Under the proposed changes, it will be possible to recover VAT on bad debts through the VAT return when a certain period has been exceeded, hence no longer requiring documentation to be gathered and a separate application to be made when asking the tax authorities to allow this refund.

When does the bad debt regime apply?

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. Some jurisdictions like Spain or Portugal are more formal in terms of requirements and documentation needed to support the claim. Other countries like the UK only require a given period to be exceeded and the debt to be accounted in the books in order to allow VAT deduction on the initial overpaid VAT.

The Netherlands has now proposed to follow the UK example, hence simplifying the VAT recovery of Dutch VAT under the bad debt scheme.