The UAE Ministry of Finance has issued two significant legislative updates effective January 1, 2026, reshaping how businesses manage VAT compliance and handle tax refunds. Federal Decree-Law No. 16 of 2025 (VAT Law) and Federal Decree-Law No. 17 of 2025 (Tax Procedures Law) introduce sweeping changes designed to simplify compliance in some areas while tightening oversight in others.
Key Changes
VAT Law amendments focus on streamlining administrative processes. Self-invoicing is no longer required for imports of goods and services used for business purposes, reducing paperwork for companies involved in cross-border transactions. However, businesses face a critical new deadline: excess recoverable input tax can now only be carried forward and claimed for a maximum of five years from the end of the tax period in which it arose. Any balance remaining after this period cannot be offset or refunded.
Tax Procedures Law amendments significantly reshape refund and audit timelines. Refund claims must now be submitted within five years of the relevant tax period. The FTA can offset excess input tax credits against tax or penalty obligations within this same five-year window. For refunds requested in the fifth year of the statute of limitations period, the FTA gains an additional two years to audit the claim. Notably, voluntary disclosure will no longer be mandatory for all errors; the FTA will specify which cases require it.
Transitional relief provides some breathing room: businesses whose five-year refund claims period has already expired or will expire within one year of January 1, 2026 can still claim outstanding refunds until December 31, 2026—effectively giving businesses until end of this year to recover VAT for years 2018–2020 and earlier periods.
What this means
- Act now on old refunds: If your business has unclaimed excess VAT from prior years, submit refund requests or offset claims before December 31, 2026, or lose the right permanently.
- Tighten supplier verification: New anti-tax-evasion provisions mean input tax deductions will be denied if supplies are linked to tax evasion in the chain—even if you "should have known." Implement robust supplier due diligence processes.
- Update compliance calendars: The five-year hard deadline for excess recoverable tax and refunds requires new tracking systems and internal controls. Review your monthly qualifying and non-qualifying revenue splits to ensure compliance with all thresholds.