What Counts as an “Informal Business” in the Philippines?

Short answer: In Philippine law and practice, a business is “informal” when it operates without the registrations, permits, and compliance that bring an enterprise under the formal regulatory, tax, and labor systems. This typically means no registration with DTI/SEC/CDA and the BIR, no mayor’s permit/barangay clearance, no official receipts, no proper books, and no compliance with labor and social protection rules if it has workers.

Below is a practical, law-informed guide that maps how authorities view informality, where the boundaries really are, and what happens when you “formalize.”

1) Why “informal” is not a single statute—but a set of tests

There isn’t one code section titled “Informal Business.” Instead, different laws create gateways that, when ignored, render an activity informal:

Legal personality & name use
- Sole proprietors register a Business Name with the DTI (if using a name other than the owner’s full name).
- Partnerships/corporations register with the SEC.
- Cooperatives register with the CDA.
- No such registration → you’re unregistered for legal personality or trade name purposes.
Local government licensing
- Operating “any business” in a city/municipality ordinarily requires a Mayor’s/Business Permit (via the BPLO) and Barangay Clearance, plus zoning/sanitary/fire clearances as applicable.
- No permit → informal at the LGU level (and subject to closure/penalty under local ordinances).
Tax registration
- Anyone “engaged in trade or business” must register with the BIR, secure a Certificate of Registration (COR), print/issue official receipts (ORs)/invoices, and keep books.
- No BIR registration/ORs/books/returns → informal for tax purposes (and a target for assessment/closure).
Labor & social protection
- If you employ people, you should comply with DOLE rules (e.g., report your establishment, minimum wage/13th-month pay/OSHC), and register workers with SSS, PhilHealth, and Pag-IBIG.
- Employing without these → informal as an employer (wage/benefit liabilities can accrue).

Takeaway: “Informal” = operating outside one or more of these gateways. You can be partly informal (e.g., LGU-permitted but not BIR-registered), but any missing leg keeps you in the informal space for that regulator.

2) Practical indicators that you’re an informal business

If any of these are true, regulators will likely regard you as informal (fully or partly):

You sell regularly for profit but have no BIR registration and don’t issue ORs/invoices.
You operate (store, kiosk, stall, kitchen, warehouse, office, service area) with no Mayor’s/Business Permit or Barangay Clearance.
You use a trade name (not your exact full name) without DTI registration (for sole props) or SEC/CDA registration.
You employ people but don’t comply with DOLE standards and don’t remit SSS/PhilHealth/Pag-IBIG.
You manufacture/process regulated goods (e.g., pre-packaged food, cosmetics, drugs, medical devices) without FDA licenses/notifications.
You are a PUV-like transport service without appropriate franchise/authority (LTFRB/LGU for tricycles).
You are an online seller or platform-based freelancer doing business habitually but not registered with the BIR and don’t issue ORs.

3) The “habituality” and “for profit” tests (what is not a business)

Under tax and local rules, being “engaged in business” generally means a regular pursuit of profit. These usually do not count as a business:

Occasional, one-off sales of personal, used items (decluttering).
Casual hobby with sporadic, nominal sales and no real profit intent.

But once activity becomes frequent, organized, marketed, or revenue-seeking (e.g., maintaining an online catalog, regular drops, paid ads, order systems), agencies treat it as business—even home-based or online-only.

4) Common Philippine examples of informal businesses

Street/ambulant vendors with no barangay/LGU permit.
Sari-sari stores or food stalls without permits and BIR registration.
Home kitchens selling cooked or packaged food without sanitary permits/FDA (when required) and BIR registration.
Tricycle services operating outside TODA/LGU permits.
Online resellers, live-sellers, and marketplace merchants unregistered with the BIR.
Freelancers/gig workers (design, writing, dev work, tutoring, coaching) with no BIR registration/ORs.
Small repair shops (appliances, gadgets, motorcycles) without permits/ORs.
Short-term room/house rentals (e.g., homestays) without LGU/BIR compliance.

Note: Small ≠ informal. A microenterprise can be fully formal if it has the required registrations.

