VAT bad-debt relief in the UAE: reclaiming the 5% on invoices that will never be paid

The problem it solves

When you issue a tax invoice, you account for the 5% output VAT in that period — whether or not the customer ever pays. A receivable that goes bad therefore costs you twice: the revenue you'll never collect, and VAT you already paid to the FTA on money that never arrived. Bad-debt relief is the mechanism that returns the second loss.

The four conditions — all of them

• The goods or services were supplied and the output tax was charged and paid to the FTA
• The consideration has been written off, in full or in part, in your accounts — a real accounting write-off, not just an ageing report entry
• More than six months have passed since the date of the supply
• You have notified the customer of the amount written off

How the adjustment works

Once every condition is met, you reduce your output tax in the VAT return for the period in which the conditions were satisfied — by the VAT fraction of the amount written off (for a 5% supply, 5/105 of the gross unpaid amount). The relief is proportional: write off half the invoice, adjust half the VAT.

The mirror matters: a registered customer who received your write-off notice must reduce the input VAT they claimed on that invoice. The FTA can see both sides — a supplier claiming relief against a customer still holding the input credit is a mismatch that surfaces in audit.

The traps

• Counting six months from the invoice date when the supply date differs — the clock runs from the date of supply
• Claiming relief on debts that were never written off in the books — the accounting entry is a condition, not a formality
• Skipping the customer notification, the condition most often missed and the easiest for an auditor to test
• Forgetting the reverse: if the customer later pays, the VAT comes back — output tax is re-accounted on the amount recovered

How Orbit applies this

Orbit watches receivables ageing cross the six-month line, checks the write-off posting and the notification evidence, computes the 5/105 adjustment into the VAT return draft, and re-accounts automatically if a recovery lands later — so relief is claimed exactly when it becomes claimable, and unwound exactly when it must be.