Zero Business Transactions — Do I Still Need to File Taxes? (Plus a Quick Guide to BIR Closure of Business)

During the pandemic, many businesses were launched out of necessity, innovation, or opportunity. Fast forward, some of these are still operating, while others have gone quiet, non-operational. Yet, in the eyes of the government, if your pandemic business is registered with tax and regulatory agencies, e.g., DTI and BIR, it still technically exists—even if it hasn’t made a single sale in months or years.  

What you may not have realized is that you cannot simply close your business by suddenly ceasing operations, taking down your signage, zeroing your stocks, or going offline. Officially shutting down or retiring your business requires extensive paperwork, and sometimes the process can be more time-consuming (and costly) than starting up. 

In this blog, we’ll bust a common myth: that no business activity means no need to file tax returns. We’ll walk you through what tax filings are still required, even for inactive businesses, and how to navigate the process with less stress. 

What Do “No Transactions” and “Inactive Business” Mean?

When a business is described as having “no transactions” or being “inactive,” it means that it has not engaged in any business activity during a specific period. That includes no sales, no purchases, no income, and no expenses. Essentially, the business is still registered and legally exists  but is not operating in any way—financially or operationally. 

A Common Misconception: No Business Transaction Means No Tax Obligations

Many business owners—especially those just starting out—often assume that if their business has no transactions or activities (i.e., no sales, income, or expenses), they don’t need to file tax returns with the Bureau of Internal Revenue (BIR). 

This is a common and often costly misconception.

The truth is—every business, for as long as the registration is in effect, is subject to ongoing regulatory compliance and regular filing of tax returns, regardless of whether any transactions occurred during the period. Failing to do so can result in missed deadlines, accrued penalties, and unnecessary complications down the line. 

BIR Penalties for Late and Non-Filing of Tax Returns

If you’re in this exact situation and have already missed filing your business tax returns, it’s important to act quickly. Start by understanding the potential penalties for late or non-filing and prepare for what’s ahead: 

1. Late Filing of Tax Returns with NO Tax Due

In cases where there is no tax liability and there are no sales, a penalty of PHP 1,000.00 is applied. If there are sales but no tax due, the penalty ranges from PHP 3,000.00 to a maximum of PHP 25,000.00. Additionally, a fine of not less than PHP 10,000.00 and imprisonment of not less than one (1) year but not more than ten (10) years constitute the criminal penalty.

2. Late Filing of Statements or Reports with No Tax Due

The compromise penalty will be based on the violations of other provisions under Section 275 of the National Internal Revenue Code (NIRC). Upon conviction for each act or commission, the taxpayer will be punished by a fine of not more than PHP 1,000.00 or by imprisonment of not more than six (6) months, or both.

BIR Certificate of Registration (COR): Your Tax Filing Roadmap

Once the Bureau of Internal Revenue (BIR) issues you a Certificate of Registration (COR) or BIR Form 2303, you are already required to regularly file the returns and pay business taxes. Whether you are already earning, operating, or not is out of context.

Your BIR COR serves as your guide for regular tax filing. It contains a table listing your applicable tax types (e.g., income tax, value-added tax, corporate gains tax, withholding tax, etc.), form types (e.g., 1701, 1702Q, 2550M, etc.), and their respective tax filing deadlines. 

Your business circumstance, however, can change over time — so should your BIR COR. If you’ve switched from VAT to non-VAT due to changes in annual gross sales, or started hiring employees requiring Withholding Tax on Compensation, your tax types must be updated accordingly. Keeping your BIR COR accurate and up to date can help you avoid unnecessary tax filing obligations, penalties, and confusion.   

To update your BIR COR, you need to file BIR Form 1905-Application for Registration Information Update, along with other supporting documents with your BIR Revenue District Office (RDO). Our tax experts and consultants at FilePino can also help you ensure that you are only registered for the tax types relevant to your business operations. 

What BIR Returns to File for Your Zero-Transaction, Inactive Business

While your BIR Certificate of Registration (COR) outlines the tax returns you’re required to file and their respective deadlines, it’s still helpful to have a quick overview. So, let’s break down the most common tax types and filing deadlines for different types of taxpayers. 

