UAE VAT Law & Tax Procedures Law

UAE VAT Law & Tax Procedures Law – Comprehensive Overview of Key Amendments Effective 1 January 2026

The UAE continues to strengthen its indirect tax landscape with the release of Federal Decree-Law No. 16 of 2025, introducing notable amendments to the VAT Law and aligning several procedural elements under the Tax Procedures Law (TPL).
These changes, effective 1 January 2026, reflect a clear shift toward enhanced tax transparency, stronger supply-chain controls, and stricter governance expectations for taxable persons.

Below is a detailed summary of the most significant updates, their practical implications, and the steps businesses should begin taking today to ensure readiness.

1. Reverse Charge Mechanism – Removal of Self-Issued Tax Invoices

One of the practical changes coming into effect is the removal of the requirement for taxable persons to issue self-issued tax invoices for imports of goods or services under the reverse charge mechanism (RCM).

What changes?

• Taxpayers no longer need to issue a self-tax invoice for RCM transactions.
• However, the reverse charge accounting obligation remains fully in force.
• Supporting documents remain mandatory, including:
• Import documents (customs declarations)
• Supplier invoices
• Contracts or agreements
• Evidence of receipt of the goods or services

Why it matters:

This simplifies compliance but does not reduce documentation requirements.
The FTA will continue to expect a clear audit trail to substantiate the RCM entry and the associated input VAT claim.

2. Input Tax Recoverability – Introduction of Article 54(bis)

• A major development is the introduction of Article 54(bis), which formalizes the FTA’s authority to deny input tax based on a knowledge standard aligned with global VAT anti-fraud frameworks.

Key features of the new provision:

a) Actual Knowledge

• Input tax must be denied where the taxable person knew that the supply was connected to VAT evasion.

b) Constructive Knowledge – “Should Have Known” Test

• Even without actual knowledge, input tax may be denied where the taxable person reasonably should have known—i.e., failed to take adequate steps to verify the legitimacy of the transaction.

c) Expected Due Diligence

• Businesses are now expected to carry out structured and documented checks, including:

• Verifying supplier TRN validity
• Confirming the accuracy of tax invoices
• Assessing commercial substance and pricing logic
• Checking the supplier’s business profile and legitimacy
• Ensuring the transaction aligns with the economic activity declared

Implications for businesses:

Input tax recovery is now conditioned on demonstrable due diligence.

Failure to verify the transaction chain exposes businesses to:

Input tax disallowance

Administrative penalties

Audit risk and reputational impact

This marks a significant tightening of compliance expectations and requires an immediate strengthening of procurement and AP controls.

3. VAT Refunds & Excess Recoverable Tax – Introduction of the 5-Year Time Limit

• The amended Article 74 introduces a firm deadline for recovering excess recoverable input tax.

What the law now states:

• Excess input tax may be carried forward or refunded,
• BUT only for a maximum of 5 years from the end of the relevant Tax Period.
• After 5 years:
• The amount cannot be refunded,
• Cannot be applied against future tax liabilities,
• And is permanently forfeited.

Why this is important:

This is a newly introduced rule effective 1 January 2026 and is one of the most financially significant amendments for businesses.

Practical implications:

• Businesses must now actively monitor VAT credit positions.
• Long-standing recoverable balances can no longer be ignored or allowed to accumulate indefinitely.
• Refund strategies and timing will need to be reviewed to avoid losing entitlements.

This calls for implementing an internal VAT refund aging schedule and strengthening tax governance.

4. Statute of Limitations – Article 79(bis) Cancelled

The 2025 amendments remove Article 79(bis), which previously defined the statutory time limits for:

• VAT audits
• Tax assessments
• Voluntary disclosures

What this means in practice:

• The clear 5-year audit window previously referenced in many discussions is no longer codified in the VAT Law.
• The FTA may rely instead on the overarching Tax Procedures Law and its amendments, which provides broader flexibility.
• Businesses should assume longer potential audit horizons, especially for cases linked to non-compliance or evasion indicators.

Action required:

• Extend internal record retention periods.
• Ensure strong documentation for Input Tax recovery, RCM transactions, and refund claims.
• Maintain a more conservative, audit-ready approach to VAT compliance.

The UAE’s 2025 amendments represent a pivotal shift toward a more robust VAT compliance environment.
Businesses with proactive governance, documented controls, and disciplined VAT management will be best positioned to navigate these changes without disruption.

As 1 January 2026 approaches, organizations should review their VAT frameworks holistically ensuring they not only comply with the updated law but also safeguard Input Tax entitlements and mitigate audit exposure.