5) How each regulator “sees” informality

LGU (City/Municipality/Barangay): Focus on location & safety (zoning, fire, sanitation). No business permit → subject to closure, fines, and confiscation of wares under ordinances.
DTI/SEC/CDA: Focus on legal identity. Using a trade name without DTI, or acting as a partnership/corporation without SEC, can trigger administrative/criminal consequences under business name or corporation laws. Cooperatives must be CDA-registered to legally operate as such.
BIR: Focus on taxpayer registration & invoicing. Indicators: no COR, no ORs/invoices, no books, under-reporting. Consequences: assessments, surcharges, interest, compromise, and possible closure (e.g., non-issuance of receipts, under-declaration). The rule is: if you’re habitually selling or rendering services for profit, you should be BIR-registered, issue ORs, file returns, and pay taxes.
DOLE / SSS / PhilHealth / Pag-IBIG: Focus on worker protection. Hiring even a single employee can trigger reporting and contributions, wage and 13th-month compliance, OSH standards (with thresholds varying by risk/size). No compliance → labor complaints, money claims, and penalties.
FDA / sector agencies: Regulated products/services (food processing/packaging, cosmetics, drugs, medical devices, clinical labs, transport, tourism, etc.) have separate licensure. Operating without those is informal in that sector and high-risk.

6) Online sellers & freelancers: same rules, different medium

E-commerce is still commerce. Regular selling on marketplaces or social media is doing business. Platform rules don’t replace government registrations.
Freelancers/professionals (e.g., graphic artists, software devs, fitness coaches, consultants) need BIR registration and must issue ORs. Some LGUs also require a Mayor’s Permit for professional practice or a Professional Tax Receipt (PTR)—this is LGU-specific, so check your city/municipality.

Occasional, purely private, not-for-profit gigs aren’t a business; but a sustained client pipeline, rate cards, or recurring invoicing are classic “doing business” signals.

7) Tax basics that flip an activity from “informal” to “formal”

Register with the BIR (as a sole proprietor/professional, partnership, or corporation).
Books & ORs/invoices: Keep registered books; issue ORs for services and sales invoices for goods.
Income tax: File quarterly/annual returns under either graduated rates or the optional 8% tax (if you’re eligible as a self-employed individual and you elect it).
Business (transaction) taxes:
- Percentage tax (for non-VAT taxpayers) or
- VAT if you voluntarily register or exceed the VAT threshold (commonly cited at ₱3,000,000 gross sales/receipts in a 12-month period; subject to change/adjustment by law).
Withholding & registration of employees, if any.
Local business taxes under the Local Government Code, paid at the LGU with your Mayor’s Permit renewals.

Caution: Rates, thresholds, tax options, and deadlines do change. Before registering, align with a CPA or your RDO’s taxpayer assistance desk for current specifics.

8) Labor law & social protection triggers

If you have workers (rank-and-file employees):

Minimum wage (varies by region), OT, holiday/rest day pay, service incentive leave, 13th-month pay.
SSS, PhilHealth, Pag-IBIG employer registration and monthly remittances.
OSH standards (training, safety officer, first-aiders, equipment) proportionate to risk/size.
DOLE establishment report (often referred to as “Rule 1020”) within a set time from start of operations.

Failing these doesn’t just keep you “informal”; it creates back-pay liabilities and penalties.

9) Local permits & home-based setups

Even home-based businesses typically need:

Barangay Clearance
Mayor’s/Business Permit (BPLO)
Zoning (home occupancy rules)
Sanitary permit (especially for food, personal care, or anything with public health touchpoints)
Fire safety clearance

LGUs can and do run inspection/abatement drives. Renting? Your lessor may require proof of permits, and LGUs can require lessors to ensure tenants are permitted.

10) Special sectors that often trip people up

Food manufacture/pre-packaging (bottled drinks, sauces, baked goods sold pre-packed): may require FDA licenses/notifications in addition to LGU/BIR compliance.
Health/beauty services (salons, clinics, wellness): sanitation and professional licensure; sometimes DOH/FDA requirements.
Transport/Delivery: tricycles under LGU franchising; PUVs under LTFRB; couriers under DTI/DICT rules depending on scope.
Tourism/homestays: local tourism offices may impose classification/permits; short-term rentals face LGU zoning, condo by-laws, and tax.
Education/training: certain schools/centers need DepEd/CHED/TESDA approvals.

11) Consequences of staying informal

LGU: Closure orders, confiscation, fines, denial of renewal.
BIR: Assessments (deficiency income/percentage/VAT/withholding), surcharges & interest, possible closure for non-issuance of receipts or under-declaration.
DOLE/SSS/PhilHealth/Pag-IBIG: Monetary awards to workers, penalties for non-remittance.
Sector regulators: Seizure/recall orders (e.g., FDA), stop-operations.
Civil/contracting risk: Harder to open bank accounts, access loans, lease spaces, or join marketplaces/government bids.

12) Are microenterprises always informal? (No.)

