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

You declared the sale and paid the VAT, and now the customer has stopped answering. The invoice still sits in receivables. Writing it off and recovering the VAT are related decisions, but each has its own conditions.

Start with what the customer actually owes. A receipt that was never matched to the invoice can make a recoverable debt look bad. Reconcile the account before you prepare a relief claim.

What makes a debt eligible?

An actual write-off, a waiting period and a set of conditions, all met together. The Tax Department's bad-debt guidance requires an actual write-off and the prescribed records. A provision for an expected loss, or a note that an invoice is doubtful, doesn't count as the write-off on its own.

The Department's guidance sets a waiting period of twelve months, starting on the transaction date. Check every condition together: that the VAT was accounted for and paid, that the debt is still unpaid, and that you took the required steps to recover it. Age alone isn't enough.

Keep the contract and payment terms to hand too. They show when payment fell due, which matters when you check the claim deadline separately.

Build the claim around the invoice

Keep a record for each debt, not one unexplained amount at year end.

The official guidance calls for a dedicated bad-debt record with the invoice and tax details. A company's write-offs should go through the profit and loss account. Keep this record in line with the general ledger.

How do partial payments affect the calculation?

You 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 the payments relate to the supply.

Say an invoice totals €1,190, including €190 VAT. Half has been paid and allocated proportionately to that invoice, which leaves €595 unpaid. The VAT in that unpaid half is €95. On these assumed facts, €95 is the amount to assess for relief, before you check every other condition.

If the customer has several invoices, a dispute over how payments were allocated can change the answer. Document the allocation. Don't pick whichever invoice gives the biggest claim.

Where and when is the claim made?

In box 4 of the VAT return, for the period in which you make the bad-debt entry. The Department explains that qualifying relief is entered in box 4 for the period in which the required bad-debt account entry is made. The claim limit is four years, counted from the later of the payment-due date and the transaction date. Check the dates and the current instructions before you submit.

If the customer is a taxable person, meaning someone registered or required to register for VAT, the Department requires written notice within seven days of submitting the claim, with the prescribed information. Keep the notice with the claim evidence. The Department's bad-debt leaflet also explains the rules for payments that arrive later.

Relief is a different process from correcting an invoice that was wrong when you issued it. If the original VAT treatment was wrong, use the VAT-correction guide to frame that review. Don't issue a credit note just to make a valid unpaid sale disappear.

What if the customer pays later?

You adjust the relief. Flag the debt once you've claimed relief, so a later payment reaches whoever prepares the VAT return. The relief must then be adjusted for the recovery under the rules that apply. Reconcile the amount recovered, the earlier claim and the VAT adjustment that results.

Keep the original debt visible in the history, even after the write-off. Otherwise a surprise payment can be posted as unrelated income, and the earlier VAT relief gets missed.

How Sumly helps with unpaid invoices

Sumly links sales invoices to receipts and the bank reconciliation, which shows the balance that's really 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. The correspondence shows how you tried to recover the money and why you're considering a write-off. A person reviews the claim before it's submitted, and the agreed work should cover how later payments will be handled.

Common questions