Procedure to Close a Business and Cancel BIR Registration in the Philippines
(Comprehensive Legal Guide, 2025 update)
1. Big-Picture Road-Map
| Phase | Key Agencies & Instruments | Typical Time Frame | Core Outputs |
|---|---|---|---|
| Corporate vote / sole-owner decision | – Board or proprietor | 1 day–2 weeks | Written resolution or affidavit of closure |
| Employee separation & final payroll | DOLE, SSS, PhilHealth, Pag-IBIG | 1–4 weeks | DOLE RKS-5 report, SSS R-3, remittance proofs |
| Tax settlement & cancellation | BIR (RR 7-2012, RMC 57-2020) | 1–3 months* | Tax Clearance for Termination (TCT) |
| Trade-name or corporate dissolution | SEC (RCC §§133-145) / DTI | 1–6 months | Certificate of Dissolution / Cancellation |
| Permit & license retirement | LGU BPLO, Barangay, FDA/BSP/etc. | 1–4 weeks | Permit Retirement Order |
| Archiving & record retention | — | immediately + 10 yrs | Books archived, eOR permanently disabled |
*Longer if there are audit findings, expanded VAT reconciliation, or open cases.
2. Legal Foundations
| Law / Issuance | Pertinent Sections | Essence |
|---|---|---|
| National Internal Revenue Code (NIRC) | §236(F), §115, §151 | Cancellation of registration; inventory tax on VAT goods; penalties for failure. |
| BIR Revenue Regulations | RR 7-2012, RR 20-2012, RR 21-2021 | Uniform procedures for closing business, surrender of receipts, mandatory audit. |
| BIR Revenue Memorandum Circulars | RMC 57-2020, 131-2022 | Clarified eOR deactivation, online TIN cancellation pilot. |
| Revised Corporation Code (RA 11232) | §§133-145 | Voluntary & involuntary dissolution, liquidation, trustee-in-liquidation. |
| Business Name Law (RA 3883) | §6; DTI DAO 18-07 | Cancellation of BN registration for sole proprietors. |
| Local Government Code (RA 7160) | §164-§171 | Retirement of business permit & refund of advance taxes. |
| Labor Code & DO 147-15 | Art. 298-299; Sec. 4 | Reporting closure, separation pay, DOLE RKS-5 submission. |
3. Step-by-Step Detail
3.1 Internal Resolution and Liquidation Plan
- Document the decision
- Corporation → Board resolution + stockholders’ vote (≥2/3) specifying date of cessation.
- Partnership → Partners’ dissolution agreement.
- Sole proprietor → Sworn Declaration of Closure (notarized).
- Appoint a Liquidator/Trustee (corporations) to:
- Collect receivables, sell assets, settle liabilities.
- Prepare liquidating financial statements (FS).
- Notify stakeholders (clients, suppliers, landlords).
3.2 Employee Termination Compliance
| Action | Who & When | Form / Proof |
|---|---|---|
| Serve written notice to employees & DOLE at least 30 days before effectivity | Employer | Hard copy or DOLE e-Filing |
| Compute and pay separation benefits* | On or before release date | Payroll register, quitclaims |
| Transmit final government contributions | SSS R-3, PhilHealth RF-1, Pag-IBIG MMR | Electronic or over-the-counter |
*Separation pay = at least ½-month salary per year of service (Closure not due to serious losses) or 1-month if due to redundancy (§298 Labor Code).
3.3 BIR Closure & Cancellation (linchpin of the whole process)
| Timeline | Task | Forms / Attachments |
|---|---|---|
| Within 30 days from cessation | File BIR Form 1905 (Cancellation of Registration) at RDO of principal place of business. | • Board resolution / affidavit of closure • Latest Certificate of Registration (BIR 2303) • Inventory list of unused OR/SI & “ask for receipt” notice |
| Simultaneously | Surrender unused receipts for destruction & stamping “CANCELLED”. | Bring originals (must be bound). |
| Same visit | Request “closure” audit docket number. RDO issues Order of Payment (if any). | May cover: income tax, VAT/percentage, withholding. |
| Within audit period (commonly 30–60 days) | Submit: • Final Audited FS (cut-off to date of cessation) • Final VAT Return (2550Q) or % Tax (2551Q) & inventory-output VAT computation • Final Expanded/Compensation WT remittances (1601E/Q, 1601C-FQ) • Alpha List of Employees |
|
| After compliance | Pay deficiencies → BIR issues Tax Clearance for Termination (TCT) or “Certificate of No Outstanding Liability”. | This is required by SEC & LGU for final dissolution/retirement. |
Key BIR Pitfalls
- Claiming input VAT on unsold inventory without remitting output VAT → deficiency.
