Bad Debts Adjustment Scheme Under VAT in Dubai 🥇

Bad Debts Adjustment Scheme Under VAT in Dubai

Bad Debts Adjustment Scheme Under VAT in Dubai is a key topic for owners in the UAE. This line places the primary phrase near the start for search signals. A business sells goods or services on credit in normal trade. A customer sometimes doesn’t pay the due amount. The unpaid amount becomes a bad debt in simple words. VAT still becomes due by time of supply rules in the law. So a firm pays VAT even when cash doesn’t arrive from the customer.

What Are Bad Debts in Business

A seller gives goods on credit in the market. A buyer fails to pay the credit on time. The amount turns uncollectible after effort by the seller. The accounting team records this amount as bad debt in the books. The loss hits profit in the same period or in a later period, under policy. VAT impact then needs a fix under the law in Dubai.

Time of Supply and Why VAT Still Applies

UAE VAT law sets time of supply rules. VAT becomes due at the earliest of:

• The date the seller transfers goods to the buyer.
• The date the seller issues a tax invoice.
• The date the seller receives payment, including an advance.

These points create the VAT due date. VAT is due even when cash collection fails later. So the law creates an adjustment path for bad debts to protect fairness.

How the Adjustment Works (Supplier Side)

The law lets a supplier reduce output tax in a current return. The supplier doesn’t get a refund claim from the FTA for the old return. The supplier instead lowers output tax now by the VAT linked to the amount written off as a bad debt. The entries sit in the tax ledger with notes for audit.

Supplier conditions to adjust:

• The seller supplied goods or services and charged and paid the VAT.
• The seller wrote off all or part of the consideration in the accounts as a bad debt.
• More than six months passed from the supply date.
• The seller notified the recipient of the written-off amount.

When these conditions exist, the supplier posts a reduction of output tax in the next VAT return and keeps proof with records.

What the Recipient Must Do (Buyer Side)

A buyer who claimed input VAT earlier must reduce input tax for the same amount. The law keeps symmetry between both parties. The buyer lowers input VAT in the current tax period.

Buyer conditions to adjust:

• The supplier reduced output VAT and sent a notice to the buyer.
• The buyer received the supply and claimed input VAT.
• The buyer didn’t pay all or part of the consideration for over six months.

The reduction by the supplier and the reduction by the buyer should be equal for the same supply line.

Simple Illustration

A UAE firm supplies services for AED 100,000 on 1/1/2018. VAT at 5% equals AED 5,000. The buyer pays AED 50,000 but then stops paying. After six months, the seller writes off AED 50,000 as bad debt. The seller then reduces output VAT by AED 2,500 in the current return. The buyer reduces input VAT by AED 2,500 in the same period, if all conditions are met.

Records You Should Keep for This Scheme

A firm keeps clear records to support the adjustment:

• The original tax invoice with supply details.
• Credit control notes and reminder emails.
• Ledger entries that show the write-off.
• A dated bad debt notice sent to the customer.
• A working paper that ties the VAT amount to the written-off amount.
• Any later receipts and reversals, if the customer pays after adjustment.

Good records help the Authority verify your position with ease during an audit in Dubai.

Practical Tips to Avoid Errors

A small control saves large stress. Use these tips:

• Review aging reports each month with finance.
• Trigger the six-month clock with a tracker on each unpaid invoice.
• Send formal notices with the written-off amount before adjustment.
• Mirror entries for both VAT and book write-off.
• Reverse the VAT adjustment if you recover cash later and issue a tax credit note or correction as required.

Why Good Accounting Systems Matter

A simple system records each step in time. The system links sales, receipts, reminders, and write-offs. Clean data supports quick tax filings and safe audits. The owner gets a clear view of risk and cash in the pipeline. The team files VAT returns without guesswork and keeps trust with partners.

Role of Mubarak Al Ketbi (MAK) Auditing

Mubarak Al Ketbi (MAK) Auditing helps businesses handle bad debt adjustments under VAT in Dubai. Our team reviews ledgers, notices, and timings. Our experts set a policy for collections and write-offs with clear steps. We align invoices, returns, and audit trails for control.

Our support includes:

• VAT reviews for time of supply and bad debt steps.
• Return preparation with correct output and input entries.
• Draft notices and templates for customer communication.
• Bookkeeping cleanup for sales, receipts, and write-offs.
• Training for staff on collection cycles and evidence.

We also help with auditing, CFO services, accounting software, due diligence, and tax filings for growing firms in the UAE.

What Can Help 🥇

Mubarak Al Ketbi (MAK) Auditing sets a simple flow for collections, write-offs, and VAT entries. Our team maps each invoice from issue to payment, with proof in files. We keep your returns accurate and your cash safe. Remember, a stitch in time saves nine, because early actions stop big losses later.

• For more information visit our office:
  Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
• Contact/WhatsApp: +971 50 276 2132