The UAE’s VAT regime undergoes significant amendments effective 1 January 2026, under Federal Decree Law No. (16) of 2025 amending the UAE VAT Law (Federal Decree Law No. 8 of 2017) and Federal Decree Law No. (17) of 2025 amending the Tax Procedures Law (Federal Decree Law No. 28 of 2022). These changes include
1. a five-year limitation period for VAT refund claims,
2. updated documentation requirements, and
3. enhanced compliance measures designed to improve tax administration and provide greater certainty for businesses.
The update will impact VAT recovery timelines and compliance obligations, with important implications for cash flow management and compliance under FTA audit.
This article outlines the VAT law changes effective January 2026 and their implications for UAE-registered businesses.
Legislative Basis for the VAT Amendments
The updates arise from Federal Decree-Law No. (16) of 2025, issued by the UAE Ministry of Finance, which amends selected provisions of the VAT Law and aligns them with the updated Tax Procedures framework.
The objective of the amendments is to:
- Prevent indefinite carry-forward of VAT credit balances
- Improve administrative clarity
- Strengthen enforcement and audit controls
- Align UAE VAT practices with international standards
Introduction of a Five-Year Limitation Period for VAT Refund Claims
Effective 1 January 2026, a five-year statutory limitation period applies to VAT refund claims.
A taxable person must submit a refund request or utilise excess VAT credit within five years from the end of the tax period in which the credit arose. Once this period expires, the right to recover the VAT amount lapses permanently.
This marks a significant change from the previous position, where VAT credits could be carried forward without a defined recovery deadline.
Transitional Provisions for Existing VAT Credit Balances
To address VAT credits generated before the effective date, the law includes transitional measures.
Where the five-year limitation period:
- Has already expired before 1 January 2026, or
- Will expire within one year from that date
Businesses are generally granted a one-year refund request starting 1 January 2026 to submit refund claims or apply credits against VAT liabilities.
Credits not claimed or utilised within this transitional period will no longer be recoverable.
Practical Operation of the Limitation Rule
Each VAT credit balance will now carry a fixed expiry date based on the tax period in which it was incurred. The rule applies to all recoverable VAT, including VAT on purchases, zero-rated supplies, and capital expenditure.
Understanding the expiry timeline allows businesses to prioritise refund claims and avoid unintended forfeiture of VAT credits.
Enhanced Compliance and Review Controls
The amendments also reinforce the Federal Tax Authority’s powers to review refund claims.
Claims submitted close to the expiry of the five-year period may be subject to more detailed examination. Businesses must ensure refund claims are supported by complete documentation and consistent reconciliation between VAT returns and accounting records.
In addition, the FTA may deny input tax recovery where transactions lack commercial substance or are linked to tax avoidance arrangements.
Implications for Businesses
The VAT law changes effective January 2026 increase the importance of active VAT management. Key impacts include:
- Risk of expiry of long-standing VAT credits
- Greater emphasis on timely reconciliation and monitoring
- Increased scrutiny of historic VAT claims
- Potential cash-flow impact where refunds are not claimed in time
Businesses with recurring VAT credit positions or complex transaction histories should prioritise early review.
Best Practices for VAT Documentation and Compliance
Following best practices ensures timely audit readiness and minimises the risk of penalties from the Federal Tax Authority (FTA) . As an FTA-approved Tax Agency certified under ISO 9001, ISO 27001, and ISO 42001 standards, SimplySolved recommends the following approach:
Advance Planning:
Begin reconciliations and compliance reviews well before the financial period closes to prevent last-minute discrepancies.
Record Accuracy:
Maintain complete, validated, and easily accessible documentation covering VAT transactions, accruals, gratuity obligations, and IFRS compliance.
Professional Oversight:
Engage qualified tax and audit experts to interpret evolving regulations and verify compliance measures.
Defined Responsibilities:
Assign clear accountability for each compliance task within a structured governance framework.
Ongoing Monitoring:
Utilise a compliance calendar and conduct regular internal reviews to track filing deadlines, submission milestones, and audit requirements.
Conclusion
The VAT amendments effective 1 January 2026 mark a shift to time-bound VAT recovery and stronger enforcement in the UAE. Businesses should promptly review historic VAT credits, prioritise those nearing expiry, and reinforce internal controls. Early preparation will protect recoverable VAT, safeguard cash flow, and ensure compliance under the updated framework.
About SimplySolved
As a UAE FTA Approved Tax Agency and an ISO 9001, 27001, and 42001 certified provider, SimplySolved supports businesses in managing Corporate Tax and VAT compliance.
Our approach combines practical guidance with structured compliance processes, enabling companies to efficiently manage tax procedures including VAT refund claims, documentation requirements, and audit readiness in light of recent amendments to UAE VAT regulations. By providing best practices and proactive strategies, SimplySolved helps businesses remain compliant with UAE tax regulations.
This summary is intended as a general guide and should not be relied upon as binding or specific advice regarding your tax obligations. We strongly recommend seeking professional legal and tax guidance tailored to your individual circumstances.
