A particular stipulation is made by the UAE VAT law to write off and discount of output tax paid on a supply for which there has been no consideration received from the supply date. For a supplier to be able to write off bad debt and claim back the output tax, certain conditions need to be met. (Art. 64 VAT Act).
Before we proceed to understand more regarding the Bad Debts Output VAT Adjustments, we must first understand what bad debts are.
What is Bad Debt?
When a licensed supplier offers products to another licensed recipient, the odds are that Bad Debts will arise. At the time of delivery, the authorized supplier had already billed VAT. If the recipient fails to make pay-outs to the manufacturer in part or in full, it refers to the provider as bad debts.
As the VAT is paid at the time of delivery of goods or services by the registered supplier, the Vat paid is a loss to the supplier if no or part payment is received. Thus, to ease the burden of excess tax on firms, the VAT Law provides for adjustments to the output of bad debts.
Conditions on Which Bad Debt Can Be Claimed
- Goods or services must be delivered, and output VAT charged as well as paid to the Authority;
- Consideration of the supply was written off in whole or in part as a bad debt on the supplier’s accounts.
- More than six months have elapsed from the date of delivery
- The supplier notified the recipient of the goods or services of the amount to be considered for the supply which was written off.
Records Required to Claim the Bad Debt
There are no detailed specifications made by the Law and Regulations for VAT to the documents to be kept concerning inadequate debt relief the requirements for record-keeping clearly state that the following must be followed:
- Records of all supplies of goods and services
- All tax invoices and alternative documents relating to supplies made and supplies received
- Records of goods and services received on which input tax has been recovered
- Records of adjustments made to tax invoices or accounts. Example: debit and credit note.
- The record that shows the tax due or recoverable after any correction or adjustments
Law also provides that the recipient shall, upon notification by the supplier of the goods or services, reduce the applicable recoverable input tax for the current period provided:
- The supplier has reduced the output tax accordingly and has adequately notified the recipient of the amount being written off.
- The recipient has previously accounted for input tax in his tax return submitted to the Authority.
- The recipient did not pay the consideration for over six months.
The supplier’s reduction in output tax must be equated with the recipient’s reduction in input tax.
Note: The sole purpose of the article is informative, and we should not be presented for any legal issues.