Bad Debts Adjustments and Reversal of Input Tax in UAE

Do you know VAT Paid on unpaid customers which is outstanding for more than 6 months could be adjusted in the subsequent VAT return. There is a specific tab called Adjustment tab where you can adjust the output tax paid on accounts receivables which are outstanding for more than 6 months from the due date. There are specific conditions associated with these adjustments. The adjustments could be done after fulfilling the conditions mentioned in article 64 of Federal Decree-Law No. (8) of 2017 on Value Added Tax. The conditions as per Article 64 are: 

1. Consideration has been written off in full or part as a bad debt.
2. Notification or intimation has to be given to the customer that this amount of consideration has been written off.
3. More than six (6) months has passed from the due date of the supply.
4. Goods and Services have been supplied and the Tax has been charged and paid.

If the taxable person fulfils all these 4 conditions, then the taxable person has the right to adjust the output tax previously paid in the subsequent tax period and subsequently reduce the tax liability in the particular tax period.

Now, similar to accounts receivables, we have to review the accounts payable as well where the vendor has not been paid which is outstanding for more than 6 months from the due date, we need to reverse the input tax claimed earlier. So, apart from the review of Sales and Purchases transaction for the VAT Return, we must review the ageing of accounts receivables and accounts payables and accordingly adjust the input tax and output tax which is outstanding for more than 6 months from the due date.

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Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax