FTA’s Clarification on VAT Adjustment of Bad Debts

FTA’s Clarification on VAT Adjustment of 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 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 under 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 the tax invoice.

The reason is that no other event, which triggers the date of supply, has taken place before the invoice’s date. The bad debt situation arises when you don’t pay the invoice, and 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 they meet the four following demands:

4 Demands That Suppliers Need to Meet for VAT Adjustments

  • The supplier must have supplied the goods and services. Moreover, it must have charged and accounted for the applicable VAT in its tax returns, and it must have paid the VAT amount to the FTA.
  • The supplier must write off the consideration for the supply, and it may be in whole or in part as a bad debt in their 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 written off in whole or in part as bad debt in the supplier’s accounts.
  • The debt must have remained unpaid for six 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 should notify the customer about the written-off amount of consideration for the supply. Next, the supplier must notify the customer through email, letter, post, or any other method of communication. Additionally, the notification must mention the invoice date & number plus the consideration amount that the supplier writes off.
  • However, the customer may not acknowledge the supplier’s notification in writing.

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. Additionally, the supplier must also fill in the details for adjustments in the ‘Adjustment column’ of Box 1 of the VAT Return form.

You should only fill in the VAT amount. Note that 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 mainly for those confused regarding the VAT amounts and those who think it remains unpaid for more than six months and accounts for in the suppliers’ accounts.

Call NR Doshi & Partners at +971 50 6591233 if you need any help claiming bad debts.

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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 our VAT professionals’ relevant knowledge and experience in dealing with any VAT processes and submissions to become VAT-compliant.

It does not matter whether you are a big/small/medium-sized firm. Neither does your industry matter. You could be in the finance sector, retail industry, or healthcare, but you will get proper guidance plus industry-specific VAT consulting services.

What can NR Doshi & Partners do for your business?

  • VAT registration & deregistration
  • VAT return filing
  • Account modifications
  • VAT return filing changes

With years of experience and a team of hardworking professionals, your VAT compliance matters are our topmost priority.

For assured assistance at every step of achieving VAT compliance, contact us at www.nrdoshi.ae!

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