Business Permits and Compliance
From Phinvestopedia
Business Permits and Compliance refers to the mandatory government registrations and licenses required to legally operate a business in the Philippines. Unlike in some countries where you can register a business online in 10 minutes, the Philippine process is multi-layered, involving National (DTI/SEC/BIR) and Local (Barangay/City Hall) agencies.
Operating without these permits is technically a criminal offense (Tax Evasion) and can result in immediate closure by the Local Government Unit (LGU).
Historical Context
The Philippine bureaucracy is a product of its colonial history, often criticized for "Red Tape."
- The Spanish Legacy: The culture of "padrino" (who you know) and complex paper trails dates back to the Spanish era, where trade was heavily restricted to the elite.
- The Anti-Red Tape Act (ARTA): In 2007, the government passed RA 9485 to improve efficiency.
- Ease of Doing Business Act (2018): A landmark law (RA 11032) signed by President Duterte. It mandated the "3-7-20 Rule":
- Simple transactions must be done in 3 days.
- Complex transactions in 7 days.
- Highly technical ones in 20 days.
- Reality Check: While the law exists, implementation varies wildly. Some cities (like Quezon City or Valenzuela) have fully automated "Business One Stop Shops" (BOSS), while provincial municipalities may still use manual typewriters.
The Compliance Lifecycle
Compliance is not a one-time event; it is a cycle.
1. The Setup (One-Time)
This is the registration phase.
- Trade Name: DTI (for Sole Props) or SEC (for Corporations).
- Location Clearance: Barangay Clearance + Mayor's Permit.
- Tax Authority: BIR Certificate of Registration (COR / Form 2303).
- Employee Benefits: SSS, PhilHealth, and Pag-IBIG (HDMF) employer registration.
2. The Maintenance (Recurring)
This is where most businesses fail.
- Monthly/Quarterly: Filing BIR Tax Returns (VAT, Income Tax, Withholding Tax) using eBIRForms or eFPS.
- Annually (January): Renewal of Mayor's Permit. Deadline is usually January 20. Late renewal incurs a 25% surcharge.
- Annually (April): Filing of Annual Income Tax Return (ITR).
- Annually (SEC Only): Submission of General Information Sheet (GIS) and Audited Financial Statements (AFS).
Pitfalls and "Gotchas"
- The "Open Case" Trap
- Many entrepreneurs register with the BIR, operate for 6 months, fail, and just "stop" without formally closing the business.
- * The Consequence: The BIR computer continues to expect your monthly filings. 5 years later, you will receive a letter demanding ₱50,000 to ₱200,000 in penalties for "Open Cases" (unfiled returns), even if you had zero income.
- * The Fix: If you close your business, you must go through the formal Retirement of Business process with the City Hall and BIR.
- The "Zoning" Nightmare
- You sign a lease for a location, pay the 3-month deposit, and renovate. When you apply for a Mayor's Permit, the City Planning Office rejects you because the area is "Residential Only" and does not allow "Commercial" establishments.
- * The Fix: Never sign a lease without checking the Zoning Ordinance at City Hall first.
- The "Fixer" Risk
- Bureaucracy breeds corruption. "Fixers" will offer to get your permit in 1 day for a fee.
- * The Risk: Fake receipts. When the City Hall Inspection Team visits your store and checks your permit, they will spot the fake signature/receipt. You will be shut down and potentially charged with falsification of public documents.
Outsourcing vs. DIY
Because the process is tedious, an industry of service providers has emerged.
| Method | Pros | Cons |
|---|---|---|
| DIY (Do It Yourself) | Cheap. You only pay the government fees. You learn the process inside out. | Time Consuming. Expect to spend 2-4 weeks queuing in government offices. |
| Bookkeepers | Affordable. Independent accountants usually charge ₱1,500 - ₱3,000 per month to handle BIR filings. | Reliability. If your bookkeeper disappears (ghosts you), you are the one liable for the penalties, not them. |
| Compliance Firms | Professional. Companies like CloudCFO, FilePino, or Full Suite handle everything legally. | Expensive. Retainer fees can range from ₱10,000 to ₱50,000 per month. Best for Corporations or Foreign Investors. |
