Almost every Singapore business eventually has a customer who simply does not pay. The invoice sits in the ledger, reminders go unanswered, and the receivable slowly stops being an asset. Provisioning for bad debts and writing off irrecoverable receivables is how you keep the accounts honest about that, and how you make sure the tax treatment follows commercial reality.
The distinction matters more than most business owners expect. A provision is an accounting estimate that a debt may not be collected. A write-off is the point at which you accept it is gone. They sit differently on your books, and IRAS treats them differently for corporate tax. Confusing the two is one of the more common reasons a tax computation gets queried.
Who this applies to
If your company sells on credit terms, this applies to you. In practice that covers:
- Any Singapore-incorporated company that invoices customers and waits for payment
- Companies reporting under SFRS(I) 9 or the SFRS for Small Entities, both of which require receivables to be carried at recoverable amounts
- GST-registered businesses that have accounted for output tax on an invoice the customer never paid
- Directors signing the Directors’ Statement, since you are attesting that the accounts give a true and fair view
- Businesses where slow payment is structural, such as construction, logistics and wholesale trade
Key rules and requirements in Singapore
The accounting position
Under SFRS(I) 9, trade receivables are subject to the expected credit loss model. You do not wait for a default before recognising a loss. You estimate lifetime expected credit losses at each reporting date, usually through a provision matrix applying loss rates to receivables grouped by how long they have been overdue. Companies using the SFRS for Small Entities apply a simpler impairment test, but the principle holds: if the amount is unlikely to be recovered in full, the carrying value comes down.
The tax position
This is where Singapore rules bite. IRAS allows a deduction for trade debts specifically identified as bad or doubtful, provided the debt arose from your trade and was previously brought to account as income. What IRAS does not allow is a general provision, meaning a blanket percentage applied across the whole receivables balance without reference to individual debtors. In practice:
- Specific provision against a named doubtful debtor: generally deductible, if you can show why that debt is doubtful
- General or formula-driven expected credit loss charge: not deductible, and added back in the tax computation
- Actual write-off of a trade debt: deductible in the year written off
- Non-trade debts, such as a loan to a director or related company: not deductible either way
- Recovery of a debt previously written off: taxable as income when received
Because SFRS(I) 9 produces a modelled number rather than a debtor-by-debtor assessment, most companies add the accounting charge back and then claim a separate deduction for the specifically identified portion. Your tax computation needs to show that split clearly.
The GST position
If you accounted for output tax on an invoice never paid, you may claim bad debt relief. The debt must have been outstanding at least 12 months from the payment due date, written off in your accounts, pursued through reasonable recovery steps, and not sold or assigned. You claim through the GST F5 return in the IRAS myTax Portal and keep a separate bad debt relief account. If the customer later pays, you repay the relief.
Practical examples
A specific doubtful debt. A logistics company is owed SGD 48,000 by a customer that has gone silent and whose ACRA record shows it has been struck off. It raises a specific provision for the full amount at its 31 December Financial Year End, supported by the ACRA search and the reminder correspondence, and claims it as a deduction.
A modelled provision plus a write-off. A wholesaler with SGD 1.2 million of receivables books an expected credit loss charge of SGD 36,000, of which SGD 22,000 relates to three named debtors assessed individually and SGD 14,000 is a portfolio estimate. The full SGD 36,000 is added back in the tax computation and SGD 22,000 deducted. Separately, an SGD 9,500 invoice from a customer in liquidation is written off against the liquidator’s statement of affairs, deducted, and GST bad debt relief claimed in the next F5.
Step-by-step process
No single statute prescribes this workflow. It is what supports defensible accounts and a tax computation that survives review, and it ties back to your real obligations: proper accounting records under the Companies Act, IRAS recordkeeping, and directors’ general duties.
- Produce a clean aged listing. Age by invoice due date, not invoice date, and reconcile to the trade receivables control account first.
- Strip out what is not a credit loss. Unallocated credit notes, duplicated invoices, deposits held and genuine commercial disputes should be fixed at source, not provisioned against.
- Review the overdue balances debtor by debtor. Have they gone quiet? Have payment arrangements broken down? Is there an ACRA record of winding up or striking off?
- Classify each doubtful balance as specifically doubtful with evidence, or as part of the portfolio estimate. This drives the tax treatment, so record it at the time.
