Applying for or renewing a business license in the Philippines is just one of manytax and tax activitieswhich businesses must consider each year to ensure they remain fully compliant!
A business license must be obtained when a company is first registered as a company and before starting operations.
It is important to note that the business license must be renewed every year, in January, onwards.
In this article, we explain everything you need to know about a business license in the Philippines and what Filipino companies need when applying for or renewing their business license every year.
What is a business license?
First, it is important to note that all registered companies in the Philippines, unless they use an applicable exemption, are required to apply for and obtain a business license for their operations. A business license is often called a mayor's license in the Philippines.
A business license is a key compliance document that entitles and enables a business to legally operate and operate in the area where the business is registered. In short, a business license can be considered a "permit to work" within that specific field.
A business license is an important compliance document for businesses in the Philippines. Registered businesses should not operate without an updated business license or face potential sanctions including fines, penalties and business closure.
What is the purpose of a business license?
A business license is how local government units (LGUs) – barangays and municipalities – in the Philippines supervise and monitor all businesses operating within their region or jurisdiction. The business licensing process also helps ensure that businesses pay their taxes and fees to the local government office in the area where the business is registered and operates.
As noted below, there are a number of documentation and certification requirements that are required to complete the business license application or renewal process. Some of these requirements relate to sanitary certificates, fire safety certificates and environmental safety certificates. As such, the business license process also serves to help local units ensure that businesses have standard, safe and secure business practices and adhere to the various regulations and safety standards required to conduct business.
From a business perspective, obtaining a Business License will illustrate that the company is properly registered and has the right to operate within the LGU. It can be a source of legitimacy and reputation for buyers who want to get involved in that business. It may also be a common requirement when establishing commercial relationships, partnerships or accounts with various third parties such as banks, payment gateways, online subscriptions or vendor/supplier engagements.
Any of these agencies may request a copy of the business license as part of their due diligence or KYC (know your customer) process.
Business license against BIR certificate of registration
There can sometimes be confusion about the two key compliance documents that a company must consider when doing business in the Philippines – Business Licenses and Certificates of Registration (BIR Form 2303).
In short, as mentioned above, a business permit is a form of license that businesses must apply for and obtain through their local barangay office and the local town hall of the area where they operate. It is actually a local government unit (LGU) license that enables business within that LGU area.
On the other hand, the Certificate of Registration, also known as BIR Form 2303, is a BIR certificate evidencing the registration of a business as an official taxpayer in the Philippines. The request for this document is submitted and obtained through the Regional District Office (RDO).ONEin the "district" in which the company is registered. For more information, you can view our article onBIR Form 2303 in the Philippines.
While both documents are key documents that a Philippines company must process and obtain as part of the initial company registration and prior to commencing business under that company, it is important for founders, owners and managers to understand the difference between the two documents listed above. documents - to ensure that both documents are processed on time!
Who needs a business license?
As mentioned above, all businesses in the Philippines, unless exempted, will need a business license in order to legally operate within their local area or local unit.
Importantly, this is applicable regardless of the type of entity under which the company operates. So, whether it is a sole proprietorship, a standard domestic corporation, a one person corporation (OPC) or a partnership, it will be necessary to secure a business license for the company.
Also, the requirement for a business license will apply regardless of the type of business model. For example, is it a traditional brick and mortar business or oonline business in the philippines, usually a business license will still be required!
If you are doing business or intending to do any form of business here in the Philippines, it is important to ensure that you have considered your obligations to obtain a business license during your initial registration and then maintain and renew your business license every year!
So be sure to talk to your law firm, accountant, bookkeeper or business advisor to confirm business license requirements for your PH business!
Requests for business licenses and business license renewals
As mentioned above, the process of applying for a business license is not a one-time activity for companies!
When a business is first registered in the Philippines, a business license must be applied for and secured as part of the initial business registration process.
It is important to note that a business license in the Philippines must be renewed annually at the beginning of each year! In order to ensure the renewal of the business license, it is necessary to submit a number of documents.
Remember, a company without an updated business license does not technically have the right to operate within the local unit! If the LGU determines that a business is operating within their area without a Business License, the business may be prevented from operating until it obtains a Business License, complies with various requirements, and pays any fines or penalties that may arise as a result of operating without a business license.
The above would also apply in the case of a non-renewed business license – i.e. if a company does not renew its business license by the deadline each January, by the time it is renewed, the company will effectively operate without an increase in its current business license.
What is the deadline for submitting a business license?
As mentioned above, the business license application process can be divided into two basic categories – a) anew applicationfor a business license, and b)obnovaexisting business licenses.
For the first application for a business permit, this must occur at the time the company is registered as an official company in the Philippines. This will be required after the DTI or SEC registration is already completed and the business is registered with the BIR as a taxpayer in the Philippines.
