cancel unused tax types you no longer need.

“Old registrations”: how to settle and finally close (step-by-step)

Step 1 — Do a quick registration/return health check

Identify your RDO, TIN, and tax types (VAT/Percentage, Income, Withholding on Compensation, Expanded/Final, DST, etc.).
Pull a BIR system profile printout (through the Client Support Section) showing your active tax types and “open cases.”
List the returns due from the date you stopped operating up to the present (you must file until the effective date of cancellation).

Step 2 — Reconstruct activity (or prove none)

Gather bank statements, e-wallet summaries, POS/Z-readings, sales/expenses, payroll, and any unused invoices/receipts.
If you never operated or stopped on a specific date, prepare an Affidavit of Non-Operation or Affidavit of Cessation and supporting proofs (e.g., closed bank account, terminated lease).

Step 3 — Decide how to file the backlog

No activity: File the returns as “no transactions” (nil). Expect compromise per return.
With activity: Prepare correct tax computations for each period. Consider:
- VAT: output vs input; possible deemed sale on remaining inventory at closure.
- Percentage tax: check if you actually exceeded the VAT threshold (in which case you should have been VAT).
- Withholding: monthly (0619E/F), quarterly (1601EQ/FQ), and annual (1604C/E/F + alphalists/2316).
- Income tax: quarterly and annual returns (1701/1702 series).
If you already received an assessment/letter, explore compromise or installment options under §204.

Computation sketch for a late, tax-due return: Amount to pay = Basic tax + Surcharge (25% × basic) + Interest (basic × 12% × days/365) + Compromise (per BIR table).

Step 4 — Pay penalties and file the returns

Use eBIRForms/eFPS as applicable.
Compromise and some administrative penalties are usually paid via BIR Form 0605.
Keep eAcknowledgment/confirmation pages and payment proofs for each return.

Step 5 — Prepare the closure packet (BIR Form 1905)

For cancellation of business or tax types, most RDOs require:

Core:

BIR Form 1905 (check “Cancellation of Registration”), signed by the taxpayer/authorized officer.
Original BIR Certificate of Registration (Form 2303) for surrender.
Inventory list of unused invoices/receipts (showing serial ranges) and the physical booklets for destruction/cancellation; include ATP details or system permit if you used a printer/POS.
Books of accounts (manual/loose-leaf/CAS) for stamping/notation up to cessation date.
Valid ID of signatory and Board Resolution/Sec. Cert. (for corporations/partnerships) authorizing closure.

Supporting (as applicable):

Affidavit of Non-Operation / Cessation with proofs (lease termination, bank closure, etc.).
SEC dissolution documents (if already dissolving) or DTI business name cancellation (for sole props).
LGU (Mayor’s Permit) closure/transfer docs.
Affidavit of Loss (if 2303 or unused receipts/books are lost), with police report if required.
Final returns and proof of payment, clearance of open cases/penalties.

Branches: file a 1905 per branch at the branch RDO to cancel the branch code before or alongside head-office closure.

Step 6 — Expect a short verification

The RDO may run a compliance verification (e.g., open cases, returns, deemed sale, withholding, info returns).
When satisfied, they’ll issue a Tax Clearance/Certification (wording varies), cancel tax types, and update the registration to “closed/cancelled.”

Step 7 — Keep your records

Preserve books and documents for 10 years (counted from the last entry/filing), even after closure.

Special technical points (often missed)

VAT “deemed sale” on closure: Inventory and capital goods on hand at cessation may be subject to output VAT based on acquisition cost or current market value (per rules). Plan for this when computing your final VAT.
Cancelling tax types you no longer need: Even if you continue to exist (e.g., no more employees), you may cancel withholding on compensation or expanded/ final if truly inapplicable. The same for VAT if you permanently fall below threshold or retire from business. Use 1905 and avoid accumulating nil but unfiled returns.
Using receipts after the effective cancellation is penalized. Surrender all unused booklets; the RDO will cancel/destroy them.
Address/RDO changes without updating the BIR can cause notices to go to the wrong place and rack up penalties. Always update registration information (still via 1905).
Programs/relief: From time to time, the BIR offers voluntary disclosure/ amnesty/ compromise programs. If one is open, it can reduce penalties on old periods. Ask your RDO or CPA if there’s an active program that applies to you.
No operations ever: If you registered but never started, prepare proof (no bank movement, no permits used, no ATP used) and ask the RDO about dropping open cases for periods demonstrably prior to actual start. Expect at least minimal compromise penalties and documentary requirements.

Worked micro-example (how the math stacks)

You missed a quarterly percentage tax return with ₱20,000 basic tax due.

