Photo: Anete Lusina

What can happen if you operate a business without a license?

The criminal penalty for “Failure to Register,” or operating an unregistered business according to BIR regulations is “Fine of not less than P5,000 but not more than P20,000 and imprisonment of not less than 6 months but not more than 2 years.”

fitzvillafuerte.com - The Consequences of Not Having a Business Permit in the Philippines

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Updated: March 24, 2017

Are you planning to operate without a business permit?

It is always tempting to do so, especially given the long process of registering a business in the Philippines. However, I wouldn’t advise it unless you want to risk facing unfavorable consequences, which will be explained to us today by guest writer, Danella.

Let’s read what she has to say.

The government has attempted to ease the burden on business owners by offering online options to secure the business permit you need to operate legitimately. Aside from tax purposes, this also lets our official ensure a minimum level of quality of services and products from prospective business owners. However it does come with fees and charges – money that could be a big difference if you’re working on a tight budget; not to mention that every year entails the renewal of said business permits.

The idea of operating without proper papers may be enticing if you find yourself in that scenario, but what would happen if you attempted to fly under the radar – and then got caught?

Remember, that aside from efforts of city inspectors, a business lacking proper permits can also be brought to their attention by concerned citizens: especially disgruntled ones who have received service of a subpar nature.

Government Fines

The initial damage would be monetary compensation. The criminal penalty for “Failure to Register,” or operating an unregistered business according to BIR regulations is “Fine of not less than P5,000 but not more than P20,000 and imprisonment of not less than 6 months but not more than 2 years.” The compromise amount depends on the location of the establishment: P20,000 in Cities, P10,000 in 1st class municipalities, P5,000 in 2nd class municipalities, and P2,000 in 3rd class municipalities. Take note that amount is only for a single violation in their “REVISED SCHEDULE OF COMPROMISE PENALTY.” Failure to register could lead to a myriad of other violations that each have their corresponding fee.

LGU Penalties

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In addition to your obligation to the taxman, you may also receive penalties, which vary according to location or city hall that you have registered under. For example: In Makati, the penalty for non-renewed business permits is a 25% surcharge of the total amount due, plus an additional 2% for every month of delay until settlement. That’s a fee that can quickly rack up!

Closure

In more extreme cases of delinquency, such as operating for several years without a business permit–or not having one in the first place–the local government can move to close down your operations until you have settled your deficiencies. Seizure of property and assets is also a possibility–especially when it comes to violations of secondary permits such as health, sanitation, and fire safety requirements. Another ground for seizure is continuing to run the business despite an order from the city hall to cease your operations; in that case the local police may be called in to enforce the local government’s decision. An attempt to run from the penalties by shuttering or abandoning the business is also unwise, because there are also regulations and procedures for the proper shutting down of a business. It will also leave a black mark on your record that LGU’s or the BIR can see if you ever decide to pursue it again in the future. The cons far outweigh any possible pros by operating illegitimately, so be sure to keep everything on the level as a business owner! This article is written by Danella Yaptinchay. She is the managing director of Full Suite, a service company providing back end support to small businesses.