I. Why Business Permits Matter

In the Philippines, almost every form of ongoing, profit-oriented selling is treated as a “business” that must be registered and licensed. This applies whether you:

Run a physical store or stall
Sell online through Shopee, Lazada, TikTok, Facebook, Instagram
Bake and sell from home
Freelance or do services on a regular basis

Operating without a business permit can expose you to:

Local government fines, back taxes, and business closure
Investigations and assessments from the Bureau of Internal Revenue (BIR)
Issues with regulatory agencies (e.g., health, food, professional regulation)
Difficulty later on when you try to expand, get loans, or join bigger platforms

This article explains the legal basis, penalties, and how to regularize and comply if you are already operating without permits.

II. Legal Basis for Business Permits

1. Constitution & Police Power

The Philippine Constitution allows the State to regulate businesses under its police power (for public health, safety, and welfare) and its power of taxation. Business permits are one way this power is exercised.

2. Local Government Code (LGC)

The Local Government Code (LGC) empowers cities and municipalities to:

Impose local business taxes and regulatory fees
Require Mayor’s / business permits and related clearances
Inspect establishments and enforce closure for non-compliance

Each city or municipality has its own business tax and licensing ordinance, schedule of taxes, and rules on renewal, penalties, and closure.

3. National Internal Revenue Code (Tax Code)

The National Internal Revenue Code (NIRC) requires persons engaged in business to:

Register with the BIR before starting business
Keep registered books of accounts
Issue official receipts or invoices
File tax returns (income tax, percentage tax or VAT, and withholding taxes if applicable)

The Tax Code penalizes failure to register, failure to issue receipts, failure to file and pay, and unlawful pursuit of business.

4. Business Registration (DTI / SEC / CDA)

Depending on your structure, you are expected to register with:

DTI – Business Name Registration for sole proprietors
SEC – if you operate as a partnership or corporation
CDA – if you are a cooperative

These are separate from, but usually a prerequisite to, getting your LGU business permit and BIR registration.

5. Other Sectoral Regulations

Depending on the nature of your business, you may need special permits:

Food, drugs, cosmetics, medical devices – from the Food and Drug Administration (FDA) and local sanitary permits
Professional services – PRC license for regulated professions; IBP for lawyers, etc.
Education, security services, financial services, and others – their own regulators

Failing to secure these permits can lead to independent penalties in addition to local and tax violations.

III. When Are You Considered “In Business”?

You are generally considered “engaged in trade or business” when your selling or service activity is:

Regular, habitual, or continuous – not just a one-time garage sale
Profit-oriented – there is an intention to earn, even if small
Organized – with some system of ordering, advertising, or delivery

Common examples that usually count as a business:

Maintaining a regular online shop
Selling baked goods or kakanin every weekend
Reselling items (clothes, gadgets, cosmetics) on a continuous basis
Freelancing as a designer, programmer, tutor, or consultant with multiple clients

Typically not considered a business (borderline but often tolerated):

Occasional sale of personal, used items (e.g., selling your old phone once)
Isolated small transactions without intention to repeat

In practice, if you are earning regularly from selling or services, Philippine authorities expect you to register.

IV. What Is a “Business Permit” in Practice?

When people say “business permit”, they usually mean the Mayor’s Permit / Business Permit from the city or municipality. But full compliance usually includes several layers:

Structure Registration
- DTI (sole proprietorship)
- SEC (partnership/corporation)
- CDA (cooperative)
Local Permits
- Barangay Business Clearance
- Mayor’s / Business Permit
- Zoning clearance
- Sanitary permit, health certificates
- Fire safety inspection certificate
Tax Registration (BIR)
- BIR Certificate of Registration
- Authority to Print (if using printed receipts) or approval for computerized receipts
- Registered books of accounts

A business that skips any of these is not fully compliant and may be penalized depending on what’s missing.

V. Penalties for Operating Without a Business Permit

Penalties can come from three main fronts: the local government, the BIR, and other regulators.

A. Local Government Penalties

Administrative Fines & Penalties

LGU ordinances usually impose:

Fines for operating without a Mayor’s Permit
Surcharge (often a percentage) on unpaid business taxes
Possible per-day fines of continued violation

The exact amounts depend on the city/municipal ordinance, and they often increase if you have been operating for years.

Back Taxes and Regulatory Fees

Once discovered, the LGU may:

Assess local business tax for all prior years of operation
Add surcharges and interest
Charge fees for permits you should have obtained (business permit fee, sanitary fee, etc.)

Some LGUs estimate based on:

Declared gross sales, or
Estimated sales from inspection, or
Industry benchmarks

Closure or Suspension (Padlocking)

LGUs, through the Business Permits and Licensing Office (BPLO) and enforcement teams, may:

Issue a Notice of Violation or Notice of Closure
Post a “Closed” sign and physically padlock the premises
Confiscate or temporarily hold goods if allowed by ordinance

Businesses often only regularize after they receive a closure order.

