This article explains how to properly close a business with the Bureau of Internal Revenue (BIR)—sometimes called deregistration or cessation of business. It covers the legal bases, step-by-step procedures, forms, taxes due on closure (including VAT “deemed sale”), documentary requirements, timelines, and common pitfalls for sole proprietors, partnerships, corporations, and branches.

1) What “BIR business closure” actually means

BIR closure/deregistration is the process of updating and cancelling your BIR registration because your trade or business has ceased. It is different from:

LGU closure (cancelling Mayor’s/Business Permits with the city/municipality)
DTI/SEC closure (cancelling your business name/Articles or dissolving a corporation/partnership)
BIR enforcement closure under Oplan Kandado (a penalty closure under NIRC §115 for noncompliance)

In practice, you should coordinate all three layers (DTI/SEC, LGU, BIR), but BIR deregistration is its own procedure with its own taxes, forms, and deadlines.

2) Legal bases (core provisions to know)

NIRC §236 – Registration of taxpayers; obligation to update registration within 30 days of changes (including cessation).
NIRC §236(F) – Cancellation of VAT registration, including when business ceases.
NIRC §106(B) and §107(B) – VAT “transactions deemed sale”, which may trigger output VAT on remaining inventory/capital goods upon cessation.
NIRC §113–§115 – Invoicing, receipts, and administrative sanctions (including closure orders for violations—separate from voluntary closure).
Record keeping and prescriptive periods – books/records must generally be kept for 10 years and remain available for audit even after closure.

(Other rules and revenue issuances operationalize these, including forms, e-filing, and timelines.)

3) Who needs to file for BIR closure?

Sole proprietors (including online sellers, professionals, and freelancers with BIR-registered activities)
Partnerships and corporations (including branches and project offices)
PEZA/BOI and other special-registered entities (they still deregister with BIR even if enjoying incentives)
Nonresident entities with Philippine tax registration (e.g., withholding agents, project offices) upon cessation

If you stop operating but don’t deregister, you remain obliged to file returns (even “no operations” returns) and may incur penalties for non-filing.

4) Overview: the BIR closure flow

Finalize cessation date (the last day you actually conduct business).
File all outstanding returns up to the cessation date (income tax, VAT/percentage tax, withholding, documentary stamp tax if any).
Compute and pay “deemed sale” VAT (if VAT-registered and applicable).
Prepare and submit closure packet to your RDO (Revenue District Office) where you’re registered.
Surrender BIR registration artifacts (Certificate of Registration/BIR Form 2303, unused official receipts/sales invoices, Authority to Print, permit-to-use POS/CRM, etc.).
Apply for cancellation of VAT registration (if VAT-registered) and TIN updates (e.g., secondary registrations).
Undergo BIR verification/audit (if required) and secure BIR tax clearance/certificate of closure.
Keep your records for 10 years for any post-closure assessments.

5) Step-by-step procedure (with forms & deadlines)

A. Set your cessation date and lock your books

Pick the actual last day of sales or operations.
Cut off your books, POS/CRM Z-readings, inventory counts, and accounts receivable/payable as of that date.
Employees: compute final payroll, separation pay, and withholdings.

B. File final/short-period tax returns and pay any taxes

Depending on your taxpayer type, you will typically file:

Income Tax
- Individuals: BIR Form 1701 (or 1701A if qualified).
- Corporations/Partnerships: BIR Form 1702 series (e.g., RT, MX, EX as applicable).
- File a short-period return if the taxable year ends early due to cessation/dissolution.
VAT or Percentage Tax
- VAT: last Quarterly VAT Return (2550Q) covering the quarter of cessation, plus output VAT on “deemed sale” (see Section 6).
- Non-VAT: last Percentage Tax (2551Q) for the quarter of cessation.
Withholding Taxes (if any)
- Compensation: monthly 0619E (if applicable) and 1601C/1601C-Q; plus alphalist and final BIR Form 2316 for each employee.
- Expanded/Final: monthly 0619E/0619F (as applicable) and quarterly 1601-EQ/1601-FQ; plus alphalists.
Other taxes: DST (2000 series), Excise, etc., if applicable.

Pay all surcharges, interest, and penalties (if any) before lodging your closure application. Clean ledgers make the RDO review faster.

