The UAE has introduced various amendments to its existing VAT Law and related tax procedures. These changes show the country’s navigation towards modernizing its tax system and aligning it with global practices. The amendments were brought in through Federal Decree Law No. 16 of 2025 (updating the VAT Law) and Federal Decree Law No. 17 of 2025 (amending the Tax Procedures Law).
Highlights of the VAT law amendments:
- Article 48 – Reverse Charge
Earlier Position:
The previous VAT law provided that when a UAE business applied the reverse charge mechanism, the taxable person was required to issue a self-invoice for the import of goods or services.
Amendment:
Taxable persons are not required to issue a self-invoice when applying the reverse charge mechanism for imports used in the business. Instead, they must retain valid supporting documents such as supplier invoices, contracts, import documentation, etc to validate the transaction for VAT purposes.
- Article 54 – Recoverable Input Tax
This article was inserted regarding the recoverability of input tax in cases of tax evasion. Key considerations are-
- The input tax deductions shall be disallowed if the supply forms part of tax evasion and the taxpayer was aware of its connection.
- The input tax deductions shall be disallowed, based on the circumstances that the taxpayer should have been aware of its connection.
- Taxpayer will be considered as aware if they fail to verify the validity and integrity of received supplies before claiming input tax.
Many input tax claims are denied due to common VAT return filing mistakes, which businesses must now avoid under stricter recovery rules.
- Article 74 – Excess Recoverable Tax
Earlier Position:
Previously, this article allowed businesses to carry forward and reclaim excess input tax without any specific time limit.
Amendment:
A five-year limitation period has now been introduced for utilising or reclaiming excess recoverable input tax. The five-year period will be calculated from the end of the tax period in which the excess input tax arose. Once this period expires, the taxpayer’s right to utilise, set off, or claim a refund of the excess tax will lapse.
Taxpayers whose five-year refund period has already expired, or will expire within one year from 1 January 2026, can still apply for a refund until 1 January 2027. This option is available under the transitional rule introduced in the amended Tax Procedures Law.
Businesses should review their VAT registration and return filing in the UAE to ensure alignment with the latest legislative changes.
4. Article 79 – Statute of Limitation
This article has been cancelled. The limitation period related to excess input tax is now governed under the Tax Procedures Law effective from 1st January 2026.
Highlights of the Tax Procedure amendments:
- Article 9 – Determination of Payable Tax
Earlier Position:
Previously, overpayments or tax credits could be allocated without any specific time limit.
Amendment:
The tax authority may now apply credits or overpayments within a maximum period of five years from the end of the relevant tax period.
- Article 10 – Voluntary Disclosure
Voluntary Disclosures may now be filed only in the specific situations defined by the tax authority. In all other cases, errors can be corrected directly through the tax return.
3. Article 38 – Application for Refund of Credit Balance (Full provision post amendment)
- Clause 1: A refund application could be submitted when the credit balance is more than the tax payable and any administrative penalties.
- Clause 2: The refund application must be submitted within five years from the end of the relevant tax period in which the balance arises.
- Clause 3: Exception to Clause 2: If the credit balance arises from tax authority’s decision issued after the five-year period or during the last ninety days of the limitation period, the refund application can be submitted within one year from the date the credit arises.
- Clause 4: For credits arising after the five-year period or during the last ninety days in any other case, the refund application may be submitted within ninety days from the date the credit arises.
- Clause 5: The tax authority is obligated to review and notify the taxpayer of its decision, either accepting or rejecting the refund request.
- Clause 6: The right to claim the refund lapses if no application is submitted within the prescribed time limits.
4. Article 46 – Statute of Limitation (Full provision post amendment)
- Clause 1: The tax authority cannot conduct a tax audit or issue tax assessments after five years from the end of the relevant tax period unless an exception applies.
- Clause 2: If the tax authority notified the taxpayer of an audit before the five-year period ended, it may continue the audit or issue an assessment after five years. However, the audit/assessment must be completed within four years from the date of notification.
- Clause 3: If the taxpayer files a Voluntary Disclosure during the fifth year after the end of the tax period, the tax authority may continue the audit or issue an assessment beyond five years, but it must be completed within one year from the disclosure date.
- Clause 4: If a refund application is filed during the fifth year after the end of the tax period, the tax authority may continue the audit or issue an assessment beyond five years. However, it must be completed within two years from the submission date.
- Clause 5: The Cabinet, upon the Minister’s proposal, may issue a decision to adjust the time limits under Clauses 2, 3, or 4.
- Clause 6: Voluntary Disclosures cannot be filed after five years from the end of the relevant tax period.
- Clause 7: For cases involving tax evasion, the tax authority may audit or assess up to fifteen years after the end of the tax period in which the evasion occurred.
- Clause 8: If a person failed to register for tax when required, the tax authority may audit or assess up to fifteen years from the date they should have registered.
- Clause 9: The statute of limitation can be interrupted (pausing the clock) for reasons defined under the UAE Civil Transactions Law or other federal laws.
- Article 54 – The tax authority may issue binding decisions regarding the implementation of the Federal Decree-Law and Tax Laws, which shall be enforceable on both the authority and the taxpayer.
- Article 3 – Transitional Provisions
- A taxpayer who is eligible for refund of tax or credit balance, where the five-year period from the relevant tax period has already lapsed before 1st January 2026, can still submit application for refund within one year from date of effective of these provisions (i.e., 1st January 2027).
- The taxpayer may file a Voluntary Disclosure within two years from the date of the refund request (as above) if the tax authority has not yet issued a decision on that refund application.
- The Tax Authority is permitted to audit or issue an assessment relating to these transitional refund/credit allocation applications even beyond the standard limitation period. However, such audit or assessment is initiated within two years from the date of submission of the refund or credit application.
With the recent amendments and growing complexities in the VAT law, businesses need to be more cautious and vigilant. An expert consulting firm can help you save time and add real value to your business. At BCL Globiz, we understand the complexities of your operations and are committed to providing transparent solutions suited to your business model.
Connect with our experts at punith@bcl.ae
