If a customer never pays you for an invoice you already charged VAT on, UAE bad debt relief lets you reduce your output tax by the VAT you paid on that unpaid amount — but only after all four statutory conditions are met, the most common gatekeeper being that more than six months have passed since the date of supply. This guide sets out the conditions, the mechanics of the adjustment, and what happens if the customer later pays, as the rules stand in September 2026.
The four conditions for bad debt relief
Bad debt relief is set out in Article 64 of Federal Decree-Law No. 8 of 2017 and its Executive Regulation, and the FTA's Public Clarification VATP024 (checked September 2026) confirms the practical requirements:
| Condition | What it means in practice |
|---|---|
| 1. VAT was charged and accounted for | You declared the output tax on the supply in a VAT return — relief applies only to VAT you have already paid the FTA |
| 2. The consideration was written off as a bad debt | The unpaid amount (in full or part) is written off as a bad debt in your accounting records — an aged receivable you simply stopped chasing does not qualify |
| 3. More than six months since the date of supply | You can claim the adjustment only in a tax period after six months have elapsed from the date of supply; the FTA expects you to have engaged the customer for recovery during those six months |
| 4. The customer was notified of the write-off | You notified the customer of the amount of consideration that has been written off as a bad debt — keep the written notification as evidence |
Your bad-debt timeline
Day 0: supply made, VAT charged and paid to the FTA → invoice goes unpaid → chase the customer and document every attempt → Month 6+: write the debt off in your books, notify the customer in writing, then reduce output tax in the return for the period you made the write-off. If the customer pays afterwards, the VAT goes back in the return for the recovery period.
How the adjustment works
Once the conditions are met, you reduce the output tax in the VAT return for the tax period in which you wrote off the debt — you reduce the VAT attributable to the unpaid consideration, not the whole invoice unless the whole invoice went unpaid. Partial recovery and partial write-offs work the same way, pro-rata to the unpaid amount. Keep the evidence: the original tax invoice, the written-off entries in your accounts, the customer notification, and your recovery attempts during the six months (VATP024). The FTA can request this at any audit.
If the customer later pays
Recovery reverses the relief: you account for the output tax again in the tax period in which you recover the amount. Track which invoices carry claimed relief so the reversal is automatic, not discovered at year-end.
Worked example (illustrative)
A consultancy issued a AED 105,000 tax invoice in January 2026 (AED 100,000 + AED 5,000 VAT) and paid the AED 5,000 output tax to the FTA in the Q1 return. The client never pays. On 1 August 2026 — more than six months after the date of supply — the consultancy writes off the full receivable and notifies the client in writing. In the return for the July–September 2026 period it reduces output tax by AED 5,000. If the client unexpectedly settles AED 63,000 (60%) in October 2026, the consultancy accounts for 60% of the relief — AED 3,000 — as output tax in the Q4 return.
Mistakes that void the claim
- Claiming before six months. The clock runs from the date of supply, not the invoice date or the due date on your payment terms.
- No written-off entry in the books. Moving the receivable to a 'watch list' is not a write-off; the accounts must show it.
- No notification to the customer. The FTA requires evidence that the recipient was told of the write-off — a documented letter or email, not an internal note.
- Forgetting the reversal. Recovered amounts that reappear as income without the output tax going back in are a standard audit finding — late or incorrect returns carry fixed penalties.
Related terms in bad debt relief
A few concepts sit next to this adjustment: output tax is what you reduce when relief is claimed, not the VAT you already recovered as input tax on the same customer relationship; a write-off is an accounting entry removing the receivable from your books, distinct from simply ageing it; the six-month rule runs from the date of supply, not the invoice due date; and a public clarification (like VATP024) is the FTA's own guidance interpreting how a law provision applies in practice.
FAQs
Can I claim bad debt relief before six months have passed?
No — the adjustment can only be claimed in a tax period after six months have elapsed from the date of supply, one of the four statutory conditions under Article 64.
Do I need to notify the customer before claiming relief?
Yes — written notification of the write-off is a mandatory condition. Keep the letter or email as evidence; an internal note is not sufficient.
What happens if the customer pays after I claimed relief?
You reverse the relief — accounting for the output tax again in the tax period you recover the amount, pro-rata if only part is recovered.
Does bad debt relief apply to the whole unpaid invoice or just the VAT?
Only the VAT attributable to the unpaid consideration is adjusted, not the net invoice value — partial write-offs and partial recoveries follow the same pro-rata logic.
Last reviewed: September 2026 by Gautam Sanoj, Associate Manager – Tax Advisory, Finanshels. Rules as of Article 64, Federal Decree-Law No. 8 of 2017 and FTA Public Clarification VATP024; verify current requirements against the FTA (tax.gov.ae) before acting.
Chronic bad debts are usually a receivables-discipline problem before they are a VAT problem. Finanshels' bookkeeping services keep the write-offs and reversals clean in the ledger, and VAT filing applies the relief correctly in the right period. For the filing calendar behind every adjustment, see how to file VAT returns in the UAE.
