Bad Debt Relief — The 6-Month Write-Off Rule

Bad Debt Relief

When a customer fails to pay for a supply, the supplier may be able to recover the VAT already accounted for on that supply.

Conditions for Bad Debt Relief

All of the following must be met:

1. The supplier has already accounted for VAT on the supply and paid it to the FTA.
2. More than 6 months have passed since the date of the supply (or the date the payment was due).
3. The supplier has written off the debt in its accounting records.
4. The debt has not been sold or assigned to a third party.
5. The supplier has notified the recipient (by written communication) that the debt has been written off.

The 6-Month Rule

The supplier must wait at least 6 months from the date of supply (or the due date of payment) before claiming bad debt relief. This ensures that the debt is genuinely bad, not just temporarily delayed.

How to Claim

1. Write off the debt in the accounting records.
2. Notify the customer in writing that the debt has been written off.
3. Adjust the VAT return for the current tax period — reduce output tax by the amount of VAT on the bad debt.
4. Maintain documentation: invoices, proof of supply, written communication to the customer, accounting records showing the write-off.

Recovery by the Customer

If the supplier claims bad debt relief, the customer must reverse the input tax claim if they previously recovered VAT on the purchase. This prevents double benefit.

What if the Debt is Later Paid?

If the customer subsequently pays the debt:

• The supplier must re-account for the VAT (add it back to output tax).
• The customer can re-claim the input tax.

Worked Example

A Dubai company supplies AED 100,000 + AED 5,000 VAT of goods to a customer in January 2026. The customer does not pay. In August 2026 (7 months later), the company writes off the debt, notifies the customer, and claims AED 5,000 bad debt relief on its Q3 VAT return. If the customer later pays in December 2026, the company re-accounts for the AED 5,000 VAT.