Dear Attorney,

I registered a business but didn’t push through with its operations, and as a result, there was no income generated. Do I still need to file taxes even though the business never commenced? I would like clarification on whether I am still required to submit tax returns despite the absence of any business activity.

Sincerely,
A Business Registrant

Insights

In the Philippines, even if a business registered with the Bureau of Internal Revenue (BIR) has not started operations or generated income, there is still a legal obligation to file tax returns. This requirement applies as long as the business entity is registered, whether it is a sole proprietorship, partnership, or corporation.

The primary reason behind this is the BIR's monitoring of all registered taxpayers. A business that fails to file returns might incur penalties, even if it hasn't earned income or conducted business activities. The obligation to file tax returns stems from the fact that registration itself signifies that the business is operational in the eyes of the law, regardless of its actual financial activity.

There are various types of tax returns a registered business may need to file, even with no income, such as:

Income Tax Return (ITR) – A business must file its ITR annually, indicating that there was no taxable income during the period if no operations took place.
Percentage Tax or VAT Returns – Depending on the business’s registration type, it may be required to submit these returns regularly.
Annual Registration Fee – Every business must pay an annual registration fee, currently set at PHP 500, regardless of income status.
Other BIR Forms – Certain forms like 1601C (for withholding tax on compensation) and 2550M/2550Q (for VAT) or 2551Q (for percentage tax) may also need to be filed if the business is registered for them.

Failure to file these returns can lead to penalties, surcharges, and interest. To avoid these consequences, it's crucial to either comply with filing requirements or formally close or deregister the business if you do not intend to operate it.

In conclusion, if your business has been registered but hasn't started operations, you are still required by law to file the necessary tax returns with the BIR. The safest course of action is to consult with a lawyer or tax expert to ensure compliance and avoid potential penalties.