How to Close a Business in the Philippines

Has your business reached the end of its road? We’re sorry to hear that. The business closure process is anything but fun. But, if you know what you’re doing, it can at least be relatively stress-free.

Knowing it's time to shut your doors is one thing, but knowing how to close a business is another matter. There are a number of requirements and processes involved, all of which you need to be clued up on if you want to stay compliant and avoid fines.

We’re here to help ease your transition. We’ve distilled our combined business experience into a handy must-read guide on closing a business in the Philippines. We’ll discuss some reasons for closing a business, the key processes involved, tax implications, and everything else you need to know for a smooth transition.

In this article, you will learn:

• Reasons for closing a business
• Business closure process in the Philippines
• Business closure for sole proprietorships vs corporations
• Closing a business in the Philippines: common challenges
• How QuickBooks can help during business closure
• Properly close your business in the Philippines

Reasons for closing a business

It’s never easy to accept that it’s time to shut up shop. You’ve put hundreds, maybe thousands, of hours into making something special—but it’s time for a new chapter.

It’s important to remember you’re not alone. In the Philippines alone, around 20% of businesses close within just 2 years. Why? Well, it can come down to a variety of reasons, some within a business owner’s control, others that couldn’t have been avoided.

Let’s take a look:

• Financial difficulty: Perhaps the main reason a business closes is that there simply isn’t enough money. This is more common than you’d think. Small businesses face many small hurdles, all of which add up to one enormous mountain—declining sales, high operational costs, mounting debt, and poor cash flow all contribute. When a business simply can’t fight these anymore, closure may become the only option.
• Market changes: External factors can also play a big role, like shifts in consumer preferences, increased competition, technological advances, and economic downturns. If a company fails to adapt or becomes obsolete, staying open can become impossible.
• Personal reasons: Of course, sometimes, it’s got nothing at all to do with the business itself. Especially for small, family-run businesses, personal difficulties can spell doom. In some cases, the demands of running a business just don’t stack up against the benefits.

Whatever your reasons for closing your business, it’s crucial to go about it the right way. Knowing the requirements for closing of business protects you from unnecessary financial strain.

Business closure process in the Philippines

Unfortunately, closing a business in the Philippines isn’t as simple as closing the doors. There are a few steps—some recommended, some legally required—you should take to make sure the transition causes as little disruption as possible, and avoid costly fines!

Here’s a brief overview of how to close a business in the Philippines:

• Announce the closure: You should always start by letting everyone involved know you’re closing. That includes employees, suppliers, customers, and other stakeholders. This is partly a courtesy, but it also gives you the opportunity to start organizing outstanding obligations—this is mandated by the Department of Labor and Employment (DOLE).
• Settle financial obligations: Close all pending transactions, pay outstanding debts, and collect receivables. Ensure all financial matters are resolved before proceeding with government clearances.
• File for business closure with local government units (LGUs): Next, you’ll need to visit the municipal hall where the business is registered. Submit a formal letter of closure and return your business permit. Make sure to get a Certificate of Closure, too.
• Cancel permits and licenses: Your specific licenses will vary by industry. But it’s important to cancel your Barangay Clearance, Mayor’s Permit, and any other special licenses.
• Settle tax obligations with BIR: You may still need to file a final tax return, plus request a Tax Clearance Certificate from the Bureau of Internal Revenue (BIR).
• Notify other government agencies: Inform agencies such as the Social Security System (SSS), Pag-IBIG, and PhilHealth about the closure and ensure that contributions for employees are up to date.
• Secure final clearances and certificates: Once all requirements are met and obligations settled, obtain the necessary clearances from each agency. These documents serve as proof that the business has been legally and properly closed.

Key Requirements for Business Closure

Unfortunately, there’s a lot of paperwork coming your way. There are a few requirements you need to be aware of:

LGU requirements:

• Letter of Request for Business Closure
• Original Barangay Clearance and Mayor’s Permit
• Latest Business Tax Receipts
• Inventory of Assets and Liabilities (if applicable)
• Certificate of Closure from the Barangay and City/Municipal Hall

BIR requirements:

• BIR Form 1905 (Application for Cancellation of Registration)
• Latest Income Tax Returns and VAT or Percentage Tax Returns
• Audited Financial Statements (if required)
• Inventory of unused official receipts/invoices
• Books of Accounts for stamping and submission
• Notice of Closure
• Tax Clearance Certificate

Department of Trade and Industry (DTI) or Securities and Exchange Commission (SEC) requirements:

• For sole proprietorships: Request for Cancellation of Business Name at DTI
• For partnerships and corporations, SEC requirements include:
• Board Resolution approving closure
• Affidavit of Dissolution
• Audited Financial Statements
• Clearance from BIR and other regulatory agencies

Other government agency requirements:

• Social Security System (SSS): Clearance after settling contributions
• PhilHealth: Request for closure and clearance
• Pag-IBIG Fund: Clearance and updated contribution reports

We know it’s a lot. But methodically gathering and ordering these documents will save you a lot of trouble down the line.

