For any UAE business sitting on invoices a customer never paid: how to get back the 5% VAT you already handed to the Federal Tax Authority, the four conditions you have to clear first, and the mirror-image obligation that catches the customer who never paid.
A VAT-registered supplier in the UAE can reduce its output tax by the VAT on an unpaid invoice once four conditions in Article 64(1) of the VAT Law are met: the supply was made and the VAT was charged and paid to the FTA, the consideration has been written off as a bad debt in the supplier’s accounts, more than six months have passed since the date of supply, and the customer has been notified in writing of the amount written off. The adjustment goes in the Adjustment column of Box 1 of the VAT return, and it is capped at the VAT on the amount actually written off, not the whole invoice.
This guide works from Article 64 of Federal Decree-Law No. 8 of 2017 on Value Added Tax and from the FTA’s public clarification VATP024, Adjustment on Account of Bad Debts, which sets out what the FTA expects to see in each of the four conditions. Bad debt relief is a separate mechanism from correcting a mistake on a filed return, which is covered in our guide to UAE tax penalties and voluntary disclosure.
What Bad Debt Relief Actually Does
VAT in the UAE is accounted for on the date of supply, not the date of payment. Under Articles 25 and 26 of the VAT Law, that date is usually the earlier of the invoice date or the payment date, so a registrant hands the 5% to the FTA in the tax period the invoice is issued, whether or not the customer ever pays.
When the customer does not pay, the VAT the supplier already remitted becomes a real cost to the business. The FTA’s own framing in VATP024 is that the relief exists to remove that cost by permitting an adjustment of the VAT charged but not paid by the customer.
The relief is not a refund and it is not a credit note. It is a reduction of output tax in a later period, claimed on the return, and nothing is repaid to you directly unless that reduction happens to put the whole return into a net repayment position.
How much VAT can you reclaim on an unpaid invoice in the UAE?
Only the VAT contained in the amount actually written off in your accounts. The FTA’s worked example in VATP024 is an invoice of AED 105, made up of AED 100 of value and AED 5 of VAT. Write off the full AED 105 and you can adjust AED 5. Collect half the consideration and write off AED 52.50, and the adjustment is AED 2.50.
The Four Conditions in Article 64(1)
All four have to be satisfied before any adjustment is made. Failing any one of them makes the adjustment an error rather than a relief, and the FTA treats it accordingly.
| Condition | What the law requires | What the FTA looks for |
|---|---|---|
| 1. VAT charged and paid | Goods or services supplied, and the due tax charged and paid | VAT charged on the tax invoice and accounted for to the FTA through the returns |
| 2. Written off | Consideration written off in full or in part as a bad debt in the supplier’s accounts | An actual accounting write-off, not a provision or a doubtful-debt allowance |
| 3. Six months elapsed | More than six months have passed from the date of supply | Evidence that you engaged with the customer to recover the debt during those six months |
| 4. Customer notified | The supplier has notified the recipient of the amount written off | A retained letter or email carrying the invoice number, invoice date and amount written off |
Condition three is the one that sets your timing. The clock runs from the date of supply, not from the invoice due date and not from the day you gave up chasing, so a 90-day payment term does not extend it and an early write-off does not accelerate it.
The six months is a waiting period, not a deadline
VATP024 is explicit that the supplier must wait six months from the date of supply before starting the adjustment process. It is equally explicit about what the FTA expects to have happened in the meantime: during those six months, the supplier should engage with the customer to recover the debt and collect the outstanding amount.
That expectation has a practical consequence. A file with no dunning letters, no statements of account and no record of contact is a weak file, because the FTA’s stated position ties the relief to a genuine recovery effort. Keep the collection trail alongside the write-off entry, and read our guide to the rules that govern debt collection in the UAE before escalating.
Writing Off in Full or in Part
The relief tracks the write-off exactly. Article 64(3) sets the reduction equal to the tax related to the consideration written off under paragraph (b), and VATP024 restates it: relief can only be taken to the extent of the consideration written off in the accounts.
A partial write-off therefore produces a partial adjustment, and the arithmetic is proportional rather than discretionary. If you recover part of the debt after taking the relief, the recovered portion has to be brought back into output tax, because the condition that supported the adjustment no longer holds for that amount.
The distinction between a provision and a write-off matters more here than it does in most accounting contexts. A doubtful-debt provision is a judgment about collectability that leaves the receivable on the books; a write-off removes it. Only the second one satisfies Article 64(1)(b).
What the Notification to the Customer Must Contain
The fourth condition is the one businesses most often get wrong, because it feels like a courtesy rather than a legal requirement. It is a legal requirement, and VATP024 sets a minimum content standard.
- The invoice number and date of the tax invoice the customer has not paid.
- The amount of consideration that has been written off by the supplier.
- Anything else the supplier chooses to add, which is optional.