Criminal or Quasi-Criminal Liability under Local Ordinances

Some ordinances classify operating without a permit as a violation punishable by fine and/or imprisonment, enforced through the city or municipal trial court. These cases are less common in practice than administrative closure but remain a legal possibility.

B. BIR (Tax) Penalties

Even if the LGU is not yet involved, the BIR can penalize unregistered businesses.

Failure to Register

If you engage in business without registering with the BIR, you may be liable for:

Compromise penalties for late registration
Possible criminal prosecution for “unlawful pursuit of business”

Deficiency Tax Assessments

The BIR may assess for:

Income tax on your net income
Percentage tax or VAT on your gross sales/receipts
Withholding taxes on payments to employees or certain suppliers

On top of basic tax, they may add:

Surcharge (e.g., for late filing or non-filing)
Interest per year on unpaid taxes
Compromise penalties

Failure to Issue Receipts / Invoices

Operating without BIR registration almost always means:

You do not issue registered receipts or invoices

This is a separate offense and can lead to:

Fines
Possible criminal prosecution
Closure of establishment under certain circumstances

Tax Evasion Cases

In more serious cases (especially with high income or deliberate concealment), non-registration and non-payment can be used as evidence of tax evasion, which carries significant fines and imprisonment.

C. Other Regulatory Penalties

Depending on your industry:

Food businesses without sanitary permits can be ordered closed by the local health office; products can be seized or destroyed.
Health and beauty products sold without proper FDA approval may be confiscated; sellers can be charged with violations of special laws.
Professionals practicing without proper license or PRC registration may be administratively and criminally liable.

These penalties are independent of, and may be on top of, LGU and BIR penalties.

VI. Special Focus: Online Sellers & Home-Based Businesses

1. Online Sellers

BIR and LGUs treat online selling as a business like any other. Key points:

Selling on Shopee, Lazada, TikTok, or Facebook Shop is still “engaging in business.”
Registration with BIR and, usually, the LGU is expected if activity is regular and profit-oriented.
Platforms may require a BIR Certificate of Registration or Mayor’s Permit for seller verification or participation in special programs.

Even home-based online sellers may be required to:

Register their business name (if using a trade name)
Secure barangay and city/municipal permits (often listing home address as business location, subject to zoning rules)
Register with the BIR and pay taxes on earnings

2. Home-Based Microbusinesses

Many Filipinos run sari-sari stores, carinderia, baking, online reselling, and similar microbusinesses at home.

In practice:

Some LGUs are stricter; others are lenient for very small operations.
Some LGUs offer simplified or discounted permits for micro or home-based businesses.
Even if LGU enforcement is light, the BIR still expects registration and taxation of income once the business is regular.

The law generally does not exempt you just because you operate at home, even if your capital is small.

VII. How Authorities Discover Unregistered Businesses

Authorities can discover unregistered operations through:

Inspection Drives
- LGUs conduct periodic inspections of commercial areas and sometimes residential zones.
Complaints from Neighbors or Customers
- Noise, sanitation, or consumer complaints can trigger an inspection.
Cross-Checking of Data
- BIR can cross-check bank deposits, platform seller lists, importation records, etc.
- LGUs sometimes coordinate with BIR to validate taxpayers.
Online Monitoring
- Authorities can see online advertisements, Facebook pages, and marketplace profiles.
Competitor Reports
- Registered businesses sometimes report unregistered competitors.

VIII. How to Legalize an Existing Unregistered Business

If you are already selling without permits, the safest approach is to voluntarily comply. This often results in lower penalties and better treatment than waiting to be caught.

Step 1: Decide on Your Business Structure

Typical options:

Sole proprietorship – easiest; you and the business are one person in law.
Partnership – two or more persons sharing ownership; requires SEC registration.
Corporation – separate legal entity; requires SEC registration and more formalities.

Most small and micro enterprises start as sole proprietorships.

Step 2: Register the Business Name

For sole proprietors – apply for a DTI Business Name.
For partnerships/corporations – register with the SEC (this already establishes your business name for corporate use).

Use your registered business name consistently in dealings and documents.

