26 July 2026 · Definition
What VAT Bad Debt Relief Means
VAT bad debt relief lets a UAE VAT-registered supplier recover the output VAT it already paid to the FTA on a sale the customer never settled. Without this mechanism, a business would be genuinely out of pocket for VAT on income it never received, on top of losing the underlying invoice value. Under Article 64 of Federal Decree-Law No. 8 of 2017 — clarified by FTA Public Clarification VATP024 — a supplier can reclaim that VAT once four conditions are all satisfied: the output VAT was accounted for and paid, the debt has been written off in the accounts, more than six months have passed since the date of supply, and the customer has been notified of the amount written off. The relief is claimed as an adjustment on the VAT return, not through a separate refund application, and it is a built-in cash-flow protection rather than a discretionary concession.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
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Bad debt relief exists to correct an outcome that would otherwise be unfair: a supplier accounts for and pays output VAT the moment it issues a taxable invoice, regardless of whether the customer ever pays. If the customer defaults, the supplier has funded VAT to the FTA out of its own pocket on revenue that never arrived — a real cash-flow cost on top of the unpaid invoice itself. Article 64 reverses that cost once the qualifying conditions are met, letting the supplier claim the VAT back through its own VAT return rather than absorbing it permanently. It does not cancel the debt or make the customer's obligation disappear — it only restores the supplier's VAT position.
- You paid output VAT on the sale when you issued the invoice.
- The customer never paid you, in full or in part.
- Relief returns that VAT to you, not the unpaid invoice value.
- Claimed through the VAT return, not a separate refund form.
- The debt itself is unaffected — the customer still owes it.
- Only the four Article 64 conditions unlock the claim.
Where it comes from
Bad debt relief is a statutory relief, not an accounting choice or an FTA favour granted case by case. It sits in Article 64 of the VAT law and is explained in practical terms by FTA Public Clarification VATP024, which sets out how the four conditions apply and how the adjustment should be reported. Because it is written into the law, a supplier that meets every condition has a right to the relief — the FTA cannot refuse a properly evidenced claim on discretionary grounds. The same article also creates a mirror obligation on the customer side, so the relief is designed to be symmetrical rather than a one-sided benefit to suppliers.
- Article 64 of Federal Decree-Law No. 8 of 2017.
- Explained in FTA Public Clarification VATP024.
- A statutory right once all conditions are met.
- Not a discretionary refund the FTA can decline.
- Symmetrical with the customer's input tax obligation.
- Sits alongside, not instead of, normal debt-recovery efforts.
From unpaid invoice to VAT refund
In practice the relief runs on a simple timeline. A business issues a taxable invoice and pays the output VAT to the FTA in that period's return, as normal. Time passes, the customer does not pay, and once the debt is genuinely written off in the accounts and more than six months have elapsed since the date of supply, the business notifies the customer of the amount written off. That notification is the final trigger — from that point, the VAT amount on the unpaid consideration can be entered as a negative adjustment in Box 1 of the next VAT return, reducing the output tax payable for that period.
- Invoice issued, output VAT paid to the FTA as normal.
- Customer fails to pay, in full or in part.
- Debt written off in the accounts once genuinely irrecoverable.
- More than six months pass from the date of supply.
- Customer notified, then the claim goes into Box 1.
What bad debt relief is not
Bad debt relief is often confused with simply writing off a debtor for accounting or corporate tax purposes, but the two are different exercises. Writing off a bad debt in your books is an accounting entry that affects your financial statements and, potentially, your corporate tax deduction — it does not by itself entitle you to anything on the VAT return. VAT bad debt relief is a separate, additional step that only becomes available once the accounting write-off has happened and the other three Article 64 conditions are also satisfied. It is also not automatic: nothing on the VAT return pre-fills or reminds a business to claim it, so unclaimed relief on old written-off debts is a common, quietly missed cash-flow opportunity.
- A corporate tax write-off is not the same as VAT relief.
- The write-off is one condition among four, not the whole test.
- Nothing on the return prompts the claim automatically.
- Old written-off debts can still hold unclaimed VAT relief.
Related guides
Frequently Asked Questions
Common questions from businesses first hearing about VAT bad debt relief.
Is bad debt relief automatic?
No. Nothing on the VAT return calculates or prompts the claim for you — you must actively check that all four conditions are met and enter the adjustment yourself. Many businesses only discover months later that they had unclaimed relief sitting on invoices written off long ago.
What VAT do I get back?
Only the output VAT you already accounted for and paid to the FTA on the unpaid portion of the invoice — not the net value of the goods or services, and not any amount the customer already paid. If the customer paid part of the invoice, the claim is recalculated on the unpaid balance only.
Where is it in the law?
Article 64 of Federal Decree-Law No. 8 of 2017 sets out the relief, and FTA Public Clarification VATP024 explains in practical terms how the four conditions and the notification requirement apply to a real claim.
Does the debt disappear once I claim relief?
No. The customer still legally owes you the unpaid amount — bad debt relief only restores your VAT position, it does not cancel the debt or your right to keep pursuing payment through normal means.
What if the customer pays after I have claimed relief?
You must reverse the relief you claimed, because the condition of an unpaid consideration no longer holds. Track any later recovery so the VAT position is corrected in the period the customer actually pays.
Is bad debt relief only for large invoices?
No. There is no minimum invoice value in Article 64 — the relief applies equally to a single unpaid invoice from a small business and to a large receivable on a corporate group's books, provided the same four conditions are met.
Can Exiloz explain it for our case?
Yes. We review your unpaid invoices, confirm whether each one meets the four Article 64 conditions and calculate exactly how much VAT you are entitled to reclaim.
Understand your relief
Exiloz reviews your unpaid invoices, checks each one against the four Article 64 conditions, and tells you exactly which VAT amounts you are entitled to reclaim.