Can You Claim VAT on Bad Debts in Saudi Arabia? Here's What You Need to Know (2025 Update)


In the Kingdom of Saudi Arabia (KSA), businesses often face the challenge of unpaid customer invoices. When these debts become irrecoverable, a common question arises: Can you reclaim the VAT already paid on these bad debts? The answer is yes, under specific conditions outlined by the Zakat, Tax and Customs Authority (ZATCA).

✅ What Are Bad Debts?

Bad debts refer to amounts owed by customers that are no longer collectible, typically due to insolvency, prolonged non-payment, or legal disputes. If VAT was charged and paid to ZATCA on these sales, businesses may be eligible to recover that VAT.

๐Ÿงพ Legal Basis for VAT Recovery on Bad Debts

Under Article 40 of the KSA VAT Implementing Regulations, a taxable person may adjust the VAT previously accounted for on a supply if:

  • The supply was made and VAT was paid to ZATCA.
  • The consideration has not been received in full or in part.
  • The debt has been written off as a bad debt in the accounting records.
  • At least 12 months have passed since the date of the supply.
  • The supplier has taken reasonable steps to collect the debt.

๐Ÿ“Œ Step-by-Step Procedure to Claim VAT on Bad Debts

  1. Wait 12 Months
    Ensure that at least 12 months have passed since the date of the original supply.

  2. Write Off the Debt
    The debt must be formally written off in your accounting records.

  3. Document Collection Efforts
    Maintain evidence of reasonable collection efforts (e.g., reminder letters, legal notices).

  4. Adjust the VAT Return
    In the VAT return for the period in which the debt is written off, reduce your output VAT by the amount related to the bad debt.

  5. Keep Records
    Retain all documentation for at least six years, including:

    • Original invoice
    • Proof of VAT payment
    • Collection attempts
    • Accounting entries for the write-off

⚠️ Important Considerations

  • Partial Payments: If part of the invoice was paid, only the VAT on the unpaid portion can be reclaimed.
  • Reversal if Paid Later: If the customer later pays the debt, you must reverse the VAT adjustment in the return for that period.
  • ZATCA Audit: Be prepared to present all supporting documents if ZATCA audits your VAT return.

๐Ÿงฎ Example

Let’s say you issued an invoice for SAR 10,000 + SAR 1,500 VAT in January 2024. The customer never paid, and despite multiple reminders, the debt remains unpaid by February 2025. You write it off in March 2025.

In your March 2025 VAT return, you can reduce your output VAT by SAR 1,500, provided all conditions are met.

๐Ÿ“š Need Help?

ZATCA offers an e-service for VAT refund requests, and you can also consult a tax advisor or request a tax ruling for complex cases.

Conclusion
Yes, you can claim VAT on bad debts in Saudi Arabia, but only if you follow the proper procedure and meet all regulatory conditions. This ensures compliance and helps improve your business’s cash flow.


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