The Challenge
"One of our clients has owed us AED 180,000 for over a year and we've written it off in our books as unrecoverable. We already paid VAT on that sale to the FTA when we issued the invoice. Can we get that VAT back, or is it simply gone for good?"
This is one of the most common questions from UAE businesses dealing with slow-paying or insolvent customers, particularly in construction, wholesale trade, and B2B services where credit terms are the norm. Most owners assume that once VAT has been declared and paid to the FTA on a sale, it is locked in regardless of whether the customer ever pays. That is not correct — UAE VAT law provides a specific relief mechanism for exactly this situation.
Our Approach
- Six-month rule — bad debt relief can only be claimed once at least six months have passed from the date the payment was due or the supply was made, whichever is later.
- Write-off and de-registration conditions — the debt must have been written off in the supplier's accounting records as a bad debt, and the customer's VAT registration (if it was a taxable supply to a registered person) status is relevant to how the adjustment is treated.
- Notification and evidence — the supplier must have notified the customer of the amount of consideration written off, and must retain evidence of the supply, the output tax paid, and the write-off to support the claim if the FTA asks.
Where these conditions are met, the supplier can reduce output tax in the VAT return covering the period in which the conditions are satisfied, effectively recovering the VAT originally paid on the unpaid invoice. We review the ageing debtor list, confirm each invoice meets the six-month and documentation tests, and prepare the adjustment with a clear audit trail before it is included in the return, so the claim stands up if the FTA reviews it later.
The Result
Businesses that follow the correct process — waiting out the six-month period, formally writing off the debt, notifying the customer, and keeping the paperwork — successfully recover VAT that would otherwise sit as a permanent loss on top of the unpaid principal. Get the timing or documentation wrong, and the FTA can disallow the adjustment, so we recommend having invoices reviewed against the relief conditions before the claim is filed rather than after a query is raised.
The Takeaway
"UAE VAT bad debt relief lets you reclaim output tax on genuinely unpaid invoices, but only after six months, only once the debt is written off and the customer notified, and only with the evidence to prove it."
