March 29 2021

Tax Authority Details Conditions for VAT Adjustments on Bad Debt Relief

Source: IBFD Tax Research Platform News

The UAE Federal Tax Authority (FTA) has confirmed conditions to be met in order for a supplier to benefit from the VAT bad debt relief scheme. The four conditions are as follows:

  • The goods and services should have been supplied and VAT on the supply should have been charged and accounted for. 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.
  • 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. It is important to note that the bad debt relief can only be taken to the extent of the consideration written off in the accounts.
  • A 6-month period should have passed from the date of the supply. A supplier must wait for 6 months from the date of supply to initiate the process of bad debt adjustment. The FTA considers that during the course of these 6 months, the supplier should engage with the customer to recover the debt and collect the outstanding amount.
  • The supplier should have notified the customer of the amount of consideration for the supply that has been written off. The FTA considers that the notification issued to the customer must at least contain the following information in addition to any other information that the supplier may choose to include:
    • invoice number and date of the tax invoice which has not been paid by the customer; and
    • amount of consideration that has been written off by the supplier.

It should be noted that there is no specific method to notify the customer. Notification can be sent through a letter, email, etc. by post or any other similar communication.

The FTA published public clarification VATP024 related to adjustments on account of bad relief on 29 March 2021. It provides guidance on the application of provisions of article 64 (1) of Federal Decree-Law No. (8) of 2017 on Value Added Tax.