Legal debtors
When a debtor enters litigation, a separate process starts for bad debt provision or write-off. All items for the customer's account are transferred to a legal status within accounts receivable. A general ledger journal is effected between trade debtors and legal debtors.
Bahrain specifics
According to VAT law, a taxable supplier can adjust and recover output tax that is already paid to the NBR if they were unable to collect the amount from the customer.
Before applying this relief, the supplier must meet these conditions:
- The payment that is due must be pending, in part or in full, for at least 12 months from the date of supply. The 12-month period does not apply if the customer has not paid because of bankruptcy.
- The taxable supplier must prove that they have taken measures to collect the debt and must have initiated legal proceedings against the customer.
- The taxable supplier has written off, partially or fully, the debt in their books.
When all conditions are met, the supplier can adjust the related amount of VAT in the tax return for the tax period during which they meet the conditions. The supplier taxable person is required to issue a tax credit note to the customer showing the adjustment.
When the consideration is received, in full or in part, from the customer after a bad debts adjustment, the supplier taxable person can make another adjustment. They can pay the output tax on the amount received in the tax return for the tax period in which the late payment was received. The supplier should also issue a tax debit note that explains this.