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May 15, 2026
Where a VAT registered supplier supplies goods or services to its customers but is not paid (wholly or partially) within a specified period, such supplier may be able to adjust the VAT on the bad debts, subject to meeting the conditions prescribed in Article 64(1) of the Federal Decree Law No. 8 of 2017 on Value Added Tax (“Decree-Law”).
This Public Clarification discusses the conditions which must be met in order to benefit from the Bad Debt relief scheme.
In accordance with the date of supply provisions in Article 25 and Article 26 of the Decree-Law, a VAT registered supplier is generally required to account for output tax in the same tax period in which a tax invoice is issued. This is on the basis that no other event which triggers the date of supply has taken place prior to the date on which the invoice is issued.
If that invoice is not paid and a bad debt situation occurs, the VAT accounted for by the supplier is likely to become a real cost to the business. The Bad Debt relief scheme seeks to provide a relief to the supplier in such instances by permitting an adjustment of the VAT charged but not paid by the customer.
In order to benefit from the Bad Debt relief scheme, the following four conditions must be met:
The goods and services should have been supplied and VAT on the supply should have been charged and accounted for;
The consideration for the supply should have been written off in full or in part as a bad debt in the accounts of the supplier;
More than six months should have passed from the date of the supply;
The supplier should have notified the customer of the amount of consideration for the supply that has been written off.
The first condition requires that the VAT on the supply must have been charged and paid by the supplier. The FTA considers that this condition will be satisfied where the supplier has charged VAT on the tax invoice and has also accounted for VAT to the FTA via its tax returns.