UAE VAT bad debt relief allows a VAT-registered supplier to reduce output Value Added Tax (VAT) previously accounted for on an unpaid sale, but only after every Article 64 condition is met. The supply and VAT must already have been reported, the unpaid consideration must be written off in the supplier’s accounts, more than six months must have passed from the date of supply, and the customer must be notified of the amount written off. An overdue invoice alone is not enough.
What UAE VAT bad debt relief does
A supplier can account for output VAT and pay it to the Federal Tax Authority (FTA), yet never collect the invoice. Bad debt relief is the statutory adjustment that may remove the VAT element of the amount genuinely written off.
The relief does not cancel the commercial debt, decide whether a customer is insolvent or replace collection action. Article 64 of Federal Decree-Law No. 8 of 2017 is binding law. FTA Public Clarification VATP024 is authority guidance explaining the conditions and return treatment.
The workflow therefore has three parts: collections establishes what remains unpaid; accounting records the write-off; VAT compliance tests the legal conditions. A provision, an aged balance or management’s view that recovery looks unlikely does not complete all three.
The four conditions for UAE VAT bad debt relief
Article 64(1) makes these conditions cumulative. If one is missing, age alone does not make the receivable eligible.
1. The supply and output VAT were accounted for
The goods or services must have been supplied, and the tax due charged and paid. VATP024 says the FTA considers this satisfied where the supplier charged VAT on the tax invoice and accounted for it through its VAT returns.
Trace the invoice to the sales ledger, tax invoice, original return and VAT control account. If the transaction was omitted, used the wrong Tax Registration Number (TRN), rate or period, bad debt relief is not a substitute for analysing that original error.
2. The unpaid consideration was written off
The supplier must write off all or part of the consideration as a bad debt in its accounts. A doubtful-debt provision is not necessarily the same as writing off a named receivable. The ledger should identify invoice, collections, amount written off, date and approval.
Relief is limited to VAT relating to the written-off amount. VATP024 illustrates an invoice of AED 105: AED 100 consideration and AED 5 VAT. Writing off AED 105 produces an AED 5 adjustment; writing off AED 52.50 produces AED 2.50. This shows proportionality, not automatic eligibility.
3. More than six months passed from the date of supply
The clock runs from the date of supply, not automatically from invoice due date, first reminder or the date a balance becomes doubtful. Articles 25 and 26 contain date-of-supply rules, including for periodic payments or consecutive invoices.
VATP024 says a supplier must wait six months from the date of supply before initiating the adjustment and should engage with the customer during that period. That supports a documented collection process, but the clarification does not say litigation is required in every case.
For recurring services, instalments or invoices raised before completion, establish the VAT date from the contract, delivery or completion evidence, invoices and payments before calculating the period.
4. The customer was notified
The supplier must notify the recipient of the consideration written off. VATP024 says the notice should at least identify the unpaid tax invoice number and date and the amount written off. Letter, email, post or similar communication may be used.
Customer acknowledgement is not required before adjustment, but the supplier must retain evidence of notification steps. A draft or vague phone note is weaker than a dated communication linked to the invoice.
Decision framework before claiming relief
- Identify the supply. Confirm supplier, customer, TRNs, invoice, VAT treatment and date of supply.
- Prove original reporting. Match output VAT to the filed return, sales listing and control account.
- Reconcile collections. Apply receipts and credit notes to the invoice and isolate disputes.
- Check elapsed time. Measure more than six months from the legal date of supply.
- Approve the write-off. Post the full or partial write-off against the receivable.
- Calculate VAT only. Do not enter the gross debt as the adjustment.
- Notify the customer. State invoice number, date and consideration written off; keep sending evidence.
- Prepare the workpaper. Tie the amount to the Emirate, return box, journal and documents.
Use the broader UAE VAT Guide for the return framework and our bookkeeping services when the receivables ledger or VAT control account must first be reconciled.
How to report the adjustment
VATP024 directs an eligible supplier to the adjustment column of Box 1 of the VAT return. Enter the VAT amount only and, where applicable, report it for the Emirate to which the original output tax related. This is not a new sale, refund application or gross receivable.
A workpaper should show original invoice value, VAT, receipts, remaining consideration, write-off, attributable VAT, original return period and adjustment period. Link it to the notice and journal so a reviewer can trace the current return to the supply.
