Vietnam Debt Purchase and Sale Company provision and use of bad debt allowance: what are the principles?
How does the Vietnam Debt Purchase Company establish and use provisions for doubtful receivables according to principles?
Based on Clause 3, Article 28 of Decree 129/2020/ND-CP, the Vietnam Debt Purchase Company establishes and uses provisions in accordance with the regulations applicable to enterprises that are 100% state-owned. For debts arising from the activities of buying, selling, handling debts, and restructuring enterprises, the Vietnam Debt Purchase Company establishes provisions as guided by the Ministry of Finance based on the following principles:
- The overdue time and overdue payment value are based on the time of transferring creditor’s rights to the Vietnam Debt Purchase Company or according to the latest commitment to repay by the debtor suitable with the debt purchase handling plan;
- The Vietnam Debt Purchase Company decides on the annual provision level but must ensure to establish a provision of 100% of the remaining debt purchase value within no more than 5 years.
The determination of revenue and costs for calculating corporate income tax shall comply with tax regulations.
How does the Vietnam Debt Purchase Company establish and use provisions for doubtful receivables according to principles?
What is the timeframe for calculating overdue periods to establish provisions for doubtful receivables of the Vietnam Debt Purchase Company based on?
Based on Clause 1, Article 6 of Circular 48/2019/TT-BTC, which stipulates the conditions for establishing provisions for doubtful receivables as follows:
Provisions for doubtful receivables
1. The entities for which provisions may be set up include receivables (including loans and bonds not yet registered for transactions on the stock market that the enterprise holds) past due and receivables not yet due but there is a possibility that the enterprise will not recover them on time, ensuring the following conditions:
a) There must be original documents proving that the debtor has not paid the debt, including:
- One of the following original documents: Economic contract, loan agreement, debt commitment;
- Contract liquidation document (if any);
- Debt reconciliation; in case of no debt reconciliation, there must be a proposal letter for debt reconciliation confirmation or a debt demand letter sent by the enterprise (postmarked or confirmed receipt by the postal service);
- List of debts;
- Other related documents (if any).
b) There is sufficient basis to determine the receivable as doubtful:
- The receivable has been overdue for payment for 06 months or more (based on the original payment deadline per the economic contract, loan agreement, or other debt commitments, excluding extensions agreed between parties), the enterprise has sent debt reconciliation or payment reminders but has not yet recovered the debt.
- The receivable has not yet fallen due but the enterprise has gathered evidence proving that the debtor is unlikely to pay on time as prescribed in point c, clause 2 of this Article.
- For debts purchased by debt purchase enterprises (with registered debt trading industry and operating according to legal provisions), the overdue time is calculated from the date of transfer of creditor’s rights between the parties (based on the minutes or notice of transfer of creditor’s rights) or according to the latest commitment (if any) between the debtor enterprise and the debt purchase enterprise.
Accordingly, for debts purchased by debt purchase enterprises (Specifically: the Vietnam Debt Purchase Company), the overdue time is calculated from the date of transfer of creditor’s rights between the parties (based on the minutes or notice of the transfer of creditor’s rights) or according to the latest commitment (if any) between the debtor enterprise and the debt purchase enterprise.
What is the provision rate for overdue receivables of the Vietnam Debt Purchase Company?
According to Clause 2, Article 6 of Circular 48/2019/TT-BTC, the provision rate for overdue receivables of the Vietnam Debt Purchase Company is stipulated as follows:
- 30% of the value for receivables overdue from 6 months to under 1 year.
- 50% of the value for receivables overdue from 1 year to under 2 years.
- 70% of the value for receivables overdue from 2 years to under 3 years.
- 100% of the value for receivables overdue from 3 years or more.
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