#AskTheTaxWhiz: With business closed, should we still renew with BIR?

Mon Abrea
#AskTheTaxWhiz: With business closed, should we still renew with BIR?
Is there a penalty? What else do we need to do?

Dear Mr Tax Whiz,

My father stopped renewing his Bureau of Internal Revenue (BIR) registration since he discontinued his small business 5 years ago. I would like to ask if there is any penalty or something we need to do immediately?

Is there any implication for not renewing the business with BIR even if it is no longer operating?

What is the process of filing for closure with BIR? Do we still have to inform other government agencies?

Also, offhand, I’m a big fan of Manny Pacquiao. I’m curious if there is a way he will get tax exemption for bringing pride and glory to our country as boxing champion?

Pacman (Name withheld)

Dear Pacman,

Thank you for your tax questions.

I understand that your father has stopped operating his business 5 years ago. However, unless he files for closure with BIR, he has to renew the business registration every year until he finally decides to discontinue it.

Here are my answers to your specific questions:

Yes. As I have mentioned already, he needs to renew the annual registration with BIR and pay the annual registration fee (RF) of P500 ($11.29). Late payment of annual RF is subject to 25% surcharge, 20% interest, and compromise penalty.

Yes. If your father decides to close already the business, he needs to file for closure of business with BIR and other government agencies where he has registered his business, like the Department of Trade and Industry (DTI), Department of Labor and Employment (DOLE) Securities and Exchange Commission (SEC; if it is a corporation); and other agencies like Social Security System, Philippine Health Insurance Corporation, and Home Development Mutual Fund (PAG-IBIG).

Here is the procedure on how to close a business with BIR:

  1. You need to file BIR Form 1905, together with the attachments at the Revenue District Office (RDO) where your business is registered, within 10 days from retirement of business.
  2. You need to file short period return for income tax purposes. This is the same as the annual income tax return but covering only from January up to the month you file the closure.
  3. RDO will verify if your business has any open cases reflected in the Integrated Tax System (ITS). If yes, you will be asked to submit required returns and pay the corresponding tax due/s and penalties, if any.
  4. RDO will verify if your business has delinquent cases at the Assessment, Collection, and Legal Divisions of the region.
  5. RDO will verify if your business has delinquent cases at the Collection Enforcement Division, BIR National Office.
  6. RDO will request for Letter of Authority (LOA) to investigate internal revenue taxes for all un-audited taxable years prior to cancellation of business.
  7. Assigned case officer will conduct investigations for period/s covered in the issued LOA.
  8. You need to comply with requirements of audit and pay corresponding deficiency taxes based on audit results using Form 0605.
  9. RDO will issue tax clearance for closure of business.
  10. RDO will update ITS and cancel TIN of taxpayer (for non-individual taxpayer).

Here are other documentary requirements you need to prepare for the closure of your business:

  • Letter of request stating reason for termination of business
  • Original certificate of registration
  • Books of accounts
  • Inventory list of unused receipts and invoices
  • Unused receipts and invoices for cancellation
  • Board resolution/notice of dissolution (if corporation / partnership)

And yes, we are all proud of Manny Pacquiao. His victories have united our country and rekindled the patriotism in all of us as he dedicates his every fight to the Filipino people.

Although he can be exempted from tax through legislation as already initiated by Senator Aquilino Pimentel III, I strongly oppose such unfair treatment as Manny Pacquiao is not the only modern day hero bringing pride and glory to our country. (READ: Give Pacquiao tax exemption in Mayweather bout – senator)

Otherwise, everyone can claim exemption from taxes as modern-day heroes like our teachers, policemen, and the likes.

Got a question about taxes? #AskTheTaxWhiz! Tweet @rapplerdotcom or email us at business@rappler.com. Rappler.com

Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country’s first social consulting enterprise, the Abrea Consulting Group, which offers strategic finance and tax advisory services to businesses and professionals. Mon’s tax handbook, Got a Question About Taxes? Ask the Tax Whiz! is now available in bookstores nationwide. Follow Mon on Twitter: @askthetaxwhiz or visit his group’s Facebook page. You may also email him at consult@acg.ph.

US$1 = P44.30

Orange folder image via Shutterstock

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