In this uncertain business climate, many companies may face difficulty collecting debts. If a company wants to write them off, there are some rules that it must follow.
Under Ministerial Regulation No. 186 issued by the Revenue Department, when a debt is not barred by prescription; or not owed by a director or managing partner, a company can write it off from its accounts receivable under the following conditions:
Benefits of Writing off Bad Debt
A company that writes off bad debt in this way can benefit by booking the amount of the bad debt as a tax-deductible expense which will reduce its profit and the amount of tax to be paid in that fiscal year or within a period of 5 fiscal years.
The two-year prescription period for making a claim related to a normal business debt may not be long enough if a company does not aggressively follow up on bad debts.
Complying with Ministerial Regulation No. 186 will allow a company to book bad debts to its expenses for 5 fiscal years, which will be very useful during both the current and future economic situation.
If you are interested in doing this, our legal team can assist you.