The UAE has implemented significant amendments to its value-added tax (VAT) regime, effective January 1, 2026. These changes, introduced through Federal Decree-Law No. 16 of 2025, aim to simplify compliance procedures while introducing stricter enforcement measures and new deadlines that affect every registered business.
Key Changes at a Glance
Simplified Documentation and Export Procedures
Businesses no longer need to issue self-invoices when applying the reverse charge mechanism. Instead, they must retain supporting documents such as invoices or contracts. For exporters, acceptable proof of zero-rating now includes UAE customs export certificates, clearance certificates, and certified documents from destination country authorities—significantly reducing administrative burden compared to previous multi-document requirements.[1]
Critical Five-Year Refund Deadline
The most important change for cash flow: excess VAT refunds must be claimed within five years from the end of the tax period in which they arose. After this deadline, the right to reclaim VAT expires permanently. This applies to both refunds and credit carry-forwards, so businesses with outstanding claims dating back to 2021 or earlier must act immediately.[2][4]
Enhanced Compliance and Anti-Evasion Measures
The Federal Tax Authority (FTA) now has expanded powers to deny input tax deductions if a supply is linked to tax evasion—even if the taxpayer "should have known" based on circumstances. This places responsibility on businesses to verify supplier legitimacy before claiming input tax recovery. Failure to maintain proper due diligence documentation increases audit risk.[4][5]
Accommodation Expense Relief
The Dh10,000 threshold for claiming input tax on accommodation has been removed, and hotel invoices below Dh3,000 no longer require separate FTA pre-approval. This eases cash flow management, particularly for companies with frequent executive travel or expatriate assignments.[3]
Temporary Transitional Relief
Businesses with refund claims dating back to 2018–2020 have until December 31, 2026 to file outstanding applications. This one-year window provides relief for companies with historical VAT credits that would otherwise expire.[5]
What This Means
Act Now on Old Refunds: Review your VAT account statements immediately. Any unclaimed refunds or credit balances from 2021 or earlier will be permanently lost after December 31, 2026 unless claimed. Prioritize filing transitional relief requests if you have outstanding historical claims.
Audit Risk Has Increased: The FTA's expanded anti-evasion powers and extended audit windows (up to seven years in specific cases) mean stronger supplier due diligence is now essential. Document your verification process for all input tax claims and maintain a compliant supply chain.
Update Expense Policies: The removal of the accommodation threshold makes input tax recovery simpler for business travel. Finance teams should review corporate reimbursement policies to capture this benefit, particularly for relocation and expatriate packages.