Accounts receivable: what it means for UAE businesses.

What accounts receivable means

Also called: Trade receivables, Debtors.

Accounts receivable is the total that customers owe a business for goods or services already supplied on credit. It sits on the balance sheet as a current asset and is tracked customer by customer in a sales ledger, usually with an ageing report that shows how long each invoice has been outstanding.

In the UAE, receivables carry a cash cost that many SMEs underestimate. VAT is due on the date of supply, which is often the invoice date, so the business pays the 5% to the FTA with its return even if the customer has not paid. If a debt goes bad, the VAT Law allows the supplier to reduce output tax only once more than six months have passed since the supply, the debt has been written off in the accounts and the customer has been told.

Receivables also affect Corporate Tax, because income is taxed on the accrual basis when earned, and IFRS for SMEs requires an impairment loss where there is objective evidence that a receivable will not be collected. From 2027, the national e-invoicing system will change how sales invoices are issued and exchanged, starting with businesses whose revenue is AED 50 million or more.

How it works

• Each credit sale is posted to the customer's account at the invoice total including VAT; receipts reduce it.
• An ageing report groups balances by how long they are overdue, typically 30, 60, 90 and over 90 days.
• At each reporting date, the business assesses whether there is objective evidence of impairment and recognises any loss (IFRS for SMEs, paragraph 11.21).
• Bad debt relief on the VAT can be claimed once all the conditions in VAT Law Article 64 are met, including the six month test and notice to the customer.
• Under Ministerial Decision No. 244 of 2025 as amended, businesses with revenue of AED 50 million or more must implement e-invoicing by 1 January 2027, and others by 1 July 2027.

Worked example

A Dubai office furniture supplier invoices a fit-out contractor on 1 February 2026 and pays the VAT with its first quarter return. By September 2026 the contractor has stopped trading, so the supplier writes the debt off and notifies it.

Invoice value before VAT	AED 60,000
Output VAT at 5%, paid with the Q1 return	AED 3,000
Total receivable	AED 63,000
Amount written off as a bad debt	AED 63,000
Output tax reduction claimed as bad debt relief	AED 3,000

The supplier funded the AED 3,000 VAT for months before getting it back, which is why credit control is also a VAT cash flow issue.

Common mistakes

• Waiting for payment before recording the sale, which misstates income and ignores that VAT was due on the date of supply.
• Claiming bad debt relief before six months have passed, before the write-off is in the books, or without notifying the customer.
• Leaving old uncollectable balances on the ledger, which overstates assets and profit in the financial statements.

The law

• Federal Decree-Law No. 8 of 2017 on Value Added Tax, as amended, Article 25 (Date of Supply) and Article 64 (Adjustment for Bad Debts)
• IFRS for SMEs Accounting Standard (third edition, February 2025), Section 11, paragraph 11.21 (impairment of financial assets at cost or amortised cost)
• Ministerial Decision No. 66 of 2026 amending Ministerial Decision No. 244 of 2025 on the Implementation of the Electronic Invoicing System, Article One (Article 5, Clause 1, paragraph a)

Frequently asked questions

Do we have to pay VAT on invoices our customers have not paid?

Usually yes. VAT is due on the date of supply, which for most sales is the earliest of delivery, completion, payment or the tax invoice. The VAT is recovered later through bad debt relief only if the debt is written off and the Article 64 conditions are met.

Is a bad debt provision deductible for Corporate Tax?

Taxable Income starts from accounting income, so an impairment recognised under the accounting standards normally flows through. Specific cases, such as debts owed by related parties, deserve a closer look with an adviser before the return is filed.

Related terms

Bad debt relief · Time of supply · Accrual basis accounting · E-invoicing Accredited Service Provider · Working capital. See every term in the UAE tax glossary.

For the full picture, read our guide: UAE e-invoicing: what SMEs should do now.

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