Individual Income Tax Returns (ITRs)

Individual income tax returns are official BIR forms filed by individual taxpayers to report income, expenses, and deductions and compute tax due for a specific period.

• BIR Form 1701Q. This is the Quarterly Income Tax Return for Individuals, Estates, and Trusts and must be filed every first to third quarter of each year, regardless of if with or without income or operation, and as long as the taxpayer is actively registered with the BIR as an individual taxpayer engaged in business, self-employment, freelancing, or practice of profession.

• BIR Form 1701/1701A. These are the Annual Income Tax Return for Self-Employed Individuals, Mixed Income Earners, Estates, and Trusts (1701) and Annual Income Tax Return for Individuals Earning Income Purely from Business or Profession (1701A), which are used to summarize all the transactions made over the tax calendar year.

Corporate Income Tax Returns

Like the individual ITRs, these corporate income tax returns must be regularly filed with the BIR to report the gross income and allowable deductions and compute the income tax due of corporations and partnerships for a specific period: 

• BIR Form 1702RT. This is the Annual Income Tax Return for Corporations, Partnerships, and Other Non-Individual Taxpayers Subject Only to Regular Income Tax Rate that must be filed by non-individual (corporate) taxpayers whose earnings are subject to income tax rate. 

• BIR Form 1702Q. This is the Quarterly Income Tax Return for Corporations, Partnerships, and Other Non-Individual Taxpayers, including stock companies and associations, engaged in a trade or business within the Philippines and must be filed quarterly. 

Percentage Tax Returns

Percentage tax returns are tax forms filed by certain businesses that are non-VAT registered and have gross annual sales or receipts that do not exceed PHP 3,000,000. 

• BIR Form 2551Q. This pertains to the Quarterly Percentage Tax Return used for the imposition of taxes on individuals and businesses that sell or lease goods or services that are exempt from Value-Added Tax (VAT) or with annual sales not exceeding PHP 3,000,000. 

Value-Added Tax (VAT) Returns

Value-added tax returns are tax forms regularly filed by businesses that are VAT-registered, typically those with annual gross sales or receipts exceeding PHP 3,000,000 or those who voluntarily registered under the VAT system. These are used to report the VAT collected from customers and the VAT paid on business purchases. 

• BIR Form 2550Q. This is the Quarterly Value-Added Tax Return used for tax imposed on sales or exchange of goods and services in the Philippines. A value-added tax (VAT) is a form of indirect tax passed on to the buyer who consumes the product or service. 

Expanded Withholding Tax Returns

Expanded withholding tax (EWT) returns are tax forms filed by businesses or individuals who act as withholding agents—meaning they are required to withhold a portion of certain payments (like rent, professional fees, or commissions) and remit them to the BIR on behalf of the income recipient.

• BIR Form 1601-EQ. This is the Quarterly Remittance Return of Creditable Income Taxes Withheld (Expanded) used for filing and remitting withholding tax expanded for a given quarter. 

• BIR Form 0619-E. This is the Monthly Remittance Form for Creditable Income Taxes Withheld (Expanded) used for the remittance of expanded withholding taxes, as mentioned within the provisions of Revenue Regulations No. 11-2018. 

• BIR Form 1601-EQ. This is the Quarterly Remittance Return of Creditable Income Taxes Withheld, which is filed by every withholding tax agent when remitting taxes that are withheld during the third month of each taxable year.

Withholding Taxes on Compensation Returns

Withholding taxes on compensation returns in the Philippines refer to the tax forms that employers must file with the BIR to report and remit taxes withheld from employees’ salaries or wages. Employers, being the withholding tax agents, are required by law to deduct the applicable income tax from employees’ compensation and remit it to the BIR on a regular basis.

• BIR Form 1604-C. This refers to the Annual Information Return or Income Taxes Withheld on Compensation, which is filed by a withholding agent who deducts and withholds taxes on compensation paid to employees. 

• BIR Form 1601-C. This is the Monthly Remittance Rerun of Income Taxes Withheld on Compensation filed monthly by a withholding agent who deducts and withholds taxes on compensation paid to employees.