UAE: Bad Debt Relief

The VAT Law makes provisions for a bad debt write-off and discount of output tax paid on a supply for which consideration has not been received, either fully or in part after 6 months from the date of the supply. Certain conditions must be met in order for a supplier to be able to write off a bad debt and claim the output tax back. 

Conditions

• Goods or services must have been supplied and the output VAT must have been charged and paid to THE AUTHORITY.
• Consideration for the supply has been written off in full, or part, as a bad debt in the accounts of the supplier.
• More than 6months from the date of supply has passed.
• The supplier has notified the recipient, of the goods or services, of the amount as consideration for the supply that has been written off.

Records Required

The VAT Law and Regulations do not provide specific details as to records to be maintained with respect to bad debt relief. The record keeping requirements make it clear that the following must be kept:

1. Records of all supplies of goods and services

2. All tax invoices and alternative documents relating to supplies made and supplies received

3. Records of goods and services received on which input tax has not been recovered

4. Records of adjustments made to tax invoices or accounts

5. Record that shows the tax due or recoverable after any correction or adjustmentsIn addition it would be advisable to keep a record of any payment received for the supply (including any payment received by the claimant or by a person to whom a right to receive it has been assigned, and any payment made by any person by way of consideration for the supply regardless of whether such payment extinguishes the purchaser’s debt to the claimant or not), the ‘outstanding amount’ to which the claim relates, the amount of the claim and he tax period in which the claim was made.

Debtor Obligations

Art. 64(2) of the Law also provide that on notification from the supplier of the goods or services, the recipient shall reduce the relevant recoverable input tax for the current period provided:

1.  The supplier has reduced the output tax accordingly and has properly notified the recipient of the amount being written off.

2.  The recipient has previously accounted for input tax in his tax return submitted to THE AUTHORITY.

3. The consideration was not paid by the recipient for over six months.Clearly the reduction in output tax made by the supplier must equate to the reduction in input tax made by the recipient.

Source Credit – Azmy Adel

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