Filing for bankruptcy is an undesirable situation, but it is a necessary legal step for businesses to settle their financial obligations when they become insolvent. One of the top concerns for the business community is whether tax debts will be suspended or written off during this process. Circular No. 1681/TCT-QLN dated April 23, 2024, from the General Department of Taxation provides specific guidance on this matter.
Cases where taxpayers are granted debt write-off in case of bankruptcy.
According to Article 83 of the Law on Tax Administration No. 38/2019/QH14, the freezing of tax debts is applied to specific subjects to reduce financial pressure and serve the management work of state agencies.
Based on the content of Official Letter 1681/TCT-QLN, if a taxpayer is notified by a competent court that their application for bankruptcy proceedings has been accepted, they are officially eligible for tax debt write-off. This is an important legal basis that helps businesses clearly identify their rights during this challenging legal transition period.
Below is a summary of key information regarding tax debt write-offs:
| Content | Details of the regulations | Legal basis |
|---|---|---|
| Applicable subjects | The taxpayer's application for bankruptcy proceedings has been accepted by the court. | Article 83 of the 2019 Tax Administration Law |
| Decision-making authority | Head of the tax authority directly responsible | Article 84 of the 2019 Tax Administration Law |
| Maintenance conditions | The business has ceased production operations. | Official Document 1681/TCT-QLN |
| Purpose | Temporarily suspend financial pressure to handle bankruptcy proceedings. | Decree 126/2020/ND-CP |
Authority to decide on the deferral of tax debt
Although businesses are eligible for debt restructuring upon notification of acceptance of the case by the Court, this does not happen automatically. According to Clause 2, Article 84 of the Tax Administration Law No. 38/2019/QH14, the authority to decide on debt restructuring rests with the Head of the tax administration agency directly managing the taxpayer.
Specifically, the Head of the Tax Sub-Department or the Head of the Tax Department where the enterprise is headquartered and directly files its tax returns will be the person to review the application and issue the debt deferral decision. The debt deferral period is implemented according to the provisions of point c, clause 2, Article 23 of Government Decree No. 126/2020/ND-CP.
Note for businesses that continue to operate.
A notable point in the General Department of Taxation's guidelines is the differentiation based on the actual situation of the business. Filing for bankruptcy does not mean that all tax obligations immediately cease if the business is still operating.
In cases where the business continues to operate after filing the application, the directly managing tax authority will base its decision on the actual situation:
- The decision was made to continue implementing measures to expedite debt collection.
- Apply tax debt enforcement measures in accordance with the law.
- Ensure the full recovery of outstanding tax debts into the state budget and improve management efficiency.
Conditions and procedures for tax debt write-off
To ensure the debt restructuring process is implemented correctly, businesses and tax authorities need to take note of the following steps:
- Businesses must have official written confirmation or notice from the Court regarding the initiation of bankruptcy proceedings.
- The tax authorities conduct a factual inspection: whether the business has ceased operations or is still operating at its registered address.
- The debt deferral records must be fully archived at the tax authority for verification purposes when needed throughout the debt deferral period.
Therefore, debt restructuring is only a temporary mechanism for classifying debt in tax management. Businesses need to proactively cooperate with tax authorities to clarify their operational status and legal documents, avoiding unnecessary enforcement measures while awaiting a court ruling.
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Content production is overseen by: Mr. Le Hoang Tuyen – Founder & CEO of MAN – Master Accountant Network, CPA Vietnam with over 30 years of experience in accounting, auditing, and financial consulting.
Source:
- Law on Tax Administration No. 38/2019/QH14 dated June 13, 2019.
- Government Decree No. 126/2020/ND-CP dated October 19, 2020.
- Official document No. 1681/TCT-QLN dated April 23, 2024, from the General Department of Taxation.
- Article Vietnam Law