So, there is actually no deadline for new business license applications. Simply, a business license should be obtained during the company registration process and before starting business.
Companies in the Philippines must renew their business license every year!
The deadline for submitting a business license is no later than January 20 of each year. In effect, this means that after the end of the calendar year, the company has between January 1st and January 20th to prepare, submit and submit the business license renewal application.
It is necessary to work on the collection and preparation of various documents and information necessary for the renewal of the business license. So our recommendation is that you don't leave this until the last minute on January 20th – or you could miss the application deadline!
Businesses should keep in mind that there are administrative and financial penalties if the business license is not renewed on time! So start your preparations early and contact your usual service provider for support in the business license renewal process in 2023!
How to apply for a business license?
Whether you are applying for a new business license or renewing an existing business license, there are a number of steps required that may involve various government agencies and government units.
It is important for businesses to understand that business license renewal in the Philippines is traditionally a manual process that requires a physical presence at various government offices. Applying for and obtaining a business license, whether for a new application or renewal, must be done physically and in person. While some local units are beginning to move towards an online system, it is usually a hybrid system that includes both online and physical activities. For example, some local units have an online system for booking a physical appointment/time to attend and renew a business license.
One step will be to attend the local Barangay Hall in the Barangay where the company is officially registered and submit the necessary documents (see below). Once this process is completed and paid for, the Barangay Approval will be issued.
The second step is to go to the City Hall with the Barangay Approval and other necessary documents for application or renewal (see below).
Note:In recent years, certain local units have created "one-stop shops" where barangay approval can be obtained while attending town hall. This means that all the necessary documentation can be obtained and delivered through the city hall. However, in some LGUs, there may still be a requirement to attend the Barangay Hall after attending the City Hall. So, as always – be sure to check with your local local authority in advance about the process for your business to apply for a business license and renewal.
Expert advice! As the business license renewal deadline draws closer and closer to January 20, the lines and wait times at the Barangay Hall and City Hall will get longer and longer! Another good reason not to leave your business license renewal for the last minute!
Information needed to renew a business license in the Philippines
There are different types of information and documentation that need to be submitted as part of the business license renewal process. These requirements may change from year to year. Requirements may also vary from barangay to barangay and from municipality to municipality. As such, before proceeding with the business license renewal process, it will be important to review and confirm which requirements apply to your business!
Although requirements may vary, the following list includes common documents and information that would typically be required as part of the business license renewal process.
First of all, it will be necessary to submit a package of documents for a business license from the previous year, which would generally include all or most of the following documents (some documents may depend on the circumstances or location of the business):
- Business license from the previous year (including OR orOfficial confirmationproof of payment for last year's Permit).
- Barangay Certificate of Clearance
- Sanitary permit
- Community tax certificate/certificate
- CENRO certificate (if any). CENRO is also known as the Community Office for Environment and Natural Resources.
- Fire safety inspection certificate
- Comprehensive General Liability Insurance (also known as CGL)
- Certificate of Occupational and Zoning Approval (if applicable)
- Depending on the specific municipality, a certified lease agreement may be required for the business
In addition to the business license package from the previous year, additional and updated information will be required to process the business license renewal, including:
- Quarterly VAT returns from the previous calendar year
- TheAudited financial reportfrom the previous year
- Statement of gross receipts
- Confirmation ofnumberof employees employed at the time of business license renewal
- As mentioned above, certain municipalities may require a business to provide a complete list of its employees at the time of business license renewal. This would include such information as individual addresses, Social Security Numbers for TIN, SSS, PHIC, PAG-IBIG, etc.
- If the company did not operate or had no financial transactions during the previous year, it may be necessary to submit a Statement of Non-Existence of Operations.
Regarding fees during the renewal process, companies will have to pay a business license fee (based on a percentage of the previous year's gross sales/revenue), any local business taxes and any additional fees or charges that may be imposed by the Municipality.
Again, business license processing fees and charges may vary depending on the Barangay or Municipality where the business is registered – so make sure you confirm all applicable fees and charges when you first come in for renewal!
Plan ahead - confirm all business permit applications in advance!
Last reminder and recommendation!
If you are planning to renew your business license yourself, remember to clarify all the requirements with your local unit in advance so that there are no surprises when you finally go to the City Hall or Barangay offices to submit!
Each LGU may have its own variations of specific requirements – so plan ahead!
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DISCLAIMER: This article is for general information purposes only. Nothing in this article constitutes or is intended to constitute financial, accounting, regulatory or legal advice and should not be used as a substitute for professional advice. It is still necessary to consult the relevant professional adviser in relation to any particular matter mentioned above.