C. Prepare your closure packet for the RDO

Most RDOs will require a standard set of documents (they may add RDO-specific items). Prepare:

BIR Form 1905 – Application for Registration Information Update, ticking “Cancellation of Registration” and indicating “Closure/Cessation”.
Letter of Request for deregistration/closure, stating cessation date and reason.
Original BIR Certificate of Registration (Form 2303) for surrender.
Inventory and surrender of unused Official Receipts/Sales Invoices and cancellation of Authority to Print (ATP).
Surrender/cancellation of PTU (permit-to-use) for POS/CRM and final Z-readings.
Books of accounts (manual/loose-leaf/electronic) for stamping and closure entries.
Proof of filing and payment of all final/short-period returns, including VAT deemed sale if applicable.
DTI/SEC documents (if available): e.g., Board Resolution to dissolve/cease, DTI cancellation, SEC dissolution papers or request. (For corporate dissolution, SEC typically requires BIR tax clearance—the sequence may be parallel; see Section 9.)
LGU documents (if available): Business Permit cancellation filing/clearance.
IDs/authorizations: government ID of owner/authorized representative, Board Resolution/Special Power of Attorney and Secretary’s Certificate authorizing the filer.

Deadline to notify/update BIR: within 30 days from cessation (based on NIRC §236). Don’t wait for SEC/LGU to finish; you can start BIR closure with proof that those processes are underway.

D. Submit to your RDO and comply with verification

File the Form 1905 with attachments at your RDO of registration.
Expect verification (desk review; sometimes a closure audit). Provide any trial balance, subsidiary ledgers, inventory lists, fixed assets schedule, and proofs of tax payments requested.
The RDO will process cancellation of your secondary registrations (VAT/Percentage, Withholding, ATP/PTU) and annotate your TIN as “closed” for that business.

E. Receive BIR clearance/confirmation

Once verified, the BIR issues a Tax Clearance/Certificate of Closure or acknowledgment of deregistration and cancellation of secondary registrations.
Keep this with your SEC/LGU closure records.

6) VAT on “transactions deemed sale” at closure

If you are VAT-registered, cessation generally triggers “deemed sale” under NIRC §§106(B)/107(B). In plain terms:

What’s covered: Goods on hand, including inventory and capital goods (e.g., machinery, equipment) not physically sold by cessation date.
Tax base: the lower of (a) current market price at the time of cessation, or (b) original acquisition cost less depreciation, depending on the implementing rules and the asset type.
Output VAT: compute 12% (unless a different VAT rate applies by law at that time) on the deemed sale base and report it in your final VAT return.

Exceptions/mitigations (illustrative):

Goods destroyed or lost (properly documented) aren’t usually subject to VAT.
If you transfer inventory to another VAT-registered entity in a taxable sale before closure, that’s a regular sale (invoice, VAT output) rather than deemed sale at cessation.
Change to non-VAT because of falling below threshold is different; here we’re talking about business cessation.

Keep inventory counts, valuation worksheets, photos, and asset appraisals (if used). These support your deemed-sale computation in any post-closure audit.

7) Invoices, receipts, ATP/PTU, and books

Official Receipts/Sales Invoices: list unused serials and surrender them for cancellation; the RDO will record destroyed/cancelled stocks.
Authority to Print (ATP): apply for cancellation with details of last used serial.
POS/CRM: print final Z-readings, surrender PTU, and request cancellation.
Books of Accounts: present for stamping with an entry noting “closed as of [date]”.
Retention: keep books/records and electronic data for 10 years from the last entry/return.

8) Employees, final withholding, and certificates

Compute final pay (including separation pay if any) and withhold applicable taxes.
File final compensation withholding returns and submit alphalists.
Issue BIR Form 2316 to each employee covering year-to-date compensation up to separation.
For expanded/final withholding on suppliers or payees, ensure final 1601-EQ/1601-FQ and alphalists are filed.

9) How BIR closure interacts with SEC/DTI and LGU

Sole proprietors (DTI): You can start BIR deregistration once cessation is certain; DTI business name cancellation and LGU permit cancellation can proceed in parallel.
Corporations/Partnerships (SEC): SEC typically requires a BIR tax clearance for dissolution. The usual practical sequence:
1. Board resolves to dissolve/cease;
2. Begin BIR closure (and expect verification/audit for open years);
3. Once BIR tax clearance is issued, complete SEC dissolution filing.
LGU: Settle local taxes, final gross sales declarations, and permit cancellation; attach LGU proof to your BIR closure (if already available).

