Income Tax Act Article 49

Accounts receivable and notes receivable shall be evaluated at their respective amounts less deductions for estimated allowance for bad debts.Allowance for bad debts as set forth in the preceding Paragraph shall be estimated and set aside in an amount not exceeding 1% of the amount of outstanding balance of the accounts receivable and the notes receivable, or of the amount of outstanding balance of credits in the case of a financial institution.Where the percentage of bad debt losses actually incurred and declarable by a profit-seeking enterprise under the law exceeds the percentage specified in the preceding Paragraph, the allowance for such bad debts may be estimated and set aside in an amount not exceeding the average of the percentages of actual bad debts declarable by the said profit-seeking enterprise under the law in the preceding three years.For a profit-seeking enterprise, if it is found in the following year that the amount of all ascertained losses in bad debts differs from that of the estimated losses, an adjustment shall be made in the estimation of losses in bad debts for the current year to conform to the allowable percentage.Under any of the following circumstances, an account receivable or note receivable or any other item of uncollected credit may be deemed as an ascertained bad debts loss:1. Where the outstanding amount is wholly or partially uncollectible by reason of insolvency, dodging of the debtor, compromise or adjudication of bankruptcy, or any other cause;2. Where the outstanding amount has been past due for a period over two years during which neither the principal nor the interest accrued thereon has been paid despite demands made therefor.If the outstanding amount as set forth in the preceding Paragraph is collected after being written off as a loss, the amount actually collected shall be deemed as a profit for the year in which it is collected.