Bad debt relief: what it means in UAE tax.

What bad debt relief means

Also called: VAT bad debt relief.

Bad debt relief is the VAT rule that stops a supplier paying VAT on money it never receives. When a registered business issues an invoice, it normally pays the output tax in the return for that period whether or not the customer has paid. If the debt later goes bad, Article 64 of the VAT law lets the supplier reduce its output tax in the current return by the VAT contained in the amount written off.

Four conditions must all be met: the goods or services were supplied and the VAT was charged and paid, the unpaid amount has been written off in full or in part in the supplier's accounts, more than six months have passed since the date of supply, and the supplier has told the customer how much has been written off.

The rule works in both directions. A registered customer that has claimed input tax on the unpaid invoice, has received the supplier's notice, and has not paid for more than six months must reduce its own input tax by the same amount. For SMEs that sell on credit, the relief can return real cash, but only if the write-off and the customer notice are documented properly.

How it works

• The claim is made as a reduction of output tax in the current tax period, not by amending the return in which the sale was reported.
• The reduction equals the VAT contained in the amount written off. For a 5% supply, that is the written off amount multiplied by 5/105.
• The six month test runs from the date of supply, not from the payment due date.
• The supplier must notify the customer of the amount written off before claiming, and should keep a copy of that notice with the write-off entry.
• The customer reduces its recoverable input tax once it has received the notice and has left the amount unpaid for more than six months.

Worked example

A Dubai office fit-out contractor invoices a customer AED 80,000 plus AED 4,000 VAT on 15 January 2026 and pays the output tax in its return. The customer pays AED 21,000 and then stops paying. On 31 August 2026 the contractor writes off the balance in its accounts and notifies the customer.

Invoice total including VAT	AED 84,000
Paid by the customer	AED 21,000
Balance written off in the accounts	AED 63,000
VAT inside the written off balance (63,000 x 5/105)	AED 3,000
Output tax reduction in the current return	AED 3,000

Only the VAT inside the unpaid balance is recovered; the VAT on the AED 21,000 that was paid stays with the FTA.

Common mistakes

• Claiming before six months have passed from the date of supply, or before the debt is actually written off in the books.
• Skipping the written notice to the customer, which is one of the four legal conditions.
• As a customer, keeping input tax on an invoice the supplier has written off and notified, when the law requires it to be reduced.

The law

• Federal Decree-Law No. 8 of 2017 on Value Added Tax, Article 64 (Adjustment for Bad Debts)

Frequently asked questions

Do I need a court judgment before claiming?

The four conditions in Article 64 do not include legal action. What the law asks for is a supply on which VAT was paid, a write-off in the accounts, more than six months since the supply, and notice to the customer.

Can I use a tax credit note instead?

No. A tax credit note is for a reduction in the price actually agreed, such as a discount or a return. Bad debt relief is for a price that stays due but will not be collected.

Related terms

Output tax · Input tax · Tax credit note · VAT tax period. See every term in the UAE tax glossary.

For the full picture, read our guide: Month-end close for UAE SMEs: a practical checklist.

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