Picture for illustrative purposes only. ARCHIVE

The UAE will introduce major changes to its Value Added Tax (VAT) system starting January 1, 2026, after the Ministry of Finance issued a Federal Decree law amending key provisions of the country’s VAT law. The ministry said the changes are part of ongoing efforts to “enhance transparency, reduce administrative burdens, and ensure a fair and efficient tax environment” as the VAT system enters its ninth year. One of the biggest changes is the removal of the requirement for businesses to issue self-invoices when using the reverse charge mechanism. Instead, companies will only need to keep supporting documents for such transactions, simplifying the process and reducing paperwork. Another major update is the introduction of a clear five-year deadline for reclaiming any excess refundable tax. Once the five-year period passes, the right to request a refund expires. The ministry said this prevents old balances from accumulating and aligns the UAE with international refund practices. Businesses will still be allowed to request refunds in certain late cases — such as when the credit arises within the final 90 days of the deadline — giving taxpayers more flexibility while keeping the process structured. In an effort to strengthen enforcement, the amendments give the Federal Tax Authority (FTA) the power to deny input tax deductions if it determines that the supply was part of a tax-evasion arrangement. Taxpayers will now be responsible for verifying the legitimacy of their transactions before claiming input tax. According to the ministry, this approach “reinforces shared responsibility and safeguards public revenue.” The amendments also expand the limitation period, allowing the FTA to carry out audits or issue tax assessments in specific cases even after the deadline has expired, such as when refund requests are submitted in the final year of the limitation period. The FTA will also be allowed to issue binding instructions to clarify how tax laws apply to specific transactions. Authorities said this will unify interpretation across taxpayers and reduce inconsistent practices. Transitional rules have also been introduced. Taxpayers with credit balances whose five-year window has already expired—or will expire within one year from January 1, 2026—may submit a refund request within the first year of 2026. They may also file a voluntary disclosure within two years of the request if no decision has been issued. The Ministry of Finance said the reforms reflect the UAE’s commitment to developing a modern tax system that supports economic growth. “These amendments enhance trust, strengthen transparency, and reduce administrative burdens, thereby supporting sustainable public revenues and promoting economic competitiveness,” it said. ICA/Expat Media
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