If your business has stopped operations, it is better to process the proper closure to avoid accumulating taxes, penalties, and legal issues. Even if the business is small or inactive, it still has obligations that do not automatically disappear.
If you fail to properly close your business in the Philippines, Here’s what you may face:
Bureau of Internal Revenue (BIR) Liabilities
Your business remains active in the BIR system, and unpaid taxes (even if you are not operating) will continue to accrue penalties and surcharges. Failure to file and pay mandatory tax returns (e.g., VAT, income tax, percentage tax) results in:
Tax clearance will be required if you want to start another business in the future.
Local Government (Mayor’s Office) Penalties
Unclosed businesses are still subject to annual business taxes, even if they are not operating.
Failure to renew or officially close your business may lead to:
Sole Proprietorships: If registered with the DTI, failure to cancel your business name may result in continued annual fees. Corporations & Partnerships (SEC-registered):
If the government finds out that you stopped operating but did not formally close your business, you may be charged with tax evasion or falsification of records.
The BIR and SEC can blacklist you, preventing you from registering another company in the future.
Personal Liability
For corporations and partnerships, directors and officers may still be held accountable for tax dues and other unpaid obligations. Sole proprietors may personally owe the BIR and LGU, as their assets are tied to their business.
Difficulty in Starting a New Business
If you plan to start another business later, failure to close your previous business properly may block future registrations. The BIR, SEC, and LGUs check past compliance records before approving new registrations.
Business Tax Summons and Garnishment
If your business has unpaid local taxes, the LGU can issue a demand letter or garnish your business assets. If the BIR identifies unpaid taxes, it may:
The SEC can automatically revoke a corporation’s registration if it fails to file reports for five consecutive years.
The BIR can blacklist a business and its owners for non-compliance.
