Requirements to Cancel Business Permit with No Income in the Philippines

Introduction

In the Philippines, operating a business requires securing a business permit (also known as a Mayor's Permit) from the local government unit (LGU) where the business is registered. This permit is renewed annually and is essential for legal operations. However, if a business ceases operations, particularly one that has generated no income, the owner must formally cancel or retire the permit to avoid ongoing liabilities such as penalties, fees, or tax obligations. Canceling a business permit with no income is a straightforward process but involves coordination between the Bureau of Internal Revenue (BIR), the Department of Trade and Industry (DTI) or Securities and Exchange Commission (SEC) depending on the business type, and the LGU.

This process ensures compliance with Philippine laws, prevents accumulation of unpaid assessments, and allows the business owner to officially close the entity. It is particularly relevant for dormant businesses, startups that never launched, or ventures that failed to generate revenue. Failure to cancel properly can lead to administrative sanctions, including fines or difficulties in future registrations.

Legal Basis

The cancellation of a business permit is governed by several key laws and regulations in the Philippines:

• Local Government Code of 1991 (Republic Act No. 7160): Empowers LGUs to issue, renew, and cancel business permits. Section 143 mandates that businesses must secure permits and pay local business taxes, but also provides for closure procedures when operations cease.

• National Internal Revenue Code of 1997 (Republic Act No. 8424, as amended): Requires taxpayers to cancel their Taxpayer Identification Number (TIN) and registration upon business closure. For businesses with no income, this involves filing final tax returns declaring zero gross receipts.

• BIR Revenue Regulations No. 11-2008: Outlines the procedures for cancellation of BIR registration, including requirements for affidavits and clearances.

• DTI or SEC Guidelines: For sole proprietorships registered with DTI, cancellation involves surrendering the Certificate of Registration. For corporations or partnerships registered with SEC, dissolution or cancellation of the Articles of Incorporation/Partnership is required.

• Barangay Clearance Requirements: Many LGUs require a barangay clearance as part of the process, ensuring no outstanding local obligations.

Additionally, if the business involves specific sectors (e.g., food services, health-related), clearances from agencies like the Department of Health (DOH) or Food and Drug Administration (FDA) may be needed, even with no income.

Eligibility for Cancellation

A business permit can be canceled if the entity has ceased operations and has no outstanding obligations. For businesses with no income:

• The business must not have generated any gross receipts or sales during its existence or since the last renewal.
• It should not have employees, inventory, or ongoing contracts that imply continued activity.
• The owner must declare under oath that no income was earned and no operations occurred.

This applies to various business forms:

• Sole Proprietorships: Easiest to cancel, as they are tied to the individual owner.
• Partnerships and Corporations: Require partner or board resolutions approving closure, and may involve more steps if assets exist (though with no income, assets are typically minimal).
• Branches or Franchises: Must coordinate with the head office and obtain clearances from both local and national levels.

If the business had income in prior years but none recently, the process is similar but may require audits for previous periods.

Requirements for Cancellation

The specific requirements vary slightly by LGU (e.g., Manila vs. Cebu), but the core documents are consistent nationwide. For a business with no income, prepare the following:

1. Application Forms:

   • BIR Form 1905 (Application for Registration Information Update/Correction/Cancellation).
   • LGU-specific application for business retirement or closure (available at the Business Permit and Licensing Office or BPLO).

2. Affidavits and Declarations:

   • Affidavit of Closure/Non-Operation, notarized, stating that the business has no income, no employees, no inventory, and has ceased operations. This must include the date of closure.
   • Sworn declaration of gross sales/receipts (indicating zero for the period).

3. Tax-Related Documents:

   • Final Income Tax Return (BIR Form 1701 for individuals or 1702 for corporations) showing zero income.
   • Final Value-Added Tax (VAT) Return (BIR Form 2550Q/M) if VAT-registered, or Percentage Tax Return if non-VAT.
   • Payment of any deficiency taxes, though none if truly no income.
   • BIR Certificate of Registration (COR) for surrender.

