VAT Bad Debt Relief Guidelines in the UAE

Bad debt is any cost that is borne by the supplier when supplying a client and the latter fails to pay in any way for goods offered to them. In some circumstances that are considered valid, the Federal Tax Authority will compensate the VAT taxes that accrue from non-supply of such supplies. You can better comprehend these terms and learn how to recoup the VAT costs associated with these delinquent accounts by reading this article. VAT Registration UAE, when it comes to recovering bad debts in the UAE in 2024, UAE is your reliable ally. The VAT specialists in the UAE who work with them will assist you in understanding how to handle VAT bad debts in the UAE.

Also Read: VAT In UAE: Administrative Penalties And Violations

What is VAT bad debt relief in UAE?

When a firm offers credit to a buyer, extends its products or services credit terms, and the purchaser fails to finalize the obligation within a given time then a bad debt results. This can be for a number of reasons, such as customer insolvency, customer bankruptcy, or another kind of conflict.

From a VAT angle, if a business has a bad debt, it has already charged the VAT to the authorities on the supply. However, due to the inability of the customer to pay the business will not be in a position to recover the VAT charged. This can pose a significant financial burden. Thus, FTA has given some relief on these kinds of bad debts and the same can be reclaimed from FTA if the conditions (mentioned below) are satisfied.

Criteria for VAT Bad Debt Relief UAE

The VAT bad debt relief process is quite easy if the requirements are fulfilled. To qualify for bad debt VAT exemption, the conditions for a VAT refund on bad debts mentioned below must be fulfilled:

• Issued Tax Invoice: The supply must have been the subject of a valid tax invoice. According to VAT rules, any invoice should bear the following;

1. The date of supply,
2. Description of products or services supplied
3. Amount of VAT charged and
4. the TRN numbers of the supplier and the buyer.

• Recipient by Default: It must be the recipient’s failure to make payment. This indicates that the invoice was not paid for within the six months from the date of supply. Companies need to keep enough records to prove that a customer is not paying.
• Debt Write-off: In its accounting records, the company must record the VAT write-off UAE of bad debt. This means that the company no longer believes that the loan can be repaid.
• Notification to receiver: In order to write off a debt as bad, the business must give written notice to the receiver. To be eligible for VAT relief, this notification must be documented.

Documents Needed for Bad Debt Relief UAE or Requirements for VAT bad debt write-off

Like for other VAT provisions, VAT bad debt relief application needs the records that must be kept in relation to bad debt relief, the VAT Law and Regulations are vague. The following needs to be maintained, as stated by the record keeping requirements:

1. A record of every item and service supplied
2. Every tax invoice and other document about the supplies given and received
3. Documents detailing the products and services acquired for which input tax has not been reimbursed
4. Documentation of tax invoices or account modifications
5. Document that, following any corrections or modifications, displays the tax owed or recoverable

Steps to claim VAT refund on bad debts for bad debt relief UAE or How to claim VAT on bad debts in UAE?

The Process for VAT bad debt write-off is quite simple. The stages involved in claiming VAT reduction on VAT bad debt UAE are as follows:

• Assemble the supporting documentation Gather any necessary supporting documentation, such as a copy of the debt write-off entry in the accounting records, the tax invoice, and evidence of non-payment.
• Make a Change to Your VAT Return: For the tax period in which the bad debt was written off, submit an amended VAT return. Include the amount of bad debt as a reduction in the production tax liability on the return.
• Keep Records Up to Date: All supporting documentation must be kept on file by the company for a minimum of five years following the date of the VAT return adjustment. The FTA may need these documents in the event of a tax audit.

VAT registration UAE helps in overcoming from bad debt relief UAE

You can recover your bad debts in the UAE with the assistance of the VAT specialists there. They will assist you in promptly claiming the bad debts to prevent any losses. VAT compliance for bad debts UAE is a must and hence the records and invoices should always be maintained. Therefore, call us today and we shall be really happy to help you in claiming your bad debt relief in the UAE.