Bad Debts Adjustments in Oman VAT

Yarab A | Updated on: July 12, 2022

Bad Debts Adjustments in Oman VAT
Conditions for the supplier for making bad debt adjustment
Records to maintain for bad debts adjustment
TallyPrime - business management software with VAT solution

In Oman, the responsibility to levy, collect and pay tax is on the VAT registered suppliers. The supplier should issue a tax invoice for every taxable supply and remit the VAT to authorities, according to the time of supply provisions. As soon as the supplier issues the tax invoice, the tax becomes due, and on the date of VAT return filing, it needs to be paid. VAT becomes due even if the buyer has not paid the consideration for the supply. This is because the time of supply for goods is the earliest of the date of supply, date of tax invoice or date of receipt of payment.

The above situation occurs typically on a credit sale that allows the buyer to pay the consideration later. In some rare cases, the businesses may face a situation of non-recovery of receivables owing to fraud, bankruptcy etc. This situation puts suppliers at a disadvantage since he has already paid VAT to the authorities but has not received the consideration.

Composite and Multiple Supplies in Oman VAT

Time of Supply in Oman VAT

Now that we have understood the implication of VAT on bad debts let’s look at how to handle those as per Oman VAT law and regulation.

Bad Debts Adjustments in Oman VAT

A bad debts adjustment provision is incorporated in the Oman VAT regulations to safeguard the supplier from the above situations. Under a bad debts adjustment scheme, a supplier can reduce his output liability in his VAT return for a period in which the above-discussed situation arises. Businesses can adjust VAT on bad debts even if the consideration is partially collected.

To claim relief under a bad debts scheme, the supplier must meet a set of conditions as prescribed under the VAT regulation.

Conditions for the supplier for making bad debt adjustment

The VAT registered supplier can reduce the VAT in a current tax period as an adjustment towards a previous supply that resulted in bad debts only if all the following conditions are fulfilled:

The unpaid consideration is for supplies that fall under the taxable person’s business activity.
The VAT registered business has listed unpaid consideration on each supply recorded in his accounting books and records, required to be kept per the law and regulations.
Ensure that you have followed the procedures necessary to collect the outstanding consideration as mentioned in VAT regulation if the supply value recorded in his books, not including tax, is over 5,000 Omani Rials.
The adjustment is allowed after 12 months from the tax due date mentioned on the invoice or the tax invoice date.
The taxable person must write off the value of the consideration for the supply as a bad debt.
The supply is not made to persons related to the taxable person as per the related person guidelines issued in the regulation.
The taxable person must notify in writing to the customer of the amount being adjusted as bad debts
The tax amount should be adjusted within 3 years of being written as bad debts.

If the amounts not paid are subsequently paid fully or partially- the corresponding output tax becomes due in the tax period where these amounts were collected.

Records to maintain for bad debts adjustment

Businesses who adjusts the tax due on the supply because of non-payment of the consideration, whether wholly or partially, should keep a separate register to record the following:

All amounts that are not paid and written off as bad debts.
The value of tax claimed for deduction.
Tax period when tax paid is claimed.
Value of tax calculated for each supply.
Tax period when output tax was reported.
Amount paid for each supply if any.
Customer’s name and address.
Tax invoice date and number, or its replacement

In addition to the above guidelines, the VAT regulations have prescribed the procedures necessary to collect the outstanding consideration before writing off as bad debts. It involves courts judgment for the buyer to pay the consideration, obtaining a debt performance order from a competent judge, proof of death, liquidation, the customer's bankruptcy, etc. Provisions are strict to ensure that the supplier makes fair adjustments, and heft penalties will be levied in case of inaccurate adjustments.

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