VAT bad debt relief lets a VAT-registered supplier take back the output VAT it already paid on an invoice the customer never paid. In the UAE, Article 64 of the VAT Decree-Law allows it once four conditions are met: the VAT was charged and paid, the debt is written off in your books, more than six months have passed since the date of supply, and you have told the customer in writing how much you wrote off. In Saudi Arabia, Article 40(7) of the VAT Implementing Regulations sets a longer test: at least twelve months since the supply, a certificate from your certified accountant confirming the write-off, no related-party customer, and formal legal recovery steps when the customer owes more than SAR 100,000. In both countries you claim it as an adjustment in the VAT return, not with a credit note. It is general information, not tax advice; confirm your own position with the FTA, ZATCA or a licensed adviser.
Why do you pay VAT on invoices that were never paid?
In both countries VAT is due when the supply happens, not when the customer pays. If the customer never pays, you have funded 5% (UAE) or 15% (Saudi Arabia) of the invoice from your own cash. Relief gets it back, but only under conditions that a merely late invoice does not meet. Before that, work the collection process in our guide to chasing late payments in Dubai. The FTA expects you to have tried to recover the debt during the six-month period.
What are the conditions for bad debt relief in the UAE?
Article 64(1) of Federal Decree-Law No. 8 of 2017 on VAT sets the conditions. The FTA explained how it applies them in public clarification VATP024, published on 29 March 2021. All four must be met.
| Condition | What it means in practice |
|---|---|
| The supply was made and the VAT was charged and accounted for | You issued the tax invoice, reported the output VAT in a return and paid it |
| The amount is written off as a bad debt in your accounts | A booked write-off, in full or in part. An overdue receivable that is still carried as collectible does not count |
| More than six months have passed from the date of supply | Counted from the date of supply, not the invoice due date |
| You notified the customer of the amount written off | In writing: letter, email, post or similar. The customer does not have to acknowledge it, but you must keep proof you sent it |
Two limits follow from the clarification. Relief only covers the amount written off, so a partial write-off gives partial relief. And the notice should show at least the unpaid tax invoice number, its date and the amount written off.
Threshold: In the UAE, claim in the return for the period in which all four conditions are met. For a date of supply of 10 January 2026, the six months are up on 10 July 2026.
Which VAT201 box does UAE bad debt relief go in?
The supplier enters the adjustment in the Adjustments column of Box 1 (standard-rated supplies), on the line for the emirate where the original sale was reported. Enter the VAT amount only, as a negative figure. Do not enter the sales value. A sale reported on the Dubai line is adjusted on the Dubai line.
The customer's side goes in the Adjustments column of Box 9 (standard-rated expenses), as a reduction of input VAT. Every box is covered in our guide to how to file a UAE VAT return (VAT201).
What are the conditions for bad debt relief in Saudi Arabia?
The Saudi rule is in Article 40, paragraph 7, of the VAT Implementing Regulations. You may reduce output tax by the VAT on the unpaid amount in the return in which all of these conditions are met:
| Condition (Article 40(7)) | What it means in practice |
|---|---|
| (a) The VAT was included as output tax in a return and paid | Same as the UAE: you declared and paid it |
| (b) The customer is not a Related Person | No relief on unpaid sales to group companies or other related parties |
| (c) At least twelve months have passed from the date of the supply | Twice the UAE period |
| (d) You hold a certificate from your certified accountant that the unpaid amount has been written off in your books | A board decision or your own ledger entry is not enough on its own |
| (e) If the customer owes more than SAR 100,000 in total, formal legal recovery steps were taken without success | Evidence such as a court judgment, proof of the debtor's bankruptcy, or a court order starting another formal recovery procedure |
Paragraph 8 adds one exclusion: a business using the cash accounting basis in Article 46 of the Regulations cannot claim, because it never paid VAT on the unpaid amount in the first place.
These conditions come from ZATCA's published English text of the Regulations. Summaries of the April 2025 amendments (Board Resolution 01-06-24) did not report a change to paragraph 7, but check the current consolidated text on zatca.gov.sa before you file.
