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Are long-term accounts receivable considered deductible expenses for income tax purposes?
Are long-term accounts receivable considered deductible expenses for income tax purposes?
Can long-term accounts receivable be treated as deductible expenses?
Our company has long-outstanding accounts receivable that remain unsettled. These receivables were previously recognized as income in the accounting records but have not been collected and continue to be recorded as receivables.
It should be noted that several formal requests have been sent to the debtor to recover the outstanding amounts; however, no response has been received and the debt remains unpaid. Given these circumstances, there is a need to assess whether these receivables should be classified as bad (doubtful) debts.
Considering the above, is it possible to recognize these receivables as bad debts and deduct their amount as an expense from taxable income?
According to the State Tax Service under the Ministry of Economy, pursuant to Article 111 of the Tax Code, where income arising from the supply of goods, performance of work, or provision of services has previously been included in the taxpayer’s gross business income, the taxpayer is entitled to deduct the amount of the related bad debt from income. Such deduction is allowed when the bad debt is written off in the taxpayer’s accounting records as an uncollectible debt.
If a legal entity files a claim in court within the statutory limitation period for the recovery of the receivable, the debt may be written off in accordance with the law once it is recognized as a bad debt by a court decision.
Furthermore, under Article 373.2 of the Civil Code, the limitation period for contractual claims is three years, while claims relating to real estate are subject to a six-year limitation period.
Accordingly, the write-off of bad debts related to accounts receivable may be carried out after the expiration of the limitation period established by law.
Legal basis: Article 111 of the Tax Code and Article 373 of the Civil Code.
Can long-term accounts receivable be treated as deductible expenses?
Our company has long-outstanding accounts receivable that remain unsettled. These receivables were previously recognized as income in the accounting records but have not been collected and continue to be recorded as receivables.
It should be noted that several formal requests have been sent to the debtor to recover the outstanding amounts; however, no response has been received and the debt remains unpaid. Given these circumstances, there is a need to assess whether these receivables should be classified as bad (doubtful) debts.
Considering the above, is it possible to recognize these receivables as bad debts and deduct their amount as an expense from taxable income?
According to the State Tax Service under the Ministry of Economy, pursuant to Article 111 of the Tax Code, where income arising from the supply of goods, performance of work, or provision of services has previously been included in the taxpayer’s gross business income, the taxpayer is entitled to deduct the amount of the related bad debt from income. Such deduction is allowed when the bad debt is written off in the taxpayer’s accounting records as an uncollectible debt.
If a legal entity files a claim in court within the statutory limitation period for the recovery of the receivable, the debt may be written off in accordance with the law once it is recognized as a bad debt by a court decision.
Furthermore, under Article 373.2 of the Civil Code, the limitation period for contractual claims is three years, while claims relating to real estate are subject to a six-year limitation period.
Accordingly, the write-off of bad debts related to accounts receivable may be carried out after the expiration of the limitation period established by law.
Legal basis: Article 111 of the Tax Code and Article 373 of the Civil Code.