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FTA issues clarification on adjustment of VAT on bad debts

FTA issues clarification on adjustment of VAT on bad debts

The Federal Tax Authority (FTA) of UAE issued a notification clarifying the various conditions under which suppliers can benefit from the Bad Debt relief scheme. This clarification is targeted to the VAT-registered suppliers that are not paid for their goods or services partially or wholly by their customers within a specified period. However, it still accounts for the related VAT. The suppliers, in this case, benefit from the Bad Debt relief scheme.

These benefits are in accordance with the Federal Decree-Law No. 8 of 2017 on Value Added Tax. This law requires the VAT-registered suppliers to account for VAT in the same tax period as the period of issue of tax invoice.  This is on the basis that no other event, which triggers the date of supply, has taken place prior to the date on which the invoice is issued. The bad debt situation arises when you don’t pay the invoice. Hence, VAT becomes a cost for the supplier. In such cases, the Bad Debt relief scheme comes to the rescue of suppliers through which VAT adjustments can be made for the suppliers if you meet the four following demands:

  • The supplier must have supplied the goods and services. Moreover, it must have charged and accounted for the applicable VAT in its tax returns. They must have paid the VAT amount to the FTA.
  • The supplier must write-off the consideration for the supply. It maybe in full or in part as a bad debt in his/her accounts. This is essential because the supplier can benefit from the bad debt relief scheme. However, it is only to the extent of the consideration that is written-off in full or in part as bad debt in the supplier’s accounts.
  • The debt must have been remained unpaid for a period of 6 months from the date of supply. This provision also allows the supplier to follow-up with the customer for relevant payment of the outstanding amount.
  • The supplier must have notified the customer about the written-off amount of consideration for the supply. The supplier must notify the customer through email, letter, post, or any other method of communication. In the notification that the supplier sends to the customer. It is essential to mention the invoice number, date of tax invoice. It also includes the amount of consideration that the supplier has written-off. The customer may or may not send an acknowledgment letter to the supplier regarding the notification received.

If you meet all these four conditions, the supplier becomes eligible to claim bad debt relief. However, the supplier must provide the related proofs to the FTA. It includes all the measures taken to make the customer aware of the outstanding amount. They should give the notification sent for the consideration of the written-off amount.

The supplier must claim the bad debt relief in the relevant VAT return form. He/she must fill in the details for adjustments in the ‘Adjustment column’ of Box 1 of the VAT Return form. You should only the VAT amount. You should also adjust for the reported amount of each Emirate, wherever applicable. The effective date of this provision is the same as the date of effect of relevant regulation.

This clarification by FTA gives a respite to suppliers and their customers. It is especially for those were confused regarding the VAT amounts. Those who think it remains unpaid for more than six months and accounts for in the suppliers’ accounts. If you need any help in claiming bad debt relief, NR Doshi & Partners is always at your service.

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N R Doshi & Partners

NR Doshi & Partners is a top-notch VAT consultant in UAE that has provided VAT consulting and advisory services to several clients in UAE and other countries. You will benefit from the relevant knowledge and experience of our VAT professionals in dealing with any kind of VAT processes and submissions to become VAT-compliant. Whether you are a small firm or a big business, from the financial services industry or retail, or any other, you will get the right guidance with industry-specific VAT consulting services. Be it VAT registration, deregistration, accounting, return filing, modifications in accounts, or changes in the return filed, we have the expertise to deal with any and every VAT compliance process.

For assured assistance at every step of the path to achieving VAT compliance, get in touch with us at www.nrdoshi.ae!

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