Surcharge (25%): ₱5,000
Interest: ₱20,000 × 12% × (days late ÷ 365) = ₱[compute based on exact days]
Compromise: per BIR schedule for late filing with ₱20,000 basic (amount varies; your RDO will quote)
Total: ₱20,000 + ₱5,000 + interest + compromise

If no tax due (true nil), surcharge/interest on “zero” = ₱0, but expect a compromise (commonly ₱1,000 per return).

Checklists

A. Backlog-filing checklist

Registration profile printout (active tax types & open cases)
Period-by-period list of required returns (monthly/quarterly/annual)
Reconstructed numbers (sales/expenses/withholding) or proof of no operations
eBIRForms/eFPS credentials updated; bank/ePayment channel ready
For VAT: plan for deemed sale if closing
For withholding: alphalists and BIR Form 2316 for employees (if any)
Prepare Form 0605 for compromise and certain admin penalties

B. Closure-filing checklist (BIR Form 1905)

1905 accomplished and signed
Original 2303 for surrender
Unused invoices/receipts + inventory list + ATP details
Books of accounts up to cessation date
Affidavit of Non-Operation/Cessation + proofs (if applicable)
SEC/DTI/LGU closure docs (if applicable)
IDs/board resolution/SPA for authorized representative
Proof of no open cases/final returns and payments

Frequently asked questions

1) I stopped in 2019 and never filed anything. Will I go to jail? Criminal penalties exist in the Tax Code, but most dormant cases are handled through administrative settlement—you’ll file the backlog, pay civil penalties, and close properly. If there’s an ongoing assessment or evidence of fraud, get a CPA/lawyer involved.

2) Do I still need to pay the ₱500 annual registration fee? Current rules removed the ARF on a prospective basis. Past years (when ARF still applied) may still show as unpaid if you didn’t file; settle those if they appear in your account.

3) Can I cancel just one tax type (e.g., VAT) and keep operating? Yes, if you qualify (e.g., permanently below the VAT threshold or shifting to non-VAT activities). File 1905 to cancel the VAT tax type and avoid continuing VAT filing obligations.

4) What if I lost my OR/SI booklets or the 2303? Prepare an Affidavit of Loss (and police report if required by your RDO). Expect compromise/administrative penalties. The RDO will instruct on alternate proofs and cancellation steps.

5) Do I need to dissolve in SEC or cancel my DTI name before BIR closure? It helps, but the BIR primarily needs to see that you have no outstanding tax liabilities, have filed required returns, and have surrendered receipts/books. For corporations, the BIR may ask for board resolutions and, if dissolving, SEC docs.

Simple templates (feel free to reuse)

Affidavit of Non-Operation (sample)

AFFIDAVIT OF NON-OPERATION

I, [Name], [Citizenship], of legal age, with address at [Address] and TIN [TIN], after being duly sworn, depose and state:

1. That I am the [owner/authorized officer] of [Registered Business Name], registered with BIR under RDO [RDO No.], with tax types [list].
2. That from [Date] to [Date/Present], the business had no operations, no sales/revenues, and no employees, and did not issue any invoices/receipts.
3. That attached are proofs of non-operation (e.g., lease termination, bank statements, utility disconnections).
4. That this affidavit is executed to support the filing of pending nil returns, settlement of administrative penalties, and the cancellation of registration under BIR Form 1905.

[Signature over printed name]
[Date]

SUBSCRIBED AND SWORN to before me this [Date] at [City], affiant exhibiting [Gov’t ID details].

Inventory of Unused Invoices/Receipts (sample fields)

Printer & ATP details
Booklet Type (SI/OR), Series Prefix
Serial range per booklet (From–To)
Quantity on hand
Remarks (e.g., “unused; to cancel/destroy”)

Practical strategy (what usually works best)

Front-load the cleanup: gather proofs, list returns, pre-compute penalties.
File nils fast (where true) to drop open cases cheaply.
Pay the smallest first: knock out low-hanging returns (no-tax-due) to reduce notices.
Escalate carefully: for big exposures, consider compromise or staged payments under §204.
Close tax types you don’t need; then cancel the business registration if you’ve fully exited.
Get written confirmation (tax clearance/certification) and a TIN profile showing cancelled status.

Final reminders & disclaimer

Rules evolve (e.g., ARF removal, eFiling mechanics, forms). The outline above follows the National Internal Revenue Code (NIRC) and standard BIR practice as commonly implemented.
This article is general information, not legal advice. For significant exposures, VAT “deemed sale,” or active assessments, consult a Philippine CPA or tax lawyer and coordinate with your RDO for exact documentary and penalty computations.

If you want, tell me your tax types, last year of activity, and whether you issued receipts—I can draft a personalized “cleanup plan” and a period-by-period return list you can take to your RDO.