Bad debts – when can you recover the VAT?
You can correct the VAT once the debt is finally established as lost because the customer cannot pay. An unwillingness to pay or a contractual dispute is not enough. The correction goes in the VAT return for the period in which the loss is finally established. From 1 January 2026 the right to correct falls away for debts owed by related parties that have been outstanding for more than 24 months.
The conditions in section 4-7 of the VAT Act
When you invoice a customer with VAT, the output VAT normally has to be reported even though the customer has not yet paid. Where the customer later cannot pay and the debt is actually lost, the business can on certain conditions correct the VAT previously reported to the state. Section 4-7 of the VAT Act requires there to be an outstanding debt, output VAT to have been calculated on it, the debt to be finally established as lost, and the loss to be due to the customer's inability to pay.
When is a debt treated as finally lost?
A debt can be treated as lost where, among other things: 1. Debt collection or enforcement has been unsuccessful. 2. At least six months have passed since the due date, the customer has been reminded at least three times and normal collection has been carried out. 3. Bankruptcy, debt negotiation or winding up makes it clear the claim will not be met. 4. It is otherwise entirely clear that the debt cannot be paid because of the debtor's inability to pay.
An old invoice is not automatically a VAT loss
An unwillingness to pay or a contractual dispute is not the same as an inability to pay. A customer who can pay but refuses because the parties disagree about the delivery gives no basis for correcting the VAT. There it is the dispute that has to be resolved.
A price reduction is something else
Where the customer is not to pay the whole invoice because the parties have agreed a genuine price reduction, the seller normally issues a credit note. That is a different transaction from a loss, and it is treated differently in the accounts and in the VAT return.
A new rule from 2026 for related-party debts
From 1 January 2026 a specific rule applies to related parties. Where the trade receivable is owed by a related party, the right to correct the VAT falls away once the debt has been outstanding for more than 24 months. The regulations mainly use 90% ownership as the threshold. The 24-month limit applies to VAT calculated for VAT periods from 2026. For groups with intra-group supplies that means balances have to be actively followed up – not merely recorded.
Do not let a trade receivable become a hidden loan
Where a company keeps supplying a related company that does not pay, without the normal reminders, security or the steps an independent creditor would have required, the debt can in reality be treated as financing assistance. It is then no longer a bad trade debt, and the VAT cannot be corrected. Documented, normal collection against related parties too is therefore not a formality.
How is the VAT corrected?
The correction goes in the VAT return for the period in which the loss is finally established – not in the period the invoice was issued. Skatteetaten handles this technically as an increase in input VAT. Example: a business has invoiced NOK 100,000 + NOK 25,000 VAT = NOK 125,000. The customer goes bankrupt and the trustee confirms that unsecured creditors will receive nothing. The business can then, where the conditions are met, correct NOK 25,000 of VAT.
Document the collection effort
Relevant documentation can include the invoice, reminders, correspondence, debt collection reports, enforcement proceedings, credit information, the opening of bankruptcy and the trustee's report. It is the collection effort that has to be documented, not only the loss. See also Served with a bankruptcy petition where it is the customer going bankrupt.
What if the customer pays later?
Then the VAT element of the amount received has to be reported and paid back to the state. A correction is therefore not final until the matter is. Where the business receives a dividend from a bankruptcy estate two years later, the VAT element of that payment goes into the VAT return. Where the business is itself to be wound up, bad debts form part of the closing settlement – see VAT on winding up and bankruptcy When customers do not pay, we can assess the loss, document it and handle the VAT treatment.
Read more
This is general guidance, not advice on your specific case. Deadlines, rates and amounts change – always check the current rules, or get in touch with us.
More on value added tax
- VAT registration – when does a business have to register?
- VAT deductions – what can you reclaim?
- VAT on services to and from abroad – how do you invoice correctly?
- VAT on imported goods – how it works
- The VAT adjustment rules for real property – how do they work?
- Voluntary VAT registration for letting property – when is it possible?
- VAT exemptions for health, education and culture – what applies?
- VAT periods and deadlines – when is the VAT return due?
- The annual VAT return – when can you apply for an annual period?
- VAT on winding up and bankruptcy – what has to be settled?
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