Penalties for Operating a Business Without a Mayor’s Permit and BIR Registration in the Philippines

Quick note: This overview is for general information only and isn’t a substitute for tailored legal advice. Penalties and procedures can change and also vary by city/municipality (LGU). When in doubt, consult counsel or your LGU’s Business Permits and Licensing Office (BPLO) and your BIR Revenue District Office (RDO).

Why this matters

In the Philippines, you need two distinct layers of authorization before you legally operate:

Local authorization (Mayor’s/Business Permit) issued by the LGU through its BPLO.
National tax registration with the Bureau of Internal Revenue (BIR), including the issuance/printing of invoices/receipts and registration of books or POS/CAS.

Operating without either (or both) exposes you to closure, fines, back taxes with surcharges and interest, and—in serious or willful cases—criminal liability.

Legal backbone (in plain English)

Local Government Code of 1991 (RA 7160)
- LGUs may license businesses and suspend/revoke permits for violations.
- LGUs can assess and collect local business taxes, impose surcharges up to 25%, and interest up to 2% per month on unpaid local taxes/fees (capped at 36 months).
- City and municipal mayors have explicit authority to issue, suspend, or revoke permits (e.g., Sec. 444 for municipalities; Sec. 455 for cities).
National Internal Revenue Code (NIRC), as amended
- Registration is mandatory before commencing business (commonly known as Section 236).
- The BIR can suspend business operations/issue a closure order for specific violations—including failure to register—for a period of not less than five (5) days (often called “Oplan Kandado,” rooted in Section 115).
- Civil penalties (surcharges/interest), criminal tax offenses, invoicing/receipt violations, and audit/assessment rules (including 3-year and up to 10-year look-back in certain cases) also apply.

What counts as “operating” or “doing business”?

You’re generally considered operational once you begin habitually selling goods or services, advertising/soliciting, signing a lease, hiring staff, delivering/fulfilling orders, billing/collecting, or otherwise holding yourself out as open for business—even if you haven’t yet opened a storefront.

A. Penalties for operating without a Mayor’s (Business) Permit

1) Closure / Cease-and-Desist / Padlocking The mayor (through the BPLO and enforcement units) can order immediate closure until you secure a permit, pay local taxes/fees, and comply with ancillary clearances (e.g., zoning/locational, sanitary, fire safety inspection).

2) Local fines, fees, and back taxes

Local business tax (LBT) and regulatory fees computed from the start of operations (or a date the LGU establishes, which can be based on lease contracts, receipts, ads, social media pages, supplier invoices, etc.).
Surcharge up to 25% for late/non-payment and interest up to 2% per month, capped at 36 months (Local Government Code rule of thumb).
Administrative penalties under local ordinances (amounts and structures differ per city/municipality).

3) Ancillary violations

Operating without required Sanitary Permit, Fire Safety Inspection Certificate, Barangay Business Clearance, environmental permits (if applicable), etc., may trigger separate fines and enforcement actions.

4) Possible ordinance-based criminal liability Some LGUs treat unpermitted operations as an ordinance violation that can be prosecuted in local courts, typically with fine-level penalties. Exact charges/penalties depend on the LGU ordinance.

5) Prescription (time limits) Under the Local Government Code, LGUs generally have five (5) years to assess local taxes/fees from when they became due (extendable to ten (10) years if there’s fraud/intent to evade), and five (5) years to sue to collect from the date of assessment.

B. Penalties for operating without BIR registration

1) BIR closure of business (“Oplan Kandado”) Under NIRC Section 115, the BIR may suspend business operations and padlock the premises for not less than five (5) days for certain violations—including failure to register. The closure remains until you satisfy conditions (register, pay taxes/penalties, comply with invoicing and books-of-accounts rules, etc.).

2) Civil tax consequences If you operate unregistered, you typically face:

Back taxes (income tax; and VAT or percentage tax, as applicable) computed from when you actually began doing business.
Surcharges (e.g., for late filing/payment or willful neglect) and interest (the NIRC pegs interest to a statutory formula tied to the legal rate; the rate changes over time).
Compromise penalties (administrative amounts the BIR may impose per internal schedules, typically offered to compromise minor or first-time offenses; these are discretionary and policy-driven).

3) Invoicing/receipt and books violations

Failure to issue BIR-compliant invoices/receipts and/or to register books/POS/CAS can trigger separate administrative and criminal penalties.
Printing/using invoices/receipts without BIR authority is a distinct offense.
Sales documented with non-compliant invoices/receipts can be challenged by the BIR and by your customers (e.g., purchasers may not be allowed to claim input VAT on them).

4) Knock-on effects in computations

Expense disallowance risk: The BIR may disallow expenses not properly substantiated by compliant documents, increasing your taxable income.
VAT implications: If you should have been VAT-registered but weren’t, the BIR can assess output VAT from the time you crossed the VAT threshold or were otherwise VAT-liable, while disallowing input VAT credits documented on non-compliant invoices/receipts.
Withholding tax exposure: If you had employees or paid suppliers subject to withholding, failure to withhold/remit can result in separate deficiency assessments with penalties and interest.

5) Criminal tax exposure Serious or willful non-registration and non-payment can give rise to criminal prosecution under the NIRC (e.g., willful failure to file, unlawful pursuit of business, failure/refusal to issue receipts, etc.). Conviction may entail fines and imprisonment. Whether prosecutors pursue a case often depends on willfulness, scale, and cooperation.

6) BIR look-back (prescriptive periods)

Ordinary assessments: typically 3 years from the deadline for filing or from actual filing, whichever is later.
Failure to file or false/fraudulent returns: up to 10 years (measured under the Code’s rules on discovery and/or commission).
Separate rules apply to criminal actions. The BIR may still audit several prior years if you operated unregistered.