The FTA return guide also recognises bad debt adjustments in the adjustment columns. Guidance explains administration; it does not change Article 64.
What the customer must do
Article 64(2) covers the recipient. A VAT-registered customer must reduce recoverable input tax in the current period where the supplier reduced output tax and notified it, the customer received the supply and deducted input tax, and consideration remained unpaid in full or part for more than six months.
The supplier and recipient reductions correspond to VAT related to the written-off consideration. The notice should reach the customer’s finance or tax team rather than remain with a commercial contact.
The customer should match the notice against accounts payable, the purchase invoice and the period of input VAT recovery. It should identify the unpaid consideration and related VAT, not reverse an arbitrary figure.
Worked example: partial payment
A consultancy issues a tax invoice for AED 21,000: AED 20,000 fees and AED 1,000 VAT. It reports AED 1,000 output VAT. The customer pays AED 8,400, leaving AED 12,600.
After establishing the date of supply, waiting more than six months, pursuing collection and approving the write-off, the supplier writes off AED 12,600. At 5%, that balance contains AED 12,000 fees and AED 600 VAT. Subject to every Article 64 condition, the potential adjustment is AED 600, not AED 12,600 or AED 1,000.
This assumes proportional allocation to one invoice and no credit note, mixed rate, dispute or separate supply. Unapplied receipts or offsets must be resolved and evidenced.
Common errors
- Using ageing alone. Being 180 days overdue does not prove more than six months from the VAT date of supply.
- Leaving debt in receivables. The law requires a full or partial write-off, not merely a doubtful label.
- Adjusting the gross balance. The adjustment is the VAT attributable to written-off consideration.
- Sending a vague email. Guidance expects the amount written off and identifies invoice number and date as minimum content.
- Ignoring partial receipts. Relief extends only to the written-off portion.
- Failing to trace the original return. Prove VAT was accounted for before reducing it.
- Treating guidance as legislation. VATP024 states the FTA position; Article 64 is the binding basis.
Evidence checklist
- contract, order, delivery or completion evidence;
- tax invoice and customer details;
- original return and sales listing;
- receivables ledger and receipt allocation;
- collection correspondence;
- approved write-off journal;
- VAT calculation;
- customer notice and sending evidence; and
- current return workpaper showing Box 1 and Emirate allocation.
The file should reconcile with the VAT control account. If books, invoice listings and returns disagree, investigate before claiming relief. Our UAE bookkeeping cleanup guide explains how to restore that trail.
Frequently asked questions
Can I claim relief when an invoice becomes overdue?
No. More than six months must pass from the date of supply, and prior VAT accounting, write-off and customer notice must also be satisfied.
Is a doubtful-debt provision enough?
Not automatically. Article 64 requires consideration to be written off in full or part as a bad debt in the supplier’s accounts.
Must the customer acknowledge the notice?
VATP024 says no acknowledgement is needed before adjustment, but the supplier must retain evidence of notification steps.
Does six months run from payment due date?
No. The law and VATP024 refer to the date of supply, determined under the VAT rules for the transaction.
Where is the adjustment entered?
VATP024 directs it to Box 1’s adjustment column, using VAT only and the relevant Emirate allocation where applicable.
What must a VAT-registered customer do?
If all Article 64(2) conditions are met and it recovered input VAT, it must reduce recoverable input tax by the VAT related to the consideration written off.
Official sources checked on 20 September 2026
- Federal Decree-Law No. 8 of 2017 on Value Added Tax, Articles 25, 26 and 64. Binding legislation.
- FTA Public Clarification VATP024. Authority guidance on conditions, notice and Box 1.
- FTA VAT Returns User Guide. Authority guidance on adjustment columns.
- FTA Public Clarification VATP046, September 2026. Its 2024–2025 amendment summary does not list Article 64.
Review the ledger before adjusting the return
Bad debt relief works only when supply, original VAT, receivable, write-off, notice and return adjustment tell the same story. The MP Elites team can review that chain, reconcile the VAT control account and prepare the workpaper.
Explore our UAE VAT services or book a strategic consultation with the MP Elites team.
This article provides general information only and is not legal, tax or accounting advice. Apply the legislation and FTA guidance to the relevant facts and tax period.