The UAE has implemented significant amendments to its VAT law through Federal Decree-Law No. 16 of 2025, which took effect on January 1, 2026. These changes simplify some procedures while introducing stricter compliance requirements—particularly around supplier scrutiny and VAT credit management.
The main changes
Simpler reverse-charge filing
Businesses no longer need to issue self-invoices for imports of goods and services under the reverse charge mechanism, reducing administrative burden and paperwork.
Five-year limit on VAT credits
Excess input VAT can no longer be carried forward indefinitely. Businesses now have a maximum of five years from the end of a tax period to claim refunds or offset credits. This transforms VAT credit management into a time-sensitive priority.
Stricter supplier due diligence
The FTA can now deny input tax deductions if a supply is part of a chain linked to tax evasion—even if you weren't directly involved. Businesses are expected to verify the legitimacy of suppliers and invoice integrity before claiming input tax. "Failure to do so may result in permanent loss of input VAT recovery," even where VAT was charged and paid.
Clearer correction rules
Voluntary disclosure is no longer mandatory for all errors. Non-specified errors can now be corrected via a revised tax return, providing more flexibility for minor corrections.
Transitional relief for older credits
Businesses with VAT balances from 2018–2020 have until December 31, 2026 to submit refund claims. After this date, the right to recover these amounts expires permanently.
What this means
- Act on old balances now: Review all historical VAT refund positions and credit balances immediately. Prioritize claims from 2021 onwards, as these will begin to lapse during 2026.
- Strengthen supplier controls: Implement documented supplier due diligence and invoice verification processes. With e-invoicing on the horizon, now is the time to overhaul your accounts payable processes and safeguard your input tax recovery.
- Track VAT credits by period: Monitor excess VAT balances by originating tax period to ensure refund applications or offsets are submitted before the five-year deadline. Missing this deadline means permanent loss of the credit.