18 December 2025
UAE announces amendments to VAT Law effective 1 January 2026
Background
The UAE has introduced a number of important amendments to its VAT framework through Federal Decree-Law No. (16) of 2025, which amends Federal Decree-Law No. (8) of 2017 on Value Added Tax (UAE VAT Law). These changes apply from 1 January 2026.
Removal of self-invoicing obligation
The VAT Law continues to treat a taxable person importing “concerned goods” or “concerned services” for business purposes as making a taxable supply to itself under the reverse charge mechanism (RCM), and therefore responsible for accounting for the VAT due.
From 1 January 2026, taxpayers will no longer be required to issue a tax invoice to themselves for these imports under the RCM.
Denial of input VAT recovery linked to tax evasion
Under the new rules, the Federal Tax Authority (FTA) must deny input VAT recovery where a supply was part of a supply, or chain of supplies, connected to tax evasion and the recipient knew this at the time of claiming input VAT. Moreover, the FTA may also deny recovery where the recipient should have known, based on the circumstances, that the transaction was improperly treated for VAT purposes. This partially shifts some of the VAT compliance burden to the recipient of goods or services.
This change is particularly relevant in situations where VAT is charged and collected by a supplier, but should not have been charged, and where that VAT is not properly accounted for to the FTA, resulting in VAT loss. A common example is where the reverse charge mechanism should have applied, yet the supplier incorrectly charges VAT and fails to remit it. In such cases, the transaction may form part of a chain connected to tax evasion, and the recipient may no longer be able to rely solely on the fact that VAT was invoiced. If, based on the nature of the supply and the parties involved, the recipient should have recognized that the reverse charge applied, the FTA may deny input VAT recovery.
Similar considerations may arise where VAT is charged on exempt, zero-rated, or out-of-scope supplies in circumstances that give rise to VAT leakage, or where VAT is charged by a supplier that is not properly VAT-registered and therefore not entitled to charge VAT. In these cases, accepting VAT-charged invoices at face value may expose the recipient to risk if the surrounding facts indicate a connection to tax evasion and the recipient should reasonably have identified the issue.
The same risk can arise where VAT is charged on supplies that are outside the scope of UAE VAT, for example because the place of supply is outside the UAE, or where VAT is charged by a supplier that is not properly VAT-registered. In these cases, accepting VAT-charged invoices at face value may no longer be sufficient if the surrounding facts indicate that VAT treatment is incorrect.
Failure to question or verify VAT treatment where it reasonably should have been challenged may result in the denial of input VAT recovery, even where VAT was charged and paid to the supplier.
Time limit on carrying forward excess input VAT
Another important amendment concerns the treatment of excess recoverable VAT. Under the previous rules, excess input VAT that was not refunded could be carried forward indefinitely to future tax periods. From 1 January 2026, this will no longer be possible.
Under the amended Article 74(3), excess recoverable VAT may be carried forward for a maximum period of five years from the end of the tax period in which the excess arose. If, before the expiry of that five-year period, the excess is neither used to offset VAT liabilities nor the subject of a refund request, the right to recover the excess VAT lapses and it may no longer be used to settle any VAT liabilities.
Importantly, it is the submission of a refund request, or the use of the excess to offset VAT liabilities, that preserves the recovery right. According to our reading, the refund does not need to be processed or paid within the five-year period, provided the request is submitted in time.
As a result, businesses will need to actively monitor VAT credit balances by originating tax period and ensure that appropriate action is taken before the relevant deadlines. In particular, VAT credits arising in early 2021 should be reviewed as a priority, as the five-year carry-forward period for those credits will begin to expire during 2026.
VAT statute of limitation repealed
As part of the amendments, the UAE VAT Law no longer contains a standalone provision governing statutes of limitation for VAT purposes. The article that previously set out the time limits for tax audits, assessments, and related actions under the VAT Law has been formally repealed.
This change does not remove limitation periods for VAT matters. Rather, it reflects a legislative decision to address limitation rules through the UAE’s broader tax procedures framework, instead of duplicating those rules within the UAE VAT Law itself. As a result, limitation periods applicable to VAT are now determined by reference to the general tax procedures legislation and its implementing regulations.
From a practical perspective, this reinforces the need for businesses to consider VAT obligations within the wider UAE tax procedural context, particularly in relation to audit exposure, record-keeping, and dispute timelines, rather than viewing VAT limitation rules in isolation.
Key takeaway
While the amendments to the UAE VAT Law introduce several technical changes, two developments are likely to have the most significant practical impact on businesses.
First, the new rules on the denial of input VAT recovery materially change the VAT risk profile for recipients of goods and services. Businesses are now expected to apply a reasonable level of scrutiny to the VAT treatment adopted by their suppliers and to recognize situations where the supplier may be involved in tax evasion. Failure to do so may result in the permanent loss of input VAT recovery, even where VAT was charged and paid.
Second, the introduction of a five-year time limit on carrying forward excess input VAT transforms VAT credit management into a time-sensitive exercise. Excess VAT balances can no longer be left unmonitored indefinitely.
Businesses must track VAT credits by originating tax period and ensure that refund applications are submitted, or credits are used to offset VAT liabilities, before the relevant five-year deadline. In practice, VAT credits arising in 2021 should be reviewed as a priority, as those balances will begin to lapse during 2026 if no action is taken.