UAE VAT Law Changes 2026: What Every Business Needs to Know

Muhammed Nihal K C
Accounts Analyst

12-Dec-2025

The UAE tax landscape is evolving once again. With the recent issuance of Federal Decree-Law No. 16 of 2025 and Federal Decree-Law No. 17 of 2025, significant amendments are coming to both the VAT Law and Tax Procedures Law. Effective from 1 January 2026, these changes introduce stricter deadlines, simplified processes, and enhanced compliance requirements that will impact businesses across all sectors.

Why These Changes Matter

The UAE is entering a new phase of tax system maturity. After years of implementation, the focus is shifting toward streamlined processes, stronger enforcement, and clearer deadlines. Businesses that prepare early will avoid losing refunds, prevent penalties, and reduce audit risks.

Key Changes Coming into Effect in 2026

A. Standardized 5-Year Deadlines

A unified 5-year rule now applies across multiple VAT-related actions:

• Excess VAT Recovery:

Recoverable input tax can be carried forward only for 5 years from the end of the tax period. After 5 years, the right to recover expires.

• VAT Refund Claims:

All refund requests must be submitted within 5 years from the end of the relevant period.

• FTA Audit Window:

The FTA will generally have 5 years to conduct audits and issue assessments.

These timelines provide clarity—however, they also require disciplined tracking of older VAT balances.

B. Simplified Compliance Processes

The amendments aim to reduce unnecessary administrative work:

• Reverse Charge Simplified:

You no longer need to issue a tax invoice to yourself for imported goods or services used for your business.

• Error Correction Made Easier:

Voluntary Disclosure is no longer required for every mistake.

Many errors can now be corrected directly in the next VAT return—saving time and reducing formalities.

C. Enhanced Supply Chain Due Diligence

Businesses must now strengthen their supplier verification processes:

• The FTA may deny input tax if the supply is connected to tax evasion—even if your business had no knowledge.

• You must prove that you performed due diligence on your suppliers.

This shifts responsibility toward stronger internal controls and supply chain oversight.

D. Transitional Relief for Older VAT Periods

Good news for businesses with unresolved early-year VAT issues:

• For VAT periods 2018–2020, refund claims can still be submitted until 31 December 2026.

• This is the final chance to recover VAT from the early implementation years.

What Businesses Should Do Now

Immediate Actions:

• Review Historical VAT Balances:

Check for input tax amounts nearing the 5-year limit.

• File Pending Refunds:

Submit refund claims—especially those from 2018–2020—before the extended deadline.

• Strengthen Supplier Verification:

Implement due diligence steps to avoid denied input tax.

The 2026 UAE VAT amendments mark a shift toward a more mature, efficient, and compliance-focused tax environment. While some processes have been simplified, the responsibility for due diligence and timely action has increased.

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