When your business in Thailand cannot collect a debt from a debtor, if you want to write it off from your books, there are some rules prescribed by the Thai tax laws to follow. If you write it off not following the rules, the amount of the debt written off will be classified as a non-tax deductible expense, which means that it is your company’s expense but needs to be added back to the bottom line profit before calculating income tax on your corporate income tax return.
The Ministerial Regulation No. 186 (1991) defines Bad Debts that are eligible to be written off and the procedure to write them off as follows:
The Bad Debts that can be written off from the company’s accounts must have these characteristics:
(1) The debts arose from carrying on a business operation or in connection with the business operation or have been included as revenue in the computation of net profits, but not including debts owed by a person who is or used to be a director or managing partner whether or not the debts arose before or during the time such person is a director or managing partner; and
(2) The claim for debts is not barred from court action by statute of limitations and is
sufficiently evidenced for the purpose of suing the debtor.
The procedures to write-off Bad Debts:
A. Debt by a debtor exceeding Thai Baht 500,000, the following procedures are required:
(1) Demands for payment have been made and the matter has been pursued
to the extent suitable to the case of such acts and such demands have been
clearly evidenced and yet the debts remain unsettled because
(a) the debtor died, is missing or proved to be missing and
has no property to repay the debts, or
(b) the debtor dissolved his business, and the debts due
from him to the other creditors with preceding preferential rights over his
entire properties exceed the value f his properties.
(2) A civil action has been brought against the debtor and after a court order or
injunction the debtor does not have sufficient property to settle the debts; or
(3) A bankruptcy action has been brought against the debtor and a compromise has been reached with the debtor with court approval or the debtor has been adjudged
bankrupt and the first lot of the debtor’s properties have been shared out.
B. Debt by a debtor of more than Baht 100,000 up to Baht 500,000, the following procedures are required:
(1) Demands for payment have been made and the matter has been pursued
to the extent suitable to the case of such acts and such demands have been
clearly evidenced and yet the debts remain unsettled because
(a) the debtor died, is missing or proved to be missing and
has no property to repay the debts, or
(b) the debtor dissolved his business, and the debts due
from him to the other creditors with preceding preferential rights over his
entire properties exceed the value f his properties.
(2) A civil action has been brought against the debtor and the court has accepted the
plaint; or
(3) A bankruptcy action has been brought against the debtor and it has been accepted by the court.
In case of (2) or (3) above, it is required that the director or managing partner of the
company issue an order approving the write-off of the Bad Debt within 30 days
from the relevant accounting year-end.
C. Debt by a debtor not exceeding Thai Baht 100,000, the following procedures are required:
(1) Demands for payment have been made and the matter has been pursued
to the extent suitable to the case of such acts and such demands have been
clearly evidenced and yet the debts remain unsettled; and
(2) A lawyer has expressed his opinion that the costs associated
with the court proceedings will be higher than the amount expected to be
recovered.
Note that once the creditor has complied with all above mentioned rules and regulations, the creditor must write-off the receivable as a Bad Debt expense in the relevant accounting period. In case of category (B), the Bad Debt must be written off in the accounting period in which the relevant court accepts the civil complaint
or the bankruptcy petition.
Please contact MSNA for your Thai tax and accounting questions.