Settling Unpaid Government Contributions When a Philippine Company Closes
(SSS | PhilHealth | Pag-IBIG | BIR & LGU Taxes | Labor & Corporate Law)
Scope & limits – This article consolidates the law and best-practice procedures as of 29 May 2025. It is for general information only and is not a substitute for personalised legal advice.
1. Why government‐contribution clearance matters
- Corporate dissolution or business cessation will not be approved by the Securities and Exchange Commission (SEC), Department of Trade and Industry (DTI), or the local Business Permits and Licensing Office until all statutory contributions and taxes are settled.
- Company officers may be held personally and criminally liable for unremitted premiums under the Social Security Act (RA 11199), HDMF Law (RA 9679) and Universal Health Care Act (RA 11223).
- Unpaid contributions accrue steep penalties (2 %–3 % per month) and disqualify employees from benefits and loan clearances.
2. Statutory framework
| Fund | Key statute | Implementing rules | Penalty for non-remittance | Corporate‐officer liability |
|---|---|---|---|---|
| SSS | RA 11199, § 22 (a) | SSS Circular 2022-011 | 2 % per month • Fine ₱5 000–20 000 • 6 yrs 1 day – 12 yrs jail | Yes, People v. Onandia |
| PhilHealth | RA 11223, § 10 | PhilHealth Circular 2020-0005 | 3 % per month • Fine up to double unpaid amount • Cease-and-desist | Yes |
| Pag-IBIG | RA 9679, § 14 | HDMF Circular 422-2018 | 2 % per month • Fine ₱10 000 or double deficiency | Yes |
| BIR (taxes) | NIRC, § 52, 58 | Rev. Memo. Circ. 18-2023 | 25 % surcharge + 12 % int. | Yes |
| DOLE (final pay) | Labor Code Art. 298 | D.O. 147-15 | ₱100 000 per violation | Yes |
3. Closure planning checklist
| Step | When | Key forms / actions |
|---|---|---|
| Board or owner resolution to close | Day 0 | Board minutes; notarise |
| DOLE 30-day notice to employees & DOLE RO | Day 1 | Letter + Establishment Termination Report |
| Payroll & contribution reconciliation | Within 30 days | Tie out ER2/ER3, PhilHealth RF-1, Pag-IBIG RF-1 |
| Request statements of account (SOA) from SSS / PhilHealth / Pag-IBIG | Day 10–20 | Written request or online portal |
| Pay deficiencies & penalties | Before SEC/BIR filing | Cashier’s receipts; validate e-payments |
| File for contribution clearances | After payment | SSS R-6; SSS Certification, PhilHealth CSF, Pag-IBIG CCL |
| BIR closure | Parallel | BIR Form 1905, inventory of unused invoices, “open cases” audit, tax clearance |
| SEC dissolution or DTI cancellation | After BIR clearance | SEC Form D-1 (corporations) / DTI Affidavit (sole prop.) |
| LGU business permit cancellation & tax clearance | Final | Mayor’s clearance, zoning / sanitation sign-off |
4. Settling each government fund
4.1 Social Security System (SSS)
- Reconcile via ER3 (Electronic Reconciliation).
- Request a Statement of Account (SOA) from the Account Management Section.
- Pay: cashier, bank tie-up, or SSS mobile app. Include Employees’ Compensation (EC) share.
- Secure an Employer Clearance Certificate—required by SEC, BIR, and LGU.
- Condonation/penalty relief: RA 9903 (2010), SSS Circular 2022-011 (ongoing pandemic relief) allow full waiver of penalties upon full settlement of principal.
4.2 PhilHealth
- Generate SPA (Statement of Premium Account) in the Electronic Premium Remittance System (EPRS).
- Pay through partner banks or GCash; interest of 3 % per month applies until posting date.
- Apply for Employer Certificate of No Liability (PhilHealth CSF form) to show zero balance.
- Avail condonation if offered (e.g., PhilHealth Circular 2015-003).
4.3 Pag-IBIG Fund (HDMF)
- Reconcile remittances in HDMF Employer Portal (HEP).
- Request SOA & Penalty Computation; Pag-IBIG imposes 2 % monthly penalty.
- Settle through virtual Pag-IBIG or accredited banks.
- Condonation under Pag-IBIG Circular 422-2018 periodically re-opened; waives up to 100 % of penalties on full payment.
- Secure Certification of Full Remittance/Settlement for SEC/BIR.
5. BIR closure procedure
- Update registration – File BIR Form 1905 to “Cancel/Terminate” the Certificate of Registration (COR).
- Submit final returns – Income tax, VAT/percentage tax, withholding tax, and annual information returns up to the date of cessation.
