Closing a business in the Philippines is not finished when you stop operating. For tax purposes, you must formally apply for business closure with the Bureau of Internal Revenue (BIR). Until the BIR approves your closure, your business remains “active” in its records, and you may continue to incur filing obligations, open cases, and penalties.

This article explains the legal basis, documentary requirements, step-by-step procedure, common issues, and practical guidance for BIR business closure (also called cancellation of registration).

1. Legal Framework and Basic Principle

1.1. Requirement to Cancel Registration

Under the National Internal Revenue Code (NIRC), as amended, and implementing BIR regulations, any taxpayer who ceases business, changes ownership, or otherwise stops operating must apply for cancellation of registration. The BIR treats this as a compliance process, not a mere notice.

1.2. Effect of Not Closing

If you do not close your BIR registration:

You remain required to file returns (even “no operations” returns).
You continue to be subject to annual registration fee requirements (for years when it applies).
You accumulate “open cases” leading to penalties.
The BIR can issue assessments or enforcement actions based on non-filing.

2. When Business Closure With the BIR Is Required

You should apply for closure if any of these occur:

Sole Proprietor stops operating permanently.
Partnership dissolves or stops business.
Corporation closes or is liquidated.
Change of ownership requiring a new registration (e.g., sale/transfer of business).
Merger/consolidation resulting in cessation of the old entity.
Closure of a branch even if head office continues.

Note: Closure with other agencies (DTI/SEC, LGU, SSS, PhilHealth, Pag-IBIG) does not automatically close your BIR registration.

3. Key Concepts You Need to Know

3.1. “Ceased Operations” vs. “Closed Registration”

Ceased operations: You stopped operating but are still registered. You must still file returns.
Closed registration: The BIR approved your cancellation. Filing obligations stop after your final returns.

3.2. Tax Types Affected

Closure cancels your liability and filing duties for:

Income tax (ITR)
Withholding taxes (expanded, compensation, final)
Value-Added Tax (VAT) or Percentage Tax
Excise tax, if applicable
Documentary Stamp Tax (DST), if applicable

4. Documentary Requirements

The BIR may vary requirements slightly per Revenue District Office (RDO), but the standard set includes:

4.1. Core Forms

BIR Form 1905 – Application for Registration Information Update / Cancellation
- Select “Cancellation of Registration” and indicate the reason/date of closure.
Inventory of Unused Invoices/Receipts
- Written list of remaining ORs/SIs, with serial numbers.
Request for Printer’s Certificate / ATP Closure (if applicable)
- Any active Authority to Print (ATP) must be accounted for.

4.2. Books and Invoices

All Books of Accounts (manual or computerized printouts) to be surrendered for stamping “Cancelled.”
Unused official receipts / sales invoices / other registered invoices for destruction/invalidating.

4.3. Proof of Closure With Other Agencies (as applicable)

DTI Certificate of Business Name Cancellation (sole prop).
SEC Certificate of Dissolution / Termination / Liquidation (corporation/partnership).
Mayor’s Permit / Business Permit Cancellation or barangay clearance (often requested).

4.4. Tax Compliance Documents

Latest filed tax returns for all tax types.
Final returns up to the closure date (see section 6).
Tax clearance / certificate of no outstanding liability if the RDO requires.
Letter of intent to close addressed to the RDO (some offices require a narrative letter).

4.5. For Corporations/Partnerships

Board Resolution or Partners’ Resolution approving closure/liquidation.
General Information Sheet (GIS) copy (sometimes requested).
Audited Financial Statements (AFS) up to closure (medium/large taxpayers).

4.6. For Branch Closure

Form 1905 indicating specific branch TIN/branch code.
Books/receipts of that branch only.
Proof the branch stopped operations (e.g., LGU closure).

5. Where to File

File your closure application at the RDO where the business is registered:

Head Office RDO for full closure of entity.
Branch RDO for closure of branch only.

6. Final Tax Returns You Must File

Before the BIR approves closure, you must file and pay all taxes due up to the date of cessation.

6.1. Income Tax

Final Income Tax Return covering Jan 1 up to closure date.
For corporations: final quarterly return(s) and annual ITR, depending on timing.

6.2. VAT / Percentage Tax

Final VAT return (BIR Form 2550Q / 2550M, depending on system).
Or Final Percentage Tax return (BIR Form 2551Q) if non-VAT.

6.3. Withholding Taxes

Final expanded withholding tax return (1601EQ).
Final withholding on compensation (1601C).
Annual alphalists if due within the year or required by the RDO.

6.4. Other Taxes (If Applicable)

Final DST, excise, or other special tax returns.
Any deficiency discovered during audit must be settled.

7. Step-by-Step Procedure

Step 1: Prepare Documents and Final Returns

Confirm the exact last day of business operations.
File all pending and final returns.
Pay any taxes due and penalties already known.
Organize books and unused receipts.

