On 22 September 2026, the Taipei National Tax Bureau clarified the timing for recognizing bad debt losses for profit-seeking enterprises under the Income Tax Act. According to the ruling, when a creditor has pursued collection for over two years without success—typically evidenced by a demand letter sent via registered mail—the bad debt loss can only be deducted in the tax year when the demand letter is returned undelivered (e.g., addressee unknown, moved, or refused). The Bureau stressed that the two-year collection period is a prerequisite, but the actual deduction year is locked to the return of the registered mail. This interpretation prevents enterprises from arbitrarily choosing the deduction year to manipulate taxable income. The ruling also reminded taxpayers that proper documentation, including the original contract, records of collection efforts, and the returned registered mail receipt, must be retained for at least five years for audit purposes. This guidance provides certainty for businesses managing non-performing receivables and aligns tax deduction timing with objective evidence of uncollectibility.
Key Takeaways
- Objective Timing Rule: Bad debt deduction year is the year the registered demand letter is returned, not the year the two-year period expires.
- Evidence Retention: Taxpayers must keep the returned mail receipt, collection records, and underlying contracts for five years.
- Anti-Avoidance: The rule prevents earnings management by fixing the deduction to a verifiable external event.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement