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The VAT environment in the UAE has undergone a transformation from 1 January, 2026. With discipline and time-bound requirements, it now requires businesses to be more vigilant about deadlines. The tax regime in the UAE has been known for its flexibility around credits, refunds, and corrections. However, with the new updates coming in, organizations must be aware of the clearer audit powers, limited periods, and strict expectations around due diligence.
Since these changes directly affect the cash flow, businesses are working closely with professional VAT consultants in Dubai to adhere to the norms and manage risk.
The changes are primarily introduced through two legislative instruments: Federal Decree-Law No. 17 of 2025 (amending the Tax Procedures Law) and Federal Decree-Law No. 16 of 2025 (amending the VAT Law) Both these laws were issued late in 2025 and came into force on 1 January 2026. Together, these norms are changing how businesses need to handle VAT refunds, credit balances, voluntary disclosures, audits, and input tax recovery.
A Five-Year Window for VAT Refund Claims
One of the most significant changes is the introduction of a statutory five-year limitation period for VAT refund claims. Businesses registered for VAT now need to submit their requests within five years from the end of the tax period when the credit balance arose. If any credit remains unclaimed or applied within this period, it will expire permanently.
This change applies to excess input VAT, overpaid VAT, and refundable balances following reconciliation. Previously, credit balances could be carried forward indefinitely, which led many businesses to accumulate sizable positions over time. Under the new framework, refund planning becomes time-sensitive rather than optional.
However, there are narrowly defined exceptions. If a new credit balance arises after the five-year period has technically ended, or if a refund is related to a balance generated within the final 90 days of that five-year window, a claim may still be permitted, subject to Executive Regulation conditions. These exceptions are precise and will require careful substantiation.
Transitional Relief for Legacy Credit Balances
Recognizing that many businesses hold older credit balances, the law introduces a one-year transitional window. From 1 January 2026, taxpayers have until 31 December 2026 to submit their refund claims, in case their five-year limitation period either expired before 1 January 2026, or is likely to expire within the following year.
This transitional relief is a one-time opportunity. Businesses that fail to review historical VAT positions during this window are at risk of losing legitimate refunds with no means whatsoever to claim them later. For organizations with long operating histories or asset-heavy structures, this review should be a priority.
Extended Audit Powers for Refund-related Claims
While the general statute of limitation for VAT audits remains five years, the amendments grant the Federal Tax Authority additional authority in refund-related cases. In case a refund application is submitted in the final year of the five-year period, or under one of the exceptions, the FTA is authorized to conduct audits and issue assessments beyond the normal limitation period.
In practice, businesses should expect more intensive scrutiny of refund claims. Supporting documentation, transaction evidence and consistency across returns and underlying records will be critical. Businesses seeking reliable VAT compliance and advisory services tend to be better positioned to manage this level of review.
Voluntary Disclosures and Error Corrections
The updated rules also refine how errors are corrected. Voluntary disclosures are no longer mandatory for every mistake. If an error does not affect the amount of tax payable, it may be corrected directly in the VAT return. However, the FTA retains the authority to prescribe situations where a voluntary disclosure remains compulsory.
For refund-related cases, taxpayers may file a voluntary disclosure within two years from the date the refund claim was submitted, provided the FTA has not issued a final decision. This provides limited flexibility, but it also explains the importance of getting refund applications right the first time.
Input Tax Recovery and Supply Chain Due Diligence
Another critical amendment empowers the FTA to deny input tax deductions if a supply forms part of a tax-evasion arrangement. This applies not only where the taxable person knew about the irregularity, but also where they should have known due to insufficient verification.
This brings about a shift in responsibility across the supply chain. Checking vendors, contract reviews, and transaction documentation are now essential. Professional VAT consultants in Dubai are increasingly helping businesses devise supplier verification processes that align with the expectations of the FTA.
Reverse Charge Simplification Without Reduced Accountability
From 2026, businesses applying the reverse charge mechanism are no longer required to issue self-invoices. This removes a procedural step, but it does not reduce compliance obligations. Supporting documents related to the underlying supply must still be retained, as specified in the Executive Regulations. VAT liability and recovery positions remain unchanged.
What These VAT Compliance Changes Mean in Practice
These VAT compliance changes for UAE companies define a clear change in taxation timelines. It also marks stronger governance and higher standards of documentation. Therefore, established businesses must re-evaluate their accounting systems and internal controls. On the other hand, newer entities must engage in VAT planning from the very outset.
Some of the key actions include:
- Reviewing historical credit balances
- Strengthening record-keeping systems
- Conducting VAT health checks
- Training finance teams on the updated rules
Today, VAT advisory services are a part of core financial governance.
Professional VAT Compliance and Advisory Services
The VAT reforms of 2025 align the tax framework of the UAE with international best practices. These norms preserve the rights of taxpayers through a clear set of rules. Organizations that are proactive will succeed in protecting their cash flow and reducing their exposure to audits. This significantly eases last-minute compliance pressure.
The IMC offers professional VAT compliance and advisory services to companies in the UAE. Experienced advisors help businesses gain clarity about refunds, audits, disclosures, and ongoing compliance. Working with the tax consultants, businesses can rest assured that they remain compliant with the new set of norms in the UAE.
Krizelle Zara Briones is a Certified Public Accountant (CPA) based in the United Arab Emirates, supporting client-service engagements across accounting, taxation and auditing. She works closely with businesses on compliance and reporting requirements, with a practical, detail-focused approach aligned to current UAE tax expectations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
