Introduction
Many businesses in UAE face bad debts at some point. Sometimes a supplier sells goods or services and issues a proper tax invoice, but the customer never pays. The supplier already pays VAT to the FTA on that sale. When it becomes clear that the customer won’t pay, the supplier writes off the amount as a bad debt. In these situations, UAE VAT law allows the supplier to reclaim the VAT that was paid on the written-off amount. Mubarak Al Ketbi (MAK) Auditing always guides clients through this process to help them recover lost VAT.
Conditions for VAT Adjustment on Bad Debts
The FTA has set clear conditions that suppliers must meet to claim a VAT adjustment for bad debts. These are:
- The supplier must have already supplied goods or services and issued a proper tax invoice, including the right VAT amount.
- The receivable amount (the money owed by the customer) must be written off, either fully or partly, in the supplier’s accounts.
- At least six months must pass from the date of supply before you can claim the adjustment.
- The supplier must communicate with the customer about the write-off of the debt.
If all these conditions are met, the supplier can apply for VAT relief.
Importance of Proper VAT Accounting and Payment
A supplier can only claim VAT relief on bad debts if the original invoice was correct and reported in the right VAT return. The VAT must have been paid to the FTA. The supplier needs to keep all records and proof. This includes invoices, VAT returns, and payment evidence.
To claim the adjustment, make sure:
- You have full records of all invoices and payments.
- VAT for the supply was paid and reported on time.
- The bad debt is shown clearly in your accounts.
Following these steps helps protect your business and ensures your claim is valid.
Communicating with the Customer About Bad Debts
The UAE VAT rules do not require a special method to notify the customer about the write-off. You can use a letter, email, post, or other similar way to communicate. The customer doesn’t have to reply or confirm. What matters most is that you keep proof that you tried to tell the customer.
Always keep a record of your communication—save a copy of the letter or email you send. This helps if you ever face a VAT audit.
Where to Make the VAT Adjustment for Bad Debts
Once you are eligible, you can make the adjustment in your next VAT return. The VAT return form in UAE has a special column (in Box 1) for adjustments. Enter the amount of VAT you want to reclaim.
If your supplies cover more than one emirate, report the bad debt adjustment for each emirate separately in your VAT return. Good record-keeping makes this process simple and avoids mistakes.
Steps to Avoid Problems with Bad Debt VAT Adjustments
- Always issue correct tax invoices and keep them safe.
- Report all sales and VAT payments in the right VAT return.
- Record bad debts clearly in your accounting software.
- Notify customers in writing about any write-off.
- Use accounting tools to track supplies by emirate.
How Mubarak Al Ketbi (MAK) Auditing Can Help
Mubarak Al Ketbi (MAK) Auditing supports UAE businesses with all VAT matters, including bad debt relief. We:
- Review your VAT compliance and records.
- Advise you on eligibility for VAT adjustments.
- Prepare and file VAT returns with all proper adjustments.
- Guide you in communication with customers.
- Keep you updated on VAT law changes.
With our expert team, you’ll never let a VAT opportunity slip through your fingers!
- For more information, visit our office:
Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates - Or contact/WhatsApp: +971 50 276 2132
