Closing Your Business? A Step-by-Step Guide to Filing with the BIR
A business needs to undergo formal and legal processes before it can be officially declared closed.
Closing one’s business can be difficult. There’s the part where a business owner needs to accept the reasons for discontinuing operations, and there’s also the part where one needs to fulfill mandatory requirements set by the government. It’s not enough to simply announce that a business is closed—there are certain processes that need to be completed before the closure becomes official.
This includes formally closing your business with the Bureau of Internal Revenue (BIR).
To help business owners in the process of closing down their businesses, The Business Manual has put together a simple guide for a smoother transaction with the BIR.
Where to Apply for Closure of Business
Where to apply for closure of business will depend on the taxpayer group the owner belongs to. Regular (non-large) taxpayers will have to apply at the regional district office (RDO) where the head office of the business is registered.
Large taxpayers, on the other hand, have to apply at the Large Taxpayer Division where the head office of the business is registered.
List of Requirements
The following requirements must be included in the application:
- Two original copies of BIR Form No. 1905 (can be secured via the RDO’s client support section area) or the BIR website)
- One original copy of the List of ending inventory of goods, supplies, including capital good
- One original copy of the Inventory of unused invoices/supplementary invoices, together with unused invoices/supplementary invoices and all other unutilized accounting forms
- Vouchers
- Debit/credit memos
- Delivery receipts
- Purchase orders, etc.
- Original copy of business notices and permits (e.g. ATP; NIRI; Accreditation Certificate and Permit to Use – for CRM/POS; etc.) issued to taxpayer
- Original copy of the Certificate of Registration (COR)
Additional documents may be required for certain cases. The full list of additional documents can be found here.
Application Process
Once you are ready with all the required documents, head to the applicable RDO to begin the application process.
You will be asked to get a queuing number and wait for your turn. Once your number has been called, head to the designated registration counter to submit your documents.
Here, the documents will be checked for accuracy and completeness. Should the documents be incomplete, what you have submitted will be returned to you, and you will be informed of what you are missing.
Note that the veracity of the surrendered hard copies of unused principal/supplementary receipts/invoices compared with the inventory of listing/s, and business notices and permits (Authority to Print and Printer’s Certificate of Delivery) will likewise be checked.
Mandatory Audit
As part of the process, you will be subject to mandatory audit/verification if you meet any of the following criteria:
- If gross sales/receipts for the immediately preceding year exceeds Php3 million; or if gross assets upon retirement exceeds Php8 million – for issuance of Electronic Letter of Authority (eLA)
- If gross sales/receipts for the immediately preceding year is Php1 million but not exceeding Php3 million; or if gross assets upon retirement is Php3 million but not exceeding Php8 million – for issuance of Tax Verification Notice (TVN)
Once audit/verification is done, the corresponding termination letter/recommendation report will be used as the basis of the issuance of tax clearance. Bear in mind that the audit/verification will only cover the immediately preceding year and the short period taxi returns prior to the closure of business.
Issuance of TCL1
Should the BIR find any open cases or tax liabilities, you will be informed, for your compliance. You will need to settle these cases or liabilities before you can be issued a Tax Clearance Certificate (TCL1). Failure to comply with findings or settle any liabilities within thirty days from receipt of such notification will result in the application being denied.
If compliance/settlement happens beyond the 30-day period, it will be regarded as a new application by the BIR. This means that you will need to resubmit all the documents once again.
Once compliance/settlement has been accomplished and the BIR does not find any more issues or liabilities, you will receive the TCL1.
The BIR offers a detailed step-by-step process for the application for closure of business, including the steps that the agency will undertake. This is available for viewing on BIR’s official website.
How Long Will the Whole Process Take?
The BIR estimates that the whole process will take around three days.
However, the conduct of audit/verification and the time it will take to settle open cases and tax liabilities are not part of this estimate. It can, therefore, be expected that the process as whole can take longer than the aforementioned three days.
Read more:
What are the Required Documents for Easy BIR Registration?
