VAT

Claiming Bad Debt Relief Under UAE VAT

2025-11-03 · 5 min read · By Aureus Worldwide

When a customer fails to pay, the sting is doubled for a VAT-registered business: you have already paid the FTA the 5% VAT on that sale, even though you never collected it. UAE VAT recognises this with bad debt relief, a mechanism to recover the output VAT you accounted for on an invoice that has gone unpaid. But relief is conditional, and the conditions are specific. This guide explains how bad debt relief works and how to claim it correctly.

The problem bad debt relief solves

Under the normal rules, you account for output VAT when you make a taxable supply, typically when you issue the tax invoice, regardless of whether the customer has paid. If the customer then never pays, you are out of pocket not just for the sale but also for the VAT you remitted on it. Bad debt relief lets you recover that output VAT from the FTA, so the VAT system does not leave you worse off on a genuine bad debt. The mechanics tie into your normal returns, covered in our VAT return filing guide.

The core conditions

Bad debt relief is available broadly where the following conditions are met:

These are general positions; the precise conditions and periods are set by the rules, so confirm them with the FTA before claiming.

The six-month rule

A central condition is timing. Relief is generally only available once a set period, commonly six months, has passed from the date of the supply, and the debt remains unpaid. You cannot claim relief the moment an invoice goes overdue; you must wait for the period to elapse and the other conditions to be met. Plan your bad debt review around this timing so you claim as soon as you are entitled, but not before.

The write-off requirement

You must have written off the debt (or the relevant part of it) in your accounting records. This is more than an internal note, it is a genuine accounting recognition that the amount is not expected to be recovered. The write-off ties the VAT claim to a real, recorded bad debt, which is why your accounting records are central to a defensible claim. If you later recover some of the debt, you generally have to account for VAT on the amount recovered.

Notifying the customer

A condition that businesses often miss is the requirement to notify the customer of the bad debt write-off. This matters because a VAT-registered customer that has already recovered the input VAT on the unpaid invoice may be required to repay that input VAT to the FTA, the system stays balanced. Keep evidence that you sent the notification, as it is part of the conditions for your claim.

Bad debt relief is symmetrical. When you recover your output VAT, a VAT-registered customer that claimed the input VAT may have to give it back, which is why notifying them is part of the process.

How to claim, step by step

1. Confirm VAT was charged and accounted for on the original supply
2. Make genuine recovery efforts and conclude the debt is bad
3. Write off the consideration in your accounting records
4. Wait for the required period (commonly six months) from the supply date
5. Notify the customer of the write-off and keep evidence
6. Adjust the VAT in your return for the relevant period
7. Keep full supporting documentation

What you can and cannot claim

Be precise about scope:

• Relief is for the VAT element you accounted for, not the whole unpaid amount
• It applies to genuine bad debts, not amounts simply in dispute or delayed
• If the customer partly pays, relief generally applies to the unpaid portion
• If you later recover a written-off debt, you must account for VAT on the recovery

The input-tax side of the coin

The mirror of bad debt relief is the customer's obligation. If you are the customer and you have recovered input VAT on a purchase you have not paid for within the relevant period, you may be required to repay that input VAT, even before any supplier notifies you. So bad debts cut both ways: as a supplier you can reclaim, but as a customer you may have to repay. Our input tax recovery guide covers the recovery rules these obligations sit within.

Record-keeping for bad debt relief

To support a claim, keep the original tax invoice, evidence that VAT was accounted for, your accounting write-off entry, records of recovery efforts, the customer notification, and the calculation of the VAT recovered. If you later recover any of the debt, document the VAT you account for on the recovery. Clean records make the claim straightforward and protect you if the FTA reviews it.

A note on changeable detail

The conditions, the qualifying period and the notification requirements for bad debt relief are set by the rules and FTA guidance and can be refined. Treat this guide as the framework and confirm the current conditions with the FTA or a qualified adviser before claiming.

How Aureus Worldwide helps

Aureus Worldwide helps UAE businesses identify which unpaid invoices qualify for bad debt relief, meet the write-off, timing and notification conditions, and adjust the VAT correctly in the return. Our VAT and accounting teams keep the supporting records and handle the symmetrical customer-side obligations, and we direct you to confirm changeable conditions with the FTA. To recover VAT on your bad debts, contact us.

Talk to our chartered accountants →