- Inventory & destruction of unused official receipts/invoices – witnessed by a BIR officer.
- Tax Clearance Certificate (TCC) – Issued by the Revenue District Office after audit or compliance check. SEC will not issue a Certificate of Dissolution without it.
6. Corporate and labor law overlay
| Scenario | Legal basis | Practical impact |
|---|---|---|
| Closure due to business losses | Labor Code Art. 298 (b) | Pay separation pay = ½-month salary per year of service. |
| Merger, consolidation, or asset sale | RCC § 80 | Special SEC forms; successor‐employer doctrine may carry over liabilities. |
| Voluntary dissolution (no creditors) | RCC §§ 133–134 | Publish notice 3× weekly; creditors have 15 days to comment. |
| Involuntary dissolution | RCC § 138 | Appointment of liquidator; contribution liabilities become part of liquidation expenses. |
Officer liability – Directors, trustees, and officers who “knowingly permit or cause the non-remittance” of government contributions are criminally liable (RA 11199 § 28 (h); RA 9679 § 24; RA 11223 § 37). The Supreme Court has affirmed jail terms even after corporate dissolution (People v. Dizon, G.R. 205775, 12 Jan 2022).
7. Sequencing tip: “inside-out” approach
- Complete employee‐level reconciliation first (payroll → SSS/PhilHealth/Pag-IBIG).
- Secure fund clearances—they are often prerequisites to LGU and BIR clearances.
- File BIR & LGU taxes next.
- Finish SEC/DTI dissolution last; attach all prior clearances.
8. Common pitfalls & how to avoid them
| Pitfall | How to dodge |
|---|---|
| Missing a single month’s remittance | Pull SSS R3 posting, PhilHealth RF-1 and Pag-IBIG RLF for full history; catch duplicates and blanks. |
| Continuing to accrue penalties after the last payroll date | File closure notices promptly—the government fund’s billing clock stops only when it receives formal cessation notice. |
| Assuming condonation is automatic | File a written application and wait for approval; pay principal first to qualify. |
| BIR open cases from years earlier | File substituted returns or “no-payment” returns for dormant periods; settle compromise penalties. |
| Forgetting ECC premiums | They ride on SSS contributions; check SSS SOA line item. |
| Directorship changes | SEC will flag new officers for past delinquencies; secure Board resolutions acknowledging carry-over liability if management changed hands. |
9. Timelines at a glance
| Task | Working days (typical) |
|---|---|
| Obtain SOA from SSS/PhilHealth/Pag-IBIG | 3–10 days |
| Payment posting (online) | 1–2 days |
| Clearance issuance | 3–7 days after posting |
| BIR audit & TCC | 30–90 days (depends on RDO) |
| SEC dissolution approval | 30–60 days after complete documents |
| LGU cancellation | 1–5 days |
10. Frequently asked questions
| Q | A |
|---|---|
| Can I use remaining company funds to pay separation pay instead of contributions? | Unremitted government contributions outrank unsecured employee claims and must be paid first under the Civil Code’s preference of credits (Art. 2241 [14]). |
| Do I still have to remit for resigned employees who have migrated abroad? | Yes. Obligation attaches to the payroll period, not the employee’s current residence. |
| Will an SSS condonation program wipe out interest? | Usually only penalties are condoned; legal interest (if any) and principal remain. |
| What if I cannot pay in lump sum? | SSS, PhilHealth, and Pag-IBIG all allow short-term installment plans (3–24 months) upon approval, but SEC dissolution will be on hold until the plan is fully paid. |
11. Practical documentation bundle
- Board Resolution to Close
- DOLE Establishment Termination Report + Employee Notices
- SSS SOA + Official Receipts + Employer Clearance
- PhilHealth SPA + CSF Certificate
- Pag-IBIG SOA + Certificate of Clearance
- BIR Form 1905 + Tax Clearance Certificate
- SEC Form D-1 (or D-2) with clearances attached
- LGU Mayor’s Clearance & Business Permit Cancellation
Keep both originals and digitised copies; BIR and SEC may re-validate within five years.
12. Key take-aways
- Reconcile early. Audits take longest when payroll records are incomplete.
- Document every peso. Official receipts and e-payment confirmations are the only proof accepted by auditors.
- Watch for condonation windows. They recur every 2–3 years and can save >50 % of liability.
- Clearances are sequential. A missing fund-clearance stalls the entire dissolution.
- Officer liability survives dissolution. Settle dues before walking away.
Need tailored guidance? Consider engaging a Philippine tax‐lawyer or payroll specialist who can represent you at SSS, PhilHealth, Pag-IBIG and the BIR, and who can project-manage the timelines above.