The Decree-Law does not prescribe a method, and the FTA accepts a letter, an email, post or any other similar communication stating the amount written off. You do not need the customer to acknowledge it before taking the adjustment.
What you do need is proof. VATP024 requires the supplier to evidence the documentation or that best measures were taken to notify the customer, and to retain that evidence. A sent email with the invoice reference in the body clears this comfortably; a phone call does not.
The Trap: What the Unpaid Customer Has to Do
Article 64(2) creates an obligation that runs in the opposite direction, and it is routinely missed because it lands on the party that did not pay rather than the one that lost the money.
A registrant recipient must reduce its own recoverable input tax where three conditions are met: the supplier has reduced its output tax under Article 64(1) and the recipient has received the supplier’s notification, the recipient received the goods or services and deducted the relevant input tax, and the consideration has gone unpaid in full or in part for over six months.
The notification is therefore not a formality for the customer either. Receiving one triggers a reporting obligation, so a business that files it away and keeps the input tax it already recovered has an understated liability sitting in its records.
Does an unpaid customer have to repay the VAT it reclaimed?
Yes, where the supplier has claimed bad debt relief and notified the customer, the customer has received the supply and recovered the input tax, and the invoice has been unpaid for more than six months. The customer reduces its recoverable input tax in the current tax period. This applies whether or not the customer agrees with the write-off.
How to Claim the Adjustment on the VAT Return
The mechanics are narrower than most businesses expect. There is no separate form, no application, and no prior FTA approval.
- Confirm all four Article 64(1) conditions are met for the specific invoice, and note the date of supply that starts the six-month clock.
- Write the consideration off in the accounts, in full or in part. The accounting entry has to exist before the return is filed.
- Send the notification to the customer with the invoice number, invoice date and amount written off, and save a copy.
- Enter the adjustment in the Adjustment column of Box 1 of the VAT return for the current tax period. VATP024 is specific that the adjustment amount should be the VAT amount only.
- Split it by emirate where applicable, in line with the respective output tax amount being adjusted, since Box 1 is reported per emirate.
- File and retain the file: the tax invoice, the write-off entry, the collection correspondence and the notification.
Because the adjustment is a VAT amount entered against the emirate in which the original output tax was reported, a business that reported the original supply in Dubai cannot take the adjustment against its Abu Dhabi line. Our walkthrough of filing the VAT201 return covers how the boxes fit together.
What Bad Debt Relief Is Not
Three adjacent mechanisms get confused with it, and using the wrong one creates a different problem from the one you were trying to solve.
| Mechanism | When it applies | How it is reported |
|---|---|---|
| Bad debt relief (Art. 64) | A valid supply was made and correctly taxed, but was never paid for | Adjustment column of Box 1, VAT amount only |
| Credit note | The supply itself changed: cancelled, returned, discounted or repriced | Reduces the value of the supply, and a tax credit note is issued |
| Voluntary disclosure | A previously filed return contained an error | Form VAT 211, with its own penalty consequences |
The line that matters in practice: if the customer owes you the money and simply did not pay, it is bad debt relief. If you no longer consider the money owed because the deal changed, it is a credit note. Issuing a credit note to clear an unpaid balance you still legally intend to pursue misstates the value of your supplies.
Bad Debt Relief and Corporate Tax Are Separate Claims
The same unpaid invoice can produce two distinct outcomes, and clearing one does not clear the other. The VAT adjustment recovers the 5% under Article 64; the deduction of the written-off receivable against taxable income is a corporate tax question governed by Federal Decree-Law No. 47 of 2022 and the accounting standards your financial statements are prepared under.
They also run on different clocks. The VAT relief is available in the tax period after the six-month point once the write-off exists, while the corporate tax effect follows your financial year. Businesses that maintain proper records under the UAE bookkeeping and audit requirements will usually find both fall out of the same write-off entry, but they are claimed in different filings.
What Actually Happens: The Practical Sequence
Nothing in this process generates a confirmation from the FTA. You will not receive an approval message, a reference number or a status change, because the relief is self-assessed and lands in a return like any other figure.
The visible steps are your own: the accounting write-off appears in the ledger, the notification leaves your outbox, and the adjustment appears as a negative VAT figure in Box 1 when you complete the return in EmaraTax. If the adjustment is large enough to put the return into a net repayment position, the refund route is the standard one rather than anything bad-debt specific.
The point at which this becomes visible to the authority is an audit, which is why the file matters more than the filing. The four conditions are each evidenced by a different document, and the one businesses cannot reconstruct after the fact is the notification.
Where the Guidance Runs Out
Two things are worth stating plainly rather than glossing over. VATP024 was issued in March 2021 and remains the FTA’s published position on Article 64, but it does not address every scenario a business will meet, and there is no dedicated FTA guide on bad debts of the kind that exists for the profit margin scheme or input tax apportionment.