Tip: Keep parallel checklists so no agency blocks the last step for a missing clearance from another.

10) Timelines (typical)

Notify BIR (Form 1905): within 30 days from cessation.
Final/short-period returns: follow statutory monthly/quarterly/annual deadlines, accelerated by cessation (e.g., short period ITR due on usual deadlines measured from the short period end).
BIR verification/clearance: varies by RDO and whether a closure audit is opened; prepare for requests for schedules to avoid delays.

11) Common pitfalls (and how to avoid them)

Not filing “no operations” returns while waiting—penalties stack up. File until deregistration is approved.
Forgetting VAT deemed sale—can lead to assessments later. Inventory everything on cessation date.
Missing invoice/OR surrender—BIR may refuse cancellation without unused stocks accounted for.
Ignoring PTU/POS—always perform final Z-readings and cancel permits.
Unreconciled ledgers—mismatches between books and returns invite a closure audit.
No authorization—make sure your representative has a Board Resolution/SPA and valid IDs.
Waiting for SEC/LGU first—you can (and often should) start BIR closure in parallel to save time.

12) Special situations

Branch closures vs HQ: Closing a branch requires updating that branch’s registration (books, invoicing stocks, PTU) but not necessarily the whole entity.
Mergers, spin-offs, conversions: Often treated as cessation for the disappearing entity; expect short-period returns and clearance.
Tax-incentivized enterprises: Still compute regular internal taxes due on cessation (VAT deemed sale can still apply) unless a specific law or ruling provides otherwise.
Professionals & online sellers: Same principles—file final returns, cancel registration, surrender unused ORs, and keep records.

13) Practical checklist (ready to use)

Before your RDO visit

Fix cessation date; close books, inventory, POS Z-readings
File and pay all final/short-period returns (IT, VAT/percentage, withholding, DST/excise if any)
Compute and pay VAT deemed sale (if VAT-registered)
Prepare Form 1905, letter of request, ID/SPA/Board Resolution
Gather 2303, unused OR/SI (with serial inventory), ATP, PTU, books of accounts
Gather SEC/DTI/LGU papers (or proof of applications) if available

At the RDO

Submit Form 1905 + packet
Surrender 2303, OR/SI, ATP, PTU, books for stamping/cancellation
Coordinate any verification/audit requirements; respond to notices promptly

After approval

Secure BIR closure confirmation/tax clearance
Keep all records for 10 years
Complete SEC/LGU closures (if still pending) attaching BIR clearance

14) FAQs

Q: Do I have to keep filing returns after I stopped selling? A: Yes—until BIR cancels your registration. File “no ops” returns where applicable to avoid penalties.

Q: I lost some unused receipts. A: Disclose and execute an affidavit; expect penalties and possible investigation (because serials are controlled).

Q: What happens to my TIN? A: Your TIN is permanent, but your business registration and secondary registrations (VAT/withholding/PTU/ATP) are cancelled or annotated as closed.

Q: Will BIR audit me when I close? A: It can. Many RDOs perform a verification or closure audit to clear open years. Have ledgers, returns, reconciliations, and proof of payments ready.

Q: Is there VAT on my remaining inventory at closure? A: If VAT-registered, usually yes via “deemed sale” rules; compute and pay in your final VAT return.

15) Templates you can adapt (concise)

A. Board Resolution (extract)

RESOLVED, that the Corporation shall cease operations effective [Date] and authorize [Name/Title] to file all documents with the BIR, SEC, and LGU for deregistration and dissolution, including the surrender of the BIR Certificate of Registration, invoices/receipts, PTU, and books, and to pay all taxes and fees due.

B. Letter to RDO (extract)

Dear Sir/Madam: We respectfully request cancellation of registration due to cessation of business effective [Date]. Enclosed are BIR Form 1905, Form 2303, proof of final tax filings/payments, inventory of unused OR/SI, ATP/PTU for cancellation, books of accounts, and identification/authorizations. We undertake to keep records for 10 years and to respond to any verification.

Final notes

Act within 30 days of cessation and keep filing compliant returns until deregistration is approved.
Deemed sale VAT is the most overlooked item—document your computations.
Maintain a complete paper trail (forms, receipts, ledgers, Z-readings, inventories) to minimize friction during BIR verification and any post-closure audit.

If you want, I can turn this into a printable checklist pack (fill-in templates + inventory and deemed-sale worksheets).