“It’s always important to know when something has reached its end.” This is a popular quote from Paulo Coelho’s The Zahir. The quote may sound sad and depressing, just like when a valued relationship or a favorite TV series ends, but in business, it is equally important to know when a certain endeavor has reached its ending.

Data from the Department of Trade and Industry showed that 26% of businesses closed last June 2020, which was four months after the declaration of a national emergency by the government. Fast forward to July 2021. Following the enactment by the government of the Bayanihan Act and the CREATE Law in the hopes of boosting the economy under a new normal, this percentage has dwindled down to 10%.

Whatever the reason is for justifying business closure as determined by owners or persons in charge of operations and corporate governance, the fact remains that compliance with the said closure must be followed. Yes, you read that right. Even upon business closure, guidelines must be followed to avoid tax penalties that may cost business owners a hefty amount of money.

Let us take this example of a domestic corporation retiring from business.

The first agency that you will be dealing with is the barangay of the place where the company is situated. Requirements may include a valid ID of the person filing and a letter of request to close the company. After paying the necessary fees, a barangay clearance and certificate of closure will be issued.

Next on the list is to visit the city hall or the local government unit with authority over the business. The processes and requirements may vary, so it is best to check first. Requirements may include, but are not limited to, the following,:

  1. Valid ID
  2. Barangay Clearance
  3. Barangay Certificate Closure
  4. Latest business permit
  5. Latest ITR, VAT, and OPT returns
  6. BIR Form 2303
  7. Business plate
  8. Affidavit of closure
  9. Audited Financial Statements

The city hall concerned may do a quick examination of the business taxes paid over the years to check for deficiencies.

Third on the list is complying with the requirements provided by the Bureau of Internal Revenue (BIR). Initial requirements include:

  1. Request letter of closure
  2. BIR Form 2303 and “Ask for receipt” certificate
  3. Books of Accounts
  4. Inventory of unused sales invoices and receipts
  5. Accomplished BIR Form 1905
  6. ITR for the last three years
  7. City Hall closure certificate

The BIR will check its system for any open cases (i.e., unfiled returns), and may ask the taxpayer to provide copies of the alleged unfiled returns. Failure to do so will result in penalties. Further, a mandatory audit will be conducted for taxpayers with gross sales or receipts exceeding P1,000,000.00 and gross assets exceeding P3,000,000.00 as provided in Revenue Memorandum Order No. 19-2015, which may take some time. After the settlement of any tax liabilities and administrative fees, a tax clearance will be issued.

Lastly, the Securities and Exchange Commission (SEC) usually requires the following in the issuance of the certificate of dissolution.

  1. Cover Sheet
  2. Certificate that no creditors will be affected by the dissolution
  3. Notarized Director’s Certificate
  4. Articles of Incorporation
  5. Audited Financial Statements
  6. Notarized Affidavit of Notice of Dissolution
  7. BIR Tax Clearance Certificate

Proper notification must also be sent to the Department of Labor and Employment (DOLE), Social Security System (SSS), Philippine Health Insurance Corporation (PHIC), and Home Development Mutual Fund (Pag-IBIG) for the aforementioned agencies to commence clearance processing.

“It is much easier to register a company than to dissolve it.” This is a famous bon mot among peers in the tax practice and we can say there is a certain level of truth in this statement.

But there is a glimmer of hope through House Bill No. 8942 or the Ease of Paying Taxes Act (EPTA), which aims to simplify tax compliance and modernize tax administration. Two of the proposed amendments are the streamlining of BIR procedures and the implementation of risk-based approach on BIR assessments, including the dissolution process of companies that are non-operational for approximately three to five years. EPTA, which is fully supported by various business organizations such as the Joint Foreign Chambers of the Philippines, was approved on its third and final reading last September 15, 2021 in the House of Representatives, and will undergo further deliberation by the Senate and the Bicameral Committee before it is submitted to the President for final approval.

This is a welcome development in making business dissolution less painful. After all, a simple and efficient business process with government agencies is key towards attracting investors that would help stabilize our volatile economy.


As published in Mindanao Times, dated 15 December 2021