VAT bad-debt relief in Cyprus: what to check when a customer never pays

You have declared the sale and paid the VAT, but the customer has stopped responding. The invoice still appears in receivables. Writing it off and recovering the VAT are related decisions, with separate conditions to check.

Start with the customer's actual unpaid balance. A receipt that was never allocated to the invoice can make a recoverable debt look bad. Reconcile the account before preparing a relief claim.

What makes a debt eligible?

The Tax Department's bad-debt guidance requires an actual write-off and the prescribed records. An expected-loss provision or a note that an invoice is doubtful does not, by itself, establish the required write-off.

The Department's published guidance describes a waiting period of twelve months beginning on the transaction date. Check all the conditions together, including that the VAT was accounted for and paid, the debt remains unpaid and the required recovery steps have been taken. Age alone is not enough.

Keep the contract and payment terms available too. They help explain when payment became due and support the separate review of the claim deadline.

Build the claim around the invoice

Prepare a record for each debt rather than a single unexplained amount at year-end.

The official guidance calls for a dedicated bad-debt record with the relevant invoice and tax details; companies' write-offs should pass through the profit and loss account. Keep this consistent with the general ledger.

How do partial payments affect the calculation?

Claim against the qualifying unpaid amount, not automatically against all the VAT on the invoice. First allocate receipts and credit notes correctly and check how payments relate to the supply.

For illustration, assume an invoice totals €1,190, including €190 VAT. Half has been paid and allocated proportionately to that invoice, leaving €595 unpaid. The VAT component of that unpaid half is €95. That is the amount to assess for relief under the assumed facts, before checking every other condition.

If the customer has several invoices, a disputed payment allocation can change the answer. Document the allocation instead of choosing whichever invoice produces the largest claim.

Where and when is the claim made?

The Department explains that qualifying relief is entered in box 4 for the period in which the required bad-debt account entry is made, with a four-year claim limit measured from the later of the payment-due date and transaction date. Check the dates and current instructions before submitting.

For a customer who is a taxable person, the Department requires written notification within seven days of submitting the claim, containing the prescribed information. Keep the notice with the claim evidence. The Department's bad-debt leaflet also explains the subsequent-payment rules.

This relief process is different from correcting an invoice that was wrong when issued. If the original VAT treatment was incorrect, use the VAT-correction guide to frame that review. Do not create a credit note solely to make a valid unpaid sale disappear.

What if the customer pays later?

Flag the debt after claiming relief so a later receipt reaches the person preparing VAT. The relief position must be adjusted for the recovery under the applicable rules. Reconcile the amount recovered, the earlier claim and the resulting VAT adjustment.

Keep the original debt visible in the history even after the write-off. Otherwise an unexpected receipt can be posted as unrelated income and the earlier VAT relief overlooked.

How Sumly helps with unpaid invoices

Sumly connects sales invoices with receipts and bank reconciliation, which helps establish the balance that is actually unpaid. We also support bad-debt VAT relief, including the evidence and bookkeeping behind the claim.

Bring the collection history as well as the invoice. The books show amounts and dates; correspondence explains the recovery effort and why a write-off is being considered. A person reviews the claim before submission, and the agreed work should include how later receipts will be handled.

Common questions

Can I reclaim VAT as soon as an invoice is overdue?

No. Check the required waiting period, the original VAT reporting and payment, recovery efforts, the actual write-off and the prescribed records before claiming.

Is a general provision for doubtful debts enough?

The Department requires an actual write-off and the required bad-debt records. A general provision alone does not establish entitlement to VAT relief.

What happens if the customer pays after I claim?

Tell the person preparing the VAT return and reconcile the recovery against the earlier claim. The VAT relief must be adjusted under the subsequent-payment rules.