23 June 2021_
On 16 April 2021, the Ministry of Finance issued Ministerial Regulation No. 374 changing fundamental rules concerning the write-off of bad debts for corporate income tax (“CIT”) purposes, due to its obsolescence. The old rules had been used for almost 30 years.
1. Classifications of Bad Debts
The new rule still applies stringent requirements in writing off bad debts, however, with changes to the thresholds. The old rule used to apply the highest requirements to debts equal or over THB 500,000, which is now raised to THB 2 million. Thus, the rule for bad debts below THB 2 million (instead of THB 500,000) is now less stringent.
2. Offshore Bad Debts
Where the court procedures in 3. or 4. below (or similar procedures) take place outside Thailand, the creditor will be allowed to write off bad debts if the relevant authority in such foreign country will issue evidences, which needs to be translated into Thai and legalized by the Ministry of Foreign Affairs.
This has put an end to the Revenue Department’s long-lasting stance under the old rule that the offshore court action was not qualified for the write-off.
3. Requirements for Bad Debts over THB 2 Million
The new regulation provides explicitly that, the fulfilment of either “one of the below requirements” will suffice in writing off bad debts over THB 2 million:
3.1 Where the debtor is deceased, died in absentia, and liquidated, the write-off will be allowed if all assets are subject to other creditors’ higher preferential rights – similar to the old rule;
3.2 Where the creditor takes court action in civil case, or files petition for sharing of proceeds in another creditor’s civil case, the court must order debts enforcement, and the executing official must issue the first report identifying that the debtor has no assets to be enforced; or
3.3 In a bankruptcy case, the creditor must take action, or file petition for sharing of proceeds in another creditor’s bankruptcy case and, in case of a liquidation bankruptcy, the court must also order an approval for composition, or the debtor is also adjudged bankrupt; provided that the first distribution of assets has already taken place, or the court has already ordered for the closing.
4. Requirements for Bad Debts under THB 2 Million
The fulfillment of “one of the below requirements” will suffice for bad debts under THB 2 million:
4.1 Same as 3.1 above;
4.2 Where the creditor takes court action in civil case, or files petition for sharing of proceeds in another creditor’s civil case, the court must order to accept the plaint or petition; or
4.3 In a bankruptcy case, the creditor must take action, or file petition for sharing of proceeds in another creditor’s bankruptcy case and, in case of a liquidation bankruptcy, the court must also order to accept the plaint/petition, or the executing official must also accept the petition for sharing of proceeds.
In respect of 4.2 and 4.3, the board of directors, or the managing partner, of the creditor must approve the write-off within 30 days from the end of the accounting year that such events take place.
5. Requirements for Bad Debts under THB 200,000
Bad debts in this category are allowed, without having to fulfill the requirements in 3. or 4. above, if there is evidence proving that reasonable efforts have been made to recover the debts, but to no avail, and it is not worth taking the court actions. The threshold of THB 100,000 under the old rule has been abolished.
6. Specific Rules for Financial Institutions
Financial institutions will be allowed to write off bad debts for which 100% reserve has been made, subject to the criteria announced by the Bank of Thailand (“BOT”), without having to fulfill the requirements in 3. – 6. above and without regard to the threshold levels, provided that:
6.1 The debts have been in arrears for not less than 360 days or 12 months;
6.2 The debts are qualified to be written off under the criteria of the BOT; or
6.3 The debts are qualified to be written-off, as the assets that have undergone the debts restructuring scheme under the criteria announced by the BOT.
The Ministerial Regulation No. 374 retroactively went into effect and, therefore, applicable to the accounting period that commenced on or after 1 January 2020.