VAT consultant’s assistance about VAT law on bad debts

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What is a bad debt?

If a debtor neglect to pay pending amount of loan to the creditor within specified time is called bad debts. Numerous factors might be the reason behind the denial of a customer.

Compliance of the VAT Law on bad debts

Law firms in UAE can help on bad debt that can be settled as per article 64 of the Federal Decree Law No. (8) Of 2017 in the UAE. The supplier can reduce the output tax on the bad debts in the case following circumstances are applicable.

  • Clearance of pending amount of bad debts from the account’s books.
  • He must inform the debtor related to the consideration has been returned off.
  • Due amount must be six months old from the date of provision.

Just in case if the above conditions are related then supplier can proceed further with the request to FTA for the refunding through the UAE VAT consultants through VAT return as an adjustment.

VAT on bad debts in the VAT Return

Being a supplier

VAT Return form (VAT 201 form) contains a column as adjustments under the section “VAT on sales and other output 1a to 1g”. The related column will be used regarding minimized output tax due to the alteration of bad debts. This column must have only VAT amount rather than sales amount. The figure will always be represented with a negative sign.

Being a Customer

In case if supplier informs you about the recovery of the output tax via his UAE VAT return, you are asked to make adjustments in your VAT return as well.

Adjustment required in the section “VAT on operating cost and all other efforts, line#09 that is standard rated expenses” must be changed for such kind of modification.

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