Micro, small, and medium enterprise (MSME) categories are size definitions (assets/employees). An MSME can be fully formal if registered and compliant. Conversely, a large operator can be informal if it hides activity or fails to register a branch or line of business.

13) Incentives for formalizing (especially for the smallest players)

Barangay Micro Business Enterprises (BMBE) (under a special law) can grant incentives to qualifying microenterprises (assets below a set cap, excluding land; subject to documentary screening). Benefits can include income-tax incentives on business income, exemptions from certain local fees, and access to credit and training via Negosyo Centers. (Availability and mechanics depend on current implementing rules—ask your DTI Negosyo Center and BIR RDO how it applies to your case.)
DTI/DA/DOST/ATIs and LGUs run training, shared facilities, and grants that usually require formal status.
Market trust: permits and ORs make you eligible for B2B clients, platforms, payment gateways, and supplier credit.

14) The line between “earning money” and “doing business”—edge cases

Occasional garage sale: generally not a business.
Regular weekend pop-ups: is a business—register.
Artist selling a few commissioned pieces per year: depends on regularity; once marketed/recurring → register.
Room rental (recurring): typically business for LGU/BIR; check zoning/building/condo rules.
Agricultural smallholders: selling raw produce at farmgate can still be a business (LGU/BIR), though many operate informally; coop membership/formalization can unlock benefits.
Professionals (lawyers, CPAs, consultants, trainers): may need PRC/Supreme Court roll as applicable, BIR registration, and LGU PTR/permits depending on locality.

15) How to “cross over” from informal to formal (roadmap)

A. Choose your form Sole proprietor (DTI BN), partnership/corporation (SEC), or cooperative (CDA). Many solo operators start as sole props or professionals.

B. Register for tax (BIR) Obtain COR, register books and ORs/invoices, pick your tax regime (graduated vs. optional 8% if eligible), and learn your filing calendar.

C. Get LGU permits Start with Barangay Clearance, then Mayor’s/Business Permit (BPLO). Secure zoning, sanitary, and fire clearances as required.

D. Sector licenses If applicable (e.g., FDA for pre-packed food/cosmetics; LTFRB for PUV; DOT for accommodation, etc.).

E. If you have workers Register with DOLE (establishment reporting), and enroll/remit SSS/PhilHealth/Pag-IBIG; comply with wage/benefit rules.

F. Consider incentives Ask your DTI Negosyo Center about BMBE and MSME support.

16) Quick self-diagnosis checklist

I have DTI/SEC/CDA registration (as applicable).
I have an LGU Mayor’s/Business Permit and Barangay Clearance for my place of business.
I’m BIR-registered, have a COR, registered books, and authorized ORs/invoices.
I file tax returns and pay taxes on time; I know whether I’m VAT or non-VAT.
If I have employees, I’m compliant with DOLE and remit SSS/PhilHealth/Pag-IBIG.
I hold sector-specific licenses (FDA/LTFRB/DOT/etc.) if my product/service requires them.
I keep basic records (sales, purchases, cash, payroll).
I can show these documents during inspections or client onboarding.

If you can’t tick one or more boxes, you’re informal in that dimension.

17) FAQs

Is selling online from home “doing business”? If it’s regular and for profit, yes. Register with BIR (and usually your LGU).

I only sell during Christmas. Do I need to register? Seasonal but recurring profit-making counts as business. If you truly sell only once, and it’s personal items, that’s different. But recurring seasonal sales usually require registration.

Do I need both a BIR registration and a Mayor’s Permit? Generally yes, because they regulate different things (tax vs. local licensing). Some professionals may have locality-specific rules; check your LGU.

What’s the VAT threshold? Law sets a threshold (widely known around ₱3,000,000 gross in any 12-month period, subject to possible legal adjustments). If you exceed it, you must register as VAT.

What if I’m tiny? Small size doesn’t exempt you from BIR/LGU rules. But programs like BMBE and MSME support are aimed at making compliance easier and cheaper.

18) Bottom line

A Philippine informal business is any income-earning activity that skips one or more mandatory registrations, permits, or compliances. The moment you formalize—DTI/SEC/CDA, LGU, BIR, and any sector/labor requirements—you cross over into the formal economy, gaining legitimacy, market access, and protection (and yes, obligations). If you’re unsure which boxes apply to your exact model (food, online, rentals, transport, freelancers), a DTI Negosyo Center, your LGU BPLO, or a CPA/lawyer can map the precise steps for your city and industry.

Not legal advice. Rules and thresholds change, and LGU practices vary. For a specific situation, coordinate with your RDO and LGU (and, if needed, counsel/CPA).