20. SME Tax Relief - Deduction of Allowance for Bad and Doubtful Debts 中小企業者の貸倒引当金特例

中小企業者の貸倒引当金特例について英語でまとめてみました。（国税庁ホームページ）

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Small and medium-sized enterprises ("SMEs") in Japan can be classified broadly into the following two types:

• SMEs under Corporate Tax Law ("CTL"); and
• SMEs under Special Measures Tax Law ("SMTL")

One of the benefits for these SMEs is the deduction of provision for allowance for bad and doubtful debts. See below for details.

For other SME tax benefits, click HERE. For more about Japanese tax, click HERE:

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I. Eligible SMEs 

SMEs with stated capital of JPY100 million or less at the end of the fiscal year other than an SME fully controlled by a company with stated capital of JPY500 million or greater

II. Deduction limit

Deduction limit is calculated for bad and doubtful debts separately as follows: 

1. Deduction limit for bad debts   

The deduction limit for allowance for bad debts is the sum of the following amounts calculated for each debtor:  

• Long-term accounts receivable ("AR") that are not expected to be paid off within five years from the end of the fiscal year in which the reorganization plan is approved under Corporation Reorganization Act
• Any amount of AR expected to be uncollectible due to the debtor's negative net worth, disasters, drastic changes in economic circumstances or any other similar reasons
• Fifty percent of AR from debtors against whom the start of reorganization proceedings is filed (after being offset against accounts payable ["AP"] to the debtor) 　
• Fifty percent of AR from foreign governments, central banks or municipalities of which economic value has significantly declined and which are significantly difficult to be paid for (after being offset against AP to the debtor) 

2. Deduction limit for doubtful accounts

The deduction limit for allowance for doubtful debts is statutory % of the sum of book value of the following accounts at fiscal-year end (after being offset against relevant AP*)

• Trade AR, loans receivable
• Transfer proceeds receivable, processing fees receivable, service fees receivable, storage fees receivable, land rents receivable, or loan interest receivable which is included in taxable income
• Damage compensation receivable which is included in taxable income
• Right to seek reimbursement for guarantee obligations fulfilled
• Notes receivable obtained to be applied to AR or loans receivable
• Post dated checks obtained to be applied to AR or loans receivable which are included in non-doubtful accounts

* AP is offset against AR in either the general method or the simplified method. 

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