Updates to UAE VAT Law and UAE Tax Procedures Law effective from 1st January 2026

Background

The Ministry of Finance has announced on 25th November 2025, the issuance of Federal Decree-Law No. 16 of 2025 amending certain provisions of Federal Decree-Law No. 8 of 2017 on Value Added Tax. The Ministry has also announced on 25th November 2025, the issuance of Federal Decree-Law No. 17 of 2025 amending certain provisions of Federal Decree-Law No. 28 of 2022 on Tax Procedures.

These updates will be effective from January 1, 2026.

Updates to UAE VAT Law

No need to issue self-invoice under RCM – Article 48 (1)

The amendments stipulate that taxable persons are relieved from issuing self-invoices when they import goods or services for business purposes under the reverse charge mechanism, while requiring them to retain supporting documents related to supply transactions, as specified by the Executive Regulation.

This not only enhances administrative efficiency but also reduces procedural burdens.

Five year Time Limit for claiming Refund – Article 74 (3)

The amendments also introduce a five-year time limit for submitting requests to claim any excess recoverable input tax after reconciliation has taken place. Once this period has elapsed, the right to offset or claim refund of the tax expires.

Taxpayers are required to review all excess input tax balances and ensure that any unclaimed amounts are either utilized to adjust VAT liabilities or submitted for refund within the five-year period to avoid lapse of input tax.

Stricter tax compliance – Article 54

The amendments authorise the Federal Tax Authority (FTA) to deny the deduction of input tax if it determines that the supply forms part of a tax-evasion arrangement and the taxpayer knew or should have known of the connection.

The tax authority will disallow input tax deductions if the supply forms part of a chain linked to tax evasion and the taxpayer was aware of this connection when claiming the deduction.

The tax authority may also disallow deductions if, based on the circumstances of the supply, the taxpayer ought to have been aware of the connection to tax evasion.

A Taxpayer will be deemed aware, if he did not sufficiently verify the legitimacy and integrity of supplies before claiming input tax, in line with the procedures and measures set out by the FTA. This approach reinforces shared responsibility, strengthens governance across the supply chain and safeguards public revenue.

Updates to UAE Tax Procedures Law

Determination of Payable Tax – Article 9(3)

A maximum of five-year period from the end of the relevant period is now allowed for the FTA to allocate credit balance or overpayments against liabilities of the taxpayer.

Voluntary Disclosure – Article 10(5)

Voluntary Disclosure is required for errors or omissions that are specified by the FTA. In other cases, errors can be corrected in subsequent returns.

Tax Refund – Article 38

Clause 1: Taxpayers may submit a refund request for credit balances with the tax authority, provided the balance exceeds any tax due and administrative penalties.

Clause 2: Refund application for input tax credit balances must be filed within five years from the end of the tax period in which the balance arises.

Clause 3: If a credit balance arises from an FTA decision made after the five-year period or during the last 90 days of that period, taxpayers may submit a refund application within one year from the date the credit balance arose.

Clause 4: If a credit balance arises in any other case after the five-year period or during the last 90 days of that period, taxpayers may submit an application within 90 days from the date the credit balance arose.

Clause 5: The FTA is required to review refund requests and notify taxpayers of its decision, either accepting or rejecting the request.

Clause 6: If a refund request is not submitted within the specified timelines specified, the taxpayer’s right to claim the refund of any overpaid tax or credit balance expires.

Status of Limitation – Article 46

Clause 1: FTA may not conduct tax audit or issue a tax assessment after the expiration of five years from the end of the relevant Tax Period except in specified cases.

Clause 4: If a taxpayer submits a refund claim in the fifth year following the end of the relevant tax period, the tax authority may conduct an audit or issue an assessment related to that claim after five years from the end of the relevant period. However, the audit or assessment must be completed within two years from the date of submission of the refund claim.

Clause 6: Voluntary Disclosure may be submitted after the expiration of five years from the end of the relevant Tax Period if the Voluntary Disclosure is related to a refund application for which the Authority has not yet issued a decision.

Issue of directives - Article 54 (Bis)

The FTA is granted formal authority to issue directives on application of Tax Procedures Law.

Additional Provisions – Article 3

Taxpayer eligible for a tax refund or credit balance, whose five-year claim period has already expired, may submit an application to the Authority or utilise it in payment of Tax liabilities provided the application is submitted within one year from the effective date of the Decree-Law.

Summary

The Ministry of Finance of UAE emphasised that these amendments support the UAE’s ongoing efforts to align the tax system with international standards, ensure a fair and transparent compliance environment and promote both financial and administrative efficiency.