Step 3: Secure Local Permits

The usual order (may vary slightly by LGU):

Barangay Business Clearance
- Requirements often include: valid IDs, proof of address, DTI or SEC papers, and minor local forms/fees.
Mayor’s / Business Permit from the City or Municipality
- Processed through the Business Permits and Licensing Office (BPLO).
- May require:
  - Barangay clearance
  - Lease contract or proof of ownership of premises
  - DTI/SEC papers
  - Fire safety inspection
  - Sanitary permit / health certificates
  - Zoning clearance
- You will be assessed business taxes and fees, possibly for current year and back years.
Other Local Clearances (if applicable)
- Environmental permits
- Additional clearances for specific industries

Step 4: Register with the BIR

After securing your local permits (some do this in parallel):

Apply for BIR Registration
- If sole proprietor, you typically register as a self-employed individual / sole proprietor.
- Present IDs, DTI/SEC registration, Mayor’s Permit (if available), and other standard documents.
Get Your BIR Certificate of Registration
- This document lists your applicable taxes (e.g., income tax, VAT or percentage tax).
Register Books of Accounts
- Either manual bound books or loose-leaf/computerized (with prior approval).
Register Receipts/Invoices
- Apply for authority to print or to use a POS system with BIR-registered receipts.
Start Filing Tax Returns
- Quarterly and annual income tax returns.
- Percentage tax or VAT returns, depending on your chosen/required tax type.
- Withholding tax returns, if you have employees or required withholdings.

Step 5: Address Past Noncompliance

This is often the most sensitive part.

Determine When the Business Really Started

You may need to decide:

From what date you will disclose that the business has been operating.
Some LGUs ask you to execute an affidavit of start of operations.

Discuss Possible Penalties and Back Taxes

Reasonable expectations:

LGU: back business taxes, surcharges, and penalties from your declared or discovered start date.
BIR: possible penalties for late registration and for any unfiled/unpaid taxes.

File Late Tax Returns (If Necessary)

You may need to:

Reconstruct your sales/expenses for previous periods
File late returns with corresponding penalties

This is an area where an accountant or tax practitioner is extremely useful, especially if your business has been running for several years.

Consider Installment or Compromise Options

In some cases, authorities may:

Allow installment payments for large back taxes
Consider compromise penalties for first-time violators

Policy and practice vary; much depends on your good faith and cooperation.

IX. Common Scenarios and Practical Guidance

1. Small Online Seller / Reseller

Scenario: You resell clothes or gadgets online, earning a few thousand pesos a month, not registered anywhere.

Risks:

Technically, you are engaging in business and required to register.
Platforms may eventually require your tax and permit details.
If your income grows, BIR assessments and LGU penalties can catch you unprepared.

Practical Approach:

If you intend to continue and grow, it’s safer to register early while your scale is still small.
Take advantage of any simplified processes for micro or home-based businesses.

2. Home-Based Food Business

Scenario: You cook and sell meals, snacks, or baked goods from home on a regular basis.

Risks:

You may need sanitary permits, health certificates, and possibly FDA compliance depending on products.
Neighbors can complain, triggering inspections.
Unregistered food operations can be ordered closed quickly for health reasons.

Practical Approach:

Register locally (barangay + city/municipal) and with the BIR.
Secure sanitary permit and fire safety clearance.
Follow minimum food safety standards.

3. Freelancer / Service Provider

Scenario: You work as a freelance designer, programmer, VA, tutor, photographer, or consultant.

Risks:

Clients, especially corporate ones, may demand official receipts and TIN details.
BIR can trace your income from bank records or payments through platforms.

Practical Approach:

Register as a self-employed professional or sole proprietor with BIR.
Depending on LGU practice, you may still need a Mayor’s Permit even if you work from home.

4. “Side Hustle” Still Small

Scenario: You feel your side hustle is “too small to register.”

Legally:

The law focuses on whether the activity is regular and profit-oriented, not just on size.
There is no official “too small to register” exemption for business permits and income tax, although VAT thresholds affect VAT vs percentage tax.

If you plan to continue and possibly scale, early compliance is usually cheaper and less stressful than facing penalties later.

X. Key Takeaways

Regular, profit-oriented selling in the Philippines is generally considered a business, whether offline or online, and requires registration and permits.
Operating without a business permit can trigger:
- LGU penalties: fines, back taxes, and closure
- BIR penalties: tax assessments, surcharges, and possible criminal cases
- Regulatory penalties for specific industries (food, drugs, professional practice, etc.)
Online and home-based businesses are not automatically exempt. The law expects compliance once the activity is continuous and profit-driven.
If you are already operating without permits:
- Voluntarily regularizing (DTI/SEC, barangay, Mayor’s Permit, BIR) is usually safer than waiting to be caught.
- Be prepared for some back taxes and penalties, but cooperation can help mitigate consequences.
Full compliance typically involves:
- Business structure registration (DTI/SEC/CDA)
- Local permits (barangay, Mayor’s permit, sanitary, fire, zoning)
- BIR registration, books, and receipts
- Ongoing tax filing and payment

This article provides an overview, but specific situations can vary widely depending on your LGU, industry, and history of operations. For significant past operations, large amounts, or complex tax questions, it is wise to consult a Philippine lawyer or tax professional who can review your exact circumstances and documents.