New Rules to Write Off Bad Debt
Written by Mr. Monchai Varatthan
The Revenue Department recently announced new rules to write off bad debt for corporate income tax purposes. The new rules intend to resolve issues that had long barred taxpayers from writing off bad debts. In this article, the author addresses only rules applicable to non-financial institutions.
New Law: Ministerial Regulation 374
Ministerial Regulation 374 (2021) issued under the Revenue Code regarding writing off bad debt (MR374) was published in the Royal Government Gazette on 29 April 2021. MR374 amends the old rules under Ministerial Regulation 186 (MR186).
The new rules will apply to accounting periods starting on or after 1 January 2020. Corporate Income Tax Return Form PND 50 for companies with their accounting period ending 31 December 2020 will be due on 30 June 2021, the extended date.
Distinct changes include an increase in debt thresholds, which are subject to different write-off requirements suitable for present-day commerce, and admission of foreign court rulings where debtors reside overseas to write off the debts without having to bring the case to the Thai Court again.
The key rules and changes are discussed below.
1. Debts for Write-Off Must be Related to the Business
MR186, as amended by MR374, emphasizes that bad debts permissible for write-off must be related to the particular business operation and already included as revenue in the computation of net profits. In addition, the prescription periods for the debts must not yet have expired and be sufficiently evidenced for the purpose of suing debtors.
Debts owed by a current or former director or managing partner, however, are not permitted for write-off.
2. Debts Ceiling Increases
Write-off conditions vary based on debt amounts. MR186 now provides the following revised thresholds:
The new thresholds, now more realistic in the current business environment, allow corporate taxpayers to write off smaller bad debts without lengthy and costly processes.
3. Clearer Timeframes & Requirements
The amended MR186 now provides corporate taxpayers clearer timeframes to write-off bad debt under Tiers 1 and 2, in particular. Additions or changes are underlined below for ease of reference:
• Tier 1: Creditor can write off debt in an accounting period if it has brought a:
(1) Civil case against the debtor or has petitioned to share the assets in a civil case and the court has enforced its verdict, and the enforcement officer has issued a report of enforcement having been made and found that the debtor did not have assets to resolve the debts; or
(2) Bankruptcy case against the debtor or has petitioned to share the assets in the bankruptcy case, or the liquidator petitions the court to adjudge the debtor bankrupt and the court agrees with the debt settlement or orders bankruptcy, and the case has undergone the first round of asset distribution or the court has ordered closure of the case.
• Tier 2: Creditor can write off debt in an accounting period if it has brought a:
(1) Civil case against the debtor or has petitioned to share the assets in a civil case and the court has accepted the request or petition; or
(2) Bankruptcy case against the debtor or the liquidator petitions the court to adjudge the debtor bankrupt and the court has accepted the complaint, or the creditor has petitioned to share the assets and the official receiver has accepted the petition, accordingly.
Nonetheless, creditor directors must approve the write-offs within 60 days from the end of the accounting period or within 27 June 2021, whichever is later for accounting periods starting on or after 1 January 2020, but no later than 31 December 2020, or within 30 days from the end of the accounting period starting on or after 1 January 2021.
4. Litigation in Foreign Countries Now Admissible
The Revenue Department now recognizes litigation or similar processes filed in overseas jurisdictions where a debtor may be domiciled. Under the old rule, a creditor in Thailand may have to file two civil suits: one in the debtor’s country of domicile for actual enforcement, and another in Thailand to fulfil Revenue Department requirements. Creditors have borne significant costs in meeting these criteria.
To exercise this option, creditors must have documentary evidence of the litigation or similar processes taken place, issued by the competent authorities of the country where the claim is filed. The creditor must then translate the documents into Thai language, and certify them as true and correct according to the rules of the Ministry of Foreign Affairs.
Author’s Note:
The amended MR186 is a significant improvement for all taxpayers. It raises the threshold of the debt amount, allowing taxpayers to more efficiently write off debts. Taxpayers can also be spared prolonged, costly legal actions costs that sometimes exceed the debt amounts sought. Under the new rules, creditors are also no longer required to file civil claims in more than one jurisdiction.
All taxpayers are encouraged to analyze all details of MR 374 before writing off bad debts. The costs of non-compliance could easily exceed the benefits of a write-off deemed questionable by authorities.