Business closure for sole proprietorships vs corporations

What kind of business do you run? This is an essential question for anyone looking into the business closure process in the Philippines. You need to know which legal structure you operate under: sole proprietorship, partnership, or corporation. This’ll affect how you move forward.

Sole proprietorship

If your business is a sole proprietorship, you’re in luck. This is the most straightforward type of business closure with far fewer requirements. All you’ll need to do is:

• Cancel the Business Name with the DTI.
• Close with the LGU, and surrender the Mayor’s Permit, Barangay Clearance, and other local permits.
• Get Tax Clearance from the BIR.
• Notify SSS, PhilHealth, and Pag-IBIG if there were employees.

Partnerships and corporations

Here, things get a little more complicated because there are other people involved in the business.

You’ll need to:

• Get a Board Resolution or Partners’ Agreement approving the dissolution.
• File Articles of Dissolution (for partnerships) or Application for Voluntary Dissolution (for corporations) with the SEC.
• Supply Audited Financial Statements and Affidavit of Non-Operation or Settlement of Liabilities.
• Get a Certificate of Dissolution from the SEC.
• Secure clearances from the BIR, LGUs, SSS, PhilHealth, and Pag-IBIG.

The role of local government and regulatory bodies

You might have noticed a lot of acronyms cropping up. SEC, BIR, SSS, LGUs—the list goes on. If these have all left you scratching your head, you’re not alone. Navigating the many local government and regulatory bodies involved in closing a business can be tough.

But complying with them is crucial. It ensures you fulfil all legal, financial, and employment obligations, and avoid fines or worse.

Here’s a quick breakdown of what they all do:

• Local Government Units (LGUs): They have the power to cancel local permits and business licenses, preventing the accumulation of penalties or taxes after you've shut up shop. 
• Bureau of Internal Revenue (BIR): Closes the business’s tax records, file final returns, cancels the Certificate of Registration, and obtains a tax clearance, which protects you from future tax liabilities.
• Securities and Exchange Commission (SEC): The body that legally dissolves corporations and partnerships and avoids non-compliance issues.
• Department of Labor and Employment (DOLE): Ensures labor standards are followed (separation pay, formal notices, etc.).

Closing a business in the Philippines: common challenges

Needless to say, closing a business in the Philippines can leave a lot of room for error. But as long as you’re on the ball and know how to solve common issues, you’ll be fine. 

Here are a few pesky challenges to look out for:

• Incomplete documentation: Easy to fall into this one. As we’ve covered, there are a bunch of bodies overseeing business closures and each of them has multiple document requirements. We recommend compiling a checklist right out the gate.
• Unsettled tax obligations: Again, it’s easy to fall short here, even with the best intentions. The BIR requires updated and accurate filings before issuing a tax clearance, so settle your taxes before initiating.
• Failure to notify employees: Giving your employees notice isn’t just a matter of courtesy—it’s a legal obligation. Non-compliance with DOLE can lead to costly legal disputes, so always follow labor laws.
• Delays in cancelling permits: It’s easy to forget that each permit and registration must be formally cancelled, not just left to disappear. 

What it all comes down to is proper planning. As soon as you’ve decided to close, you should start compiling documents (don’t forget that checklist) and notifying the right people.

Tax implications of business closure

The last thing you want to do when closing your business is to end up with a heavy tax fine. Complying with tax regulations is non-negotiable—it can be long-winded, but it has to be done.

The first step is to secure a tax clearance from the BIR. When you cease operations, you have to file a final tax return, that means paying any outstanding taxes.

First, the owner must submit BIR Form 1905 to request the cancellation of the Certificate of Registration (COR). You’ll also have to include final audited financial statements, inventory of unused official receipts or invoices (which must be surrendered), and other supporting documents.

From there, it’s down to the BIR. They’ll check everything over and give you the green light—a Tax Clearance Certificate. 

How QuickBooks can help during business closure

Preparing for closure can be a long, sometimes disheartening process. But in 2025, businesses don’t have to go it alone. There are many incredible tools available to help you sail along without encountering choppy waters.

A prime example is QuickBooks. QuickBooks is a leading accounting software—and for good reason. Businesses in the process of closing can use it to seriously slash the amount of time they have to spend manually organizing documents.

For instance, it can generate essential financial reports, such as profit and loss statements, balance sheets, and cash flow statements, in mere seconds. What’s more, it streamlines reconciliation of bank accounts and tracking of receivables and payables, ensuring all assets and liabilities are properly settled.

Throw in inventory records, computing final payroll, compliance docs and more, and you’ve got a one-stop shop for everything you need when closing a business in the Philippines.

Properly close your business in the Philippines

We’re sorry to hear you’re closing your business. We know it can be a difficult time, made all the more so by a complicated business closure process that often seems completely indecipherable.

We’re here to help you through. The process you must take depends on what kind of business you run—sole proprietorship, partnership, or corporation. In general, though, there are a few key steps every closing business needs to follow.

Make sure you announce the closure first. Take care compiling all the necessary documents and find out exactly which bodies you should contact. Comply with their individual regulations, and you’ll be just fine.

And don’t forget, accounting software like QuickBooks can do the heavy lifting for you—compiling essential documents and advising you on compliance. Try QuickBooks for free today!