How do the UAE and Saudi rules compare?
| UAE | Saudi Arabia | |
|---|---|---|
| Legal basis | Article 64 VAT Decree-Law, FTA clarification VATP024 | Article 40(7) to 40(11) VAT Implementing Regulations |
| VAT rate recovered | 5% | 15% |
| Waiting period | More than 6 months from the date of supply | At least 12 months from the date of supply |
| Write-off evidence | Written off in your accounts | Certificate from your certified accountant |
| Customer notice | Required, in writing, with invoice number, date and amount | Not listed as a condition |
| Related-party customers | No related-party exclusion among the four conditions | Excluded |
| Legal action | Not required. The FTA expects recovery efforts | Required when the customer owes more than SAR 100,000 |
| Where it goes | VAT201, Box 1 Adjustments column, by emirate | Output tax adjustment in the return in which the conditions are met |
| Credit note? | No | No |
| If the customer pays later | Account for the VAT on what you receive (see below) | VAT on the amount received is payable in that period, and a new tax invoice is issued |
| Customer side | Reverses input VAT once notified and unpaid for more than 6 months | Reverses input VAT if unpaid 12 months after the date of supply, whether or not notified |
Can you issue a credit note instead?
No, not for non-payment. A credit note corrects the value of a supply: cancellation, returns, a price reduction or VAT charged in error. The UAE cases are in Article 61 of the Decree-Law and the Saudi cases in Article 40(1) of the Implementing Regulations. A customer who simply does not pay has not changed the supply, so the VAT reduction comes from the bad debt rules and their conditions. Using a credit note to skip the six or twelve months can see the adjustment rejected.
The exception is a real settlement. If you agree in writing to accept AED 15,000 in full settlement of an AED 21,000 invoice, the consideration has changed, which is a price reduction. That is a credit note case, with the 14-day UAE and 15-days-after-month-end Saudi deadlines. Our tax credit note guide covers the fields and deadlines.
What happens if the customer pays after you claimed relief?
Saudi Arabia spells it out. Under Article 40(9), the VAT on any amount you later receive becomes payable in the return for the period in which you receive it, and you issue a new tax invoice for the amount received.
UAE: the text of Article 64 we reviewed does not set out a separate recovery rule. Advisers apply the logic of the relief: the condition that supported the adjustment no longer holds for the amount you receive, so you account for the VAT fraction of it (5/105 of the amount received) as output tax in the period of receipt. Confirm the treatment with your adviser, and keep the receipt matched to the original invoice and your earlier notice.
What does the customer have to do?
The customer claimed input VAT on your invoice. If it has not paid, it must give that VAT back.
- UAE: Article 64(2) requires the customer to reduce its input tax when the supplier has reduced its output tax and notified it, and the amount has been unpaid for more than six months. The reduction goes in the Box 9 Adjustments column. Separately, under Article 55 a business that has not paid within six months of the agreed payment date reduces its input tax and recovers it again when it pays.
- Saudi Arabia: Article 40(10) requires a business that claimed input VAT but has not paid in full twelve months after the date of supply to reduce its deduction by the VAT on the unpaid amount. This applies whether or not the supplier has said anything. Under Article 40(11) it increases the deduction again when it pays. The April 2025 amendments added exceptions for certain financing contracts, such as leasing and murabaha structures, where conditions are met.
Worked example: an AED 21,000 invoice that was never paid
A Dubai design studio invoices a client AED 21,000 including 5% VAT. The date of supply and the invoice date are both 10 January 2026, with 30-day terms.
| Line | Amount (AED) |
|---|---|
| Value of supply | 20,000.00 |
| VAT at 5% | 1,000.00 |
| Invoice total | 21,000.00 |
Check: 20,000 × 5% = 1,000, and 20,000 + 1,000 = 21,000. The studio files quarterly (January to March) and pays the AED 1,000 output VAT by 28 April 2026.
After reminders and a final demand go unanswered, on 31 July 2026 (more than six months after 10 January) the studio books the write-off and emails the client a notice with the invoice number, its date and the amount written off, AED 21,000.
The journal on 31 July 2026:
| Account | Debit (AED) | Credit (AED) |
|---|---|---|
| Bad Debt (expense) | 20,000.00 | |
| VAT payable (output VAT recovered) | 1,000.00 | |
| Accounts receivable | 21,000.00 | |
| Total | 21,000.00 | 21,000.00 |
In the July to September 2026 return, due 28 October 2026, the studio enters −1,000 in the Box 1 Adjustments column on the Dubai line. If the client is VAT-registered, it reverses AED 1,000 of input VAT in its Box 9 Adjustments column.
The client pays half later. In February 2027 the client transfers AED 10,500. The VAT fraction is 10,500 × 5/105 = 500.
| Account | Debit (AED) | Credit (AED) |
|---|---|---|
| Bank | 10,500.00 | |
| Bad debt recovered (income) | 10,000.00 | |
| VAT payable | 500.00 | |
| Total | 10,500.00 | 10,500.00 |
The studio accounts for AED 500 of output VAT in the January to March 2027 return.