In particular, the clarification does not put a figure on what counts as sufficient engagement with the customer during the six months, and it does not deal with debts owed by a customer that has entered formal insolvency or debt settlement, where the recovery position may change after the adjustment is taken. Where a debt is large or the customer relationship is disputed, a private clarification request or advice from a registered tax agent is the safer route than an assumption.
FAQ
Can I claim VAT back on an invoice a customer never paid in the UAE?
Yes, if all four conditions in Article 64(1) of the VAT Law are met: the supply was made and VAT was charged and paid to the FTA, the consideration was written off as a bad debt in your accounts, more than six months have passed since the date of supply, and you notified the customer in writing of the amount written off. The relief is claimed as an adjustment in Box 1 of your VAT return, not as a separate refund application.
When does the six-month period for VAT bad debt relief start?
From the date of supply, which under Articles 25 and 26 of the VAT Law is generally the earliest of the date goods were transferred, services were completed, payment was received, or the tax invoice was issued. It does not run from the invoice due date or from the date you decided the debt was uncollectable. A long payment term does not push the date of supply back.
Do I need FTA approval before claiming bad debt relief?
No. Bad debt relief is self-assessed and claimed directly in the Adjustment column of Box 1 of your VAT return for the current tax period. There is no application form and no prior approval step, which means the evidence supporting the four conditions has to be retained for a later audit rather than submitted up front.
What must the bad debt notification to the customer include?
According to VATP024, at minimum the invoice number and date of the unpaid tax invoice, and the amount of consideration written off. The Decree-Law prescribes no particular method, so a letter, email or similar written communication is acceptable. You do not need an acknowledgement from the customer, but you must retain evidence that you sent it or took best measures to notify them.
Can I claim bad debt relief if I only wrote off part of the invoice?
Yes, but only on the VAT contained in the amount actually written off. The FTA’s example: on an AED 105 invoice comprising AED 100 of value and AED 5 of VAT, writing off the full AED 105 supports a AED 5 adjustment, while collecting half and writing off AED 52.50 supports only AED 2.50.
Does a doubtful debt provision qualify for VAT bad debt relief?
No. Article 64(1)(b) requires the consideration to have been written off in full or in part as a bad debt in the accounts of the supplier. A provision or allowance leaves the receivable on the books and does not satisfy the condition, so the write-off entry has to be made before the return carrying the adjustment is filed.
What happens if my customer pays after I have claimed the relief?
The basis for the adjustment falls away for the amount recovered, so the corresponding output tax has to be brought back into your VAT return. Treat a post-relief recovery as a reversal in the period you receive the payment, and keep the recovery documented alongside the original write-off so the audit trail runs in both directions.
Does the customer who did not pay have to do anything?
Yes. Under Article 64(2), a registrant customer must reduce its recoverable input tax in the current tax period where the supplier has claimed the relief and notified them, the customer received the supply and deducted the input tax, and the consideration has been unpaid for more than six months. The notification you receive from a supplier triggers that obligation.
Is bad debt relief the same as issuing a credit note?
No. A credit note reflects a change to the supply itself, such as a cancellation, return, discount or repricing, and reduces the value of the supply. Bad debt relief applies where the supply and its value are unchanged and correct, but the customer simply never paid. Using a credit note to clear a genuinely unpaid balance misstates your taxable supplies.
Can I claim both VAT bad debt relief and a corporate tax deduction on the same invoice?
They are separate claims made in separate filings and are not mutually exclusive. The VAT adjustment under Article 64 recovers the 5% through the VAT return, while the deductibility of the written-off receivable against taxable income follows Federal Decree-Law No. 47 of 2022 and your accounting treatment for the relevant financial year.
Official Sources
This article references information from the following UAE government authorities and legal sources:
- Federal Tax Authority – Federal Decree-Law No. 8 of 2017 on Value Added Tax (Article 64, Adjustment for Bad Debts)
- Federal Tax Authority – VAT Public Clarification VATP024, Adjustment on Account of Bad Debts
- Federal Tax Authority – Executive Regulation of Federal Decree-Law No. 8 of 2017, Cabinet Decision No. 52 of 2017 as amended
- Federal Tax Authority – VAT Guides, References and Public Clarifications
- Federal Tax Authority – Tax Legislation
This guide is for informational purposes only and is not tax or legal advice. Information is current as of August 2026. Article numbering refers to the unofficial English translation of Federal Decree-Law No. 8 of 2017 published by the Federal Tax Authority. VATP024 states the FTA’s position and does not amend the law, and it does not put a figure on what counts as sufficient engagement with a customer during the six-month period. Confirm the treatment with the Federal Tax Authority or a registered tax agent before adjusting a return, and always verify current requirements with the relevant official authority before proceeding with any transaction.
