Bad debt regime applies on sales where an invoice has been issued with VAT, reported in the VAT return and the VAT amount has been paid to the tax authorities but the whole price has not been collected from the customer. This is often due to the client´s bankruptcy, insolvency or simple missed payments to suppliers. In these cases, most countries allow to recover the VAT initially paid to the authorities, however, the conditions change from one country to another.
The Netherlands has a rather flexible bad debt relief in comparison with other EU countries.
Input VAT on bad debt can be recovered when one year has been passed since the invoice was claimable. There are no additional formalities (eg no credit notes, corrective returns or letters to the authorities are not required). VAT on bad debt can be claimed directly in the next VAT return once the conditions have been met.
Regarding the deduction of invoices that have not been paid to the supplier, if the VAT amount is deducted on a debt that is not paid within the one year period, the debtor will have to repay the VAT that the debtor has deducted. If the debtor pays at a later stage the VAT can then be deducted.