New Law: Ministerial Regulation 374
Ministerial Regulation 374 (2021) issued under the Revenue Code regarding writing off bad debt (MR374) was published in the Royal Government Gazette on 29 April 2021. MR374 amends the old rules under Ministerial Regulation 186 (MR186).
The new rules will apply to accounting periods starting on or after 1 January 2020. Corporate Income Tax Return Form PND 50 for companies with their accounting period ending 31 December 2020 will be due on 30 June 2021, the extended date.
Distinct changes include an increase in debt thresholds, which are subject to different write-off requirements suitable for present-day commerce, and admission of foreign court rulings where debtors reside overseas to write off the debts without having to bring the case to the Thai Court again.
The key rules and changes are discussed below.
1. Debts for Write-Off Must be Related to the Business
MR186, as amended by MR374, emphasizes that bad debts permissible for write-off must be related to the particular business operation and already included as revenue in the computation of net profits. In addition, the prescription periods for the debts must not yet have expired and be sufficiently evidenced for the purpose of suing debtors.
Debts owed by a current or former director or managing partner, however, are not permitted for write-off.
2. Debts Ceiling Increases
Write-off conditions vary based on debt amounts. MR186 now provides the following revised thresholds:
|
|
Debt Amount of Each Debtor |
|
|
Tier |
Old |
New |
|
1 |
> 500,000 |
> 2,000,000 |
|
2 |
>100,000 -≤500,000 |
>200,000 - ≤ 2,000,000 |
|
3 |
≤ 100,000 |
≤ 200,000 |
The new thresholds, now more realistic in the current business environment, allow corporate taxpayers to write off smaller bad debts without lengthy and costly processes.
3. Clearer Timeframes & Requirements
The amended MR186 now provides corporate taxpayers clearer timeframes to write-off bad debt under Tiers 1 and 2, in particular. Additions or changes are underlined below for ease of reference:
• Tier 1: Creditor can write off debt in an accounting period if it has brought a:
(1) Civil case against the debtor or has petitioned to share the assets in a civil case and the court has enforced its verdict, and the enforcement officer has issued a report of enforcement having been made and found that the debtor did not have assets to resolve the debts; or
(2) Bankruptcy case against the debtor or has petitioned to share the assets in the bankruptcy case, or the liquidator petitions the court to adjudge the debtor bankrupt and the court agrees with the debt settlement or orders bankruptcy, and the case has undergone the first round of asset distribution or the court has ordered closure of the case.
• Tier 2: Creditor can write off debt in an accounting period if it has brought a:
(1) Civil case against the debtor or has petitioned to share the assets in a civil case and the court has accepted the request or petition; or
(2) Bankruptcy case against the debtor or the liquidator petitions the court to adjudge the debtor bankrupt and the court has accepted the complaint, or the creditor has petitioned to share the assets and the official receiver has accepted the petition, accordingly.
Nonetheless, creditor directors must approve the write-offs within 60 days from the end of the accounting period or within 27 June 2021, whichever is later for accounting periods starting on or after 1 January 2020, but no later than 31 December 2020, or within 30 days from the end of the accounting period starting on or after 1 January 2021.
4. Litigation in Foreign Countries Now Admissible
The Revenue Department now recognizes litigation or similar processes filed in overseas jurisdictions where a debtor may be domiciled. Under the old rule, a creditor in Thailand may have to file two civil suits: one in the debtor’s country of domicile for actual enforcement, and another in Thailand to fulfil Revenue Department requirements. Creditors have borne significant costs in meeting these criteria.
To exercise this option, creditors must have documentary evidence of the litigation or similar processes taken place, issued by the competent authorities of the country where the claim is filed. The creditor must then translate the documents into Thai language, and certify them as true and correct according to the rules of the Ministry of Foreign Affairs.
Author’s Note:
The amended MR186 is a significant improvement for all taxpayers. It raises the threshold of the debt amount, allowing taxpayers to more efficiently write off debts. Taxpayers can also be spared prolonged, costly legal actions costs that sometimes exceed the debt amounts sought. Under the new rules, creditors are also no longer required to file civil claims in more than one jurisdiction.
All taxpayers are encouraged to analyze all details of MR 374 before writing off bad debts. The costs of non-compliance could easily exceed the benefits of a write-off deemed questionable by authorities.
Law Talks 2021