The same invoice in Saudi Arabia. At 15%, a SAR 20,000 supply carries SAR 3,000 VAT, a SAR 23,000 total. With a date of supply of 10 January 2026, the earliest claim is in the return that covers 10 January 2027 or later, provided the certified accountant's certificate is in hand. The customer owes under SAR 100,000, so legal action is not a condition. The supplier reduces output tax by SAR 3,000. If the customer pays SAR 11,500 later, SAR 11,500 × 15/115 = SAR 1,500 becomes payable in that period, with a new tax invoice for the amount received.
Step-by-step checklist
- Confirm the VAT was paid in the return where the invoice was reported.
- Chase and document every reminder and demand, dated. Good payment terms make this easier to prove.
- Watch the clock. UAE: more than 6 months from the date of supply. Saudi Arabia: at least 12 months.
- Check customer type. Saudi Arabia: no related parties. If the customer owes more than SAR 100,000 in total, start formal legal action and keep the filings.
- Approve and book the write-off.
- Get the evidence. UAE: send the written notice and keep proof it was sent. Saudi Arabia: obtain the certified accountant's certificate.
- Claim in the right return. UAE: Box 1 Adjustments column, VAT only, correct emirate. Saudi Arabia: output tax adjustment in the return in which the conditions are met.
- Track later receipts. VAT on them is due in the period you receive them.
What records should you keep?
In both countries keep the original tax invoice and proof of delivery, the return showing the output VAT and proof it was paid, the collection history, the write-off approval and journal, and the VAT calculation per invoice. Add the written notice and proof of sending in the UAE, and the certified accountant's certificate (plus legal action evidence above SAR 100,000) in Saudi Arabia. Keep VAT records for at least five years in the UAE and generally six years in Saudi Arabia.
From the platform: The default chart of accounts in Staks includes a "Bad Debt" expense account. You record a write-off as a manual journal in the Journal (Growth plan): debit Bad Debt with the net amount, debit Tax Payable with the VAT, credit accounts receivable with the total, and Staks checks that debits equal credits before it saves. Output and input VAT both sit in one Tax Payable account, and there is no VAT report page, so keep a short list of written-off invoices and their VAT for the return. The journal does not change the invoice record, and Staks has no "written off" invoice status, so keep your write-off list and customer notices with your VAT working papers. Staks is not FTA or ZATCA accredited and does not file returns.
Common mistakes
| Mistake | Why it is a problem | What to do |
|---|---|---|
| Claiming as soon as the invoice is overdue | The 6 or 12 months run from the date of supply, and the debt must be written off | Wait for the period and book the write-off first |
| Issuing a credit note for an unpaid invoice | Non-payment is not a credit note event, and the conditions are skipped | Use bad debt relief, or a credit note only for an agreed settlement |
| Entering the invoice total in Box 1 | Only the VAT amount goes in the Adjustments column | Enter −1,000, not −21,000 |
| No proof the notice was sent (UAE) | The notice is a condition of relief | Send by email or letter and keep the sent copy |
| No accountant's certificate (Saudi Arabia) | It is a listed condition | Get it before you claim |
| Forgetting later receipts | VAT on amounts received after relief is payable again | Flag written-off customers and check receipts against them |
Frequently asked questions
Can I claim bad debt relief on part of an invoice?
Yes. In the UAE, relief is limited to the amount written off, so writing off AED 10,500 of an AED 21,000 invoice gives AED 500 of relief. In Saudi Arabia, the reduction is the VAT on the consideration not paid.
Do I need a court judgment to claim?
Not in the UAE. In Saudi Arabia, only when the customer owes more than SAR 100,000 in total. Then you need evidence of formal legal recovery steps, such as a judgment, proof of bankruptcy or a court order starting a recovery procedure.
Is there a deadline to claim UAE bad debt relief?
The texts we reviewed set when you can first claim, not a last date. Claim in the return for the period in which the conditions are met. For older debts, check the position with your adviser before adjusting.
Related reading
- Tax credit notes in the UAE and Saudi Arabia
- How to chase late payments in Dubai
- Payment terms in the UAE and Saudi Arabia
- How to file a UAE VAT return (VAT201)
Chase first, write off when the period has passed, send the notice or get the certificate, and adjust only the VAT in the return. Start a 14-day free trial of Staks to track unpaid invoices and post write-off journals to a "Bad Debt" account.