How to Close a Business Properly: BIR, LGU, DTI, and SEC Steps Under the 2026 Rules

A business that stops trading does not stop existing in government records. Until each agency cancels its registration, returns keep falling due, local business tax keeps being assessed, and the open cases pile up. Closing properly costs a few weeks of paperwork; closing informally costs penalties for years.

The BIR side became much simpler in 2026. RMC No. 47-2026 replaced the 2020 rules that had made closure a long audit exercise. This guide covers the new BIR process and the LGU, DTI, and SEC steps around it.

The order of operations

Each agency wants proof from the one before it. Keep certified copies of every clearance.

Step 1 and 2: Retire the business at the LGU

Start at the barangay, which issues a closure certificate for the address. Then file a retirement of business application at the business permits and licensing office. The treasurer computes the local business tax on gross sales from January 1 to the closure date, which is why they ask for the latest financial statements or BIR returns, the last official receipt for business tax, and the original permit. Pay the final assessment and keep the certificate of retirement; the BIR and the SEC both ask for it.

If you lease space, settle with the landlord before this step. A lease that runs past the closure date is a common reason an LGU refuses to retire the permit.

Step 3: BIR deregistration under RMC No. 47-2026

The Grant Thornton summary of RMC No. 47-2026 explains what changed. The old process under RMC No. 57-2020 varied by RDO and treated a full audit as a prerequisite; the new one has a single list of requirements for every type of taxpayer.

Where to file. At the RDO where the head office or branch is registered, manually or electronically through ORUS, the TRRA portal, or the RDO’s official email. Unused invoices and original permits still have to be handed in physically.

What to submit.

1. Form 1905, ticking the cancellation of tax types or of the whole registration.
2. An inventory of unused invoices and other accounting forms, together with the forms themselves for cancellation.
3. A list of ending inventory, only if you are VAT-registered.
4. The original Certificate of Registration, the Notice to Issue Receipt/Invoice, and any permits (loose-leaf, CAS, POS).
5. An authorization letter and IDs if a representative files.

What happens next. Once the documents are complete, the registration is tagged “deregistered.” From that date, penalties for non-filing stop accruing, which is the biggest practical change: under the old rules, returns kept falling due while the closure sat in a queue.

Audit and clearance. Micro taxpayers (gross sales below ₱3 million) are no longer subject to a mandatory closure audit. Audits are now discretionary. A compliant micro taxpayer with no open cases can receive the tax clearance within three working days. If you have open cases or unpaid tax, you settle them first and the clearance follows payment.

The final returns

Deregistration stops future obligations; it doesn’t erase the current ones. File and pay, up to the closure date:

VAT-registered businesses also account for output VAT on the ending inventory, which is treated as a deemed sale on closure. That is why the inventory list is required.

Books of accounts and records are kept for five years after closure, the same retention period as for a running business.

Step 4: DTI or SEC

Sole proprietors cancel the business name through the DTI’s Business Name Registration System, with a letter request, the original certificate, and a copy of the LGU retirement. If you don’t cancel it, the name stays reserved to you until it expires, which is harmless but can confuse a buyer of the business.

Corporations and partnerships file for dissolution with the SEC. Voluntary dissolution where no creditors are affected needs a board resolution and stockholder approval, publication, and the BIR tax clearance; where creditors are affected, the process is longer and court-like. The SEC also expects the last General Information Sheet and audited financial statements to be filed before it approves. A one person corporation follows the same route with a simpler approval step.

Employers notify SSS, PhilHealth, and Pag-IBIG of the closure and the separation of the last employees, and settle any unpaid contributions. Employees’ final pay, including prorated 13th month pay, is due within 30 days of separation under DOLE’s final pay advisory.

Open cases: the step that takes longest

An open case is a return the BIR expected and never received. Every closure application is checked against the list. Clearing them means filing each missing return, even with zeros, and paying the compromise penalty for each. A dormant business that stopped filing two years ago has eight to twelve open cases waiting before closure can proceed. Our zero returns guide explains how to file them, and the penalties guide what each one costs.

Closing a branch, not the business

A branch closure uses the same Form 1905 and the same document list, filed at the branch’s RDO, and cancels only that branch’s registration. The LGU where the branch operated retires its permit separately.

A closure checklist

• Decide the closure date and stop issuing invoices from that date
• Barangay closure certificate, then LGU retirement and final business tax
• Count ending inventory (if VAT-registered) and list unused invoices
• File Form 1905 with the documents, through ORUS or the RDO
• File the final returns and clear any open cases
• Receive the tax clearance; cancel the DTI name or file SEC dissolution
• Notify SSS, PhilHealth, and Pag-IBIG; release final pay and 2316s
• Keep all records for five years

If the business is pausing rather than ending, don’t close it. Keep filing zero returns and resume when you are ready; re-registering costs more than a year of quiet filings.