- Forgetting to file / pay DST on dissolution transfers (Sec. 179).
- eFPS filers must file “change status to inactive” in eAccReg before 1905, or returns remain open (“open cases”) and generate penalties.
3.4 Cancellation with Other Registries
3.4.1 Sole Proprietorship (DTI)
- Online cancellation through Business Name Registration System or manual at DTI Provincial Office.
- Requirements:
- BN certificate (original)
- Sworn Statement of Closure
- Tax Clearance OR copy of filed BIR 1905
3.4.2 Partnerships & Corporations (SEC)
| Voluntary Dissolution Type | Creditors Affected? | Core SEC Requirements |
|---|---|---|
| Short-form (RCC §133) | No | • Directors & ≥2/3 stockholders notarized resolution • TCT from BIR • Latest GIS & FS • Publisher’s Affidavit of 3-consecutive-week notice |
| Long-form (RCC §134-135) | Yes | Above + Verified Petition, list of creditors, proof of settlement, SEC-approved liquidation plan. |
SEC Filing Fees: ₱1,030 + 1/10 of 1 % of authorized capital not yet paid up (if any).
SEC Issues Certificate of Dissolution, then corporation enters a three-year winding-up life (§139).
3.4.3 Cooperatives
Apply at CDA with Resolution, audited FS, and BIR clearance; CDA issues Resolution of Dissolution.
3.5 Local Government Retirement
- Barangay: Secure “Clearance for Business Closure” (settle any community tax).
- City/Municipality BPLO:
- File Retirement/Closure Form within 30 days of cessation.
- Attach: BIR TCT, SEC/DTI proof, sworn statement of no operations, last official receipts of local taxes.
- Pay pro-rated taxes up to effectivity date; possible refund of advance payments.
- Receive Order of Permit Retirement and updated locational clearance (if required).
3.6 Special-Sector Licenses (Illustrative)
| Sector | Cancelling Body | Common Exit Filings |
|---|---|---|
| Importers / exporters | BOC, CPRS | De-activation request & clearance from Port of Registration |
| Banks & NBFIs | BSP | Prior Monetary Board approval & publication |
| Food/Drug | FDA | LTO surrender & product delisting |
3.7 Archiving & Post-Closure Obligations
- Books & records must be preserved for 10 years (§203 NIRC; shorter if digitized & BIR-approved).
- Dissolved corporations may still be sued within 3 years; keep a resident agent for summons.
- Owners remain subsidiarily liable for unpaid taxes and labor claims discovered later.
4. Timelines & Practical Tips
| Checklist Item | Typical Bottleneck | Pro Tip |
|---|---|---|
| BIR Closure Audit | Missing reconciliations of “All Value” vs VAT returns | Use a trial balance prepared solely for the cut-off date and tie it to signed FS. |
| SEC Petition | Inconsistent corporate addresses vs BIR/DTI/LGU | Update GIS before filing dissolution to avoid deficiency letters. |
| Employee Settlement | Disputed last-pay computation | Release pay & quitclaim in bank drafts to create incontestable proof of payment. |
5. Frequently Asked Questions
Q1: Can I keep the TIN for a future business?
A: The individual TIN remains; only the BIR registration of the business (Branch Code 000) is cancelled. New ventures register the same TIN with a new branch code.
Q2: Do I still file Annual ITR after closure?
A: Yes—file a “short-period” return covering January 1 to the date of cessation. Mark “Final Return”.
Q3: What happens if I simply stop filing?
A: Open cases accumulate surcharges (25 % or 50 %), interest (12 % p.a.), and compromise penalties; LGU will blacklist permits; SEC will tag as “revoked” but liabilities survive.
Q4: How long does SEC dissolution take?
A: Short-form: 2–3 months (no creditor objections). Long-form: 6-12 months, depending on oppositions and liquidation.
Q5: Do I need an external auditor?
A: Corporations with assets or liabilities ≥₱600 k must submit audited FS to BIR and SEC, even if closing mid-year. Sole props below the VAT threshold may attach unaudited FS but BIR RDOs often still require CPA-signed statements for clearance.
6. Conclusion & Compliance Reminders
Closing a Philippine business is a multilayered statutory process—BIR clearance is the gatekeeper, but labor, SEC/DTI, and LGU obligations are equally critical. Advance planning, accurate record-keeping, and early engagement with accountants and lawyers can reduce the closure timeline from many months to mere weeks.
Disclaimer: This article summarizes Philippine laws and issuances in force as of May 7 2025. It is not legal advice. For entity-specific guidance, consult the relevant agencies or a Philippine-licensed counsel.