Writing off bad debts is an essential aspect of maintaining accurate financial records for any business operating in Thailand. It ensures that your books reflect the true financial position of your company. However, the process of writing off bad debts must comply with Thai tax laws to be considered tax-deductible. Failure to adhere to these regulations can result in the debt being classified as a non-tax-deductible expense, increasing your taxable income.
Understanding Bad Debts Under Thai Law
According to Ministerial Regulation No. 186 (1991), bad debts eligible for write-off must meet specific criteria and follow designated procedures:
Characteristics of Eligible Bad Debts:
- Business-Related Debts: The debt must have arisen from business operations or be related to the business and must have been included as revenue in the net profit calculation. Debts owed by current or former directors or managing partners are excluded.
- Evidenced Debts: The debt claim must not be barred by the statute of limitations and must be sufficiently documented for legal action against the debtor.
Procedures for Writing Off Bad Debts:
A. Debts Exceeding THB 500,000:
- Payment Demands: Efforts must be made to demand payment, evidenced by documented actions, yet the debt remains unpaid due to:
- The debtor’s death or disappearance, with no assets to cover the debt.
- The debtor’s business dissolution, with outstanding debts exceeding the value of their assets.
- Legal Action: A civil lawsuit must be filed, and if the court orders the debtor unable to pay, or if the debtor is declared bankrupt and assets are distributed, the debt can be written off.
B. Debts Between THB 100,000 and THB 500,000:
- Payment Demands: Similar to the procedures for debts exceeding THB 500,000, demands for payment must be made and documented, with debts remaining unpaid due to the debtor’s death, disappearance, or business dissolution.
- Legal Actions: A civil lawsuit must be filed and accepted by the court, or a bankruptcy petition must be accepted.
For both categories, if the debt is to be written off, the company director or managing partner must approve the write-off within 30 days of the relevant accounting year-end.
C. Debts Not Exceeding THB 100,000:
- Payment Demands: Efforts to collect the debt must be documented, and the debt remains unpaid.
- Legal Opinion: A lawyer must opine that the costs of legal proceedings would exceed the expected recovery amount.
Writing Off the Bad Debt:
Once the above procedures are followed, the creditor must write off the receivable as a bad debt expense in the relevant accounting period. For debts under category (B), the write-off must occur in the period when the court accepts the complaint or bankruptcy petition.
Conclusion:
Complying with these regulations is crucial to ensure that the bad debt write-off is considered a tax-deductible expense. For more detailed guidance and assistance with your Thai tax and accounting needs, contact B-Accounting. Our experienced team is ready to help you navigate the complexities of Thai tax laws and maintain accurate financial records.
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For expert advice on writing off bad debts and other accounting services in Thailand, contact B-Accounting. We are here to assist you with all your accounting needs and ensure compliance with Thai tax laws.