- Apply the provision matrix to the remainder, using your own historical collection experience rather than an arbitrary round percentage.
- Decide what to write off, typically when the debtor has been wound up or struck off, a demand letter has produced nothing, or the amount is too small to justify legal action.
- Get written approval from a director or authorised officer, stating amount, debtor and reason.
- Post the entries. For a provision, debit impairment loss and credit the allowance account. For a write-off, debit the allowance and credit trade receivables.
- Test each write-off for GST bad debt relief and maintain the required relief account.
- Reflect it in the tax computation, add-back and specific deduction shown separately, and keep the schedule for at least five years.
Common mistakes to avoid
- Treating the accounting charge as the tax deduction. The expected credit loss figure in profit or loss is rarely your allowable deduction, and the computation must show the reconciliation.
- Applying a round percentage with no basis. A flat 5% across all receivables is a general provision by any definition. It gets disallowed.
- Writing off without evidence. A journal entry with no approval, no correspondence and no search result is what gets challenged. Build the file as you go.
- Provisioning against disputed invoices. If the customer is withholding payment because the work was incomplete, that is a billing issue, not a credit loss.
- Forgetting GST bad debt relief. Many companies write off the debt and never reclaim the output tax already paid over. That is real cash left behind.
- Mixing trade and non-trade balances. Amounts due from directors, shareholders or related companies are not trade debts, and writing them off quietly can raise governance questions.
How a corporate secretary can help
Bad debt work sits at the junction of bookkeeping, tax and governance. Raffles Corporate Services supports clients by maintaining the receivables ledger and ageing analysis so the year-end review starts from clean data, preparing provision and write-off schedules with the specific and general split already documented, and drafting the directors’ approvals so decisions are properly minuted rather than buried in a journal narration.
On the compliance side, we prepare the corporate tax computation with add-backs and deductions correctly presented, review whether GST bad debt relief is available, and make sure the accounting policy and receivables notes reflect what you actually do. Where a debt is large enough to matter, we flag it while recovery is still realistic, which is usually worth more than the eventual deduction.
Requirements may change, so always check the latest guidance from ACRA, IRAS or MOM, or consult a professional adviser.
Frequently Asked Questions
What is the difference between a bad debt provision and a write-off?
A provision estimates that a receivable may not be collected. The invoice stays on the debtor’s account and an allowance reduces the net balance sheet figure. A write-off removes the invoice from the ledger because recovery is no longer expected. Provisions are reversible; write-offs close the file.
Is a bad debt provision deductible for Singapore corporate tax?
Only if it is specific. A provision against a named debtor with evidence that the debt is doubtful is generally deductible. A general or portfolio provision is not and must be added back. Actual write-offs of trade debts are deductible in the year written off.
How long must a debt be outstanding before I can claim GST bad debt relief?
At least 12 months from the date payment was due. You must also have written it off in your accounts, taken reasonable recovery steps, still hold the debt, and maintain a bad debt relief account. If the customer pays afterwards, you repay the relief in your next F5.
Can I write off a loan to a director as a bad debt?
You can write it off in your accounts if it is genuinely irrecoverable, but it gives no tax deduction, because it is not a trade debt arising from business income. Directors’ loans carry their own disclosure implications, so speak to your corporate secretary first.
What documents should I keep to support a write-off?
The original invoice, collection correspondence and any demand letter, an ACRA search showing the debtor’s status, the director’s written approval, and the journal entry with a clear narration. Keep these for at least five years.
Key takeaways
- A provision estimates that a receivable may not be collected; a write-off accepts that it will not be.
- The SFRS(I) 9 charge and your allowable deduction are rarely the same number, so show the add-back and specific deduction separately.
- IRAS allows deductions for specific doubtful trade debts and actual write-offs, not for general provisions.
- Non-trade balances, including amounts owed by directors or related companies, do not qualify.
- GST bad debt relief can recover output tax already paid once the 12-month and other conditions are met.
- Evidence makes the treatment defensible: correspondence, ACRA searches, director approvals and a clear schedule.
- Review the ageing quarterly, while recovery is still possible.
If you would like to find out more about how Raffles Corporate Services can assist with your company’s compliance and corporate secretarial requirements, please get in touch with the team at [email protected].
Yours sincerely,
The editorial team at Raffles Corporate Services
Disclaimer: This does not constitute legal advice. If you require legal advice, please contact a lawyer.