Annual renewal of business permits: A refresher

Cheers!! We’ve just ushered in a new year, and with it comes another chance to start things right. Once again, it is the time for new beginnings. For a lot of people the new year signifies the prospect to explore new things, while for others - it is an opportunity for renewal of old ties which have been sidelined in the past due to various and complex reasons.

Speaking of renewals, the month of January is a busy period for renewal of various licenses. This includes business permits which local government units (LGUs) annually require in order for one to continue operations of their respective business establishments - a power expressly bestowed to them by the Local Government Code (LGC). But first things first, what is a business permit? Many of us confuse business permits with business taxes. The main difference is that a business permit is required for regulatory purposes and it is based on the exercise of police power, while a business tax is assessed to generate revenue based on the power of taxation. Another significant dissimilarity is the effect of its non-payment. As for non-payment of business tax, it does not make the business illegal but it may be a ground for criminal prosecution. On the other hand, business becomes illegal if one does not pay for the business permit.

Now, on to the process of securing that all important business permit renewal. Basically the procedure is composed of three steps - PSP (Prepare-Submit-Pay). First, prepare the necessary documentary requirements and application form. In general, LGUs require the following documents:

• New Barangay Clearance/Permit

• Previous Year’s Business Permit

• Financial Statement/ Income Tax Return for the preceding year

• Latest Community Tax Certificate

• Contract of Lease/ Lessor’s Permit

• Comprehensive General Liability Insurance/ Local Insurance

Some LGUs impose the submission of additional documents timed with the deadline for renewal of business permits. For example, Makati City issued a regulation last Jan. 4 which reiterates the strict implementation Section 4A.03.A of its Revised Revenue Code which further requires owners and/or operators of business establishments to submit a certified list of their employees, whether contractual, casual, temporary, probationary or permanent basis. Such list must contain the name and position of the employees and the same must be signed under oath, notarized and must be submitted: 1) on or before the 20th of Jan. and 2) on or before the 20th of July and every year thereafter. Failure to comply with said requirement shall subject the owner and/or operators of business to a fine not exceeding P5,000.00, without prejudice to the revocation of their existing business permit and/or closure of their business establishment at the discretion of the City Mayor.

Next, you have to submit all these documents together with the accomplished application form to the designated office in the City Hall and have it assessed for the corresponding fees. Lastly, the assessment must be paid, and voila you have successfully renewed your business permit for the year. It will take effect on the date of issue and shall expire on the date specified therein but not beyond Dec. 31 of the year it was issued.

However, processing of business permit renewal can be tedious and may take more than a few days due to substantial number of applicants and the significantly short period to complete the process. So, here are a few more reminders to make the procedure less of a hassle:

• Do not assume that the requirements for your business renewal last year are the same as this year. Always check with the concerned LGU as to the requirements for the current year’s renewal of the business permit.

• If possible, prepare the documents/requirements well in advance, and have multiple copies of the same available/on hand just in case.

• Avoid beating the deadline. Once your documents/requirements are complete, begin the process with the concerned LGU.

• Bring load of patience or something to keep yourself busy, as the lines are surely long.

Keep in mind that you have to accomplish the renewal process during the first 20 days of January of every year. This 20-day period may seem shorter than it is, given the number of business establishments that continue to renew, which presumably have increased since the last year. On the lighter note, the LGU concerned, at its discretion may extend the deadline for justifiable reasons like what the city government of Makati did last year in consideration of the Papal visit. The renewal process involves lining up for several stations which can go on for hours, so a little more patience or a good book to read or a gadget to keep you company may come in handy.

But what if you weren’t able to make it to the deadline? Well, maybe this little piece of information would make you extra-driven to take the deadlines more seriously. LGUs impose certain penalties upon business for failure to renew their business permits. The usual penalty would be to subject the non-complying business to surcharge and interest per month of non-compliance. In Makati City, a penalty of 25 percent surcharge and two percent interest rate per month is imposed upon those who fail to renew their permits. To top it all, the business establishment will be prohibited to operate within the jurisdiction of the LGU concerned.

Different local government units tailor their own specific parameter as to the application or renewal of business permits. Supplementary requirements or conditions may be applied which are commonly posted in the city hall or LGU-maintained website. As for Makati City which is the home of more than 60,000 business establishments, permit may be refused to any person who has violated any ordinance or regulation relating to a license previously granted or who has failed to pay the tax or fee for a business being conducted but not licensed, or fails to pay any fine, penalty, tax or other debt or liability to the city within 30 days from the date of the demand, as stated in Section 4A.15 of The Revised Makati Revenue Code.

On a final note, government requirements like a business permit is not an arbitrary matter that LGUs impose just to make life harder for those maintaining a business. It is a device to address the need to secure the growing business community and the people making a living out of it. We are a government of laws and not of men and as responsible citizens, let’s do our part. Be informed. Comply with the regulations. Remember, a good start sets the right tone for a full year ahead of us.

Muriel Ielaine Biñas Panganiban is a Supervisor from the Tax Group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice and Tier 1 leading tax transactional firm in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email [email protected] or [email protected].

KPMG R.G. Manabat & Co. will host a one-day seminar on 28 January 2016 in Makati City. Be updated with the most recent tax and corporate laws, cases, regulations and issuances of various government agencies. Details and invites will be sent subsequently. The seminar will include CPE credits.

Interested parties can call (02) 885-7000 local 768 or 429. For more information on KPMG in the Philippines, you may visit www.kpmg.com.ph.