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Bad Debts - Part I
Duensing Kippen Tax and
Law
Is your company unable to collect money from a person
that owes you certain funds? In that case your company might be eligible to
write-off that Bad Debt. From a corporate accounting perspective, a “Bad
Debt” is generally defined as an account receivable that is uncollectable.
From a tax perspective, however, Bad Debt is also not
automatically and in all cases eligible to be erased from your company’s
accounts receivable ledger or “written-off”. If your company writes-off a
Bad Debt then it would be relieved of the tax burden it incurred. Thus, the
Revenue Code of Thailand (“RC”) contains certain hurdles for a creditor
before such creditor is able to use the Bad Debt as an expense that reduces
the taxable profit.
 It
is paramount, however, for your company to clear these Bad Debt write-off
hurdles when a debt turns bad. If your company does not do so it will have
to pay income tax on that debt even though it was never collected.
Section 65 of the RC defines “net profit” as the result
of taxable income from business or arising out of business in one accounting
year less certain expenses. Section 65 requires that this calculation is
done on an “accrual basis”. Accrual basis, as opposed to cash basis, is a
method of accounting in which each item is entered as it is earned or
incurred regardless of when actual payments are received or made..
Cash basis recognizes income when funds are physically
received. Since the RC follows the accrual basis the RC treats all your
company’s receivables as “income” even if they have not yet been physically
received by your company.
On the other hand, where a receivable later meets the
criteria to be considered as a Bad Debt then, in accordance with Section 65
RC, it is treated as an expense. This of course reduces the net profit and
tax burden of the creditor. To be eligible for such “conversion,” such
receivable must meet the definitions and requirements outlined in RC
Sections 65bis and 65ter. RC Section 65bis (9) states that “[w]riting off
bad debts from a debtor’s account shall be done only if it follows rules,
procedures and conditions prescribed by a Ministerial Regulation (...)” The
relevant Ministry of Finance regulation is No. 186 (1991) (“MR”). MR Clause
3 defines the qualifications of a Bad Debt that is eligible to be written
off as follows:
“(1) Debts that arose from carrying on a business or in
connection with business 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 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 time limitation and is sufficiently evidenced for the purpose of suing
the debtor.”
Please note that the following “prescriptions periods” or
time limitations beyond which court action is barred, exist in Thailand in
accordance with the Civil and Commercial Code of Thailand (“CCC”) depending
on the kind of claim:
(a) Ten years is the basic prescription period in
Thailand if the law does not establish a shorer period for a specific claim
in (CCC Section 193/30);
(b) Five years for certain claims relating to, for
example, interest, salaries (CCC Section 193/33);
(c) Two years for most commercial transactions (CCC
Section 193/34).
Note: after the expiration of the above mentioned
periods, the debt will not be eligible for deduction.
In Part II of this two part article we will examine the additional
requirements for writing off your company’s Bad Debt under the MR.
Note: Duensing Kippen is a multi-service
boutique law firm specializing in property and corporate/commercial matters
and is also the only such firm in Thailand that compliments its property and
corporate/commercial legal expertise with a core tax law practice. Duensing
Kippen can be reached at: [email protected] or for more information
please visit them at: www.dktaxandlaw.com.
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Football legend Maradona eyes hotel investment in Pattaya
Diego Maradona, center, and his girlfriend Veronica Ojeda, 2nd
left, pose for a souvenir photo with Pawin Pettrakul, Khun Thitipan and
Jutipan Pettrakul during the soccer legend’s trip to the Alcazar Cabaret on
Friday March 4. Maradona intimated on his visit to Pattaya that he could be
interested in investing in real estate in the city.
Tanachot Anuwan
Football legend Diego Maradona took in the Pattaya sights
earlier this month and reviewed a resort and restaurant project that he may
invest in.
The 40-year-old Argentinian is considering taking a 50
percent share in a five-star hotel, restaurant and football training school
planned by a Chinese company. The World Cup hero and Argentine national team
manager reviewed the plans March 5 at the Pattaya Sea Sand Sun Resort and
Spa. The call is for a Latin-flavored resort experience with a Maradona
themed restaurant.
Maradona, on holiday with his girlfriend, also visited
the Fairtex boxing school and attended the Alcazar transvestite cabaret
show. He said he enjoyed Thailand for its people and the food. He also got a
chance to meet with members of his local fan club.
Former Pattaya Mayor and city advisor Niran
Watanasartsathorn applauded Maradona’s possible investment in Pattaya real
estate, saying it would be good for the industry. Tourism Authority of
Thailand Pattaya Assistant Director Akarawit Thepasit added that a
Maradona-inspired resort would also boost tourism to the city.
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Raimon Land closes THB 1,027
million financing facility from
TISCO Bank for Zire Wongamat
Raimon
Land Chief Executive Officer Hubert Viriot and TISCO Bank Plc. President
Suthas Ruangmanamongkol sign the THB 1,027 million project financing
agreement for Zire Wongamat. Also shown in the photo are Kitti Tangsriwong
(far right), COO Raimon Land and Sakchai Peechapat (far left), Senior
Executive Vice President, TISCO Bank Plc.
Luxury property developer Raimon Land and TISCO, the
country’s first investment bank, have agreed on financing facilities for
Zire Wongamat, the developer’s latest project. This exclusive beachfront
condominium along the prestigious Wongamat beach will combine Raimon Land’s
trademark high quality with affordability, to cater to a broader range of
potential owners.
TISCO Bank, one of the country’s most respected financial
institutions, has affirmed its solid support for this project by providing
credit facility amounting to THB1,027 million.
Suthas Ruangmanamongkol, President of TISCO Bank Plc.,
commented: “We are pleased to work with Raimon Land on this project. The
location of Zire Wongamat, the experience of the team and the company’s
excellent track record of delivering quality residences make this an
exciting project to be involved with.”
Hubert Viriot, Raimon Land Chief Executive Officer,
added: “We value TISCO’s participation in Zire Wongamat, a two-tower
residential complex that will certainly appeal to people who dream of an
oceanfront home accessible to the city and recreational activities. Right
now there is a strong demand for affordable quality units where owners can
enjoy five-star comfort. We expect to start construction by Q2 2011.”
Located along Pattaya’s most secluded beach, adjacent to
the newly-completed Northpoint, Zire Wongamat will feature excellent
amenities and services including an infinity lap pool, children’s pool,
multi-purpose sports area, fitness centre, private access to the beach and
24/7 security. It will offer amazing scenic views of the Gulf of Thailand.
Completion of the project is anticipated in 2014. Prices of units at this
beachfront condominium will start at THB 1.95 million, or THB 47,500 per
square meter.
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House buyers warned
of interest rate hike
Buyers looking to purchase new properties in Thailand are
advised to apply for loans within this year if they are to avoid an interest
rate hike which is expected to increase continuously in 2012.
According to Kasikorn Bank (KBank) First Senior Vice
President Chatchai Payuhanaveechai, this year’s property loan growth rate is
slowing down to 7.5-8.5%, after expanding 9.2% last year. This is primarily
due to an increase in the base interest rates.
The vice president said he expected policy interest rates
to increase continuously. He projected that it would be around 3.00-3.25% at
the end of this year, up from 2.50%; and would reach 4.00% later on in order
to curb the inflation rate expansion of 3.3% this year.
Following the rising interest rate, Chatchai suggested
that new house buyers should seek loans within this year before the cost of
interest, and the loan as a whole, will be even more expensive next year.
The vice president admitted however that competition
among commercial banks in housing loans remains fierce, prompting banks to
continue offering a zero-percent interest rate promotions to attract more
home buyers. (NNT)
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