If a customer never pays, you can recover the VAT you already handed to the FTA on that sale — but only if you meet every condition. UAE VAT bad debt relief requires the debt to be at least six months old, written off in your books, and the customer notified. Miss a step and the relief is not available.
Why this exists
VAT is accounted for on the tax point, not on payment. You invoice, you declare the output tax, you pay it to the FTA — regardless of whether the customer ever pays you. On a large unpaid invoice you are out of pocket for the goods or services and for 5% you funded on the customer’s behalf.
Bad debt relief lets you recover that 5%. It is one of the more commonly missed reliefs in UAE VAT, usually because nobody connects the write-off in the accounts to a VAT entitlement.
The conditions, all of which must be met
- The goods or services were actually supplied and VAT was charged and accounted for on the return.
- The consideration has been written off in full or in part in your accounting records as a bad debt.
- More than six months have passed since the date of supply.
- You have notified the customer in writing of the amount written off.
The notification is the step that gets skipped. Businesses write the debt off, claim the relief, and cannot produce evidence that they told the customer — which is exactly what the FTA asks for. Send the notice, keep the proof of sending, and file it with the write-off.
How to claim it
The relief is taken as an adjustment in your VAT return for the period in which the conditions are all satisfied. It reduces output tax for that period; it is not a separate refund application.
Claim only the tax element. On an AED 105,000 invoice comprising AED 100,000 plus AED 5,000 VAT, the relief is the AED 5,000 — the AED 100,000 is a commercial loss deductible for corporate tax, not recoverable through VAT.
Partial write-offs
If you settle at 60 cents on the dirham, you claim relief on the written-off 40% only. The relief follows the write-off, so keep the arithmetic visible in the ledger rather than posting a single net figure.
What the customer must do
The mirror obligation is real and frequently ignored. A registered customer who has not paid within six months and has recovered input tax on the invoice must repay that input tax to the FTA.
So bad debt relief is symmetrical: the supplier recovers, the customer repays. If you have aged payables sitting beyond six months on which you have already claimed input tax, that is an exposure on your own return, quite separate from the commercial dispute. It is worth reviewing aged creditors for exactly this, and our VAT health check looks for it.
If the debt is later paid
If the customer eventually pays after you have claimed relief, you account for the output tax again in the period you receive payment. The relief is a timing adjustment, not a permanent write-off of the liability.
Making this work in practice
The reason this relief goes unclaimed is procedural rather than technical. Debts get written off at year end by the accountant, VAT returns are filed quarterly by someone else, and the two never meet.
- Run an aged receivables report before each VAT return, not just at year end.
- Flag anything beyond six months for a write-off decision.
- Where written off, issue the customer notification and diarise it.
- Take the adjustment in that period’s return.
- Run the same review on aged payables for the repayment obligation.
If your bookkeeping is not current enough to produce a reliable aged receivables report, that is the first fix. A relief you cannot evidence is a relief you cannot safely claim, and our backlog recovery guide covers getting there.
Frequently asked questions
What is VAT bad debt relief in the UAE?
A mechanism allowing a supplier to recover VAT already paid to the FTA on a supply where the customer has not paid, provided the debt is over six months old, written off in the accounts, and the customer has been notified.
How long must a debt be outstanding?
More than six months from the date of supply.
Do I need to tell the customer?
Yes. Written notification of the amount written off is a condition of the relief, and the FTA will ask for evidence of it.
How do I claim it?
As an adjustment reducing output tax in the VAT return for the period in which all the conditions are met. There is no separate application.
Can I claim relief on the full invoice amount?
No. Only the VAT element is recoverable through the return. The net amount is a commercial bad debt, deductible for corporate tax purposes.
What if the customer pays later?
You account for the output tax again in the period the payment is received.
Does the customer have to repay input tax?
Yes. A registered customer who has not paid within six months must repay any input tax already recovered on that invoice.
Can I claim relief on a debt from three years ago?
Potentially, but the five-year limit on adjusting VAT positions applies, and older claims attract more scrutiny. See our guide to the five-year input credit rule.