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Summary of Ministerial Regulation No. 374 B.E. 2564 (2021) Issued under the Revenue Code regarding Writing-off Bad Debt from Debtor Accounts

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Summary of Ministerial Regulation No. 374 B.E. 2564 (2021) Issued under the Revenue Code regarding Writing-off Bad Debt from Debtor Accounts

Due to the revision of regulations for the classification of financial assets in accordance with the financial reporting standard No. 9 on financial instruments as issued by the Bank of Thailand, the Ministerial Regulation No. 374 B.E. 2564 (2021) - issued under the Revenue Code on writing-off bad debt from debtor accounts - is enacted. Its purpose is to improve the criteria, methods and conditions of writing-off bad debt from debtor accounts in the calculation of net profits for corporate income tax, including bad debt of companies, juristic partnership and financial institutions, in accordance with the financial asset classification criteria of the Bank of Thailand; as well as to provide assistance to debtors and business operators adversely affected by the COVID-19 global pandemic. In respect to the said revision, the key issues are as follows:

  1. Revising the criteria in writing-off bad debt in Clause 4 of Ministerial Regulation No. 186, as follows:
    • Amendment to increase the credit limit for writing-off bad debt. The debt due from each debtor shall be increased from Baht 500,000 and above to Baht 2,000,000 and above.
    • Amendment to change the requirements under which any of the following actions shall be taken before bad debt can be written-off:
      • Demand for payment has been made and the matter has been pursued to the extent suitable to the case of such acts being expressly recorded and yet debts remain unsettled;
      • A civil action has been brought to court against the debtor or a petition has been entered for sharing the proceeds in an action already brought against the debtor by another creditor, and in either case a court injunction or order has been issued but the debtor has no property to settle debts; or
      • A bankruptcy action has been brought to court against the debtor or a petition has been entered for debt settlement in a bankruptcy action already brought against the debtor by another creditor.
        • Initially, the two aforesaid actions of bringing the case to court must be performed only in Thailand; however, this provision is amended to include actions performed abroad. In this regard, there must be documentary evidence of any action issued by the relevant legal authority of that country, and such evidence must have a certified translation into Thai according to the regulations of the Ministry of Foreign Affairs on document certification.
  2. Revising the criteria in writing-off bad debt under Clause 5 of Ministerial Regulation No. 186, as follows:
    • Amendment to increase the credit limit for writing-off bad debt. The debt due from each debtor shall be increased from not exceeding Baht 500,000 to not exceeding Baht 2,000,000.
    • Amendment to change the requirements which shall be taken before bad debt can be written-off, as follows:
      • Demand for payment has been made and the matter has been pursued to the extent suitable to the case of such acts being expressly recorded and yet debt remains unsettled;
      • A civil action has been brought to court against the debtor or a petition has been entered for sharing the proceeds in an action already brought against the debtor by another creditor, and in either case a court injunction or order has been issued, but the debtor has no property to settle debts; or
      • A bankruptcy action has been brought to court against the debtor and the court has by order accepted the plaint, or a petition has been entered for debt settlement in a bankruptcy action already brought against the debtor by another creditor and the court has by order accepted the petition.
        • Initially, the two aforesaid actions of bringing the case to court must be performed only in Thailand; however, this provision is amended to include actions performed abroad. In this regard, there must be documentary evidence of any action issued by the relevant legal authority of that country, and such evidence must have a certified translation into Thai according to the regulations of the Ministry of Foreign Affairs on document certification.
  3. Revising the criteria in writing-off bad debt under Clause 6 of Ministerial Regulation No. 186, as follows:
    • Amendment to increase the credit limit for writing off bad debt of juristic companies and partnerships where the debt due from each debtor shall be increased from not exceeding Baht 100,000 to not exceeding Baht 200,000.
    • If the debts due from each debtor do not exceed Baht 200,000, bad debt may be written-off without having to comply with the requirements specified in Clause 1 and 2; provided that demands for payment have been made and yet debts remain unsettled, and provided also that a court action contemplated against the debtor would entail expenses greater than the amount expected be recovered.
  4. Stipulating the requirement for writing-off bad debt from the debtor’s account with a financial institution in the portion of debts from receiving a loan, where the reserve is fully provided at 100 percent under the rules prescribed by the Bank of Thailand. In addition, said write-off must satisfy one of the following conditions:
    • Being a debtor that owes principal or interest for a total period of not less than 360 days or 12 months; or
    • Being a debtor that meets the criteria for writing-off assets from an account according to the announcement of the Bank of Thailand.
      • The announcement of the Bank of Thailand no. Sor Kor Sor. 23/2562, regarding the classification and reserve funds of specialised financial institutions, has been issued. In this regard, specialised financial institutions are required to write-off assets and reserve funds according to asset class management.
  5. This Ministerial Regulation is effective for writing-off bad debt in the accounting period commencing on or after 1 January 2020.

Table of comparisons and differences of criteria for writing-off bad debt between the old version and the new amendment

 

Ministerial Regulation No. 374 (B.E. 2564) (2021)

Ministerial Regulation No. 186 (B.E. 2534) (1991)

Requirements for writing-off bad debt in Clause 4

- The debt due from each debtor exceeds Baht 2,000,000.
- Demand for payment, which remains unsettled.
- Brought civil or bankruptcy action, or petition for debt settlement, and the court has by order accepted the petition in Thailand and/or abroad, with a certified translation into Thai.

- The debt due from each debtor exceeds Baht 500,000.
- Demand for payment, which remains unsettled.
- Brought civil or bankruptcy action, or petition for debt settlement, and the court has by order accepted the petition in Thailand.

Requirements for writing-off bad debt in Clause 5

- The debt due from each debtor exceeds Baht 2,000,000.
- Demand for payment, which remains unsettled.
- Brought civil or bankruptcy action, or petition for debt settlement, and the court has by order accepted the petition in Thailand and/or abroad, with a certified translation into Thai.

- The debt due from each debtor exceeds Baht 500,000.
- Demand for payment, which remains unsettled.
- Brought civil or bankruptcy action, or petition for debt settlement, and the court has by order accepted the petition in Thailand.

Requirements for writing-off bad debt in Clause 6

- The debt due from each debtor does not exceed Baht200,000.
- Demand for payment, which remains unsettled. With court action, the write=off will occur if the expenses are greater than the amount expected be recovered.

- The debt due from each debtor does not exceed Baht 200,000.
- Demand for payment, which remains unsettled. With court action, the write-off ill occur if the expenses are greater than the amount expected be recovered.

Requirements for writing-off bad debt from the debtor’s account with a financial institution.

- Debt from receiving a loan where the reserve is fully provided at 100% under the rules prescribed by the BOT, and one of the following conditions must be satisfied:
1. Being a debtor owed principal or interest for a total period of not less than 360 days or 12 months.
2. Being a debtor that meets the criteria for writing-off assets from an account according to the announcement of the BOT.

- Debts from receiving a loan where the reserve is fully provided at 100% under the rules prescribed by the BOT: for the portion of debt where the reserves are fully provided within an accounting period ending on or after 31 December B.E. 2534 (1991)