The UAE Ministry of Finance has implemented amendments to the Tax Procedures Law (Federal Decree-Law No. 17 of 2025) effective 1 January 2026, introducing stricter rules on VAT credit management and expanding the Federal Tax Authority's enforcement capabilities.
The most significant change affects VAT credit balances: taxpayers now have a maximum of five years from the end of the relevant tax period to request a refund or use the balance to settle tax liabilities. This means credits from 2021 onwards will begin expiring in 2026. The law offers limited flexibility—businesses can request refunds within 90 days before the five-year deadline expires, even if no credit existed during that period.
The Authority has also gained new powers to conduct audits and issue assessments beyond the standard limitation period in specific cases, particularly when refund requests are submitted in the final year of the limitation period. This is balanced with taxpayer protections: the law now grants the FTA power to issue official directions that standardise how tax legislation is interpreted and applied, reducing uncertainty and inconsistency across cases.
Critically, the law includes a one-year transition window for taxpayers with expired or expiring credit balances. Those whose five-year period elapsed before 1 January 2026 or will expire within one year of that date can submit refund requests until 31 December 2026. Voluntary disclosures related to these requests are permitted within two years from the filing date if the Authority has not yet decided.
What this means
- Audit your VAT records now. Review credit balances from 2021 and earlier. If you have unused credits nearing or past the five-year mark, apply for refunds before the deadline expires to avoid losing them permanently.
- Tighten compliance processes. The FTA's enhanced audit and assessment powers mean the Authority can now look back beyond the standard limitation period in specific circumstances. Ensure your tax filings and supporting documentation are accurate and retained for full auditability.
- Use the transition period strategically. If your credits qualify under the transitional rules, submit refund requests and any supporting voluntary disclosures within 2026 to take advantage of the one-year grace period before standard rules apply.