Closing the Chapter: Essential Tips for a Smooth Business Closure in BIR

The past three years have been challenging for businesses in the Philippines due to the COVID-19 pandemic. Many companies have faced significant losses, leading to closures.

Whether closing down completely or transitioning to new ventures, it is crucial for business owners to follow official protocols to avoid tax penalties and negative consequences.

In this article, we will explore the importance of properly closing a business, the penalties for failure to do so, the necessary documentary requirements, the BIR process, and the assistance available for a smooth business closure in the Philippines.

The Significance of Properly Closing a Business

Closing a business is a sensitive and stressful endeavor. However, taking the necessary steps to close your business properly can protect you from potential penalties and legal complications.

By adhering to official protocols, you can ensure that all your tax obligations are settled, inventory is properly accounted for, and necessary clearances are obtained. This approach will provide peace of mind and safeguard your reputation as a responsible business owner.

BIR Penalties for Failure to Close a Business Properly

If a company decides to close its business but fails to file for business closure with the Bureau of Internal Revenue (BIR), it remains obligated to file regular tax returns. Failure to do so will result in “Open Cases,” which refers to tax returns labeled as “not filed” or “not submitted.”

Accumulating fines can be avoided by applying for business closure with the BIR. Failure to file NIL tax returns can result in additional fines of P1,000 per unfiled return, not exceeding P25,000 for a calendar year. Companies with tax insufficiencies may face penalties of P250,000 or more.

BIR Documentary Requirements for Closing a Business

To avoid costly fines, companies must fulfill the documentary requirements for filing a closure of business. According to Revenue Memorandum Circular No. 57-2020, these requirements include:

• Two original copies of BIR Form 1905
• Inventory of unused sales invoices/official receipts
• List of ending inventory of capital goods, goods, and supplies
• Used & Unused sales invoices/official receipts and all other unused accounting forms including but not limited to Original Certificate of Registration ((BIR Form 2303), Authority to Print and its attachments, Books of Accounts, Notice to Issue Receipt or Invoice (previously Ask for Receipt), Current years payment of Registration Fee (BIR form 0605) to be destroyed and witnessed by BIR personnel and officials.
• Closure Certificate issued by City Hall
• Photocopy of the death certificate in the case of an individual

Additional Requirements for Authorized Representatives:

For Individuals:

• Special Power of Attorney and a valid government-issued ID of the taxpayer and the authorized representative.

For Non-Individuals:

• Board resolution or Secretary’s Certificate indicating the purpose and name of the authorized representative
• A government-issued ID of all the signatories and the authorized representative

BIR Process on How to Close a Business:

Once the required documents are submitted, the taxpaying company will be given a routing sheet to obtain clearance from various departments of the BIR. This process involves the Assessment Section, Client Support Section, Collection Section, and Compliance Section.

The BIR will conduct a tax audit to identify any open cases and outstanding tax obligations. The time required for clearance may vary, depending on the tax audit results.

During the closure process, the BIR performs several procedures to halt the generation of open cases:

• “End date” the taxpayer’s tax types;
• Destroy or shred unutilized sales invoices/official receipts and other accounting forms in the presence of the taxpayer or their authorized representative, ensuring they will no longer be used as originally intended;
• Return the destroyed or shredded sales invoices/official receipts and accounting forms to the taxpayer for burning or proper disposal;
• Issue a Tax Clearance to the taxpayer within ten (10) days of terminating the investigation or settling the taxpayer’s liabilities, if applicable.

Need help in closing a business?

Remember, closing a business does not define your entrepreneurial journey. It is an opportunity for growth, reflection, and potentially opening new doors to future ventures.

By following the proper procedures, settling obligations, and respecting legal requirements, you can navigate the closure process with professionalism and integrity.

Stay informed, and seek expert advice from reputable accounting firms such as DJKA Business Services, Inc.

For more details, you may email us at info@djkaaccounting.com.