Step 2: Accomplish BIR Form 1905

Indicate:
- TIN
- Registered name
- Reason for cancellation
- Effective date of closure
- Tax types to be cancelled (usually all)

Step 3: Submit Closure Docket to Your RDO

Bring:

Form 1905
Closure letter (if required)
Unused receipts/invoices + inventory list
Books of accounts
Proof of DTI/SEC/LGU closure
Copies of final returns and payment proofs
Valid ID and authorization if representative files

The RDO will:

Check your records for open cases or missing filings.
Issue initial assessment of requirements.

Step 4: BIR Evaluation and “Open Case” Settlement

If the system shows missing returns, the RDO will direct you to:

File late returns (even if no operations)
Pay compromise penalties, surcharge, and interest

This part often determines how long your closure takes.

Step 5: Audit / Verification (If Required)

Many RDOs require a short audit before closure, especially if:

You are VAT-registered.
You have withholding tax registrations.
You are a corporation or medium/large taxpayer.
You have significant sales history.

You may be asked to submit:

Sales/purchase summaries
Bank statements
Inventory reconciliation
Financial statements

Step 6: Surrender and Destruction of Receipts

The BIR will:

Stamp books “Cancelled.”
Invalidate unused invoices (by stamping or cutting).
Sometimes schedule destruction in your presence.

Step 7: Issuance of Closure / Tax Clearance

Once cleared:

The RDO issues a written confirmation of cancellation or updates your registration status to “Closed.”
Some RDOs issue a Tax Clearance or Certificate of No Outstanding Liability.

Keep this permanently.

8. Estimated Timeline (Practical Reality)

There is no single statutory processing time. In practice:

Simple sole prop closure with complete filings: a few weeks.
Cases with many open cases / VAT / audits: several months.

Delays usually come from unresolved open cases and audit scheduling.

9. Common Problems and How to Handle Them

9.1. Open Cases for “No Operations” Years

Even if you had no sales, you must file returns:

Late filing requires compromise penalties.
Fix by filing all missing returns before closure.

9.2. Lost Books or Receipts

If books/receipts are missing:

Execute an Affidavit of Loss.
Publish if required by RDO practice.
Expect penalties.

9.3. Outstanding Withholding Obligations

Businesses often forget:

1601C/1601EQ monthly/quarterly filings
Annual alphalists

These create multiple open cases. Clear them one by one.

9.4. Active ATP and Unissued Receipts

You must account for all printed receipts.

If you stopped using them, still surrender and invalidate unused serials.

9.5. Branch vs. Head Office Confusion

Closing a branch does not close the company.

File separate 1905 for branch cancellation.
Keep HO filings active.

10. Special Notes Per Business Type

10.1. Sole Proprietorships

Ensure DTI cancellation aligns with your cessation date.
If you plan to start another business later, you can reuse the same TIN but must register anew.

10.2. Partnerships/Corporations

Closure usually accompanies dissolution/liquidation.
Expect more scrutiny, especially for:
- final withholding on asset transfers
- VAT on sale of assets
- documentary stamp tax on transfers
- employee separation liabilities

10.3. Professionals (Self-Employed)

Cancel COR and tax types if stopping practice.
Surrender unused receipts and books.
If shifting to employment only, closure avoids future filings.

11. Penalties You May Encounter

When settling open cases, penalties generally include:

Compromise penalty for late filing/non-filing.
Surcharge (percentage of tax due).
Interest (per annum on unpaid tax).

Even “zero tax due” returns may carry compromise penalties because the violation is non-filing.

12. Practical Tips for a Smooth Closure

Close early, not years later. The longer you wait, the more open cases accumulate.
Print a system-generated open case list from the RDO and resolve systematically.
File “no operations” returns when applicable to prevent penalties.
Keep copies of everything submitted. Make a closure folder: 1905, final returns, payment proofs, RDO receipts, and closure certificate.
Align dates across agencies. Your closure date in the BIR should match or logically follow DTI/SEC/LGU closure.
If audited, cooperate but stay organized. Provide only what is asked, with clear schedules.

13. After BIR Closure: What Still Matters

Keep records for the statutory retention period (generally several years).
If the BIR later questions past periods, your closure certificate helps show good-faith compliance.
If you reopen a business, you must register again using your existing TIN (for individuals) or a new entity TIN (for new corporations).

14. Summary Checklist

Before filing 1905:

Fix all missing returns
Pay taxes/penalties
Prepare final returns
Get DTI/SEC/LGU closure documents
Inventory unused receipts
Gather books of accounts

For filing:

BIR Form 1905
Closure letter (if required)
Unused receipts/invoices
Books of accounts
Proof of closure with other agencies
Final returns + payment proofs

After clearance:

Obtain closure confirmation / tax clearance
Keep permanent records

If you want, tell me what kind of business you’re closing (sole prop, corporation, professional, or branch) and roughly how long it has been inactive, and I’ll map these rules to a concrete, tailored checklist and sequence for your situation.