In business activities, most businesses encounter a case of sales but not receiving money.

There are many reasons for not receiving money such as: disagreement between the seller and the buyer; the buyer has financial difficulties, runs away or goes bankrupt.

In order to solve the above problem, according to international accounting and tax practices, the State allows enterprises to include in deductible expenses when calculating corporate income tax on irrecoverable receivable debts.

The word commonly used in accounting and tax law is " appropriation of provisions and handling of bad receivable debts". This concept was recognized and applied by American Accounting around 1918, while Vietnam Accounting applied this concept on January 1st, 1996.

Through many changes, with the trend of being more open to businesses, currently, the Ministry of Finance of Vietnam has issued guidance on “Provision for bad receivable debts” in Circular No. 48 issued in 2019.

We need to master the regulations on "Provision for bad receivable debts", in order to apply and partially offset taxable costs when money is not collected.

The following is a summary of the core provisions of Vietnam law in handling of bad receivable debts that need to be remembered:

First, objects for which the provision is appropriated:

Objects for which the provision is appropriated include:

• Overdue receivable debts,
• And undue receivable debts, but there is a possibility that the enterprise may not be able to collect them on time.

Second, the level of provisions:

Provision level is a percentage of overdue receivable debts.

The level of provisions for overdue receivable debts of the enterprise is as follows:

- 30% of the value of a receivable debt which has been overdue for between over 6 months and under one year.

- 50% of the value of a receivable debt which has been overdue for between 1 year and under 2 years.

- 70% of the value of a receivable debt which has been overdue for between 2 years and under 3 years.

- 100% of the value of a receivable debt which has been overdue for 3 years or more.

As for telecommunication enterprises and retail enterprises, the level of provisions for overdue receivables of telecommunication service fee, information technology, postpaid television packages and of sale of goods in deferred/ installment payment from debtors being individuals is:

- 30% of the value of a receivable which has been overdue for between 3 months and under 6 months.

- 50% of the value of a receivable which has been overdue for between 6 months and under 9 months.

- 70% of the value of a receivable which has been overdue for between 9 months and under 12 months.

- 100% of the value of a receivable which has been overdue for over 12 months.

In addition, for undue receivables, if the enterprise has evidence that the debtor of such receivables is unable to repay on time since the debtor is bankrupt, filing for bankruptcy, being prosecuted, being detained, or suffering from a serious illness, or deceased, the enterprise shall estimate the irrecoverable amount of such debts, but the maximum amount is equal to those book value.

We have just reviewed the two core contents in the provision for bad receivable debts which are the object of provision and the level of provision. Another content that needs attention is what vouchers and documents for each specific case of provisions under tax law are. This content seems to be quite long and complicated, we cannot present it in 5 minutes.

Further note, regarding the object of making provision for bad receivable debts, there are quite a few controversies over the provision for other receivables and advances to employees, but we have yet to see any official reply from the authority. Many views believe that this is also a receivable and if it cannot be recovered, it is still allowed to make provision for bad debts. On the other hand, there are also opinions that whether these two items can be obtained or not are the internal management of the company, if the management is not good, it is an expense that the company must pay, not subject to provision.

See you in the next topic.