Bad Debts Adjustment Scheme Under Vat In Dubai

The Decree laws’ Articles 25 and 26 specify the date of delivery requirements that must be met in order to pay VAT. To put it simply, VAT is payable at the earliest opportunity of the following:

• Date of products transfer under supplier supervision; if not, date of customer possession
• The date the tax invoice was issued
• Date of payment receipt, including advance payments

The previous VAT payment criteria take bad debts into account while calculating VAT. VAT is paid regardless of whether the taxable supply amount is really received or not, which raises the issue of how VAT paid on bad debts should be treated. The UAE VAT Law provides provisions for the adjustment of bad debts, which alleviate registered taxpayers of the burden of paying taxes on irrecoverable debts.

Let’s examine how VAT is paid on taxable supplies once bad debts are settled.

Article 64 of the VAT law elaborates on the adjustment for bad debts; further discussion of the remedies and qualifying requirements follows.

A) Is it possible for the registered supplier to get a refund of the VAT they paid on taxable supplies that later become bad debts?
According to the rules of the VAT law, the potential remedy is not a refund claim, but rather a reduction in the output tax liability for the current tax period in order to correct the output tax previously paid on taxable supplies that turned into bad debt.

B) Does the Bad Debt Adjustment Scheme Require Any Conditions to Be Met?
Yes, the registered supplier must fulfill the following requirements in order for their output tax liability to be adjusted for the current tax period.

• Provision of goods and services, along with the charging and payment of applicable taxes.
• The supplier’s accounts show that the supply has been fully or partially written off as a bad debt.
• The supply date has elapsed by more than six (6) months.

The recipient of goods and the recipient of services have been informed by the registrant supplier about the amount of consideration that has been written off for the provision.

C) Does the recipient of goods or services under a bad debt scheme face any legal implications?
In the event that consideration was not paid, the recipient of the goods or services shall, in fact, lower the input tax claim for the current tax period to the extent of the prior input tax claim.

D) What Requirements Must The Recipient Of Goods Or Services Meet Under The Bad Debts Scheme?
When receiving goods or services, the recipient must fulfill all of the following requirements:

• The registered supplier has lowered the output tax, and the provider has notified the recipient of goods or services that the consideration is being written off.
• After deducting the applicable input tax, the goods and services were delivered to the recipient.
• For more than six (6) months, the Consideration was not paid in full or in part for the supply.

It should be mentioned that the recipient and supplier of the goods or services must have equal input tax claims and output tax liabilities.