4. Clearances:

   • BIR Tax Clearance Certificate (TCC), confirming no outstanding tax liabilities.
   • Barangay Clearance from the business location's barangay.
   • Clearances from other agencies if applicable (e.g., SSS, PhilHealth, Pag-IBIG for employee contributions, even if no employees—declarations of non-employment suffice).
   • Sanitary Permit, Fire Safety Inspection Certificate, or other sector-specific permits for surrender.

5. Business Registration Documents:

   • Original DTI Certificate of Business Name Registration (for sole props) or SEC Articles of Incorporation/Partnership.
   • Original Mayor's Permit/Business Permit.

6. Proof of No Income:

   • Bank statements or financial records showing no transactions (optional but recommended).
   • Inventory list (if any, showing zero value).

7. Additional for Corporations/Partnerships:

   • Board Resolution or Partners' Agreement approving closure.
   • Shortened Corporate Term application if amending SEC registration.
   • Publication of notice of dissolution in a newspaper (required for corporations under SEC rules).

All documents must be originals with photocopies, and fees are minimal (e.g., P500–P2,000 for processing, varying by LGU). Notarization costs around P200–P500.

Step-by-Step Procedure

The process typically takes 1–4 weeks, depending on LGU efficiency and completeness of documents. Here's a detailed guide:

1. Prepare Documents: Gather all required forms, affidavits, and clearances. Ensure everything is notarized where needed.

2. File with BIR:

   • Submit BIR Form 1905 at the Revenue District Office (RDO) where the business is registered.
   • Attach the affidavit of closure, final tax returns (with zero income), and supporting documents.
   • Pay any applicable fees (usually none for zero-income cases).
   • Obtain the BIR Tax Clearance and cancellation stamp on the COR.

3. Cancel DTI/SEC Registration:

   • For sole props: Visit DTI office or use online portal to file for cancellation, surrendering the certificate.
   • For corporations: File Articles of Dissolution with SEC, including publication if required. SEC approval may take 2–3 weeks.

4. Secure Barangay Clearance:

   • Apply at the barangay hall, submitting proof of closure and paying minimal fees (P100–P300).

5. File with LGU BPLO:

   • Submit the application for business retirement at the city/municipal hall.
   • Attach BIR TCC, barangay clearance, surrendered permits, and affidavit.
   • Undergo inspection if required (unlikely for no-income cases).
   • Pay closure fees and receive the Certificate of Closure.

6. Surrender Permits and Update Records:

   • Return all original permits to the LGU.
   • Notify suppliers, banks, or other stakeholders if applicable.

7. Post-Closure Actions:

   • File final employer returns with SSS/PhilHealth/Pag-IBIG if registered.
   • Keep records for at least 5 years, as BIR may audit.

For online processes, some LGUs (e.g., Quezon City) offer digital submissions via portals, reducing physical visits.

Potential Issues and Considerations

• Outstanding Liabilities: Even with no income, unpaid renewal fees from prior years must be settled. Penalties accrue at 2% per month.
• Audit Risks: BIR may conduct audits; maintain records to prove zero income.
• LGU Variations: Rural areas may have simpler processes, while urban centers like Makati require more documentation.
• Timeline Delays: Holidays or backlogs can extend processing; start early.
• Reopening: If the business restarts, a new permit is needed; cancellation is irreversible without re-application.
• Legal Consequences of Non-Compliance: Operating without cancellation can lead to fines up to P5,000 or imprisonment under local ordinances.
• Tax Implications: No income means no capital gains tax on closure, but if assets are sold, taxes apply.
• Special Cases: For home-based businesses, HOA clearances may be needed. Foreign-owned businesses require BOI/PEZA approvals.

Conclusion

Canceling a business permit with no income in the Philippines is a compliance-driven process that protects the owner from future liabilities while adhering to national and local regulations. By following the outlined requirements and procedures, business owners can achieve a clean closure efficiently. Consulting a lawyer or accountant is advisable for complex cases to ensure all nuances are addressed, preventing any unforeseen issues. This formal retirement not only fulfills legal obligations but also paves the way for new ventures without encumbrances.