C. If you have one but not the other

BIR-registered but no Mayor’s Permit:
- You’re still exposed to LGU closure and local tax/fee assessments with surcharges/interest, plus ordinance penalties.
Mayor’s Permit but no BIR registration:
- You’re exposed to BIR closure, national tax assessments, invoicing/books violations, and possible criminal tax exposure.

Either way, each layer enforces independently. Being compliant with one does not shield you from the other.

D. Typical enforcement and due-process flow

LGU (Mayor’s Permit):

Inspection/verification (often prompted by complaints, social media ads, visible signage, or supplier/customer records).
Notice of Violation / Show-Cause and hearing opportunity.
Closure/Padlocking order if unresolved.
Payment of back LBT/fees with surcharges/interest, plus securing ancillary clearances.
Reopening upon proof of compliance.

BIR (Registration/Tax):

Investigation or tax mapping/inspection (non-registration, failure to issue receipts, etc.).
For closure: Notice, show-cause hearing, then Temporary Closure Order (TCO) under Sec. 115 if warranted.
For assessments: LOA (Letter of Authority) → examination → PAN (preliminary notice) → FAN/FLD (formal assessment/demand) → administrative protests/appeals → possible CTA litigation.
Reopening post-closure upon registration, payment of taxes/penalties, and full documentary compliance.

E. How to regularize (practical playbook)

1) Stop the bleeding (immediately formalize):

Register with the BIR (use the correct form: sole prop/professional vs. corporation/partnership), get/confirm TIN, register books or POS/CAS, and apply for authority to print compliant invoices/receipts.
Apply for a Mayor’s Permit with the LGU BPLO. Prepare DTI/SEC/CDA papers, lease/ownership docs, barangay clearance, zoning, sanitary, Fire Safety Inspection, and other sectoral permits (DTI/DA/DOH/DTI-FDA, DENR, etc., if applicable).

2) Come clean on historical operations:

LGU: declare your true start date (or earliest provable date) and settle back local business tax/fees plus surcharge/interest.
BIR: determine historical liability (income tax; VAT or percentage tax; withholding taxes). File late returns and pay basic tax + surcharge + interest.
Discuss compromise penalties (where available) with the RDO for minor/first-time offenses.

3) Fix your documentation:

Start issuing compliant invoices/receipts and keeping books properly.
For prior sales issued without compliant documents, expect limited deductibility and VAT credit issues.

4) If you receive notices:

Do not ignore show-cause or assessment notices. Deadlines are short and jurisdictional—missing them can make the assessment final and executory.
You can protest/appeal within the administrative windows. Consider professional representation.

F. Special situations

Online sellers / home-based businesses / freelancers and professionals: Registration and permits still apply (with differences in forms/requirements). “Small” or “online-only” doesn’t exempt you from BIR or LGU rules.
Pop-ups, markets, kiosks, fairs: Temporary/special permits may be needed from LGU; BIR registration/invoicing rules still apply.
Multiple locations/branches: You may need branch-level registrations/permits depending on structure and current rules.
Heavily regulated sectors (food, health, education, finance, environment): Expect additional permits and higher scrutiny.

G. Practical risk matrix (at a glance)

Situation	What usually happens	Money at risk	Other risks
No Mayor’s Permit, BIR-registered	LGU closure, back LBT/fees + surcharge/interest, ordinance fines	Months/years of LBT, penalties	Sanitary/fire infractions; reputational hit
Mayor’s Permit, not BIR-registered	BIR closure (Sec. 115), back national taxes + surcharge/interest, invoicing/books violations	Income tax + VAT/percentage tax + withholding exposures	Criminal tax exposure in willful cases; expense/VAT disallowance
Neither permit nor registration	Dual closure risks, both LGU & BIR back liabilities	Highest (both layers)	Increased chance of criminal charges, especially if willful or large-scale

H. Key numbers to remember (high-confidence rules of thumb)

LGU surcharges/interest: Up to 25% surcharge and up to 2% monthly interest (capped at 36 months) on local taxes/fees that weren’t paid on time.
BIR closure power: Not less than five (5) days suspension/closure under NIRC Sec. 115, until compliance.
BIR look-back: Typically 3 years; up to 10 years in cases involving failure to file or fraudulent returns (audits and criminal actions follow specific statutory timelines).

(Other fines, fee amounts, and criminal penalty figures depend on the exact NIRC versions in force and BIR/LGU issuances at the time.)

I. Compliance checklist (use this to get (and stay) clean)

☐ DTI/SEC/CDA registration (as applicable)
☐ BIR registration (correct form); books or POS/CAS registration; authority to print; begin issuing compliant invoices/receipts
☐ LGU Mayor’s Permit (BPLO) + Barangay Clearance + Sanitary Permit + Fire Safety Inspection + zoning/locational clearance; sectoral permits if needed
☐ Back filings & payments (LGU and BIR), including surcharges/interest and any compromise penalties offered
☐ Withholding & payroll registrations/filings if you have employees
☐ Internal controls: cash register/POS discipline, receipt issuance, proper books, document retention
☐ Calendar recurring obligations (monthly/quarterly/annual for BIR; annual renewal for LGU)

Bottom line

If you’ve been operating without a Mayor’s Permit and/or BIR registration, you face closure, retroactive taxes/fees with surcharges and interest, and—if willful—criminal exposure. The fastest path to safety is immediate regularization with both the LGU and the BIR, candid declaration of your true start date, settlement of back liabilities, and tight compliance going forward.

If you’d like, tell me your business type, location (city/municipality), and how long you’ve been operating, and I’ll draft a tailored step-by-step remediation plan with a probable documents list and timeline.