Is a provision for bad debts deductible?

Article 64 - Adjustment for Bad Debts 1. A Registrant supplier may reduce the Output Tax in a current Tax Period to adjust the Output Tax paid for any previous Tax Period if all of the following conditions are met: a. Goods and Services have been supplied and the Due Tax has been charged and paid. b. Consideration for the supply has been written off in full or part as a bad debt in the accounts of the supplier. c. More than 6 months has passed from the date of the supply. d. The Registrant supplier has notified the Recipient of Goods and the Recipient of Services of the amount of Consideration for the supply that has been written off. 27 Article amended as per Federal Decree-Law No. 18 of 2022 Federal Decree-Law No. 8 of 2017 and its amendments – As published by the Ministry of Finance 31 2. The Registrant Recipient of Goods or Recipient of Services shall reduce the recoverable Input Tax for the current Tax Period related to a supply received during any previous Tax Period where the Consideration has not been paid and all of the following conditions are met: a. The registered supplier reduced the Output Tax as stated in Clause 1 of this Article and the Recipient of Goods and the Recipient of Services has received a notification from the supplier of the Consideration being written off. b. The Recipient of Goods and Recipient of Services received the Goods and Services and the Input Tax charged in respect thereof was deducted. c. The Consideration was not paid in full or in part for the supply for over 6 months. 3. The reduction stated in Clause 1 and 2 of this Article shall be equal to the Tax related to the Consideration which has been written off according to Paragraph (b) of Clause 1 of this Article. Chapter Five – Tax Invoices

Article 33 – Non-deductible Expenditure No deduction is allowed for: 1. Donations, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity. 2. Fines and penalties, other than amounts awarded as compensation for damages or breach of contract. 3. Bribes or other illicit payments. 4. Dividends, profit distributions or benefits of a similar nature paid to an owner of the Taxable Person. 5. Amounts withdrawn from the Business by a natural person who is a Taxable Person under paragraph (c) of Clause 3 of Article 11 of this Decree-Law or a partner in an Unincorporated Partnership. 6. Corporate Tax imposed on a Taxable Person under this Decree-Law. 7. Input Value Added Tax incurred by a Taxable Person that is recoverable under Federal Decree-Law No. (8) of 2017 referred to in the preamble and what replaces it. 8. Tax on income imposed on the Taxable Person outside the State. 9. Such other expenditure as specified in a decision issued by the Cabinet at the suggestion of the Minister. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 39 Chapter Ten – Transactions with Related Parties and Connected Persons

4.5.8.1. Bad debts, write-off and recovery A bad debt is a receivable that is determined to be uncollectable. This may result in a provision, but it can also lead to a Business writing off the receivable, i.e. no longer recognising it. In either case, there would normally be an expense in the income statement. If a balance is written off as a bad debt and this is in accordance with the relevant Accounting Standards (i.e. IFRS or IFRS for SMEs), the bad debt expense will be deductible when determining Taxable Income, as long as it satisfies the requirements for deductibility of expenditure in the Corporate Tax Law. Further, if a balance which was written off in a prior Tax Period is subsequently recovered, the credit to the income statement will be taxable in the Tax Period in which it is recognised in accordance with the requirements of IFRS or IFRS for SMEs, as applicable. Refer to Section 5 (Case Study 1) for the treatment of provisions when determining Taxable Income. 4.5.9. Non-deductible expenses Aside from the circumstances discussed above, deductions are also specifically disallowed for: • a donation, grant or gift made to an organisation that is not a Qualifying Public Benefit Entity (see Section 5, i.e. Case Study 1 for details).47 Any amounts paid by Taxable Persons in relation to Zakat will only be deductible if it is paid to a Qualifying Public Benefit Entity, • any fines and penalties, other than amounts awarded as compensation for damages or breach of contract (see Section 5, i.e. Case Study 1 for details),48 • bribes or other illicit payments (see Section 5 , i.e. Case Study 1 for details),49 • Dividends, profit distributions or benefits of a similar nature paid to an owner of the Taxable Person (see Section 5, i.e. Case Study 1 for details),50 • amounts withdrawn from the Business by a natural person who is a Taxable Person or a partner in an Unincorporated Partnership,51 • Corporate Tax,52 • recoverable input Value Added Tax (see Section 5, i.e. Case Study 1 for details),53 47 Article 33(1) of the Corporate Tax Law. 48 Article 33(2) of the Corporate Tax Law. 49 Article 33(3) of the Corporate Tax Law. 50 Article 33(4) of the Corporate Tax Law. 51 Article 33(5) of the Corporate Tax Law. 52 Article 33(6) of the Corporate Tax Law. 53 Article 33(7) of the Corporate Tax Law. Corporate Tax Guide | Determination of Taxable Income | CTGDTI1 33

Article (27) Adjustment of Tax Value A Taxable Person may adjust the value of the Tax imposed upon any of the following events taking place at a date later than the Supply date: 1. Total or partial cancellation or rejection of a Supply; 2. Reduction of the Supply value; Page 10 of 26 26 من10 صفحة 3. Total or partial non-collection of the Consideration in accordance with the conditions applicable to bad debts in each Member State.

the tax invoice and has also accounted for VAT to باحتساب ضريبة القيمة المضافة المستحقة عن الفاتورة .الضريبية وسدادها إلى الهيئة the FTA via its tax returns. شطب مقابل التوريد Consideration for the supply should have been written off The second condition mandates the supplier to يقتضي الشرط الثاني أن يكون المورّ د قد شطب مقابل have written off the whole or part of the .ًالتوريد كليا ً أو جزئيا ً في حساباته باعتباره دينا ً معدوما consideration for the supply as a bad debt in its accounts. It is important to note that the bad debt relief can والجدير بالذكر أنه يمكن خصم الدين المعدوم فقط في حدود only be taken to the extent of the consideration إذا تم شطب، وبالتالي.المقابل الذي تم شطبه في الحسابات written off in the accounts. Therefore, if only a part فال يمكن خصم الدين المعدوم إال بقدر ما،جزء من المقابل .تم شطبه من المقابل of consideration is written off, a bad debt relief can be taken only to the extent of such written off consideration. For example, where a supplier issues an invoice for 105 يقوم مورّ د بإصبببدار فاتورة بقيمة،على سببببيل المثال AED 105, where AED 100 represents the value of درهم قيمة التوريد في حين100 حيث يمثّل مبلغ الـ،درهم supply and AED 5 represents the VAT amount. If إذا. درهم يمثّل مبلغ ضريبة القيمة المضافة5 أن مبلغ الـ بببب ّ the supplier is not able to collect the entire debt لم يتم ّكن المورّ د من تحصبببببيل الدين بالكامل وقام بشبببببطب and writes off AED 105, a bad debt adjustment of فمن ثمّ يمكن التس بوية بمبلغ الديون، درهم105 مبلغ الـبببببببب AED 5 can be taken. On the other hand, if the إذا قببام المورّ د، من جهببة أخرى. درهم5 المعببدومببة أي supplier collects 50% of the consideration and ، درهم52.5 من المقابل ومن ثم قام بشطب٪50 بتحصيل ّ consequently writes off AED 52.5, a bad debt درهم2.5 فيمكن إجراء تسببببوية بمبلغ الديون المعدومة أي adjustment of only AED 2.5 can be taken. .فقط Page 3 of 7